EXHIBIT 10.65
Redacted Version
 
STOCK PURCHASE AGREEMENT
 
This Stock Purchase Agreement (this “Agreement”), dated December 31, 2007, is by
and among (i) ArthroCare Corporation, a Delaware corporation (“Buyer”), (ii)
DiscoCare, Inc., a Delaware corporation (the “Company”), and (iii) Jonathan
Cutler, D.P.M., the sole stockholder of the Company (the “Seller” and, together
with the Company, the “Seller Parties” and, together with Buyer, the “Parties”).
 
RECITALS
 
A. Seller owns all of the Company’s outstanding Common Stock, no par value per
share (the “Shares”).
 
B. Buyer desires to purchase from Seller all of the Shares, and Seller desires
to sell to Buyer all of the Shares, in accordance with this Agreement’s terms
and conditions.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the premises, the respective
representations, warranties, covenants and agreements contained in this
Agreement, and other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound, the Parties
agree as follows:
 
ARTICLE 1
PURCHASE AND SALE OF SHARES
 
1.1 Purchase and Sale of Shares. On and subject to the terms and conditions of
this Agreement, Buyer hereby purchases from Seller, and Seller hereby sells to
Buyer, all of the Shares for the consideration specified in Section 1.2.
 
1.2 Purchase Price. The aggregate purchase price for the Shares (the “Purchase
Price”) is $25,000,000. Buyer shall pay to the Seller the Purchase Price in
cash, less the Escrow Amount (defined below), upon the execution and delivery of
this Agreement by all Parties (the “Closing”). The date of the Closing shall
hereinafter be referred to as the “Closing Date.”
 
1.3 Deliveries. On the Closing Date,
 
(a) Seller shall deliver, or caused to be delivered, to Buyer: (i) certificates
representing the Shares, duly endorsed (or accompanied by duly executed stock
powers), (ii) an officer’s certificate and a secretary’s certificate for the
Company, each duly executed by the appropriate person, (iii) the resignation,
effective as of the Closing, of each of the Company’s directors and officers,
(iv) the consents set forth on Schedule 3.3, (v) the **** Agreement in the form
attached hereto as Schedule 1.3(a); (vi) the Escrow Agreement (defined below),
duly executed by Seller, (vii) an assignment of all of the Company’s Receivables
which arose prior to **** (“Seller’s Receivables”), a list of which is attached
as Schedule 4.5, to Seller and (viii) other documents as mutually agreed to by
the Parties.
 
(b) Buyer shall deliver, or cause to be delivered, to the Seller: (i) the
Purchase Price in cash, less the Escrow Amount payable by wire transfer of
immediately available funds, (ii) an officer’s certificate and assistant
secretary’s certificate for Buyer, each duly executed by the appropriate person,
(iii) the Escrow Agreement, duly executed by Buyer, (iv) the Release Agreement
in the form attached hereto as Schedule 1.3(a); and (v) other documents as
mutually agreed to by the Parties.
 
(c) Buyer shall pay the Escrow Amount (as defined in Section 5.6) to the Escrow
Agent in cash payable by wire transfer of immediately available funds.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
1

--------------------------------------------------------------------------------

 
 
ARTICLE 2
REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION
 
2.1 Representations and Warranties of Seller. Seller represents and warrants to
Buyer that the statements contained in this Section 2.1 are correct and complete
on the Closing Date.
 
(a) Power and Authority; Enforceability. Seller has the requisite competence and
authority to execute and deliver this Agreement, each writing executed or
delivered in connection with this Agreement and each amendment or supplement to
any of the foregoing (including this Agreement, the “Transaction Documents”) to
which Seller or any of Seller’s Affiliates (as defined below) is a party, and to
perform and to consummate the transactions contemplated hereby and thereby (the
“Transactions”). Each Transaction Document to which a Seller Party is a party
has been duly executed and delivered by such Seller Party, and is enforceable
against such Seller Party in accordance with its terms except as such
enforceability may be subject to the effects of bankruptcy, insolvency,
moratorium or other Laws relating to or affecting the rights of creditors and
remedies and general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (the “Enforceability Exception”). An
“Affiliate” of a specified person shall mean a person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the person specified.
 
(b) No Violation; Necessary Approvals. Except as listed on Schedule 2.1, the
execution and the delivery by Seller of this Agreement and the other Transaction
Documents to which Seller is a party, the performance by Seller of Seller’s
obligations hereunder and thereunder, and the consummation of the Transactions
by Seller will not (i) with or without notice or lapse of time, constitute,
create or result in a breach or violation of, default under, loss of any
material benefit or right under or acceleration of performance of any obligation
required under any (A) law (statutory, common or otherwise), constitution,
ordinance, rule, regulation, executive order or other similar authority (“Law”)
applicable to the Seller Parties enacted, adopted, promulgated or applied by any
legislature, agency, bureau, branch, department, division, commission, court,
tribunal or other similar recognized organization or body of any federal, state,
county, municipal, local or foreign government or other similar recognized
organization or body exercising similar powers or authority (a “Governmental
Body”), (B) order, ruling, decision, award, judgment, injunction or other
similar determination or finding by, before or under the supervision of any
Governmental Body or arbitrator (an “Order”), (C) contract, agreement,
arrangement, commitment, instrument, document or similar understanding (whether
written or oral), including a lease, sublease and rights thereunder (“Contract”)
or permit, license, certificate, waiver, notice and similar authorization
(“Permit”) to which, in the case of (A), (B) or (C), any Seller Party is a party
or by which it is bound or any of its assets are subject, or (D) any provision
of the organizational documents of Company as in effect on the Closing Date;
(ii) result in the imposition of any lien, claim or encumbrance (an
“Encumbrance”) upon any assets (including the Shares) owned by Seller; (iii)
require any consent under any Contract or organizational document to which any
Seller Party is a party or by which it is bound or any of its assets are
subject; (iv) require any Permit under any Law or Order other than notifications
or other filings with state or federal regulatory agencies after the Closing
that are necessary or convenient and do not require approval of the agency as a
condition to the validity of the Transactions; or (v) trigger any rights of
first refusal, preferential purchase or similar rights with respect to any of
the Shares.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
2

--------------------------------------------------------------------------------

 

(c) Brokers’ Fees. Seller has no liability or obligation to pay any compensation
to any broker, finder or agent with respect to the Transactions for which Buyer
or the Company could become directly or indirectly liable.
 
(d) Shares; Seller Information. Seller holds of record and owns beneficially all
of the capital stock of the Company, free and clear of any Encumbrances (other
than any restrictions on transfer under the Securities Act of 1933 (the
“Securities Act”) and state securities Laws). The signature page to this
Agreement sets forth the address and state of residence of Seller as of the date
hereof. Seller is not a party to any Contract (other than this Agreement) that
could require Seller to sell, transfer, or otherwise dispose of any capital
stock of the Company. Seller is not a party to any other Contract with respect
to any capital stock of the Company.
 
2.2 Representations and Warranties of Buyer. Buyer represents and warrants to
the Seller Parties that the statements contained in this Section 2.2 are correct
and complete on the Closing Date.
 
(a) Organization of Buyer. Buyer is an entity duly organized, validly existing
and in good standing under the Laws of the State of Delaware. Buyer has the
relevant entity power and authority necessary to own or lease its properties and
to carry on its businesses as currently conducted. There is no pending or (to
Buyer’s knowledge) threatened action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding (an “Action”) for the
dissolution, liquidation, insolvency or rehabilitation of Buyer.
 
(b) Power and Authority; Enforceability. Buyer has the relevant entity power and
authority necessary to execute and deliver each Transaction Document to which it
is a party and to perform and consummate the Transactions. Buyer has taken all
action necessary to authorize its execution and delivery of each Transaction
Document to which Buyer is a party, the performance of its obligations
thereunder and its consummation of the Transactions. Each Transaction Document
to which Buyer is a party has been duly authorized, executed and delivered by
Buyer and is enforceable against Buyer in accordance with its terms, subject to
the Enforceability Exception.
 
(c) No Violation; Necessary Approvals. The execution and the delivery by Buyer
of this Agreement and the other Transaction Documents to which Buyer is a party,
the performance by Buyer of its obligations hereunder and thereunder and the
consummation of the Transactions by Buyer will not (i) with or without notice or
lapse of time, constitute, create or result in a breach or violation of, default
under, loss of benefit or right under or acceleration of performance of any
obligation required under any Law, Order, Contract or Permit to which Buyer is a
party or by which it is bound or any of its assets are subject, or any provision
of Buyer’s organizational documents as in effect on the Closing Date,
(ii) require any consent under any Contract or organizational document to which
Buyer is a party or by which it is bound; or (iii) require any Permit under any
Law or Order other than (A) required filings, if any, with the Securities and
Exchange Commission and (B) notifications or other filings with state or federal
regulatory agencies after the Closing that are necessary or convenient and do
not require approval of the agency as a condition to the validity of the
Transactions
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
3

--------------------------------------------------------------------------------

 

(d) Brokers’ Fees. Buyer has no liability or obligation to pay any compensation
to any broker, finder or agent with respect to the Transactions.
 
(e) Litigation. There are no legal or similar proceedings pending, or, to the
knowledge of Buyer, threatened against Buyer or to which Buyer is a party
relating to this Agreement or the Transactions.
 
ARTICLE 3
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
 
Each Seller Party, jointly and severally, represents and warrants to Buyer that
the statements contained in this ARTICLE 3 are correct and complete on the
Closing Date, except as set forth in the schedules the Seller Parties delivered
to Buyer on the Closing Date.
 
3.1 Organization of Company. The Company (a) is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Delaware,
(b) is duly qualified to do business as a foreign corporation and is in good
standing under the Laws of each jurisdiction in which either the ownership or
use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, (c) has the relevant entity power
and authority necessary to own or lease its properties and to carry on its
businesses as currently conducted and (d) is not in breach or violation of, or
default under, any provision of its organizational documents. The Company has
never approved or taken any action, nor is there any pending or (to any Seller
Party’s knowledge) threatened Action, seeking or otherwise contemplating the
Company’s dissolution, liquidation, insolvency or rehabilitation. The Company
owns no interest in any subsidiary, consolidated or otherwise.
 
3.2 Power and Authority; Enforceability. The Company has the requisite power and
authority necessary to execute and deliver each Transaction Document to which it
is a party and to perform and consummate the Transactions. The Company has taken
all action necessary to authorize the execution and delivery by it of each
Transaction Document to which it is a party, the performance of its obligations
thereunder, and the consummation by the Company of the Transactions. Each
Transaction Document to which the Company is a party has been duly authorized,
executed and delivered by the Company and is enforceable against the Company in
accordance with its terms, subject to the Enforceability Exception.
 
3.3 No Violation; Necessary Approvals. Except as listed on Schedule 3.3, the
execution and the delivery by Company of this Agreement and the other
Transaction Documents to which the Company is a party, the performance by the
Company of its obligations hereunder and thereunder and the consummation of the
Transactions by the Company will not (a) with or without notice or lapse of
time, constitute, create or result in a breach or violation of, default under,
loss of benefit or right under or acceleration of performance of any obligation
required under any Law, Order, Contract or Permit to which the Company is a
party or by which it is bound or any of its assets are subject, or under any
provision of the Company’s organizational documents as in effect on the Closing
Date, (b) require any consent under any Contract or organizational document to
which the Company is a party or by which it is bound or any of its assets are
subject, (c) require any Permit under any Law or Order other than (i) required
filings, if any, with the SEC and (ii) notifications or other filings with state
or federal regulatory agencies after the Closing that are necessary or
convenient and do not require approval of the agency as a condition to the
validity of the Transactions, (d) trigger any rights of first refusal,
preferential purchase or similar rights or (e) subject the Company or its assets
to any Tax (as defined in Section 3.10).
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
4

--------------------------------------------------------------------------------

 

3.4 Capitalization. The Company’s authorized capital stock consists of One
Thousand Five Hundred (1,500) shares of Common Stock, no par value per share, of
which One Hundred (100) shares are issued and outstanding and no shares are held
in treasury. All of the issued and outstanding Shares: (a) have been duly
authorized and are validly issued, fully paid, and nonassessable, (b) were
issued in compliance with all applicable state and federal securities Laws, (c)
were not issued in breach or violation of, or did not cause as a result of the
issuance thereof a default under, any Contract with or right granted to any
other person and (d) are held of record and owned beneficially by the Seller.
The Company has no outstanding options, warrants, exchangeable or convertible
securities, subscription rights, exchange rights, statutory pre-emptive rights,
preemptive rights granted under the Company’s organizational documents, stock
appreciation rights, phantom stock, profit participation or similar rights, or
any other right or instrument pursuant to which any person may be entitled to
purchase any security of the Company, and has no obligation to issue any rights
or instruments. There are no Contracts with respect to the voting or transfer of
any of the Company’s capital stock. The Company is not obligated to redeem or
otherwise acquire any of its outstanding capital stock.
 
3.5 Records. The copies of the Company’s organizational documents that were
provided to Buyer are accurate and complete and reflect all amendments made
through the date hereof. The Company’s minute books and other records made
available to Buyer for review were correct and complete as of the date of such
review, no further entries have been made through the date of this Agreement,
such minute books and records contain the true signatures of the persons
purporting to have signed them.
 
3.6 Financial Information. Set forth on Schedule 3.6 is the financial
information of the Company that was provided to the Buyer on December 19, 2007
(the “Financial Information”). The Financial Information presents fairly on a
cash basis the Company’s receipts and disbursements for such periods and are
consistent with the Company’s books and records.
 
3.7 Subsequent Events. Except as set forth in Schedule 3.7, since December 1,
2007, the Company has operated in the ordinary course of business consistent
with past custom and practice (including with respect to quantity, quality and
frequency) (“Ordinary Course of Business”), and there have been no events,
series of events, or the lack of occurrence thereof that, singularly or in the
aggregate, could reasonably be expected to have a material adverse effect,
either individually or in the aggregate, on the Company’s business, operations,
condition (financial or otherwise), properties, assets, liabilities, rights,
obligations or prospects.
 
3.8 No Undisclosed Liabilities. The Company does not have any liability or
obligation (and, to each Seller Party’s knowledge, there is no basis for any
present or future Action or Order against the Company giving rise to any
material liability or obligation), except for (a) liabilities due to Buyer with
respect to the purchase of inventory from Buyer and its Affiliates, (b)
liabilities reflected or reserved against in the Financial Information and not
paid or discharged prior to Closing and (c) liabilities not reflected or
reserved against in the Financial Information which do not (i) result from or
relate to any tort, infringement, breach, violation of or default under any Law,
Order, Permit or Contract; (ii) arise out of any Action or Order or (iii) exceed
$25,000 individually or in the aggregate. The Company has no liability or
obligation to pay any compensation to any broker, finder or agent with respect
to the Transactions for which Buyer could become directly or indirectly
responsible.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
5

--------------------------------------------------------------------------------

 
 
3.9 Legal Compliance. 
 
(a) The Company and each of its predecessors and Affiliates has complied with
all applicable Laws and Orders, and no Action is pending or, to each Seller
Party’s knowledge, threatened against any of them alleging any failure to so
comply. No material expenditures are, or based on any Law, Order or Permit will
be, required of the Company or Buyer for the Company and its business and
operations to remain in compliance with all Laws, Orders and Permits immediately
following the Closing. “Affiliate” with respect to a specified person means any
other person who, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, the specified
person.
 
(b) None of the Seller Parties has ordered, referred, or requested, directly or
indirectly, any items or services from the Company that are subject or entitled
to reimbursement in whole or in part by, nor have any of the Seller Parties
submitted any claims for reimbursement to, Medicare, Medicaid or any other state
or federal healthcare reimbursement program.
 
(c) Without limiting the generality of the foregoing, the Company is in material
compliance with all conditions and standards for participation in the Medicare,
Medicaid and TriCare programs. The Company is not operating any aspect of its
business under or subject to a plan of correction or corporate integrity
agreement with a governmental agency or entity. Neither the Seller nor the
Company, nor any employees of the Company, are excluded, suspended, debarred or
otherwise ineligible from participation in Federal healthcare programs. Each
Seller Party is in compliance, to the extent applicable, with all federal and
state laws governing commercial or private third-party payor payments for
healthcare services.
 
(d) The Company operates solely as a sales agent of U.S. medical devices
manufactured by Buyer and its Affiliates. The Company has been and is in
compliance with all applicable statutes, regulations and policies, if any, of
the FDA, the Center for Medicare and Medicaid Services, state regulatory
agencies and the TriCare program.
 
(e) Without limiting the generality of the foregoing, no Seller Party has given
or received in violation of any Law any payments or any other remuneration,
either directly or indirectly, overtly or covertly, in cash or in kind, in
return for receiving or making referrals for the furnishing or arranging for the
furnishing of any item or service, or in return for purchasing, leasing,
ordering, or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service or item in violation of 42 U.S.C. §1320a 7a and 1320a
7b, commonly known as the “Anti Kickback Statute.” In addition, the Company has
not accepted any referral for the provision of any designated health service, or
submitted a claim for payment to Medicare or Medicaid for the provision of such
services, in violation of 42 U.S.C. §1395nn, commonly known as the “Stark Act”
or “Stark II.” No Seller Party has engaged in practices violating the Federal
False Claims Act (31 U.S.C. §§3729-3730), HIPAA (defined below) fraud and abuse
provisions (18 U.S.C. §1347), and the Civil Monetary Penalties Act (42 U.S.C.
§1320a-7a(a), including but not limited to, fraudulent coding practices and the
presentation of otherwise fraudulent claims. There have been no compliance
concerns found to be substantiated.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
6

--------------------------------------------------------------------------------

 

(f) Without limiting the generality of the foregoing, to the extent applicable
to the Company, the Company, in its ordinary business operation, has complied
and is currently in compliance with the requirements of the Health Insurance
Portability and Accountability Act of 1996 (“HIPAA”) and its implementing
regulations and with the requirements of all applicable state regulations
implementing Title V of the Gramm-Leach-Bliley Act (“GLB”) that are applicable
to the Company’s relationship with any Business Associate (as such term is
defined in HIPAA and/or GLB). To the extent that the Company has access to
Protected Health Information (as such term is defined in HIPAA and/or GLB,
“PHI”), and except as necessary to complete the transactions contemplated by
this Agreement or for internal management and compliance purposes, the Company
has not and shall not use or further disclose PHI other than as permitted or
required by HIPAA or as required by Law.
 
3.10 Taxes. The Company has no unpaid liability or obligation for any federal,
state, local, or foreign income, gross receipts, license, payroll, employment,
excise, occupation, customs, ad valorem, duties, franchise, withholding, social
security, unemployment, real property, personal property, sales, use, transfer,
registration, estimated or other tax of any kind whatsoever, including any
interest, penalty or addition thereto, whether disputed or not (“Taxes”) as of
the Closing Date. Except as set forth in Schedule 3.10-1, the Company has filed
when due all required Tax reports and returns in connection with and in respect
of its business, assets and employees, and has timely paid and discharged all
amounts shown as due thereon. Except as set forth in Schedule 3.10-2, all such
Tax returns are true and complete in all material respects. The Seller Parties
have made available to Buyer accurate and complete copies of all of the
Company’s Tax reports and returns for all periods, except those periods for
which returns are not yet due. To each Seller Party’s knowledge, there are no,
and there is no basis for any, pending or threatened claims, assessments,
notices, deficiencies or audits with respect to any Taxes owed or allegedly owed
by the Company. The Company has not received any notice of any Tax deficiency
outstanding, proposed or assessed against or allocable to it, and has not
executed any waiver of any statute of limitations on the assessment or
collection of any Tax or executed or filed with any Governmental Body any
Contract now in effect extending the period for assessment or collection of any
Taxes against it. Except for Permitted Encumbrances (as defined in Section
3.11), there are no Encumbrances for Taxes upon, or pending or threatened
against, the Company. The Company is not subject to any Tax allocation or
sharing Contract. The Company (i) has not been a member of an “affiliated group”
filing a consolidated federal income Tax return and (ii) has no liability or
obligation for the Taxes of any other person under the Code or any regulations
promulgated thereunder, as a transferee or successor, by Contract, or otherwise.
 
3.11 Title to, Sufficiency and Condition of Assets. Set forth on Schedule 3.11
(a) are the assets and properties of the Company (the “Company Assets”) which
constitute and include all the assets necessary for the conduct of the Company’s
business as currently conducted, (b) there are no material assets used in or
relied upon for the conduct of the Company’s business other than the Company
Assets, (c) the Company has (and subject to Buyer’s own actions after the
Closing, Buyer will have) good, marketable and indefeasible title to, or a valid
leasehold interest in, all of the Company Assets, in each case free and clear of
any Encumbrances other than (i) statutory, mechanics’ or other liens that were
incurred in Company’s Ordinary Course of Business, (ii) Encumbrances that are
being contested in good faith and which have been disclosed to Buyer, (iii)
liens for Taxes incurred but not yet due and (iv) Encumbrances set forth on
Schedule 3.11 (collectively, “Permitted Encumbrances”) and (d) all tangible
assets included as part of the Company Assets, whether owned or leased, are free
from material defects (patent and latent), have been maintained in accordance
with normal industry practice, are in good operating condition (subject to
normal wear and tear) and are suitable for the purposes for which they are
currently used and currently proposed to be used.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
7

--------------------------------------------------------------------------------

 

3.12 Real Property. Except as set forth on Schedule 3.12, the Company does not
own or lease any real property.
 
3.13 Intellectual Property. As used in this Agreement, “Intellectual Property”
means any rights, licenses, charges, Encumbrances, equities and other claims
that any person may have to claim ownership, authorship or invention of, to use,
to object to or prevent the modification of or to withdraw from circulation or
control the publication or distribution of, any: (a) copyrights in both
published works and unpublished works, (b) fictitious business names, trading
names, corporate names, registered and unregistered trademarks, service marks
and applications, (c) any (i) patents and patent applications and (ii) business
methods, inventions and discoveries that may be patentable, (d) computer
software or middleware and (e) know-how, trade secrets, confidential
information, customer lists, software (source code and object code), technical
information, data, process technology, plans, drawings and blue prints. Except
as set forth in Schedule 3.13, the Company owns, or possesses legally
enforceable rights to use, all Intellectual Property used in its business as
currently, or as currently proposed to be, conducted by the Company. The
Company’s use of the Intellectual Property in its business as currently
conducted (and the operation of its business) does not, and the use of such
Intellectual Property by the Company and its Affiliates after Closing (subject
to Buyer’s own actions after the Closing) will not, infringe, violate or
constitute misappropriation of any rights any other person owns or holds.
 
3.14 Inventory. The Company’s sole inventory consists of finished goods
purchased from Buyer pursuant to the terms of that certain Consulting, Services
and Purchasing Agreement by and between Buyer and the Company dated November 1,
2006, as amended (the “CSP Agreement”).
 
3.15 Contracts. Schedule 3.15 lists each Contract to which the Company is a
party. The Company has delivered to Buyer a correct and complete copy of each
written Contract (as amended to date) listed in Schedule 3.15 and a written
summary setting forth the terms and conditions of each oral Contract referred to
in Schedule 3.15. Except as set forth on Schedule 3.15, each such Contract is
legal, valid and enforceable and will continue to be legal, valid and
enforceable on identical terms following the consummation of the Transactions.
Except as set forth in Schedule 3.15, neither the Company nor, to each Seller
Party’s knowledge, any of the counter-parties to any such Contract is or has
been in (and no event has occurred that, with or without notice or lapse of
time, would create or constitute a) breach or violation of, or default under,
any of such Contract’s provisions, no event has occurred or likely to occur
that, with or without notice or lapse of time, would give the Company or any
other party to any Contract the right to either (i) declare a default or
exercise any remedy under such Contract, (ii) accelerate the performance of, or
payment under, such Contract or (iii) cancel, terminate or modify any such
Contract. To each Seller Party’s knowledge, no party to any Contract has
repudiated any provision of the Contract. Schedule 3.15 also denotes each such
Contract to which Seller or any of its Affiliates is a party.
 
3.16 Receivables. All of the Company’s receivables, including all Contracts in
transit, manufacturers warranty receivables, notes receivable, accounts
receivable, trade account receivables, and insurance proceeds receivable
(“Receivables”) with respect to sales of Spine Products (****) as of December
26, 2007 are set forth on Schedule 3.16. All of the Receivables as of the
Closing Date are valid and enforceable, represent bona fide transactions, arose
in the Company’s Ordinary Course of Business and are reflected on the Company’s
books and records. Except as set forth on Schedule 3.16, all of the Receivables
as of the Closing Date are good and collectible receivables, are current and
will be collected in accordance with past practice without any set off, valid
defense or counterclaims. No customer or supplier of the Company is entitled to
any payment terms.
 
 
**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
8

--------------------------------------------------------------------------------

 
 
3.17 Litigation. Schedule 3.17 sets forth each instance in which the Company (a)
is subject to any outstanding Order or (b) is a party to, the subject of or, to
any Seller Party’s knowledge, threatened to be made a party to or the subject
of, any action, appeal, petition, plea, charge, complaint, claim, suit, demand,
litigation, arbitration, mediation, hearing, inquiry, investigation or similar
event, occurrence, or proceeding. No Order or Action required to be set forth in
Schedule 3.17 questions the validity or enforceability of any Transaction
Document or any Transaction, or could result in any material adverse effect on
the Company, and no Seller Party has any basis to believe that any such Action
may be brought or threatened against the Company.
 
3.18 Insurance. Schedule 3.18 contains accurate and complete (i) lists of all
insurance policies currently carried by the Company, (ii) lists of all insurance
loss runs or workers’ compensation claims received for the past three policy
years, and (iii) copies of all insurance policies currently in effect. Such
insurance policies evidence all of the insurance that the Company is required to
carry pursuant to its Contracts and Law. Such insurance policies are currently
in full force and effect and will remain in full force and effect through their
current terms. No insurance that the Company has ever carried has been canceled
nor has any such cancellation been, to any Seller Party’s knowledge, threatened.
The Company has never been denied coverage nor has any such denial been, to any
Seller Party’s knowledge, threatened.
 
3.19 Intentionally Omitted.
 
3.20 Employee Benefits. The Company does not maintain any non-qualified deferred
compensation plan, qualified defined contribution retirement plan, qualified
defined benefit retirement plan or other material fringe benefit plan or program
or to which the Company contributes.
 
3.21 Intentionally Omitted.
 
3.22 Permits. Except as set forth on Schedule 3.22, the Company possesses all
Permits required to be obtained for its businesses and operations. Schedule 3.22
sets forth a list of all such Permits. Except as set forth in Schedule 3.22,
with respect to each such Permit: (a) it is valid, subsisting and in full force
and effect; (b) there are no violations of such Permit that would result in a
termination of such Permit; (c) the Company has not received notice that such
Permit will not be renewed; and (d) the Transactions will not adversely affect
the validity of such Permit or cause a cancellation of or otherwise adversely
affect such Permit.
 
3.23 Customers; Suppliers. There have been no customers, resellers, licensees
and distributors of the Company that ordered goods and services from the Company
with an aggregate value for each such customer of $50,000 or more during the
twelve-month period ended November 30, 2007. The Company has not engaged in any
“channel stuffing” or similar practices that could have the effect of
accelerating revenue from a customer into a current period which will cause a
significant reduction of revenue in a future period. 
 
3.24 Accuracy of Information Furnished. No representation, statement or
information contained in this Agreement, any of the Transaction Documents or any
Contract or other document made available or furnished to Buyer or its
representatives by any Seller Party is known to contain any untrue statement of
a material fact or to omit any material fact necessary to make the information
contained therein not misleading.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
9

--------------------------------------------------------------------------------

 
 
ARTICLE 4
COVENANTS
 
4.1 General. If any time after the Closing any further action is necessary or
desirable to effectuate the Transactions as contemplated by this Agreement, each
Party will take such further action (including executing and delivering any
further instruments and documents, obtaining any Permits and consents and
providing any reasonably requested information) as any other Party may
reasonably request, all at the requesting Party’s sole cost and expense (unless
the requesting Party is entitled to indemnification therefor under ARTICLE 5).
 
4.2 Confidentiality. For a period of five years following the Closing Date
(except with respect to the trade secrets of Company, for which the term of the
covenant contained in this Section 4.2 shall be perpetual), Seller will, and
will cause each of its respective Affiliates, directors, officers, employees,
agents, representatives and similarly situated persons to (a) treat and hold as
confidential, and not use or disclose, all of the information possessed by such
person concerning the Company, its business, the negotiation or existence and
terms of this Agreement and the business affairs of Buyer (“Confidential
Information”), except for (i) disclosures to the person’s professional advisors,
the actions for which the disclosing person will be responsible, (ii)
disclosures required for such person to perform obligations it may have under
this Agreement or in enforcing its rights under this Agreement, and (iii)
disclosures required by applicable law or order and information that is
available to the public on the Closing Date or thereafter becomes available to
the public other than as a result of a breach of this Section 4.2, and (b)
deliver promptly to Buyer or destroy, at Buyer’s request and option, all
tangible embodiments (and all copies) of the Confidential Information which are
in such person’s possession. If any person subject to these confidentiality
provisions is ever requested or required (by oral or written question or request
for information or documents in any Action) to disclose any Confidential
Information, Seller will notify Buyer promptly of the request or requirement so
that Buyer may seek an appropriate protective Order or waive compliance with
this Section 4.2.
 
4.3 Restrictive Covenants. To assure that Buyer will realize the benefits of the
Transactions, Seller agrees that it will not, and will ensure that each of its
Affiliates does not:
 
(a) From the Closing Date until five years after the Closing Date (the
“Non-Compete Termination Date”), directly or indirectly, alone or as a partner,
joint venturer, officer, director, member, employee, consultant, agent or
independent contractor of, or lender to, any person or business, engage in
activities similar to or competitive with the activities conducted by the
Company anywhere in the United States; provided, however, that the passive
ownership of less than one percent of the ownership interests of an entity
having a class of securities that is traded on a national securities exchange or
in the over-the-counter market is not a violation of this Section 4.3(a).
 
(b) From the Closing Date until the Non-Compete Termination Date, directly or
indirectly (i) solicit any customers of Buyer or any of its Affiliates for the
benefit of any business directly or indirectly in competition with the business
of Buyer or any of its Affiliates or (ii) request, advise or induce any person
who is a customer, employee, contractor, vendor or lessor of Buyer or any of its
Affiliates to withdraw, curtail or cancel the relationship such person has with
Buyer or its Affiliate.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
10

--------------------------------------------------------------------------------

 

(c) From the Closing Date until the Non-Compete Termination Date, directly or
indirectly, for itself or on behalf of another, solicit for employment or
engagement as an independent contractor, or for any other similar purpose, any
person who was in the six-month period preceding the solicitation, or is at the
time of the solicitation, an employee or independent contractor of Buyer or any
of Buyer’s Affiliates, other than such person (i) whose employment or
independent contractor relationship was terminated by Buyer or its Affiliate or
(ii) who independently responded to a general solicitation for employment by
such Seller or Seller Affiliate.
 
Seller acknowledges that the restrictions in this Section 4.3 are reasonable in
scope and duration and are necessary to protect Buyer after the Closing. Seller
acknowledge that Seller’s breach of this Section 4.3 will cause irreparable
damage to Buyer, and upon breach of any provision of this Section 4.3, Buyer
will be entitled to injunctive relief, specific performance or other equitable
relief without bond or other security; provided, however, that the foregoing
remedies will in no way limit any other remedies Buyer may have.
 
4.4 Litigation Support. So long as any Party actively is contesting or defending
against any Action in connection with (a) the Transactions or (b) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each other Party will cooperate with
such Party and such Party’s counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as will be necessary in connection with the contest or defense, at the
sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party or one of its Affiliates is entitled to
indemnification therefor under ARTICLE 5).
 
4.5 Post-Closing Cooperation. 
 
(a)After the Closing, upon reasonable notice, Buyer shall furnish or cause to be
furnished to Seller and his counsel, auditors and representatives, during normal
business hours, such information and assistance relating to the Company’s
business (to the extent within the control of Buyer) as is reasonably necessary
for (i) financial reporting and accounting matters; (ii) filing of all Tax
returns (including amended Tax Returns), and making any election related to
Taxes, the preparation for, response to and defense of any audit by any taxing
authority; (iii) the prosecution or defense of any proceeding; and (iv) the
conduct of any audit or other proceeding involving the Company’s business on or
prior to the Closing Date.
 
(b)Seller shall prepare or cause to be prepared and file or cause to be filed
all income tax returns of Company that are filed after the Closing Date with
respect to all taxable periods ending on or before the Closing Date.
 
(c) Buyer shall provide such financial information that is necessary and
appropriate to enable Seller Parties to prepare and file their local, state and
federal income Tax returns for the Tax year that includes the Closing Date.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
11

--------------------------------------------------------------------------------

 

(d) Buyer shall retain all records, schedules, work papers and all other
documents relating to the Company’s business in a manner consistent with Buyer’s
document retention policy.
 
(e) Buyer shall pay to Seller the service fee earned by Company from December 1,
2007 through the Closing Date under the CSP Agreement, which service fee shall
be payable by Buyer to Seller on or before January 31, 2008.
 
(f) Following the Closing Date, Buyer shall cause the Company to remit to Seller
any payments received by Company with respect to Seller’s Receivables within 10
business days of the Company’s receipt thereof
 
(g) Following the Closing Date, Seller shall use his reasonable best efforts to
assist the Company in obtaining the written consent of the Landlord (defined
below) to the sale of the Shares by Seller to Buyer, as required by that certain
**** lease agreement dated June 8, 2007 (the “Lease”) by and between the Company
and **** (the “Landlord”).
 
ARTICLE 5
INDEMNIFICATION
 
5.1 Survival of Representations, Warranties and Covenants. Each representation
and warranty of the Parties contained herein and any certificate related to such
representations and warranties will survive the Closing and continue in full
force and effect until the applicable statute of limitations expires, except the
representations and warranties set forth in Sections 2.1, 2.2(a), 2.2(b),
2.2(c), 3.1, 3.2 and 3.4, which will survive the Closing and will continue in
full force and effect forever. Each covenant and obligation in this Agreement,
and any certificate or document delivered pursuant to this Agreement, will
survive the Closing forever. Unless expressly waived pursuant to this Agreement,
no representation, warranty, covenant, right or remedy available to any person
in connection with the Transactions will be deemed waived by any action or
inaction of that person (including consummation of the Transactions, any
inspection or investigation, or the awareness of any fact or matter) at any
time, whether before, on or after the Closing.
 
5.2 Indemnification Provisions for Buyer’s Benefit.“Damages” means all losses
(including diminution in value), damages and other costs and expenses of any
kind or nature whatsoever, whether known or unknown, contingent or vested,
matured or unmatured, and whether or not resulting from third-party claims,
including costs (including reasonable fees and expenses of attorneys, other
professional advisors and expert witnesses and the allocable portion of the
relevant person’s internal costs) of investigation, preparation and litigation
in connection with any Action or threatened Action. The Seller Parties, jointly
and severally, will indemnify and hold Buyer and its Affiliates, and their
respective officers, directors, managers, employees, agents, representatives,
controlling persons, stockholders and similarly situated persons (the “Buyer
Indemnified Parties”), harmless from and pay any and all Damages directly or
indirectly based upon, resulting from, relating to, arising out of or
attributable to any of the following: (a) any breach of any representation or
warranty any Seller Party has made in this Agreement; and (b) any breach,
violation or default by any Seller Party of any covenant, agreement or
obligation of a Seller Party in this Agreement. 
 
5.3 Indemnification Provisions for Seller Parties’ Benefit. Buyer will indemnify
and hold each Seller Party and its Affiliates, and their respective officers,
directors, managers, employees, agents, representatives, controlling persons,
stockholders and similarly situated persons (the “Seller Indemnified Parties”
and together with the Buyer Indemnified Parties, the “Indemnified Parties”),
harmless from and pay any and all Damages directly or indirectly, based upon,
resulting from, relating to, arising out of or attributable to any of the
following: (a) any breach of any representation or warranty Buyer has made in
this Agreement; and (b) any breach, violation or default by Buyer of any
covenant, agreement or obligation of Buyer in this Agreement.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
12

--------------------------------------------------------------------------------

 

5.4 Indemnification Claim Procedures.
 
(a) If any Action is commenced or threatened that may give rise to a claim for
indemnification (an “Indemnification Claim”) by a Seller Indemnified Party, then
such Seller Indemnified Party will promptly give notice to Buyer. Failure to
notify Buyer will not relieve Buyer of any liability that it may have to the
Seller Indemnified Party, except to the extent the defense of such Action is
materially and irrevocably prejudiced by the Seller Indemnified Party’s failure
to give such notice. Buyer may elect, its sole cost and expense, to assume and
thereafter conduct the defense of the Indemnification Claim with counsel of
Buyer’s choice reasonably satisfactory to the Seller Indemnified Party;
provided, however, that Buyer shall have acknowledged in writing Buyer’s
unqualified obligation to indemnify the Seller Indemnified Parties as provided
hereunder; and provided, further than Buyer will not approve of the entry of any
judgment or enter into any settlement or other resolution with respect to the
Indemnification Claim without the Seller Indemnified Parties’ prior written
approval (which may not be withheld unreasonably). Until Buyer assumes the
defense of the Indemnification Claim, the Seller Indemnified Party may defend,
negotiate, settle or otherwise deal with the Indemnification Claim in any manner
the Seller Indemnified Party reasonably deems appropriate. If the Buyer shall
assume the defense of any Indemnification Claim, a Seller Indemnified Party may
participate, at his or its own expense, in the defense of such Indemnification
Claim; provided, however, that such Seller Indemnified Party shall be entitled
to participate in any such defense with separate counsel at the expense of the
Buyer if (i) so requested by the Buyer to participate or (ii) in the reasonable
opinion of counsel to the Buyer, a conflict or potential conflict exists between
the Seller Indemnified Party and the Buyer that would make such separate
representation advisable; and provided, further, that the Buyer shall not be
required to pay for more than one such counsel (plus any appropriate local
counsel) for all Seller Indemnified Parties in connection with any such
Indemnification Claim. The Parties hereto agree to provide reasonable access to
the other to such documents and information as may be reasonably requested in
connection with the defense, negotiation or settlement of any such
Indemnification Claim. Notwithstanding anything contained in this Section 5.4 to
the contrary, the Buyer shall not without the written consent of the Seller
Indemnified Party, settle or compromise any Indemnification Claim or permit a
default or consent to entry of any judgment unless the claimant or claimants and
Buyer provide to the Seller Indemnified Party an unqualified release from all
liability in respect of such Indemnification Claim. After any final decision,
judgment or award shall have been rendered by the applicable Governmental Body
of competent jurisdiction and the expiration of the time in which to appeal
therefrom, or a settlement shall have been consummated, or the Seller
Indemnified Party and Buyer shall have reached an agreement, in each case with
respect to an Indemnification Claim hereunder, the Seller Indemnified Party
shall forward to the Buyer notice of any sums due and owing by the Buyer
pursuant to this Section 5.4 with respect to such matter and Buyer shall pay all
of such sums so due and owing to the Seller Indemnified Party in accordance with
Section 5.4(a) by wire transfer of immediately available funds within five (5)
business days after the date of such notice. If the Seller Indemnified Party
gives Buyer notice of an Indemnification Claim and Buyer does not, within ten
(10) days after such notice is given, give notice to the Seller Indemnified
Party of its election to assume the defense of such Indemnification Claim and
thereafter promptly assume such defense, then Buyer will be bound by any
judicial determination made with respect to such Indemnification Claim or any
compromise or settlement of such Indemnification Claim effected by the Seller
Indemnified Party.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
13

--------------------------------------------------------------------------------

 
 
(b) If any Action is commenced or threatened that may give rise to an
Indemnification Claim by a Buyer Indemnified Party, then such Buyer Indemnified
Party will promptly give notice to Seller Parties. Failure to notify Seller
Parties will not relieve Seller Parties of any liability that it may have to
the Buyer Indemnified Party, except to the extent the defense of such Action is
materially and irrevocably prejudiced by the Buyer Indemnified Party’s failure
to give such notice. Seller may elect, at his sole cost and expense, to assume
and thereafter conduct the defense of the Indemnification Claim with counsel of
Seller’s choice reasonably satisfactory to the Buyer Indemnified Party;
provided, however, that Seller shall have acknowledged in writing Seller’s
unqualified obligation to indemnify the Buyer Indemnified Parties as provided
hereunder; and provided, further than Seller will not approve of the entry of
any judgment or enter into any settlement or other resolution with respect to
the Indemnification Claim without the Buyer Indemnified Parties’ prior written
approval (which must not be withheld unreasonably). Until Seller assumes the
defense of the Indemnification Claim, the Buyer Indemnified Party may defend,
negotiate, settle or otherwise deal with the Indemnification Claim in any manner
the Buyer Indemnified Party reasonably deems appropriate. If the Seller shall
assume the defense of any Indemnification Claim, a Buyer Indemnified Party may
participate, at his or its own expense, in the defense of such Indemnification
Claim; provided, however, that such Buyer Indemnified Party shall be entitled to
participate in any such defense with separate counsel at the expense of the
Seller if (i) so requested by the Seller to participate or (ii) in the
reasonable opinion of counsel to the Seller, a conflict or potential conflict
exists between the Buyer Indemnified Party and the Seller that would make such
separate representation advisable; and provided, further, that the Seller shall
not be required to pay for more than one such counsel (plus any appropriate
local counsel) for all Buyer Indemnified Parties in connection with any such
Indemnification Claim. The Parties hereto agree to provide reasonable access to
the other to such documents and information as may be reasonably requested in
connection with the defense, negotiation or settlement of any such
Indemnification Claim. Notwithstanding anything contained in this Section 5.4 to
the contrary, the Seller shall not without the written consent of the Buyer
Indemnified Party, settle or compromise any Indemnification Claim or permit a
default or consent to entry of any judgment unless the claimant or claimants and
Seller provide to the Buyer Indemnified Party an unqualified release from all
liability in respect of such Indemnification Claim. After any final decision,
judgment or award shall have been rendered by the applicable Governmental Body
of competent jurisdiction and the expiration of the time in which to appeal
therefrom, or a settlement shall have been consummated, or the Buyer Indemnified
Party and Seller shall have reached an agreement, in each case with respect to
an Indemnification Claim hereunder, the Buyer Indemnified Party shall forward to
the Seller notice of any sums due and owing by the Seller pursuant to this
Section 5.4 with respect to such matter and Seller shall pay all of such sums so
due and owing to the Buyer Indemnified Party in accordance with Section 5.4(b)
by wire transfer of immediately available funds within five (5) business days
after the date of such notice. If the Buyer Indemnified Party gives Seller
notice of an Indemnification Claim and Seller does not, within ten (10) days
after such notice is given, give notice to the Buyer Indemnified Party of its
election to assume the defense of such Indemnification Claim and thereafter
promptly assume such defense, then Seller will be bound by any judicial
determination made with respect to such Indemnification Claim or any compromise
or settlement of such Indemnification Claim effected by the Buyer Indemnified
Party.
 
(c) A claim for any matter not involving a third party may be asserted by notice
to the Party from whom indemnification is sought.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
14

--------------------------------------------------------------------------------

 
 
5.5 Limitations on Indemnification Liability. Any claims an Indemnified Party
makes under this ARTICLE 5 will be limited as follows: Buyer, on the one hand,
and the Seller Parties on the other, will have no liability for money Damages
related to breaches of the representations and warranties in Section 2.2 (with
respect to Buyer) or Section 2.1 and ARTICLE 3 (with respect to the Seller
Parties), unless and until the aggregate Damages related thereto exceed $****;
provided, however, that, once aggregate Damages exceed such amount, the
applicable Indemnified Parties will be entitled to recover all amounts to which
they are entitled in excess of the amount set forth above in this Section 5.5.
Notwithstanding anything contained in this Agreement to the contrary, including,
without limitation this ARTICLE 5, any payment that Seller is obligated to make
to a Buyer Indemnified Party pursuant to the provisions of this ARTICLE 5 or
otherwise and any personal liability of Seller (in each case except to the
extent arising from breaches of Sections 2.1, 3.1, 3.2, 3.4, 4.1, 4.2, and 4.4
or instances of fraud by any Seller Party) shall be paid and satisfied solely
out of the Escrow Fund (as defined in Section 5.6) or offset by Buyer against
any payments that might be due to Seller under Section 6.1.
 
5.6 Escrow. Immediately after Closing, $**** (the “Escrow Amount”) will be
placed in an escrow fund (the “Escrow Fund”) for a term of twenty-four (24)
months pursuant to an escrow agreement (the “Escrow Agreement”) by and among
Buyer, Seller and Well Fargo Bank, N.A. (the “Escrow Agent”) dated as of the
date of this Agreement and entered into in connection herewith. The Escrow Fund
will be available to compensate the Buyer Indemnified Parties for Damages. The
Escrow Fund will be paid out in accordance with the terms of the Escrow
Agreement. An Indemnified Buyer Party may not receive any assets from the Escrow
Fund unless and until an Officer’s Certificates (as defined in the Escrow
Agreement) identifying the relevant Damages have been delivered to the Escrow
Agent as provided in the Escrow Agreement. Neither the exercise of nor failure
to exercise its rights under this Section 5.6 will constitute an election of
remedies or limit Buyer in any matter in the enforcement of any other remedies
available to it.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
15

--------------------------------------------------------------------------------

 
 
ARTICLE 6
EARN OUT
 
6.1 Earn Out Payments.
 
(a) Subject to the terms of this ‎ARTICLE 6, Buyer will pay to Seller, as
additional consideration for the Shares, the amounts set forth in this Section
6.1. All payments to be made pursuant to this Section 6.1 will be paid in cash
by wire transfer of immediately available funds. All calculations required by
this Section 6.1 will be made by Company and delivered to Seller. At the time of
each such payment, Buyer shall provide a computation of the amounts payable
under this Article 6, and Seller will have the right to communicate with, and to
review the work papers, schedules, memoranda, and other documents Buyer prepared
or reviewed in determining any of the amounts payable under this Section 6.1.
 
(b) In the event that, within one year of the Closing Date, any **** of the
private health care insurers listed on Exhibit A attached hereto agree in
writing to make routine payments to Company or its Affiliates for any surgical
procedures involving the use of any Spine Products (as defined below) in the
United States, except with respect to Medicare and Medicaid and with respect to
No Carve Out Cases (as defined in the CSP Agreement) and, pursuant to such
written agreement, the amount to be reimbursed for such Coblation device exceeds
in each case at least $****, then, on the first anniversary of the Closing Date,
Buyer shall pay to Seller an amount equal to $****. Buyer shall promptly notify
Seller if any health care insurers listed on Exhibit A agree to make such
payments.
 
(c) In the event that no Seller Party has breached its obligations under Section
4.3 of this Agreement prior to then Non-Compete Termination Date, then, on the
Non-Compete Termination Date, Buyer shall pay to Seller an amount equal to
$****.
 
(d) On the second anniversary of the Closing Date, Buyer shall pay to Seller an
amount equal to the sum of: (i) ****% of the total dollar amount of the Public
Health Insurance Receivables of the Company on the Closing Date that are
collected by Buyer during the one-year period following the Closing Date, and
(ii) ****% of the total dollar amount of the Public Health Insurance Receivables
arising in the United States after the Closing Date and collected by Company or
its Affiliates during the two-year period following the Closing Date under the
“DiscoCare” tradename. For the purposes of this Agreement, “Public Health
Insurance Receivables” means all Spine Product Receivables from sales in the
United States from all payors, excluding ****, and “Spine Product(s)” means
those products of the Company listed on Exhibit B attached hereto, including any
further replacements for such products.
 
(e) In the event that Public Health Insurance Net Revenue in the United States
of the Company associated with the Spine Products (the “Revenue Subset”) exceeds
$**** million (the “Threshold”) in any fiscal year of Company ending prior to
January 1, 2012 (the “Initial Threshold Year”), then, within 45 days after the
end of the Initial Threshold Year, Company shall pay to Seller an amount equal
to (i) ****% times the amount that the Revenue Subset for the Initial Threshold
Year exceeds the Threshold, up to a maximum of ****% of the Threshold, plus (ii)
****% times the amount that the Revenue Subset exceeds ****% of the Threshold.
For the purposes of this Agreement, “Public Health Insurance” means all payors,
excluding ****, and “Net Revenue” means such amount determined in accordance
with GAAP as invoiced amount minus charges for handling, freight, taxes, C.O.D.
charges, insurance, tariffs and duties, cash and trade discounts, rebates,
amounts allowed or credited for returns, uncollected or uncollectable amounts,
services, and the like.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
16

--------------------------------------------------------------------------------

 
 
(f) In the event that during Company’s fiscal year immediately following the
Initial Threshold Year (the “Second Threshold Year”), if any, Buyer will pay to
Seller, within 45 days of the end of the Second Threshold Year, an amount equal
to: (i) ****% times the amount that the Revenue Subset for the Second Threshold
Year exceeds the lesser of $**** million or the Revenue Subset during the
Initial Threshold Year (the “Second Threshold”), up to a maximum of ****% of the
Second Threshold, plus (ii) ****% times the amount that the Revenue Subset for
the Section Threshold Year exceeds ****% of the Second Threshold.
 
(g) In the event that during Company’s fiscal year immediately following the
Second Threshold Year (the “Third Threshold Year”), if any, Company will pay to
Seller, within 45 days of the end of the Third Threshold Year, an amount equal
to: (i) ****% times the amount that the Revenue Subset for the Third Threshold
Year exceeds the lesser of $**** million or the Revenue Subset during the Second
Threshold Year (the “Third Threshold”), up to a maximum of ****% of the Third
Threshold, plus (ii) ****% times the amount that the Revenue Subset for the
Third Threshold Year exceeds ****% of the Third Threshold.
 
6.2 Resolution of Conflicts. If Buyer and Seller are unable to agree on an
amount to be paid pursuant to this Article 6, then (A) for twenty (20) days
after the date Buyer receives a letter from Seller detailing its objections to
Company’s calculations of such amount, Seller and Buyer will use their
reasonable good-faith efforts to agree on such calculation, and (b) lacking such
agreement, the matter will be referred to a mutually acceptable independent
accounting firm, which will determine the correct amount within sixty (60) days
of such referral, which determination will be final and binding on the Parties
for all purposes
 
6.3 Offset. Buyer, acting in good faith, will have the option of setting off all
or any part of any Damages a Buyer Indemnified Party suffers by notifying Seller
that Buyer is reducing the amount of any payment due to Seller under Section 6.1
by the amount of such Damages.
 
ARTICLE 7
MISCELLANEOUS
 
7.1 Entire Agreement. This Agreement, together with the other Transaction
Documents and all schedules, exhibits, annexes or other attachments hereto or
thereto, and the certificates, documents, instruments and writings that are
delivered pursuant hereto or thereto, constitutes the entire agreement and
understanding of the Parties in respect of the subject matter hereof and
supersedes all prior understandings, agreements or representations by or among
the Parties, written or oral, to the extent they relate in any way to the
subject matter hereof. Except as provided in ARTICLE 5, there are no third party
beneficiaries having rights under or with respect to this Agreement.
 
7.2 Assignment; Binding Effect. No Party other than Buyer may assign either this
Agreement or any of its rights, interests or obligations hereunder without the
prior written approval of the other Parties, and any such assignment by a Party
without prior written approval of the other Parties will be deemed invalid and
not binding on such other Parties. All of the terms, agreements, covenants,
representations, warranties and conditions of this Agreement are binding upon,
inure to the benefit of and are enforceable by, the Parties and their respective
successors and permitted assigns.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
17

--------------------------------------------------------------------------------

 

7.3 Notices. All notices, requests and other communications provided for or
permitted to be given under this Agreement must be in writing and must be given
by personal delivery, by certified or registered United States mail (postage
prepaid, return receipt requested), by a nationally recognized overnight
delivery service for next day delivery, or by facsimile transmission, to the
intended recipient at the address set forth for the recipient on the signature
page (or to such other address as any Party may give in a notice given in
accordance with the provisions hereof). All notices, requests or other
communications will be effective and deemed given only as follows: (i) if given
by personal delivery, upon such personal delivery, (ii) if sent by certified or
registered mail, on the fifth business day after being deposited in the United
States mail, (iii) if sent for next day delivery by overnight delivery service,
on the date of delivery as confirmed by written confirmation of delivery or (iv)
if sent by facsimile, upon the transmitter’s confirmation of receipt of such
facsimile transmission, except that if such confirmation is received after 5:00
p.m. (in the recipient’s time zone) on a business day, or is received on a day
that is not a business day, then such notice, request or communication will not
be deemed effective or given until the next succeeding business day. Notices,
requests and other communications sent in any other manner, including by
electronic mail, will not be effective.
 
7.4 Specific Performance; Remedies. Each Party acknowledges and agrees that the
other Parties would be damaged irreparably if any provision of this Agreement
were not performed in accordance with its specific terms or were otherwise
breached. Accordingly, the Parties will be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and its provisions in any action or
proceeding instituted in any state or federal court sitting in Travis County,
Texas having jurisdiction over the Parties and the matter, in addition to any
other remedy to which they may be entitled, at law or in equity. Except as
expressly provided herein, the rights, obligations and remedies created by this
Agreement are cumulative and in addition to any other rights, obligations or
remedies otherwise available at law or in equity. Nothing herein will be
considered an election of remedies.
 
7.5 Headings. The article and section headings contained in this Agreement are
inserted for convenience only and will not affect in any way the meaning or
interpretation of this Agreement.
 
7.6 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas, without giving effect to any
choice of law principles.
 
7.7 Resolution of Conflicts and Arbitration.
 
(a)Except as otherwise provided herein, all disputes arising under this
Agreement (“Arbitration Disputes”) will be resolved as follows: first, senior
management of Buyer and Seller will meet to attempt to resolve such Arbitration
Dispute. If the Arbitration Dispute cannot be resolved by agreement of the
Parties, any Party may at anytime make a written demand for binding arbitration
of the Arbitration Dispute in accordance with this Section 7.7; provided that
the foregoing will not preclude equitable or other judicial relief to enforce
the provisions hereof or to preserve the status quo pending resolution of
Arbitration Disputes; and provided further and subject to Section 7.7 that
resolution of Arbitration Disputes with respect to claims by third Persons will
be deferred until any judicial proceedings with respect thereto are concluded.
All Arbitration Disputes shall be settled by arbitration conducted by one
arbitrator. Buyer and Seller shall agree on the arbitrator, provided that if
Buyer and Seller cannot agree on such arbitrator, either Buyer or Seller can
request that Judicial Arbitration and Mediation Services (“JAMS”) select the
arbitrator. The arbitrator shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgment of the arbitrator, to
discover relevant information from the opposing parties about the subject matter
of the dispute. The arbitrator shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys’
fees and costs, to the same extent as a court of competent law or equity, should
the arbitrator determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator shall be written, shall be in
accordance with applicable law and with this Agreement, and shall be supported
by written findings of fact and conclusion of law which shall set forth the
basis for the decision of the arbitrator. The decision of the arbitrator as to
the validity and amount of any Damages shall be binding and conclusive upon the
parties to this Agreement, and the Escrow Agent and the parties shall be
entitled to act in accordance with such decision and the Escrow Agent shall be
entitled to make or withhold payments out of the Escrow Fund in accordance
therewith.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
18

--------------------------------------------------------------------------------

 
 
(b)Judgment upon any award rendered by the arbitrator may be entered in any
court having jurisdiction. Any such arbitration shall be held in Travis County,
Texas under the commercial rules then in effect of JAMS. The non-prevailing
party to an arbitration shall pay its own expenses, the fees of the arbitrator,
any administrative fee of JAMS, and the expenses, including attorneys’ fees and
costs, reasonably incurred by the other party to the arbitration. For purposes
of this Section 7.7, the party seeking indemnification shall be deemed to be the
non-prevailing party unless the arbitrator awards the party seeking
indemnification more than 50% of the amount in dispute, plus any amounts not in
dispute; otherwise, the person against whom indemnification is sought shall be
deemed to be the non-prevailing party.
 
7.8 Amendment; Extensions; Waivers. No amendment, modification, waiver,
replacement, termination or cancellation of any provision of this Agreement will
be valid, unless the same is in writing and signed by all of the Parties. Each
waiver of a right hereunder does not extend beyond the specific event or
circumstance giving rise to the right. No waiver by any Party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, may be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant hereunder or affect in any
way any rights arising because of any prior or subsequent such occurrence.
Neither the failure nor any delay on the part of any Party to exercise any right
or remedy under this Agreement will operate as a waiver thereof, nor does any
single or partial exercise of any right or remedy preclude any other or further
exercise of the same or of any other right or remedy.
 
7.9 Severability. The provisions of this Agreement will be deemed severable and
the invalidity or unenforceability of any provision will not affect the validity
or enforceability of the other provisions hereof; provided, however, that if any
provision of this Agreement, as applied to any Party or to any circumstance, is
judicially determined not to be enforceable in accordance with its terms, the
Parties agree that the court judicially making such determination may modify the
provision in a manner consistent with its objectives such that it is
enforceable, and/or to delete specific words or phrases, and in its modified
form, such provision will then be enforceable and will be enforced.
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
19

--------------------------------------------------------------------------------

 
 
7.10 Expenses. Except as otherwise expressly provided in this Agreement, each
Party will bear its own costs and expenses incurred in connection with the
preparation, execution and performance of this Agreement and the Transactions,
including all fees and expenses of agents, representatives, financial advisors,
legal counsel and accountants.
 
7.11 Counterparts; Effectiveness. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument. This Agreement will become
effective when one or more counterparts have been signed by each Party and
delivered to the other Parties. For all purposes of this Agreement, a facsimile
signature shall be deemed an original signature.
 
7.12 Construction. This Agreement has been freely and fairly negotiated among
the Parties. If an ambiguity or question of intent or interpretation arises,
this Agreement will be construed as if drafted jointly by the Parties and no
presumption or burden of proof will arise favoring or disfavoring any Party
because of the authorship of any provision of this Agreement. Any reference to
any law will be deemed to refer to such law as amended and all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
words “include,” “includes,” and “including” will be deemed to be followed by
“without limitation.” The word “person” includes individuals, entities and
Governmental Bodies. Pronouns in masculine, feminine and neuter genders will be
construed to include any other gender, and words in the singular form will be
construed to include the plural and vice versa, unless the context otherwise
requires. The words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder,”
and words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The Parties intend that each
representation, warranty and covenant contained herein will have independent
significance. If any Party has breached any representation, warranty or covenant
contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached will not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty or covenant.
 
7.13 Schedules. The disclosures in the schedules to this Agreement (the
“Schedules”), and those in any supplement thereto, relate only to the
representations and warranties in the section or paragraph of the Agreement to
which they expressly relate and not to any other representation or warranty in
this Agreement. If there is any inconsistency between the statements in the body
of this Agreement and those in the Schedules (other than an exception expressly
set forth in the Schedules with respect to a specifically identified
representation or warranty), the statements in the body of this Agreement will
control. Nothing in the Schedules will be deemed adequate to disclose an
exception to a representation or warranty made herein, unless the Schedules
identify the exception with reasonable particularity and describe the relevant
facts in reasonable detail. The mere listing (or inclusion of a copy) of a
document or other item in a Schedule will not be deemed adequate to disclose an
exception to a representation or warranty made in this Agreement (unless the
representation or warranty pertains to the existence of the document or other
item itself).
 
[SIGNATURE PAGES FOLLOW]
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
20

--------------------------------------------------------------------------------

 
 
SIGNATURE PAGE
TO
STOCK PURCHASE AGREEMENT
 
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of
the date stated in the introductory paragraph of this Agreement.
 

 
BUYER:
         
ARTHROCARE CORPORATION
         
By: /s/ John T. Raffle
    Name: John T. Raffle    
Title: Senior Vice President, Strategic Business Units
         
Address:   Building Two
 
         7500 Rialto Boulevard, Suite 100
 
         Austin TX 78735
 
                   
COMPANY:
         
DISCOCARE, INC.
         
By: /s/ Jonathan Cutler
   
Name: Jonathan Cutler, D.P.M.
   
Title: President
         
Address:   1145 Banks Road
 
 
        Margate, FL 33063
 

 
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
 

--------------------------------------------------------------------------------

 

SIGNATURE PAGE
 
TO
 
STOCK PURCHASE AGREEMENT
 
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of
the date stated in the introductory paragraph of this Agreement.
 

 
SELLER:
     
/s/ Jonathan Cutler
 

--------------------------------------------------------------------------------

Jonathan Cutler, D.P.M.
       
 
Address:  11412 Okeechobee Boulevard,
 
       Suite A
 
       Royal Palm Beach, FL 33411
   

 
 

**** Certain information in this document has been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and the Commission’s rules and
regulations promulgated under the Freedom of Information Act, pursuant to a
request for confidential treatment. Confidential treatment has been requested
with respect to the omitted portions.

 
 

--------------------------------------------------------------------------------