ASSET PURCHASE AGREEMENT

EXHIBIT 2.1

 

Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [*]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

 

ASSET PURCHASE AGREEMENT

 

dated as of

 

August 16, 2005

 

among

 

APPLIED THERAPEUTICS, INC.,

 

APPLIED THERAPEUTICS, LTD.,

 

APPLIED THERAPEUTICS GMBH,

 

and

 

BHK HOLDING

 

(“Sellers”)

 

and

 

ARTHROCARE CORPORATION,

 

ARTHROCARE (DEUTSCHLAND) GMBH,

 

and

 

ARTHROCARE UK, LTD.

 

(“Buyers”)

TABLE OF CONTENTS

 

 

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ASSET PURCHASE AGREEMENT

 

AGREEMENT (this “ Agreement ”) dated as of August 16, 2005 among ArthroCare Corporation, a Delaware corporation (“ ArthroCare ”), ArthroCare (Deutschland) GmbH, a corporation organized under the laws of Germany (“ ARTC Germany ”) and ArthroCare UK, Ltd., a corporation registered in England & Wales (“ ARTC UK ”) (collectively, “ Buyer ”), and Applied Therapeutics, Inc., a Florida corporation (“ ATI Florida ”), Applied Therapeutics, Ltd., a corporation registered in England & Wales (“ ATI UK ”), Applied Therapeutics GmbH, a corporation organized under the laws of Germany (“ ATI Germany ”) and BHK Holding, a corporation organized under the laws of the Cayman Islands (“ ATI Cayman ”) (each, a “ Seller ” and, collectively, the “ Sellers ”).

 

W I T N E S S E T H :

 

WHEREAS, Buyer desires to purchase substantially all of the assets of Sellers relating to the businesses conducted throughout the world of developing, manufacturing and marketing products designed for post operative wound care and for the treatment of Epistaxis for use principally by ear, nose and throat surgeons and emergency department physicians (the “ Business ”), and Sellers desire to sell the Business to Buyer, upon the terms and subject to the conditions hereinafter set forth.

 

NOW, THEREFORE, the parties hereto agree as follows:

 

ARTICLE 1

DEFINITIONS

 

Section 1.01 Definitions .

 

(a) The following terms, as used herein, have the following meanings:

 

“ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such other Person. For such purpose “ control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or voting interests, by contract or otherwise.

 

“ Acquired Business ” means the businesses conducted throughout the world of developing, manufacturing and marketing products designed for post operative wound care and for the treatment of Epistaxis for use principally by ear, nose and throat surgeons and emergency department physicians.

 

“ Acquired Business Products ” means Sellers’ Rapid Rhino products, and any products derived from Sellers’ Rapid Rhino products, or derived from Sellers’ Intellectual Property acquired by Buyer pursuant to this Agreement.

 

“ Agreed Offsets ” means the aggregate dollar value of any claims for offset made by Buyer at any time following the Closing, which have been previously agreed to by Buyer and the Sellers’ Representative in writing.

“ Balance Sheet ” means the unaudited balance sheet of each of ATI Florida, ATI UK, ATI Germany and ATI Cayman as of June 30, 2005.

 

“ Balance Sheet Date ” means June 30, 2005.

 

“ Board of Directors ” means the board of directors of each Seller.

 

“ Business Day ” means a day, other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.

 

“ Buyer Change of Control ” means (i) the consummation of any disposition by ArthroCare or its Subsidiaries (whether in a single transaction or a series of related transactions) of assets of ArthroCare or its Subsidiaries (including securities of Subsidiaries, but excluding dispositions of assets in the ordinary course of business consistent with past practice) to any person or group of all or substantially all of the properties or assets of ArthroCare or its Subsidiaries, or (ii) the consummation of any transaction (whether by merger, consolidation, purchase of stock or otherwise) by which any person or group becomes the beneficial owner (as defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of fifty percent (50%) or more of the capital stock of ArthroCare that is at that time entitled to vote in the election of the Board of Directors of ArthroCare, measured by voting power rather than number of shares.

 

“ Charter ” means the Articles of Incorporation of ATI Florida, the Memorandum of Association of ATI UK, the Articles of Association ( Satzung ) of ATI Germany and the Memorandum of Association of ATI Cayman.

 

“ Closing Date ” means the date of the Closing.

 

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

 

“ Contingent Consideration ” means an amount of cash equal to (i) (A) [*] Net Revenue from the sale of Sellers’ products during the Earnout Period, up to [*] of Net Revenue, plus (B) [*] Net Revenue from the sale of Sellers’ products during the Earnout Period [*] of Net Revenue and [*] of Net Revenue, (ii) minus $10,000,000. In no event shall the Contingent Consideration exceed $15.0 million or be less than zero.

 

“ Determined Offsets ” means the aggregate dollar value of any claims for offset made by Buyer at any time following the Closing which have been finally determined by a court of competent jurisdiction.

 

“ Earnout Dispute Period ” means the period beginning on the date of the delivery by Buyer of the Earnout Report to Sellers and ending on the sixtieth (60 ^th ) calendar day following the date of the delivery by Buyer of the Earnout Report to Sellers.

 

[*]	Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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“ Earnout Period ” means the 12-month period from February 1, 2006 to January 31, 2007.

 

“ Environmental Laws ” means any federal, state, local or foreign law (including common law), treaty, judicial decision, regulation, rule, judgment, order, decree, injunction, permit or governmental restriction or any agreement with any governmental authority or other third party, whether now or hereafter in effect, relating to the environment, human health and safety or to pollutants, contaminants, wastes or chemicals or any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous substances, wastes or materials.

 

“ Environmental Liabilities ” means any and all liabilities, whether accrued, contingent, absolute, determined, determinable or otherwise, solely arising in connection with or in any way relating to the ownership or operation of ATI UK’s manufacturing facility by ATI UK during the period May 30, 2003 through the Closing Date which arise under or relate to any Environmental Law (including any matter disclosed or required to be disclosed in Schedule 3.23).

 

“ Environmental Permits ” means all permits, licenses, franchises, certificates, approvals and other similar authorizations of governmental authorities relating to or required by Environmental Laws and affecting, or relating in any way to, the Business.

 

“ GAAP ” means generally accepted accounting principles in the United States.

 

“ Intellectual Property Rights ” means (i) inventions, whether or not patentable, reduced to practice or made the subject of one or more pending patent applications, (ii) national and multinational statutory invention registrations, patents and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof) registered or applied for in the United States and all other nations throughout the world, all improvements to the inventions disclosed in each such registration, patent or patent application, (iii) trademarks, service marks, trade dress, logos, domain names, trade names and corporate names (whether or not registered) in the United States and all other nations throughout the world, including all variations, derivations, combinations, registrations and applications for registration of the foregoing and all goodwill associated therewith, (iv) copyrights (whether or not registered) and registrations and applications for registration thereof in the United States and all other nations throughout the world, including all derivative works, moral rights, renewals, extensions, reversions or restorations associated with such copyrights, now or hereafter provided by law, regardless of the medium of fixation or means of expression, (v) computer software, (including source code, object code, firmware, operating systems and specifications), (vi) trade secrets and, whether or not confidential, business information (including pricing and cost information, business and marketing plans and customer and supplier lists) and know-how (including manufacturing and production processes and techniques and research and development information), (vii) industrial designs (whether or not registered), (viii) databases and data collections, (ix) copies and tangible embodiments of any of the foregoing, in whatever form or medium, (x) all rights to obtain and rights to apply for patents, and to register trademarks and copyrights, (xi) all rights in all of the foregoing provided by treaties, conventions and common law and (xii) all rights to sue or recover and retain damages and costs and attorneys’ fees for past, present and future infringement or misappropriation of any of the foregoing.

 

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“ Intercompany Receivables ” means the receivables set forth on Schedule 1.01 hereto.

 

“ knowledge of Seller ” means the actual knowledge of Alberto Bauer, Dennis Feldman, Tony Hanson, John Hudson and John Kennedy.

 

“ Licensed Intellectual Property Rights ” means all Intellectual Property Rights owned by a third party and licensed or sublicensed to a Seller and held for use or used in the conduct of the Business.

 

“ Lien ” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset.

 

“ Material Adverse Effect ” means any material adverse change with respect to or effect on the business, assets, financial condition, results of operations or prospects of the Business (other than the Excluded Assets), but excluding any such effect to the extent resulting from any of the following, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect: (i) decreases in any of Seller’s cash balances, (ii) the announcement, pendency or consummation of the Transactions, or (iii) any adverse change, event, development, or effect arising from (A) changes in general business or economic conditions, (B) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (C) any disruption or any decline in the price of any security or any market index of financial, banking or securities markets generally, (D) changes in GAAP, or (E) changes in laws issued by any governmental or regulatory authority following the date of this Agreement.

 

“ Net Revenue ” means all revenue earned by Buyer and its Affiliates in the operation of the Acquired Business during the Earnout Period, less, to the extent included in such revenue, the total of: (i) ordinary and customary trade, quantity or cash discounts actually allowed; (ii) credits, rebates and returns (including, but not limited to, wholesaler and retailer returns); (iii) freight, postage, insurance, transportation and duties paid for and separately identified on the invoice or other documentation maintained in the ordinary course of business; and (iv) sales, use, tariff and other excise taxes, other consumption taxes, customs duties and compulsory payments to governmental authorities actually paid and separately identified on the invoice or other documentation maintained in the ordinary course of business. Net Revenue shall be determined in accordance with Buyer’s books and records in respect of such Business in accordance with GAAP.

 

“ Owned Intellectual Property Rights ” means all Intellectual Property Rights owned by Seller and held for use or used in the conduct of the Business.

 

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“ Person ” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

 

“ Prime Rate ” means the prime rate of interest as published in The Wall Street Journal, Eastern Edition.

 

“ Required Stockholder Approvals ” means (i) with respect to ATI Florida, unanimous written consent of the shareholders, (ii) with respect to ATI UK, unanimous written consent of the shareholders, (iii) with respect to ATI Germany, the approval of the shareholders’ meeting ( Gesellschafterversammlung ) and (iv) with respect to ATI Cayman, unanimous written consent of the shareholders.

 

“ Securities Act ” means the Securities Act of 1933.

 

“ Sellers’ Representative ” means Alberto Bauer.

 

“ Subsidiary ” means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect or otherwise select a majority of the board of directors or other persons performing similar functions (including, with respect to a partnership, the general partner), are at the time of determination directly or indirectly owned by such Person.

 

“ Transactions ” means the transactions contemplated hereby, including the Closing.

 

(b) Each of the following terms is defined in the Section set forth opposite such term:

 

 

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Section 1.02 Other Definitional and Interpretative Provisions . The words “hereof,” “herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement unless otherwise specified. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”, whether or not they are in fact followed by those words or words of like import. “Writing,” “written” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to any statute are to such statute as amended from time to time and include the rules and regulations promulgated thereunder, as such rules and regulations may be amended from time to time. References to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof; provided that with respect to any other agreement or contract listed on any schedules hereto, all such amendments, modifications or supplements must also be listed in the appropriate schedule. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively. This Agreement has been negotiated by the parties and their respective legal counsel, and legal or equitable principles that might require the construction of this Agreement or any provision of this Agreement against the party drafting this Agreement will not apply in any construction or interpretation of this Agreement.

 

ARTICLE 2

PURCHASE AND SALE

 

Section 2.01 Purchase and Sale . Except as otherwise provided below, upon the terms and subject to the conditions of this Agreement, Buyer agrees to purchase from Sellers and Sellers agree, severally and not jointly, to sell, convey, transfer, assign and deliver, or cause to be sold, conveyed, transferred, assigned and delivered, to Buyer at the Closing, free and clear of all Liens, other than Permitted Liens, all of Sellers’ right, title and interest in, to and under all of the assets, properties and business, of every kind and description, wherever located, real, personal or mixed, tangible or intangible, known or unknown, owned, held or used in or arising from the conduct of the Business by Sellers as the same shall exist on the Closing Date (the “ Purchased Assets ”), and including all right, title and interest of Sellers in, to and under:

 

(a) all leases of, and other interests in, real property used or held for use in the conduct of the Business, in each case together with all buildings, fixtures, and improvements erected thereon, including the items listed on Part A of Schedule 3.14;

 

(b) all personal property and interests therein, including machinery, equipment, furniture, office equipment, communications equipment, vehicles, and other tangible property, including the items listed on Part A of Schedule 3.14;

 

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(c) all supplies and other inventories;

 

(d) all rights under all contracts, agreements, leases, licenses, commitments, sales and purchase orders and other instruments listed on Schedule 2.01(d) (collectively, the “ Contracts ”);

 

(e) all accounts, notes and other receivables (excluding the Intercompany Receivables);

 

(f) all prepaid expenses, including ad valorem taxes, leases and rentals;

 

(g) all of any Seller’s rights, claims, credits, causes of action or rights of set-off against third parties relating to or arising from the Purchased Assets, including unliquidated rights under manufacturers’ and vendors’ warranties, excluding Intercompany Receivables;

 

(h) all Licensed Intellectual Property Rights and Owned Intellectual Property Rights, including the items listed on Schedule 3.17;

 

(i) all transferable licenses, permits or other governmental authorizations affecting, or relating in any way to, the Business, including the items listed on Schedule 3.19;

 

(j) all books, records, files and papers, whether in hard copy or computer format, used in the Business, including engineering information, sales and promotional literature, manuals and data, sales and purchase correspondence, lists of present and former suppliers, lists of present and former customers, personnel and employment records, and any information relating to any Tax imposed on the Purchased Assets or with respect to the Business;

 

(k) all goodwill associated with the Business or the Purchased Assets, together with the right to represent to third parties that Buyer is the successor to the Business.

 

Section 2.02 Excluded Assets . Buyer expressly understands and agrees that, notwithstanding Section 2.01, the following assets and properties of Sellers (the “ Excluded Assets ”) shall be excluded from the Purchased Assets:

 

(a) all rights under any contracts, agreements, leases, licenses, commitments, sales and purchase orders and other instruments not listed on Schedule 2.01(d) (the “ Excluded Contracts ”);

 

(b) all cash and cash equivalents of Seller;

 

(c) all deferred financing charges included in the Balance Sheet (including any adjustments thereto through the Closing Date);

 

(d) all insurance policies and prepaid insurance premiums in respect thereof;

 

(e) Intercompany Receivables;

 

(f) all books and Records of the Sellers that relate exclusively to (i) organizational or governance proceedings of the Sellers including, without limitation, corporate franchise, stock

 

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record books, and corporate record books containing minutes of meetings of directors and shareholders to the extent such Records are unrelated to the Purchased Assets, (ii) any books and records of a personal nature to the shareholders of Sellers unrelated to the Purchased Assets, (iii) the Excluded Assets or (iv) the Excluded Liabilities; and

 

(g) any Purchased Assets sold or otherwise disposed of in the ordinary course of business and not in violation of any provisions of this Agreement during the period from the date hereof until the Closing Date.

 

Section 2.03 Assumed Liabilities . Upon the terms and subject to the conditions of this Agreement, Buyer agrees, effective at the time of the Closing, to assume only the following liabilities (the “ Assumed Liabilities ”):

 

(a) all current liabilities incurred by the Business in the ordinary course of business, including trade accounts payable, [*] in the aggregate;

 

(b) obligations under capital equipment leases listed on Schedule 2.03(b);

 

(c) all liabilities and obligations of Seller arising under the Contracts to the extent that such liabilities are 1) to be paid, discharged and performed after the Closing Date and 2) attributable to the period after the Closing Date;

 

(d) the royalty payments set forth in Section 2.05(a)(ii)(D)(b) due following the date of this Agreement; and

 

(e) any liabilities expressly set forth in Article 8.

 

Section 2.04 Excluded Liabilities . Notwithstanding any provision in this Agreement or any other writing to the contrary, Buyer is assuming only the Assumed Liabilities and is not assuming any other liability or obligation of any Seller (or any predecessor of any Seller or any prior owner of all or part of its businesses and assets) of whatever nature, whether presently in existence or arising hereafter. All such other liabilities and obligations shall be retained by and remain obligations and liabilities of such Seller (all such liabilities and obligations not being assumed being herein referred to as the “ Excluded Liabilities ”). Notwithstanding any provision in this Agreement or any other writing to the contrary, Excluded Liabilities include:

 

(a) any liability or obligation of any Seller, or any member of any consolidated, affiliated, combined or unitary group of which such Seller is or has been a member, for Taxes (including any (i) liability of the Sellers for income Taxes or for the Taxes related to the Purchased Assets or the Business for Pre-Closing Tax Periods, and (ii) liability of any other Person (A) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign law), (B) as a transferee or successor, (C) by contract, or (D) otherwise), except to the extent explicitly assumed in Section 2.03 or relate to the operation of the Acquired Business for periods arising on or after the Closing Date; provided that Transfer Taxes incurred in connection with the transactions contemplated by this Agreement and Apportioned Obligations shall be paid in the manner set forth in Section 7.03 hereof;

 

[*]	Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(b) except to the extent provided in Section 2.03(d), any liability or obligation relating to employee benefits or compensation arrangements existing on or prior to the Closing Date, including any liability or obligation under any of any Seller’s employee benefit agreements, plans or other arrangements listed on Schedule 8.02;

 

(c) any Environmental Liability;

 

(d) any liability or obligation relating to an Excluded Asset;

 

(e) any liability or obligation of any Seller arising under any Excluded Contract or any Contract (other than the liabilities and obligations referred to in Section 2.03(c));

 

(f) any liability or obligation arising from any action, suit, investigation, or proceeding relating to or arising out of the Business or the Purchased Assets that are pending on the Closing Date against any Seller or any Purchased Asset before any court or arbitrator or any governmental body, agency or official, including all litigation listed on Schedule 3.12;

 

(g) any liability or obligation relating to any products manufactured or sold by the Business on or prior to the Closing Date, including warranty obligations and product liabilities; and

 

(h) the loans by Alberto Bauer to Sellers as set forth on Schedule 3.11(a)(vi) of this Agreement.

 

Section 2.05 Purchase Price; Allocation .

 

(a) In consideration of the sale, conveyance, transfer, assignment and delivery by Sellers to Buyer of the Purchased Assets, Buyer shall, at the Closing, on the terms set forth in this Agreement, pay to Sellers in cash an amount equal to $10,000,000 (the “ Initial Purchase Price ”), plus, subject to the terms and conditions provided in Section 2.05(a)(ii) below, the Contingent Consideration.

 

(i) The Initial Purchase Price shall be paid to Sellers in cash by wire transfer of immediately available funds to such account as Sellers shall designate by written notice to Buyer not less than two Business Days prior to the Closing Date (or if not so designated, then by certified or official bank check payable in immediately available funds to the order of Sellers in such amount).

 

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(ii) Contingent Consideration.

 

(A) As promptly as practicable after the end of each calendar quarter or fraction thereof commencing on the first day of the Earnout Period (e.g., March 31, 2006, June 30, 2006, September 30, 2006, December 31, 2006 and January 31, 2007), Buyer shall provide the Sellers’ Representative with a report, setting forth the Net Revenue for such quarter or fraction thereof of the Earnout Period. As promptly as practicable after the end of the Earnout Period, Buyer shall provide the Sellers’ Representative with a report, setting forth the Net Revenue for the Earnout Period substantially in the form attached hereto as Exhibit D (the “ Earnout Report ”). If an Earnout Dispute Notice is not delivered pursuant to subsection (C) below, then in no event later than twenty (20) Business Days following the expiration of the Earnout Dispute Period, ArthroCare shall pay or cause to be paid the Contingent Consideration in cash by wire transfer of immediately available funds to such account as Sellers shall designate by written notice to Buyer.

 

(B) Buyer shall keep full, clear and accurate books and records with respect to the Acquired Business. The books and records shall be maintained in such a manner that Net Revenue shall be readily verifiable. All books and records with respect to the Acquired Business shall be available for inspection by the Sellers’ Representative or any attorney or accountant engaged by the Sellers’ Representative to act on behalf of the Sellers, in all cases upon reasonable prior notice and during normal business hours. The information contained in the books and records of Buyer with respect to the Acquired Business shall remain confidential except to the extent required to be disclosed by applicable law or in connection with a dispute regarding the Transactions. If the Sellers’ Representative does not deliver to Buyer an Earnout Dispute Notice (as defined below) in accordance with subsections (A)-(C), then the Earnout Report for the Earnout Period shall be deemed final and binding and neither the Sellers’ Representative nor the Sellers shall have any further right to contest the report, the computation of Net Revenue or payment of the Contingent Consideration.

 

(C) In the event that the Sellers’ Representative shall dispute the information set forth by Buyer in the Earnout Report, then, within sixty (60) calendar days following the date of the delivery by Buyer of such report, the Sellers’ Representative shall provide written notice to Buyer (the “ Earnout Dispute Notice ”) specifying the amount disputed and the basis for the dispute, together with supporting documentation reflecting the analysis of and justification for any recomputation made to the extent such information is available. Buyer and the Sellers’ Representative shall make good faith efforts to resolve the dispute through negotiations for a period of thirty (30) calendar days following the receipt of the Earnout Dispute Notice. In the event that the parties are unable to finally resolve the dispute within such thirty (30) calendar-day period, the parties to the dispute may elect by mutual agreement to extend the period of negotiation and may elect by mutual agreement to engage a mediator to assist in such negotiation. To the extent that any matter remains unresolved following negotiations (as

 

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determined by notice by any party to the other party), the Sellers’ Representative and Buyer shall jointly select an independent accountant of recognized national standing to resolve any remaining disagreements (the “ Independent Accountant ”). The Sellers’ Representative and Buyer shall use their respective commercially reasonable efforts to cause such Independent Accountant to make its determination within sixty (60) calendar days of accepting its selection. Within ten (10) Business Days after the date of determination of such Independent Accountant, Buyer shall pay or cause to be paid to the Sellers the Contingent Consideration in the manner set forth herein, subject to the right of offset provisions of Article 10 below. The decision of the Independent Accountant shall be a final, binding, and conclusive resolution of the parties’ dispute, shall be non-appealable, and shall not be subject to further review absent patent error. The costs and expenses of the Independent Accountant shall be split between Buyer and the Sellers in proportion to the difference between the amount set forth in the decision of the Independent Accountant and the amount reflected in the Earnout Report (with respect to Buyer’s portion) and the amount reflected in the Earnout Dispute Notice (with respect to the Sellers’ portion). In the event that the Sellers do not pay their amount of the Independent Accountant’s costs and expenses, Buyer shall be entitled to deduct the difference between the Sellers’ portion of the costs and expenses of the Independent Accountant and the amount actually paid by the Sellers to the Independent Accountant from the Contingent Consideration. Notwithstanding the foregoing, in any case, the parties shall be responsible for the payment of their respective costs and expenses, including any attorneys’ and accountants’ fees (other than any accountants’ fees payable to the Independent Accountant, which shall be split between the parties in accordance with this subsection (C) incurred in connection with the dispute.

 

(D) Each Seller hereby, generally, irrevocably, unconditionally and completely agrees that, except as provided by this subsection (D), Buyer and each of its Affiliates shall be entitled to operate the Acquired Business as they determine in their sole and absolute discretion, and shall have no obligation to operate the Acquired Business in any manner that would maximize, maintain or protect the Contingent Consideration; provided, however, that Buyer hereby covenants and agrees that from the Closing through the last day of the Earnout Period that:

 

(a) in the event Buyer [*] directly results in a back order of the Acquired Business Products or a material reduction in quality of the Acquired Business Products, which directly results in reduced Net Revenue for the Acquired Business, the amount by which the Net Revenue is reduced shall be added to Net Revenue for purposes of calculating the Contingent Consideration payable for the Earnout Period;

 

[*]	Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(b) Buyer will continue to make the [*] payments payable to each of [*] in accordance with the letter of understanding with [*], dated [*], and the [*] agreements with [*] summarized on Schedule 3.11, respectively, unless, Buyer and [*] with respect to [*] letter of understanding, Buyer and [*] with respect to [*] agreement or Buyer and [*] with respect to [*] agreement, as the case may be, mutually agree otherwise in writing;

 

(c) Buyer will cause the books and records of the Acquired Business to be maintained in such a manner as will allow for the segregation, identification and accounting for revenues of the Acquired Business by Buyer;

 

(d) Buyer will sell the Acquired Business Products [*];

 

(e) Buyer will not terminate the employment of John Hudson or Dennis Feldman or the consultancy of John Kennedy, other than as a result of death, disability or for cause (as defined in their employment or consulting agreement with Buyer, as the case may be), or materially reduce their cash compensation or responsibilities and duties in the operation of the Business from what is set forth in their employment or consulting agreement, as the case may be, with Buyer from the earlier of the end date set forth in their employment or consulting agreement (as applicable) and the last day of the Earnout Period;

 

(f) Buyer will not require Dennis Feldman, John Hudson or John Kennedy to commit any material time or energy to an enterprise other than the Acquired Business;

 

(g) Buyer will continue to sell the Acquired Business Products for Epistaxis and sinus surgery indications;

 

(h) Buyer will conduct the Acquired Business only through Buyer and its Affiliates;

 

(i) Buyer will make available sufficient working capital to the Acquired Business to support the sale of the Acquired Business Products;

 

[*]	Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

 

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(j) Buyer will not terminate (other than as a result of death, disability or for cause) or materially reduce the cash compensation of [*] as of the Closing Date if such termination or reduction directly results in a back order of the Acquired Business Products or a material reduction in quality of the Acquired Business Products, which directly results in reduced Net Revenue for the Acquired Business, the amount by which the Net Revenue is reduced shall be added to Net Revenue for purposes of calculating the Contingent Consideration payable for the Earnout Period; and

 

(k) in the event there is a Class II Recall or Class III Recall (each as defined by the FDA) of the Acquired Business Products, which directly results in reduced Net Revenue for the Acquired Business, the amount by which the Net Revenue is reduced shall be added to Net Revenue for purposes of calculating the Contingent Consideration payable for the Earnout Period.

 

In the event Buyer fails to comply with any of subsection (b), (c), (d), (e), (f), (g), (h) or (i) above and such failure to comply directly results in reduced Net Revenue for the Acquired Business, the amount by which the Net Revenue is reduced shall be added to Net Revenue for purposes of calculating the Contingent Consideration payable for the Earnout Period. In addition, in the event a Buyer Change of Control is consummated during the Earnout Period, the Contingent Consideration payable pursuant to this Section 2.05(a)(ii) shall in any case be $15.0 million, regardless of the actual Net Revenue recognized during the Earnout Period. Any offset that may be made pursuant to Article 10 of this Agreement shall be deducted from the $15.0 million payable pursuant to the foregoing sentence.

 

(b) The Final Purchase Price and Assumed Liabilities (to the extent properly taken into account under Section 1060 of the Code) shall be allocated among the Purchased Assets as set forth in Schedule 2.05. Buyer and Sellers shall (i) be bound by such allocation, (ii) act in accordance with the allocation in the preparation of all financial statements and the filing of all Tax Returns (including, without limitation, filing Form 8594 with their United States federal income Tax Return for the taxable year that includes the Closing Date) and in the course of any Tax audit, Tax review or Tax litigation relating thereto, and (iii) take no position and cause their Affiliates to take no position inconsistent with the allocation for income Tax purposes, including United States federal and state income Tax and foreign income Tax, unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code. Not later than thirty (30) days prior to the filing of their respective Forms 8594 relating to this transaction, each of the Purchaser and Sellers shall deliver to the other a copy of its Form 8594 and shall file, according to Section 1060 of the Code, all returns and reports with respect to the transactions contemplated by this Agreement (including, without limitation, all federal, state and local tax returns) on the basis of such allocation.

 

[*]	Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Section 2.06 Closing . The closing (the “ Closing ”) of the purchase and sale of the Purchased Assets and the assumption of the Assumed Liabilities hereunder shall take place at the offices of Fowler White Boggs Banker PA, 501 E. Kennedy Blvd., Suite 1700, Tampa, Florida 33602 as soon as possible, but in no event later than five Business Days after satisfaction or waiver of the conditions set forth in Article 9 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions), or at such other time or place as Buyer and Sellers may agree. At the Closing, Sellers and Buyer shall enter into (i) an Assignment and Assumption Agreement substantially in the form attached hereto as Exhibit A and a German Assignment and Assumption Agreement substantially in the form attached hereto as Exhibit C, (ii) a Bill of Sale substantially in the form attached hereto as Exhibit B and (iii) forms of intellectual property transfer documents to be agreed upon and attached as Exhibits, and Sellers shall deliver to Buyer such special warranty deeds, bills of sale, endorsements, consents, assignments and other good and sufficient instruments of conveyance and assignment as the parties and their respective counsel shall deem reasonably necessary or appropriate to vest in Buyer all right, title and interest in, to and under the Purchased Assets.

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF SELLERS

 

Each Seller represents and warrants to Buyer as of the date hereof and as of the Closing Date that:

 

Section 3.01 Corporate Existence and Power . Seller is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except where the absence of any such governmental licenses, authorizations, permits, consents or approvals would not have a Material Adverse Effect. Seller is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect. Seller has heretofore delivered to Buyer true and complete copies of the certificate of incorporation, articles of association and bylaws of Seller as currently in effect.

 

Section 3.02 Corporate Authorization .

 

(a) The execution, delivery and performance by Seller of this Agreement and the consummation of the Transactions are within Seller’s corporate powers and, except for any required approval of Seller’s stockholders, have been duly authorized by all necessary corporate action on the part of Seller. The Required Stockholder Approvals are the only votes of any of the Seller’s capital stock necessary in connection with the consummation of the Transactions. This Agreement has been duly executed and delivered by Seller and constitutes a valid and binding agreement of Seller.

 

(b) At a meeting duly called and held or pursuant to a written consent in lieu of a meeting, the Board of Directors of each Seller has unanimously (i) determined that this

 

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Agreement and the Transactions are advisable to Seller’s stockholders, and expedient and for the best interests of Seller, (ii) approved and adopted this Agreement and the Transactions and (iii) resolved to recommend the approval and adoption of this Agreement by the stockholders of Seller.

 

Section 3.03 Governmental Authorization . The execution, delivery and performance by Seller of this Agreement and the consummation of the Transactions require no action by or in respect of, or filing with, any governmental body, agency or official that Seller has not taken or made or the failure of which to take or make would have a Material Adverse Effect.

 

Section 3.04 Noncontravention . The execution, delivery and performance by Seller of this Agreement and, the consummation of the Transactions do not and will not (i) violate the Charter of Seller, (ii) assuming compliance with the matters referred to in Section 3.03, violate any law, rule, regulation, judgment, injunction, order or decree applicable to Seller as a result of the execution, delivery or performance by Seller of this Agreement which could result in a Material Adverse Effect, (iii) assuming the obtaining, or waiving pursuant to Section 4.10, of all Required Consents, constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of Seller or to a loss of any benefit relating to the Business to which Seller is entitled under any provision of any agreement or other instrument binding upon Seller or by which any of the Purchased Assets is or may be bound or (iv) result in the creation or imposition of any Lien on any Purchased Asset, other than Permitted Liens.

 

Section 3.05 Capitalization .

 

(a) (i) The authorized capital stock of ATI Florida consists of 1,000 shares of common stock, no par value per share. As of the date hereof, there are issued and outstanding 100 shares of common stock and no employee stock options to purchase shares of common stock.

 

(ii) The authorized capital stock of ATI UK consists of 100,000 ordinary shares of £1 each. As of the date hereof, there are 100 ordinary shares of £1 each in issue and no employee stock options have been granted over any shares in ATI UK.

 

(iii) As of the date hereof, Alberto Bauer and John Kennedy own an 80% and 20%, respectively, equity interest in ATI Germany, and no Person has an option to purchase an ownership interest in ATI Germany. As of the date hereof, there are issued and outstanding two shares of stock ( Geschaftsanteile ) in the aggregate amount of EUR 25,000.

 

(iv) The authorized capital stock of ATI Cayman consists of 50,000 shares of capital stock, $1.00 par value per share. As of the date hereof, there are issued and outstanding 100 shares of capital stock.

 

(b) Except as set forth in this Section 3.05, there are no outstanding (i) shares of capital stock or voting securities of Seller, (ii) securities of Seller convertible into or exchangeable for shares of capital stock or voting securities of Seller or (iii) options or other rights to acquire from Seller, or other obligation of Seller to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of

 

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Seller (the items in clauses (i), (ii), and (iii) being referred to collectively as the “ Seller Securities ”). There are no outstanding obligations of Seller to repurchase, redeem or otherwise acquire any of Seller Securities.

 

Section 3.06 No Subsidiaries . Seller does not have, and has never had, any Subsidiaries.

 

Section 3.07 Required Consents . Schedule 3.07 sets forth each material agreement, contract or other instrument binding upon Seller or any Permit (including any Environmental Permit) requiring a consent or other action by any Person as a result of the execution, delivery and performance of this Agreement (the “ Required Consents ”).

 

Section 3.08 Financial Statements . The unaudited consolidated balance sheets as of December 31, 2003 and 2004 and the related unaudited consolidated statements of income for each of the years ended December 31, 2003 and 2004 and the statements of cash flow for the year ended December 31, 2004, and the unaudited interim consolidated balance sheet as of June 30, 2005 and the related unaudited interim consolidated statements of income and cash flows for the six months ended June 30, 2005 of Seller fairly present in all material respects (except as may be indicated in the notes thereto), the financial position of Seller as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject to normal year end adjustments in the case of any unaudited interim financial statements).

 

Section 3.09 Absence of Certain Changes . Except as set forth on Schedule 3.09, since the Balance Sheet Date, the Business has been conducted in the ordinary course consistent with past practices and there has not been:

 

(a) any event, occurrence, development or state of circumstances or facts which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect;

 

(b) any incurrence, assumption or guarantee by Seller of any indebtedness for borrowed money with respect to the Business;

 

(c) any creation or other incurrence of any Lien on any Purchased Asset other than in the ordinary course of business consistent with past practices;

 

(d) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the Business or any Purchased Asset which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect;

 

(e) any transaction or commitment made, or any contract or agreement entered into, by Seller relating to the Business or any Purchased Asset (including the acquisition or disposition of any assets) or any relinquishment by Seller of any contract or other right, in either case, material to the Business, other than transactions and commitments in the ordinary course of business consistent with past practices and those contemplated by this Agreement;

 

(f) any change in any method of accounting or accounting practice by Seller with respect to the Business;

 

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(g) any (i) employment, deferred compensation, severance, retirement or other similar agreement entered into with any officer or employee of the Business (or any amendment to any such existing agreement), (ii) grant of any severance or termination pay to any officer or employee of the Business or (iii) increase in compensation or other benefits payable to any officer or employee of the Business pursuant to any severance or retirement plans or policies thereof;

 

(h) any labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Business, which employees were not subject to a collective bargaining agreement at the Balance Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to employees of the Business; or

 

(i) any capital expenditure, or commitment for a capital expenditure, for additions or improvements to property, plant and equipment in excess of $10,000 individually, or $25,000 in the aggregate.

 

Section 3.10 No Undisclosed Material Liabilities . To the knowledge of Seller, there are no liabilities of the Business of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which could reasonably be expected to result in such a liability, other than:

 

(a) liabilities provided for in the Balance Sheet or disclosed in the notes thereto;

 

(b) liabilities disclosed on Schedule 3.10; and

 

(c) other undisclosed liabilities incurred in the ordinary course of business since the Balance Sheet Date, which, individually or in the aggregate, are not material to the Business.

 

Section 3.11 Material Contracts .

 

(a) Except for the Contracts disclosed in Schedule 3.11, with respect to the Business, Seller is not a party to or bound by:

 

(i) any lease (whether of real or personal property) providing for annual rentals of $10,000 or more;

 

(ii) any agreement for the purchase of materials, supplies, goods, services, equipment or other assets providing for either (a) annual payments by Seller of $10,000 or more or (b) aggregate payments by Seller of $20,000 or more;

 

(iii) any sales, distribution or other similar agreement providing for the sale by Seller of materials, supplies, goods, services, equipment or other assets that provides for either (c) annual payments to Seller of $10,000 or more or (d) aggregate payments to Seller of $20,000 or more;

 

(iv) any partnership, joint venture or other similar agreement or arrangement;

 

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(v) any agreement relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise);

 

(vi) any agreement relating to indebtedness for borrowed money or the deferred purchase price of property (in either case, whether incurred, assumed, guaranteed or secured by any asset);

 

(vii) any agreement relating to the Owned Intellectual Property Rights or the Licensed Intellectual Property Rights;

 

(viii) any option, license, franchise or similar agreement;

 

(ix) any agency, dealer, sales representative, marketing or other similar agreement;

 

(x) any agreement that limits the freedom of Seller to compete in any line of business or with any Person or in any area or to own, operate, sell, transfer, pledge or otherwise dispose of or encumber any Purchased Asset or which would so limit the freedom of Buyer after the Closing Date;

 

(xi) any agreement with or for the benefit of any Affiliate of Seller; or

 

(xii) any other agreement, commitment, arrangement or plan not made in the ordinary course of business that is material to the Business.

 

(b) Except as set forth on Schedule 3.11, each Contract disclosed in any Schedule to this Agreement or required to be disclosed pursuant to this Section is a valid and binding agreement of Seller and is in full force and effect, and, except as set forth on Schedule 3.11, none of Seller or, to the knowledge of Seller, any other party thereto is in default or breach in any material respect under the terms of any such Contract, and, to the knowledge of Seller, no event or circumstance has occurred that, with notice or lapse of time or both, would constitute any event of default thereunder. True and complete copies, and where written copies do not exist, summaries, of each such Contract have been delivered to Buyer.

 

Section 3.12 Litigation . Except as set forth on Schedule 3.12, there is no action, suit, investigation or proceeding (or any basis therefor) pending against, or to the knowledge of Seller, threatened against or affecting, the Business or any Purchased Asset before any court or arbitrator or any governmental body, agency or official which, individually or in the aggregate, if determined or resolved adversely in accordance with the plaintiff’s demands, could reasonably be expected to have a material impact on the Business or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement.

 

Section 3.13 Compliance with Laws and Court Orders . To the knowledge of Seller, Seller is not in violation of, has not since January 1, 2002 violated, and to the knowledge of Seller is n