STOCK PURCHASE AGREEMENT

Exhibit 10.15

EXECUTION VERSION

STOCK PURCHASE AGREEMENT

by and between

NBTY, INC.

and

ZILA, INC.

with respects to all of the outstanding capital stock

of

ZILA NUTRACEUTICALS, INC.

August 13, 2006

TABLE OF CONTENTS

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STOCK PURCHASE AGREEMENT (this " Agreement ") dated as of August 13, 2006 (the " Effective Date ") , by and between the following parties:

• • • • • •       NBTY, Inc., a Delaware corporation (" Buyer "); and

         

        • •       Zila, Inc., a Delaware corporation (" Seller ").

         

For purposes of this Agreement, certain capitalized terms have the meanings ascribed to them in Exhibit A . Other terms are defined in the body of this Agreement.

OVERVIEW

WHEREAS, Seller owns all the issued and outstanding shares of common stock (the " Shares ") of Zila Nutraceuticals, Inc., an Arizona corporation (the " Company "), constituting all issued and outstanding shares of capital stock of the Company; and

WHEREAS, the Company engages in the business of manufacturing and marketing nutritional supplements and cosmetics (collectively, the " Products ") , including, without limitation, Ester-C and Ester-E forms of Products (the " Company Business "); and

WHEREAS, Ester-C and Ester-E are trademarks owned by the Company in certain jurisdictions and such Ester-C and Ester-E forms of Products are subject to patents owned or exclusively licensed by the Company in certain jurisdictions and are manufactured by the Company in accordance with applicable patents and/or trade secrets and distributed and sold pursuant to trademarks owned or exclusively licensed by the Company; and

WHEREAS, Seller conducted an extensive auction process for the Company Business, and Buyer was the highest bidder in such process; and

WHEREAS, by this Agreement Seller desires to sell to the Buyer, and Buyer desires to purchase from Seller, the Shares in return for cash, in each case upon all the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the promises and mutual agreements and covenants hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, Seller and Buyer hereby agree as follows:

ARTICLE 1
THE TRANSACTION

1.1           Purchase and Sale of Shares . At the Closing, upon the terms and subject to the conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, all of the right, title and interest of Seller in and to the Shares.

• • 1.2           Purchase Price Closing Adjustment .

• • (a)           The aggregate purchase price for the Shares and agreement of the Seller not to compete with Buyer shall consist of (i) Thirty Seven Million Five Hundred Thousand Dollars ($37,500,000), subject to a working capital adjustment as described in Section 1.2(e) below (the " Closing Date Purchase Price ") and (ii) up to Three Million Dollars ($3,000,000) payable in accordance with Section 1.3 (the " Contingent Purchase Price, " and together with the Closing Date Purchase Price, the " Purchase Price ").

     

    (b)           Within ninety (90) days after the Closing Date, the Company under the direction of the Buyer shall prepare a balance sheet of the Company as at the close of business on the Closing Date (the " Closing Date Balance Sheet "). The Closing Date Balance Sheet shall be prepared in accordance with GAAP applied on a basis consistent with the Financial Statements.

     

    (c)           Within ninety (90) days after the Closing Date, Buyer shall deliver to the Seller the Closing Date Balance Sheet, as well as a statement (the " Closing Date Working Capital Statement "), setting forth the Closing Working Capital and including a detailed computation thereof. The Closing Date Working Capital Statement shall be prepared in accordance with GAAP applied on a basis consistent with the Financial Statements. At the request of Seller, Buyer shall deliver to Seller with its delivery of the Closing Date Working Capital Statement copies of all working papers in Buyer’s possession relevant to Buyer’s determination of Closing Working Capital.

     

    (d)           Unless the Seller, within thirty (30) days after receipt of the Closing Date Balance Sheet and Closing Date Working Capital Statement, gives the Buyer a written notice objecting thereto and specifying, in detail, the basis for such objection and the amount in dispute (" Notice of Objection "), such Closing Date Balance Sheet and Closing Date Working Capital Statement shall be considered accepted and binding upon the Buyer and the Seller. If, within thirty (30) days after the receipt of the Closing Date Balance Sheet and Closing Date Working Capital Statement, the Seller gives a Notice of Objection to the Buyer and all matters set forth therein are not resolved within twenty-one (21) days after the Buyer’s actual receipt of such notice, the disputed items shall be submitted to arbitration under the Commercial Arbitration Rules of the American Arbitration Association (the " AAA Rules "). The arbitration shall be held in Dallas, Texas before a single arbitrator, who shall be a certified public accountant, selected in accordance with the AAA Rules (the arbitrator being hereinafter referred to as the " Arbitrating Accountant "). The Arbitrating Accountant shall afford each of the Buyer and its representatives and the Seller and its representatives up to 30 days in the aggregate to present their positions as to the disputed items. The Arbitrating Accountant shall resolve all disputed items in a written determination to be delivered within 15 days following the end of the submission period. Such resolution shall be final and binding upon the parties and shall be reflected in any necessary revisions to the Closing Date Balance Sheet. The fees, costs and expenses of the Arbitrating Accountant shall be paid by the Buyer and the Seller in inverse proportion to the results of the prevailing party on the disputed items resolved by the Arbitrating Accountant. Such proportional allocations

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• • shall be determined by the Arbitrating Accountant at the time its determination is rendered on the disputed items.

• • (e)           If the Closing Working Capital, as agreed upon by the parties or as finally determined by the Arbitrating Accountant is greater or less than the Target Working Capital, then the Purchase Price shall be increased by the amount of the excess or decreased by the amount of the shortfall, as the case may be. Any excess shall be paid by the Buyer to the Seller within seven (7) days of the final determination of the Closing Working Capital by wire transfer of immediately available funds. Any shortfall shall be paid by the Seller to the Buyer within seven (7) days of the final determination of the Closing Working Capital by wire transfer of immediately available funds.

     

1.3           Contingent Purchase Price .

• •  

    (a)           In addition to the Closing Date Purchase Price and subject to the terms, conditions, and limitations set forth in this Section 1.3 , Seller shall be entitled to the Contingent Purchase Price, provided that during the one-year period following the Closing Date (the " Measurement Period "), the Company generates the EBITDA Target (as defined below) during the Measurement Period. Within 90 days of the first anniversary of the Closing Date, Buyer shall prepare and deliver to Seller a statement (the " Earn Out Closing Statement ") showing the EBITDA calculation during the Measurement Period with respect to Buyer’s operation of the Company Business (without regard to any revenue generated or losses incurred as a result of subsequent acquisitions or dispositions by Buyer relating to or in connection with the on-going operations of the Company Business following the Closing Date) as determined by Buyer in accordance with GAAP. At the request of Seller, Buyer shall deliver to Seller with its delivery of the Earn Out Closing Statement copies of all working papers in Buyer’s possession relevant to Buyer’s determination of the Company Business’ EBITDA for the Measurement Period.

     

    (b)           If EBITDA during the Measurement Period as reflected on the Earn Out Closing Statement is less than or equal to Fourteen Million Dollars $14,000,000 (the " EBITDA Target "), Seller shall not be entitled to any of the Contingent Purchase Price. If EBITDA during the Measurement Period as reflected on the Earn Out Closing Statement exceeds the EBITDA Target, Seller shall be entitled to Contingent Purchase Price in the amount based on the calculation set forth in the table below, subject to a maximum of $3,000,000 in Contingent Purchase Price; it being understood and agreed that the Contingent Purchase Price shall not exceed $3,000,000 in the aggregate regardless of EBITDA level:

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• • In the event Buyer does not receive written notice from Seller disputing its calculation of the amount set forth on the Earn Out Closing Statement within thirty (30) days following Buyer’s delivery of the same to Seller, Seller shall be deemed to have agreed to such calculation and to the resulting Contingent Purchase Price payment (if any).

     

    (c)           Buyer shall pay Seller the Contingent Purchase Price by wire transfer in immediately available funds within seven (7) days following the final determination of the Contingent Purchase Price, to an account specified in writing by Seller.

     

    (d)           During the Measurement Period, unless otherwise agreed to by Buyer and Seller, Buyer agrees (i) to use reasonable commercial efforts to cause the Company to operate consistent with Buyer’s other subsidiaries; (ii) not impose any "home office," overhead or other similar charge on the Company that is not generally imposed on Buyer’s other subsidiaries and (iii) that if the Company is combined, consolidated, merged or liquidated, that Buyer will create and maintain books and records sufficient to enable Buyer and Seller to determine the Contingent Purchase Price.

     

    (e)           Any disputes arising with respect to the application of this Section 1.3 shall be resolved in the same manner as set forth in Section 1.2(d) .

     

1.4           Transfer Fees; Recording Fees; Taxes . Seller will pay all transfer and assumption fees and expenses and all sales, use, value added or similar taxes, if any, arising out of the transfer of the Shares. Seller will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such taxes and fees with respect to such transfer of Shares and, if required by Applicable Law, Buyer will and will cause its Affiliates or any Related Party to, join in the execution of any such Tax Returns and other documentation. Seller shall cause to be recorded, and shall pay for all fees and expenses necessary to record, all recordable Intellectual Property Assets currently in the name of any predecessor of the Company to be recorded in the name of Zila Nutraceuticals, Inc. All fees and expenses necessary to record any further changes in title or name of the Intellectual Property Assets shall be borne by Buyer.

ARTICLE 2
THE PARTIES’ OBLIGATIONS AT THE CLOSING

2.1           The Closing . Subject to the terms and conditions of this Agreement, the sale and purchase of the Shares contemplated by this Agreement shall take place at a closing (" Closing ") at the offices of the Seller at 9:00 a.m., Arizona time, on the third business day after Stockholder Approval is received and all other conditions to Closing are met or waived (the " Closing Date "),

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or at such other place or at such other time or date as the Seller and Buyer may mutually agree upon in writing.

2.2           Seller’s Obligations . At the Closing, Seller will deliver to Buyer or accomplish the following:

• • • • • • •                                           Seller will assign and transfer to Buyer good and valid title in and to the Shares, free and clear of all Encumbrances, by delivery to Buyer stock certificates evidencing the Shares, in genuine and unaltered form, duly endorsed in blank, or accompanied by stock powers duly executed in blank;

             

            •                                           all required third-party and governmental consents that if not obtained would result in a Material Adverse Effect;

             

            •                                           a true and complete copy, certified by the Secretary of Seller, of the resolutions duly and validly adopted by the Board of Directors and stockholders of Seller evidencing their authorization of the execution and delivery of this Agreement, the Transaction Documents and the consummation of the transactions contemplated hereby and thereby;

             

            •                                           a certificate of a duly authorized officer of Seller certifying as to the accuracy in all respects of the matters set forth in Exhibit B , as if made on the Closing Date (such certificate shall be deemed to become a part of this Agreement);

             

            •                                           the Transaction Documents (as applicable), duly executed by an authorized officer of Seller and/or the Company, as applicable;

             

            •                                           evidence of payment in full of all third party indebtedness (other than Capital Leases) of the Company and all intercompany indebtedness of the Company;

             

            •                                           resignation letters for those officers and directors of the Company that are set forth on Schedule 1 of the Disclosure Letter;

             

            •                                           opinion of counsel to the Seller, substantially in the form attached hereto as Exhibit E ;

             

            •                                           either (i) a properly executed statement satisfying the requirements of Treas. Reg. Sees. 1.897-2(h) and 1.1445-2(c)(3) in a form reasonably acceptable to Buyer or (ii) a certificate of non-foreign status satisfying the requirements of Treas. Reg. Sec. 1.1445-2(b) in a form reasonably acceptable to Buyer; and

             

            •                                           a properly executed IRS Form 8023.

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• • 2.3           Buyer’s Obligations . At the Closing, Buyer will deliver to Seller the following:

     

    • • • • •                                           Thirty Seven Million Five Hundred Thousand Dollars ($37,500,000) by wire transfer in immediately available funds. Seller shall designate the bank account or accounts for such payment at least two (2) business days prior to the Closing;

             

            •                                           all required third-party and governmental consents;

             

            •                                           a true and complete copy, certified by the Secretary of the Buyer, of the resolutions duly and validly adopted by the Board of Directors of the Buyer evidencing its authorization of the execution and delivery of this Agreement, the Transaction Documents and the consummation of the transactions contemplated hereby and thereby;

             

            •                                           a certificate of a duly authorized officer of the Buyer certifying as to the accuracy in all respects of the matters set forth in Exhibit C , as if made as of the Closing Date (such certificate shall be deemed to become a part of this Agreement);

             

            •                                           the Transaction Documents (as applicable), duly executed by an authorized officer of Buyer; and

             

            •                                           opinion of counsel to Buyer, substantially in the form attached hereto as Exhibit F .

ARTICLE 3
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION

3.1           Representations of Seller Relating to the Company and the Company Business . Concurrently with the signing of this Agreement, Seller has prepared a Disclosure Letter that discloses certain information to Buyer (the " Disclosure Letter "). Seller acknowledges that Buyer is relying on the accuracy of the representations and warranties contained in Exhibit B . Accordingly, Seller warrants to Buyer that each of the representations and warranties contained in Exhibit B , as modified by the Disclosure Letter, are true and correct as of the date hereof and the Closing Date.

3.2           Representations of Buyer . Buyer acknowledges that Seller is relying on the accuracy of the representations and warranties contained in Exhibit C . Accordingly, Buyer warrants to Seller that each of the representations and warranties contained in Exhibit C are true and correct as of the date hereof and the Closing Date.

3.3           Survival . All representations, warranties, covenants, and obligations in this Agreement, the certificates delivered pursuant to Sections 2.2 and 2.3 , and any other certificate or document delivered pursuant to this Agreement will survive the Closing, subject to Section 3.6 hereof. The right of either party hereto to indemnification, payment for Losses or other remedy based on such representations, warranties, covenants, and obligations will not be

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affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or before or after the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, payment for Losses, or other remedy based on such representations, warranties, covenants, and obligations.

• • 3.4           Indemnification by Seller .

     

    (a)             Seller agrees to indemnify and hold Buyer and its representatives, stockholders, officers, directors and Affiliates (the " Buyer Parties ") harmless from and against any Loss (excluding any Loss Buyer may suffer after the end of any applicable survival period) arising directly or indirectly from or in connection with:

     

    • • (i)            a breach by Seller of any representation or warranty made by Seller in this Agreement, the Disclosure Letter or other document or certificate delivered pursuant to this Agreement or the Transaction Documents; or

         

        (ii)           a breach by Seller of any of its other obligations or covenants contained in this Agreement, any Transaction Document or other document delivered in connection herewith or therewith; or

         

        (iii)          any claim by any Person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with Seller or the Company (or any Person acting on their behalf) in connection with any of the transactions contemplated herein.

• • (b)           In addition to the provisions of Section 3.4(a) , Seller will indemnify and hold harmless the Buyer Parties for, and will pay to the Buyer Parties the amount of, any Losses (including costs of cleanup, containment, or other remediation) arising, directly or indirectly, from or in connection with:

     

    • • (i)            any Environmental, Health, and Safety Liabilities arising out of or relating to: (i) (A) the ownership, operation, or condition at any time on or prior to the Closing Date of the Facility or any of the Environmental Properties, or (B) any Hazardous Materials or other contaminants that were present at the Facility or any of the Environmental Properties at any time on or prior to the Closing Date; or (ii) (A) any Hazardous Materials or other contaminants, wherever located, that were, or were allegedly, generated, transported, stored, treated, Released, or otherwise handled by the Seller on behalf of the Company or in connection with Company Business, the Company or by any other Person for whose conduct they are responsible or are alleged to be responsible at any time on or prior to the Closing Date, or (B) any Hazardous Activities that were, or were allegedly, conducted by the Seller on behalf of the Company or in connection with

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• • • • Company Business, the Company or by any other Person for whose conduct they are or may be held responsible; or

• • • • (ii)           any bodily injury (including illness, disability, and death, and regardless of when any such bodily injury occurred, was incurred, or manifested itself), personal injury, property damage (including trespass, nuisance, wrongful eviction, and deprivation of the use of real property), or other damage of or to any Person, including any employee or former employee of the Company or any other Person for whose conduct the Seller or the Company is responsible, in any way arising from or allegedly arising from any Hazardous Activity conducted or allegedly conducted with respect to the Facility or the operation of the Company Business prior to the Closing Date, or from Hazardous Material that was (i) present or suspected to be present on or before the Closing Date on or at the Facility (or present or suspected to be present on any other property, if such Hazardous Material emanated or allegedly emanated from the Facility and was present or suspected to be present on the Facility on or prior to the Closing Date) or (ii) Released or allegedly Released by Seller or the Company or any other Person for whose conduct they are or may be held responsible, at any time on or prior to the Closing Date.

         

Buyer will be entitled to control any Cleanup, any related Proceeding, and, except as provided in Section 3.4(c) , any other Proceeding with respect to which indemnity may be sought under this Section 3.4(b) ; provided, however, that Buyer shall obtain the prior written consent of Seller prior to expending any amount in excess of $25,000 on such Cleanup, with such consent not to be unreasonably withheld.

• • (c)           Notwithstanding the foregoing, but subject to the last sentence of this Section 3.4(c) , Seller shall not have any obligation to indemnify Buyer Parties until Buyer Parties have suffered Losses (in the aggregate) in excess of Five Hundred Thousand Dollars ($500,000) (the " Threshold Amount ") and then Seller shall indemnify Buyer Parties for all amounts by which the Losses exceed the Threshold Amount. The aggregate amount of payments made by Seller in satisfaction of Losses shall not exceed 50% of the Purchase Price (the " Cap "). Notwithstanding the foregoing, Losses resulting from a breach of any of paragraph 6 of Exhibit B (relating to Title to the Company Business; Encumbrances; Sufficiency of Assets), paragraph 8 of Exhibit B (relating to Tax Matters), paragraph 11 of Exhibit B (relating to Capitalization; Ownership of Shares; Subsidiaries), paragraph 19 of Exhibit B (relating to Employee Benefits), paragraph 22 of Exhibit B (relating to Environmental Matters) or paragraph 25 of Exhibit B (relating to Intellectual Property; Licenses) shall not be subject to the Cap or Threshold Amount, and Seller shall indemnify Buyer Parties for any such Losses from the first dollar of such Loss up to the amount of the Purchase Price.

     

    (d)           Notwithstanding anything to the contrary in this Agreement, Seller will indemnify and hold harmless the Buyer Parties for any Loss relating to or arising out of the Landes matter described on Schedule 9 of the Disclosure Letter and such matter shall not be subject to the Threshold Amount or the Cap; provided, however, that Seller shall

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• • be entitled to retain control of any suits, claims, actions, arbitrations, investigations, or proceedings entered against the Company or Seller relating to such matter.

• • (e)           The procedures for bringing an indemnity claim are set forth in Exhibit D .

     

    3.5           Indemnification by Buyer .

• • (a)           Buyer agrees to indemnify and hold Seller and its representatives harmless from and against any Loss incurred by Seller in connection with or alleged to result from the following:

• • • • (i)            a breach by Buyer of any representation or warranty made pursuant to Section 3.2 above or otherwise in this Agreement or other document or certificate delivered pursuant to this Agreement or the Transaction Documents; or

         

        (ii)           a breach by Buyer of any of its obligations or covenants contained in this Agreement, any Transaction Document or other document delivered in connection herewith or therewith; or

         

        (iii)          any claim by any Person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with Buyer (or any Person acting on their behalf) in connection with any of the transactions contemplated herein.

     

    (b)           Buyer shall not have any obligation to indemnify Seller until Seller has suffered Losses (in the aggregate) in excess of the Threshold Amount.

• • 3.6           Time Limitations .

• • (a)           If the Closing occurs, Seller will have liability (for indemnification and otherwise) with respect to any breach of (i) a covenant or obligation to be performed or complied with prior to the Closing Date, for which a claim may be made at any time prior to the date of expiration of the statue of limitations applicable to such claim; or (ii) a representation or warranty (other than those in Exhibit B paragraphs 6, 8, 11, 19, 22 and 25, as to which a claim may be made at any time prior to the date of expiration of the statue of limitations applicable to the statute, regulation or other authority which gave rise to such Loss), only if, with regards to subsection (ii) of this Section 3.6 , on or before the second anniversary of the Closing Date, Buyer notifies Seller in writing of a claim specifying the factual basis of the claim in reasonable detail to the extent then known by Buyer.

• • (b)           If the Closing occurs, Buyer will have liability (for indemnification and otherwise) with respect to any breach of (i) a covenant or obligation to be performed or complied with prior to the Closing Date, for which a claim may be made at any time prior to the date of expiration of the statue of limitations applicable to such claim; or (ii) a representation or warranty only if on or before the second anniversary of the Closing Date, Seller notifies Buyer in writing of a claim specifying the factual basis of the claim in reasonable detail to the extent then known by Seller.

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• • (c)           Absent fraud or malicious intent, the sole and exclusive remedies for breach of this Agreement are specified in Section 3.4 , Section 3.5 , and Section 3.6 .

     

ARTICLE 4
COVENANTS OF SELLER PRIOR TO CLOSING DATE

4.1           Access and Investigation . Between the Effective Date and the Closing Date, Seller will, and will cause the Company and its representatives to, (a) afford Buyer and its officers, directors, employees, agents, counsel, accountants, financial advisors, consultants and other representatives (collectively, " Buyer’s Advisors ") full and free access to the Company’s personnel, properties, contracts, books and records, and other documents and data pertaining to the Company Business, provided, however, that any such access cannot unreasonably interfere with Company Business, (b) furnish Buyer and Buyer’s Advisors with copies of all such contracts, books and records, and other existing documents and data pertaining to the Company Business as Buyer may reasonably request, and (c) furnish Buyer and Buyer’s Advisors with such additional financial, operating, and other data and information as Buyer may reasonably request.

4.2           Regulatory and Other Approvals . Seller will, and will cause the Company to, (a) take all commercially reasonable steps necessary and proceed diligently and in good faith and use all commercially reasonable efforts, as promptly as practicable to obtain all consents, approvals or actions of, to make all filings with and to give all notices to any Governmental Body or any other Person required of Seller or the Company to consummate the transactions contemplated hereby and by the Transaction Documents, including, without limitation, those described in the Disclosure Letter, (b) provide such other information and communications to such Governmental Body or other Person as Buyer or such Governmental Body or other Person may reasonably request in connection therewith and (c) cooperate with Buyer as promptly as practicable in obtaining all consents, approvals or actions of, making all filings with and giving all notices to the appropriate Governmental Body or other Person required of Buyer to consummate the transactions contemplated hereby and by the Transaction Documents. Seller will provide prompt notification to Buyer when any such consent, approval, action, filing or notice referred to in clause (a) above is obtained, taken, made or given, as applicable, and will advise Buyer of any communications (and, unless precluded by law, provide copies of any such communications that are in writing) with any Governmental Body or other Person regarding any of the transactions contemplated by this Agreement or the Transaction Documents. Seller shall not agree to participate in any meeting with any Governmental Body in respect of any filings, investigation or other inquiry unless it consults with Buyer in advance and, to the extent permitted by such Governmental Body, gives Buyer the opportunity to attend and participate in such meeting.

4.3           Stockholder Meeting; Proxy .

• •  

    (a)  As promptly as practicable following the Effective Date, the Seller, acting through its Board of Directors, shall, in accordance with Applicable Law and the Seller’s current certificate of incorporation and by-laws:

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• • • • (i)            duly call, give notice of, convene and hold an annual or special meeting of the Seller’s stockholders for the purposes of obtaining the Stockholder Approval (the " Seller Stockholders Meeting "); and

         

        (ii)           in consultation with Buyer, prepare and file with the SEC a preliminary proxy or information statement relating to this Agreement and obtain and furnish the information required by the SEC to be included in the definitive proxy statement and, after consultation with Buyer, respond promptly to any comments made by the SEC with respect to the preliminary proxy or information statement and cause a definitive proxy or information statement (together with all amendments, supplements and exhibits thereto, the " Proxy Statement ") to be mailed to the Seller’s stockholders of record at the earliest practicable date; provided that no amendments or supplements to the Proxy Statement shall be made by the Seller without consultation with Buyer. Buyer shall provide the Seller with such information with respect to Buyer and its Affiliates as shall be required to be included in the Proxy Statement.

         

    (b) Without limiting any other provision of this Agreement, whenever any party hereto becomes aware of any event or change which is required to be set forth in an amendment or supplement to the Proxy Statement, such party shall promptly inform the other parties thereof and each of the parties shall cooperate in the preparation, filing with the SEC and (as and to the extent required by applicable federal securities laws) dissemination to the Seller’s stockholders of such amendment or supplement.

4.4           No Solicitations . Subject to Section 7.3 , Seller will not take, nor will it permit the Company, or any Affiliate of Seller or the Company (or authorize or permit any investment banker, financial advisor, attorney, accountant or other Person retained by or acting for or on behalf of Seller, the Company or any such Affiliate) to take, directly or indirectly, any action to initiate, assist, solicit, receive, negotiate, encourage or accept any offer or inquiry from any Person (a) to engage in any Business Combination with the Company, (b) to reach any agreement or understanding (whether or not such agreement or understanding is absolute, binding, revocable, contingent or conditional) for, or otherwise attempt to consummate, any Business Combination with the Company or (c) to furnish or cause to be furnished any information with respect to the Company to any Person (other than as contemplated by Section 4.1 ) who Seller, the Company, or such Affiliate (or any such Person acting for or on their behalf) knows or has reason to believe is in the process of considering any Business Combination with the Company. If Seller, the Company or any such Affiliate (or any such Person acting for or on their behalf) receives from any Person (other than Buyer or any other Person referred to in Section 4.1 ) any offer, inquiry or informational request referred to above, Seller will promptly advise such Person, by written notice, of the terms of this Section 4.4 , and will promptly, orally and in writing, advise Buyer of such offer, inquiry or request and delivery of a copy of such notice to Buyer.

4.5           Conduct of Business . Seller will cause the Company to conduct the Company Business only in the ordinary course consistent with past practice. Without limiting the generality of the foregoing, Seller will:

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• • (a)           cause the Company to use commercially reasonable efforts to (i) preserve intact the present business organization and reputation of the Company and the Company Business, (ii) keep available (subject to dismissals and retirements in the ordinary course of business consistent with past practice) the services of the present officers, employees and consultants of the Company, (iii) maintain the assets and properties of the Company Business in good working order and condition, ordinary wear and tear excepted, (iv) maintain the good will of customers, suppliers, lenders and other Persons to whom the Company sells goods or provides services or with whom the Company otherwise has significant business relationships, (v) continue all current sales, marketing and promotional activities relating to the Company Business, (vi) confer with Buyer concerning operational matters of a material nature involving the Company Business, (vii) maintain the Intellectual Property Assets in the ordinary course of Company Business, and (viii) otherwise periodically report to Buyer concerning the status of the business, operations and finances of the Company and the Company Business;

     

    (b)           except to the extent required by Applicable Law, (i) cause the books and records to be maintained in the usual, regular and ordinary manner consistent with past practice, (ii) not permit any material change in (A) any pricing, investment, accounting, financial reporting, inventory, credit, allowance or Tax practice or policy of the Company pertaining to the Company Business, or (B) any method of calculating any bad debt, contingency or other reserve of the Company for accounting, financial reporting or Tax purposes and (iii) not permit any change in the fiscal year of the Company;

     

    (c)           (i) use, and will cause the Company to use, commercially reasonable efforts to maintain in full force and effect until the Closing substantially the same levels of insurance coverage relating to the Company Business and (ii) cause any and all benefits paid or payable (whether before or after the date of this Agreement) with respect to the Company Business, employees or assets and properties of the Company and the Company Business to be paid to the Company; and

     

    (d)           cause the Company to comply, in all material respects, with all Applicable Laws and orders applicable to the Company Business and promptly following receipt thereof to give Buyer copies of any notice received from any Governmental Body, or other Person alleging any violation of any such law or order.

     

4.6           Employee Matters . Except as may be required by Applicable Law, Seller will refrain, and will cause the Company to refrain, from directly or indirectly:

• • (a)           making any representation or promise, oral or written, to any officer, employee or consultant of the Company concerning any Employee Plan, except for the statements as to the rights or accrued benefits of any officer, employee or consultant under the terms of any Employee Plan;

     

    (b)           making any increase in the salary, wages or other compensation of any officer, employee or consultant of the Company whose annual salary is or, after giving effect to such change, would be $75,000 or more without the prior written consent of Buyer;

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• • (c)           adopting, entering into or becoming bound by any Employee Plan, employment-related contract or collective bargaining agreement covering employees or consultants of the Company, or amending, modifying or terminating (partially or completely) any Employee Plan, employment-related contract or collective bargaining agreement impacting employees or consultants of the Company, except to the extent required by Applicable Law and, in the event compliance with legal requirements presents options, only to the extent that the options which the Company reasonably believes to be the least costly is chosen; or

     

    (d)           establishing or modifying any (i) targets, goals, pools or similar provisions in respect of any fiscal year under any Employee Plan, employment-related contract or other employee compensation arrangement covering employees or consultants of the Company or (ii) salary ranges, increase guidelines or similar provisions in respect of any Employee Plan, employment-related contract or other employee compensation arrangement covering employees or consultants of the Company.

     

Seller will cause the Company to administer each Employee Plan, or cause the same to be so administered, in all material respects in accordance with the applicable provisions of the Code, ERISA and all other Applicable Laws. Seller will promptly notify Buyer in writing of each receipt by Seller or the Company (and furnish Buyer with copies) of any notice of investigation or administrative proceeding by the IRS, Department of Labor, Pension Benefit Guaranty Corporation or other Person involving any Employee Plan.

4.7           Certain Restrictions . Seller will cause the Company to refrain from:

• •  

    (a)           amending its certificates or articles of incorporation or by-laws (or other comparable corporate charter documents) or taking any action with respect to any such amendment or any recapitalization, reorganization, liquidation or dissolution;

     

    (b)           authorizing, issuing, selling or otherwise disposing of any shares of capital stock of or any options with respect to the Company, or modifying or amending any right of any holder of outstanding shares of capital stock of or options with respect to the Company;

• • (c)           declaring, setting aside or paying any dividend or other distribution in respect of the capital stock of the Company except in the ordinary course of business and consistent with past practice or in connection with the transactions contemplated by this Agreement, or directly or indirectly redeeming, purchasing or otherwise acquiring any capital stock of or any options with respect to the Company;

     

    (d)           acquiring or disposing of, or incurring any Encumbrance (other than a Permitted Encumbrance) on, any assets and properties of the Company Business having a fair market value, individually or in the aggregate, in excess of $25,000, except with respect to the disposition of inventory in the ordinary course of business;

     

    (e)           (i) except in the ordinary course of business and consistent with past practice or as may be required to consummate the transactions contemplated by this Agreement, entering into, amending, modifying, terminating (partially or completely),

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• • granting any waiver under or giving any consent with respect to (A) any contract that would, if in existence on the date of this Agreement, be required to be disclosed in the Disclosure Letter or (B) any license, provided, however, that Seller and Company must consult with Buyer before taking any definitive action with respect to any of the matters described in Section 4.7(e)(i)(A) or Section 4.7(e)(i)(B) , or (ii) granting any irrevocable powers of attorney;

     

    (f)            violating, breaching or defaulting under, or taking or failing to take any action that (with or without notice or lapse of time or both) would constitute a material violation or breach of, or default under, any term or provision of any license held or used by the Company or used in the Company Business or any contract to which the Company is a party or by which any of the assets and properties of the Company Business are bound;

     

    (g)           (i) incurring indebtedness in an aggregate principal amount exceeding $10,000 (net of any amounts of indebtedness discharged during such period), or (ii) other than as required in connection with the transactions contemplated hereby, purchasing, canceling, prepaying or otherwise providing for a complete or partial discharge in advance of a scheduled payment date with respect to, or waiving any right of the Company under, any indebtedness owing to the Company;

     

    (h)           engaging with any Person in any Business Combination, except as permitted by Section 7.3 ;

     

    (i)            making capital expenditures or commitments for additions to property, plant or equipment constituting capital assets in an aggregate amount exceeding $50,000;

     

    (j)            making any material change in the Company Business;

     

    (k)           writing off or writing down any of its assets and properties relating to the Company Business outside the ordinary course of business consistent with past practice; or

     

    (l)            entering into any contract to do or engage in any of the foregoing.

    • •  

4.8           Affiliate Transactions . Except as set forth in the Disclosure Letter, immediately prior to the Closing, all indebtedness and other amounts owing under contracts between Seller, any officer, director, Affiliate (other than the Company) on the one hand, and the Company, on the other, will be paid in full, and Seller will terminate and will cause any such officer, director, or Affiliate to terminate each such contract with the Company. Except as may be required in connection with the transactions contemplated by this Agreement, prior to the Closing, the Company will not enter into any contract or amend or modify any existing contract, and will not engage in any transaction outside the ordinary course of business consistent with past practice or not on an arm’s-length basis (other than pursuant to contracts disclosed pursuant to the Disclosure Letter), with Seller or any such officer, director, or Affiliate.

4.9           Books and Records . On the Closing Date, Seller will deliver or make available to Buyer at the offices of the Company all of the books and records pertaining to the Company

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Business, and if at any time after the Closing, Seller discovers in its possession or under its control any other books and records pertaining to the Company Business, it will forthwith deliver such books and records to Buyer.

4.10         Notice and Cure . Seller will notify Buyer in writing (where appropriate, through updates to the Disclosure Letter) of, and contemporaneously will provide Buyer with true and complete copies of any and all information or documents relating to, and will use all commercially reasonable efforts to cure before the Closing, any event, transaction or circumstance, as soon as practicable after it becomes known to Seller, occurring after the date of this Agreement that causes or will cause any covenant or agreement of Seller or the Company under this Agreement to be breached or that renders or will render untrue any representation or warranty of Seller contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. Seller also will notify Buyer in writing (where appropriate, through updates to the Disclosure Letter) of, and will use all commercially reasonable efforts to cure, before the Closing, any violation or breach, as soon as practicable after it becomes known to Seller, of any representation, warranty, covenant or agreement made by Seller in this Agreement, whether occurring or arising before, on or after the date of this Agreement. No notice given pursuant to this Section 4.10 shall have any effect on the representations, warranties, covenants or agreements contained in this Agreement for purposes of determining satisfaction of any condition contained herein or shall in any way limit Buyer’s right to seek indemnity under Article 3.

4.11         Fulfillment of Conditions . Seller will execute and deliver at the Closing each Transaction Document that Seller is required hereby to execute and deliver as a condition to the Closing, will take all commercially reasonable steps necessary or desirable and proceed diligently and in good faith to satisfy each condition to the obligations of Buyer contained in this Agreement and will not, and will not permit the Company to take or fail to take any action that could reasonably be expected to result in the nonfulfillment of any such condition.

4.12         Best Efforts . Subject to Section 7.3 , between the Effective Date and the Closing Date, Seller will use its reasonable best efforts to cause the conditions in Article 2 to be satisfied.

4.13         Employee Stock Purchase Plan . Pursuant to Section 8.3 of the Seller’s Employee Stock Purchase Plan (the " ESPP "), because the Company will no longer be a subsidiary or affiliate of Seller, Company employees will not be eligible to participate in the ESPP on and after the Closing Date. Accordingly, Seller will return to the employees of the Company who participated in the ESPP at any time prior to the Closing Date all funds that such participating employees contributed prior to the Closing Date to the ESPP to the extent that such funds were not used as of the Closing Date to purchase shares of common stock of Seller. Seller shall return such funds to such employees as soon as administratively practicable through its existing payroll processes. Seller covenants and agrees that by purchasing the Shares, Buyer is not assuming any obligations under the ESPP.

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ARTICLE 5

COVENANTS OF BUYER PRIOR TO CLOSING DATE

5.1           Approvals of Governmental Bodies . As promptly as practicable after the Effective Date, Buyer will, and will cause each of its Related Persons to, (a) make all filings required by legal requirements to be made by them to consummate the transactions contemplated hereunder. Buyer will cooperate with Seller with respect to all filings that Seller is required by legal requirements to make in connection with the transactions contemplated hereunder, and (b) cooperate with Seller in obtaining all consents identified in the Disclosure Letter; provided that this Agreement will not require Buyer to dispose of or make any change in any portion of its business or to incur any other burden to obtain a Governmental Authorization.

5.2           Best Efforts . Except as set forth in the proviso to Section 5.1 , between the Effective Date and the Closing Date, Buyer will use its reasonable best efforts to cause the conditions in Article 2 to be satisfied.

ARTICLE 6
TAX MATTERS

6.1           Tax Indemnification .

• •  

    (a)           Seller shall be liabile to Buyer for, and shall indemnify and hold Buyer and the Company harmless from and against, any and all Taxes due or payable by the Company or imposed on the Company for any Pre-Closing Tax Period, (as defined below) and any Straddle Period, (as defined below) except to the extent that accruals for such Taxes are reflected in the Closing Balance Sheet.

     

    (b)           In the case of any taxable period that includes (but does not end on) the Closing Date (a " Straddle Period "), the amount of any Income Taxes for all taxable periods ending on or before the Closing Date and the portion through the end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date (" Pre-Closing Tax Period ") shall be determined based on an interim closing of the books as of the close of business on the Closing Date and the amount of other Taxes of the Company for a Straddle Period that relates to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the number of days in such Straddle Period.

     

6.2           Responsibility for Filing Tax Returns . Buyer shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company that are filed after the Closing Date other than Income Tax Returns with respect to periods for which a consolidated, unitary or combined Income Tax Return of Seller will include the operations of the Company. Buyer shall permit Seller to review and comment on each such Income Tax Return described in the preceding sentence prior to filing and shall make revisions to such Income Tax Returns as are reasonably requested by Seller. Seller shall permit Buyer to review and comment on each consolidated, unitary or combined Income Tax Return filed by the Company after the Closing

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Date with respect to the Pre-Closing Period, but only to the extent such consolidated, unitary, or combined Income Tax Return applies to the Company. Seller shall reimburse Buyer for Taxes of the Company with respect to the Pre-Closing Tax Period within fifteen (15) days after payment by Buyer or the Company of such Taxes to the extent such Taxes were not reflected as a liability in determining the Purchase Price pursuant to Section 1.2 of this Agreement.

6.3           Refunds and Tax Benefits . Any Tax refunds that are received by Buyer or the Company, and any amounts credited against Taxes to which Buyer or the Company become entitled, that relate to the Pre-Closing Tax Period shall be for the account of Seller, and Buyer shall pay over to Seller any such refund or the amount of any such credit within 15 days after receipt or entitlement thereto. In addition, to the extent that a claim for refund or a proceeding results in a payment or credit against Tax by a taxing authority to Buyer or the Company of any amount accrued on the Closing Balance Sheet, Buyer shall pay such amount to Seller within 15 days after receipt or entitlement thereto. Notwithstanding the foregoing, Seller shall not be entitled to any refund, or portion thereof, if such refund, or portion thereof, (i) is the result of the carryback of any operating losses, net operating losses, capital losses, Tax credits or similar items arising in a taxable period (or portion thereof) beginning after the Closing Date, or (ii) is taken into account in determining the Purchase Price pursuant to Section 1.2 of this Agreement. To the extent any refund from one jurisdiction is treated as income to another jurisdiction, any Tax owed to such other jurisdiction on account of such refund shall reduce the amount paid to the Seller under this Section 6.3 .

6.4           Contests .

• •  

    (a)           After the Closing, Buyer shall promptly notify the Seller in writing of any written notice of a proposed assessment or claim in an audit or administrative or judicial proceeding of Buyer or the Company which, if determined adversely to the Company, would be grounds for indemnification under this Agreement.

     

    (b)           In the case of an audit or administrative or judicial proceeding that relates to taxable periods ending on or before the date of the Closing, the Seller shall have the right at its expense to participate in and control the conduct of such audit or proceeding; Buyer also may participate in any such audit or proceeding and, if the Seller does not assume the defense of any such audit or proceeding, Buyer may defend the same in such manner as it may deem appropriate, including settling such audit or proceeding after five days prior written notice to the Seller setting forth the terms and conditions of settlement; provided, however, if Buyer gives notice to Seller of the commencement of any audit or administrative or judicial proceedings and the Seller does not, within twenty (20) business days, after Buyer’s notice is given to Seller, give notice to Buyer or Company, as applicable, of its election to assume the defense thereof, then the Seller shall be bound by any determination made in such audit or administrative or judicial proceeding or any compromise or settlement thereof effected by Buyer. The failure of Buyer to give reasonably prompt notice of any audit or administrative or judicial proceeding shall not release, waive or otherwise affect Seller’s obligations with respect thereto except to the extent that the Seller can demonstrate actual loss as a result of such failure. In the event that issues relating to a potential adjustment are required to be contested in the same audit or proceeding as separate issues relating to a potential adjustment for which Buyer would

17

• • be liable, Buyer shall have the right, at its expense, to control the audit or proceeding with respect to the latter issues.

• • (c)           With respect to issues relating to a potential adjustment for which both the Seller and Buyer or the Company could be liable, (i) both the Seller and Buyer may participate in the audit or proceeding, and (ii) the audit or proceeding shall be controlled by that party which would bear the burden of the greater portion of the sum of the adjustment and any corresponding adjustments that may reasonably be anticipated for future taxable periods; provided, however, neither Buyer nor the Seller shall enter into any compromise or agree to settle any such matter without the written consent of the other party, which consent may not be unreasonably withheld. The principle set forth in this Section 6.4(c) also shall govern for purposes of deciding any issue that must be decided jointly (including choice of judicial forum) in situations in which separate issues are otherwise controlled under this Article 6 by Buyer and the Seller; provided, however, neither Buyer nor Seller shall enter into any compromise or agree to settle any such matter without the written consent of the other party, which consent may not be unreasonably withheld.

• • (d)           With respect to any audit or administrative or judicial proceeding for a taxable period that begins before the Closing Date, neither Buyer nor the Seller shall enter into any compromise or agree to settle any claim pursuant to such audit or proceeding which would adversely affect the other party for such taxable period or a subsequent taxable period without the written consent of the other party, which consent may not be unreasonably withheld. Buyer and the Seller agree to cooperate, and Buyer agrees to cause the Company to cooperate, in the defense against or compromise of any claim in any such audit or proceeding.

6.5           Cooperation on Tax Matters .

• • (a)           Buyer, the Company and Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Section 6.5 and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information that are reasonably relevant to any such audit, litigation or other proceeding and making employees reasonably available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Company and Seller agree (i) to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Buyer or Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, the Company or Seller, as the case may be, shall allow the other party to take possession of such books and records.

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• • (b)           Buyer and Seller further agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby).

     

6.6           Tax Sharing Agreements . All Tax sharing agreements or similar agreements with respect to or involving the Company shall be either terminated or amended as of the Closing Date so that, after the Closing Date, the Company shall not be bound thereby or have any liability thereunder.

6.7           Tax Treatment of Indemnification Payments . Buyer and Seller agree to treat any indemnification payment made pursuant to this Agreement as an adjustment to the Purchase Price for all Tax purposes, unless otherwise required by Applicable Law.

6.8           Section 338(h)(10) Election . Buyer and Seller shall join in making an election under Code §338(h)(10) (and any corresponding elections under state, local, or foreign tax law) (collectively a " Section 338(h)(10) Election ") with respect to the purchase and sale of the Company hereunder. Buyer shall prepare an allocation of the applicable portion of the Purchase Price (and all other capitalized costs), to be jointly updated by Buyer and Seller for any adjustments to the Purchase Price pursuant to Sections 1.2 and 1.3 , among the assets of the Company in accordance with Section 338(h)(10) of the Code and Treasury Regulations thereunder (and any similar provision of state, local or non-U.S. law, as appropriate). Buyer shall deliver its proposed allocation to Seller in writing within thirty (30) days following the final determination of the Closing Date Purchase Price pursuant to Section 1.2 (but in no event later than four (4) months following the Closing Date) and, to the extent that the Seller does not agree with such proposed allocations, it shall so notify Buyer in writing within thirty (30) days of receipt of the proposed allocations. Seller and Buyer shall in good faith cooperate with the other to resolve any issues with Buyer’s proposed allocations; provided, however, that if Seller and Buyer are unable to agree on the proposed allocations within twenty (20) days after the Seller’s delivery of its notice of disagreement with such proposed allocations, then resolution of any such disagreement shall be determined by a nationally recognized accounting firm agreeable to both Seller and Buyer and the determination by such accounting firm shall be binding on Buyer and Seller. If the parties elect to make a Section 338(h)(10) Election, Buyer, Seller the Company and their Related Persons and Affiliates shall report, act and file Tax Returns (including, but not limited to IRS Form 8023 and 8883) in all respects and for all purposes consistent with the allocation finally determined pursuant to this Section 6.8. If the parties elect to make a Section 338(h)(10) Election, none of Buyer, Seller, the Company nor their Related Persons and Affiliates shall take any position (whether in audits, Tax Returns, or otherwise) which is inconsistent with such final allocation unless required to do so by law.

ARTICLE 7
TERMINATION; ADDITIONAL AGREEMENTS

7.1           Termination . This Agreement may be terminated at any time prior to the Closing Date, whether before or after Stockholder Approval:

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• • (a)           by mutual written consent of Buyer and Seller; or

• • (b)           by either Buyer or Seller by giving written notice to the other party if the other party breaches any of its covenants contained in this Agreement and, if the breach is curable, the breach is not cured within ten (10) business days after such notice; or

     

    (c)           by either Buyer or Seller by giving written notice to the other party if the other party breaches any of its representations or warranties contained in this Agreement that would result in a Material Adverse Effect and, if the breach is curable, the breach is not cured within ten (10) business days after such notice; or

     

    (d)           by either Buyer or Seller if the Closing does not occur on or before October 31, 2006 (except that no party shall have the right to terminate this Agreement unilaterally if the event giving rise to the non-occurrence of the Closing is primarily attributable to that party or to any affiliated party); or

     

    (e)           by Buyer if any of the conditions in Section 2.2 have not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; or by Seller if any of the conditions in Section 2.3 have not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to comply with its obligations under this Agreement) and Seller has not waived such condition on or before the Closing Date;

     

    (f)            by Seller if Seller receives a Superior Proposal pursuant to Section 7.3 ; or

    • •  

    (g)           by Seller if Seller does not receive Stockholder Approval.

7.2           Effect of Termination . Each party’s right of termination under Section 7.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 7.1 , all further obligations of the parties under this Agreement will terminate, except that the obligations in Section 7.13 will survive; provided, however, that if this Agreement is terminated by a party because of the breach of the Agreement by the other party or because one or more of the conditions to the terminating party’s obligations under this Agreement is not satisfied as a result of the other party’s failure to comply with its obligations under this Agreement, the terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

7.3           Fiduciary Duties .

• •  

    (a)           Notwithstanding anything in this Agreement to the contrary, Seller may, in response to a bona fide unsolicited proposal that constitutes an Acquisition Proposal, participate in discussions or negotiations with, or furnish or disclose any non-public information to, any Person that makes such Acquisition Proposal if (i) Seller reasonably determines in good faith that such Acquisition Proposal is, or may reasonably be expected to lead to, a Superior Proposal, (ii) Seller shall have provided prompt notice to

20

• • the Buyer of its intent to take such action, the identity of the Person making the Acquisition Proposal and the material terms and conditions of such Acquisition Proposal and (iii) Seller received from such Person an executed confidentiality agreement in reasonably customary form. If such an Acquisition Proposal results in a Superior Proposal, Seller may terminate this Agreement pursuant to Section 7.1 ; provided, however, that if Seller terminates this Agreement as a result of a Superior Proposal, Seller shall reimburse Buyer for all of its costs and expenses up to $750,000 incurred in connection with this Agreement and the transactions contemplated hereby.

     

    (b)           Nothing in this Agreement shall prohibit the Seller from making any disclosure to Seller’s stockholders as, in the good faith judgment of Seller’s Board of Directors, is required under Applicable Law or where the failure to make such disclosure is reasonably likely to cause the members of the Board of Directors of the Seller to violate their fiduciary duties.

     

7.4           Books and Records; Post Closing . The parties will make reasonably available to one another any records or documents that they maintain with respect to the Company or the Company Business for purposes of compliance with applicable laws or in defending any third-party litigation arising in respect of this Agreement. Seller will make available to Buyer, at Buyer’s request and expense, all books and records of Seller relating to the Company Business which are reasonably necessary with respect to Buyer’s ongoing operations for inspection or copying by Buyer at any reasonable time for a five (5) year period after the Closing Date. Buyer will make available to Seller, at Seller’s request and expense, all books and records of Buyer relating to the Company Business which are reasonably necessary with respect to any governmental investigation or third-party litigation or claim for inspection or copying by Seller at any reasonable time for a five (5) year period after the Closing Date.

7.5           Use of Business Name . After the Closing, the Buyer will not, directly or indirectly, use or do business, or allow any Affiliate to use or do business, or assist any third party in using or doing business, under or using the name containing or similar to the word "Zila"; provided, however, that (a) Buyer shall have 30 days following the Closing Date to change the Company’s name to remove the word "Zila" and provide Seller with evidence of such change and (b) Buyer shall have the right to sell the Company’s inventory and all packaging materials existing as of the Closing. Buyer must use its commercially reasonable best efforts to dispose of any such inventory and packaging materials as soon as is commercially practicable after the Closing Date.

7.6           Transaction Expenses . Subject to Section 7.3(a) , Seller shall be responsible for all of the legal fees and expenses relating to the proposed transactions incurred by Seller or the Company. Buyer shall be responsible for all of the legal fees and expenses relating to the proposed transaction incurred by Buyer.

7.7           Notices . All notices, and other communications hereunder will be in writing and deemed to have been given when (i) delivered by hand, (ii) sent by telecopier (with receipt confirmed), (iii) sent by email, or (iv) when actually received by the addressee, in each case to the following:

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7.8           Governing Law . The validity, construction, and enforceability of this Agreement shall be governed in all respects by the laws of the State of Arizona, including, without limitation, its laws regarding choice of law.

7.9           Assignment . This Agreement will not be assigned by operation of law or otherwise, except that Buyer may assign all or any portion of its rights under this Agreement to any of its wholly-owned subsidiaries, but no such assignment will relieve Buyer of its obligations hereunder, and except that this Agreement may be assigned by operation of law to any corporation or entity with or into which Buyer may be merged or consolidated or to which Buyer transfers all or substantially all of its assets, and such corporation or entity assumes this Agreement and all obligations and undertakings of Buyer hereunder.

7.10         Intent to be Binding: Entire Agreement . The Disclosure Letter, the Transaction Documents and Exhibits referred to herein are incorporated herein by this reference as if fully set forth in the text of this Agreement. This Agreement may be executed in any number of counterparts, and each counterpart constitutes an original instrument, but all such separate counterparts constitute one and the same agreement. This Agreement (including the Disclosure Letter) and the Confidentiality Agreement contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations

22

or warranties other than those set forth or referred to herein. This Agreement may not be amended except by an instrument in writing approved by Buyer and Seller. If any term, provision, covenant, or restriction of this Agreement is held by a court to be invalid or unenforceable, the remainder of the terms, provisions, covenants, and restrictions of this Agreement will remain in full force and effect and will in no way be affected or invalidated and the court will modify this Agreement or, in the absence thereof, the parties agree to negotiate in good faith to modify this Agreement to preserve each party’s anticipated benefits under this Agreement.

7.11         Waiver of Provisions . The terms, covenants, representations, warranties, and conditions of this Agreement may be waived only by a written instrument executed by the party waiving compliance. The rights and remedies of the parties to this Agreement are cumulated and not alternative. The failure of any party at any time to require performance of any provisions hereof will, in no manner, affect the right at a later date to enforce the same. No waiver by any party of any condition, or breach of any provision, term, covenant, representation, or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances, will be deemed to be or construed as a further or continuing waiver of any such condition or of the breach of any other provision, term, covenant, representation, or warranty of this Agreement.

7.12         Jurisdiction . Any Proceeding arising out of or relating to this Agreement, the Transaction Documents or any transaction contemplated hereunder or thereunder may be brought in the courts of the State of Delaware and each of the parties irrevocably submits to the exclusive jurisdiction of each such court in any such Proceeding, waives any objection it may now or hereafter have to venue or to convenience of forum, agrees that all claims in respect of the Proceeding shall be heard and determined only in any such court and agrees not to bring any Proceeding arising out of or relating to this Agreement, the Transaction Documents or any transaction contemplated hereunder or thereunder in any other court. The parties agree that either or both of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained agreement between the parties irrevocably to waive any objections to venue or to convenience of forum. Process in any Proceeding referred to in the first sentence of this section may be served on any party anywhere in the world.

7.13         Confidentiality . The terms of the mutual nondisclosure agr