Exhibit 10.1

 

Execution Copy

 

PURCHASE AGREEMENT

 

by and between

 

HEALTHTRONICS, INC.

 

as “Seller”

 

and

 

SANUWAVE, INC.,

 

as “Buyer”

 

Dated as of August 1, 2005

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TABLE OF CONTENTS

 

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ARTICLE I DEFINITIONS    1         1.1    Definitions    1         1.2   
Certain Interpretation Matters    9 ARTICLE II PURCHASE AND SALE OF SHARES AND
ASSETS    10         2.1    Sale of Acquired Assets    10         2.2   
Excluded Assets    10         2.3    Assumed Liabilities    10         2.4   
Excluded Liabilities    11         2.5    Transfer of Acquired Assets and
Assumed Liabilities    12         2.6    Post-Closing Transfer of Acquired
Assets    13         2.7    Closing    14         2.8    Deliveries at the
Closing.    14         2.9    Payment of Purchase Price.    14         2.10   
Working Capital Purchase Price Adjustment    15         2.11    Purchase Price
Allocation    16 ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING SELLER,
THE PARTNERSHIPS AND HTO    17         3.1    Organization and Qualification   
17         3.2    Capitalization of HTO and the Partnerships    17         3.3
   Corporate Books and Records    18         3.4    Authorization;
Enforceability    18         3.5    No Conflict or Violation    18         3.6
   Consents and Approvals    19         3.7    Financial Statements    19
        3.8    Absence of Certain Changes or Events    19         3.9    No
Undisclosed Liabilities    20         3.10    Litigation    20         3.11   
Compliance with Laws; Permits    21         3.12    Contracts    21         3.13
   Suppliers    23         3.14    Title to Acquired Assets    23         3.15
   Environmental Matters.    23         3.16    Intellectual Property.    24
        3.17    Labor Relations    25         3.18    Taxes.    26         3.19
   Employee Matters and Seller Plans.    27         3.20    Contracts with
Affiliates    29         3.21    No Brokers, Finders, etc.    29         3.22   
Insurance    29         3.23    Fixed Assets.    30         3.24    Equity
Interests    30         3.25    Sufficiency of Assets    30         3.26   
Limited Partners    30         3.27    Certain Regulatory Matters.    30
        3.28    Transferred Accounts Receivable    32

 

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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER    32         4.1   
Organization    32         4.2    Authorization; Enforceability    33
        4.3    No Conflict or Violation    33         4.4    Consents and
Approvals    33         4.5    No Brokers, Finders, etc.    34         4.6   
Investment Intent    34         4.7    No Outside Reliance    34 ARTICLE V
COVENANTS    34         5.1    Access; Investigation    34         5.2   
Further Actions.    35         5.3    Joint Public Announcement    36
        5.4    Employee Matters.    36         5.5    Non-Disparagement    37
        5.6    Insurance    37         5.7    Non-Competition.    37         5.8
   Transition Services Agreement    38         5.9    License Agreement    38
        5.10    Anti-Dilution    38         5.11    Use of Name.    39
        5.12    Permits; Certain Regulatory Matters.    39         5.13    Tax
Matters.    39 ARTICLE VI INDEMNIFICATION    40         6.1    Survival of
Representations, Etc.    40         6.2    Indemnification by Seller    40
        6.3    Indemnification by Buyer.    41         6.4    Notice of
Indemnity Claims    42         6.5    Indemnification Procedures    42
        6.6    Settlement of Indemnity Claims    43         6.7    Exclusivity
of Indemnification Remedy    44 ARTICLE VII TAX MATTERS    44         7.1   
Liability and Indemnification for Taxes    44         7.2    Assistance and
Cooperation    44         7.3    Confidentiality of Tax Information    45
        7.4    Termination of Tax Sharing Agreements    45 ARTICLE VIII GENERAL
PROVISIONS    45         8.1    Expenses    45         8.2    Notices    46
        8.3    Severability    46         8.4    Counterparts    47         8.5
   Assignment; Successors and Assigns    47         8.6    No Third Party
Beneficiaries    47         8.7    Descriptive Headings    47         8.8   
Schedules and Exhibits; Construction of Certain Provisions    47         8.9   
No Implied Representation    48         8.10    Waivers    48         8.11   
Governing Law; Jurisdiction; Waiver of Jury Trial.    48

 

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        8.12    Enforcement    49         8.13    Entire Agreement; Amendments;
Electronic Signatures    49         8.14    Construction; Joint Drafting    49

 

EXHIBITS AND SCHEDULES

 

Exhibit A   -    Bill of Sale Exhibit B   -    Assignment and Assumption
Agreement Exhibit C   -    Transferred Intellectual Property Rights
Disclosure Schedules          Schedule 1.1(a)   -    Excluded Contracts Schedule
1.1(b)   -    Transferred Contracts Schedule 1.1(c)   -    Partnerships Schedule
1.1(d)   -    Other Interests Schedule 2.1   -    Acquired Assets
Schedule 2.2(b)   -    Capital Stock Schedule 2.2(d)   -    Excluded Assets
Schedule 2.4(g)   -    Excluded Liabilities Schedule 2.10(a)   -    Estimated
Net Working Capital Schedule 3.2   -    Capitalization of the Partnerships
Schedule 3.5   -    No Conflict or Violation Schedule 3.6   -    Consents and
Approvals Schedule 3.7(a)   -    Financial Statements Schedule 3.8   -   
Absence of Certain Changes or Events Schedule 3.9   -    No Undisclosed
Liabilities Schedule 3.10   -    Litigation Schedule 3.11   -    Governmental
Permits Schedule 3.12(a)   -    Contracts Schedule 3.12(b)   -    Contracts not
in Full Force and Effect Schedule 3.12(c)   -    Breaches and Defaults Schedule
3.13   -    Material Suppliers Schedule 3.14   -    Title to Acquired Assets
Schedule 3.15(f)   -    Environmental Matters Schedule 3.16(a)   -   
Intellectual Property Schedule 3.16(c)   -    Intellectual Property Violations
Schedule 3.19(a)   -    Business Employees Schedule 3.19(b)   -    Employee
Benefit Plans Schedule 3.19(h)   -    Foreign Benefit Plans Schedule 3.20   -   
Contracts with Affiliates Schedule 3.22   -    Insurance Schedule 3.23   -   
Fixed Assets Schedule 3.24   -    Equity Interests Schedule 3.25   -   
Sufficiency of Assets Schedule 3.26   -    Limited Partners Schedule 3.27   -   
Certain Regulatory Matters

 

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Schedule 5.4(a)   -   Transferred Employees Schedule 5.13(a)   -   754 Elections
Schedule 6.2   -   Certain Patents Schedule X   -   Transferred Assets

 

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PURCHASE AGREEMENT

 

THIS PURCHASE AGREEMENT (this “Agreement”), dated as of August 1, 2005, is
entered into by and between HEALTHTRONICS, INC., a Georgia corporation
(“Seller”), and SANUWAVE, INC., a Delaware corporation (“Buyer”).

 

WITNESSETH

 

WHEREAS, Seller is the direct holder of all of the outstanding limited liability
company interests of HT Orthotripsy Management Company, LLC (“HTO”), which acts
as the general partner of certain operating subsidiaries of Seller;

 

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, all of the outstanding limited liability company interests of HTO and
certain other assets comprising or related to the business of non-invasive
surgical solutions for Orthopedic Conditions in animals and humans that is
currently conducted or as anticipated to be conducted based on current research
and development efforts and strategic plans by Seller through the Partnerships
(as defined below) and through certain non-acquired entities (the “Business”),
all on the terms and subject to the conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which is
acknowledged, the parties agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1 Definitions. In addition to the other words and terms defined elsewhere in
this Agreement, as used in this Agreement, the following words and terms shall
have the meanings specified or referred to below:

 

“1060 Forms” has the meaning specified in Section 2.11.

 

“Accountants” has the meaning specified in Section 2.10(c).

 

“Accounts Receivable” means the gross amounts of accounts and notes receivable
attributable to the Business.

 

“Affiliate” means, with respect to any Person, any other Person who directly or
indirectly controls, is controlled by or is under common control with such
Person.

 

“Agreement” has the meaning specified in the preamble of this Agreement.

 

“Allocation” has the meaning specified in Section 2.11.

 

“Applicable Rate” has the meaning specified in Section 2.10(d).

 

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“Base Working Capital” has the meaning specified in Section 2.10(a).

 

“Business” has the meaning specified in the Recitals.

 

“Business Employees” means all of the employees of the Business who are engaged
in the conduct of the Business as of the date hereof.

 

“Buyer” has the meaning specified in the preamble of this Agreement.

 

“Buyer Indemnified Party” has the meaning specified in Section 6.2(a).

 

“Buyer Shares” has the meaning specified in Section 2.9.

 

“Claim” means any claim, demand, cause of action, chose in action, right of
recovery or right of set-off of whatever kind or description against any Person.

 

“Claim Notice” has the meaning specified in Section 6.4.

 

“Closing” has the meaning specified in Section 2.7.

 

“Closing Balance Sheet” has the meaning specified in Section 2.10(b).

 

“Closing Date” means the date hereof.

 

“Closing Net Working Capital” has the meaning specified in Section 2.10(b).

 

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

 

“Common Stock” has the meaning specified in Section 2.9.

 

“Common Stock Equivalents” means securities of any kind (including “phantom”
securities) issued by Buyer convertible into or exchangeable for Common Stock or
options, warrants or other rights to purchase or subscribe for Common Stock or
securities convertible into or exchangeable for Common Stock.

 

“Competing Business” has the meaning specified in Section 5.7(c).

 

“Confidentiality Agreement” means that certain confidentiality agreement, dated
as of January 21, 2005, by and between Seller and Prides Capital Partners, LLC.

 

“Contract” means, with respect to any Person, any oral or written agreement,
contract, understanding, arrangement, indenture, loan, note, mortgage,
instruments, license, sales order, purchase order, commitment or lease of any
kind or character to which such Person is a party.

 

“Control” (including its correlative meanings “controlled by” and “under common
control with”) means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of securities or partnership or other interests, by
contract or otherwise.

 

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“Current Assets” means with respect to HTO and the Partnerships, (i) cash, (ii)
accounts receivable net of contractual allowance reserves, reserves for bad
debt, and additional reserves, (iii) vendor deposits and (iv) prepaid assets, in
each case determined in accordance with GAAP and in a manner consistent with the
determination of the corresponding amounts reflected on the Statement of Net
Assets, after elimination of related party receivables.

 

“Current Liabilities” means with respect to HTO and the Partnerships, (i)
accounts payable, (ii) customer deposits, (iii) accrued expenses and (iv)
accrued facilities fees, in each case determined in accordance with GAAP and in
a manner consistent with the determination of the corresponding amounts
reflected on the Statement of Net Assets, after elimination of related party
payables.

 

“Deficit Amount” has the meaning specified in Section 2.10(d).

 

“Determination Date” has the meaning specified in Section 2.10(c).

 

“Disclosure Schedule” has the meaning specified in Article III.

 

“Encumbrance” means any lien (statutory or otherwise), mortgage, deed of trust,
pledge, hypothecation, assignment, charge, security interest, option to
purchase, easement, restrictive covenant, right of first refusal, preemptive
right, encroachment or conditional sale, or other title retention agreement, or
any other restriction or third party right (including licenses), including
restrictions on the right to vote equity interests whether voluntarily incurred
or arising by operation of law.

 

“Environmental Law” means any statute, law, rule, regulation, ordinance, code,
policy, rule of common law or other legally enforceable requirement of any
Governmental Authority, and any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent decree or
judgment, regulating, relating to or imposing liability or standards of conduct
concerning (i) protection of the environment or of human health, including
employee health and safety or (ii) Hazardous Materials, including without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. § 9601 et seq., the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. § 6901 et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. § 1251 et seq.; the Toxic Substances Control
Act, 15 U.S.C. § 2601 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; and
the Safe Drinking Water Act, 42 U.S.C. § 3908 et seq.]

 

“Environmental Permits” means any and all Governmental Permits pursuant to or
required under any Environmental Law.

 

“Environmental Report” means any report, study, assessment, audit or other
similar document that addresses any issue of actual or potential noncompliance
with, actual or potential liability under or cost arising out of, or actual or
potential impact on business in connection with, any Environmental Law or any
proposed or anticipated change in addition to Environmental Law, that may affect
HTO or any Partnership.

 

“Equipment Item” has the meaning specified in Section 5.14.

 

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“Estimated Net Working Capital” has the meaning specified in Section 2.10(a).

 

“Excluded Contracts” means those Contracts listed on Schedule 1.1(a).

 

“Excluded Liabilities” has the meaning specified in Section 2.4.

 

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

 

“Fair Market Value” means as determined in good faith by the board of directors
of Buyer.

 

“FDA” has the meaning specified in Section 3.27(a).

 

“Final Purchase Price” has the meaning specified in Section 2.9.

 

“Financial Statements” has the meaning specified in Section 3.7.

 

“First Note” has the meaning specified in Section 2.9.

 

“GAAP” means United States generally accepted accounting principles.

 

“Governmental Authority” means any court, department, commission, board, bureau,
agency, official or other regulatory, administrative or similar authority of any
federal, state, local, foreign or multinational government.

 

“Governmental Order” means any order, writ, injunction, decree, award, judgment
or ruling entered by or with any Governmental Authority.

 

“Governmental Permits” has the meaning specified in Section 3.11.

 

“Hazardous Material” means (i) any gasoline or petroleum (including crude oil or
any fraction thereof) or petroleum products, radioactive materials, molds,
asbestos in any form, urea formaldehyde foam insulation, polychlorinated
biphenyls, transformers or other equipment that contain polychlorinated
biphenyls, and radon gas and (ii) any chemicals, materials or substances defined
as “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous
wastes,” “toxic substances,” “toxic pollutants,” or words of similar import or
any other substance the presence of or exposure to which could result in
liability, under any applicable Environmental Law.

 

“Health Care Law” means any statute, law, rule, regulation, ordinance, code,
policy, manual provision, administrative guidance, rule of common law or other
legally enforceable requirement of any Governmental Authority, and any judicial
or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, regulating, relating to or
imposing liability or standards of conduct relating to the regulation of
products of the Business, including, without limitation, their design,
development, manufacture, labeling, storage, transport, marketing, sale,
reporting, and recordkeeping in all jurisdictions in which such acts or any of
them occur or are reasonably likely to occur or such products or any of

 

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them are likely to be sold or used, including without limitation, the United
States Food, Drug and Cosmetic Act (21 U.S.C. §§ 301 et seq.), Federal
Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), Stark Law (42 U.S.C. § 1395nn),
Civil False Claims Act (31 U.S.C. §§ 3729 et seq.), Administrative False Claims
Act (42 U.S.C. § 1320a-7b(a)), Health Insurance Portability and Accountability
Act (42 U.S.C. § 1320d et seq.), Exclusion Laws (42 U.S.C. 1320a-7) and, for
each of the foregoing, all comparable state legal requirements and the rules and
regulations promulgated thereunder by Governmental Authorities.

 

“Health Care Permits” means any and all Governmental Permits pursuant to or
required under any Health Care Law.

 

“HHS” has the meaning specified in Section 3.27(a).

 

“HMT” means HMT High Medical Technologies AG.

 

“HTO Interests” means all of the outstanding limited liability company interests
of HTO.

 

“Increase Amount” has the meaning specified in Section 2.10(d).

 

“Indemnified Party” has the meaning specified in Section 6.4.

 

“Indemnifying Party” has the meaning specified in Section 6.4.

 

“Indemnity Claim” has the meaning specified in Section 6.4.

 

“Initial Public Offering” means any public offering of equity securities of
Buyer pursuant to an effective registration statement under the Securities Act
(other than pursuant to a registration statement on Form S-8 or comparable form
for a private issuer or otherwise relating to equity securities issuable under
any employee benefit plan) of the Common Stock.

 

“Initial Purchase Price” has the meaning specified in Section 2.9.

 

“Intellectual Property” means all intellectual property, whether registered or
unregistered, anywhere in the world, used in the Business as presently conducted
including, without limitation: (i) inventions, discoveries, processes, designs,
techniques, developments, technology, and related improvements, whether or not
patentable; (ii) patents and applications therefor and all divisionals,
reissues, renewals, registrations, confirmations, re-examinations, certificates
of inventorship, extensions, continuations and continuations-in-part thereof
(“Patents”); (iii) trademarks, trade dress, service marks, service names, trade
names, brand names, logo, business symbols, or other source indicators whether
registered or unregistered, and applications to register the foregoing,
including all extensions and renewals thereof and all goodwill associated
therewith and all common law rights, relating thereto (“Trademarks”); (iv)
copyrights and works of authorship in any media, including writings, designs,
software, marketing materials, Internet site content, proprietary or
copyrightable elements of works of authorship, whether registered or
unregistered, and applications to register the same (“Copyrights’); (v)
know-how, trade secrets, confidential or proprietary information, data, methods,
processes, practices, formulas and techniques, computer software programs and

 

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software systems, including all databases, customer information or any
aggregation thereof , and all related documentation and materials (“Trade
Secrets”); (vi) universal resource locators and Internet domain names (“Domain
Names”), and (vii) any and all similar rights in intellectual property or
proprietary information, including rights provided by treaties, conventions and
common law.

 

“Intercompany Agreement” has the meaning specified in Section 3.20.

 

“Interests” means the HTO Interests, the Other Interests and the Partnership
Interests, collectively.

 

“IP Transferring Parties” has the meaning specified in Section 3.16(a).

 

“Knowledge” means the actual knowledge, without independent investigation, of
such Person.

 

“Losses” means, in respect of any obligation of any party to this Agreement to
indemnify any Person pursuant to the terms of this Agreement, any and all
sustained or incurred losses, liabilities, obligations, damages, awards,
judgments, settlement payments, fines, complaints, claims, demands, assessments
and deficiencies and other reasonable out-of-pocket costs, expenses and charges,
including interest, penalties, reasonable attorneys’ fees and other amounts
incurred in proceedings relating to Losses or in enforcing an Indemnified
Party’s right of indemnification against any Indemnifying Party or with respect
to any appeal, but all of which Losses shall be reduced by any insurance
proceeds (net of the reasonable expenses of the recovery thereof) actually
received by the Indemnified Party with respect to the events or transactions
giving rise to such Losses.

 

“Material Adverse Effect” means any change or effect that is material and
adverse to the business, prospects, assets, liabilities, financial condition or
results of operations of the Business or HTO, taken as a whole, provided that
any change or effect to the extent resulting from the entering into of this
Agreement or the consummation of transactions contemplated by this Agreement or
the other Transaction Agreements, or the announcement of any of the forgoing
shall be deemed not to constitute a Material Adverse Effect.

 

“Material Supplier” has the meaning specified in Section 3.13.

 

“Multi-Product Patent Rights” means the rights in U.S. and foreign patents and
patent applications being transferred by Seller to Buyer which also relate to
Seller’s existing litho-related businesses.

 

“Net Working Capital” means, Current Assets minus Current Liabilities as of June
30, 2005.

 

“Net Working Capital Adjustment Amount” has the meaning specified in Section
2.10(d).

 

“Ordinary Course of Business” shall mean the ordinary course of business of HTO
consistent with past practice.

 

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“Organizational Documents” means the charter, articles, memorandum or
certificate of incorporation or association, partnership agreement, certificate
of limited partnership, operating agreement, limited liability company
agreement, certificate of formation, bylaws, stockholder or shareholder
agreements and/or similar formation or governance documents and agreements of
any Person, whether or not filed with any Governmental Authority, including any
amendments thereto.

 

“Orthopedic Conditions” means all uses of shock wave technology for treatment of
bone, tendonopathy, skin wound, diabetic ulcers, cardiac, dental and neural
medical conditions in humans and all uses of shock wave technology for treatment
of any condition in animals.

 

“Other Interests” means the partnership interests of each of the Partnerships
held by Seller or any of its Affiliates (other than HTO) set forth on Schedule
1.1(d) hereto.

 

“Other Sellers” has the meaning specified in Section 3.1(b).

 

“Partnership Interests” means the partnership interests of each of the
Partnerships.

 

“Partnerships” means those partnerships listed on Schedule 1.1(c) hereto.

 

“Permitted Encumbrance” means, with respect to any Person and its assets or
properties, (a) Encumbrances on any assets or property of such Person that do
not or would not reasonably be expected to materially adversely affect such
Person’s use of such assets or properties as currently utilized; (b) deposits or
pledges made in the Ordinary Course of Business in connection with worker’s
compensation, unemployment insurance, old-age pensions and other social security
benefits; (c) Encumbrances securing the performance of bids, tenders, leases,
contracts (other than for the repayment of debt), statutory obligations, surety,
customs and appeal bonds and other obligations of like nature, incurred as an
incident to and in the Ordinary Course of Business; (d) Encumbrances imposed by
law, such as carriers’, warehousemen’s, mechanics’, materialmen’s, landlords’,
laborers’, suppliers’ and vendors’ liens, incurred in the Ordinary Course of
Business and securing obligations which are not yet due or which are being
contested in good faith by appropriate proceedings; (e) Permitted Tax Liens; (f)
survey exceptions, use, zoning or planning restrictions, easements,
irregularities, licenses, rights of way, declarations, reservations, provisions,
covenants, conditions, waivers (and with respect to leasehold interests,
Encumbrances and other obligations incurred, created, assumed or permitted to
exist and arising by, through or under a landlord or owner of the leased
property, with or without consent of the lessee) which are of record or which do
not materially impair the use or value of any parcel of property of such Person
as presently conducted; and (g) any extensions, renewals and replacements of any
of the foregoing.

 

“Permitted Tax Liens” means liens for current Taxes not yet due and payable.

 

“Person” means and includes an individual, a partnership, a corporation, a
limited liability company, a trust, a joint venture, an unincorporated
organization, an association, a joint stock company and any Governmental
Authority (or any department, agency or political subdivision thereof).

 

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“Post-Closing Tax Period” means any Tax Period beginning after the Closing Date
and that portion of any Straddle Period beginning after the Closing Date.

 

“Pre-Closing Tax Period” means any Tax Period ending on or before the Closing
Date and that portion of any Straddle Period ending on the Closing Date.

 

“Registered Intellectual Property” shall mean, collectively, all U.S. or foreign
Patents, registered Copyrights, registered Trademarks and trade names, Domain
Names and applications for any of the foregoing.

 

“Representative” means, with respect to any Person, any officer, director,
employee, principal, attorney, agent or other authorized representative of such
Person.

 

“Retained Business” means any business operations or activities of Seller or its
Affiliates (other than HTO or the Partnerships) other than those businesses,
operations and activities of Seller constituting the Business as of the Closing
Date.

 

“Scheduled Contracts” means those Contracts set forth or which are required to
be set forth on Schedule 3.12(a) hereto.

 

“Second Note” has the meaning specified in Section 2.9.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Seller” has the meaning specified in the preamble of this Agreement.

 

“Seller Employees” has the meaning specified in Section 3.20(b).

 

“Seller Indemnified Parties” has the meaning specified in Section 6.3(a).

 

“Seller Plans” has the meaning specified in Section 3.20(b).

 

“Seller Tax Group” means the “affiliated group” (as defined in Section 1504(a)
of the Code without regard to the limitations contained in Section 1504(b) of
the Code) that includes Seller.

 

“Statement of Net Assets” has the meaning specified in Section 3.7(a).

 

“Subsidiary” and “Subsidiaries” means any corporation, limited liability
company, partnership, joint venture, trust, association, organization or other
entity in which a Person directly or indirectly owns 50% or more of the stock or
other interests the holder of which is generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity. For purposes of Seller, such term does not include HTO,
any of the Partnerships, HMT or any of HMT’s subsidiaries.

 

“Tax” or “Taxes” means, all taxes, assessments, charges, duties, fees, levies,
imposts or other governmental charges imposed by any Taxing Authority, including
income taxes, transfer, gross receipt, sales, use, transfer, service,
occupation, ad valorem, property,

 

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excise, severance, premium, stamp, documentary, license, registration, payroll,
employment, social security, unemployment, disability, environmental (including
taxes under Code Section 59A), add-on, value-added and withholding (whether
payable directly or by withholding and whether or not requiring the filing of a
Tax Return), together with interest, penalties or additions attributable
thereto.

 

“Tax Period” and “Taxable Period” means any period prescribed by any Taxing
Authority for which a Tax Return is required to be filed or a Tax is required to
be paid.

 

“Tax Return” means any return, report or similar statement or form required to
be filed with respect to any Tax (including any attached schedules and related
or supporting information), including any information return, claim for refund,
amended return or declaration of estimated Tax.

 

“Taxing Authority” means any United States federal, state or local or any
foreign governmental, regulatory or administrative authority, agency or
commission exercising Tax regulatory authority.

 

“Third Party Claim” has the meaning specified in Section 6.5.

 

“Transaction Agreements” has the meaning specified in Section 2.5(a).

 

“Transferred Contracts” means all Contracts between Seller or any of its
Subsidiaries, other than any Excluded Contract, that is related primarily or
exclusively to the Business, including without limitation those Contracts listed
in Schedule 1.1(b).

 

“Transferred Employees” has the meaning specified in Section 5.4(a).

 

“Transition Services Agreement” means that certain Transition Services Agreement
to be entered into by Buyer and Seller as of the Closing Date, in a form to be
agreed upon by Buyer and Seller.

 

“Transferred Intellectual Property” means the Intellectual Property of Seller
and its Subsidiaries (other than HTO or the Partnerships), other than
Intellectual Property set forth on Schedule 2.2(d).

 

“Transferred Intellectual Property Assignments” has the meaning specified in
Section 2.5(a).

 

1.2 Certain Interpretation Matters. Definitions contained in this Agreement
apply to singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms. Words in the
singular shall be held to include the plural and vice versa, and words of one
gender shall be held to include the other gender as the context requires. The
terms “hereof,” “herein,” “hereby” and “herewith” and words of similar import
shall, unless otherwise stated, be construed to refer to this Agreement as a
whole and not to any particular provision of this Agreement. The terms
“includes” and the word “including” and words of similar import shall be deemed
to be followed by the words “without limitation.” Each Article, Section,
paragraph, Schedule and Exhibit references are to the Articles, Sections,

 

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paragraphs, Schedules and Exhibits to this Agreement unless otherwise specified.
The words “either” and “or” shall not be exclusive. Provisions shall apply, when
appropriate, to successive events and transactions.

 

ARTICLE II

PURCHASE AND SALE OF SHARES AND ASSETS

 

2.1 Sale of Acquired Assets. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing, Seller shall, and shall cause its
Subsidiaries to, sell, convey, transfer, assign and deliver to Buyer, and Buyer
shall purchase or assume, as the case may be, from Seller or such Subsidiary all
of the assets, rights, properties, claims, contracts and business of Seller and
its Subsidiaries that are utilized primarily in the Business, of every kind,
nature, character and description, tangible and intangible, real, personal or
mixed, wherever located, including without limitation those assets listed on
Schedule 2.1 hereto (collectively, the “Acquired Assets“), other than the
Excluded Assets described in Section 2.2 hereof. As of the Closing, risk of loss
as to the Acquired Assets shall pass from Seller to Buyer.

 

2.2 Excluded Assets. It is expressly agreed that the Acquired Assets shall not
include any of the following (the “Excluded Assets”):

 

(a) Non-Acquired Assets. Any assets utilized by Seller or its Subsidiaries
primarily in connection with businesses other than the Business;

 

(b) Capital Stock. Any capital stock or other equity interests owned by Seller
or its Subsidiaries other than the HTO Interests, including those partnership or
limited liability company interests listed on Schedule 2.2(b) hereto;

 

(c) Cash and Cash Equivalents. Cash and cash equivalents, including, without
limitation, bank deposits, investments in so-called “money market” funds,
commercial paper funds, certificates of deposit, Treasury Bills and accrued
interest thereon; in each case, other than cash set forth on the Statement of
Net Assets; and

 

(d) Other Excluded Assets. Such other specific assets used in the Business as
are listed on Schedule 2.2(d) hereto.

 

2.3 Assumed Liabilities. Upon the terms and subject to the conditions set forth
in this Agreement, at the Closing, Buyer assumes and agrees to pay, perform and
discharge when due, the following Liabilities, which shall be the “Assumed
Liabilities”:

 

(a) all liabilities of HTO and the Partnerships to the extent reflected in the
June 30, 2005 Balance Sheet included in the Statement of Net Assets and still in
existence on the Closing Date;

 

(b) all Current Liabilities of HTO and the Partnerships of the nature presented
on the Statement of Net Assets, which have arisen after June 30, 2005 in the
Ordinary Course of Business (other than any Liability resulting from, arising
out of, relating to, in the nature of, or caused by any breach of Contract,
breach of warranty, tort, infringement, violation of Law, or environmental
matter, including those arising under Environmental, health, and safety
requirements); and

 

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(c) all obligations and liabilities, other than those that are Excluded
Liabilities pursuant to Section 2.4(c), required to be performed or accruing
after the Closing Date under the Transferred Contracts included in the Acquired
Assets.

 

2.4 Excluded Liabilities. Notwithstanding anything to the contrary in this
Agreement, Buyer shall not and does not assume any liabilities, debts or
obligations of any nature of Seller (or any Affiliate of Seller), whether
relating to the Business, the Acquired Assets or otherwise, other than the
Assumed Liabilities (all such liabilities, debts or obligations other than the
Assumed Liabilities are collectively referred to herein as the “Excluded
Liabilities”). Excluded Liabilities include, without limitation, the following:

 

(a) all obligations and liabilities arising out of or relating primarily to the
Excluded Assets;

 

(b) all debts, liabilities or obligations of Seller or its Subsidiaries other
than as set forth in Section 2.3;

 

(c) all obligations and liabilities arising from or related to any breach of a
Transferred Contract prior to the Closing Date other than as set forth in
Section 2.3;

 

(d) all obligations and liabilities of Seller or its Subsidiaries for Taxes;

 

(e) all obligations and liabilities under any bond, note, debenture or similar
instrument or any other indebtedness for borrowed money of Seller or its
Subsidiaries outstanding prior to the Closing;

 

(f) all obligations and liabilities arising out of the conduct of operations of
Seller and its Subsidiaries after the Closing;

 

(g) all obligations and liabilities arising out of those liabilities
specifically set forth on Schedule 2.4(g) hereto;

 

(h) all obligations and liabilities (including accrued liabilities) for Taxes
with respect to HTO, the Partnerships, the Business and the Acquired Assets for
any Pre-Closing Tax Period;

 

(i) all obligations and liabilities relating to workers’ compensation claims
with respect to occurrences prior to the Closing Date;

 

(j) all liabilities relating to or arising under or in connection with the
matters described or otherwise required to be described in Schedule 3.10 hereto
(without regard to the Material Adverse Effect qualification set forth in
Section 3.10 or the limitation of such representation to the date hereof);

 

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(k) any obligation or liability related to any Intercompany Agreement that is
not expressly included on Schedule 1.1(b);

 

(l) any obligation or liability arising from or related to the dissolution,
merger, consolidation, restructuring, sale, transfer or assignment of interests
or cessation of operations of any Subsidiary (including any such Subsidiary
involved in the operation of the Business) or Partnership prior to the Closing
Date;

 

(m) all obligations and liabilities arising out of or relating to Environmental
Laws or Hazardous Materials to the extent arising out of or relating to any
event or condition occurring or existing as of or prior to the Closing Date;

 

(n) all undisclosed obligations and liabilities under the ADA, ADEA, FMLA, Title
VII, the WARN Act or any equivalent federal, state, local or foreign law with
respect to any Seller Employees, but only to the extent and degree that the
events giving rise to such obligations and liabilities occurred prior to the
Closing Date;

 

(o) all obligations and liabilities arising out of or relating to Health Care
Laws or Health Care Permits to the extent arising out of or relating to any
event or condition occurring or existing as of or prior to the Closing Date;

 

(p) any liability under or relating to any Seller Plan, whether or not such
liability or obligation arises prior to or after the Closing Date or any other
liability relating to the employment or termination of employment of any (x)
Person arising from or related to the operation of the Business prior to Closing
or the transactions contemplated by this Agreement (including but not limited
to, any severance or stay or incentive bonuses) or (y) Person who is not a
Transferred Employee arising on or after the Closing;

 

(q) any other obligations and liabilities for which Seller has expressly assumed
responsibility pursuant to this Agreement.

 

(r) all obligations and liabilities relating to product liability claims with
respect to occurrences prior to the Closing Date;

 

(s) all obligations and liabilities relating to accrued vacation accruing prior
to the Closing Date with respect to the Transferred Employees; and

 

(t) all obligations and liabilities relating to medical benefits accruing or
with respect to occurrences prior to the Closing Date with respect to the
Transferred Employees.

 

2.5 Transfer of Acquired Assets and Assumed Liabilities.

 

(a) The Acquired Assets shall be sold, conveyed, transferred, assigned and
delivered, and the Assumed Liabilities shall be assumed, pursuant to transfer
and assumption agreements and such other instruments in such form as may be
necessary or appropriate to effect a conveyance of the Acquired Assets and an
assumption of the Assumed Liabilities in the jurisdictions in which such
transfers are to be made. Such transfer and

 

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assumption agreements shall include: (i) a bill of sale in substantially the
form attached hereto as Exhibit A, (ii) an assignment and assumption agreement
in substantially the form attached hereto as Exhibit B, and/or (iii) assignments
in substantially the form attached hereto as Exhibit C (the “Transferred
Intellectual Property Assignments”), with only such deviations therefrom as are
required by local law or otherwise necessary to effectuate and record such
transfer of the Transferred Intellectual Property or the recordation of the
assignment of the Registered Intellectual Property therein, and (v) such other
agreements as may be required to effect the purchase and assignment of the
Acquired Assets and Assumed Liabilities (collectively, clauses (i)–(v), together
with the Transition Services Agreement, the License Agreement, that certain
Stockholders Agreement entered into as of the date hereof among Buyer, Seller,
NightWatch Capital Partners, LP, NightWatch Capital Partners II, LP and Prides
Capital Fund I, L.P. and any other agreement entered into as of the date hereof
between Buyer and Seller, the “Transaction Agreements”) and shall be executed no
later than at or as of the Closing by Seller and/or one or more of its
Subsidiaries, as appropriate and Buyer.

 

(b) Subject to the terms of this Section 2.5(b), Seller agrees, and agrees to
cause its Subsidiaries, to cooperate with Buyer and provide Buyer all assistance
reasonably requested by Buyer in connection with the planning and implementation
of the transfer of Acquired Assets or any portion of any of them to such
location as Buyer shall designate. Acquired Assets shall be transported by or on
behalf of Buyer, and until all of the Acquired Assets are removed from a
Seller’s premises, Seller will, and will cause its Subsidiaries to, permit Buyer
and its authorized agents or representatives, upon prior notice, to have
reasonable access to such premises during normal business hours to the extent
necessary to disconnect, detach, remove, package and crate the Acquired Assets
for transport. Buyer shall be responsible for disconnecting and detaching all
fixtures and equipment that are Acquired Assets from the floor, ceiling and
walls of Seller’s premises so as to be freely removed from such premises by
Buyer. Buyer shall be responsible for packaging and loading the Acquired Assets
for transporting to and reinstalling the Acquired Assets at such location(s) as
Buyer shall determine. All risk of loss as to the Acquired Assets shall be borne
by, and shall pass to, Buyer as of the Closing.

 

2.6 Post-Closing Transfer of Acquired Assets. Notwithstanding anything to the
contrary contained in this Agreement, to the extent that the sale, assignment,
transfer, conveyance or delivery or attempted sale, assignment, transfer,
conveyance or delivery to Buyer of any Acquired Asset is prohibited by any
applicable law or would require any governmental or third-party authorizations,
approvals, consents or waivers and such authorizations, approvals, consents or
waivers shall not have been obtained prior to the Closing, this Agreement shall
not constitute a sale, assignment, transfer, conveyance or delivery, or any
attempted sale, assignment, transfer, conveyance or delivery thereof. Following
the Closing, the parties shall use all reasonable best efforts, and cooperate
with each other, to obtain promptly such authorizations, approvals, consents or
waivers; provided, however, that neither Seller nor Buyer shall be required to
pay any consideration therefor, other than filing, recordation or similar fees
payable to any Governmental Authority; provided further, however, that all such
fees payable in connection with obtaining such authorizations, approvals,
consents or waivers shall be payable by Seller. Pending such authorization,
approval, consent or waiver, the parties shall cooperate with each other in any
reasonable and lawful arrangements at the sole expense of Seller, designed to
provide to Buyer the benefits and liabilities of use of such Acquired Asset.
Once

 

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such authorization, approval, consent or waiver for the sale, assignment,
transfer, conveyance or delivery of an Acquired Asset not sold, assigned,
transferred, conveyed or delivered at the Closing is obtained, Seller shall
promptly assign, transfer, convey and delivery, or cause to be assigned,
transferred, conveyed and delivered, such Acquired Asset to Buyer for no
additional consideration and all reasonable expenses related thereto shall be
payable by Seller. To the extent that any such Acquired Asset cannot be
transferred promptly following the Closing or the full benefits and liabilities
of use of any such Acquired Asset cannot be provided to Buyer following the
Closing pursuant to this Section 2.6, then Buyer and Seller shall promptly enter
into such arrangements (including subleasing or subcontracting if permitted) to
provide to Buyer the economic (taking into account tax costs and benefits) and
operational equivalent of obtaining such authorization, approval, consent or
waiver and the performance by Buyer of the obligations thereunder, and all
reasonable expenses incurred in connection with entering into such arrangements
shall be payable by Seller.

 

2.7 Closing. Subject to the terms and conditions set forth in this Agreement,
the consummation of the purchase and sale of the Acquired Assets and the other
transactions contemplated by this Agreement (the “Closing”) shall take place on
the date hereof (the “Closing Date”) at 10:00 a.m., Pacific time, at the offices
of Simpson Thacher & Bartlett LLP, 3330 Hillview Avenue, Palo Alto, California
94304, unless another time and/or place is agreed to in writing by the parties
to this Agreement.

 

2.8 Deliveries at the Closing.

 

At the Closing, subject to the terms and conditions set forth in this Agreement,
(a) Seller shall, or shall cause its Subsidiaries (i) to, as appropriate,
deliver to Buyer one or more certificates, conveyance agreements or other
instruments, each duly executed and delivered, evidencing Buyer’s ownership of
all of the HTO Interests, (ii) to execute and deliver to Buyer each of the
Transaction Agreements and such other documents as counsel for Buyer and Seller
mutually agree to be reasonably necessary to consummate the transactions
described herein and (iii) to deliver to Buyer the partnership agreement for
each of the Partnerships, and (b) Buyer shall execute and deliver to Seller each
of the Transaction Agreements and shall pay to Seller in accordance with this
Agreement the Initial Purchase Price for the Acquired Assets. To the extent that
a form of any document, instrument, agreement or certificate to be delivered
under this Agreement is not attached as an Exhibit to this Agreement, such
document, instrument, agreement or certificate shall be in form and substance,
and shall be executed and delivered in a manner, reasonably satisfactory to the
parties to this Agreement.

 

2.9 Payment of Purchase Price. The aggregate purchase price in consideration of
the transfer of the Acquired Assets pursuant to this Article II shall be (a) six
million four hundred thousand dollars ($6,400,000) in cash; (b) a promissory
note made in favor of Seller, in an aggregate original principal amount equal to
two million dollars ($2,000,000) and in a form agreed upon by the parties hereto
(the “First Note”); (c) a promissory note made in favor of Seller, in an
aggregate original principal amount equal to two million dollars ($2,000,000)
and in a form agreed upon by the parties hereto (the “Second Note”); and (d)
stock certificates for shares (the “Buyer Shares”) of common stock, $0.01 par
value per share, of Buyer (“Common Stock”), which Buyer Shares shall (i) be
issued in the name of Seller or Seller’s designee, (ii) represent five and four
hundred seventy four thousandths percent (5.474%) of the

 

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outstanding shares of Common Stock (on an as-converted, fully diluted basis)
immediately following the Closing and (iii) be duly authorized and validly
issued, fully paid and non-assessable (collectively, the “Initial Purchase
Price”). Solely for the purpose of clarity, the Buyer Shares represent seven and
one-half percent (7.5%) of the outstanding shares of Common Stock (on an
as-converted, fully diluted basis) prior to the reduction of Seller’s percentage
ownership of Buyer, as agreed by Buyer and Seller, in connection with certain
payments by Buyer to Seller (for services rendered in the future and as part of
the Initial Purchase Price paid hereunder) over and above five million dollars
($5,000,000). The Initial Purchase Price shall be subject to adjustment pursuant
to Section 2.10 hereof (as finally adjusted pursuant to such sections, the
“Final Purchase Price”). The Initial Purchase Price and all other cash
consideration to be paid by Buyer under this Agreement shall be paid by Buyer by
wire transfer of immediately available funds to such account or accounts as
shall be designated in writing by Seller.

 

2.10 Working Capital Purchase Price Adjustment.

 

(a) Base Working Capital. For purposes of this Section 2.10 and any Net Working
Capital adjustment to the Initial Purchase Price, the parties hereto agree that
the amount set forth on Schedule 2.10(a) hereto (the “Estimated Net Working
Capital”) represents the estimated Net Working Capital of HTO and the
Partnerships, on a combined basis, as of June 30, 2005 calculated in accordance
with GAAP and using the same accounting principles as used in preparing the
balance sheet data in the Financial Statements. Estimated Working Capital plus
$100,000 shall be the “Base Working Capital.”

 

(b) Closing Balance Sheet. As soon as reasonably practicable following the
Closing Date, and in any event within ninety (90) days thereafter, Buyer shall
prepare and deliver to Seller a calculation of the Net Working Capital as of the
Closing Date (the “Closing Net Working Capital”). The Closing Net Working
Capital shall be prepared in accordance with GAAP and on a basis consistent with
the preparation of the Estimated Net Working Capital set forth on Schedule
2.10(a) hereto and without regard to any purchase accounting adjustments.

 

(c) Disputes. Upon delivery of the Closing Balance Sheet, HTO and Buyer will
provide to Seller and Seller’s accountants at Seller’s expense full access to
the books and records of HTO and the Partnerships during reasonable business
hours and to the extent required to review the calculation of the Closing Net
Working Capital. If Seller disagrees with the calculation of the Closing Net
Working Capital, it shall notify Buyer of such disagreement in writing within
thirty (30) days after its receipt of the Closing Net Working Capital. In the
event that HTO, the Partnerships and Buyer have provided full access as
aforesaid and Seller does not provide such a notice of disagreement within such
thirty (30) day period, Seller shall be deemed to have accepted the calculation
of the Closing Net Working Capital delivered by Buyer, which shall be final,
binding and conclusive for all purposes under this Agreement. In the event any
such notice of disagreement is timely provided by Seller, Buyer and Seller shall
use their reasonable best efforts for a period of ninety (90) days (or such
longer period as they may mutually agree) to resolve any disagreements with
respect to the calculation of the Closing Net Working Capital. If, at the end of
such period, they are unable to resolve such disagreements, then an independent
accounting firm of recognized national standing mutually selected by Seller and
Buyer (the “Accountants”) shall resolve any remaining

 

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disagreements. The Accountants shall act as an expert and not as an arbitrator,
and shall resolve the matters still in dispute and adjust and establish any
disputed adjustment amount to reflect such resolution. If issues in dispute are
submitted to the Accountants for resolution, (A) each party will furnish to the
Accountants such workpapers and other documents and information relating to the
disputed issues as the Accountants may reasonably request and are available to
that party (or its independent public accountants), and will be afforded the
reasonable opportunity to present to the Accountants any material relating to
the determination and to discuss the determination with the Accountants. The
Accountants shall determine as promptly as practicable, but in any event within
ninety (90) days of the date on which such dispute is referred to the
Accountants, based solely on written submissions forwarded by Buyer and Seller
to the Accountants within thirty (30) days following the Accountants’ selection,
whether the Closing Balance Sheet was prepared in accordance with the standards
set forth in Section 2.10(b) and (only with respect to the remaining
disagreements submitted to the Accountants) whether and to what extent (if any)
the Closing Net Working Capital determination requires adjustment. All fees and
expenses relating to the work, if any, to be performed by the Accountants shall
be borne pro rata as between Buyer on the one hand and Seller on the other, in
proportion to the allocation of the dollar amount of the amounts remaining in
dispute between Buyer and Seller made by such Accountants such that the
prevailing party pays the lesser proportion of fees and expenses. The
determination of the Accountants shall be set forth in a written statement
delivered to Buyer and Seller and shall be final, conclusive and binding on the
parties. The date on which the Closing Net Working Capital is finally determined
in accordance with this Section 2.10(c) is referred as to the “Determination
Date.”

 

(d) Payment. The “Net Working Capital Adjustment Amount,” which may be positive
or negative, shall mean (i) the Closing Net Working Capital minus (ii) the Base
Working Capital. If the Net Working Capital Adjustment Amount is greater than
zero (such difference, the “Increase Amount”), then within five (5) days after
the Determination Date, Buyer shall pay to Seller (by wire transfer to such
account as Seller may designate in writing) an additional amount equal to the
Increase Amount, together with interest thereon calculated from the Closing Date
to the date of payment at the prime rate of interest, as announced by Citibank,
N.A. in New York on the Closing Date (the “Applicable Rate”). If the Net Working
Capital Adjustment Amount is less than zero (such absolute difference, the
“Deficit Amount”), then within five (5) days after the Determination Date,
Seller shall pay to Buyer an amount equal to the Deficit Amount, together with
interest thereon calculated from the Closing Date to the date of payment at the
Applicable Rate.

 

2.11 Purchase Price Allocation. Buyer and Seller agree to allocate and Seller
agrees to cause its Subsidiaries, as applicable, to allocate the Final Purchase
Price in accordance with the rules under Section 1060 of the Code and the
Treasury Regulations promulgated thereunder. Buyer shall, within the later of
(i) 120 days after the Closing Date, (ii) 30 days prior to the date by which
Seller’s federal income Tax Returns must be filed, or (iii) 10 business days
after there has been a final determination of the Purchase Price pursuant to
Section 2.10 hereof, prepare and deliver to Seller for its consent (which
consent shall not be unreasonably withheld, delayed or conditioned) a schedule
allocating the Final Purchase Price (such schedule, the “Allocation”). If Seller
raises any objection to the Allocation, the parties will negotiate in good faith
to resolve such objection(s). Buyer and Seller agree to act (and cause Seller’s
Subsidiaries, as applicable, to act) in accordance with the computations and
allocations contained in the

 

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Allocation (including any modifications thereto reflecting any Net Working
Capital Adjustment) in any relevant Tax returns or filings, including any forms
or reports required to be filed pursuant to Section 1060 of the Code, the
Treasury Regulations promulgated thereunder, or any provisions of local, state,
and foreign, law (“1060 Forms”), and to cooperate in the preparation of any 1060
Forms and to file such 1060 Forms in the manner required by applicable law.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES REGARDING SELLER, THE PARTNERSHIPS AND HTO

 

Seller represents and warrants to Buyer that the statements contained in this
Article III are correct and complete as of the date hereof, except as set forth
in the disclosure schedule delivered by Seller to Buyer prior to the date of the
execution of the Agreement (the “Disclosure Schedule”):

 

3.1 Organization and Qualification.

 

(a) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Georgia. Seller (i) has all requisite
corporate power and authority to own, lease and operate the Acquired Assets
being transferred hereunder and to carry on the Business as it is presently
being conducted and (ii) is duly qualified to do business as a foreign person in
each jurisdiction in which the nature of the Acquired Assets or the conduct of
the Business requires it to be so qualified. Complete and correct copies of the
Organizational Documents of Seller have been made available to Buyer.

 

(b) Each of HTO, each of the Partnerships and each of the Affiliates of Seller
that is party to the other Transaction Agreements (such Affiliates,
collectively, the “Other Sellers”) is a corporation, limited partnership or
limited liability company duly organized, validly existing and in good standing
under the laws of its jurisdiction of formation. Each of HTO, each Partnership
and each of the Other Sellers (i) has all requisite corporate, partnership or
limited liability company power and authority to own, lease and operate its
properties and assets and to carry on its business as it is presently being
conducted and (ii) is duly qualified to do business as a foreign person in each
jurisdiction in which the nature of the property owned or leased by it or the
conduct of its business requires it to be so qualified. Complete and correct
copies of the Organizational Documents of HTO, each Partnership and each Other
Seller have been made available to Buyer.

 

3.2 Capitalization of HTO and the Partnerships. The equity capitalization of HTO
and the Partnerships (including the identity of each equity holder and the
partnership interest held thereby) is set forth in Schedule 3.2 hereto. All of
the issued and outstanding HTO Interests and Partnership Interests are
beneficially owned solely by Seller or its Subsidiaries as set forth on Schedule
3.2 hereto. The HTO Interests and each of the Partnership Interests have not
been issued in violation of any preemptive rights and are free and clear of any
Encumbrances. At the Closing, Buyer will acquire good and valid title to the HTO
Interests, free and clear of all Encumbrances incurred by Buyer or its
Affiliates. Other than as set forth in Schedule 3.2 hereto, neither HTO nor any
Partnership owns or holds, directly or indirectly, any equity interest of any
kind in any Person.

 

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(a) Except for this Agreement and the other Transaction Agreements and the
transactions contemplated hereby and thereby, there are no outstanding (i)
agreements, arrangements, warrants, options, puts, calls, rights, subscriptions
or other commitments to which HTO or any Partnership is a party relating to the
sale, issuance or voting of any partnership interests of HTO or such
Partnership, or (ii) securities or other instruments convertible into,
exchangeable for or evidencing the right to purchase any limited liability
company or partnership interests, as applicable, of HTO or such Partnership.

 

3.3 Corporate Books and Records. The minute books of HTO and each Partnership
contain accurate records of all meetings and accurately reflect all other
actions taken by the members or partners of HTO or of such Partnership. Complete
and accurate copies of all such minute books and of the record of limited
liability company or partnership interests, as applicable, of HTO and each
Partnership have been provided by Seller to Buyer.

 

3.4 Authorization; Enforceability. Seller and each Other Seller (as the case may
be) has all requisite corporate, partnership or limited liability company power
and authority, and has taken all corporate or other similar action necessary, in
order to execute and deliver this Agreement, the other Transaction Agreements
and the other instruments contemplated hereby and thereby, to perform its
obligations under this Agreement and the other Transaction Agreements and,
subject to the conditions set forth in this Agreement and the other Transaction
Agreements, to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the other Transaction
Agreements by Seller and each Other Seller have been duly authorized by all
requisite corporate or other similar action on behalf of Seller and each Other
Seller, as applicable. This Agreement has been, and the other Transaction
Agreements will be upon execution and delivery by Seller and each Other Seller,
duly executed and delivered by Seller and each Other Seller and, assuming the
due authorization, execution and delivery of this Agreement and the other
Transaction Agreements to which Buyer is a party, constitute or will constitute
the legal, valid and binding obligations of Seller and each Other Seller,
enforceable against Seller and each Other Seller in accordance with their terms
subject to (a) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors’ rights and remedies generally, and (b) the effect of general
equitable principles, regardless of whether asserted in a proceeding in equity
or at law.

 

3.5 No Conflict or Violation. The execution, delivery and performance by Seller
and each Other Seller of this Agreement and the other Transaction Agreements and
the consummation by Seller and each Other Seller of the transactions
contemplated hereby and thereby, and compliance by Seller and each Other Seller
with, or fulfillment by Seller and each Other Seller of, the terms, conditions
and provisions of this Agreement and of the other Transaction Agreements, do not
and will not: (a) violate, conflict with or result in the breach of any
provision of the Organizational Documents of Seller, any Other Seller, HTO or
any Partnership; (b) except as set forth on Schedule 3.5 hereto, violate,
conflict with or constitute or result in (or with notice, lapse of time or both
become) a default or a breach under, require any consent under or result in the
acceleration, termination, amendment, suspension, revocation or cancellation of
(or entitle any Person or give any Person the right to accelerate, terminate,
amend, suspend, revoke or cancel), or result in the creation of any Encumbrance
on the Interests or on any of the assets or properties of HTO or any Partnership
pursuant to, any Contract to

 

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which Seller, HTO or any Partnership is a party or by which any of the Interests
or any of such assets or properties is bound, except, in the case of clause (b)
above, for any such matters or consequences that would not reasonably be
expected, individually or in the aggregate, to materially adversely affect,
restrict or delay the ability of Seller or any Other Seller to consummate the
transactions contemplated by this Agreement and the other Transaction
Agreements.

 

3.6 Consents and Approvals. Except as would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect or to
materially adversely affect, restrict or delay the ability of Seller or any
Other Seller to consummate the transactions contemplated by this Agreement and
the other Transaction Agreements, and except as set forth on Schedule 3.6
hereto, the execution, delivery and performance by Seller and each Other Seller
of this Agreement and the other Transaction Agreements, and the consummation by
Seller and each Other Seller of the transactions contemplated hereby and
thereby, do not and will not require the approval, consent, authorization or
other order of, or action by, or the making by Seller, HTO, any Other Seller or
any Partnership or any other Person of any declaration, filing or registration
with, or notification to, any Governmental Authority.

 

3.7 Financial Statements.

 

(a) True and complete copies of (i) the unaudited balance sheet of HTO and each
Partnership as of December 31, 2003 and 2004 and as of March 31, 2003, 2004 and
2005, June 30, 2003, 2004 and 2005, and September 30, 2003 and 2004, and (ii)
the related unaudited income statement for each of the fiscal quarters ended
March 31, 2003, 2004 and 2005, June 30, 2003, 2004 and 2005, September 30, 2003
and 2004 and December 31, 2003 and 2004, and (iii) the statement of net assets
of each of the Partnerships and HTO (on a combined basis) as of June 30, 2005
(the “Statement of Net Assets”), (collectively, the “Financial Statements”), are
attached hereto as Schedule 3.7(a) to this Agreement. The Financial Statements
have been prepared in accordance with GAAP, applied on a consistent basis
throughout the periods covered by such Financial Statements. The Financial
Statements fairly present in accordance with GAAP, in all material respects, the
financial condition of HTO and each of the Partnerships and the results of their
operations, in each case, as of the dates of such Financial Statements for the
periods referred to in such Financial Statements.

 

(b) All accounts receivable of HTO and each of the Partnerships reflected in the
June 30, 2005 Statement of Net Assets included in the Financial Statements or
arising since June 30, 2005 have arisen in the Ordinary Course of Business of
HTO and the Partnerships from bona fide transactions and represent valid
obligations due to the operations of HTO and the Partnerships in accordance with
their terms and are not subject to discount except for immaterial trade
discounts consistent with past practice and contractual allowances and reserves
reflected on the Financial Statements. The values at which the accounts
receivable are carried on the Financial Statements reflect the accounts
receivable consistent with GAAP.

 

3.8 Absence of Certain Changes or Events. Since December 31, 2004, except as set
forth in Schedule 3.8 hereto or as disclosed in any of the Financial Statements,
(a) HTO and the Partnerships have operated only in the Ordinary Course of
Business, and (b) there have not been any changes in the Business or results of
operations of HTO or the

 

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Partnerships or any other events, conditions or circumstances that have, or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. In addition, since December 31, 2004 and through the
date hereof (a) neither HTO nor any Partnership has sold, assigned, transferred,
leased, licensed or disposed of any of its material assets or properties and
neither Seller nor any of its Subsidiaries has taken any such action with
respect to the Acquired Assets other than the sale of inventory and obsolete or
worn-out equipment, in each case in the Ordinary Course of Business; (b) neither
HTO nor any Partnership has made any acquisition of any Person or other business
organization or division thereof; (c) neither HTO nor any Partnership has
subjected any of its assets to any Encumbrance and neither Seller nor any of its
Subsidiaries has taken any such action with respect to the Acquired Assets,
except for Permitted Encumbrances; (d) neither HTO nor any Partnership has
amended or authorized any amendment to its Organizational Documents; (e) neither
HTO nor any Partnership has materially changed or modified the commission or
sales quota applicable to or the compensation payable to any employee; (f) there
has not been any (i) increase in the compensation or fringe benefits of any
Transferred Employee, other than increases in salary in the Ordinary Course of
Business and reflected in Schedule 3.19(a) (ii) grant of any severance or
termination pay to any Transferred Employee, (iii) loan or advance of money or
other property to any present or former employee of HTO or a Partnership, other
than expense advances in the Ordinary Course of Business, (iv) establishment,
adoption, entrance into, amendment or termination of any Seller Plan or
collective bargaining agreement (other than as may be required by the terms of
an existing Seller Plan or collective bargaining agreement, or as may be
required by applicable law or in order to qualify under Sections 401 and 501 of
the Code), (v) grants of any equity or equity-based awards to any present or
former employee of HTO or a Partnership; or (g) none of HTO, any Partnership or
Seller or any of its Subsidiaries (as applicable) has become obligated in
writing or otherwise agreed to take any of the actions specified in
subparagraphs (a) through (e) above. Since December 31, 2004, there has not been
(i) any damage, destruction, or loss to any assets or properties that has, or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect or (ii) any change in the accounting principles or
practices used by HTO or the Partnerships.

 

3.9 No Undisclosed Liabilities. Except as set forth in Schedule 3.9 hereto,
there are no outstanding liabilities or indebtedness of HTO or the Partnerships
that would be required to be reflected on a consolidated balance sheet prepared
in conformity with GAAP, except for liabilities or indebtedness (i) disclosed or
reflected in the Statement of Net Assets, (ii) incurred in the Ordinary Course
of Business since June 30, 2005 that are of the nature required to be reflected
on a consolidated balance sheet prepared in conformity with GAAP, or (iii) that
do not have, or would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. None of HTO nor any of the Partnerships is
a party to, or has any commitment to become a party to, any contract or other
arrangement associated with off balance sheet financing, including without
limitation any arrangements for the sale of receivables.

 

3.10 Litigation. As of the date of this Agreement, except as set forth in
Schedule 3.10 hereto (which, with respect to each proceeding disclosed therein,
sets forth: the parties, nature of the proceeding, date and method commenced,
amount of damages or other relief sought and, if applicable, paid or granted),
(a) there are no civil, criminal, judicial, administrative or arbitral lawsuits,
actions, audits, hearings, litigation, claims, investigations or other
proceedings, public or private, or governmental investigations pending by or
against, or, to

 

20

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the knowledge of Seller, threatened against Seller, any of its Subsidiaries, HTO
or any Partnership that have, or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect or that could,
individually or in the aggregate, affect the legality, validity or
enforceability of this Agreement or the other Transaction Agreements or the
consummation of transactions contemplated hereby or thereby or materially
adversely affect, restrict or delay the ability of Seller to consummate such
transactions and (b) none of Seller, any of its Subsidiaries, HTO or any
Partnership is a party to or in default under any outstanding Governmental Order
(nor, to the knowledge of Seller, are there any such Governmental Orders
threatened to be imposed by any Governmental Authority) that have, or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

 

3.11 Compliance with Laws; Permits. Seller, its Subsidiaries, HTO and each of
the Partnerships are in compliance, and have been in compliance at all times
during the past five (5) years, in all material respects with all applicable
laws, statutes, regulations and Governmental Orders relating to the operation of
the Business (other than Environmental Laws, which are addressed in Section
3.15(a)). Except as set forth on Schedule 3.11 hereto, Seller, its Subsidiaries,
HTO and each of the Partnerships are in compliance in all material respects with
all licenses, permits, approvals, registrations, authorizations, notifications,
exemptions, consents, franchises and concessions from any Governmental Authority
issued or granted to Seller, its Subsidiaries, HTO or the Partnerships in
connection with the operation of the Business (collectively, “Governmental
Permits”) other than Environmental Permits, which are addressed in Section
3.15(f). Seller, its Subsidiaries, HTO and each of the Partnerships are in
compliance, and have been incompliance at all times during the past five (5)
years, with the Foreign Corrupt Practices Act of 1977.

 

3.12 Contracts

 

(a) Except as set forth in Schedule 3.12(a) hereto, neither HTO nor any
Partnership is a party to, or bound by, any of the following:

 

(i) any Contract relating to or requiring capital expenditures in excess of
either $10,000 in any one fiscal year or $20,000 in the aggregate;

 

(ii) any Contract representing an aggregate future liability of HTO or such
Partnership or representing the future right of HTO or such Partnership to
receive, in each case, an amount in excess of either $10,000 in any one fiscal
year or $20,000 over the term of such Contract (including all potential
extensions thereof);

 

(iii) any Contract with respect to the purchase of goods or services with a
value, or involving payments by HTO or such Partnership or Seller or its
Subsidiaries, of more than $10,000 in any twelve (12) month period that is not
subject to cancellation or termination on not more than 30 days’ notice by HTO
or such Partnership or Seller or its Subsidiaries without penalty or further
payment, except purchase orders made or letters of credit obtained in its
Ordinary Course of Business;

 

21

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(iv) any agreement providing for a commitment of employment or consultation
services for a specified or unspecified term or otherwise relating to employment
or the termination of employment and requiring payments in excess of $10,000;

 

(v) any note, mortgage, indenture or other obligation or agreement or other
instrument for or relating to indebtedness for money borrowed (including capital
lease obligations) by HTO or such Partnership or Seller or its Subsidiaries, or
any guarantee, assumption or endorsement by HTO or such Partnership of
third-party obligations, of $10,000 or more or letters of credit obtained in its
Ordinary Course of Business;

 

(vi) any collective bargaining agreement with any labor union or association
representing employees of HTO or such Partnership or Seller or its Subsidiaries;

 

(vii) any lease of personal property with an annual base rental obligation of
more than $20,000;

 

(viii) any franchise agreement; or

 

(ix) any joint venture, partnership, joint marketing or limited liability
company agreement;

 

(x) any contract or agreement with any Governmental Authority that represents an
aggregate liability of HTO or such Partnership or Seller or its Subsidiaries in
excess of $10,000;

 

(xi) any contract or agreement that limits or purports to limit HTO’s or such
Partnership’s or Seller’s or its Subsidiaries’ ability to compete in any line of
business or with any Person or in any geographic area or during any period of
time or which grants exclusive sales rights in any territory or region or “most
favored nations” or similar from of pricing protection;

 

(xii) any contract concerning Intellectual Property, including (a) every
contract pursuant to which any Intellectual Property used in the conduct of the
Business is licensed from any third party, and (b) every contract pursuant to
which any Intellectual Property used in the conduct of the Business is licensed
to any third party; or

 

(xiii) any other contract or agreement whether or not made in the Ordinary
Course of Business, which is material to the Business.

 

(b) Except as disclosed in Schedule 3.12(b) hereto, each Scheduled Contract: (i)
is valid and binding on the respective parties thereto and is in full force and
effect and (ii) upon consummation of the transactions contemplated by this
Agreement and the other Transaction Agreements, except to the extent that any
consents set forth in Schedule 3.5 hereto are not obtained, shall continue in
full force and effect without penalty or other adverse consequence.

 

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(c) Except as set forth in Schedule 3.12(c) hereto, with respect to each
Scheduled Contract, neither HTO nor any Partnership or, to the knowledge of
Seller, any other Person which is a party to any Scheduled Contract, is in
breach of or default in any material respect under, and no event has occurred
which with notice or lapse of time, or both, would become a breach of or default
in any material respect under such Scheduled Contract. Complete and correct
copies of the Scheduled Contracts have been made available to Buyer.

 

3.13 Suppliers. Schedule 3.13 hereto lists each of the 25 largest suppliers of
supplies, merchandise and other goods for the Business based on amounts invoiced
by such supplier over the 12-month period ended June 30, 2005 (each a “Material
Supplier”). To the knowledge of Seller, except as occurring in the Ordinary
Course of Business and except for HMT and its Subsidiaries, since December 31,
2004 and through the date of this Agreement, no Material Supplier has terminated
or materially reduced its business relationship with HTO, the Partnerships or
Seller or its Subsidiaries, as applicable, or materially changed the terms on
which it does business with HTO, the Partnerships or Seller or its Subsidiaries,
as applicable, or communicated its intention to do any of the foregoing. Seller
is not aware of any intention of any Material Supplier to terminate, materially
reduce its business relationship with or increase prices charged to HTO, the
Partnerships or Seller or its Subsidiaries, as applicable, following the
Closing.

 

3.14 Title to Acquired Assets. Except as set forth in Schedule 3.14 hereto,
Seller, its Subsidiaries, HTO and the Partnerships have good title to, or a
valid leasehold interest in or right to use, the respective properties, rights
and assets necessary to conduct the Business free and clear of all Encumbrances
other than Permitted Encumbrances, except for items which were disposed of in
the Ordinary Course of Business since December 31, 2004, the properties, rights
and assets of HMT and its Subsidiaries. Except as set forth in Schedule 3.14,
all equipment and tangible personal property related to the Business and held by
Seller, its Subsidiaries, HTO and the Partnerships is in good condition or
repair, ordinary wear and tear excepted.

 

3.15 Environmental Matters.

 

(a) Each of HTO and the Partnerships and Seller’s, HTO’s and the Partnerships’
operation of the Business have been and are in material compliance with all
applicable Environmental Laws, and there are no conditions or circumstances
arising out of or related to Seller’s, HTO’s or any Partnership’s past or
present operation of the Business that have given or could reasonably be
expected to give rise to any material liabilities or claims against Seller, HTO
or any Partnership under any Environmental Laws.

 

(b) Without limitation to Section 3.15(a), Seller, its Subsidiaries, HTO and the
Partnerships hold, and are in material compliance with, all Environmental
Permits required for the ownership and operation of the Acquired Assets and the
Business, and the consummation of the transactions contemplated under this
Agreement do not require any transfer, amendment or modification of such
Environmental Permits or any consent of, or notice to, any third Person.

 

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(c) None of HTO, the Partnerships, and in connection with the Business or the
Acquired Assets, none of Seller nor its Subsidiaries, has received any material
Environmental Claim, and Seller has no knowledge of any threatened material
Environmental Claim.

 

(d) Hazardous Materials are not present at or about any of the Acquired Assets,
or any facility currently or formerly owned, leased, operated or used by HTO or
any of the Partnerships, in amount or condition that could reasonably be
expected to give rise to any material liabilities or claims against Seller, any
of its Subsidiaries, HTO or any Partnership under any Environmental Laws.

 

(e) Neither Seller, HTO nor any of its Subsidiaries in connection with the
Business, nor HTO nor any of the Partnerships, has assumed any material
liability or obligation under or relating to any Environmental Law.

 

(f) Seller has provided to Buyer true and complete copies of all Environmental
Reports containing material information that are in the possession or control of
Seller, HTO or any of the Partnerships, each of which is identified on Schedule
3.15(f) hereto.

 

3.16 Intellectual Property.

 

(a) Schedule 3.16(a) hereto lists (i) all Registered Intellectual Property owned
by Seller, its Subsidiaries, HTO or the Partnerships (collectively, the “IP
Transferring Parties”), including in each case the jurisdiction in which each
asset is registered or filed, and the corresponding application or registration
number and (ii) all other Intellectual Property material to the Business.

 

(b) With respect to each asset set forth in Schedule 3.16(a) of the Disclosure
Schedule, (i) such asset is valid and enforceable, (ii) the IP Transferring
Parties own, or possess all right title and interest in and to the asset, (iii)
the IP Transferring Parties’ ownership or interest in such asset is free and
clear of any Encumbrance, (iv) the asset is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge, and (iv) no action,
suit, proceeding, hearing, investigation, charge, complaint, Claim or demand is
pending, or to the knowledge of Seller, HTO or any Partnership, is threatened,
which challenges the legality, validity or enforceability of the asset or the
use or ownership of the asset by HTO or the Partnerships.

 

(c) Except as set forth in Schedule 3.16(c) of the Disclosure Schedule, (i) the
conduct of the Business does not infringe upon, misappropriate or otherwise
violate any Intellectual Property of any third party, (ii) none of the IP
Transferring Parties has received any written or oral notice that it is
infringing upon, misappropriating, or otherwise violating any Intellectual
Property of any third party, nor is there any action, suit or proceeding pending
or, to the knowledge of Seller, threatened, against the IP Transferring Parties
claiming that such Person is infringing upon, misappropriating, or otherwise
violating any Intellectual Property of any third party, and Seller knows of no
reasonable basis for any such claim, and (iii) no third party is infringing
upon, misappropriating, or otherwise violating any Intellectual Property of the
IP Transferring Parties.

 

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(d) Each of the IP Transferring Parties have taken reasonably appropriate
measures to maintain and protect their rights in, and the confidentiality and
proprietary nature (where appropriate) of, all Intellectual Property assets that
they own or use in the conduct of the Business.

 

(e) The conduct of the Business by the IP Transferring Parties does not use or
incorporate any source, object or other software code subject to an
“open-source’, “copyleft” or other similar license terms (including, without
limitation, any GNU General Public License, Library General Public License,
Lesser General Public License, Mozilla License, Berkely Software Distribution
License, Open Source Initiative License, MIT, Apache or public domain licenses,
and the like).

 

(f) None of the IP Transferring Parties has deposited, is obligated to deposit,
or reasonably expects that it will be obligated to deposit, the source code of
any of the software products of the used by any of the IP Transferring Parties
pursuant to a source code escrow agreement for the benefit of any Person, nor
have any of them made the source code of any software product available to any
Person.

 

(g) All software, databases, systems, networks and Internet sites included
within the Acquired Assets are free from any material defect, bug, “Trojan
Horse”, malware, spyware or other virus or programming design or documentation
error or corruptant. The IP Transferring Parties have taken all reasonably
necessary actions to protect the confidentiality, integrity and security of
their software, databases, systems, networks and Internet sites and all
information stored or contained therein or transmitted thereby from any
unauthorized use, access, interruption or modification by third parties. The IP
Transferring Parties fully comply with all relevant laws and regulations and
with their own respective policies with respect to the privacy of all users and
customers and any of their personally identifiable information, and no claims
have been asserted or threatened in writing against any of the IP Transferring
Parties alleging a violation of any of the foregoing.

 

3.17 Labor Relations. Seller, its Subsidiaries, HTO and the Partnerships have
not agreed to recognize, and is not a party to any contract with, any labor
union, collective bargaining representative, works council, or other form of
employee representative. To the knowledge of Seller, no union organizing
campaign or representation petition is currently pending with respect to any of
the Business Employees. There is no pending or, to the knowledge of Seller
threatened, labor dispute, strike or work stoppage against Seller with respect
to the Business. To the knowledge of Seller, all Business Employees are lawfully
authorized to work in their present location under the laws of the jurisdiction
in which they work. To the knowledge of Seller, no Business Employee and no
independent contractor or consultant is in violation of any term of any
employment, services or other contract, non-disclosure agreement,
non-competition agreement, or any restrictive covenant to a former employer
relating to (i) the right of any such person to be employed or retained by
Seller or their Affiliates, or (ii) the use by or for the benefit of Seller or
an Affiliate of Seller of the trade secrets, intellectual property, or
confidential or proprietary information of others.

 

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3.18 Taxes.

 

(a) All Tax Returns required to be filed by, or with respect to, HTO, the
Partnerships, the Acquired Assets and the Business on or prior to the Closing
Date have been or will be duly filed with the appropriate Taxing Authorities on
or prior to the Closing Date, and all such Tax Returns are or will be complete
and correct in all material respects;

 

(b) all liabilities for Taxes with respect to HTO, the Partnerships, the
Acquired Assets or the Business have been timely paid in full (or will be paid
in full on or prior to the Closing Date);

 

(c) none of Seller, HTO nor any Partnership has received any written notice of
deficiency or assessment from any Taxing Authority with respect to any liability
for Taxes with respect to HTO or such Partnership or the Acquired Assets or the
Business which has not been fully paid or finally settled;

 

(d) as of the Closing Date, there will be no tax sharing, indemnity, allocation
or similar agreements in effect to which HTO or any Partnership is a party or
has continuing liability thereunder;

 

(e) there are no liens for Taxes (other than Permitted Tax Liens) upon any
assets or properties of HTO, the Partnerships or the Acquired Assets or the
Business;

 

(f) no audit or other proceeding by any court, governmental or regulatory
authority, or similar person has formally commenced and no notification has been
given that such an audit or other proceeding is pending or threatened with
respect to any Taxes due from or with respect to HTO, the Partnerships, the
Acquired Assets or the Business or any Tax Return filed by or with respect to
HTO, the Partnerships, the Acquired Assets or the Business;

 

(g) there are no outstanding agreements, waivers or arrangements extending the
statutory period of limitation applicable to any claim for, or the period for
the collection or assessment of, Taxes due from or with respect to HTO, any of
the Partnerships, the Acquired Assets or the Business for any Taxable Period;

 

(h) no closing agreement pursuant to Section 7121 of the Code (or any
predecessor provision) or any similar provision of any state, local, or foreign
law has been entered into by or with respect to HTO, the Partnerships, the
Acquired Assets or the Business;

 

(i) Seller, HTO and the Partnerships have duly and timely withheld and paid over
to the appropriate taxing authorities all amounts required to be withheld and
paid over for all periods under all applicable laws and regulations with respect
to HTO, the Partnerships, the Acquired Assets and the Business;

 

(j) HTO and each of the Partnerships has at times since its formation been
treated as a partnership for U.S. federal income tax purposes; and

 

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(k) none of HTO nor the Partnerships have participated in any “reportable
transaction” as defined in Section 1.6011-4(b) of the Treasury Regulations or
any “listed transaction” as defined in Section 301.6111-2(b)(2) of the Treasury
Regulations and Seller has not participated in any such transaction with respect
to the Acquired Assets or the Business.

 

3.19 Employee Matters and Seller Plans.

 

(a) Schedule 3.19(a) contains (A) a complete and accurate list of all
Transferred Employees, showing for each Transferred Employee (including
employees on leave of absence), the location and name of such Transferred
Employee, position held, current annual compensation (annual base salary and
base wages, excluding bonus and commissions, if any), (B) the Transferred
Employees located within the United States whose position will require action to
obtain work authorization (e.g., visa), and (C) information related to whether
any such Transferred Employee is on a leave of absence, including but not
limited to leaves for disability, workers compensation, pregnancy, or family
medical leave, and if any such Transferred Employee is on a leave of absence,
the initial date and expected duration of such leave, and the pay status of the
individual during such leave.

 

(b) Schedule 3.19(b) contains a true and complete list of each “employee benefit
plan” (within the meaning of Section 3(3) of ERISA, including, without
limitation, multiemployer plans within the meaning of Section 3(37) of ERISA),
and all stock purchase, stock option, severance, employment, change-in-control,
fringe benefit, collective bargaining, bonus, incentive, deferred compensation,
employee loan and all other employee benefit plans, agreements, programs,
policies or other arrangements, whether or not subject to ERISA (including any
funding mechanism therefor now in effect or required in the future as a result
of the transaction contemplated by this Agreement or otherwise), whether formal
or informal, oral or written, legally binding or not, under which (i) any
current or former employee, director or consultant of Seller, its Subsidiaries,
HTO or the Partnerships (the “Seller Employees”) has any present or future right
to benefits and which are contributed to, sponsored by or maintained by Seller,
any of its Subsidiaries, HTO or any of the Partnerships (ii) Seller, any of its
Subsidiaries, HTO or any of the Partnerships has had or has any present or
future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the “Seller Plans”.

 

(c) With respect to each Seller Plan, Seller has provided to Buyer a current,
accurate and complete copy (or, to the extent no such copy exists, an accurate
description) thereof and, to the extent applicable: (i) any related trust
agreement or other funding instrument; (ii) the most recent determination
letter, if applicable; (iii) any summary plan description and other written
communications (or a description of any oral communications) by Seller or its
Subsidiaries to Seller Employees concerning the extent of the benefits provided
under a Seller Plan; (iv) a summary of any proposed amendments or changes
anticipated to be made to Seller Plans at any time within the twelve months
immediately following the date hereof, and (v) for the three most recent years
(A) the Form 5500 and attached schedules, (B) audited financial statements and
(C) actuarial valuation reports.

 

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(d) Each Seller Plan has been established and administered in accordance with
its terms, and in compliance with the applicable provisions of ERISA, the Code
and other applicable laws, rules and regulations; (ii) each Seller Plan which is
intended to be qualified within the meaning of Section 401(a) of the Code is so
qualified and has received a favorable determination letter as to its
qualification, and nothing has occurred, whether by action or failure to act,
that could reasonably be expected to cause the loss of such qualification; (iii)
no event has occurred and no condition exists that would subject Seller or its
Subsidiaries, either directly or by reason of their affiliation with any member
of their “Controlled Group” (defined as any organization which is a member of a
controlled group of organizations within the meaning of Sections 414(b), (c),
(m) or (o) of the Code), to any tax, fine, lien, penalty or other liability
imposed by ERISA, the Code or other applicable laws, rules and regulations; (iv)
no “reportable event” (as such term is defined in Section 4043 of the Code) that
could reasonably be expected to result in liability, no nonexempt “prohibited
transaction” (as such term is defined in Section 406 of ERISA and Section 4975
of the Code) or “accumulated funding deficiency” (as such term is defined in
Section 302 of ERISA and Section 412 of the Code (whether or not waived)) has
occurred with respect to any Seller Plan; (v) there is no present intention that
any Seller Plan be materially amended, suspended or terminated, or otherwise
modified to adversely change benefits (or the levels thereof) under any Seller
Plan at any time within the twelve months immediately following the date hereof.

 

(e) No Seller Plan is a “multiemployer plan” (as defined in Section 4001(a)(3)
of ERISA) and neither Seller, its Subsidiaries nor any of their Affiliates has
at any time sponsored or contributed to, or has or had any liability or
obligation in respect of, any multiemployer plan.

 

(f) With respect to any Seller Plan, (i) no actions, suits or claims (other than
routine claims for benefits in the ordinary course) are pending or threatened,
(ii) no facts or circumstances exist that could give rise to any such actions,
suits or claims, (iii) no written or oral communication has been received from
the Pension Benefit Guaranty Corporation (the “PBGC”) in respect of any Seller
Plan subject to Title IV of ERISA concerning the funded status of any such plan
or any transfer of assets and liabilities from any such plan in connection with
the transactions contemplated herein, and (iv) no administrative investigation,
audit or other administrative proceeding by the Department of Labor, the PBGC,
the Internal Revenue Service or other governmental agencies are pending,
threatened or in progress (including, without limitation, any routine requests
for information from the PBGC).

 

(g) No Seller Plan exists that, as a result of the execution of this Agreement,
shareholder approval of this Agreement, or the transactions contemplated by this
Agreement (whether alone or in connection with any subsequent event(s)), (i)
could entitle any Seller Employee to severance pay or any increase in severance
pay upon any termination of employment after the date of this Agreement, (ii)
could accelerate the time of payment or vesting or result in any payment or
funding (through a grantor trust or otherwise) of compensation or benefits
under, increase the amount payable or result in any other material obligation
pursuant to, any of the Seller Plans, (iii) could limit or restrict the right of
Seller to merge, amend or terminate any of the Seller Plans, (iv) could cause
Seller to record additional compensation expense on its income statement with
respect to any outstanding stock option or other equity-based award, or (v)
could result in payments under any of the Seller Plans which would not be
deductible under Section 280G of the Code.

 

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(h) Except as set forth in Schedule 3.19(h) hereto, no Seller Plan is maintained
outside the jurisdiction of the United States, or covers any employee residing
or working outside the United States (any such Seller Plan set forth in Schedule
3.19(h), “Foreign Benefit Plans”). With respect to any Foreign Benefit Plans,
(i) all Foreign Benefit Plans have been established, maintained and administered
in compliance with their terms and all applicable statutes, laws, ordinances,
rules, orders, decrees, judgments, writs, and regulations of any controlling
governmental authority or instrumentality; (ii) all Foreign Benefit Plans that
are required to be funded are fully funded, and with respect to all other
Foreign Benefit Plans, adequate reserves therefore have been established on the
accounting statements of the applicable Seller, Subsidiary, HTO or Partnership
entity; and (iii) no material liability or obligation of Seller, its
Subsidiaries, HTO or the Partnerships exists with respect to such Foreign
Benefit Plans that has not been disclosed on Schedule 3.19(h).

 

3.20 Contracts with Affiliates. Except as set forth in Schedule 3.20 hereto, (i)
on the Closing Date none of Seller or any of its Affiliates has outstanding any
loan to, or is party to any other transaction outside of a general employment
relationship with, any director, officer or employee of the Business other than
Seller’s executive officers who serve as officers of HTO but are not included in
the Transferred Employees and (ii) there are no contracts, agreements or
obligations of HTO or any Partnership that are guaranteed by Seller or any of
its Affiliates. Except as set forth in Schedule 3.20 hereto, there is no
Contract between the Business and any other business or division of Seller or
any Affiliate of Seller (an “Intercompany Agreement”). On the Closing Date, none
of HTO or any of the Partnerships has outstanding any guarantee of any note,
mortgage, credit agreement, indenture or other obligation or agreement or other
instrument for or relating to indebtedness for money borrowed of Seller or any
of its Subsidiaries.

 

3.21 No Brokers, Finders, etc. None of Seller, any of its Subsidiaries, HTO nor
any Partnership has paid or will become obligated to pay any fee or commission
to any broker, finder or other intermediary for or on account of the
transactions contemplated by this Agreement.

 

3.22 Insurance. Schedule 3.22 hereto lists (a) all insurance policies of Seller,
HTO, the Partnerships or any other Affiliate of Seller covering the assets,
business, products, services or employees of HTO, the Partnerships or the
Business as of the date hereof, (b) the amount of the annual premiums thereon
paid by, or otherwise allocated to, such Person, and (c) any claims made
thereunder during the past three years with respect to the assets, business,
products, services or employees of HTO, the Partnerships or the Business. All
such policies are in full force and effect, all premiums due thereon have been
paid, and Seller, HTO, the Partnerships or any other Affiliate of Seller
providing insurance benefits to HTO or any Partnership have complied in all
material respects with the provisions of such policies and have not received any
notice from any of their insurance brokers or carriers that such broker or
carrier will not be willing or able to renew their existing coverage.

 

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3.23 Fixed Assets. Except as set forth in Schedule 3.23 hereto, the fixed assets
shown on the Financial Statements or thereafter acquired by HTO or the
Partnerships consisted of items of a quantity and quality usable or salable in
the Ordinary Course of Business and the fixed assets set forth on Schedule 2.1
hereto that are comprised of or primarily related to OssaTrons are in good
working order.

 

3.24 Equity Interests. Schedule 3.24 hereto sets forth the capital stock of or
other equity interests in any corporation, partnership or other entity that are
included in the Acquired Assets (directly or indirectly). At the time of the
Closing, Seller will have good and marketable title to all such capital stock or
other equity interests described in Schedule 3.24 hereto, free and clear of all
Encumbrances except Permitted Encumbrances. Prior to the date hereof, HTO has
taken all actions necessary and appropriate to transfer, sell, assign and
deliver any and all of the equity interests held by it (directly or indirectly),
other than such capital stock or other equity interests set forth on Schedule
3.24; for the avoidance of doubt, any liabilities or obligations arising
therefrom shall be an Excluded Liability pursuant to Section 2.4(l).

 

3.25 Sufficiency of Assets. The transfer of the Acquired Assets, and the other
rights, licenses, services and benefits to be provided pursuant to this
Agreement and the other Transaction Agreements, constitute the assets,
properties and rights, including without limitation all rights in Intellectual
Property, necessary to conduct the Business in all material respects as
currently conducted, in each case other than (A) the Excluded Assets described
in Schedule 2.2(d) hereto, (B) the assets, properties and rights used to perform
the services that are the subject of the Transition Services Agreement and (C)
as set forth in Schedule 3.25 hereto.

 

3.26 Limited Partners. To the knowledge of Seller, except as occurring in the
Ordinary Course of Business, since December 31, 2004 and through the date of
this Agreement, no limited partner of any of the Partnerships has terminated or
materially altered its business relationship (which business relationship does
not include a limited partner’s use of the Partnership’s equipment to perform
procedures) with HTO, such Partnership or Seller or its Subsidiaries, as
applicable, materially changed the terms on which it does business with HTO,
such Partnership or Seller or its Subsidiaries, as applicable, assigned its
limited partnership interest to a third party or communicated its intention to
do any of the foregoing. Except as disclosed in Schedule 3.26 hereto, Seller is
not aware of any material dispute with any limited partner of any of the
Partnerships or the intention of any such limited partner to terminate,
materially alter its business relationship with HTO, such Partnership or Seller
or its Subsidiaries, as applicable, or to assign its limited partnership
interest to any third party following the Closing.

 

3.27 Certain Regulatory Matters.

 

(a) HTO and the Partnerships have established and administer a compliance
program (including a written compliance policy) applicable to the Business (i)
to assist HTO and the Partnerships, and their respective directors, officers and
employees in complying with applicable Health Care Laws (including, without
limitation, those administered by the United States Food and Drug Administration
(“FDA”) and the United States Department of Health and Human Services “HHS”)
applicable to the Business and (ii) to provide compliance policies relating to
Health Care Laws governing the conduct of medical device companies (including,
without limitation, pre-clinical and clinical testing, product design and
development,

 

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product testing, product manufacturing, product labeling, product storage,
pre-market clearance and approval, marketing, advertising and promotion, product
sales and distribution, reimbursement, fraud and abuse, medical device recall
and reporting regulations, and record keeping).

 

(b) HTO and the Partnerships are and at all times during the past five (5) years
have been in compliance in all material respects with the provisions of all
Health Care Permits and Health Care Laws. All applications, submissions,
information, claims, reports and statistics and other data and conclusions
derived therefrom, utilized as the basis for or submitted in connection with any
and all requests for authorizations, approvals, certificates, waivers,
certifications, clearances, exemptions, notifications, consents, orders,
registrations, licenses or permits of the FDA, HHS or comparable Governmental
Authorities relating to HTO and the Partnerships, the Business and its products,
when submitted to the FDA, HHS or other Governmental Authority were true,
complete and correct in all material respects and in conformance with Health
Care Laws as of the date of submission and any updates, changes, corrections or
modification to such applications, submissions, information and data which were
or are necessary or required to be filed, maintained, or furnished to the FDA,
HHS or other Governmental Authorities have been timely filed, maintained, or
furnished to the FDA, HHS and other Governmental Authorities and were true,
complete and correct in all material respects and in conformance with legal
requirements as of the date of submission.

 

(c) Neither HTO nor any Partnership is subject to any obligation arising under
any consent decree, consent agreement, or warning letter issued by or entered
into with the FDA or any other Governmental Authority or other notice, response
or commitment made to the FDA or any other Governmental Authority. Seller has
delivered to Buyer true, correct and complete copies of all customer complaints
relating to the products of the Business and all MDRs, as that term is defined
in 21 C.F.R. Part 803, filed with the FDA within the last five (5) years. Seller
has delivered to Buyer true, complete and correct copies of all warning letters,
untitled letters, notices of inspectional observations (Form FDA-483s), or
similar notices, or other correspondence relating to products of the Business
and HTO’s and the Partnerships’ compliance with Health Care Laws from the FDA
and any other Governmental Authority and all of their respective responses
thereto within the last five (5) years.

 

(d) No premarket approval or 510(k) applications for the products of the
Business has been subjected to reevaluation or suspension of sale by the FDA and
no products manufactured, marketed or sold by Seller or its Affiliates in
connection with Business have been recalled or subject to a field notification,
field correction or safety alert (whether voluntarily or otherwise) and no
proceedings have occurred (whether completed or pending) seeking to recall,
reclassify, re-label, suspend, or seize any product sold or proposed to be sold
by Seller or its Affiliates in connection with the Business. There are no facts
which are reasonably likely to cause: (A) the recall, suspension, field
notification, field correction, reclassification, re-labeling or safety alert of
any product sold or intended to be sold by Seller or its Affiliates relating to
the Business; (B) a change in the marketing classification or a material change
in labeling of any such products; or (C) a termination or suspension of
marketing of any such products.

 

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(e) Except as set forth in Schedule 3.27, there are no nonclinical, pre-clinical
or clinical trials or studies relating to the Business being conducted by or on
behalf of Seller or its Affiliates. All pre-clinical trials and clinical trials
relating to the Business conducted by or on behalf of Seller or its Affiliates
have been, and are being conducted in material compliance with experimental
protocols, procedures and controls pursuant to accepted professional scientific
standards and all applicable Health Care Laws relating thereto, including the
Food, Drug and Cosmetic Act and its applicable implementing regulations at 21
C.F.R. Parts 50, 54, 56 and 812.

 

(f) None of HTO, any of the Partnerships nor, to Seller’s knowledge, any of
their respective officers, employees or agents has been convicted of any crime
or engaged in any conduct that is prohibited under federal or state criminal or
civil laws (including without limitation the Federal Anti-Kickback statute,
Stark law, Civil False Claims Act, Administrative False Claims Act, and any
state laws prohibiting kickbacks or certain referrals), or the regulations
promulgated pursuant to such laws, or that could result in a material debarment
or exclusion (i) under 21 U.S.C. Section 335a, (ii) under any similar state law
or regulation, or (iii) from participation in Medicare, Medicaid or any other
state or federal health care program

 

(g) There are no investigations, audits, actions or other proceedings pending or
threatened with respect to a violation by Seller or its Affiliates related to
the Business of any Health Care Law or any other legislation or regulation
promulgated by any other Governmental Authority that reasonably would be
expected to result in administrative, civil, or criminal liability, debarment or
exclusion.

 

3.28 Transferred Accounts Receivable. All accounts receivable included on
Schedule X hereto have arisen in the Ordinary Course of Business of the
Partnerships from bona fide transactions and represent valid obligations due to
the operations of the Partnerships in accordance with their terms and are not
subject to discount. The respective values of the accounts receivable reflected
in Schedule X reflect the carrying value of such accounts receivable consistent
with GAAP.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer represents and warrants to Seller that the statements contained in this
Article IV are correct and complete as of the date hereof:

 

4.1 Organization. Buyer is duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as it is now being conducted. Copies of the
Organizational Documents of Buyer have been made available to Seller and such
copies are complete and correct, except where the failure to have such power or
authority or to be duly qualified to do business does not and would not
reasonably be expected to materially adversely affect, restrict or delay the
ability of Buyer to consummate the transactions contemplated by this Agreement
and the other Transaction Agreements. Copies of the Organizational Documents
have been provided to Seller and such copies are complete and correct.

 

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4.2 Authorization; Enforceability. Buyer has all requisite corporate power and
authority to execute and deliver this Agreement and the other Transaction
Agreements, to perform its obligations hereunder and thereunder and, subject to
the conditions set forth herein and therein, to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement and the other Transaction Agreements by Buyer have been duly
authorized by all requisite corporate action on behalf of Buyer. This Agreement
has been and the other Transaction Agreements will be duly executed and
delivered by Buyer and, assuming the due authorization, execution and delivery
of this Agreement and the other Transaction Agreements by Seller or its
Subsidiaries, constitute or will constitute valid and binding obligations of
Buyer, enforceable against Buyer in accordance with their terms subject to (a)
the effect of any applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws relating to or affecting creditors’ rights and remedies
generally and (b) the effect of general equitable principles, regardless of
whether asserted in a proceeding in equity or at law.

 

4.3 No Conflict or Violation. The execution, delivery and performance by Buyer
of this Agreement and the other Transaction Agreements and the consummation by
Buyer of the transactions contemplated hereby and thereby, and compliance by
Buyer with, or fulfillment by Buyer of, the terms, conditions and provisions
hereof and thereof, do not and will not: (a) violate any provision of the
Organizational Documents of Buyer; (b) violate, conflict with or constitute or
result in (or with notice, lapse of time or both become) a default or a breach
under or result in the acceleration, termination or cancellation of (or entitle
any Person or give any Person the right to accelerate, terminate or cancel) any
obligation under any Contract to which Buyer is a party or by which any of the
assets or property of Buyer is bound, except for any of such matters or
consequences which would not reasonably be expected, individually or in the
aggregate, to materially adversely affect Buyer or to materially adversely
affect, restrict or delay the ability of Buyer to consummate the transactions
contemplated by this Agreement or the other Transaction Agreements; or (c)
contravene or violate any law, statute, rule or regulation applicable to Buyer
or any of its assets or properties, or any Governmental Order to which Buyer is
a party or by which Buyer or any of its assets or properties is bound, except
for any of such matters or consequences which do not and would not reasonably be
expected, individually or in the aggregate, to materially adversely affect Buyer
or materially adversely affect, restrict or delay the ability of Buyer to
consummate the transactions contemplated by this Agreement or other Transaction
Agreements.

 

4.4 Consents and Approvals. Except for the notification and waiting period
requirements of the HSR Act, the execution, delivery and performance by Buyer of
this Agreement or any of the other Transaction Agreements, the consummation by
Buyer of the transactions contemplated hereby and thereby and compliance by
Buyer with, or fulfillment by Buyer of, the terms, conditions and provisions
hereof and thereof do not and will not require the approval, consent,
authorization or act of, or the making by Buyer of any declaration, filing or
registration with, any Person or Governmental Authority except for any of such
approvals, consents, authorizations, declarations, filings or registrations that
do not and would not reasonably be expected to, individually or in the
aggregate, result in a Material Adverse Effect or materially adversely affect,
restrict or delay the ability of Buyer to consummate the transactions
contemplated by this Agreement.

 

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4.5 No Brokers, Finders, etc. Buyer has not paid nor will Buyer become obligated
to pay any fee or commission to any broker, finder or other intermediary for or
on account of the transactions contemplated by this Agreement.

 

4.6 Investment Intent. Buyer has such knowledge and experience in financial
matters that it is capable of evaluating the merits and risks of its purchase of
the HTO Interests. Buyer confirms that Seller, HTO and the Partnerships have
made available to Buyer the opportunity to ask questions of the officers and
management employees of HTO and the Partnerships and to acquire additional
information about the business and financial condition of HTO and the
Partnerships. Buyer is acquiring the HTO Interests for investment and not with a
view toward, or for sale in connection with, any distribution thereof, or with
any present intention of distributing or selling the HTO Interests. Buyer
acknowledges that the HTO Interests have not been registered under the
Securities Act, or the securities or “blue sky” laws of any state, and agrees
that the HTO Interests may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the Securities
Act, except pursuant to an exemption from such registration available under the
Securities Act, and without compliance with state and foreign securities laws in
each case, to the extent applicable.

 

4.7 No Outside Reliance. Buyer has performed its own analyses and investigation
of the Business, HTO and the Partnerships and their financial condition, assets
and liabilities. Buyer acknowledges that Seller is not making any representation
or warranty, express or implied, except those representations and warranties set
forth in this Agreement.

 

ARTICLE V

COVENANTS

 

The parties to this Agreement covenant and agree to take, and, to the extent
applicable pursuant to this Article V, with respect to Buyer, to cause HTO from
and after the Closing to take, the following actions:

 

5.1 Access; Investigation

 

(a) Seller agrees, and agrees to cause its Affiliates and representatives, to
keep confidential, not disclose to third parties and not use for its own
business benefit all nonpublic information in their possession regarding HTO or
any Partnership; provided, however that Seller and its Affiliates and
representatives will not be required to maintain as confidential any information
that (i) becomes generally available to the public other than as a result of
disclosure (A) by Seller and its Affiliates and representatives or (B) to the
knowledge of Seller, by any other Person in violation of a duty of
confidentiality between such Person and HTO or any Partnership, or (ii) is
required to be disclosed pursuant to the terms of a valid subpoena or other
requirement of Law and prior to such required disclosure, the disclosing party
provides reasonable advance notice to HTO and reasonable assistance in obtaining
confidential treatment of such information to the extent possible.

 

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(b) At the Closing, Seller shall assign to Buyer, to the extent assignable, its
rights under any confidentiality agreements between Seller and Persons other
than Buyer that were entered into in connection with, or relating to, a possible
sale of the Business, including without limitation, to the extent assignable,
the right to enforce all terms of such confidentiality agreements; provided,
however that to the extent such confidentiality agreements are not assignable,
Seller agrees to take such action as may be reasonably necessary to enforce its
rights thereunder for the benefit of HTO and the Partnerships, at Seller’s cost
and expense. At the Closing, Seller shall deliver to Buyer executed copies of
all such confidentiality agreements to the extent available and permitted under
such agreements. In addition, Seller will immediately request the return or
destruction of all nonpublic information provided by Seller, HTO or the
Partnerships or their respective representatives that is subject to such
confidentiality agreements.

 

(c) On and after the Closing Date, all original books and records of HTO and the
Partnerships shall remain with HTO and the Partnerships, respectively. If such
books and records are prior to the Closing Date located in the offices of Seller
or its Affiliates (other than HTO or the Partnerships), such books and records
shall be delivered to by such party to HTO on or prior to the Closing Date.
Except as otherwise provided in Section 7.2 with respect to Tax materials, Buyer
and Seller agree from and after the Closing, to hold all of the books and
records of HTO that relate to the period prior to the Closing Date, and not to
destroy or dispose of any such books or records, for a period of seven (7) years
from the Closing Date, and thereafter, if either party desires to destroy or
dispose of such books and records, to offer first in writing at least sixty (60)
days prior to such destruction or disposal to the other party (or to such
party’s successors, assigns or other designees) the right to inspect and/or copy
such books and records at such party’s expense.

 

5.2 Further Actions.

 

(a) Subject to the terms and conditions of this Agreement, each of the parties
hereto agrees to use its reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including using its reasonable best efforts: (i) to obtain any
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Authorities and parties to contracts with HTO or Seller
or any of its Subsidiaries as are required in connection with the consummation
of the transactions contemplated hereby; (ii) to effect all necessary
registrations and filings; (iii) to defend any lawsuits or other legal
proceedings, whether judicial or administrative, whether brought derivatively or
on behalf of third parties (including Governmental Authorities or officials),
challenging this Agreement or the consummation of the transactions contemplated
hereby; and (iv) to furnish to each other such information and assistance and to
consult with respect to the terms of any registration, filing, application or
undertaking as reasonably may be requested in connection with the foregoing.

 

(b) If, after the Closing Date, Seller or Buyer identifies any books, records or
other assets owned by Seller or its Affiliates that were in HTO’s or any
Partnership’s possession as of the Closing (which are not Acquired Assets) or
that were inadvertently transferred by Seller to Buyer, then Buyer agrees to
cause such asset to be transferred promptly to Seller for no additional
consideration. If, after the Closing Date, Seller or Buyer identifies any

 

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books, records or other assets in Seller’s or its Subsidiaries’ possession that
are owned by HTO or any Partnership or that Seller or its Subsidiaries failed to
transfer to Buyer at the Closing, Seller shall cause such assets to be promptly
transferred to Buyer for no additional consideration.

 

(c) Seller shall, or shall cause its Subsidiaries (as applicable) to, promptly
remit to Buyer any amounts received by it or them following the Closing in
payment of any account receivable included in the Acquired Assets.

 

5.3 Joint Public Announcement. Without limiting the terms of the Confidentiality
Agreement, except as required by applicable law or any stock exchange on which
the capital stock of Seller or Buyer or any of their Affiliates is listed and
provided that the disclosing party shall provide a copy of such release,
statement or announcement as far in advance of its public disclosure as is
reasonably practicable such that Buyer may provide comments thereto, no party to
this Agreement or the other Transaction Agreements shall issue any press
release, make any public announcement or statement or respond in writing to any
press inquiry with respect to this Agreement or the other Transaction Agreements
or the transactions contemplated hereby or thereby without the prior approval of
the other parties. Notwithstanding the foregoing, the parties shall issue
appropriate joint press releases, which shall be reasonably acceptable to Seller
and Buyer, with respect to the transactions contemplated by this Agreement and
the other Transaction Agreements following the execution and delivery of this
Agreement and the other Transaction Agreements and the consummation of the
transactions contemplated hereby and thereby.

 

5.4 Employee Matters.

 

(a) Buyer shall have no obligation to hire any of the Business Employees. Each
of the Business Employees whom Buyer or its Subsidiaries intend to hire are
listed on Schedule 5.4(a) hereto and shall be offered employment by the Buyer or
any of its Subsidiaries within an administratively reasonable period following
the Closing Date, to be effective as of the Closing, which offers may be
conditioned upon the active employment of such Business Employee by the Business
as of the Closing Date. Those employees who accept the offer of employment from
the Company or one of its Subsidiaries and commence active employment with the
Company or one of its Subsidiaries shall be referred to herein as “Transferred
Employees”.

 

(b) Seller shall not engage in any activity intended to discourage any Business
Employee from accepting an offer of employment from the Buyer or one of its
Subsidiaries.

 

(c) Seller shall provide continuation health care coverage as required under
COBRA to all individuals who are M&A qualified beneficiaries (within the meaning
assigned to such term under Q&A-4 of Treasury regulation Section 54.4980B-9)
with respect to the sale of the Business for the duration of the period to which
such individuals are entitled to such coverage. Seller shall comply with the
provisions of WARN and similar laws and regulations, if applicable, and shall be
solely responsible for any and all liabilities, penalties, fines or other
sanctions that may be assessed or otherwise due under such applicable laws and
regulations on account of the dismissal or termination of any of the Business
Employees as a result of, or in connection with, the sale of the Business
hereunder.

 

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The parties hereto acknowledge and agree that all provisions contained in this
Section 5.4 with respect to employees are included for the sole benefit of the
respective parties hereto and shall not create any right (i) in any other
Person, including, without litigation, any employees, former employees, any
participant in any Seller Plan or any beneficiary thereof or (ii) to continued
employment with Seller or Buyer.

 

5.5 Non-Disparagement. Both Buyer and Seller agree not to, and to cause their
respective Affiliates not to, at any time, on or after the Closing disparage any
other party hereto or their respective Affiliates or any business or operations
conducted by Buyer, HTO or the Partnerships prior to, or after the Closing.

 

5.6 Insurance. Following the Closing, Buyer and Seller shall cooperate, and
cause their Affiliates to cooperate with each other in submitting any claims on
behalf of Seller, Buyer, HTO or any of the Partnerships under any insurance
policies maintained by Seller, Buyer, HTO or the Partnerships with respect to
any loss, liability, damage, claim or expense relating to the Business
occurring, or arising from events occurring, prior to the Closing.

 

5.7 Non-Competition.

 

(a) In order that Buyer and its Affiliates may have and enjoy the full benefit
of the Business, Seller and its Affiliates agree that for a period of five (5)
years commencing on the Closing Date, neither Seller nor any of its Affiliates
will, without the express written approval of Buyer, directly or indirectly
engage in, manage, own, operate, invest in, acquire or loan money to, any
business which is a Competing Business. Notwithstanding the foregoing, the
provisions of this Section 5.7(a) shall not restrict Seller or any of its
Affiliates from acquiring and operating any Competing Business so long as Seller
or such Affiliate divests all or a portion of the Competing Business conducted
by such Person within six months of such transaction such that an acquisition by
Seller or such Affiliate of the retained portion of the Competing Business would
be permissible under the terms of this Section 5.7(a); provided that Seller or
such Affiliate shall, at least thirty (30) days prior to such divestiture,
deliver an offer notice to Buyer containing the price and terms of such
divestiture. Such offer notice shall be deemed to be an offer of the Competing
Business to Buyer on the same terms and conditions as proposed by such third
party. Buyer shall first have the right, but not the obligation, to purchase all
or a portion of the Competing Business specified in the offer notice at the
price and on the terms specified therein by delivering written notice of such
election to Seller or such Affiliate within thirty (30) days after the delivery
of the offer notice.

 

(b) If Buyer (or a transferee of Buyer) transfers, directly or indirectly, by
sale of stock, merger, sale of assets or otherwise, any part of the Business to
one or more third parties, Seller’s agreements in this Section 5.7 shall
continue with respect to such third party transferees and each transferee shall
have the same rights as Buyer hereunder. The parties agree that the remedy at
law for any breach of any obligation under this Section 5.7 will be inadequate
and that in addition to any other rights and remedies to which they may be
entitled hereunder, at law or in equity, Buyer and its transferees shall be
entitled to injunctive relief and

 

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reimbursement for all reasonable attorney’s fees and other expenses incurred in
connection with the enforcement hereof. In the event this Section 5.7 is held to
be in any respect an unreasonable restriction upon Seller or any of its
Affiliates by any court having competent jurisdiction, the court so holding may
reduce the territory to which this Section 5.7 pertains and/or the period of
time for which it operates, or effect any other change to the extent necessary
to render this Section 5.7 enforceable by such court. As so modified this
Section 5.7 will continue in full force and effect. Such decision by a court of
competent jurisdiction shall not invalidate this Agreement, but this Agreement
shall be interpreted, construed and enforced as not containing such invalidated
provision.

 

(c) For purposes of this Section 5.7, “Competing Business” means any Person
engaged in the business of developing, marketing, providing treatments and
selling non-invasive surgical solutions by shock wave technology for treatment
of (i) skin wounds in humans and animals or (ii) any condition in animals.

 

5.8 Transition Services Agreement. On the Closing Date, Seller and Buyer shall
execute and deliver a transition services agreement (the “Transition Services
Agreement”), pursuant to which Seller and Buyer shall each agree to provide
certain transition services and information sharing and transfer services.

 

5.9 License Agreement. On the Closing Date, Seller and Buyer shall execute and
deliver a license agreement (the “License Agreement”), pursuant to which Buyer
shall provide a limited license to Seller under the Multi-Product Patent Rights.

 

5.10 Anti-Dilution. Prior to an Initial Public Offering, if Buyer shall (other
than in connection with the issuance of Common Stock or Common Stock Equivalents
to employees, officers, directors, consultants or agents of Buyer or any of its
direct or indirect Subsidiaries with respect to any employee benefit plan,
incentive award program or other compensation arrangement) (A) issue any Common
Stock at a price per share less than Fair Market Value for such Common Stock,
(B) issue any Common Stock Equivalents at a price per share less than Fair
Market Value for such Common Stock or (C) enter into any contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance
of any Common Stock or Common Stock Equivalents at a price per share less than
Fair Market Value, prior to taking any such action described in the foregoing
clause (A), (B) or (C), Buyer shall deliver a notice to Seller stating the
number of shares of Common Stock or Common Stock Equivalents proposed to be
issued and the price and other material terms on which it proposes to issue such
Common Stock or Common Stock Equivalents. Within ten (10) days after receipt of
such notice, Seller may elect to purchase that number of shares of Common Stock
(or Buyer Share Equivalents, as the case may be) at the same purchase price as
the price for the additional Common Stock (or Buyer Share Equivalents) to be
issued so that, after the issuance, all of such Common Stock (or Buyer Share
Equivalents), together with all Common Stock (or Buyer Share Equivalents) to be
issued pursuant to this Section 5.10 in connection therewith, Seller would, in
the aggregate, hold the same proportional interest of the outstanding Common
Stock (assuming, in the case of an issuance of Buyer Share Equivalents, the
conversion, exercise or exchange thereof) as was held by Seller prior to the
issuance of such additional Common Stock (or Buyer Share Equivalents).

 

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5.11 Use of Name.

 

(a) Seller agrees for itself and its Affiliates that they shall cease all use of
the name and mark “OssaTron,” “ReflecTron,” “EquiTron,” “EvoTron” and
“VersaTron” and/or any names or marks confusingly similar thereto after the
Closing.

 

(b) Until the date that is eighteen (18) months from the date hereof, Seller and
its Affiliates hereby grant to Buyer a worldwide, nontransferable, paid-up,
irrevocable license and right to use “a former HealthTronics company.”

 

5.12 Permits; Certain Regulatory Matters.

 

(a) Seller agrees, and shall cause its Subsidiaries, to cooperate with Buyer and
to take all actions reasonably necessary, at Seller’s reasonable expense, to
bring into compliance any Governmental Permits listed on Schedule 3.11 hereto as
promptly as practicable following the Closing.

 

(b) Seller agrees, and shall cause its Subsidiaries, to cooperate with Buyer and
to take all actions reasonably necessary, to bring into compliance any items
described on Schedule 3.27 pursuant to Section 3.27(b) hereto as promptly as
practicable following the Closing. Seller agrees to share equally any expenses
(including with respect to consultants and advisors) relating thereto with
Buyer; provided, however, that Buyer and Seller mutually agree with respect to
the choice of any consultant and advisor, such agreement not to be unreasonably
withheld.

 

5.13 Tax Matters.

 

(a) Section 754 Election. Set forth on Schedule 5.13(a) is a list indicating
whether each of HTO and the Partnerships has in effect, as of the Closing Date,
a valid election under Section 754 of the Code. Seller has provided a copy of
each such election to Buyer.

 

(b) FIRPTA Certificate. On or prior to the Closing Date, Buyer shall have
received from Seller a certificate in compliance with Treasury Regulation
Section 1.1445-2(b), certifying that Seller is not a “foreign person” under
Section 1445 of the Code.

 

5.14 ELC 114. Seller agrees that it will promptly following the Closing conduct
a joint inspection, with one or more of Buyer’s representatives present, of each
item of machinery, each tool and each item of other equipment that is used or
can be used in the production and refurbishment of ELC 114 electrodes (an
“Equipment Item”). Seller agrees that in the event that it is discovered that
Seller or its Affiliates own more than one of the same Equipment Item that
fulfills the same purpose, Seller will assign to Buyer, at no additional
consideration, one of those Equipment Items, such that Seller retains at least
one entire set of Equipment Items in good working order and repair. Furthermore,
subject to the terms of the License Agreement, Seller will upon request by Buyer
provide advice and consultation to assist Buyer in developing the manufacturing
capabilities for the ELC 114.

 

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5.15 Certain Additional Assets. Seller and Buyer agree that, promptly following
the Closing Seller will sell to Buyer, and Buyer will purchase from Seller,
those Versatrons, Versatrodes and Evotrodes included on Schedule 2.2(d) under
“Other Excluded Assets,” at the invoice price charged to Seller and as agreed
upon by Buyer and Seller.

 

ARTICLE VI

INDEMNIFICATION

 

6.1 Survival of Representations, Etc. All of the representations, warranties,
covenants and indemnities set forth in this Agreement or in any certificate,
document or other instrument delivered at the Closing in connection with this
Agreement or contemplated by this Agreement shall survive the Closing
indefinitely, except that (a) except as otherwise expressly set forth in this
Section 6.1, the representations and warranties of Seller set forth in this
Agreement shall survive until the date 24 months after the Closing Date; (b) the
representations and warranties of Seller set forth in Section 3.15
(Environmental) and 3.16 (Intellectual Property) shall survive the

 

Closing for a period of five (5) years; (c) the representations and warranties
of Seller set forth in Sections 3.1 (Organization), 3.2 (Capitalization), 3.4
(Authorization; Enforceability), 3.20 (Contracts with Affiliates) 3.21
(Brokers), 4.1 (Organization), 4.2 (Authorization) and 4.5 (Brokers) shall
survive the Closing indefinitely and (d) the representations and warranties set
forth in Sections 3.18 (Taxes) and 3.19 (Employee Benefits) shall survive the
Closing until sixty (60) days after the expiration of the applicable statute of
limitations, giving effect to any extension (whether automatic or permissive) of
such period. The expiration of any representation or warranty as provided in
this Section 6.1 shall preclude any indemnity with respect thereof under this
Article VI from and after the time such representation, warranty or covenant
shall have expired; provided, however, that the expiration of any such
representation or warranty shall not affect the rights of any party in respect
of any such indemnity claim therefor as to which valid notice thereof has been
given under this Article VI prior to the expiration of the applicable survival
period provided in this Section 6.1.

 

6.2 Indemnification by Seller

 

(a) From and after the Closing, Seller shall indemnify, defend, save and hold
harmless Buyer, its Affiliates (including without limitation, HTO and the
Partnerships) and the successors of the foregoing and their respective
Representatives (collectively, the “Buyer Indemnified Parties”), from and
against any and all Losses sustained or incurred by any Buyer Indemnified Party
and arising out of in connection with or relating to (i) any misrepresentation
or breach of warranty given or made by Seller in this Agreement; (ii) any breach
of or failure to perform any covenant or agreement made by Seller in this
Agreement or in the other Transaction Agreements; (iii) any liabilities, other
than Assumed Liabilities, arising out of or pertaining to actions or omissions
prior to the Closing, insofar as they relate to the Business, including, without
limitation, any Losses arising out of or related to any of the patents described
on Schedule 6.2 hereto or the dissolution, merger, consolidation, restructuring
or cessation of operations of any Subsidiary (including any such Subsidiary
involved in the operation of the Business) or Partnership prior to the Closing
Date; (iv) the Excluded Liabilities (including any liability of Seller or its
Affiliates that becomes a liability of Buyer under any bulk transfer law of

 

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any jurisdiction, under any common law doctrine of de factor merger or successor
liability, or otherwise by operation of law); and (v) the ownership or operation
of any Excluded Assets. Solely for purposes of determining the amount of any
Losses arising out of, relating to or resulting from any breach of any
representation or warranty, the representations and warranties of Seller or
Buyer, as the case may be, shall be considered without giving effect to any
limitation or qualifications as to “knowledge,” “materiality,” “Material Adverse
Effect” or any other derivation of the word “material”.

 

(b) Notwithstanding anything to the contrary contained in this Agreement, (i)
(except a claim for Losses related to Sections 3.1 (Organization), 3.2
(Capitalization), 3.18 (Taxes), each of which shall not be subject to this
Section 6.2(b)), no indemnification under Section 6.2(a)(i) shall be made by
Seller, and Seller shall not have any liability therefor, unless and until the
aggregate amount of Losses subject to indemnification by Seller pursuant thereto
shall exceed $125,000, and once such threshold amount is exceeded Seller shall
indemnify the Buyer Indemnified Parties, and shall be liable, only for the
amount of any such Losses in excess of such threshold amount, (ii) the aggregate
amount required to be paid by Seller pursuant to Section 6.2(a)(i) shall not
exceed $7,000,000 plus the amounts actually received by Seller under the First
Note and the Second Note, and Seller shall not indemnify the Buyer Indemnified
Parties pursuant to Section 6.2(a)(i) and shall not have any liability to any
Buyer Indemnified Party for, and the Buyer Indemnified Parties shall have no
right to recover from Seller pursuant to Section 6.2(a)(i), any amount of Losses
which exceeds (and from and after the time Losses exceed) such amount. For the
avoidance of doubt, the limitations on indemnification set forth in this Section
6.2(b) shall not apply to Losses sustained or incurred by any Buyer Indemnified
Party pursuant to subsections (ii), (iii), (iv) or (v) of Section 6.2(a).

 

6.3 Indemnification by Buyer.

 

(a) From and after the Closing, Buyer shall indemnify, defend, save and hold
harmless Seller, its Affiliates and their respective Representatives
(collectively, the “Seller Indemnified Parties”) from and against any and all
Losses incurred by any Seller Indemnified Party and arising out of or resulting
from (i) any misrepresentation or breach of warranty given or made by Buyer in
this Agreement or the other Transaction Agreements; (ii) any breach of or
failure to perform any covenant or agreement made by Buyer in this Agreement or
the other Transaction Agreements; and (iii) the ownership or operation after the
Closing of the Business, except, with respect to this Section 6.3, to the extent
to which any Buyer Indemnified Party is entitled to indemnification by Seller as
to such Losses pursuant to Section 6.2, or would be entitled to such
indemnification but for the limits on survival set forth in Section 6.1. Any
payments pursuant to Section 6.2 or this Section 6.3 shall be treated as an
adjustment to the Final Purchase Price for Tax purposes.

 

(b) Notwithstanding anything to the contrary contained in this Agreement (except
a claim for Losses related to Sections 4.1, 4.2 and 4.5, each of which shall not
be subject to this Section 6.3(b)), (i) no indemnification under Section
6.3(a)(i) shall be made by Buyer, and Buyer shall not have any liability
therefor, unless and until the aggregate amount of Losses subject to
indemnification by Buyer pursuant thereto shall exceed $125,000, and once such
threshold amount is exceeded Buyer shall indemnify the Seller Indemnified
Parties, and shall be liable, only for the amount of any such Losses in excess
of such threshold amount, (ii)

 

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the aggregate amount required to be paid by Buyer pursuant to Section 6.3(a)(i)
shall not exceed $7,000,000, plus the amounts actually received by Seller under
the First Note and the Second Note, and Buyer shall not indemnify the Seller
Indemnified Parties pursuant to Section 6.3(a)(i) and shall not have any
liability to any Seller Indemnified Party for, and the Seller Indemnified
Parties shall have no right to recover from Buyer pursuant to Section 6.3(a)(i),
any amount of Losses which exceeds (and from and after the time Losses exceed)
such amount. For the avoidance of doubt, the limitations on indemnification set
forth in this Section 6.3(b) shall not apply to Losses sustained or incurred by
any Seller Indemnified Party pursuant to subsections (ii) or (iii) of Section
6.3(a).

 

6.4 Notice of Indemnity Claims. If any Buyer Indemnified Party or Seller
Indemnified Party entitled to or seeking indemnification hereunder (an
“Indemnified Party”) (a) determines that any event, occurrence, fact, condition
or Claim has given or could give rise to Losses for which such Indemnified Party
is or may be entitled to, or may seek, indemnification under this Agreement, (b)
otherwise identifies an event, occurrence, fact, condition or Claim giving rise
(or which may give rise) to a right of indemnification hereunder in favor of
such Indemnified Party, or (c) with respect to any Third Party Claim, becomes
aware of the assertion of any Claim or of the commencement of any action, suit
or proceeding at law or in equity (any of the foregoing, an “Indemnity Claim”),
such Indemnified Party shall promptly notify the party obligated to provide
indemnification or from whom indemnification is being or will be sought (the
“Indemnifying Party”) in writing of such Indemnity Claim (a “Claim Notice”)
describing in reasonable detail the facts giving rise to the claim for
indemnification under this Agreement and shall include in such Claim Notice (if
then known) the amount or the method of computation of the amount of such claim,
and a reference to the provision of this Agreement or any other agreement,
document or instrument executed hereunder or in connection with this Agreement
upon which such claim is based; provided, however, that the failure of any
Indemnified Party to give timely notice thereof shall not affect any of its
rights to indemnification hereunder nor relieve the Indemnifying Party from any
of its indemnification obligations hereunder, except to the extent the
Indemnifying Party is materially prejudiced by such failure. Any Claim Notice
not relating to a Third Party Claim shall specify the nature of the Loss and the
estimated amount thereof. After the giving of any Claim Notice pursuant to this
Agreement, the amount of indemnification to which an Indemnified Party shall be
entitled under this Article VI shall be determined: (a) by the written agreement
between the Indemnified Party and the Indemnifying Party; (b) by a final
judgment or decree of any court of competent jurisdiction; or (c) by any other
means to which the Indemnified Party and the Indemnifying Party shall agree. The
judgment or decree of a court shall be deemed final when the time for appeal, if
any, shall have expired and no appeal shall have been taken or when all appeals
taken shall have been finally determined.

 

6.5 Indemnification Procedures. Any obligation to provide indemnification
hereunder with respect to any action, suit or proceeding at law or in equity by
or against any third party, including any Governmental Authority (a “Third Party
Claim”), shall be subject to the following terms and conditions:

 

(a) Upon receipt of a Claim Notice in respect of any such Third Party Claim, the
Indemnifying Party shall be entitled, at its option and its sole cost and
expense and upon written notice to the Indemnified Party within fifteen (15)
days of its receipt of such

 

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Claim Notice, to assume and control the defense, compromise, settlement and
investigation of such Indemnity Claim, including the management of any
proceeding relating thereto, and to employ and engage counsel reasonably
acceptable to the Indemnified Party; provided, however, that if there exists a
conflict of interest (other than one of a monetary nature) or if the Indemnified
Party has been advised by counsel that there may be one or more legal or
equitable defenses available to it that are different from or additional to
those available to the Indemnifying Party, which, in either case, would make it
inappropriate for the same counsel to represent both the Indemnifying Party and
the Indemnified Party, then the Indemnified Party shall be entitled to retain
its own counsel at the reasonable cost and expense of the Indemnifying Party
(except that the Indemnifying Party shall not be obligated to pay the fees and
expenses of more than one separate counsel for all Indemnified Parties, taken
together).

 

(b) In the event the Indemnifying Party (i) exercises the right to undertake the
defense and investigation of any such Indemnity Claim as provided in Section
6.5(a), (A) the Indemnified Party may, at its sole cost and expense (subject to
Section 6.5(a)), participate in the defense of such Indemnity Claim, (B) the
Indemnified Party agrees to cooperate with the Indemnifying Party in such
efforts and make available to the Indemnifying Party all witnesses, records,
materials and information in the Indemnified Party’s possession, under its
control or to which it may have access as may be reasonably required by the
Indemnifying Party, and (C) the Indemnifying Party will keep the Indemnified
Party reasonably informed of the progress of the defense of any such Indemnity
Claim, or (ii) fails to so assume the defense and investigation of any such
Indemnity Claim as provided in Section 6.5(a), (A) the Indemnified Party against
which such Indemnity Claim has been asserted shall have the right to undertake
the defense, compromise, settlement and investigation of such Indemnity Claim on
behalf of, and at the cost and expense of and for the account and risk of the
Indemnifying Party, (B) the Indemnifying Party agrees to cooperate with the
Indemnified Party in such efforts and make available to the Indemnifying Party
all witnesses, records, materials and information in the Indemnified Party’s
possession, under its control or to which it may have access as may be
reasonably required by the Indemnifying Party, and (C) the Indemnified Party
will keep the Indemnifying Party reasonably informed of the progress of the
defense of any such Indemnity Claim.

 

(c) Notwithstanding the foregoing, an Indemnified Party shall have the right to
jointly control the defense of any claim or demand against such Indemnified
Party in the event the potential Losses with respect to such Indemnity Claim,
when aggregated with all other satisfied or pending Losses subject to
indemnification pursuant to Section 6.2 or 6.3 hereof exceed the limits set
forth in Section 6.2(b), in the case of any Seller or in Section 6.3, in the
case of Buyer.

 

6.6 Settlement of Indemnity Claims. The Indemnifying Party shall not, without
the prior written consent of the Indemnified Party, (a) settle or compromise any
Indemnity Claim or consent to the entry of any final judgment which does not
include as an unconditional term thereof the delivery by the claimant or
plaintiff of a written release or releases from all liability in respect of such
Indemnity Claim of all Indemnified Parties affected by such Indemnity Claim, or
(b) settle or compromise any Indemnity Claim if the settlement imposes equitable
remedies, material obligations on the Indemnified Party other than financial
obligations for which such Indemnified Party will be indemnified hereunder, or
in any way

 

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restricts or adversely affects the future conduct or activity of the Indemnified
Party or any Affiliate thereof. No Indemnity Claim shall be settled or
compromised by the Indemnified Party without the prior written consent of the
Indemnifying Party which consent shall not be unreasonably withheld, conditioned
or delayed.

 

6.7 Exclusivity of Indemnification Remedy. Except for any equitable relief,
including injunctive relief or specific performance, to which any party to this
Agreement may be entitled, the indemnification provided in this Article VI shall
be the sole and exclusive remedy of any party with respect to this Agreement or
the transactions contemplated by this Agreement, except with respect to any
Losses incurred by any party as a result of fraud on the part of the other
party.

 

ARTICLE VII

TAX MATTERS

 

7.1 Liability and Indemnification for Taxes

 

(a) To the extent permitted by law, Seller (or the appropriate member of the
Seller Tax Group) shall claim all Tax deductions arising by reason of exercises
of options to acquire Seller’s stock held by employees of the Business. If all
or any part of a tax deduction claimed pursuant to this Section 7.1(a) is
disallowed to Seller (or any member of the Seller Tax Group), to the extent
permitted by law, Buyer shall claim such Tax deduction. Seller shall withhold
applicable Taxes and satisfy applicable Tax reporting obligations with respect
to exercises of options to acquire Seller’s stock held by employees of the
Business. If Buyer (or any Affiliate of Buyer) actually realizes any Tax benefit
(assuming such Tax benefit is realized after the use of all other losses,
deductions, credits or items of Buyer or such Affiliate of Buyer) in any Taxable
Period as a result of any deduction claimed by Buyer pursuant to this Section
7.1(a), Buyer shall pay the amount of such Tax benefit in such Taxable Period to
Seller; provided that Seller does not otherwise realize a related Tax benefit
(such as an adjustment to the amount of gain or loss recognized by Seller upon
the sale of the HTO Interests to Buyer) in connection with such exercises of
options.

 

(b) All transfer and other similar Taxes (including, without limitation, real
and personal property transfer taxes) incurred in connection with the
transactions contemplated by this Agreement shall be borne by Seller.

 

7.2 Assistance and Cooperation. After the Closing Date, Seller and Buyer shall
(and shall cause their respective Affiliates to):

 

(a) timely assist the other party in preparing any Tax Returns of HTO or the
Partnerships or with respect to the Acquired Assets and the Business;

 

(b) timely cooperate fully in preparing for any audits of, or disputes with
Taxing Authorities regarding, any Tax Returns of HTO or the Partnerships or with
respect to the Acquired Assets and the Business, including making employees
available on a mutually convenient basis to testify at any proceeding;

 

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(c) make available to the other party and to any Taxing Authority in a timely
manner as reasonably requested all information, records, databases and documents
relating to Taxes of HTO or the Partnerships or with respect to the Acquired
Assets and the Business;

 

(d) within thirty (30) days of the receipt of a written request therefor,
furnish the other with copies of all correspondence received from any Taxing
Authority in connection with any Tax audit or information request with respect
to any Taxable Period for which the other may have a liability;

 

(e) timely sign and deliver such certificates or forms as may be necessary or
appropriate to establish an exemption from (or otherwise reduce), or file Tax
Returns or other reports with respect to, Taxes; and

 

(f) use reasonable best efforts to properly retain and maintain accounting and
Tax records and information, in a timely manner consistent with Taxing Authority
guidelines, to the extent such records and information relate to HTO, the
Partnerships or the Acquired Assets or the Business until ninety (90) days
following the expiration of the applicable statute of limitations period, and
promptly notify the other prior to the destruction of any such Tax records or
information and provide the other party a reasonable opportunity to make and
retain copies of any such Tax records or information.

 

7.3 Confidentiality of Tax Information. Unless otherwise required by law, stock
exchange regulation or legal proceedings, each party shall, and shall cause its
Representatives to, keep confidential any non-public Tax information, records
and documents disclosed by the other party, or to which such party has received
or been granted access, pursuant to this Article VII and will not use such Tax
information for any purpose other than making the determinations and taking such
other actions contemplated by this Article VII.

 

7.4 Termination of Tax Sharing Agreements. Any Tax sharing agreement or
arrangement to which HTO or any of the Partnerships is a party shall be
terminated or amended as of or prior to the Closing Date and, from and after the
Closing Date, none of HTO nor the Partnerships shall be bound thereby or have
any liability thereunder.

 

ARTICLE VIII

GENERAL PROVISIONS

 

8.1 Expenses. Except as otherwise provided in this Agreement or the other
Transaction Agreements, each party to this Agreement shall pay all of its own
costs and expenses incident to its negotiation and preparation of this Agreement
and to its performance and compliance with all terms, agreements, covenants and
conditions contained in this Agreement and the other Transaction Agreements on
its part to be performed or complied with, including the fees, expenses and
disbursements of its counsel and accountants. Notwithstanding the foregoing, (a)
Seller will be solely responsible for all the fees and expenses incurred by HTO
or the Partnerships prior to Closing in connection with the negotiation,
execution, delivery and performance of this Agreement and the other Transaction
Agreements and (b) Buyer and Seller shall share equally any and all consulting
expenses and travel expenses incurred in connection with the transactions
contemplated hereby and relating to compliance by Buyer with FDA regulations.

 

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8.2 Notices. All notices and other communications given or made pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given or
made (i) five business days after being sent by registered or certified mail,
return receipt requested, (ii) upon delivery, if hand delivered, (iii) one
business day after being sent by prepaid overnight courier with guaranteed
delivery, with a record of receipt, or (iv) upon transmission with confirmed
delivery if sent by cable, telegram, facsimile or telecopy, to the parties at
the following addresses (or at such other addresses as shall be specified by the
parties by like notice); provided that each party shall be required to transmit
such notice by facsimile:

 

(a) if to Buyer:

 

SanuWave, Inc.

44 Montgomery Street, Suite 860

San Francisco, California 94104

Attention: Chris Puscasiu

Facsimile No.: (617) 507-0438

 

        with a copy to:

 

Simpson Thacher & Bartlett LLP

3330 Hillview Avenue

Palo Alto, California 94304

Attention: Michael J. Nooney

Facsimile No.: (650) 251-5002

 

(b) if to Seller:

 

HealthTronics, Inc.

1301 S. Capital of Texas Hwy., Suite B-200

Austin, Texas 78746

Attention: James Whittenburg

Facsimile No.: (512) 314-4305

 

8.3 Severability. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but in case any one or more of the provisions contained in this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision or provisions had never been
contained in this Agreement unless the deletion of such provisions or provisions
would result in such a material change as to cause completion of the
transactions contemplated by this Agreement to be unreasonable.

 

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8.4 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be considered an original instrument, but all of which shall
be considered one and the same agreement, and shall become binding when one or
more counterparts have been executed and delivered by each of the parties. Such
execution and delivery may be evidenced by an exchange of facsimile or
telegraphic communications or any other rapid transmission device designed to
produce a written record of communications transmitted.

 

8.5 Assignment; Successors and Assigns. Neither this Agreement nor any of the
rights, interest or obligations hereunder shall be assigned by either party to
this Agreement without the prior written consent of the other party; provided,
however, Buyer may assign any or all if its rights and obligations under this
Agreement to any affiliate of Buyer, or to a lender of Buyer as collateral for
indebtedness, or in connection with a merger, consolidation, conversion or sale
of assets of Buyer (provided that no such assignment shall release Buyer from
any obligation under this Agreement). Any purported assignment not in compliance
with this Section 8.5 shall be null and void. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties to this
Agreement and their respective successors or assigns, heirs, legatees,
distributees, executors, administrators and guardians.

 

8.6 No Third Party Beneficiaries. Except as provided in Section 5.5 and Article
VI, nothing in this Agreement, express or implied, is intended to or shall
confer upon any other Person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.

 

8.7 Descriptive Headings. Titles and headings to Articles and Sections in this
Agreement are inserted for convenience of reference only and are not intended to
be a part of or to affect the meaning or interpretation of this Agreement.

 

8.8 Schedules and Exhibits; Construction of Certain Provisions. The Schedules
and Exhibits referred to in this Agreement shall be construed with and as an
integral part of this Agreement to the same extent as if the same had been set
forth in their entirety in this Agreement. Each disclosure in the Disclosure
Schedule shall be deemed to qualify all representations and warranties of
Seller, notwithstanding the lack of a specific cross-reference, except to the
extent that its applicability to a particular representation, warranty,
agreement or condition is not reasonably apparent from the disclosure thereof.
Buyer acknowledges that the disclosure or inclusion of any specific agreement,
document, instrument, report, item, fact or event by Seller in the Disclosure
Schedule shall not create any implication or constitute any admission by Seller
or its Affiliates or their respective Representatives that such agreement,
document, instrument, report, item, fact or event is material to the Business,
HTO or to the Partnerships or their respective financial condition, businesses,
operations, liabilities, assets or properties or would constitute a Material
Adverse Effect. Buyer further acknowledges that the specification of any dollar
amount in the representations and warranties contained in this Agreement or in
the Disclosure Schedule is not intended to imply that such amount or higher or
lower amounts are or are not material. Buyer shall not use the fact of any
disclosure or inclusion of any such agreement, document, instrument, report,
item, fact or event in the Disclosure Schedule or the setting of such amounts in
any dispute or controversy between the parties as to whether any obligation,
item or matter not described in this Agreement or included in the Disclosure
Schedule is or is not material for purposes of this Agreement.

 

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8.9 No Implied Representation. Except as expressly set forth in Article III or
any other provision of this Agreement, Seller makes no representation or
warranty whatsoever, express or implied, in respect of Seller, HTO or the
Partnerships.

 

8.10 Waivers. Any term or provision of this Agreement may be waived, or the time
for its performance may be extended, by the party or parties entitled to the
benefit thereof. Except as provided in Section 6.1, the failure of any party to
this Agreement to enforce at any time any provision of this Agreement shall not
be construed to be a waiver of such provision, nor in any way to affect the
validity of this Agreement or any part of this Agreement or the right of any
party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.

 

8.11 Governing Law; Jurisdiction; Waiver of Jury Trial.

 

(a) THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED
ENTIRELY WITHIN THAT STATE.

 

(b) Each of the parties to this Agreement irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any
California state court, or Federal court of the United States of America,
sitting in the Northern District of California, and any appellate court to any
thereof, in any action or proceeding arising out of or relating to this
Agreement or the agreements delivered in connection with this Agreement or the
transactions contemplated by this Agreement or by the agreements delivered in
connection with this Agreement or for recognition or enforcement of any judgment
relating thereto, and each of the parties irrevocably and unconditionally (i)
agrees not to commence any such action or proceeding except in such courts, (ii)
agrees that any claim in respect of any such action or proceeding may be heard
and determined in such California state court or, to the extent permitted by
law, in such Federal court, (iii) waives, to the fullest extent it may legally
and effectively do so, any objection which it may now or hereafter have to the
laying of venue of any such action or proceeding in any such California state or
Federal court, and (iv) waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such California state or Federal court. Each of the parties to this
Agreement agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Each party to this Agreement irrevocably
consents to service of process in the manner provided for notices in Section
8.2. Nothing in this Agreement will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.

 

(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A

 

48

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TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION
WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OF
THE AGREEMENTS DELIVERED IN CONNECTION WITH THIS AGREEMENT. EACH PARTY CERTIFIES
AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (ii) IT
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES
SUCH WAIVERS VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 8.11.

 

8.12 Enforcement. The parties to this Agreement agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to specifically enforce
the terms and provisions of this Agreement, in addition to any other remedy to
which any party is entitled at law or in equity.

 

8.13 Entire Agreement; Amendments; Electronic Signatures. This Agreement,
including the Schedules and Exhibits, and the Confidentiality Agreement contains
the entire understanding of the parties to this Agreement with regard to the
subject matter contained in this Agreement. This Agreement may only be amended,
modified or supplemented by written agreement of the parties. No agreement made
through the use of electronic records or electronic signatures, as those terms
are used in the Electronic Signatures in Global and National Commerce Act, 15
U.S.C. Section 7001 et. seq., or the Delaware Uniform Electronic Transactions
Act, 6 Del. C. Section 12A-101 et. seq., shall be enforceable or binding on
either party to this Agreement.

 

8.14 Construction; Joint Drafting. The parties acknowledge that they have
participated jointly in the negotiation and drafting of this Agreement and, in
the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed consistent with the joint drafting of this
Agreement by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.

 

{Signature page follows}

 

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IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement to
be executed as of the day and year first above written.

 

“Seller” HEALTHTRONICS, INC. By:  

/s/ James Whittenburg

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Name:   James Whittenburg Title:  

Senior Vice President Development,

General Counsel and Secretary

“Buyer” SANUWAVE, INC. By:  

/s/ Christian Puscasiu

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

Name:   Christian Puscasiu Title:   President

 

SIGNATURE PAGE TO PURCHASE AGREEMENT

 

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