4.7	NO OTHER REPRESENTATION AND WARRANTIES		33
ARTICLE V CONDUCT OF BUSINESS			34
5.1	COVENANTS OF THE COMPANY		34
5.2	CONFIDENTIALITY		37
5.3	FINANCING COMMITMENTS		37
ARTICLE VI ADDITIONAL AGREEMENTS			41
6.1	NO SOLICITATION		41
6.2	PROXY STATEMENT		45
6.3	STOCKHOLDERS MEETING		46
6.4	NASDAQ QUOTATION		47
6.5	ACCESS TO INFORMATION		47
6.6	LEGAL REQUIREMENTS		47
6.7	PUBLIC DISCLOSURE		49
6.8	INDEMNIFICATION		49
6.9	NOTIFICATION OF CERTAIN MATTERS		50
6.10	EXEMPTION FROM LIABILITY UNDER SECTION 16		51
6.11	RESIGNATIONS		51
6.12	TRANSFER TAXES		51
6.13	TAKEOVER STATUTES		51
6.14	EMPLOYEE MATTERS		51
6.15	SEC FILINGS; FINANCIAL STATEMENTS		52
6.16	COMPEX SALE		53
ARTICLE VII CONDITIONS TO MERGER			53
7.1	CONDITIONS TO EACH PARTY’S OBLIGATION TO EFFECT THE MERGER		53
7.2	ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB		53
7.3	ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY		55
ARTICLE VIII TERMINATION AND AMENDMENT			56
8.1	TERMINATION		56
8.2	EFFECT OF TERMINATION		57
8.3	FEES AND EXPENSES		58
8.4	AMENDMENT		59
8.5	EXTENSION; WAIVER		59
ARTICLE IX MISCELLANEOUS			60
9.1	SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS		60
9.2	NOTICES		60
9.3	ENTIRE AGREEMENT		61
9.4	NO THIRD PARTY BENEFICIARIES		61
9.5	ASSIGNMENT		61
9.6	SEVERABILITY		61
9.7	INTERPRETATION		62
9.8	GOVERNING LAW		62
9.9	SUBMISSION TO JURISDICTION		62
9.10	WAIVER OF JURY TRIAL		63
9.11	SPECIFIC PERFORMANCE; MAXIMUM LIABILITY; NO LIABILITY OF PARENT OR MERGER SUB		63
9.12	COUNTERPARTS AND SIGNATURE		63
EXHIBIT A		FORM OF CERTIFICATE OF INCORPORATION

 

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TABLE OF DEFINED TERMS

 

	Page
2005 10-K	16
Acquisition Proposal	44
Actions	23
Affiliate	10
Agreement	1
Alternative Acquisition Agreement	42
Antitrust Laws	48
Antitrust Order	48
Bank of America	40
Bankruptcy and Equity Exception	13
Bridge Financing	33
Business Day	2
Certificate	3
Certificate of Merger	1
Change in the Company Recommendation	42
Closing	2
Closing Date	2
Code	6
Commitment Letters	33
Company	1
Company Balance Sheet	15
Company Board	1
Company Charter Documents	9
Company Common Stock	3
Company Disclosure Schedule	7
Company Employees	25
Company Material Contract	21
Company Meeting	12
Company Permits	27
Company Plans	25
Company Preferred Stock	9
Company Recommendation	45
Company SEC Reports	14
Company Stock Option	4
Company Stock Plans	9
Company Stockholder Approval	12
Company Voting Proposal	12
Confidentiality Agreement	37
Contract	13
Controlled Group	25
Costs	49
Debt Commitment Letter	33
Debt Financings	33
DGCL	1
Dissenting Shares	6
Effective Time	1
Environmental Law	24
Equity Commitment Letter	33
ERISA	25
Exchange Act	14
Exchange Agent	4
Exchange Fund	4
Executive Officers	10
Executive Options	3
Existing Credit Agreement	40
FDA	28
Filed Company SEC Reports	16
Final Proxy Filing Date	45
First Albany	30
Foreign Benefit Plans	26
Governmental Entity	13
High Yield Debt Financing	33
HSR Act	14
Indebtedness	11
Indemnified Parties	49
Infringing	20
Insurance Cap	50
Intellectual Property	20
IRS	17
Issuer	39
knowledge of the Company	10
Leased Real Property	19
Leases	19
Liens	13
Marketing Period	2
Material Payor	27
Merger Consideration	3
Merger Sub	1
Merger Sub Disclosure Schedule	31
Note Tender Offer	39
Notes	39
Notice Period	43
Offer Documents	39
Option Consideration	4
Order	13
Outside Plan	56
Owned Real Property	19
Parent	1, 24

 

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Parent Material Adverse Effect	31
Parent Plan	52
Parent Termination Fee	59
PBGC	26
Pre–Closing Period	34
Refinancing	40
Representatives	41
Sarbanes Act	15
SEC	14
Securities Act	10
Senior Lenders	33
Solvency	33
Solvent	33
Special Committee	1
Subsidiary	11
Subsidiary Charter Documents	12
Subsidiary Guarantors	39
Superior Proposal	45
Surviving Corporation	2
Tax Returns	17
Taxes	17
Termination Fee	58
Transfer Taxes	51
Unvested Company Options	4
Voting Debt	14

 

iv

 

1.2            Closing . The closing of the Merger (the “ Closing ”) shall take place at 10:00 a.m., New York time, on a date to be specified by Merger Sub and the Company (the “ Closing Date ”), which shall be the later of (i) the third Business Day after satisfaction or waiver of the conditions set forth in Article VII (other than delivery of items to be delivered at the Closing and other than satisfaction of those conditions that by their nature are to be satisfied at the Closing, it being understood that the occurrence of the Closing shall remain subject to the delivery of such items and the satisfaction or waiver of such conditions at the Closing), and (ii) the earlier of (x) a date during the Marketing Period (as defined herein) to be specified by Parent on no less than three Business Days’ notice to the Company (which notice may be conditioned on closing of the applicable purchase agreement in connection with the High Yield Debt Financing (as defined herein) contemplated in Section 4.5(a)(iii) hereof) and (y) the final day of the Marketing Period, unless, in any case the parties hereto agree on another date in writing, at the offices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York 10017, unless another date, place or time is agreed to in writing by Merger Sub and the Company. For purposes of this Agreement, a “ Business Day ” shall be any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions located in New York, New York are permitted or required by law, executive order or governmental decree to remain closed. For purposes of this Agreement, the term “ Marketing Period ” means the period beginning on the date hereof and ending on November 30, 2006; provided , however, that such date will be advanced on a Business Day-for-Business Day basis by the number of days the filing of the preliminary proxy statement precedes the Final Proxy Filing Date.

 

1.3            Effects of the Merger . At the Effective Time, Merger Sub shall be merged with and into the Company, at which time the separate corporate existence of Merger Sub shall cease and the Company shall continue its existence as the surviving corporation. In its capacity as the corporation surviving the Merger, the Company is sometimes referred to herein as the “ Surviving Corporation ”  From and after the Effective Time, the Merger shall have the effects set forth in Section 259 of the DGCL.

 

1.4            Certificate of Incorporation . The Certificate of Merger shall provide that, at the Effective Time, the certificate of incorporation of the Surviving Corporation, as in effect immediately prior to the Effective Time, shall be amended in its entirety as of the Effective Time to read as set forth in an exhibit to the Certificate of Merger, which exhibit shall read as set forth on Exhibit A hereto until thereafter amended in accordance with the provisions thereof and as provided by applicable law.

 

1.5            By-laws . At the Effective Time, the by-laws of Merger Sub, as in effect immediately prior to the Effective Time, shall become the by-laws of the Surviving Corporation until thereafter amended as provided by applicable law, the certificate of incorporation of the Surviving Corporation and such by-laws.

 

1.6            Directors and Officers of the Surviving Corporation .

 

(a)            The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and by-laws of the Surviving Corporation.

 

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(b)            The officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and by-laws of the Surviving Corporation.

 

ARTICLE II
CONVERSION OF SECURITIES

 

2.1            Conversion of Capital Stock . As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of the capital stock of the Company or capital stock of Merger Sub:

 

(a)            Capital Stock of Merger Sub . Each share of the common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of common stock, $0.01 par value per share, of the Surviving Corporation.

 

(b)            Cancellation of Treasury Stock and Merger Sub-Owned Stock . All shares of common stock, $0.001 par value per share, of the Company (“ Company Common Stock ”) that are owned by the Company as treasury stock and any shares of Company Common Stock owned by Parent or Merger Sub immediately prior to the Effective Time shall be cancelled and shall cease to exist and no payment shall be made or consideration delivered in respect thereof.

 

(c)            Merger Consideration for Company Common Stock . Subject to Section 2.2 , each share of Company Common Stock (other than (i) shares to be cancelled in accordance with Section 2.1(b) , (ii) shares of Company Common Stock owned by any wholly-owned Subsidiary of the Company, which shall remain outstanding, and (iii) Dissenting Shares (as defined in Section 2.4(a) below)) issued and outstanding immediately prior to the Effective Time shall be automatically converted as of the Effective Time into the right to receive $6.55 in cash per share, without interest (the “ Merger Consideration ”). As of the Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of a certificate which as of immediately prior to the Effective Time represented outstanding shares of Company Common Stock (each a “ Certificate ”) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration pursuant to this Section 2.1(c) upon the surrender of such Certificate in accordance with Section 2.2 .

 

(d)            Adjustments to Merger Consideration . The Merger Consideration shall be adjusted to reflect fully the effect of any reclassification, stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Company Common Stock), reorganization, recapitalization or other like change with respect to Company Common Stock occurring (or for which a record date is established) after the date hereof and prior to the Effective Time.

 

(e)            Treatment of Stock Options . Subject to Section 2.3 , at the Effective Time, except for those options listed in Schedule 2.1(e) which are owned by the executive officers of the Company which have not been exercised at or prior to the Effective Time (the “ Executive Options ”), each option to purchase shares of Company Common Stock (each, a “ Company Stock

 

3

 

Option ”) outstanding immediately prior to the Effective Time, and not exercised, which is vested or which by its terms will become vested at the Effective Time, shall be canceled and extinguished and converted into and become a right following the Effective Time to receive from the Company an amount of cash, without interest thereon and less any required withholding taxes, equal to the excess, if any, of (i) the Merger Consideration over (ii) the exercise price per share of such Company Stock Option (such amount payable in respect of any share of Company Common Stock into which a Company Stock Option is exercisable, the “ Option Consideration ”), multiplied by the number of shares of Company Common Stock for which such Company Stock Option is exercisable immediately prior to or at the Effective Time, and all other unvested Company Options (“ Unvested Company Options ”) will be cancelled without consideration. No cash payment will be due to a holder of such Company Stock Option in respect of such Company Stock Option or its termination if the amount set forth in clause (ii) exceeds the amount set forth in clause (i). Prior to the Effective Time, the Company shall take all actions (including, without limitation, obtaining all necessary consents from the holders of Company Stock Options) necessary to give effect to the transactions contemplated by this Section 2.1(e) , and payments to particular holders pursuant to this Section 2.1(e) shall be conditioned upon their execution of such consents. The Option Consideration shall be payable on the first Business Day following the Effective Time. All Executive Options listed in Schedule 2.1(e) and not exercised as of the Effective Time shall remain outstanding after the Effective Time and should be continued as options to purchase a number (or fraction) of shares of common stock of the Surviving Corporation that corresponds to the percentage of the fully diluted equity of the Company represented by the shares underlying such options (and the exercise price thereof shall be adjusted accordingly) or converted into options to purchase a number (or fraction) of shares of common stock of Parent that corresponds to the percentage of the fully diluted equity of the Company represented by the shares underlying such options (and the exercise price thereof shall be adjusted accordingly) in a manner consistent with Section 409A of the Code, as determined in the sole discretion of Parent, and otherwise shall be governed by their existing terms.

 

2.2            Exchange of Certificates . The procedures for exchanging Certificates for the Merger Consideration pursuant to the Merger are as follows:

 

(a)            Exchange Agent . At the Effective Time, the Surviving Corporation shall deposit with Wells Fargo Bank, N.A. or another nationally recognized bank or trust company mutually acceptable to Merger Sub and the Company (the “ Exchange Agent ”), for the benefit of the holders of shares of Company Common Stock outstanding immediately prior to the Effective Time, for payment through the Exchange Agent in accordance with this Section 2.2 , cash in an amount sufficient to make payment of the aggregate Merger Consideration pursuant to Section 2.1(c) in exchange for all of the outstanding shares of Company Common Stock (the “ Exchange Fund ”). The Exchange Agent shall invest such cash as directed by the Surviving Corporation on a daily basis as directed by the Surviving Corporation; provided that such investments shall be in obligations of or guaranteed by the United States of America or obligations of an agency of the United States of America which are backed by the full faith and credit of the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody’s Investors Services Inc. or Standard & Poor’s Corporation, or in deposit accounts, certificates of deposit or banker’s acceptances of, repurchase or reverse repurchase agreements with, or Eurodollar time deposits purchased from, commercial banks, each of which has capital, surplus and undivided profits aggregating more than $500 million (based on the most

 

4

 

recent financial statements of the banks which are then publicly available at the SEC or otherwise). Any interest and other income resulting from such investments shall be paid to the Surviving Corporation and any risk of loss in connection with such investments shall be borne by the Surviving Corporation; provided that no such investment or losses thereon shall affect the Merger Consideration payable to former Company stockholders, and Parent shall promptly provide, or shall cause the Surviving Corporation to promptly provide, additional funds to the Exchange Agent for the benefit of the former Company stockholders in the amount of any such losses. All expenses related to the Exchange Agent shall be the responsibility of the Surviving Corporation.

 

(b)            Exchange Procedures . Promptly after the Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail to each holder of record of a Certificate (i) a letter of transmittal, which shall be in customary form and specify that delivery shall be effected, and risk of loss and title shall pass, only upon delivery of the Certificates to the Exchange Agent and (ii) instructions for effecting the surrender of the Certificates in exchange for the Merger Consideration payable with respect thereto. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration that such holder has the right to receive pursuant to the provisions of this Article II, and the Certificate so surrendered shall immediately be cancelled. For the avoidance of doubt, no interest shall be paid or accrued on the Merger Consideration payable upon the surrender of Certificates. In the event of a transfer of ownership of Company Common Stock which is not registered in the transfer records of the Company, the Merger Consideration may be paid to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.2 , each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration as contemplated by this Section 2.2 .

 

(c)            No Further Ownership Rights in Company Common Stock; Stock Transfer Books . All Merger Consideration paid upon the surrender for exchange of Certificates evidencing shares of Company Common Stock in accordance with the terms hereof shall be deemed to have been paid in satisfaction of all rights pertaining to such shares of Company Common Stock, and from and after the Effective Time there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock which were outstanding immediately prior to the Effective Time. From and after the Effective Time, the holders of Certificates representing shares of Company Common Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares, except as otherwise provided in this Agreement or by applicable law. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Exchange Agent for any reason, they shall be cancelled and exchanged as provided in this Article II.

 

(d)            Termination of Exchange Fund . Any portion of the Exchange Fund which remains undistributed to the holders of Company Common Stock for one (1) year after the Effective Time shall be delivered to the Surviving Corporation, upon demand, and any holder of Company Common Stock who has not previously complied with this Section 2.2 may look only

 

5

 

to the Surviving Corporation (subject to abandoned property, escheat and similar laws) for, and the Surviving Corporation shall remain liable for, payment of its claim for Merger Consideration without interest.

 

(e)            No Liability . To the extent permitted by applicable law, none of Parent, Merger Sub, the Company, the Surviving Corporation or the Exchange Agent shall be liable to any holder of shares of Company Common Stock for any portion of the Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

(f)             Withholding Rights . Each of Merger Sub and the Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock or Company Stock Options, as the case may be, such amounts as it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “ Code ”), or any other applicable state, local or foreign tax law. To the extent that amounts are so withheld by Merger Sub or the Surviving Corporation, such withheld amounts (i) shall be remitted by Merger Sub or the Surviving Corporation to the applicable Governmental Entity, and (ii) shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock or Company Stock Options, as the case may be, in respect of which such deduction and withholding was made by Merger Sub or the Surviving Corporation, as the case may be.

 

(g)            Lost Certificates . In the event that any Certificate shall have been lost, stolen or destroyed, upon the holder’s compliance with the replacement requirements established by the Paying Agent, including, if necessary, the posting by the holder of a bond in customary amount as indemnity against any claim that may be made against it with respect to the Certificate, the Exchange Agent shall deliver in exchange for the lost, stolen or destroyed Certificate the Merger Consideration payable in respect of the Company Common Stock represented by the Certificate pursuant to this Section 2.2 .

 

2.3            Company Stock Options

 

The holders of the Company Stock Options, other than with respect to the Executive Options which are continued, shall, as a condition to their right to receive the payment contemplated by Section 2.1(e) , be required to execute a stock option cancellation agreement in the form presented, acknowledging receipt of the Option Consideration and release of all rights in connection with Company Stock Options.

 

2.4            Dissenting Shares .

 

(a)            Notwithstanding anything to the contrary contained in this Agreement, shares of Company Common Stock held by a holder who has properly demanded in writing appraisal for such shares of Company Common Stock in accordance with Section 262 (or any successor provision) of the DGCL (any such shares being referred to as “ Dissenting Shares ” until such time as such holder fails to perfect or otherwise loses such holder’s appraisal rights under the DGCL with respect to such shares) shall not be converted into or represent the right to

 

6

 

receive Merger Consideration in accordance with Section 2.1 , but shall be entitled only to such rights as are granted by the DGCL to a holder of Dissenting Shares.

 

(b)            If any Dissenting Shares shall lose their status as such (through failure to perfect or otherwise), then, as of the later of the Effective Time or the date of loss of such status, such shares shall automatically be converted into and shall represent only the right to receive Merger Consideration in accordance with Section 2.1 , without interest thereon, upon surrender of the Certificates representing such shares.

 

(c)            The Company shall give Parent and Merger Sub:  (i) prompt notice of any written demand for appraisal received by the Company prior to the Effective Time pursuant to the DGCL, any withdrawal of any such demand and any other written demand, notice or instrument delivered to the Company prior to the Effective Time pursuant to the DGCL that relate to such demand; and (ii) the opportunity to participate in and direct all negotiations and proceedings with respect to any such written demand, notice or instrument. The Company shall not make any payment or settlement offer prior to the Effective Time with respect to any such demand, notice or instrument unless Parent and Merger Sub shall have given their prior written consent to such payment or settlement offer, which consent shall not be unreasonably withheld or delayed.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth herein or in the disclosure schedule delivered by the Company to Parent and Merger Sub and dated as of the date of this Agreement (the “ Company Disclosure Schedule ”), the Company represents and warrants to Parent and Merger Sub as follows; provided that the inclusion of an item in the Company Disclosure Schedule as an exception to a representation or warranty will not by itself be deemed an admission by the Company that such item is material or was required to be disclosed herein (the Company Disclosure Schedule shall be arranged in sections and paragraphs corresponding to the numbered and lettered sections and paragraphs contained in this Article III, and the disclosure in any section or paragraph of the Company Disclosure Schedule shall qualify (a) the corresponding section or paragraph in this Article III and (b) the other sections and paragraphs in this Article III to the extent that it is readily apparent from a reading of such disclosure that it also clearly qualifies or applies to such other sections and paragraphs):

 

3.1            Organization, Standing and Power .

 

(a)            The Company (x) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (y) has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted and (z) is duly qualified to do business and, where applicable as a legal concept, is in good standing as a foreign corporation in each jurisdiction in which the character of the properties it owns, operates or leases or the nature of its activities makes such qualification necessary, except (with respect to clause (z) only) for such failures to be so qualified or in good standing, individually or in the aggregate, that have not had, or would not reasonably be expected to have, a Company Material Adverse Effect. For purposes of this

 

7

 

Agreement, the term “Company Material Adverse Effect” means changes, events, circumstances, conditions, occurrences, developments or effects that, individually or in the aggregate, has or would reasonably be expected to have a material adverse effect on the business, properties, assets, liabilities, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, or that would reasonably be expected to prevent the Company from consummating the transactions contemplated hereby; provided , however , that none of the following, either individually or in the aggregate, shall be deemed to constitute, or be taken into account in determining whether there has been or will be,  a Company Material Adverse Effect:

 

(i)             a change in the trading prices of any of the Company’s securities, in and of itself;

 

(ii)            reductions in regulatory reimbursement rates affecting the Company taking effect after the date hereof and the effects, changes, events, circumstances and conditions resulting therefrom;

 

(iii)           changes in GAAP or applicable Laws after the date hereof;

 

(iv)           changes, events, circumstances, conditions, occurrences, developments or effects resulting from the announcement of the execution of this Agreement or of the pendency of the Merger;

 

(v)            changes, events, circumstances, conditions, occurrences, developments or effects resulting from compliance by the Company with the terms of, or the taking of any action specifically required to be taken in, this Agreement (other than the consummation of the Merger itself);

 

(vi)           changes, events, circumstances, conditions, occurrences, developments or effects or conditions affecting the business in which the Company and its Subsidiaries operate generally;

 

(vii)          changes in economic, financial or political conditions generally;

 

(viii)         any act of terrorism or war (whether or not declared);

 

(ix)            any failure by the Company and its Subsidiaries, in and of itself, to meet projections, budgets or forecasts or published revenue or earnings predictions; and

 

(x)             any reclassifications, restructuring charges, non-recurring charges, increases in reserves and writeoffs of, to or in the financial statements of the Company and/or Compex described in (and up to the amount set forth in) Section 7.2(d)(ii);

 

except, in the case of clauses (ii), (vi), (vii) and (viii) above, to the extent such changes, events, circumstances, conditions, occurrences, developments or effects have a materially disproportionate adverse effect on the Company and its Subsidiaries as compared to other persons engaged in the same business.

 

8

 

(b)            The Company has delivered or made available to Merger Sub:  (i) a true and correct copy of the certificate of incorporation and by-laws of the Company, each as amended to date (together, the “ Company Charter Documents ”), and each such instrument is in full force and effect and no other organizational documents are applicable to or binding upon the Company. The Company is not in violation of any of the provisions of the Company Charter Documents in any material respect.

 

3.2            Capitalization .

 

(a)            The authorized capital stock of the Company as of the date of this Agreement consists of 101,000,000 shares of Company Common Stock and 1,000,000 shares of preferred stock, $0.001 par value per share (“ Company Preferred Stock ”). As of the date of this Agreement, (i) 71,067,722 shares of Company Common Stock are issued and outstanding, (ii) 512,183 shares of Company Common Stock are held in the treasury of the Company, (iii) no shares of Company Preferred Stock are issued or outstanding, (iv) no shares of Company Common Stock are held by any Company Subsidiaries.

 

(b)            As of the date of this Agreement, 17,621,257 shares of Company Common Stock are reserved for issuance in connection with Company Stock Options granted under the Company 2006 Incentive Stock Plan, the Company 2000 Non-Employee Directors Options Plan, the Company 1996 Incentive Stock Plan, the Company Amended and Restated 1997 Distributor Advisory Panel Stock Option Plan, the Company 1997 Surgeon Advisory Panel Stock Option Plan and the Empi Stock Option Plan (the “ Company Stock Plans ”) and the miscellaneous stock option grants listed on Section 3.2(c) of the Company Disclosure Schedule. As of the date of this Agreement, except as disclosed on Schedule 3.2(c) of the Company Disclosure Schedule, the Company had no other shares of Company Common Stock or other equity securities of any class of the Company reserved for future grants or future issuance or required to be reserved for grant or issuance other than as described above.

 

(c)            Section 3.2(c) of the Company Disclosure Schedule sets forth a complete and accurate list, as of the date hereof, of:  (i) all Company Stock Plans, indicating for each Company Stock Plan, as of such date, the number of shares of Company Common Stock previously issued under such Plan, the number of shares of Company Common Stock subject to outstanding options under such Plan, and the number of shares of Company Common Stock reserved for future issuance under such Plan including for outstanding options; and (ii) all outstanding Company Stock Options, indicating with respect to each such Company Stock Option the name of the holder thereof, the Company Stock Plan under which it was granted, the number of shares of Company Common Stock subject to such Company Stock Option, the exercise price and the date of grant thereof.

 

(d)            Except (i) the currently outstanding Company Stock Options as set forth on Section 3.2(c) of the Company Disclosure Schedule and, (ii) the currently outstanding Company Common Stock as set forth in Section 3.2(a) , (A) there are no equity securities of any class of the Company, or any security convertible or exchangeable into or exercisable for such equity securities, issued or outstanding and (B) there are no options, warrants, equity securities, calls, rights, commitments, similar obligations or Contracts (as defined herein) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries

 

9

 

is bound obligating the Company or any of its Subsidiaries to issue, exchange, transfer, deliver or sell, or cause to be issued, exchanged, transferred, delivered or sold, additional shares of capital stock or other equity interests or Voting Debt (as defined below) of the Company or any of its Subsidiaries or any security or rights convertible into or exchangeable or exercisable for any such shares, other equity interests or Voting Debt, or obligating the Company or any of its Subsidiaries to grant, extend, accelerate the vesting of, otherwise modify or amend or enter into any such option, warrant, equity security, call, right, commitment or agreement. Neither the Company nor any of its Subsidiaries has any outstanding stock appreciation rights, phantom stock, performance based rights, deferred stock awards or similar rights or obligations. Except as set forth in Section 3.2(d) of the Company Disclosure Schedule, neither the Company nor its Subsidiaries, nor, to the knowledge of the Company, any of their Affiliates, is a party to or is bound by any agreements or understandings with respect to the voting (including voting trusts and proxies) or sale or transfer (including agreements imposing transfer restrictions) of any shares of capital stock or other equity interests of the Company or any of its Subsidiaries. For purposes of this Agreement, the term “ Affiliate ” when used with respect to any party shall mean any person who is an “affiliate” of that party within the meaning of Rule 405 promulgated under the Securities Act of 1933, as amended (the “ Securities Act ”). Except as set forth on Section 3.2(d) of the Company Disclosure Schedule, there are no registration rights, and there is no rights agreement, “poison pill,” anti-takeover plan or other similar Contract or understanding to which the Company or any of its Subsidiaries is a party or by which it or they are bound with respect to any equity security of any class of the Company or any of its Subsidiaries. For purposes of this Agreement, the term “ knowledge of the Company ” means, with respect to any matter in question, the actual knowledge of Kenneth W. Davidson, Paul B. Chapman, Harry L. Zimmerman, William W. Burke, Jack F. Cahill and Scott A. Klosterman (collectively, the “ Executive Officers ”), and in each case, the knowledge that such Executive Officers would have obtained of the matter represented after reasonable inquiry of those employees of the Company whom such Executive Officers reasonably believe would have actual knowledge of the matters represented.

 

(e)            All outstanding shares of Company Common Stock are, and all shares of Company Common Stock subject to issuance as specified in Section 3.2(c) above, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under the DGCL, the Company Charter Documents or any Contract to which the Company is a party or is otherwise bound.

 

(f)             There are no obligations, commitments or arrangements, contingent or otherwise, of the Company or any of its Subsidiaries or, to the knowledge of the Company, of any of its Affiliates, to repurchase, redeem or otherwise acquire any shares of Company Common Stock or the capital stock of the Company, any of its Subsidiaries or any of its Affiliates or, except as set forth in Section 3.2(f) of the Company Disclosures Schedule, to provide funds or make any investment (in the form of a loan, capital contribution or otherwise) in any Subsidiary or person (other than investments by the Company or any wholly-owned subsidiary of the Company in any other wholly-owned Subsidiaries).

 

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(g)            Section 3.2(g) of the Company Disclosure Schedule sets forth a complete and correct list, as of the date of this Agreement, of each Contract pursuant to which any Indebtedness (as defined below) of the Company or its Subsidiaries is outstanding or may be incurred or guaranteed in an amount in excess of $250,000, together with the amount outstanding thereunder as of a date specified which date is within thirty-five (35) days of the date of this Agreement. “ Indebtedness ” means (i) indebtedness for borrowed money, whether secured or unsecured or for the deferred purchase price of property or services (other than payable in the ordinary course of business consistent with past practice) including (A) any indebtedness evidenced by a contract, note, bond, debenture or similar instrument, (B) accrued interest and any prepayment premiums, penalties, breakage costs or other similar obligations in respect thereof (excluding as a result of the consummation of the transactions contemplated hereby) and (C) any other contingent obligations in respect of the items referred to in the foregoing clauses (A) and (B), (ii) obligations under conditional or installment sale or other title retention Contracts relating to purchased property or letter of credit or similar instruments, (iii) capitalized lease obligations, (iv) obligations under interest rate cap, swap, collar or similar transactions or currency hedging transactions (valued at the termination value thereof) and (v) guarantees of any of the foregoing of another person. No event has occurred which either entitles, or could entitle (with or without notice or lapse of time or both) the holder of any Indebtedness described in Section 3.2(g) of the Company Disclosure Schedule to accelerate, or which does accelerate, the maturity of any such Indebtedness.

 

3.3            Subsidiaries .

 

(a)            Section 3.3(a) of the Company Disclosure Schedule sets forth, as of the date of this Agreement, each Subsidiary of the Company and all other entities in which the Company or any of its Subsidiaries owns, directly or indirectly, any shares of capital stock or equity interests and such list sets forth the name, the jurisdiction of organization, the authorized and outstanding capital stock and the record and beneficial ownership of the shares of capital stock of each Subsidiary and the Company’s and its Subsidiaries’ record and beneficial ownership in any other entity as of the date hereof. For purposes of this Agreement, (i) the term “ Subsidiary ” means, with respect to any party, any corporation, partnership, trust, limited liability company or other non-corporate business enterprise in which such party (or another Subsidiary of such party) holds stock or other ownership interests representing (A) more than 50% of the voting power of all outstanding stock or ownership interests of such entity, (B) the right to receive more than 50% of the net assets of such entity available for distribution to the holders of outstanding stock or ownership interests upon a liquidation or dissolution of such entity or (C) a general or managing partnership interest in such entity.

 

(b)            Each Subsidiary of the Company is (i) a corporation, partnership or other entity duly organized, validly existing and in good standing (to the extent such concepts are applicable) under the laws of the jurisdiction of its incorporation or organization, (ii) has all requisite corporate or other organizational power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted and as proposed to be conducted, and (iii) is duly qualified to do business and is in good standing as a foreign corporation or entity (to the extent such concepts are applicable) in each jurisdiction where the character of its properties owned, operated or leased or the nature of its activities makes such qualification necessary, except (with respect to clause (iii) only) for such failures to be so

 

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organized, validly existing or in good standing, to have such power and authority or to be so qualified or in good standing that, individually or in the aggregate would not reasonably be expected to have a Company Material Adverse Effect. All of the outstanding shares of capital stock and other equity securities or interests of each Subsidiary of the Company are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights, and except as set forth in Section 3.3(b) of the Company Disclosure Schedule, all such shares are owned, of record and beneficially, by the Company or another of its Subsidiaries free and clear of all security interests, liens, claims, pledges, agreements, limitations in the Company’s voting rights, charges or other encumbrances. There are no outstanding or authorized options, warrants, rights, agreements or commitments to which the Company or any of its Subsidiaries is a party or which are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of any Subsidiary of the Company. There are no outstanding stock appreciation, phantom stock or similar rights with respect to any Subsidiary of the Company. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary of the Company.

 

(c)            The Company has made available to Merger Sub complete and accurate copies of all charter, by-laws or other organizational documents of each Significant Subsidiary (as defined in Section 1.02(v) of Regulation S-X promulgated under the Exchange Act) of the Company (the “ Subsidiary Charter Documents ”), and each such instrument is in full force and effect and no other organizational documents are applicable to or binding upon such Significant Subsidiaries. None of the Subsidiaries is in violation of any of the provisions of its constituent documents except as would not reasonably be expected to have a Company Material Adverse Effect.

 

(d)            Except as set forth in Section 3.3(d) of the Company Disclosure Schedule, the Company does not control directly or indirectly or have any direct or indirect equity participation or similar interest in any corporation, partnership, limited liability company, joint venture, trust or other business association or entity which is not a Subsidiary of the Company and which is not set forth in Section 3.3(a) of the Company Disclosure Schedule.

 

3.4            Authority; No Conflict; Required Filings and Consents .

 

(a)            The Company has all requisite corporate power and authority to enter into this Agreement and, subject to the affirmative vote for approval and adoption of this Agreement (the “ Company Voting Proposal ”) by the holders of a majority in voting power of the outstanding shares of Company Common Stock on the record date for the meeting of the Company’s stockholders (the “ Company Meeting ”) to consider adoption of this Agreement under the DGCL (the “ Company Stockholder Approval ”), to perform its obligations and consummate the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, (i) the Special Committee at a meeting duly called and held, unanimously (A) determined that the Merger is fair and in the best interests of the Company and its stockholders, (B) approved this Agreement and declared its advisability in accordance with the provisions of the DGCL, and (C) directed that this Agreement be submitted to the Company Board for their approval and recommendation that the stockholders of the Company vote in favor of the adoption of this Agreement, and (ii) the Company Board, upon the recommendation of the Special Committee, at a meeting duly called and held, (A) determined that the Merger is fair and

 

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in the best interests of the Company and its stockholders, (B) approved this Agreement and declared its advisability in accordance with the provisions of the DGCL, and (C) directed that this Agreement be submitted to the stockholders of the Company for their adoption and resolved to recommend that the stockholders of the Company vote in favor of the adoption of this Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement by the Company have been duly authorized by all necessary corporate action on the part of the Company, subject only to the required receipt of the Company Stockholder Approval. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles (the “ Bankruptcy and Equity Exception ”).

 

(b)            The execution and delivery of this Agreement by the Company do not, and the consummation of the transactions contemplated by this Agreement shall not, (i) conflict with, or result in any violation or breach of, any provision of the Company Charter Documents or the Subsidiary Charter Documents, (ii) except as set forth in Section 3.4(b)(ii) of the Company Disclosure Schedule conflict with, or result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any benefit) under, require a consent or waiver under, require the payment of a penalty or increased liabilities or fees or the loss of a benefit under or result in the imposition of any mortgage, right of first refusal, claim, lease, license, limitation in voting rights, security interest, pledge, lien, restriction, encroachment, charge or encumbrance (“ Liens ”) on the Company’s or any of its Subsidiaries’ assets under, any of the terms, conditions or provisions of any material lease, license, contract, subcontract, binding understanding, franchise, indenture, note, option, insurance policy, benefit plan or other binding agreement, instrument or obligation, written or oral (each, a “ Contract ”), to which the Company or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound, except for any such conflicts, violations, breaches, defaults, terminations, cancellations, modifications, accelerations, losses, penalties, increased fees, liabilities, losses of material benefit, Liens, and for any consents or waivers not obtained, that, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect, or (iii) subject to obtaining the Company Stockholder Approval and compliance with the requirements specified in clauses (i) through (vii) of Section 3.4(c) , conflict with or violate in any material respect any permit, concession, judgment, injunction, order, writ, decree, statute, law, ordinance, rule, determination, award or regulation of or promulgated by, or settlement subject to any Governmental Entity (“ Order ”) and applicable to the Company or any of its Subsidiaries or any of its or their respective properties or assets.

 

(c)            No material consent, approval, Action, license, Order, certification, franchise or authorization of, or registration, declaration, notice or filing with, any federal, state or local, U.S. or foreign court, arbitrational tribunal, administrative agency or commission or other governmental or regulatory authority, agency or instrumentality (a “ Governmental Entity ”) or any stock market or stock exchange on which shares of Company Common Stock are listed for trading is required by or with respect to the Company or any of its Subsidiaries in connection with the execution, delivery and performance of this Agreement by the Company or the

 

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consummation by the Company of the transactions contemplated by this Agreement, except for (i) the pre-merger notification requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”) and the notification or approval under the foreign antitrust or merger control laws listed in Section 3.4(c)(i) of the Company Disclosure Schedule, (ii) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate corresponding documents with the appropriate authorities of other states in which the Company is qualified as a foreign corporation to transact business in order to continue such qualification, (iii) the filing of the Proxy Statement (as defined herein) with the Securities and Exchange Commission (the “ SEC ”) in accordance with the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), (iv) the applicable requirements of state securities or “blue sky” laws, (v) any filings required under the rules and regulations of The NASDAQ National Market, (vi) the filing of such reports, schedules or materials under Rule 14a-12 or otherwise under the Exchange Act, as may be required in connection with this Agreement and the transactions contemplated hereby, (vii) the consents, approvals, licenses, Orders, authorizations, registrations, declarations, notices and filings listed in Section 3.4(c)(vii) of the Company Disclosure Schedule, and (viii) such notices, consents, approvals or filings that the failure to make or obtain would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

 

(d)            The Company Stockholder Approval is the only vote of the holders of any class or series of the Company’s capital stock or other securities necessary for the approval and adoption of this Agreement and for the consummation by the Company of the other transactions contemplated by this Agreement. There are no bonds, Contracts, debentures, warrants, options, series of capital stock, notes or other Indebtedness of the Company or its Subsidiaries having the right to vote (“ Voting Debt ”) (or convertible into, or exercisable or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company or its Subsidiaries may vote.

 

3.5            SEC Filings; Financial Statements; Information Provided .

 

(a)            The Company has filed all registration statements, forms, reports and other documents required to be filed by the Company or its predecessors with the SEC since January 1, 2003. All such registration statements, forms, reports and other documents (including those that the Company may file after the date hereof until the Closing) are referred to herein as the “ Company SEC Reports .”  Each Company SEC Report (except to the extent that information contained in such Company SEC Report has been superseded, revised or amended by a subsequent Company SEC Report filed prior to the date hereof), (i) at the time filed, complied, as to form in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Company SEC Reports, each as in effect on the date filed, and (ii) did not at the time filed contain any untrue statement of a material fact or omit to state a material fact required to be stated in each such Company SEC Report or necessary in order to make the statements in each such Company SEC Report, in the light of the circumstances under which they were made, not misleading. Except as set forth in Section 3.5(a) of the Company Disclosure Schedule, no Subsidiary of the Company is subject to the reporting requirements of Section 13(a) or Section 15(d) of the Exchange Act.

 

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(b)            Each of the Company’s consolidated financial statements (including, in each case, any related notes and schedules) contained in the Company SEC Reports at the time filed (whether prior to or after the date hereof): (i) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto; (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim financial statements, as permitted by the SEC on Form 10 Q (or to the extent filed only on Form 8-K as permitted by Form 8-K) under the Exchange Act); and (iii) fairly presented in all material respects the consolidated financial position of the Company and its Subsidiaries as of the dates indicated and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments that are not material in amount. Except as set forth on Section 3.5(b) of the Company Disclosure Schedule, all of the Subsidiaries of the Company are consolidated for accounting purposes. The consolidated, audited balance sheet of the Company as of December 31, 2005 is referred to herein as the “ Company Balance Sheet ”

 

(c)            Except as set forth in Section 3.5(c) of the Company Disclosure Schedule or the 2005 10-K (as defined herein), neither the Company nor any of its Subsidiaries is a party to, or has any commitment to become a party to (i) any joint venture, off-balance sheet partnership or any similar Contract or arrangement (including without limitation any Contract or arrangement relating to any transaction or relationship between or among the Company and any of its Subsidiaries, on the one hand, and any unconsolidated Affiliate on the other hand), including without limitation any “off-balance sheet arrangement” (as defined in Item 303(a) of Regulation S-K promulgated by the SEC); or (ii)  any hedging, derivatives or similar Contract or arrangement.

 

(d)            Each of the principal executive officer of the Company and the principal financial officer of the Company (or each former principal executive officer of the Company and each former principal financial officer of the Company, as applicable) has made all certifications required by Rule 13a-14 or Rule 15d-14 under the Exchange Act or Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes Act ”) and the rules and regulations of the SEC promulgated thereunder with respect to Company SEC Reports. For purposes of the preceding sentence, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes Act.

 

(e)            The Company maintains disclosure controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act. Such disclosure controls and procedures (i) are designed and maintained to ensure that information required to be disclosed by the Company is recorded, processed and reported on a timely basis to the individuals responsible for the preparation of the Company’s filings with the SEC and other public disclosure documents, and (ii) except as set forth in Section 3.5(e) of the Company Disclosure Schedule, have not resulted in disclosure to the Company’s outside auditors and the audit committee of the Company Board of (A) any significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which existed as of the date of the Company Balance Sheet and are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial data or (B) any fraud,

 

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whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. The Company is in compliance in all material respects with the applicable listing and other rules and regulations of The NASDAQ National Market.

 

(f)             The Company has made available to Merger Sub a complete and correct copy of any exhibits, annexes, attachments, supplements, amendments or modifications that have not been filed with the SEC to Contracts that are currently filed by the Company with the SEC pursuant to the Securities Act or the Exchange Act that have been requested by Parent or Merger Sub.

 

3.6            No Undisclosed Liabilities . Except as and to the extent set forth on the Company Balance Sheet (including the notes thereto and related management discussion and analysis) included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (the “ 2005 10-K ”) and except as reflected in Section 3.6 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has any liability or obligation of any nature (whether accrued, absolute, contingent or otherwise), except for liabilities and obligations (i) incurred in connection with the transactions contemplated hereby, (ii) incurred since the date of the Company Balance Sheet in the ordinary course of business of the Company and in a manner consistent with past practice, or (iii) that individually or in the aggregate, have not had, and would not reasonably be expected to have, a Company Material Adverse Effect.

 

3.7            Absence of Certain Changes or Events . Since the date of the Company Balance Sheet except as set forth in Section 3.7 of the Company Disclosure Schedule or except as disclosed in the SEC Reports filed and publicly available after December 31, 2005 (the “ Filed Company SEC Reports ”), (a)(i) the Company and its Subsidiaries have conducted their respective businesses only in the ordinary course of business consistent with past practice, and (ii) neither the Company nor any of its Subsidiaries has taken any action which, if it had been taken after the date hereof, would have required the prior written consent of Parent and Merger Sub pursuant to clauses (a), (c), (d), (e), (h), (n) or (o) of Section 5.1 ; (b) neither the Company nor any of its Subsidiaries has suffered any damage, destruction or loss (whether or not covered by insurance), other than in the ordinary course of business and consistent with past practice; and (c) there has not been any change, event, circumstance, condition, occurrence, development or effect that, individually or in the aggregate, has had, or would reasonably be expected to have, a Company Material Adverse Effect.

 

3.8            Taxes . Except where the applicable statute of limitations has expired:

 

(a)            Except as set forth in Section 3.8(a) of the Company Disclosure Schedule, the Company and each of its Subsidiaries have timely filed all material Tax Returns that they were required to file, and all such Tax Returns were correct and complete in all material respects. The Company and each of its Subsidiaries have paid on a timely basis all material Taxes due and payable (whether or not shown on any such Tax Returns) and adequate reserves and accruals for Taxes (exclusive of any reserves or accruals for “deferred taxes” or similar items that reflect timing differences between Tax and financial accounting principles) which as of the date of the Company Balance Sheet are not yet due and owing have been provided in the Company Balance Sheet. All material liabilities for Taxes that arose since the date of the Company Balance Sheet

 

 

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arose in the ordinary course of business or as a result of the Company’s acquisition of Compex, provided that any such Taxes arose in the ordinary course of business of Compex. All material Taxes that the Company or any of its Subsidiaries is or was required by law to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Entity. There are no liens or encumbrances with respect to Taxes upon any of the assets or property of the Company or its Subsidiaries, other than liens for Taxes not yet due and payable. For purposes of this Agreement, (i) “ Taxes ” means all taxes, charges, fees, levies or other similar assessments or liabilities, including income, gross receipts, ad valorem, premium, value-added, excise, real property, personal property, sales, use, services, license alternative or add-on minimum, transfer, withholding, employment, payroll and franchise taxes imposed by the United States of America or any state, local or foreign government, or any agency thereof, or other political subdivision of the United States or any such government, and any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any tax or any contest or dispute thereof and (ii) ” Tax Returns ” means all reports, returns, declarations, statements or other information required to be supplied to a taxing authority in connection with Taxes, including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax.

 

(b)            Except as set forth in Section 3.8(b) of the Company Disclosure Schedule, there are no material deficiencies for any amount of Taxes claimed, proposed or assessed by any taxing or other Governmental Entity in writing that have not been fully paid or settled. The Company has made available to Merger Sub correct and complete copies of all federal income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by the Company since 2002. The federal income Tax Returns of the Company and each of its Subsidiaries required to file federal income Tax Returns have been audited by the Internal Revenue Service (the “ IRS ”) or are closed by the applicable statute of limitations for all taxable years through the taxable year specified in Section 3.8(b) of the Company Disclosure Schedule. The Company has made available to Merger Sub correct and complete copies of all other material Tax Returns of the Company and its Subsidiaries together with all related examination reports and statements of deficiency for all periods from and after 2002. Except as set forth in Section 3.8(b) of the Company Disclosure Schedule, no examination or audit of any Tax Return of the Company or any of its Subsidiaries by any Governmental Entity is currently in progress or, to the knowledge of the Company, threatened or contemplated. Neither the Company nor any of its Subsidiaries has been informed in writing by any Governmental Entity that the Governmental Entity believes that the Company or any of its Subsidiaries was required to file any Tax Return that was not filed. Neither the Company nor any of its Subsidiaries has waived any statute of limitations with respect to Taxes or agreed to an extension of time with respect to a Tax assessment or deficiency which has the effect of extending the statute of limitations to a date after the date of this Agreement.

 

(c)            Except as set forth in Section 3.8(c) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has any material liability for any Taxes of any person (other than the Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of law in any jurisdiction), or as a transferee or successor, by contract or otherwise.

 

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(d)            Except as set forth in Section 3.8(d) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries (i) is or has ever been a member of a group of corporations with which it has filed (or been required to file) consolidated, combined or unitary Tax Returns, other than a group of which only the Company and its Subsidiaries are or were members or (ii) is a party to or bound by any Tax indemnity, Tax sharing, Tax allocation agreement or similar contract or agreement.

 

(e)            Neither the Company nor any of its Subsidiaries is required to make any payments that would not be deductible by reason of Section 162(m) of the Code.

 

(f)             Neither the Company nor any of its Subsidiaries has been either a “distributing corporation” or a “controlled corporation” in a distribution occurring during the last five years in which the parties to such distribution treated the distribution as one to which Section 355 of the Code is applicable.

 

(g)            No closing agreement pursuant to section 7121 of the Code (or any similar provision of state, local or foreign law) has been entered into by or with respect to Company or any of its Subsidiaries.

 

(h)            Except as set forth in Section 3.8(h) of the Company Disclosure Schedule, since December 31, 2002, neither the Company nor any of its Subsidiaries has agreed or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by it or any other relevant party and neither the Company nor any of its Subsidiaries has any knowledge that the IRS has proposed any such adjustment or change in accounting method, nor has any application pending with any Governmental Entity requesting permission for any changes in accounting methods that relate to the business or assets of the Company or any of its Subsidiaries.

 

(i)             None of the Company’s non-U.S. Subsidiaries has recognized in the taxable year of such Subsidiary that includes but does not end on the Closing Date a material amount of Subpart F income as defined in Section 952 of the Code during the portion of such taxable year that ends on the Closing Date.

 

(j)             Neither the Company nor any of its Subsidiaries has engaged in any transaction that could give rise to (i) a disclosure obligation with respect to any person under Section 6111 of the Code or the regulations thereunder, (ii) a list maintenance obligation with respect to any person under Section 6112 of the Code or the regulations thereunder, or (iii) a disclosure obligation as a “reportable transaction” under Section 6011 of the Code and the regulations thereunder.

 

(k)            Neither the Company nor any U.S. Subsidiary has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

 

(l)             The Company has delivered or made available to the Parent for inspection complete and correct copies of all private letter rulings, revenue agent reports, closing agreements, settlement agreements, deficiency notices and any similar documents submitted by,

 

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received by or agreed to by or on behalf of the Company or its Subsidiaries and relating to material Taxes since 2002.

 

3.9            Owned and Leased Real Properties .

 

(a)            Section 3.9(a) of the Company Disclosure Schedule sets forth a complete and accurate list as of the date of this Agreement of all real property and interests in real property owned in fee by the Company or any of its Subsidiaries (collectively, the “ Owned Real Property ”) and the address and owner of each parcel of Owned Real Property. Except as set forth in Section 3.9(b) of the Company Disclosure Schedule, the Company or one of its Subsidiaries has good fee simple title to each parcel of Owned Real Property free and clear of all Liens, except for such Liens that, individually or in the aggregate, are not reasonably likely to result in a Company Material Adverse Effect. To the extent in the possession and control of the Company, the Company has made available to Merger Sub prior to the date hereof copies of all existing vesting deeds, title policies and surveys and all other material documents, instruments and agreements directly affecting title to the Company’s or the Company’s Subsidiaries’ property rights to ownership, use and possession of, the Owned Real Property.

 

(b)            Section 3.9(b)(i) of the Company Disclosure Schedule sets forth a complete and accurate list as of the date of this Agreement of all real property leased, subleased or licensed by the Company or any of its Subsidiaries (the “ Leased Real Property ”) pursuant to lease agreements having an annual base rent in excess of $50,000 (collectively, the “ Leases ”). Except as set forth in Section 3.9(b)(ii) of the Company Disclosure Schedule, the Company or one of its Subsidiaries has good and valid leasehold interest in the Leased Real Property. Neither the Company nor any of its Subsidiaries leases, subleases or licenses any real property to any person other than the Company and its Subsidiaries. The Company has made available to Merger Sub complete and accurate copies of all Leases.

 

(c)            Each Lease is in full force and effect, is a valid and binding obligation of, and, subject to the Bankruptcy and Equity Exception, is legally enforceable against, the Company or Company Subsidiary party thereto and, to the knowledge of the Company, the respective counterparties thereto.

 

(d)            Neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any other party to any Lease is in default or material breach under any of the Leases (or has taken or has failed to take any action which, with notice, lapse of time, or both, would constitute a default) that would be likely to result in a Company Material Adverse Effect.

 

(e)            Neither the Company nor any of its Subsidiaries is obligated under or bound by any option, right of first refusal, purchase contract or other contractual right to sell or purchase any Owned Real Property or Leased Real Property or any portions thereof or interests therein.

 

3.10          Title to Assets . The Company and its Subsidiaries have good and valid title to, or valid and enforceable right to use under existing franchises, easements or licenses, or valid and enforceable leasehold interests in, all of its tangible personal properties, rights and assets necessary to carry on their businesses as now being conducted, except for such defects that,

 

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individually or in the aggregate, would not reasonably be expected to have, a Company Material Adverse Effect. Except as set forth in Section 3.10 of the Company Disclosure Schedule, all such tangible personal properties, rights and assets, other than properties, rights and assets in which any Company has a leasehold interest, are free and clear of all Liens, except for such Liens that, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Company Material Adverse Effect.

 

3.11          Intellectual Property .

 

(a)            Except as set forth in Section 3.11(a) of the Company Disclosure Schedule, or except as would not individually or in the aggregate reasonably be expected to have a Company Material Adverse Effect, the Company and its Subsidiaries exclusively own, license or sublicense from a third party, or otherwise possess legally enforceable rights to use all Intellectual Property used in the business of the Company and its Subsidiaries as currently conducted, free of all material Liens. For purposes of this Agreement, the term “ Intellectual Property ” means all intellectual property or similar rights existing anywhere in the world, including without limitation, all (i) patents (including design patents), inventions, technology, designs, discoveries, processes, formulae, know-how and improvements thereto; (ii) copyrights and copyrightable works, including software, applications, code, databases, website content, systems, networks and related items, and design or creative elements of functional works; (iii)  trademarks, service marks, trade names, domain names, trade dress, logos and other source indicators; and (iv) trade secrets and confidential data and information (including any relating to customers, patients and physicians).

 

(b)            Section 3.11(b) of the Company Disclosure Schedule sets forth a complete and accurate list of all patents, registrations and applications for Intellectual Property owned or licensed by the Company or its Subsidiaries, and all of such registrations and applications are valid, subsisting and have not expired or been cancelled or abandoned

 

(c)            Except as listed in Section 3.11(c) of the Company Disclosure Schedule, (i) no third party is, to the Company’s knowledge, materially infringing, violating, misappropriating or making unauthorized use of (“ Infringing ”) any Intellectual Property of the Company or any of its Subsidiaries; (ii) the conduct of the business of the Company and its Subsidiaries as currently conducted and as presently proposed to be conducted (including the sale of products, offering of services and use of Intellectual Property in connection therewith) does not, to the Company’s knowledge, Infringe any Intellectual Property of any third party, nor has the Company received any written notice alleging same; and (iii) no Action or Order is binding upon, has been asserted or is pending, or, to the Company’s knowledge, has been threatened in writing (including “cease and desist” letters or requests for a license) against the Company or any of its Subsidiaries relating to Intellectual Property, whether owned or licensed by any of them or a third party.

 

(d)            Except as set forth in Section 3.11(d) of the Company Disclosure Schedule, the Company and its Subsidiaries take all commercially reasonable steps to protect and preserve their material Intellectual Property (including executing confidentiality agreements with all appropriate parties and executing Intellectual Property assignment agreements with all current

 

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and former employees and contractors who have contributed to any Intellectual Property owned by any of them).

 

(e)            Except as disclosed in Section 3.11(e) of the Company Disclosure Schedule, no product or service marketed, offered or sold by (and no material internal process or system operated by) the Company or any of its Subsidiaries uses, incorporates, is derived from or has embedded in it any software code subject to an “open source,” copyleft, shareware or similar license.

 

3.12          Contracts .

 

(a)            For purposes of this Agreement, “ Company Material Contract ” shall mean:

 

(i)             any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) with respect to the Company and its Subsidiaries;

 

(ii)            any employment, consulting, severance, change in control, termination agreements or other contract with (x) any member of the Company Board, (y) any executive officer of the Company or (z) any other employee of the Company earning an annual salary equal to or in excess of $100,000, other than those that are terminable by the Company or any of its Subsidiaries on no more than thirty (30) days notice without liability or financial obligation to the Company;

 

(iii)           any Contract or agreement pursuant to which the Company or any of its Subsidiaries agrees to indemnify or hold harmless any director or executive officer of the Company or any such Subsidiary (other than the Company Charter Documents and the Subsidiary Charter Documents);

 

(iv)           any Contract pursuant to which the Company or any of its Subsidiaries has potential liability in respect of any purchase price adjustment, earn-out or contingent purchase price that, in each case, could reasonably be expected to result in future payments of more than $1,000,000;

 

(v)            any Contract entered into not in the ordinary course of business and consistent with past practice containing any covenant (A) expressly limiting in any material respect the right of the Company or any of its Subsidiaries to engage in any line of business or any geographic area or to compete with any person in any line of business or any geographic area or to compete with any party, or (B) granting any exclusive rights to make, sell or distribute the Company’s products or services;

 

(vi)           any Contract containing any covenant prohibiting or limiting the right of the Company and its Subsidiaries to develop, manufacture, market, sell or distribute any products or services;

 

(vii)          any agreements for the pending purchase or sale, option to purchase or sell, right of first refusal, right of first offer or any other contractual right to purchase, sell, dispose of, or master lease, by merger, purchase or sale of assets or stock or

 

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otherwise by the Company or any of its Subsidiaries of any line of business or any material amount of assets or rights or pursuant to which the Company or any of its Subsidiaries has any material ownership interest in any other person or other business enterprise, other than Contracts under which the Company and its Subsidiaries have no further liabilities or obligations and no continuing rights;

 

(viii)         any Contract to which the Company or any of its affiliates is a party relating to Intellectual Property, except (x) for non-exclusive commercially available, off-the-shelf licenses for software with annual fees of less than $100,000, (y) non-exclusive license agreements with sales representatives and employee confidentiality agreements, in each case entered into in the ordinary course of business and (z) any ordinary course designing, development, research, clinical study, or consulting arrangements with surgeons or other medical professionals, and in each of clauses (x), (y) and (z), containing customary provisions with respect to Intellectual Property;

 

(ix)            any mortgages, indentures, guarantees, loans or credit agreements, security agreements, promissory notes or other Contracts to which the Company or any of its affiliates is a party relating to the borrowing of money, extension of credit or other Indebtedness involving amounts in excess of $500,000, other than accounts receivables and payables in the ordinary course of business;

 

(x)             any settlement agreement payable directly by the Company or any of its Subsidiaries within the past three (3) years, other than (I) releases immaterial in nature or amount entered into with former employees or independent contractors of the Company in the ordinary course of business in connection with the routine cessation of such employees’ or independent contractors’ employment with the Company, (II) settlement agreements for cash only (which have been paid) and which do not exceed $250,000 as to any such settlement or (III) settlement agreements under which none of the Company or its Subsidiaries have any continuing obligations, liabilities, or rights (excluding releases);

 

(xi)            any material general or limited partnership agreement, limited liability company agreement, or joint venture agreement to which the Company or any of its Subsidiaries is a party;

 

(xii)           any Contract not in the ordinary course of business (other than Company Intellectual Property Contracts) either (I) involving revenues, expenditures or liabilities totaling more than $250,000 or (II) otherwise material to the Company and its Subsidiaries taken as a whole; and

 

(xiii)          any Contract to which the Company or any of its affiliates is a party which is reasonably likely to prohibit or materially delay the consummation of the transactions contemplated by this Agreement.

 

(b)            Section 3.12(b) of the Company Disclosure Schedule sets forth a list of all Company Material Contracts to which the Company or any of its Subsidiaries is a party as of the date hereof. True and correct copies of the Company Material Contracts have been made available to Merger Sub.

 

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3.14          Environmental Matters .

 

(a)            Except for matters that, individually or in the aggregate, would not reasonably be expected to have, a Company Material Adverse Effect:

 

(i)             neither the Company nor its Subsidiaries has received (A) any written notice alleging that any of them has not complied with applicable Environmental Laws or (B) any written notice, demand, claim or request for information alleging that the Company or any of its Subsidiaries may be in violation of, liable under or have obligations under any Environmental Law;

 

(ii)            neither the Company nor any of its Subsidiaries has received a written notice that it is subject to liability for any Hazardous Substance disposal or contamination;

 

(iii)           neither the Company nor any of its Subsidiaries is subject to any Orders of, or issued by, any Governmental Entity or is subject to any indemnity agreement with any third party addressing liability under any Environmental Law;

 

(iv)           the Company and its Subsidiaries are, and to the knowledge of the Company at all times for the past five (5) years were, in material compliance with all applicable Environmental Laws;

 

(v)            Hazardous Substances have not been generated, installed, transported, treated, stored, disposed of, arranged to be disposed of, released or threatened to be released by or on behalf of the Company or any of its Subsidiaries or, to the Company’s knowledge, any other Person, at, on, from or under any of the properties or facilities currently or formerly owned, leased or otherwise used by any of the Company and its Subsidiaries, that to the Company’s knowledge is in violation of, or in a manner or to a location that could give rise to liability to any of the Company and its Subsidiaries under or relating to, any Environmental Laws or environmental permits; and

 

(vi)           to the knowledge of the Company, none of the Company and its Subsidiaries has assumed, contractually or by operation of law, any liabilities or obligations of any other person or entity under or relating to any Environmental Laws.

 

(b)            For purposes of this Agreement, the term “ Environmental Law ” means any law, statute, regulation, rule, judgment, order, decree or permit requirement of, or issued by, any Governmental Entity relating to:  (i) the protection, investigation or restoration of the environment, human health and safety, or natural resources; (ii) the handling, use, storage, treatment, transport, disposal, release or threatened release of any Hazardous Substance; or (iii) noise, odor or wetlands protection.

 

(c)            For purposes of this Agreement, the term “ Hazardous Substance ” means:  (i) any substance that is regulated or which falls within the definition of a “hazardous substance,” “hazardous waste” or “hazardous material” “solid waste” or any other term of similar import pursuant to any Environmental Law; or (ii) any petroleum product or by-product, asbestos-containing material, polychlorinated biphenyls, toxic mold, radioactive materials or radon.

 

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3.15          Employee Benefit Plans .

 

(a)            Section 3.15(a) of the Company Disclosure Schedule contains a true and complete list of each “employee benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), including, without limitation, multiemployer plans within the meaning of Section 3(37) of ERISA), and all stock purchase, stock option, severance, employment, change-in-control, fringe benefit, bonus, incentive, deferred compensation, employee loan and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not subject to ERISA, under which (i) any current or former employee, director or consultant of the Company or its Subsidiaries (the “ Company Employees ”) has any right to present or future benefits and which are contributed to, sponsored by or maintained by the Company or any of its Subsidiaries or (ii) the Company or any of its Subsidiaries has any present or future material liability (other than individual forms filed by participants pursuant to a plan). All such plans, agreements, programs, policies and arrangements shall be collectively referred to as the “ Company Plans .”

 

(b)            With respect to each Company Plan, the Company has provided to Merger Sub a current, accurate and complete copy (or, to the extent no such copy exists, an accurate description) thereof and, to the extent applicable: (i) any related trust agreement or other funding instrument; (ii) the most recent determination or opinion letter, if applicable; (iii) any summary plan description and other material written communication by