MEMBERSHIP INTEREST PURCHASE AGREEMENT

Exhibit 2

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

Among

MEDEGEN HOLDINGS, LLC;

MEDEGEN MEDICAL PRODUCTS, LLC;

MEDEGEN NEWCO, LLC;

MEDICAL ACTION INDUSTRIES INC. and

MAI ACQUISITION CORP.

 

Dated as of September 8, 2006

TABLE OF CONTENTS

 

 

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INDEX OF DEFINED TERMS

 

 

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EXHIBIT INDEX

 

 

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MEMBERSHIP INTEREST PURCHASE AGREEMENT

THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (hereinafter the “Agreement“) is made, executed and entered into on this 8 ^th day of September, 2006, by and among MEDICAL ACTION INDUSTRIES INC., a Delaware corporation (hereinafter “Parent“), MAI ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of Parent (hereinafter “Buyer“), MEDEGEN NEWCO, LLC, a Delaware limited liability company (hereinafter “Newco“), MEDEGEN MEDICAL PRODUCTS, LLC, a Delaware limited liability company (hereinafter the “Company“), and MEDEGEN HOLDINGS, LLC, a Delaware limited liability company (hereinafter “Seller“).

WHEREAS, the Company is engaged in the business of high speed injection molding manufacturing, specializing in disposable products in the health care markets (the “Products“) a list of which is attached hereto as Exhibit “A”;

WHEREAS, Seller’s subsidiary Medegen, LLC, owns or holds certain fixed assets in Colorado used by the Company in connection with its business;

WHEREAS, Buyer desires to acquire the business operated by the Company, and Seller desires to sell the business to Buyer, all as more fully provided in this Agreement;

WHEREAS, to effectuate the sale, Seller has formed Newco, to which Seller will cause Medegen, LLC to transfer (a) all of the Colorado fixed assets, and (b) the entire equity interest in the Company, and Buyer will acquire the entire equity interest of Newco;

WHEREAS, the board of directors of Parent and Buyer have approved this Agreement, and deem this Agreement (including the transactions contemplated by this Agreement) fair to and in the best interests of their respective stockholders, and, by resolutions duly adopted, have approved and adopted this Agreement;

WHEREAS, Seller is the sole member of Newco, and Newco will be the sole member of the Company; and

WHEREAS, Seller and the board of directors of the Company and Newco have approved this Agreement, and deem this Agreement (including the transactions contemplated by this Agreement) fair to and in the best interests of Seller, the Company and Newco, and, by resolutions duly adopted, have approved and adopted this Agreement;

NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE 1

PURCHASE AND SALE OF MEMBERSHIP INTEREST

1.1 Purchase and Sale of Membership Interest . Upon the terms and subject to the conditions of this Agreement, and upon reliance upon the representations, warranties and

agreements herein set forth, Buyer agrees to purchase from Seller and Seller agrees to sell to Buyer its entire membership interest in Newco. Seller has the right to transfer legal and beneficial title to its membership interest in Newco, free and clear of all liens, pledges, security interests, claims or other encumbrances other than such liens, pledges, security interests, claims or other encumbrances that will be released at the Closing. At the Closing, Newco’s sole assets will consist of the Colorado fixed assets used in the Company’s business and the entire equity interest of the Company.

1.2 Purchase Price . In consideration for the transfer by Seller of its membership interest in Newco to Buyer, on the Closing Date, on the terms and subject to the conditions set forth in this Agreement, and the execution and delivery of the other agreements entered into in connection herewith, Buyer agrees to pay or cause to be paid to Seller $80,000,000.00 (the “Purchase Price“), subject to escrow as set forth below, by wire transfer in immediately available funds to such bank account or accounts as Seller shall direct in writing at least five days prior to the Closing Date.

1.3 Closing . The closing of the transactions contemplated by this Agreement (the “Closing“) shall take place at the offices of Vinson & Elkins LLP, 666 Fifth Avenue, New York, New York 10103, on or about October 5, 2006, or such other time and place upon which the parties may agree, after satisfaction or waiver of the conditions set forth in Article 5 (other than those that are to be satisfied on the Closing Date), the day on which the Closing actually occurred is herein referred to as the “Closing Date“.

1.4 Allocation of Purchase Price .

(a) The purchase price shall be allocated by the parties in the manner agreed to by Seller and Buyer (the “Purchase Price Allocation“) in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended (the “Code“) and the Treasury Regulations thereunder. The parties agree that if the Purchase Price is adjusted after the Closing Date for indemnification pursuant to Article VII, the parties shall make in good faith a corresponding adjustment to the Purchase Price Allocation.

(b) In connection with the determination of the Purchase Price Allocation, the parties shall cooperate with each other and provide such information as any of them shall reasonably request. Buyer and Seller agree to (i) duly prepare and timely file such reports and information returns (including Internal Revenue Service Form 8594) as may be required under Section 1060 of the Code and any regulations thereunder and any corresponding provisions of applicable state income tax laws to report the Purchase Price Allocation, and (ii) prepare and file all such reports and information returns consistent with the Purchase Price Allocation.

1.5 Escrow . Notwithstanding the foregoing provisions of this Article 1 to the contrary, on the Closing Date, $7,000,000 of the Purchase Price shall be paid by Buyer to an escrow agent to be selected by Buyer and Seller prior to Closing (the “Escrow Agent“), pursuant to the provisions of an escrow agreement (the “Escrow Agreement“), in the form attached hereto as Exhibit “B”, to be held in escrow as security for the indemnification obligations in favor of Buyer under Article 7. As provided in the Escrow Agreement, $3,500,000 of the escrowed funds shall be released to Seller on May 31, 2007. The escrow shall terminate at the end of the

 

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Survival Period (as defined in Section 7.2(a)), and all escrow funds shall be paid to Seller; provided that if prior to such date Buyer makes a claim for indemnification pursuant to Section 7.1, the amount subject to such claim will remain in the escrow until the claim is resolved.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER

In order to induce Seller to enter into this Agreement, Parent and Buyer represent and warrant to Seller that the statements contained in this Article 2 are true, correct and complete.

2.1 Organization and Standing . Each of Parent and Buyer is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has full corporate power and authority to own, lease, use and operate its assets and properties and to conduct its business as and where now owned, leased, used, operated and conducted. Buyer is a wholly owned subsidiary of Parent.

2.2 Corporate Power and Authority . Each of Parent and Buyer has all requisite corporate power and authority to enter into and deliver this Agreement, to perform its obligations under this Agreement, and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement by Parent and Buyer have been duly authorized by all necessary corporate action on the part of Parent and Buyer. This Agreement has been duly executed and delivered by each of Parent and Buyer, and constitutes the legal, valid and binding obligation of each of Parent and Buyer enforceable against Parent and Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.

2.3 Conflicts; Consents and Approval . Neither the execution nor delivery of this Agreement by Parent or Buyer nor the consummation of the transactions contemplated by this Agreement by Parent or Buyer will:

(a) conflict with, or result in a breach of any provision of, the Amended and Restated Articles of Incorporation, as amended, or the By-Laws, as amended, of Parent, or the Certificate of Incorporation or the By-laws of Buyer;

(b) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event that, with the giving of notice, the passage of time or otherwise, would constitute a default) under, or entitle any individual or entity (with the giving of notice, the passage of time or otherwise) to terminate, accelerate, modify or call a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Parent or any of its subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, contract, undertaking, agreement, lease or other instrument or obligation to which Parent or any of its subsidiaries is a party;

 

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(c) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Parent or any of its subsidiaries or their respective properties or assets; or

(d) require any action or consent or approval of, or review by, or registration or filing by Buyer or any of its affiliates with, any third party or any local, domestic, foreign or multinational court, arbitral tribunal, administrative agency or commission or other governmental or regulatory body, agency, instrumentality or authority (including the United States Food and Drug Administration (the “FDA“), and the United States Federal Trade Commission) and Occupational Safety and Health Administration (a “Governmental Authority“), other than (i) actions required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (together with the rules and regulations thereunder, the “HSR Act“), or (ii) filings required under United States federal and state securities laws as are contemplated by this Agreement;

except in the case of clauses (b), (c) and (d) above for any of the foregoing that would not, individually or in the aggregate, have a Material Adverse Effect (as defined in Section 7.4) on Buyer or a material adverse effect on the ability of the parties to this Agreement to consummate the transactions contemplated by this Agreement.

2.4 Brokerage and Finders’ Fees . Neither Buyer nor any director, officer or employee of Buyer has incurred or will incur on behalf of Buyer any brokerage, finders’, financial advisory or similar fee in connection with the transactions contemplated by this Agreement.

2.5 Litigation and Proceedings . There are no lawsuits, actions, suits, claims or other proceedings at law or in equity, or to the knowledge of Buyer, investigations, pending before or by any Governmental Authority or, to the knowledge of Buyer, threatened, against Parent or Buyer which, if determined adversely, could reasonably be expected to have a material adverse effect on the ability of Parent or Buyer to enter into and perform its obligations under this Agreement.

2.6 Investment Representations . Buyer is an “accredited investor” within the meaning of Rule 501 under the Securities Act of 1933, as amended, and is acquiring the membership interests of Newco for investment purposes and without a view to their public resale or distribution.

2.7 Sufficient Funds . Buyer has sufficient funds available to pay the Purchase Price to Seller and to perform its other obligations pursuant to this Agreement.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY

Except as specifically set forth in the Disclosure Schedule prepared and signed by Seller and the Company and delivered to Buyer simultaneously with the execution hereof (the “Seller Disclosure Schedule“), Seller and the Company, jointly and severally, represent and warrant to Buyer that all of the statements contained in this Article 3 are true, correct and complete. Each matter referred to in any section of the Seller Disclosure Schedule shall be deemed to have been disclosed for the same purposes in all other sections of the Seller Disclosure Schedule to the extent it is reasonably clear from such disclosure that it is applicable to such other sections. A

 

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representation in this Article 3 that is qualified to the Company’s or Seller’s “knowledge” shall mean the knowledge of the following persons, after reasonable inquiry: Mark Dorris, Paul Ellis, Mike Stanley and Charlie Stroupe.

3.1 Organization and Standing . Each of Seller, Newco, and the Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware with full limited liability company power and authority to own, lease, use and operate its assets and properties and to conduct its business as and where now owned, leased, used, operated and conducted. Seller and each of its subsidiaries, including Newco and the Company, is duly qualified to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it or the property it owns, leases or operates requires it to be so qualified or in good standing, except where the failure to be so qualified and in good standing in such jurisdiction would not have a Material Adverse Effect on Seller. None of Seller, Newco, and the Company is in default in the performance, observance or fulfillment of any provision of its Operating Agreement as in effect on the date of this Agreement. Seller has furnished to Buyer complete and correct copies of such Operating Agreements. Listed in Section 3.1 of the Seller Disclosure Schedule is each jurisdiction in which Seller or one of its subsidiaries, including Newco and the Company, is qualified to do business and whether Seller (or the subsidiaries of Seller) is in good standing.

3.2 Subsidiaries . The only subsidiary of Newco at the Closing will be the Company. The Company has no subsidiaries. Neither the Company nor Newco (except for the interest in the Company that Newco will acquire prior to Closing) owns, directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint venture or other entity or enterprise.

3.3 Power and Authority . Each of Seller, Newco, and the Company has all requisite limited liability company power and authority to enter into and deliver this Agreement, to perform its obligations under this Agreement, and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Seller, Newco, and the Company has been duly authorized by all necessary limited liability company action on the part of Seller, Newco, and the Company. This Agreement has been duly executed and delivered by Seller, Newco, and the Company, and constitutes the legal, valid and binding obligation of Seller, Newco, and the Company, enforceable against them in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.

3.4 Capitalization of Company . Seller is the sole member of Newco, and, at the Closing, Newco will be the sole member of the Company. There are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings, claims or other commitments or rights of any type relating to the issuance, sale or transfer of any securities of Newco or the Company, nor are there outstanding any securities that are convertible into or exchangeable for any equity securities or other ownership interests of Newco or the Company, and none of the Company, Newco, and Seller has any obligation of any kind to issue any additional securities or to pay for or repurchase any securities of Newco or the Company or any predecessor thereof.

 

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3.5 Conflicts: Consents and Approvals . Neither the execution or delivery of this Agreement by Seller, Newco, or the Company, nor the consummation of the transactions contemplated by this Agreement by Seller, Newco, or the Company will:

(a) conflict with, or result in a breach of any provision of, Seller’s, Newco’s, or the Company’s Operating Agreement;

(b) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event that, with the giving of notice, the passage of time or otherwise, would constitute a default) under, or entitle any person (with the giving of notice, the passage of time or otherwise) to terminate, accelerate, modify or call a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Seller or any of its subsidiaries, including Newco and the Company, under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, contract, undertaking, agreement, lease or other instrument or obligation to which Seller or any of its subsidiaries, including Newco and the Company, is a party;

(c) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Seller or any of its subsidiaries, including Newco and the Company, or any of their respective properties or assets; or

(d) require any action or consent or approval of, or review by, or registration or filing by Seller or any of its affiliates, including Newco and the Company, with, any third party or any Governmental Authority, other than (i) actions required by the HSR Act, and (ii) consents or approvals of any Government Authority set forth in Section 3.5 to the Seller Disclosure Schedule;

except in the case of clause (b) above that is set forth in Section 3.5 to the Seller Disclosure Schedule, and in the case of clauses (c) and (d) above for any of the foregoing that would not, individually or in the aggregate, have a Material Adverse Effect on Newco or the Company or a material adverse effect on the ability of the parties to this Agreement to consummate the transactions contemplated by this Agreement.

3.6 Financial Statements . Seller has delivered to Buyer the following unaudited financial statements of the Company: (a) balance sheets as of December 31, 2005, 2004 and 2003, (b) statements of income for the years ended December 31, 2005, 2004 and 2003 (together with the balance sheets referred to in subsection (a), the “Annual Financial Statements“), (c) a balance sheet as of June 30, 2006, and (d) a statement of income for the six-month period ended June 30, 2006 (together with the balance sheet referred to in subsection (c), the “Interim Period Financial Statements“), which are attached hereto in Section 3.6 to the Seller Disclosure Schedule. The Annual Financial Statements, the Interim Period Financial Statements and, from and after the date of delivery thereof the Subsequent Monthly Financial Statements and the Audited Financial Statements (each as defined in Section 4.2(d)), are referred to collectively herein as the “Financial Statements.” The Annual Financial Statements are and the Audited Financial Statements, when delivered, will be complete and correct in all material respects, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP“) throughout the periods indicated, except that the Annual Financial

 

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Statements do not contain footnotes. The Interim Period Financial Statements and the Subsequent Monthly Financial Statements, when delivered, will have been prepared in accordance with GAAP, except that they do not contain footnotes, and are subject to normal audit adjustments. The balance sheets included in the Financial Statements present fairly the financial condition of the Company as at their respective dates. The statements of income included in the Financial Statements reflect all costs that historically have been incurred and present fairly the results of operations of the Company for the periods indicated. Except (i) as and to the extent disclosed or reserved against on the balance sheet of the Company as of June 30, 2006, (ii) as incurred after the date thereof in the ordinary course of business consistent with prior practice and not prohibited by this Agreement or (iii) as set forth in Section 3.6 of the Seller Disclosure Schedule, none of Seller, Newco, and the Company has any liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise and whether due or to become due, that, individually or in the aggregate, have or could have a Material Adverse Effect on Newco or the Company.

3.7 Compliance with Law .

(a) Except as set forth in Section 3.7 to the Seller Disclosure Schedule, each of Seller, Newco, and the Company is in compliance, and at all times since January 1, 2002 have been in compliance, in all material respects with all applicable laws relating to Seller, Newco, and the Company or their respective business or properties, including all employment matters.

(b) Except as disclosed in Section 3.7 to the Seller Disclosure Schedule, no investigation or review by any Governmental Authority with respect to Seller, Newco, and the Company are pending, or, to the knowledge of Seller or the Company, threatened, nor has any Governmental Authority indicated in writing an intention to conduct the same.

(c) Except as disclosed in Section 3.7 to the Seller Disclosure Schedule, each of Seller, Newco, and the Company has been in full compliance with the applicable provisions of the Privacy Standards, the Electronic Transactions Standards and the Security Standards promulgated under the Administrative Simplifications subtitle of the Health Insurance Portability and Accountability Act of 1996.

3.8 Litigation; Products Liability . Except at set forth in Section 3.8 to the Seller Disclosure Schedule, there is no suit, claim, action, proceeding, hearing, notice of violation, demand letter or investigation (an “Action“) pending, or, to the knowledge of Seller or the Company (or its executive officers or directors), threatened, against Seller, Newco, or the Company or any executive officer or director of Seller, Newco, or the Company with respect to the business of Newco or the Company. Except as set forth in Section 3.8 to the Seller Disclosure Schedule, none of Seller, Newco, and the Company is subject to any outstanding order, writ, injunction or decree. Except as set forth in Section 3.8 to the Seller Disclosure Schedule, since January 1, 2003, none of Seller, Newco, and the Company has been subject to any outstanding order, writ, injunction or decree relating to the Company’s method of doing business or its relationship with past, existing or future users or purchasers of any goods or services of the Company. Except as set forth in Section 3.8 to the Seller Disclosure Schedule, there is no Action presently pending, or, to the knowledge of Seller or the Company (or its executive officers or directors), threatened, against Seller, Newco, or the Company relating to

 

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any alleged hazard or alleged defect in design, manufacture, materials or workmanship, including any failure to warn or alleged breach of express or implied warranty or representation, relating to any product manufactured, distributed or sold by or on behalf of the Company. Except as set forth in Section 3.8 to the Seller Disclosure Schedule, none of Seller, Newco, and the Company has extended to its customers any written nonuniform product warranties, indemnifications or guarantees.

3.9 No Material Adverse Change . Except as set forth in Section 3.9 of the Seller Disclosure Schedule, since December 31, 2005, there has been no material adverse change in the assets, liabilities, results of operations, or financial condition of the Newco or Company, or any event, occurrence or development that could reasonably be expected to have a Material Adverse Effect on Newco or the Company or a material adverse effect on the ability of Seller to consummate the transactions contemplated by this Agreement.

3.10 Taxes .

(a) Each of the Company, Newco and Medegen, LLC has duly and timely filed all Tax Returns (including those filed on a consolidated, combined or unitary basis) required to have been filed by the Company, and all such Tax Returns are true, correct and complete. Each of the Company, Newco and Medegen, LLC has paid all Taxes required to be paid in respect of the periods covered by such Tax Returns or otherwise due to any United States federal, state or local or foreign or other Taxing Authority within the time and manner prescribed by applicable law. The Financial Statements contain adequate reserves (without taking into account any reserve for deferred taxes) for any Taxes which have not been paid, whether or not shown as being due on any Tax Return, and the liabilities of the Company, and Newco, for any Taxes will not exceed the reserves so established. Except as disclosed in Section 3.10 to the Seller Disclosure Schedule, (i) neither the Company, Newco nor Medegen, LLC is delinquent in the payment of any material Tax; (ii) neither the Company, Newco nor Medegen, LLC has requested or filed any document having the effect of causing any extension of time within which to file any Tax Returns in respect to any taxable year or period that have not since been filed; (iii) no deficiencies for any material Tax have been proposed in writing, asserted or assessed (tentatively or definitely), or, to the knowledge of Seller, the Company or Medegen, LLC, threatened, in each case, by any Taxing Authority, against the Company or Medegen, LLC for which there are not adequate reserves in the Financial Statements; (iv) no audit, litigation or other proceeding with respect to Taxes (“Tax Proceeding“) has been commenced or is presently pending with respect to the Company or Medegen, LLC and, to the knowledge of Seller, the Company and Medegen, LLC, no such Tax Proceeding is pending or threatened; (v) there are no pending requests for waivers of the time to assess any material Tax against the Company or Medegen, LLC, other than those made in the ordinary course and for which payment has been made or for which there are adequate reserves in the Financial Statements; (vi) all assets of the Company or Medegen, LLC have been properly listed and described on the property tax rolls for all periods prior to Closing and no portion of the assets of the Company constitutes omitted property for property tax purposes; and (vii) with respect to any taxable period ended prior to December 2001, all United States federal income Tax Returns including the Company and/or Medegen, LLC have been audited by the Internal Revenue Service or are closed by the applicable statute of limitations. Neither the Company nor Medegen, LLC has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax

 

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assessment or deficiency. There are no liens with respect to Taxes upon any of the properties or assets, real or personal, tangible or intangible of the Company, Newco or Medegen, LLC (other than liens for Taxes not yet due). Except as set forth in Section 3.10 to the Seller Disclosure Schedule, no claim has ever been made in writing by a Taxing Authority in a jurisdiction where the Company or Medegen, LLC does not file Tax Returns that the Company or Medegen, LLC is or may be subject to taxation by that jurisdiction.

(b) Neither the Company, Newco nor Medegen, LLC is obligated by any contract, agreement or other arrangement to indemnify any other person with respect to Taxes. Neither the Company, Newco nor Medegen, LLC is now or has ever been a party to or bound by any agreement or arrangement (whether or not written and including any arrangement required or permitted by law) binding the Company, Newco or Medegen, LLC that (i) requires the Company, Newco or Medegen, LLC to make any Tax payment to or for the account of any other person, (ii) affords any person other than Seller the benefit of any net operating loss, net capital loss, investment Tax credit, foreign Tax credit, deduction or any other credit or Tax attribute that could reduce Taxes (including deductions and credits related to alternative minimum Taxes) of the Company or Medegen, LLC, or (iii) requires or permits the transfer or assignment of income, revenues, receipts or gains to the Company from any person.

(c) Each of the Company and Medegen, LLC has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing by the Company or Medegen, LLC to any employee, independent contractor, creditor, member, stockholder or other third party.

(d) Except as disclosed in Section 3.10 to the Seller Disclosure Schedule or the transactions contemplated by this Agreement, neither Seller, the Company nor their affiliates have engaged in any transaction (or any series of transactions) outside the ordinary course of business which may give rise to any material change in the Tax position of the Company during any period beginning after the end of the latest period for which a Tax Return has been filed (with respect to any jurisdiction, domestic or foreign), except to the extent reserved for in the Financial Statements.

(e) Except as disclosed in Section 3.10 to the Seller Disclosure Schedule, the Company has not (i) participated, within the meaning of Treasury Regulation Section 1.6011-4(c), in any “listed transaction” or any other “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4, (ii) has engaged in any transaction that gives rise to (x) a registration obligation under section 6111 of the Code and the Treasury Regulations thereunder, or (y) a list maintenance obligation under section 6112 of the Code and the Treasury Regulations thereunder, or (iii) has taken any position on any Tax Return which could give rise to a substantial underpayment of Tax under Section 6662 of the Code or any similar provision of state, local or foreign Tax law. Neither Seller nor the Company has been notified by any tax advisor that such tax advisor has received a summons pursuant to Section 7609 of the Code with respect to any records of the Company.

(f) Since inception, each of the Company, Newco and Medegen, LLC has been treated for U.S. federal income Tax purposes as an entity disregarded as separate from its owner, within the meaning of Treasury Regulation Section 301.7701-3. No election has been

 

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made to treat either the Company or Newco as a corporation for U.S. federal income Tax purposes and no other action has been taken that is inconsistent with the treatment of the Company and Newco as disregarded entities. Neither the Company nor Newco is a successor to an entity that has been treated as a corporation for U.S. federal income Tax purposes, nor has the Company or Newco acquired substantially all of the assets of an entity in a transaction pursuant to which the Company or Newco would succeed to the liabilities of such an entity.

(g) “ Taxes ” means (i) all taxes, assessments, fees and other governmental charges imposed by any Taxing Authority, including income, profits, gross receipts, net proceeds, alternative or add-on minimum, ad valorem, value added, sales, use, property (including assessments, fees or other charges imposed by a Taxing Authority which are based on the use or ownership of real property), personal property (tangible and intangible), stamp, excise, duty, franchise, capital stock, transfer, registration, license, withholding, social security (or similar), unemployment, disability, payroll, employment, fuel, excess profits, occupational, premium, windfall profit, severance, estimated, unclaimed property or escheat obligations, or other charge of any kind whatsoever, (ii) all interest, penalties, fines, additions to tax or additional amounts imposed by any Taxing Authority in connection with any item described in clause (i), and (iii) any liability in respect of any item described in clauses (i) or (ii), above, that arises by reason of a contract, assumption, transferee or successor liability, operation of law, Treasury Regulation section 1.1502-6 (or any predecessor or successor thereof or any analogous provision under state, local or other law) or otherwise.

(h) “ Tax Returns ” means returns, reports and forms filed with any Governmental Authority of the United States or any other jurisdiction responsible for the imposition or collection of Taxes, including any schedule or attachment thereto, and including any amendment thereof.

(i) “ Taxing Authority ” means any Governmental Authority with the power to levy or collect Taxes or to which any Taxes are payable or which otherwise administers Taxes.

3.11 Intellectual Property .

(a) Set forth in Section 3.11 to the Seller Disclosure Schedule is a true and complete list of (i) all of the Company’s foreign and domestic patents, patent applications, copyrights, trademarks, service marks, and trade names (and any registrations or applications for registration for any of the foregoing) and (ii) all agreements to which the Company is a party that concern any Intellectual Property used, owned or held by the Company. “Intellectual Property“ means all intellectual property or other proprietary rights of every kind, including all domestic or foreign patents, domestic or foreign patent applications, inventions (whether or not patentable), processes, products, technologies, discoveries, works-for-hire, copyrightable and copyrighted works, apparatus, trade secrets, trademarks, trademark registrations and applications, service marks, service mark registrations and applications, trade names, trade dress, copyright registrations, customer lists, marketing and customer information, licenses, technical information (whether confidential or otherwise), software, and all documentation thereof. Other than the Intellectual Property set forth in Section 3.11 to the Seller Disclosure Schedule, no name, patent invention, trade secret, proprietary right, computer software, trademark, service mark, trade name, logo, copyright, franchise, license, sublicense or other Intellectual Property is necessary

 

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for the operation of business of the Company in substantially the same manner as such business is presently conducted or is currently being utilized by the Company in such operation. Except as set forth in Section 3.11 to the Seller Disclosure Schedule: (i) the Company owns, free and clear of any liens, claims or encumbrances, the Intellectual Property listed thereon; (ii) no claim of invalidity or ownership with respect to any Intellectual Property listed has been made by a third party and such Intellectual Property is not the subject of any threatened or pending Action; (iii) no individual or entity has asserted that the Company or a licensee of the Company is infringing or has infringed any domestic or foreign patent, trademark, service mark, trade name, or copyright or design right or other Intellectual Property or Intellectual Property right of another, or has misappropriated or improperly used or disclosed any trade secret, confidential information or know-how; (iv) all fees, annuities, royalties, honoraria and other payments that are due from the Company on or before the date of this Agreement for any of the Intellectual Property and agreements related to the Intellectual Property has been paid; (v) to the knowledge of the Company or Seller, the making, using, selling, manufacturing, marketing, licensing, reproduction, distribution, or publishing of any process, machine, manufacture, composition of matter, or material related to any part of the Intellectual Property, does not infringe on any domestic or foreign patent, trademark, service mark, trade name, copyright or other intellectual property right of any third party, and does not involve the misappropriation or improper use or disclosure of any trade secrets, confidential information or know-how of any third party; (vi) to the knowledge of the Company or Seller, no unexpired foreign or domestic patents or patent applications exist that are adverse to the interests of the Company; (vii) there exists no (A) prior art that would void or invalidate any of the Company’s Intellectual Property or (B) conduct or use by the Company or any third party that would void or invalidate any of the Company’s Intellectual Property; and (viii) to the knowledge of the Company or Seller, the execution, delivery and performance of this Agreement by the Company or Seller, and the consummation of the transactions contemplated by this Agreement, will not breach, violate or conflict with any instrument or agreement governing or contained within any of the Company’s Intellectual Property, will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any of the Company’s Intellectual Property, or in any way impair the right of Buyer to make, use, sell, license or dispose of, or to bring any action for the infringement of, any of the Company’s Intellectual Property.

(b) Seller and the Company have taken reasonable and appropriate steps to safeguard and maintain the secrecy and confidentiality of all trade secrets, copyrights and patents contained in the Company’s Intellectual Property.

3.12 Title to and Condition of Properties .

(a) The Company owns or holds under valid leases all real property, including the facility located in Northglenn, Colorado (the “Colorado Manufacturing Facility“), the facility located in Denver, Colorado (the “Colorado Warehouse Facility“) and the facility located in Gallaway, Tennessee (the “Tennessee Facility” and, together with the Colorado Manufacturing Facility and Colorado Warehouse Facility, the “Company Facilities“), plants, machinery and equipment necessary for the conduct of the business of the Company as presently conducted, except where the failure to own or hold such property, plants, machinery and equipment would not have a Material Adverse Effect on the Company. Seller has provided Buyer with (i) a true and correct copy of the Real Estate Lease, dated October 1, 2005, between ProLogis (the

 

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“Colorado Warehouse Facility Lease“) and the Company and (ii) a true and correct copy of the Real Estate Lease, dated August 5, 1997, between Valentine Colorado, LLC and the Company (the “Colorado Manufacturing Facility Lease” and together with the Colorado Warehouse Facility Lease, the “Leases“). Each of the Leases is legal, valid, binding, enforceable, and in full force and effect. The Company has good and valid title to the leasehold estate under the Leases free and clear of all liens, other than those that will be released at Closing. The Company enjoys peaceful and undisturbed possession under the Leases. Except as set forth in Section 3.12 to the Seller Disclosure Schedule, the Company has good and valid fee title to the Tennessee Facility, free and clear of all liens, other than those that will be released at Closing, liens for taxes not yet due and payable, and exceptions to title or similar encumbrances incurred in the ordinary course of business that do not detract from the value or marketability of the Tennessee Facility or interfere with its use in the ordinary course of business.

(b) There are no eminent domain or any other similar Actions pending, or, to the knowledge of Seller or the Company, threatened, affecting any portion of the Company Facilities. There is no writ, injunction, decree, order or judgment outstanding, nor any Action, pending, or, to the knowledge of Seller or the Company, threatened, relating to the ownership, lease, use, occupancy or operation of the Company Facilities.

(c) To the knowledge of Seller or the Company, the use and operation of the Company Facilities do not violate in any material respect any instrument of record or agreement affecting such use and operation. To the knowledge of Seller or the Company, there is no violation of any covenant, condition, restriction, easement or order of any Governmental Authority having jurisdiction over such property or of any other person entitled to enforce the same affecting the Company Facilities or the current or contemplated use or occupancy thereof. No material damage or destruction has occurred with respect to the Company Facilities since December 31, 2005.

(d) To the knowledge of Seller or the Company, the Company Facilities comply with all applicable building, zoning, subdivision and other land use and similar applicable laws affecting them (collectively, “Real Property Laws“), and none of Seller, Newco, and the Company has received any notice of violation or claimed violation of any Real Property Law. There is no pending, or, or to the knowledge of Seller or the Company, anticipated, change in any Real Property Law that will have or result in a material adverse effect upon the ownership, alteration, use, occupancy or operation of the Company Facilities or any portion thereof. To the knowledge of Seller or the Company, no current use of the Company Facilities is dependent on a nonconforming use or other governmental approval the absence of which would materially limit the use of such property.

(e) The buildings, plants, machinery and equipment necessary for the conduct of the businesses of the Company as presently conducted are, to the knowledge of Seller or the Company, structurally sound, are in good operating condition and repair and are adequate for the uses to which they are being put, and none of such buildings, plants, machinery or equipment is in need of maintenance or repairs, except for ordinary, routine maintenance and repairs that are not material in nature or cost. A list of machinery and equipment is annexed hereto as Exhibit “C”.

 

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3.13 Employee Benefit Plans .

(a) For purposes of this Section 3.13, the following terms have the definitions given below:

“Controlled Group Liability” means any and all liabilities (contingent, secondary or otherwise) (i) under Title IV of ERISA (as defined below), (ii) under Sections 302 and 502 of ERISA, (iii) under Sections 412, 4971, and 4975 of the Code, and (iv) resulting from a violation of the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the Code or the group health plan requirements of Section 601 et seq. of ERISA.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, together with the rules and regulations thereunder.

“ERISA Affiliate” means, with respect to any entity, trade or business, any other entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or business, or that is a member of the same “controlled group” as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA.

“Plans” means all employee benefit plans, programs and other arrangements providing benefits to any current or former employee or director of the Company or to any beneficiary or dependent thereof, and whether covering one person or more than one person, sponsored or maintained by the Company or any of its ERISA Affiliates or to which the Company or any of its ERISA Affiliates contributes, is obligated to contribute, or has any liability or obligation. Without limiting the generality of the foregoing, the term “Plans” includes any defined benefit or defined contribution pension plan, profit sharing plan, stock ownership plan, deferred compensation agreement or arrangement, vacation pay, sickness, disability or death benefit plan (whether provided through insurance, on a funded or unfunded basis or otherwise), employee stock option or stock purchase plan, bonus or incentive plan or program, severance pay plan, agreement, arrangement or policy (including statutory severance and termination indemnity plans), practice or agreement, employment agreement, retiree medical benefits plan and each other employee benefit plan, program or arrangement, including each “employee benefit plan” (within the meaning of Section 3(3) of ERISA).

(b) Section 3.13 to the Seller Disclosure Schedule lists all Plans. Except as set forth on Section 3.13 to the Seller Disclosure Schedule, with respect to each Plan, Seller has provided to Buyer a true, correct and complete copy of the following (where applicable): (i) each writing constituting a part of such Plan, including all plan documents (including amendments), benefit schedules, trust agreements, and insurance contracts and other funding vehicles; (ii) the three most recent Annual Reports (Form 5500 Series) and accompanying schedules, if any; (iii) the current summary plan description, if any; (iv) the most recent annual financial report, if any; and (v) the most recent determination letter from the Internal Revenue Service, if any; (vi) the most recent actuarial valuation, if any; (vii) all collective bargaining agreements, if any; (viii) all contracts with third party administrators, actuaries, investment

 

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managers, consultants, or others that relate to any Plan; (ix) any notices provided to either participants in any Plan or to any Governmental Authority relative to any Plan during the past three years; (x) all minutes of committees, trustees or others charged with administrative authority with respect to any Plan for the past three years; and (xi) all compliance reports provided by third party administrators, actuaries or others relative to any Plan during the past three years, including, but not limited to, reports of compliance with Code Sections 401(k), 401(m), 415, 402(g), 410(b) or 401(a)(4). Except as specifically provided in the foregoing documents provided to Buyer, there are no amendments to any Plan that have been adopted or approved nor has the Company undertaken to make any such amendments or to adopt or approve any new Plan.

(c) The Internal Revenue Service has issued a favorable determination letter with respect to each Plan that is intended to be a “qualified plan” (within the meaning of Section 401(a) of the Code) (a “Qualified Plan“). There are no existing circumstances nor any events that have occurred that could adversely affect the qualified status of any Qualified Plan or the related trust.

(d) All contributions required to be made by Seller or the Company or any of their respective ERISA Affiliates to any Plan by applicable laws or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Plan, for any period through the date of this Agreement have been timely made or paid in full. All liabilities of the Company under the Plans are reflected on the Financial Statements in accordance with GAAP.

(e) Seller and the Company and their respective ERISA Affiliates have complied, and are now in compliance, in all material respects, with all provisions of ERISA, the Code and all laws and regulations (including any local applicable law) applicable to the Plans including the timely filing of all reports required by ERISA or the Code. Each Plan has been operated in material compliance with its terms. There is not now, and there are no existing circumstances that could reasonably be expected to give rise to, any requirement for the posting of security with respect to a Plan or the imposition of any pledge, lien, security interest or encumbrance on the assets of the Company or any of its ERISA Affiliates under ERISA or the Code.

(f) Except as set forth in Section 3.13 to the Seller Disclosure Schedule, each Plan may be unilaterally terminated by the Company at any time without liability other than for benefits accrued under the terms of such Plan as of the date of termination.

(g) Except as set forth in Section 3.13 to the Seller Disclosure Schedule, no Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code. No Plan is a “multiemployer plan” (within the meaning of Section 4001(a)(3) of ERISA) (a “Multiemployer Plan“) or a plan that has two or more contributing sponsors at least two of whom are not under common control (within the meaning of Section 4063 of ERISA) (a “Multiple Employer Plan“), nor has the Company or any of its ERISA Affiliates, at any time, contributed to or been obligated to contribute to any Multiemployer Plan or Multiple Employer Plan.

 

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(h) There does not now exist, and there are no existing circumstances that could result in, any Controlled Group Liability that would be a liability of the Company following the Closing. Without limiting the generality of the foregoing, neither Seller nor the Company nor any of their respective ERISA Affiliates has engaged in any transaction described in Section 4069 or Section 4202 of ERISA.

(i) Except for health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA and except as set forth in Section 3.13 to the Seller Disclosure Schedule, the Company does not have any liability for life, health, medical or other welfare benefits to former employees or directors or beneficiaries or dependents thereof. To the knowledge of Seller or the Company, there has been no communication to current or former employees or directors of the Company that could reasonably be expected or interpreted to promise or guarantee such employees or directors retiree health or life insurance benefits or other retiree welfare benefits. Each Plan which is a “group health plan” within the meaning of Section 5000(b)(1) of the Code is in compliance with the notice and continuation requirements of Section 4980B of the Code, the Consolidated Omnibus Budget Reconciliation