Document:

exv10w1

 

Exhibit 10.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

AMERICAN MEDICAL SYSTEMS, INC.

OAK MERGER CORP.

OVION INC.

AND

THE OTHER PARTIES HERETO

DATED AS OF JUNE 3, 2005

 

 

Table of Contents

	 	 	 	 	 
	 	 	Page	 
	ARTICLE 1 THE MERGER; CONVERSION OF SHARES
	 	 	1	 
	1.1 The Merger
	 	 	1	 
	1.2 Effective Time
	 	 	1	 
	1.3 Closing of the Merger
	 	 	2	 
	1.4 Effects of the Merger
	 	 	2	 
	1.5 Certificate of Incorporation of the Surviving Corporation
	 	 	2	 
	1.6 Bylaws of the Surviving Corporation
	 	 	2	 
	1.7 Directors and Officers of the Surviving Corporation
	 	 	2	 
	1.8 Initial Merger Consideration
	 	 	3	 
	1.9 Contingent Merger Consideration
	 	 	4	 
	1.10 Cancellation and Conversion of Company Securities at the Effective Time
	 	 	6	 
	1.11 Dissenting Shares
	 	 	7	 
	1.12 Escrow Procedure; Exchange of Certificates
	 	 	8	 
	 
	 	 	 	 
	ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL STOCKHOLDERS
	 	 	10	 
	2.1 Corporate Organization and Power
	 	 	10	 
	2.2 Subsidiaries
	 	 	11	 
	2.3 Authorization
	 	 	11	 
	2.4 Capitalization of the Company
	 	 	11	 
	2.5 Non-Contravention
	 	 	12	 
	2.6 Consents and Approvals
	 	 	12	 
	2.7 Financial Statements; Undisclosed Liabilities
	 	 	13	 
	2.8 Absence of Certain Changes
	 	 	13	 
	2.9 Assets and Properties
	 	 	15	 
	2.10 Manufacturing and Marketing Rights
	 	 	15	 
	2.11 FDA and Regulatory Matters
	 	 	16	 
	2.12 Reimbursement/Billing
	 	 	17	 
	2.13 Compliance with Applicable Laws
	 	 	18	 
	2.14 Compliance Program
	 	 	18	 
	2.15 Permits
	 	 	18	 
	2.16 Inventories
	 	 	18	 
	2.17 Litigation
	 	 	19	 
	2.18 Contracts
	 	 	19	 
	2.19 Benefit Plans
	 	 	21	 
	2.20 Labor and Employment Matters
	 	 	25	 
	2.21 Intellectual Property
	 	 	26	 
	2.22 Environmental Compliance
	 	 	27	 
	2.23 Insurance
	 	 	28	 
	2.24 Tax Matters
	 	 	28	 
	2.25 Bank Accounts; Powers of Attorney
	 	 	30	 
	2.26 Commitments
	 	 	31	 

i

 

Table of Contents

(continued)

	 	 	 	 	 
	 	 	Page	 
	2.27 Product Liability Claims
	 	 	31	 
	2.28 No Sales or Warranties
	 	 	31	 
	2.29 Relations with Suppliers
	 	 	31	 
	2.30 Indemnification Obligations
	 	 	31	 
	2.31 Absence of Certain Business Practices
	 	 	31	 
	2.32 Brokers
	 	 	32	 
	2.33 Minute Books
	 	 	32	 
	2.34 Business Generally
	 	 	32	 
	2.35 Stockholder Agreements
	 	 	32	 
	2.36 Disclosure
	 	 	32	 
	2.37 Investigation by Parent
	 	 	32	 
	 
	 	 	 	 
	ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
	 	 	33	 
	3.1 Corporate Existence and Power
	 	 	33	 
	3.2 Authorization
	 	 	33	 
	3.3 Consents and Approvals
	 	 	33	 
	3.4 Available Capital Resources
	 	 	34	 
	3.5 Disclosure
	 	 	34	 
	3.6 Non-Contravention
	 	 	34	 
	3.7 Brokers
	 	 	34	 
	3.8 Litigation
	 	 	34	 
	 
	 	 	 	 
	ARTICLE 4 COVENANTS
	 	 	35	 
	4.1 Conduct of the Business
	 	 	35	 
	4.2 Company’s Agreements as to Specified Matters
	 	 	35	 
	4.3 Full Access
	 	 	37	 
	4.4 Confidentiality
	 	 	37	 
	4.5 Filings; Consents; Removal of Objections
	 	 	38	 
	4.6 Further Assurances; Cooperation; Notification
	 	 	38	 
	4.7 Approval of Stockholders
	 	 	38	 
	4.8 Update Disclosure; Breaches
	 	 	39	 
	4.9 No Solicitation
	 	 	40	 
	4.10 Public Announcements
	 	 	41	 
	4.11 Preparation of Tax Returns: Tax Matters
	 	 	41	 
	4.12 Expenses Related to Certain Third-Party Proceedings
	 	 	42	 
	4.13 Employment Matters
	 	 	42	 
	4.14 Notice to Holder of Third-Party Right
	 	 	43	 
	4.15 Conduct of the Business After the Closing
	 	 	43	 
	 
	 	 	 	 
	ARTICLE 5 CONDITIONS TO PARENT’S AND MERGER SUBSIDIARY’S OBLIGATIONS
	 	 	43	 
	5.1 Representations and Warranties True
	 	 	43	 

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Table of Contents

(continued)

	 	 	 	 	 
	 	 	 	Page	 
	5.2 Performance
	 	 	44	 
	5.3 Filed Certificate of Merger
	 	 	44	 
	5.4 Required Approvals and Consents
	 	 	44	 
	5.5 No Proceeding or Litigation
	 	 	44	 
	5.6 No Exercise of Third-Party Right
	 	 	44	 
	5.7 Legislation
	 	 	44	 
	5.8 No Material Adverse Effect
	 	 	44	 
	5.9 Certificates
	 	 	44	 
	5.10 Other Receipts; Good Standing
	 	 	44	 
	5.11 Opinions of Company Counsel
	 	 	45	 
	5.12 Employment Offers
	 	 	45	 
	5.13 Escrow Agreement
	 	 	45	 
	5.14 Payment Agreement
	 	 	45	 
	5.15 Stockholder Agreements
	 	 	45	 
	5.16 Dissenting Shares
	 	 	45	 
	5.17 Resignation and Release
	 	 	45	 
	5.18 Tax Withholding Forms
	 	 	45	 
	 
	 	 	 	 
	ARTICLE 6 CONDITIONS TO COMPANY’S OBLIGATIONS
	 	 	46	 
	6.1 Representations and Warranties True
	 	 	46	 
	6.2 Performance
	 	 	46	 
	6.3 Filed Certificate of Merger
	 	 	46	 
	6.4 Corporate Approvals
	 	 	46	 
	6.5 No Proceeding or Litigation
	 	 	46	 
	6.6 No Exercise of Third-Party Right
	 	 	46	 
	6.7 Legislation
	 	 	46	 
	6.8 Certificates
	 	 	47	 
	6.9 Other Receipts; Good Standing
	 	 	47	 
	6.10 Opinion of Parent Counsel
	 	 	47	 
	6.11 Royalty Agreement 
	 	 	 	 
	6.12 Escrow Agreement
	 	 	47	 
	6.13 Payment Agreement
	 	 	47	 
	 
	 	 	 	 
	ARTICLE 7 TERMINATION
	 	 	47	 
	7.1 Methods of Termination
	 	 	47	 
	7.2 Procedure Upon Termination
	 	 	48	 
	7.3 Effect of Termination
	 	 	48	 
	7.4 Termination Fee
	 	 	49	 
	 
	 	 	 	 
	ARTICLE 8 SURVIVAL AND INDEMNIFICATION
	 	 	49	 
	8.1 Survival
	 	 	49	 
	8.2 Indemnification by Stockholders
	 	 	50	 
	8.3 Indemnification by Parent
	 	 	50	 

iii

 

Table of Contents

(continued)

	 	 	 	 	 
	 	 	Page	 
	8.4 Claims for Indemnification
	 	 	50	 
	8.5 Indemnification Limits
	 	 	52	 
	8.6 Right of Set-Off
	 	 	54	 
	8.7 Escrow Funds
	 	 	54	 
	8.8 Expenses of Stockholders’ Representative
	 	 	54	 
	 
	 	 	 	 
	ARTICLE 9 ARBITRATION
	 	 	54	 
	9.1 Dispute
	 	 	54	 
	9.2 Mediation
	 	 	54	 
	9.3 Arbitration
	 	 	55	 
	 
	 	 	 	 
	ARTICLE 10 DEFINITIONS
	 	 	55	 
	10.1 Definitions
	 	 	55	 
	 
	 	 	 	 
	ARTICLE 11 MISCELLANEOUS
	 	 	65	 
	11.1 Notices
	 	 	65	 
	11.2 Amendments; No Waivers
	 	 	66	 
	11.3 Expenses
	 	 	67	 
	11.4 Successors and Assigns
	 	 	67	 
	11.5 Governing Law
	 	 	67	 
	11.6 Counterparts; Effectiveness
	 	 	67	 
	11.7 Entire Agreement
	 	 	67	 
	11.8 Captions
	 	 	67	 
	11.9 Severability
	 	 	68	 
	11.10 Construction
	 	 	68	 
	11.11 Cumulative Remedies
	 	 	68	 
	11.12 Third Party Beneficiaries
	 	 	68	 
	11.13
Appointment of Stockholders’ Representative; Enforcement of Rights, Benefits and Remedies
	 	 	68	 

iv

 

AGREEMENT AND PLAN OF MERGER

     THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of June 3, 2005, is
entered into by and among American Medical Systems, Inc., a Delaware corporation
(“Parent”), Oak Merger Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent (“Merger Subsidiary”), Ovion Inc., a Delaware corporation (“Company”),
Jeffrey P. Callister and W. Stephen Tremulis (together, the “Principal Stockholders”) and
Jeffrey P. Callister, as Stockholders’ Representative (“Stockholders’ Representative”).

     WHEREAS, the Board of Directors of each of the Company, Parent and Merger Subsidiary have (i)
determined that the Merger (as defined below) is fair and in the best interests of their respective
stockholders and (ii) approved the Merger of Merger Subsidiary with and into the Company, with the
Company surviving, in accordance with the terms and conditions of this Agreement.

     WHEREAS, in connection with the execution of that certain letter of intent dated February 17,
2005, as supplemented on April 11, 2005 (the “Letter of Intent”), Parent made a loan to the
Company, to fund the continuing operation of the Company, of $200,000 on February 18, 2005 (the
“First Loan”) and another of $100,000 on April 13, 2005 (the “Second Loan”).

     WHEREAS, the parties hereto desire to make certain representations, warranties and agreements
in connection with the Merger and also to prescribe various conditions to the Merger.

     NOW, THEREFORE, in consideration of the premises and the representations, warranties,
covenants and agreements herein contained, and intending to be legally bound hereby, the Company,
Parent, Merger Subsidiary, the Principal Stockholders and the Stockholders’ Representative hereby
agree as follows:

ARTICLE 1

THE MERGER; CONVERSION OF SHARES

	1.1  	The Merger. At the Effective Time (as defined below) and upon the terms and subject
to the conditions of this Agreement and in accordance with the Delaware General Corporation
Law (the “DGCL”), Merger Subsidiary shall be merged with and into the Company, and,
following the merger, the Company shall continue as the surviving corporation (the
“Surviving Corporation”), the separate corporate existence of Merger Subsidiary shall
cease and the Surviving Corporation shall continue to be governed by the laws of the State of
Delaware (the “Merger”).
	 
	1.2  	Effective Time. Subject to the terms and conditions set forth in this Agreement, on
the Closing Date (as defined below) the Company and Merger Subsidiary will file, or cause to
be filed, with the Secretary of State of the State of Delaware a Certificate of Merger, in the
form as required by, and executed and acknowledged in accordance with, the applicable
provisions of the DGCL, and substantially in the form attached hereto as Exhibit A
(the “Certificate of Merger”). The Merger shall become effective at 3 p.m. Central
Standard Time on the date the Certificate of Merger is filed or, if agreed to by the

 

 

	   	Parent
and the Company, such later date or time set forth in the Certificate of Merger (the
“Effective Time”).

	1.3  	Closing of the Merger. Unless this Agreement shall have been terminated and the
transactions contemplated herein abandoned pursuant to Article 7 hereof, the closing of the
Merger (the “Closing”) will take place on a date (the “Closing Date”) to be
specified by Parent and the Company which shall be no later than the second business day after
satisfaction or waiver of the latest to occur of the conditions set forth in Articles 5 and 6
(other than delivery of items to be delivered at the Closing and other than those conditions
that by their nature are to be satisfied at the Closing, it being understood that the
occurrence of the Closing shall remain subject to the delivery of such items and the
satisfaction or waiver of such conditions at the Closing), at 10:00 a.m., local time, at the
offices of Oppenheimer, Wolff & Donnelly LLP, 45 South Seventh Street, Suite 3400,
Minneapolis, Minnesota 55402, unless another time, date, place or manner (e.g., by facsimile
exchange of signature pages with originals to follow by overnight delivery) is agreed to by
the parties hereto. The parties will use commercially reasonable efforts to consummate the
Closing as soon as the closing conditions in Articles 5 and 6 are satisfied or waived;
provided, however, that in no event shall the Closing occur later than the
Termination Date. If the Closing has not occurred by the fiftieth (50th) day after
the Company has delivered a right of first refusal notice to Conceptus pursuant to Section 5.1
of the Settlement and License Agreement, Parent shall advance the Company an additional
$300,000 on the fifty-first (51st) day to cover the costs and expenses of the
Company’s operations through Closing (the “Supplemental Advance”).
	 
	1.4  	Effects of the Merger. The Merger shall have the effects set forth in the DGCL.
Without limiting the generality of the foregoing and subject thereto, at the Effective Time
all the properties, rights, privileges, powers and franchises of the Company and Merger
Subsidiary shall vest in the Surviving Corporation and all debts, liabilities and duties of
the Company and Merger Subsidiary shall become the debts, liabilities and duties of the
Surviving Corporation.
	 
	1.5  	Certificate of Incorporation of the Surviving Corporation. The form of Certificate
of Incorporation of Merger Subsidiary, as amended, attached hereto as Exhibit B, shall
be the Certificate of Incorporation of the Surviving Corporation until thereafter further
amended in accordance with Applicable Law, except that the name of the Surviving Corporation
shall be Ovion Inc.
	 
	1.6  	Bylaws of the Surviving Corporation. The Bylaws of Merger Subsidiary as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation until
thereafter amended in accordance with Applicable Law, except that the name of the Surviving
Corporation shall be Ovion Inc.
	 
	1.7  	Directors and Officers of the Surviving Corporation. The directors and officers of
Merger Subsidiary immediately prior to the Effective Time shall be the directors and officers
respectively, of the Surviving Corporation until their respective successors shall be duly
elected and qualified.

2

 

	1.8  	Initial Merger Consideration. Subject to Section 1.11 (Dissenting Shares) and
Section 8.6 (Right of Set-Off), Parent shall pay for all of the Company Common Stock, Company
Preferred Stock, Company Stock Options and Company Warrants issued and outstanding immediately
prior to the Effective Time the consideration set forth in this Section 1.8 as follows:

	 	(a)  	Parent shall advance Three Hundred Thousand Dollars ($300,000) as a third loan
to fund the ongoing operation of the Company (the “Third Loan” and, together
with the First Loan and the Second Loan, the “Loans”) upon execution of this
Agreement, unless Parent has previously advanced the Third Loan to the Company.
	 
	 	(b)  	At Closing, Parent shall pay Ten Million Dollars ($10,000,000) (the
“Initial Payment”), plus or minus, as the case may be, the Purchase Price
Adjustment, if any (as defined in section 1.8(c)) (as so adjusted, the “Initial
Merger Consideration”), which shall be paid by Parent to the Persons and in the
amounts as follows: (x) One Million Dollars ($1,000,000) (the “Escrow Funds”)
to the Escrow Agent to be held in escrow to secure any indemnification obligation of
the Stockholders under Section 8.2; (y) Two Hundred Eighty Thousand Five Hundred
Dollars ($280,500), in the aggregate, to the persons and in the amounts as set forth in
Section 2.5 of the Disclosure Schedule, in partial repayment of the Bridge Loans; and
(z) the balance of the Initial Merger Consideration, less any withholding described in
4.11(g), in accordance with the terms of the Payment Agreement (such balance payable to
the Stockholders at Closing is sometimes referred to herein as the “Net Initial
Merger Consideration”). The Escrow Funds shall not be distributed to the
Stockholders until twelve (12) months after the Effective Time and shall only be
distributed in accordance with the terms and conditions of the Escrow Agreement. In
the event that Parent shall have perfected, prior to the expiration of such twelve-
(12-) month period, a claim for indemnification pursuant to Section 8.4, the
Stockholders’ Representative and the Parent shall endeavor in good faith to determine a
reasonable estimate of the maximum amount of such claim and shall instruct the Escrow
Agent to deliver any excess amount of Escrow Funds to the Payment Agent for
distribution to the Stockholders in accordance with the Escrow Agreement.
	 
	 	(c)  	The Initial Payment shall be adjusted (the “Purchase Price Adjustment”)
as follows: (A) decreased by (i) the amount of the Loans; (ii) the amount of
consideration that would have been payable to Dissenting Stockholders (as defined
below) if they had not perfected their rights as Dissenting Stockholders; (iii) the
amount, if any, by which Transaction Expenses exceed $150,000; (iv) any amounts paid
prior to Closing in settlement of the Musket Litigation; (v) the Supplemental Advance,
if any; and (vi) the aggregate amount of the employee bonuses payable at Closing, as
set forth in Section 2.8(j) of the Disclosure Schedule; and (B) increased by (i) the
Closing Capital and (ii) that portion of the Supplemental Advance, if any, that the
Company spends on operations in the ordinary course of business, consistent in nature
and amount with past practice, after having spent all other cash resources available to
the Company following

3

 

	 	   	advancement by Parent of the Third Loan. “Closing
Capital” shall mean the amount of cash on hand as of the Closing, excluding amounts
received from the exercise of options and warrants, if any; provided,
however, that the Company continues to pay its liabilities and make cash
disbursements through the Closing in the ordinary course of business, consistent in
timing, nature and amount with past practice.
	 
	 	(d)  	Not less than three (3) business days prior to the Closing, the Company shall
prepare and deliver to Parent a good faith written estimate of the Initial Merger
Consideration, setting forth, in reasonable detail, a calculation of the estimated: (i)
Purchase Price Adjustment, including estimated Transaction Expenses; and (ii) Closing
Capital.

	1.9  	Contingent Merger Consideration. As additional consideration for the Merger and
subject to the conditions set forth in this Section 1.9, Section 1.11 (Dissenting Shares),
Section 4.11(g) (Tax Withholding) and Section 8.6 (Right of Set-Off), Parent shall make the
following additional payments (collectively, the “Contingent Merger Consideration”
and, together with the Initial Merger Consideration, the “Merger Consideration”) to
the Payment Agent for distribution to those Stockholders who are not otherwise Dissenting
Stockholders:

	 	(a)  	If the Company or Parent (i) receives IDE approval from the U.S. Food and Drug
Administration (the “FDA”) to conduct a clinical trial of the Product, and (ii)
commences an FDA-approved pivotal clinical trial with respect to the Product as
demonstrated by the first successful placement of the Product in both ostia using
flexible hysteroscopy (the “Clinical Trial”) (the “First Milestone”),
Parent shall pay an additional Five Million Dollars ($5,000,000), less (i) the Legal
Advance Funds, if any, advanced to the Company pursuant to Section 4.12, (ii) the
amounts owed under the Bridge Loans on the First Milestone within fifteen (15) days of
completing the First Milestone and (iii) the aggregate amount of the employee bonuses
payable at the First Milestone, as set forth in Section 2.8(j) of the Disclosure
Schedule;
	 
	 	(b)  	If the Company or Parent completes enrollment of and placement of the Product
in the minimum number of patients in the Clinical Trial required for a PMA submission
(the “Second Milestone”), Parent shall pay an additional Five Million Dollars
($5,000,000), less (i) the amounts owed under the Bridge Loans on the Second Milestone
within fifteen (15) days of completing the Second Milestone and (ii) the aggregate
amount of the employee bonuses payable at the Second Milestone, as set forth in Section
2.8(j) of the Disclosure Schedule;
	 
	 	(c)  	If the Company or Parent receives PMA approval, including but not limited to
final labeling, from the FDA to market the Product for female sterilization (the
“Third Milestone” and the date such approval is received, the “PMA-Approval
Date”), Parent shall pay an additional Ten Million Dollars ($10,000,000) within
fifteen (15) days of completing the Third Milestone; and

4

 

	 	(d)  	After the Third Milestone is successfully completed, Parent will pay an amount
equal to one times Net Sales of the Product for the twelve- (12-) month period (the
“Final Contingent Payment” and, together with the First Milestone, the Second
Milestone and the Third Milestone, the “Milestones”) beginning on the later of:
(A) the first fiscal quarter of Parent commencing more than six (6) months after the
PMA-Approval Date or (B) January 1, 2008 (in either case, the “Contingent
Period”).

	 	(i)  	If one or more of the Interference Requests have resulted in
the U.S. Patent and Trademark Office declaring an interference that is pending
at the end of the Contingent Period, Parent may pay all or a portion of the
Final Contingent Payment, if any, to the Escrow Agent in an amount not to
exceed the Maximum Interference Liability, minus any amounts previously set-off
with respect to one or more of the Interference Requests (the “Additional
Escrow Funds”) until final resolution of such interference.
	 
	 	(ii)  	In the event of a catastrophic event, such as a war, terrorist
attack, tornado, earthquake, or similar extraordinary event, or an FDA
inspection, shutdown, or recall that causes the manufacturing of the Product to
be suspended for five days or more and such suspension results in Parent being
unable to fill orders for the Product, the Contingent Period shall be extended
for the period of time that Parent is unable to fill orders for the Product.

	 	(e)  	Parent shall deliver to the Stockholders’ Representative, no later than sixty
(60) days following the last day of the Contingent Period, a statement with reasonable
detail reflecting Parent’s calculation of Net Sales for the Contingent Period (the
“Contingent Calculation”). The Stockholders’ Representative shall not
distribute these statements to any Person other than such advisors and consultants as
may be necessary to assist the Stockholders’ Representative in reviewing the Contingent
Calculation and any accompanying information. The Contingent Calculation will be
deemed to be accepted by the Stockholders’ Representative and shall be conclusive for
purposes of determining the Contingent Calculation, unless the Stockholders’
Representative shall have delivered to Parent within fifteen (15) days following
delivery of the Contingent Calculation a written statement objecting to any of the
information contained in the Contingent Calculation, specifying in reasonable detail
the amount in dispute and accompanied by detailed schedules and work papers providing
reasonable support for such determination. With respect to any undisputed portion of
the Contingent Calculation (the “Undisputed Contingent Amount”), Parent shall
pay fifty percent (50%) of such Undisputed Contingent Amount (the “Initial
Contingent Payment Amount”) to the Payment Agent for distribution to the
Stockholders pursuant to Section 1.9(g).
	 
	 	(f)  	The Stockholders’ Representative may cause an audit to be made of those books
and records of Parent and the Surviving Corporation that are reasonably necessary

5

 

	 	   	to review and audit the information delivered pursuant to Section 1.9(e) and created in
connection with the Contingent Calculation. Any such audit shall be conducted only by
an independent certified accountant selected by the Stockholders’ Representative and
reasonably acceptable to Parent, after prior written notice to Parent, and shall be
conducted during regular business hours at Parent’s offices and in such a manner so as
not to interfere with Parent’s normal business activities. Parent agrees to permit
such accountants, during normal business hours, to have reasonable access to, and to
examine and make copies of, those books and records of Parent and the Surviving
Corporation that are reasonably necessary to review and audit the Contingent
Calculation. Neither the Stockholders’ Representative nor such auditors will have the
right to review or audit any other books and records of Parent. In no event shall more
than one audit be conducted, nor shall the records supporting any statements be audited
more than once for the same purpose. In the event any such audit reveals any
discrepancy less than five percent (5%) of the Net Sales for the period audited, the
Stockholders shall pay for the reasonable third party costs and expenses of such audit.
In the event any such audit reveals any discrepancy greater than or equal to five
percent (5%) of the Net Sales for the period audited, Parent shall pay for the
reasonable third party costs and expenses of such audit. The determination of the
auditors with respect to the Contingent Calculation (the “Final Contingent
Calculation”) shall be final and binding upon the parties hereto.
	 
	 	(g)  	Subject to Section 8.6, within fifteen (15) days following final determination
of the Contingent Calculation pursuant to Section 1.9(e) or 1.9(f), Parent shall pay to
the Payment Agent for distribution to the Stockholders an amount equal to either (i)
the Contingent Calculation, in the case in which no dispute has arisen in connection
with the Contingent Calculation or (ii) the amount obtained by subtracting (A) the
Initial Contingent Payment Amount from (B) the Final Contingent Calculation.

	1.10  	Cancellation and Conversion of Company Securities at the Effective Time. On or prior
to Closing, all outstanding shares of Company Preferred Stock shall be converted into Company
Common Stock in accordance with the Company’s Certificate of Incorporation and Applicable Law.
As of the Effective Time, by virtue of the Merger and without any action on the part of any
holder of any share of capital stock of the Company or Merger Subsidiary:

	 	(a)  	Subject to the terms and conditions hereof, each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than (i) Company
Common Stock held in the Company’s treasury, (ii) Company Common Stock held at the
Effective Time by Parent, Merger Subsidiary or any Affiliate of Parent, and (iii)
Dissenting Shares) shall automatically be converted into the right to receive Merger
Consideration in cash, payable to the holders thereof upon surrender of the
Certificates (as defined in Section 1.12(a) below) in accordance with their Percentage
Interest, as set forth in Schedule 1.10.

6

 

	 	(b)  	Each Company Stock Option and each Company Warrant that is outstanding
immediately prior to the Effective Time, whether or not vested or exercisable, shall,
effective immediately prior to the Effective Time, be cancelled and the holder of such
Company Stock Option or Company Warrant, as applicable, shall have the right to receive
the Merger Consideration minus the exercise price for such Company Stock Option or
Company Warrant, that is due such holder based on the number of shares vested or
exercisable as of the Effective Time, in accordance with their Percentage Interest, as
set forth in Schedule 1.10. Except as otherwise agreed to in writing by the
parties hereto, the Company Stock Option Plans and any other plan, program or
arrangement providing for the issuance or grant of any interest in respect of the
capital stock of the Company shall terminate as of the Effective Time, and the Company
shall ensure that following the Effective Time no holder of a Company Stock Option or
Company Warrant shall have any right thereunder to acquire any equity securities of the
Company, Parent or Merger Subsidiary.
	 
	 	(c)  	Each share of the common stock, par value $.01 per share, of Merger Subsidiary
(“Merger Subsidiary Common Stock”), issued and outstanding at the Effective
Time of the Merger shall be converted into one (1) share of common stock, par value
$0.01 per share, of the Surviving Corporation (“Surviving Corporation Common
Stock”).
	 
	 	(d)  	Each share of Company Common Stock held in the treasury of the Company and each
share of Company Common Stock held by Parent, Merger Subsidiary or any Affiliate of
Parent, Merger Subsidiary or the Company immediately prior to the Effective Time will,
by virtue of the Merger and without any action on the part of Merger Subsidiary, the
Company or the holder thereof, be canceled, retired and cease to exist without payment
of any consideration therefore and without any conversion thereof.
	 
	 	(e)  	At least three days prior to Closing, the Company shall prepare and deliver to
Parent Schedule 1.10.

	1.11  	Dissenting Shares.

	 	(a)  	Notwithstanding any provision of this Agreement to the contrary, any shares of
Company Capital Stock issued and outstanding immediately prior to the Effective Time
that are held by any holder of shares of Company Capital Stock that has not voted in
favor of the Merger (if entitled to vote) and has properly exercised and perfected
appraisal rights in accordance with either Section 262 et. seq. of the DGCL or Section
1300 et seq. of the California Corporations Code (the “CCC”) (such holders are
referred to as “Dissenting Stockholders” and such shares are referred to as
“Dissenting Shares”) will not be converted into the right to receive the Merger
Consideration, but will become entitled to the right to receive such consideration as
may be determined to be due to the holders of such Dissenting Shares pursuant to the
DGCL or the CCC); provided, however, that any holder of Dissenting
Shares who will have failed to perfect or who effectively will have

7

 

	 	   	withdrawn or lost
such rights of appraisal under the DGCL or the CCC will forfeit the right to appraisal
of such shares of Company Capital Stock, and such shares of Company Capital Stock will
no longer be Dissenting Shares and, as of the Effective Time, will be deemed to have
been converted into the right to receive the Merger Consideration.
	 
	 	(b)  	The Company will give Parent and Merger Subsidiary prompt notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other related
instruments received by the Company and, Parent will have the right to participate in
all negotiations and proceedings with respect to such demands. Prior to the Effective
Time, the Company will not, except with the prior written consent of Parent, which
consent shall not be unreasonably withheld, delayed or conditioned, make any payment
with respect to, or settle or offer to settle, any such demands. Notwithstanding
anything to the contrary in this Section 1.11 if (i) the Merger is terminated,
rescinded or abandoned or (ii) if the Stockholders revoke the authority to effect the
Merger, then the right of any Stockholder to be paid the fair value of such
Stockholder’s shares of Company Capital Stock will cease. The Surviving Corporation
will comply with all obligations of the DGCL and CCC with respect to Dissenting
Stockholders.

	1.12  	Escrow Procedure; Exchange of Certificates.

	 	(a)  	U.S. Bank National Association or such other bank as the parties may agree
shall act as the payment agent (in such capacity, the “Payment Agent”),
pursuant to a payment agreement to be entered into between the Company and the Payment
Agent (the “Payment Agreement”), and escrow agent (in such capacity, the
“Escrow Agent”), pursuant to the Escrow Agreement, for the benefit of the
holders of Company Common Stock and Company Preferred Stock for the purpose of paying
the Merger Consideration upon surrender of certificates which immediately prior to the
Effective Time represented Company Common Stock or Company Preferred Stock (in either
case, the “Certificates”).
	 
	 	(b)  	At the Closing, Parent shall deposit, or shall cause to be deposited, with the
Payment Agent pursuant to the Payment Agreement, for the benefit of the Stockholders,
cash in U.S. dollars in an amount equal to the Net Initial Merger Consideration.
	 
	 	(c)  	To the extent that sums are released by the Payment Agent or the Escrow Agent
to the Stockholders or the Parent in accordance with this Agreement or the Escrow
Agreement, any accumulated interest shall be distributed in accordance with the Payment
Agreement or the Escrow Agreement, as the case may be.
	 
	 	(d)  	As soon as reasonably practicable after the Effective Time, the Payment Agent
shall mail to each holder of record of Certificates: (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Payment Agent
and shall be in such form and have such other provisions as Parent and the

8

 

	 	   	Company may
reasonably specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for a cash payment of the proper Merger Consideration when and
if it becomes payable under this Agreement. Upon surrender of a Certificate for
cancellation to the Payment Agent, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to receive in exchange
therefor by check or wire transfer, as the case may be, an amount equal to the proper
Merger Consideration when and if it becomes payable under this Agreement, and the
Certificate so surrendered shall forthwith be canceled. No interest shall be paid or
accrued on any Merger Consideration upon the surrender of any Certificates. In the
event of a transfer of ownership of Company Common Stock or Company Preferred Stock
which is not registered in the transfer records of the Company, payment of the proper
Merger Consideration when and if it becomes payable under this Agreement may be paid to
a transferee if the Certificate representing such Company Common Stock or Company
Preferred Stock, as applicable, is presented to the Payment Agent, accompanied by all
documents that the Payment Agent may require to evidence and effect such transfer and
by evidence that any applicable stock transfer or other taxes required as a result of
such payment to a Person other than the registered holder of such shares have been
paid. Until surrendered and exchanged as contemplated by this Section 1.12, each
Certificate shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender an amount equal to the proper Merger Consideration
when and if it becomes payable under this Agreement.
	 
	 	(e)  	In the event that any Certificate shall have been lost, stolen or destroyed,
the Payment Agent will, upon the making of an affidavit of that fact by the holder
claiming such Certificate to have been lost, stolen or destroyed, pay the proper Merger
Consideration as would be required pursuant to this Agreement but for the failure to
deliver such Certificate to the Payment Agent; provided, however, that
the Surviving Corporation may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed Certificate to
deliver a bond in such sum as it may reasonably direct as indemnity against any claim
that may be made against the Surviving Corporation with respect to the Certificate
alleged to have been lost, stolen or destroyed.
	 
	 	(f)  	The Merger Consideration paid upon the surrender of Certificates for exchange
of Company Common Stock and Company Preferred Stock in accordance with the terms hereof
shall be deemed to have been paid in full satisfaction of all rights pertaining to such
Company Common Stock and Company Preferred Stock. After the Effective Time, there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the Company Common Stock or Company Preferred Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Article 1, except as otherwise provided by
Applicable Law.

9

 

	 	(g)  	Notwithstanding Section 1.12(d), neither the Surviving Corporation nor Parent shall
be liable to any holder of Company Common Stock or Company Preferred Stock for any
Merger Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
	 
	 	(h)  	To the extent permitted by Applicable Law, any amounts of Merger Consideration,
including any Escrow Funds, Additional Escrow Funds and any Set-Off Amounts pursuant to
Section 8.6, remaining unclaimed by any holder of Company Common Stock or Company
Preferred Stock at the time the Escrow Agreement and Payment Agreement are terminated
in accordance with their respective terms (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of any
governmental entity) shall be delivered to Parent and shall become the property of the
Parent, subject to the rights of any such Stockholder to claim such amounts from
Parent.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL

STOCKHOLDERS

     As a material inducement to Parent and Merger Subsidiary to enter into this Agreement, with
the understanding that Parent and Merger Subsidiary will be relying thereon in consummating the
transactions contemplated hereunder, the Company and the Principal Stockholders, jointly and
severally, hereby represent and warrant to Parent and Merger Subsidiary that except as set forth in
the Disclosure Schedule delivered by the Company to Parent and Merger Subsidiary on the date hereof
(the “Disclosure Schedule”) the statements contained in this Article 2 are true and
correct. The Disclosure Schedule is arranged in sections corresponding to the sections and
subsections of this Article 2, and disclosure in one section of the Disclosure Schedule shall
constitute disclosure for all sections of the Disclosure Schedule only to the extent to which the
applicability of such disclosure is reasonably apparent.

	2.1  	Corporate Organization and Power. The Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of incorporation, and
has all requisite corporate power and authority, and all governmental licenses, governmental
authorizations, governmental consents and governmental approvals, required to carry on its
business as now conducted and to own, lease and operate the assets and properties of the
Company as now owned, leased and operated, except for any such governmental licenses,
governmental authorizations, governmental consents and governmental approvals the failure to
have would not have a Material Adverse Effect on the Company. The Company is duly qualified
or licensed to do business as a foreign corporation and is in good standing in every
jurisdiction in which the character or location of its properties and assets owned, leased or
operated by the Company or the nature of the business conducted by the Company requires such
qualification or licensing, except where the failure to be so qualified, licensed or in good standing in such other
jurisdiction would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. The Company has heretofore delivered to Parent complete and accurate copies of
its Certificate of Incorporation and Bylaws, as currently in effect. The

10

 

	 	   	Disclosure
Schedule contains a list of all jurisdictions in which the Company is qualified or licensed
to do business.

	2.2  	Subsidiaries. The Company does not have and has never had any subsidiaries. The
Company does not own or control or have any capital, equity, partnership, participation or
other ownership interest in any corporation, partnership, joint venture or other business
association or entity.
	 
	2.3  	Authorization. The Company has the full corporate power and authority to enter into
this Agreement and, subject to obtaining the necessary approval of its stockholders with
respect to the Merger, to carry out the transactions contemplated herein. The Board of
Directors of the Company have taken, and prior to the Closing the Stockholders will have
taken, all action required by law, the Company’s Certificate of Incorporation and Bylaws and
otherwise to duly and validly authorize and approve the execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the transactions
contemplated herein and no other corporate proceedings on the part of the Company are, or will
be, necessary to authorize this Agreement or to consummate the transactions contemplated
hereby. The affirmative vote of holders of at least: (a) a majority of the outstanding
            shares of Company Capital Stock, voting together as a class; (b) a majority of the outstanding
            shares of Company Preferred Stock, voting separately as a class, and (c) a majority of the
outstanding shares of Company Common Stock, voting separately as a class, are the only votes
of the holders of any class or series of the Company’s capital stock necessary to approve and
adopt this Agreement and to consummate the Merger. This Agreement has been, and the
agreements, if any, required by Article 5 will be, duly and validly executed and delivered by
the Company and constitutes the legal, valid and binding obligations of the Company,
enforceable against it in accordance with their terms, subject to laws of general application
relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting
creditors’ rights generally and rules of law governing specific performance, injunctive relief
or other equitable remedies.
	 
	2.4  	Capitalization of the Company. The authorized capital stock of the Company consists
of (a) 15,000,000 shares of Company Common Stock, 3,140,955 shares of which are issued and
outstanding; and (b) 5,000,000 shares of Company Preferred Stock, 321,795 shares of which are
issued and outstanding and convertible into 321,795 shares of Company Common Stock. All of
the issued and outstanding shares of Company Capital Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. All issued and outstanding
            shares of Company Capital Stock are owned (of record) solely by the Stockholders in the exact
amounts as set forth in the Disclosure Schedule. There are 500,000 shares of Company Common Stock reserved for future issuance pursuant to Company
Stock Plans, including 347,500 shares subject to outstanding Company Stock Options, and
106,983 shares of Company Preferred Stock subject to outstanding Company Warrants. There
are no other outstanding (w) shares of capital stock or other voting securities of the
Company, (x) securities of the Company convertible into or exchangeable for shares of
capital stock or voting securities of the Company, (y) options, warrants, conversion
privileges, contracts, understandings, agreements or other rights to purchase or acquire
from the Company, and, no obligations of the Company to issue, any

11

 

	 	   	capital stock, voting
securities or securities convertible into or exchangeable for capital stock or voting
securities of the Company, and (z) equity equivalent interests in the ownership or earnings
of the Company or other similar rights (collectively, “Company Securities”). There
are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any
Company Securities. Except as contemplated under Section 2.35, there are no stockholder
agreements, voting trusts or other agreements or understandings to which the Company is a
party or by which it is bound relating to the voting or registration of any shares of
capital stock of the Company.

	2.5  	Non-Contravention. Neither the execution, delivery and performance by the Company of
this Agreement nor the consummation of the transactions contemplated herein will (a)
contravene or conflict with the Certificate of Incorporation or Bylaws of the Company, (b)
contravene or conflict with or constitute a violation of any provision of any Applicable Law
binding upon or applicable to the Company, or any of the Company’s assets; (c) result in the
creation or imposition of any Lien on any of the Company’s assets, other than Permitted Liens
or (d) be in conflict with, constitute (with or without due notice or lapse of time or both) a
default under, result in the loss of any material benefit under, or give rise to any right of
termination, cancellation, increased payments or acceleration under any terms, conditions or
provisions of any note, bond, lease, mortgage, indenture, license, contract, franchise,
permit, instrument or other agreement or obligation to which the Company is a party, or by
which any of their respective properties or assets may be bound, except in the case of clause
(b) where such conflicts or other occurrences could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
	 
	2.6  	Consents and Approvals. No consent, approval, order or authorization of or from, or
registration, notification, declaration or filing with (hereinafter sometimes separately
referred to as a “Consent” and sometimes collectively as “Consents”) any
individual or entity, including without limitation any Governmental Authority or Person, is
required in connection with the execution, delivery or performance of this Agreement by the
Company or the consummation by the Company of the transactions contemplated herein, other than
the requirements of the DGCL for filing of appropriate documents to effect the Merger. The
Company is the “acquired person” within the meaning of Rule 801.2(b) promulgated pursuant to
the HSR Act and does not within the meaning of Rule 801.1 of the HSR Act directly or
indirectly control (as defined in Rule 801.1(b)) any entities, trusts, partnerships or other business organizations. The Company had
total assets as of the date of its last regularly prepared balance
sheet (as determined in accordance with Rule 801.11 of the HSR Act) of
less than Ten Million Seven Hundred Thousand Dollars ($10,700,000) and
annual net sales for its most recent fiscal year (as determined in
accordance with Rule 801.11 of the HSR Act) of less than Ten Million
Seven Hundred Thousand Dollars ($10,700,000). There are no facts
relating to the identity or circumstances of the Company that would
prevent or materially delay obtaining any of the Consents.

12

 

	2.7  	Financial Statements; Undisclosed Liabilities.

	 	(a)  	The Company has delivered to Parent true, correct and complete copies of the
unaudited balance sheet, as of April 30, 2005 of the Company (the “Latest Balance
Sheet”) and the unaudited statements of income, stockholders’ equity and cash flows
of the Company for the three-month period ended April 30, 2005 (such statements of
income, stockholders’ equity and cash flows and the Latest Balance Sheet being herein
referred to as the “Latest Financial Statements”). The Latest Financial
Statements are based upon the information contained in the books and records of the
Company and fairly and accurately present the financial condition of the Company as of
the dates thereof and results of operations for the periods referred to therein. The
Latest Financial Statements have been prepared in accordance with the income tax basis
of accounting consistently applied.
	 
	 	(b)  	All accounts, books and ledgers related to the business of the Company are
properly and accurately kept, are complete in all material respects, and there are no
material inaccuracies or discrepancies of any kind contained or reflected therein. The
Company does not have any of its records, systems, controls, data, or information
recorded, stored, maintained, operated or otherwise wholly or partly dependent upon or
held by any means (including any electronic, mechanical or photographic process,
whether computerized or not) which (including all means of access thereto and
therefrom) are not under the exclusive ownership (excluding licensed software programs)
and direct control of the Company.
	 
	 	(c)  	Except as and to the extent reflected in the Latest Balance Sheet, the Company
has no liabilities or obligations (whether accrued, absolute, contingent, unliquidated
or otherwise, whether due or to become due, whether known or unknown, and regardless of
when asserted) arising out of transactions or events heretofore entered into, or any
action or inaction, or any state of facts existing, with respect to or based upon
transactions or events heretofore occurring, except liabilities of not more than
$150,000 in the aggregate that have arisen after the date of the Latest Balance Sheet
in the ordinary course of business, consistent with past custom and practice (none of
which is a liability for breach of contract, breach of warranty, violation of Applicable Law, tort, infringement, claim or
lawsuit).

	2.8  	Absence of Certain Changes. Except as otherwise authorized by this Agreement, since
December 31, 2004, the Company has owned and operated its assets, properties and businesses in
the ordinary course of business and consistent with past practice and there has not been:

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

13

 

	 	(b)  	any declaration, setting aside or payment of any dividend or other distribution
with respect to any shares of capital stock of the Company, or any repurchase,
redemption or other acquisition by the Company (other than any wholly-owned subsidiary)
of any outstanding shares of capital stock or other equity or debt securities of, or
other ownership interests in, the Company;
	 
	 	(c)  	any split, combination or reclassification of any of its capital stock;
	 
	 	(d)  	any amendment of any provision of the Certificate of Incorporation, Bylaws or
other governing documents of, or of any material term of any outstanding security
issued by, the Company;
	 
	 	(e)  	any incurrence, assumption or guarantee by the Company of any indebtedness for
borrowed money;
	 
	 	(f)  	any change in any method of accounting or accounting practice by the Company;
	 
	 	(g)  	issuance of any equity or debt securities of the Company other than pursuant to
the Company Stock Option Plans, Company Stock Options or Company Warrants in the
ordinary course of business and consistent with past practice;
	 
	 	(h)  	acquisition or disposition of assets material to the Company, taken as a whole,
except for sales of inventory in the ordinary course of business consistent with past
practice, any acquisition or disposition of capital stock of any third party, or any
merger or consolidation with any third party, by the Company;
	 
	 	(i)  	any creation or assumption by the Company of any Lien except for Permitted
Liens;
	 
	 	(j)  	any individual capital expenditure (or series of related capital expenditures)
either involving more than Ten Thousand Dollars ($10,000) or outside the ordinary
course of business;
	 
	 	(k)  	any material damage, destruction or loss (whether or not covered by insurance)
from fire or other casualty to its tangible property;
	 
	 	(l)  	any material increase in the base salary of any officer or employee of the
Company;
	 
	 	(m)  	any adoption, amendment, modification, or termination of any bonus,
profit-sharing, incentive, severance or other similar plan for the benefit of any of
its directors, officers or employees except as required by Applicable Law;
	 
	 	(n)  	entry by the Company into any joint venture, partnership or similar agreement
with any person;
	 
	 	(o)  	any filing of any amended Tax Return, settlement of any Tax claim or assessment
relating to the Company, payment of any estimated Taxes in excess of $10,000,

14

 

	 	   	change in
method of Tax accounting, or consent to the extension or waiver of the limitations
period applicable to any claim or assessment with respect to Taxes; or

	 	(p)  	any authorization of, or commitment or agreement to take any of, the foregoing
actions except as otherwise permitted by this Agreement.

	2.9  	Assets and Properties.

	 	(a)  	The Company has good and valid right, title and interest in and to or, in the
case of leased properties or properties held under license, good and valid leasehold or
license interests in, all of its assets and properties, including, but not limited to,
all of the machinery, equipment, terminals, computers, vehicles, and all other assets
and properties (real, personal or mixed, tangible or intangible) reflected in the
Latest Balance Sheet and all of the assets purchased or otherwise acquired since the
date of the Latest Balance Sheet, except those assets and properties disposed of in the
ordinary course of business after the date of the Latest Balance Sheet. The Company
holds title to each such property and asset free and clear of all Liens, except
Permitted Liens.
	 
	 	(b)  	The (i) current use and operation of all real property is in compliance with
all Applicable Laws (including without limitation laws relating to parking, zoning and
land use) and public and private covenants and restrictions except where non-compliance
would not be reasonably likely to have a Material Adverse Effect on the Company, (ii)
Company has not received written notice of noncompliance with any Applicable Laws and
(iii) utilities, access and parking, if any, for each such real property are adequate
for the current use and operation of each such real property. There are no zoning,
building code, occupancy restriction or other land-use regulation proceedings or any
proposed change in any Applicable Laws, which could materially detrimentally affect the
use or operation by the Company of any real property, nor has the Company received any written notice of any special
assessment proceedings affecting the real property, or applied for any change to the
zoning or land use status of the real property. The Company has obtained all
licenses, permits, approvals, easements and rights of way (and all such items are
currently in full force and effect) required from any Governmental Authority having
jurisdiction over each real property or from private parties for the current use and
operation of each real property except where the failure to obtain such licenses,
permits, approvals, easements and rights of way would not be reasonably likely to
have a Material Adverse Effect on the Company. Neither the Company, nor any
Subsidiary is a foreign person, as the term foreign person is defined in Section
1445(f)(3) of the Code.

	2.10  	Manufacturing and Marketing Rights. The Company has not granted rights to
manufacture, produce, assemble, license, market, or sell the Product to any other person and
is not bound by any agreement that affects the Company’s exclusive right to develop,
manufacture, assemble, distribute, market or sell the Product.

15

 

	2.11  	FDA and Regulatory Matters.

	 	(a)  	The Company has obtained all necessary and applicable approvals, clearances,
authorizations, licenses and registrations required by United States or foreign
governments or government agencies, to permit the design, development, pre-clinical and
clinical testing, manufacture, labeling, and distribution of its products in
jurisdictions where it currently conducts such activities with respect to each product,
but excluding Environmental Permits which are addressed in Section 2.22 below
(collectively, the “Company Licenses”). The Company is in compliance in all
material respects with the terms and conditions of each Company License. The Company
is in compliance in all material respects with all Applicable Laws regarding
registration, license, certification for each site at which a product is manufactured,
labeled, or distributed. To the extent any product has been exported from the United
States, the Company has exported such product in compliance in all material respects
with Applicable Laws. All manufacturing operations performed by or on behalf of the
Company have been and are being conducted in all material respects in compliance with
the Quality Systems regulations of the FDA and, to the extent applicable to the
Company, counterpart regulations in the European Union and all other countries where
compliance is required. All non-clinical laboratory studies of products sponsored by
the Company and intended to be submitted to regulatory authorities in support of
regulatory clearance or approval, have been and are being conducted in compliance in
all material respects with the FDA’s good Laboratory Practice for Non-Clinical Studies
regulations (21 CFR Part 58) in the United States and, to the extent applicable to the
Company, counterpart regulations in the European Union and all other countries. The
Company is in compliance in all material respects with all applicable reporting requirements for all Company Licenses or plant
registrations including, but not limited to, applicable adverse event reporting
requirements in the United States and outside of the United States under Applicable
Law. The Disclosure Schedule sets forth a list of all Company Licenses.
	 
	 	(b)  	The Company is in compliance in all material respects with all FDA and
non-United States equivalent agencies and other Applicable Laws relating to the
maintenance, compilation and filing of reports, including medical device reports, with

regard to the Company’s products. The Disclosure Schedule sets forth a list of all
applicable adverse event reports related to the Products, including any report filed
under 21 CFR § 812.150(b).
	 
	 	(c)  	Neither the Company nor any Subsidiary has received any written notice or other
written communication from the FDA or any other Governmental Authority alleging any
violation of Applicable Law by the Company.
	 
	 	(d)  	There have been no recalls, field notifications or seizures ordered or adverse
regulatory actions taken or, to the Company’s Knowledge, threatened by the FDA or any
other Governmental Authority with respect to any of the Company’s products, including
any facilities where any such products are produced,

16

 

	 	   	processed, packaged or stored, and
neither the Company nor any Subsidiary has within the last three years, either
voluntarily or at the request of any Governmental Authority, initiated or participated
in a recall of any product.

	 	(e)  	The Company and each Subsidiary have conducted all of their clinical trials
with reasonable care and in all material respects in accordance with all Applicable
Laws and the stated protocols for such clinical trials.
	 
	 	(f)  	All filings with and submissions to the FDA and any corollary entity in any
other jurisdiction made by the Company with regard to the Company’s products, were
true, accurate and complete in all material respects as of the date made, and, to the
extent required to be updated, as so updated remain true, accurate and complete in all
material respects as of the date hereof, and do not materially misstate any of the
statements or information included therein, or omit to state a material fact necessary
to make the statements therein not misleading.

	2.12  	Reimbursement/Billing.

	 	(a)  	The Company is neither a provider nor a supplier under Medicare, Medicaid or
any other government-sponsored health care program (collectively, “Government
Programs”), and does not bill any Government Program or third party payor for its
products.
	 
	 	(b)  	There is no pending, nor to the knowledge of Company, threatened, proceeding or
investigation under any Government Program involving the Company.
	 
	 	(c)  	To Company’s actual knowledge, the Company has not arranged with or contracted
with (by employment or otherwise) any person who is excluded from participation in any
Government Program for the provision of items or services for which payment may be made
under any such Government Program. None of the officers, directors, or managing
employees (as such term is defined in 42 U.S.C. § 1320a-5(b)) of the Company, has been
excluded from any Government Program or been subject to sanction pursuant to 42 U.S.C.
§ 1320a-7a or 1320a-8 or been convicted of a crime described at 42 U.S.C. § 1320a-7b.
	 
	 	(d)  	Neither the Company, any director, officer or employee of the Company, nor any
agent acting on behalf of or for the benefit of any of the foregoing, has directly or
indirectly in connection with the Company: (i) offered or paid any remuneration, in
cash or in kind, to or made any financial arrangements with, any past, present or
potential customers, past or present suppliers, patients, contractors or employees of
third party payors or Government Programs in order to obtain business or payments from
such persons other than in the ordinary course of business; (ii) given or agreed to
give, any gift or gratuitous payment of any kind, nature or description (whether in
money, property or services) to any customer or potential customer, supplier or
potential supplier, contractor, third party payor or any other person other than in
connection with promotional or entertainment activities in the ordinary course of
business and in compliance with the

17

 

	 	   	Company’s compliance program; or (iii) made any
false entries on any of the Company’s books or records for any purpose prohibited by
Applicable Law.

	 	(e)  	Neither the Company, nor any director, officer or employee of the Company is a
party to any contract to provide services, lease space or lease equipment to the
Company with any physician, health care facility, hospital or other person who is in a
position to make or influence referrals to the Company where such contract or provision
of services or space is prohibited by Applicable Law.

	2.13  	Compliance with Applicable Laws. The Company, and each of its officers, directors,
agents and employees have complied in all material respects with all Applicable Laws,
including, but not limited to, Applicable Laws relating to Government Programs and to billing
and health care fraud (including the federal Anti-Kickback Law, 42 U.S.C. §1320a-7b, the Stark
I and II Laws, 42 U.S.C. §1395nn, as amended, and the False Claims Act, 31 U.S.C. §3729 et
seq. and any regulations related thereto, as well as with any similar state statutes). To the
Company’s Knowledge, no claims have been filed against the Company alleging a violation of any
Applicable Law. The Company is not a “covered entity” or a “business associate” within the
meaning of the HIPAA Privacy Regulations.
	 
	2.14  	Government Inspections. The Company (i) is not a party to a Corporate Integrity
Agreement with the Office of the Inspector General of the Department of Health and Human
Services, (ii) has no reporting obligations pursuant to any settlement agreement entered into
with any governmental body, (iii) to the Company’s Knowledge, has not been the subject of any
Government Program investigation conducted by any governmental body, (iv) has not been a
defendant in any qui tam/False Claims Act litigation (other than by reason of an unsealed
complaint of which the Company has no knowledge), and (v) has not been served with or received
any search warrant, subpoena, civil investigation demand, contact letter, or to the Company’s
Knowledge, telephone or personal contact by or from any governmental body.
	 
	2.15  	Permits. The Disclosure Schedule sets forth all approvals, authorizations,
certificates, consents, licenses, orders and permits and other similar authorizations of all
Governmental Authorities (and all other Persons) that are necessary for the Company to conduct
its business and own and operate its properties, but excluding Environmental Permits which are
addressed in Section 2.22 below (the “Permits”). Each Permit is valid and in full
force and effect and none of the Permits will be terminated, revoked, modified or become
terminable or impaired in any respect for any reason, except as would not have a Material
Adverse Effect on the Company. The Company has conducted its business in compliance with all
material terms and conditions of the Permits. The term Permits shall not include any Company
License as defined in Section 2.11.
	 
	2.16  	Inventories. All inventories of the Company reflected in the Latest Balance Sheet
(a) to the Company’s Knowledge, conform to the material specifications established therefor,
and (b) to the Company’s Knowledge, have been manufactured in material compliance with all
Applicable Laws. The quantities of all inventories, materials and supplies of the Company are
not obsolete, damaged, slow-moving, defective or excessive and the present

18

 

	 	   	quantities of all
inventory, materials and supplies of the Company are reasonable in the present circumstances
of the business of the Company, as a whole, as currently conducted, except for items that are
obsolete or below standard quality, all of which are immaterial to the overall financial
condition of the Company, taken as a whole, and have been adequately allowed for in the Latest
Balance Sheet.

	2.17  	Litigation. There are no (a) actions, suits, claims, hearings, arbitrations,
proceedings (public or private) or governmental investigations that have been brought by any
Governmental Authority or any other Person against the Company or any officer, employee or
director of the Company in their capacity as such (collectively, “Proceedings”), nor
any investigations or reviews by any Governmental Authority against or affecting the Company,
pending or, to the Company’s Knowledge, threatened, against or by the Company or any of their
assets or which seek to enjoin or rescind the transactions contemplated by this Agreement; and
(b) existing orders, judgments or decrees of any Governmental Authority naming the Company as
an affected party or otherwise affecting any of the assets or the business of the Company.

	2.18  	Contracts.

	 	(a)  	The Disclosure Schedule lists the following Contracts of the Company
(collectively, the “Scheduled Contracts”):

	 	(i)  	Each Contract providing for the lease of real property by the
Company or which is used by Company in connection with the operation of its
business.
	 
	 	(ii)  	Each Contract relating to all machinery, tools, equipment,
motor vehicles, rolling stock and other tangible personal property (other than
inventory and supplies) owned, leased or used by the Company, except for items
having remaining payments of less than $10,000 which do not, in the aggregate,
have remaining payments of more than $25,000 or having a remaining term of
longer than six (6) months or that are not cancelable by the Company in its
discretion and without penalty upon notice of sixty (60) days or less.
	 
	 	(iii)  	Each Contract to which the Company is a party that would
reasonably be expected to involve payments by or to the Company in excess of
$25,000, or would have a Material Adverse Effect.
	 
	 	(iv)  	All Contracts relating to, or evidences of, or guarantees of,
or providing security for, indebtedness or the deferred purchase price of
property (whether incurred, assumed, guaranteed or secured by any asset).
	 
	 	(v)  	Each independent sales representative or distribution
agreement, supply agreement or similar Contract relating to or providing for
the marketing or manufacturing of the Company’s products.

19

 

	 	(vi)  	Each consulting, development, joint development, research and
development, regulatory or similar Contract relating to development of the
Company’s products or Intellectual Property and each Contract under which the
Company has granted or obtained a license to Intellectual Property, other than
commercial software licenses.
	 
	 	(vii)  	All acquisition, partnership, joint venture, teaming
arrangements or other similar Contracts.
	 
	 	(viii)  	Any Contract under which the Company has agreed not to compete or has granted
to a third party an exclusive right that restricts or otherwise adversely
affects the ability of the Company to conduct its business.
	 
	 	(ix)  	All Benefit Plans.
	 
	 	(x)  	All Contracts with any “disqualified individual” (as defined in
Section 280G(c) of the Code) which contains any severance or termination pay
liabilities which would result in a disallowance of the deduction for any
“excess parachute payment” (as defined in Section 280G(b)(l) of the Code) under
Section 280G of the Code.
	 
	 	(xi)  	Every Contract between the Company and any of the Company’s
officers, directors or more than 5% stockholders, or any entity in which any of
the Company’s officers, directors or more than 5% stockholders has a greater
than 2% equity interest.
	 
	 	(xii)  	All Contracts for clinical or marketing trials relating to the
Company’s products and all Contracts with physicians, hospitals or other
healthcare providers, or other scientific or medical advisors.
	 
	 	(xiii)  	All Contracts not identified in clause (xii) which relate to the Company’s
compliance with or obligation to comply with the requirements of the HIPAA
Privacy Regulations, including without limitation all business associate
agreements, subcontractor agreements, confidentiality agreements and similar
contracts.

	 	(b)  	The Company has delivered to Parent true and correct copies (or summaries, in
the case of any oral Contracts) of all such Scheduled Contracts. None of the Scheduled
Contracts contain a provision requiring the consent of any party with respect to the
consummation of the transaction contemplated herein. No notice of default arising
under any Scheduled Contract has been delivered to or by the Company. Each Scheduled
Contract is a legal, valid and binding obligation of the Company and each other party
thereto, enforceable against each such party thereto in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors’ rights generally and subject to general
principles of equity, and neither the Company, nor, to the Company’s Knowledge, the
other party thereto, is in breach, violation or default thereunder. The Company is not
a party to and is not

20

 

	 	   	bound by any contract, agreement or instrument that currently has
or would have a Material Adverse Effect.

	2.19  	Benefit Plans.

	 	(a)  	None of the Company, or any other ERISA Affiliate sponsors, maintains,
contributes to, is required to contribute to or has or could have any liability of any
nature, whether known or unknown, direct or indirect, fixed or contingent, with respect
to, any Pension Plan, including, without limitation, any such plan that is excluded
from coverage by Section 4 of ERISA or is a “Multiemployer Plan” within the meaning of
Section 3(37) or 4001(a)(3) of ERISA. To the Company’s Knowledge, each such Pension Plan that is a Multiemployer Plan has been operated in
all material respects in accordance with its terms and in compliance in all material
respects with the applicable provisions of ERISA, the Code and other Applicable Law.
Each such other Pension Plan has been operated in all material respects in
accordance with its terms and in compliance in all material respects with the
applicable provisions of ERISA, the Code and all other Applicable Law. All Pension
Plans which the Company operates as plans that are qualified under the provisions of
Section 401(a) of the Code satisfy in form and operation all applicable
qualification requirements and has not received in the preceding seven (7) years or
committed to receive a transfer of assets and/or liabilities or spin-off from
another plan, except transfers, which qualify as transfers from eligible rollover
distributions within the meaning of Code Section 402(c)(4). None of the Company,
any Subsidiary or any other ERISA Affiliate has sponsored, maintained or contributed
to any Pension Plan which, during the preceding seven (7) years, has been
terminated, including by way of merger with or into another Pension Plan.
	 
	 	(b)  	No Pension Plan is now nor has ever been “top-heavy” pursuant to Section 416 of
the Code.
	 
	 	(c)  	The Disclosure Schedule sets forth the name of each ERISA Affiliate.
	 
	 	(d)  	None of the Company, any Subsidiary or any other ERISA Affiliate has or could
have any liability of any nature, whether known or unknown, direct or indirect, fixed
or contingent, to any Pension Plan, the Pension Benefit Guaranty Corporation or any
other person, arising directly or indirectly under Title IV of ERISA other than
liability pursuant to Section 4007 for premiums which are not yet due (without regard
to any waiver). No “reportable event,” within the meaning of Section 4043 of ERISA,
has occurred with respect to any Pension Plan subject to Title IV of ERISA. None of
the Company, any Subsidiary or any other ERISA Affiliate has ceased operations at any
facility or withdrawn from any Company Pension Plan in a manner which could subject the
Company, any Subsidiary or any other ERISA Affiliate to liability under Section
4062(e), 4063 or 4064 of ERISA. None of the Company, any

21

 

	 	   	Subsidiary or any other ERISA
Affiliate maintains, contributes to or has participated in or agreed to participate in
any Pension Plan that is a Multiemployer Plan. None of the Company, any Subsidiary or
any other ERISA Affiliate has been a party to a sale of assets to which Section 4204 of
ERISA applied with respect to which it could incur any withdrawal liability (including
any contingent or secondary withdrawal liability) to any Multiemployer Plan. None of
the Company, any Subsidiary or any other ERISA Affiliate has incurred, or has
experienced an event that will, within the ensuing twelve (12) months, result in, a
“complete withdrawal” or “partial withdrawal,” as such terms are defined respectively
in Sections 4203 and 4205 of ERISA, with respect to a Pension Plan which is a Multiemployer Plan, and nothing has
occurred that could result in such a complete or partial withdrawal. None of the
Company, any Subsidiary or any other ERISA Affiliate has incurred a decline in
contributions to any Multiemployer Plan such that, if the current rate of
contributions continues, a seventy percent (70%) decline in contributions (as
defined in Section 4205 of ERISA) will occur within the next three (3) plan years.

	 	(e)  	None of the Company, any Subsidiary or any other ERISA Affiliate sponsors,
maintains, contributes to, is required to contribute to, or has or could have any
liability of any nature, whether known or unknown, direct or indirect, fixed or
contingent, with respect to any Welfare Plan, whether insured or otherwise, including,
without limitation, any such plan that is a Multiemployer Plan within the meaning of
Section 3(37) of ERISA. To the Company’s Knowledge, each such Welfare Plan that is a
Multiemployer Plan has been operated in all material respects in accordance with its
terms and in compliance in all material respects with applicable provisions of ERISA,
the Code and other Applicable Law. Each such other Welfare Plan has been operated in
all material respects in accordance with its terms and in compliance in all material
respects with the applicable provisions of ERISA, the Code and all other Applicable
Law. Benefits under each Welfare Plan are fully insured by an insurance company
unrelated to the Company, any Subsidiary or any other ERISA Affiliate. No insurance
policy or contract requires or permits retroactive increase in premiums or payments due
thereunder. None of the Company, any Subsidiary or any other ERISA Affiliate has
established or contributed to, is required to contribute to or has or could have any
liability of any nature, whether known or unknown, direct or indirect, fixed or
contingent, with respect to any “voluntary employees’ beneficiary association” within
the meaning of Section 501(c)(9) of the Code, “welfare benefit fund” within the meaning
of Section 419 of the Code, “qualified asset account” within the meaning of Section
419A of the Code or “multiple employer welfare arrangement” within the meaning of
Section 3(40) of ERISA. No Welfare Plan that is a Multiemployer Plan imposes any
post-withdrawal liability or contribution obligations upon the Company or any ERISA
Affiliate. None of the Company, any Subsidiary or any other ERISA Affiliate maintains,
contributes to or has or could have any liability of any nature, whether known or
unknown, direct or indirect, fixed or contingent, with respect to medical, health, life
or other welfare benefits for present or future terminated employees or their spouses
or dependents other than as required by Part 6 of Subtitle B of Title I of ERISA or any
comparable state law.

22

 

	 	(f)  	None of the Company, any Subsidiary or any other ERISA Affiliate is a party to,
maintains, contributes to, is required to contribute to or has or could have any
liability of any nature, whether known or unknown, direct or indirect, fixed or
contingent, with respect to any Compensation Plan. Each Compensation Plan has been operated in all material respects in accordance with its terms and in
compliance in all material respects with the applicable provisions of all Applicable
Law.
	 
	 	(g)  	There are no facts or circumstances which could, directly or indirectly,
subject the Company, any Subsidiary or any other ERISA Affiliate to any (i) excise tax
or other liability under Chapters 43, 46 or 47 of Subtitle D of the Code, (ii) penalty
tax or other liability under Chapter 68 of Subtitle F of the Code or (iii) civil
penalty, damages or other liabilities arising under Section 502 of ERISA.
	 
	 	(h)  	Full payment has been made of all amounts which the Company, any Subsidiary or
any other ERISA Affiliate is required, under Applicable Law, the terms of any Benefit
Plan, or any agreement relating to any Benefit Plan, to have paid as a contribution,
premium or other remittance thereto or benefit thereunder. Each Pension Plan that is
subject to the minimum funding standards of Section 412 of the Code and/or Section 302
of ERISA meets those standards and has not incurred any accumulated funding deficiency
within the meaning of Section 412 or 418B of the Code or Section 302 of ERISA and no
waiver of any minimum funding requirements has been applied for or obtained with
respect to any Pension Plan. The Company, the Subsidiaries and each other ERISA
Affiliate has made adequate provisions for reserves or accruals in accordance with GAAP
to meet contribution, benefit or funding obligations arising under Applicable Law or
the terms of any Benefit Plan or related agreement. There will be no change on or
before Closing Date in the operation of any Benefit Plan or any documents with respect
thereto which will result in an increase in the benefit liabilities under such Benefit
Plans, except as may be required by law.
	 
	 	(i)  	The Company and each other ERISA Affiliate has timely complied in all material
respects with all reporting and disclosure obligations with respect to the Benefit
Plans imposed by the Code, ERISA or other Applicable Law.
	 
	 	(j)  	There are no pending or, to the Company’s Knowledge, threatened audits,
investigations, claims, suits, grievances or other proceedings, and there are no facts
that could give rise thereto, involving, directly or indirectly, any Benefit Plan, or
any rights or benefits thereunder, other than the ordinary and usual claims for
benefits by participants, dependents or beneficiaries.
	 
	 	(k)  	The transactions contemplated herein do not result in any payment (whether of
severance pay or otherwise), forgiveness of debt, distribution, increase in benefits,
obligation to fund, or the acceleration of accrual, vesting, funding or payment of any
contribution or benefit under any Benefit Plan.

23

 

	 	(l)  	No employer other than the Company and/or an ERISA Affiliate is permitted to
participate or participates in the Benefit Plans. No leased employees (as defined in Section 414(n) of the Code) or independent contractors are eligible for, or
participate in, any Benefit Plans.
	 
	 	(m)  	No action or omission of the Company, any Subsidiary or any other ERISA
Affiliate or any director, officer, employee, or agent thereof in any way restricts,
impairs or prohibits the Parent, the Company, any Subsidiary, any other ERISA Affiliate
or any successor from amending, merging, or terminating any Benefit Plan in accordance
with the express terms of any such plan and Applicable Law.
	 
	 	(n)  	The Disclosure Schedule lists each Benefit Plan and the Company has delivered
to the Parent true and complete copies of all Benefit Plan documents and related trust
agreements or other agreements or contracts evidencing any funding vehicle with respect
thereto, including all amendments. The Company has delivered to the Parent true and
complete copies of: (i) the three most recent annual reports on Treasury Form 5500,
including all schedules and attachments thereto, with respect to any Benefit Plan for
which such a report is required; (ii) the three (3) most recent actuarial reports with
respect to any Pension Plan that is a “defined benefit plan” within the meaning of
Section 414(j) of the Code; (iii) the form of summary plan description, including any
summary of material modifications thereto or other modifications communicated to
participants, currently in effect with respect to each Benefit Plan; (iv) the most
recent determination letter with respect to each Pension Plan intended to qualify under
Section 401(a) of the Code and the full and complete application therefor submitted to
the Internal Revenue Service; and (v) all professional opinions, material internal
memoranda, material correspondence with regulatory authorities and administrative
policies, manuals, interpretations and the like with respect to each Benefit Plan.
	 
	 	(o)  	The Disclosure Schedule lists each Benefit Plan that is or may be, in whole or
in part, subject to Section 409A of the Code (each such plan or part thereof, a
“Section 409A Benefit Plan”). Except as set forth in the Disclosure Schedule,
to the Company’s Knowledge: (a) each Section 409A Benefit Plan complies in form with
Section 409A of the Code, and (b) no service provider under any Section 409A Benefit
Plan is subject to the additional income tax under Section 409A of the Code.
	 
	 	(p)  	The Disclosure Schedule lists and the Company has delivered to the Parent true
and correct copies of the Welfare Plan documents establishing compliance with the HIPAA
Privacy Regulations, including appointment of a privacy official, its Notice of HIPAA
Privacy Practices, privacy policies and procedures, and the plan administrator’s group
health plan document amendment certification.
	 
	 	(q)  	The Company has properly determined and timely collected and reported all
Federal Insurance Contribution Act (“FICA”) taxes imposed under Sections 3101
and 3111 of the Code on remuneration for employment that constitutes “wages”

24

 

	 	   	within the meaning of Section 3121(a) of the Code, including amounts deferred under
nonqualified deferred compensation plans, agreements or arrangements.

	2.20  	Labor and Employment Matters.

	 	(a)  	The Disclosure Schedule sets forth a list of the current employees, officers
and directors of the Company. The Company has previously delivered to Parent a
complete and accurate list of all current employees, officers and directors of the
Company that includes their base salaries and bonus. All employees of the Company are
employed on an “at-will” basis. The Disclosure Schedule identifies all employees who
are currently on leave for any reason or receiving disability or workers’ compensation
or any other similar type of benefit from the Company.
	 
	 	(b)  	The Company is and has been in compliance in all material respects with all
Applicable Laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, including without limitation any such Applicable Laws
respecting employment discrimination and occupational safety and health requirements,
and has not and is not engaged in any unfair labor practice. There is no unfair labor
practice complaint against the Company pending or, to the Company’s Knowledge,
threatened before the National Labor Relations Board or any other comparable
Governmental Authority. There is no labor strike, dispute, slowdown or stoppage
actually pending or, to the Company’s Knowledge, threatened against or directly
affecting the Company. No labor representation question exists respecting the
employees of the Company and there is not pending or, to the Company’s Knowledge,
threatened any activity intended or likely to result in a labor representation vote
respecting the employees of the Company. No grievance or any arbitration proceeding
arising out of or under collective bargaining agreements is pending and no claims
therefor exist or, to the Company’s Knowledge, have been threatened. No collective
bargaining agreement is binding and in force against the Company or currently being
negotiated by the Company. The Company has not experienced any significant work
stoppage or other significant labor difficulty. The Company is not delinquent in
payments to any persons for any wages, salaries, commissions, bonuses or other direct
or indirect compensation for any services performed by them or amounts required to be
reimbursed to such persons, including without limitation any amounts due under any
Benefit Plan. Upon termination of the employment of any person, neither the Company,
Parent nor any subsidiary of Parent will, by reason of any agreement or understanding
to which the Company is a party, be liable to any of such persons for so-called
“severance pay” or any other payments. Within the twelve-month period prior to the
date hereof there has not been any expression of intention to the Company by any
officer or key employee to terminate such employment.
	 
	 	(c)  	All individuals who are performing or have performed services for the Company
or any of its Affiliates and who are or were classified by the Company or any of its
Affiliates as “independent contractors” qualify for such classification under Section
530 of the Revenue Act of 1978 or Section 1706 of the Tax Reform Act

25

 

	 	     of 1986, as applicable, and such individuals are not entitled to any benefits under the Benefit
Plans maintained by the Company.

	2.21  	Intellectual Property.

	 	(a)  	Except for Intellectual Property relating to commercial off-the-shelf software,
the Disclosure Schedule lists all Intellectual Property that is registered with, has
been applied for, or has been issued by the U.S. Patent and Trademark Office or a
corresponding foreign governmental or public authority and all Intellectual Property
that: (i) is owned by, licensed to or otherwise controlled by the Company; (ii) is used
in, developed for use in, or, to the Company’s Knowledge, necessary to the conduct of
its business as now conducted; or (iii) has been licensed to or from third parties.
The Company has delivered or made available to Parent complete and accurate copies of
correspondence, litigation documents, agreements, file histories and office actions
relating to the patents and patent applications listed in the Disclosure Schedule.
Each item of Intellectual Property owned or used by the Company immediately prior to
the Effective Time hereunder will be owned or available for use by the Parent on
identical terms and conditions immediately after the Effective Time.
	 
	 	(b)  	The Company owns, free and clear of any Lien (other than Permitted Liens), and
possesses all right, title and interest, or holds a valid license, in and to all
Intellectual Property, and has taken all reasonable action to protect the Intellectual
Property. To the Company’s Knowledge, all patents included in the Intellectual
Property are valid and enforceable. To the Company’s Knowledge, the Intellectual
Property owned or licensed by the Company constitutes all the intellectual property
necessary to the conduct of the business of the Company as it is currently conducted.
There are no royalties, fees, honoraria or other payments payable by the Company to any
Person by reason of the ownership, development, modification, use, license, sublicense,
sale, distribution or other disposition of the Intellectual Property other than
salaries and sales commissions paid to employees and sales agents in the ordinary
course of business. The Company has taken all reasonable security measures to protect
the secrecy, confidentiality and value of the Intellectual Property.
	 
	 	(c)  	The Disclosure Schedule lists the Internet domain names included in the
Intellectual Property. The Company is the registrant and sole legal and beneficial
owner of the Internet domain names included in the Intellectual Property, free and
clear of all Liens. The Company is the registered owner of the trademarks underlying
each of the domain names included in the Intellectual Property. The Company is not aware of any pending or threatened actions, suits, claims, litigation
or proceedings relating to the domain names included in the Intellectual Property.
The Company has operated the websites identified in the Disclosure Schedule.
	 
	 	(d)  	All personnel, including employees, agents, consultants and contractors, who
have contributed to or participated in the conception or development, or both, of

26

 

	 	   	the Intellectual Property on behalf of the Company and all officers and technical employees
of the Company either (i) have been a party to “work-for-hire” arrangements or
agreements with the Company in accordance with applicable federal and state law that
has accorded the Company full, effective, sole, exclusive and original ownership of all
tangible and intangible property thereby arising, or (ii) have executed appropriate
instruments of assignment in favor of the Company as assignee that have conveyed to the
Company effective, sole and exclusive ownership of all tangible and intangible property
arising thereby.

	 	(e)  	To the Company’s Knowledge, the conduct of the Company’s businesses has not
infringed, misappropriated or conflicted with and does not infringe, misappropriate or
conflict with any intellectual property right of any other Person, nor has the Company
received any notice from any third party of any infringement, misappropriation or
violation by the Company of any intellectual property right of any third party and, to
the Company’s Knowledge, no notice has been received by any third party challenging the
Company’s ownership to any of the Intellectual Property. No claim by any third party
contesting the validity of any Intellectual Property has been made, is currently
outstanding or, to the Company’s Knowledge, is threatened or reasonably expected to
arise. To the Company’s Knowledge, no third party is infringing any Intellectual
Property right of the Company.

	2.22  	Environmental Compliance.

	 	(a)  	Except in compliance with Environmental, Safety and Health Laws, the Company
has not emitted, released, discharged, dumped or disposed of any Environmentally
Regulated Materials. To the Company’s actual knowledge, the Properties do not contain
any: (i) underground or aboveground storage tanks; (ii) friable asbestos; (iii)
equipment containing polychlorinated biphenyls (“PCBs”); (iv) underground
injection wells; or (v) septic tanks in which process waste water or any
Environmentally Regulated Materials have been disposed.
	 
	 	(b)  	The Company is in material compliance with applicable Environmental, Safety and
Health Laws and has obtained all Permits required under applicable Environmental,
Safety and Health Laws.
	 
	 	(c)  	No enforcement, cleanup, removal, remediation or other governmental or
regulatory environmental remedial actions have been, asserted or, to the Company’s
actual knowledge, threatened with respect to operations conducted on the Properties by
the Company or against the Company with respect to or regarding the Properties pursuant
to any Environmental, Safety and Health Laws.
	 
	 	(d)  	To the Company’s actual knowledge, there are no past or present facts or
circumstances, relating to or affecting the Company or its business or assets that have
resulted in the violation, of any Environmental, Safety and Health Laws, that would
reasonably be expected to give rise to any Environmental Liability.

27

 

	 	(e)  	All machinery, tools, devices and equipment operated by the Company or any
Subsidiary on the Properties have been operated in compliance with all Environmental,
Safety and Health Laws, and all such equipment currently is operational and in good
condition.
	 
	 	(f)  	The Company has delivered or made available to Parent copies of all Phase 1 or
Phase 2 environmental site assessment reports relating to any Properties.
	 
	 	(g)  	All Company representations and warranties related to environmental safety and
health matters are limited to this Section 2.22.

	2.23  	Insurance. The Disclosure Schedule contains an accurate and complete list of all
insurance policies owned or held by the Company, including, but not limited to, fire and other
casualty, general liability, theft, life, workers’ compensation, health, directors and
officers, business interruption and other forms of insurance owned or held by the Company,
specifying the insurer the policy number, and the term of the coverage. All present policies
are in full force and effect and all premiums with respect thereto have been paid. The
Company has not been denied any form of insurance and no policy of insurance has been revoked
or rescinded during the past five (5) years.
	 
	2.24  	Tax Matters.

	 	(a)  	The Company, and any combined or unitary group of which the Company is or was a
member, has prepared and timely filed or will timely prepare and timely file all Tax
Returns any of them is required to file (taking into account any extensions) on or
prior to the Closing Date. As of the time of filing, such Tax Returns were or will be
accurate and correct in all material respects and did not or will not contain a
disclosure statement under Section 6662 of the Code (or any predecessor provision or
comparable provision of state, local or foreign law). The Company has made or will
make all such Tax Returns available to Parent, with copies of such Tax Returns filed
after the effective date of this Agreement provided to Parent at least three (3)
Business Days prior to filing such Tax Return.
	 
	 	(b)  	The Company has paid or adequately provided for (on its Latest Financial
Statements, exclusive of any reserves for deferred Taxes established to reflect timing
differences between book and taxable income pursuant to Statement of Financial
Accounting Standards No. 109) all Taxes (whether or not shown on any Tax Return) with
respect to all taxable periods (or portions thereof) ending on or before the Closing
Date.
	 
	 	(c)  	No claim for assessment or collection of Taxes is presently being asserted
against the Company, and the Company is not a party to any pending action, proceeding,
or investigation by any Governmental Authority, nor has any such action, proceeding or
investigation been threatened in a writing delivered to the Company. No claim has been
made in any jurisdiction where the Company does not file Tax Returns that the Company
may be subject to Tax by that jurisdiction.

28

 

	 	(d)  	The Company is not a party to any agreement, contract, arrangement or plan that
(i) has resulted or would result, separately or in the aggregate, in connection with
this Agreement or any change of control of the Company, in the payment of any “excess
parachute payments” within the meaning of Section 280G of the Code; or (ii) would
obligate the Company to provide “gross-up” benefits with respect to any excise tax due
on any “excess parachute payments” within the meaning of Section 280G of the Code.
	 
	 	(e)  	All deficiencies and assessments of Taxes of the Company resulting from an
examination of any Tax Returns by any Governmental Authority on or before the Closing
Date have been or will be paid and there are no pending examinations currently being
made by any Governmental Authority nor has there been any written or oral notification
to the Company of any intention to make an examination of any Tax Returns by any
Governmental Authority. There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any Tax Return for any period.
	 
	 	(f)  	The Company has (i) complied with all Applicable Laws relating to the
withholding of Taxes and the payment thereof (including, without limitation,
withholding of Taxes under Sections 1441 and 1442 of the Code, or similar provisions
under any foreign laws); (ii) timely and properly withheld from individual employee
wages and paid over to the proper Governmental Authority all amounts required to be so
withheld and paid over under all Applicable Laws; and (iii) properly determined and
timely collected and reported all Federal Insurance Contributions Act (FICA) taxes
imposed under Sections 3101 and 3111 of the Code on remuneration for employment that
constitutes “wages” within the meaning of Section 3121(a) of the Code, including
amounts of deferred compensation under nonqualified deferred compensation plans,
agreements or arrangements.
	 
	 	(g)  	The Company is not involved in, subject to, or a party to any joint venture,
partnership, contract or other arrangement that is treated as a “partnership” for
federal, state, local or foreign income Tax purposes. The Company does not own any
interest in an entity that is classified as an entity that is “disregarded as an entity
separate from its owner” under Treasury Regulations Section 301.7701-3(b).
	 
	 	(h)  	The Company has not requested any extension of time within which to file any
Tax Return, which Tax Return has not since been filed.
	 
	 	(i)  	The Company is not required to include in income any adjustment under Section
481(a) of the Code by reason of a voluntary change in accounting method initiated by
the Company.
	 
	 	(j)  	The Company has not made an election under Section 341(f) of the Code for any
taxable years not yet closed for statute of limitation purposes.

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	 	(k)  	The Company is, and at all times has been, a corporation or association taxable
as corporations for United States income tax purposes.
	 
	 	(l)  	The Company is not, nor has been at any time, a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code.
	 
	 	(m)  	The Company is not a party to or bound by any obligations under any Tax
sharing, Tax allocation, Tax indemnity or similar agreement or arrangement.
	 
	 	(n)  	The Company has not, within three (3) years preceding the date hereof, been
either a “distributing” or “controlled” corporation (as such terms are defined in
Section 355(a)(1) of the Code) in a transaction structured to qualify as a tax-free
distribution under Section 355 of the Code.
	 
	 	(o)  	The Company has not received any written ruling related to Taxes, entered into
any agreement with a taxing authority relating to Taxes or authorized any person to
represent them before a taxing authority pursuant to a power of attorney or otherwise.
	 
	 	(p)  	There are (and, immediately following the Effective Time, there will be) no
liens for Taxes upon any of the assets or properties of the Company other than liens
for Taxes not yet due and payable. There is no outstanding closing agreement, ruling
request, request to consent to change a method of accounting, subpoena or request for
information with or by a Governmental Authority with respect to the Company, its
income, assets, properties, payroll, operation or business.
	 
	 	(q)  	The Company is not nor has been a party to any transaction where a deferred
intercompany gain was generated under Section 1502 of the Code and the Treasury
Regulations promulgated thereunder.
	 
	 	(r)  	The Company has not engaged in a reportable transaction under Section
1.6011-4(b) of the U.S. Treasury Regulations or similar provisions of state law or in a
transaction that is the same as or substantially similar to one of the types of
transactions that the Internal Revenue Service or any state has determined to be a tax
avoidance transaction and identified by notice, regulation, or other form of published
guidance as a listed transaction, as set forth in Section 1.6011-4(b)(2) of the
Treasury Regulations or similar provision of state law.
	 
	 	(s)  	The Company is in compliance with respect to Tax incentives, Tax holidays, Tax
rebates or special Tax rate relief or other favorable Tax benefits authorized by any
Governmental Authority to which the Company currently claims entitlement.

	2.25  	Bank Accounts; Powers of Attorney. The Disclosure Schedule sets forth: (a) the names
of all financial institutions, investment banking and brokerage houses, and other similar
institutions at which the Company maintains accounts, deposits, safe deposit boxes of any
nature, and the names of all persons authorized to draw thereon or make withdrawals therefrom
and a description of such accounts; and (b) the names of all persons or entities holding
general or special powers of attorney from the Company and copies thereof.

30

 

	2.26  	Commitments. The performance of services entered into by the Company and all
outstanding contracts or commitments for the purchase of supplies, materials and services by
or from the Company were made in bona fide transactions in the ordinary course of business.

	2.27  	Product Liability Claims. The Company has not received a written claim or incurred
any uninsured or insured liability, for or based upon failure to warn, California Proposition
65, breach of product warranty (other than warranty service and repair claims incurred in the
ordinary course of business and expensed as warranty expense on the Latest Financial
Statements for the period in which incurred), strict liability in tort, general negligence,
negligent manufacture of product, negligent provision of services or any other allegation of
liability, including or resulting in, but not limited to, product recalls, arising from the
materials, design, testing, manufacture, packaging, labeling (including instructions for use)
or sale of its products or from the provision of services (“Product Liability Claim”).
The Company has disclosed to Parent each Product Liability Claim received by the Company.

	2.28  	No Sales or Warranties. No Product has been used except in connection with clinical
trials sponsored by the Company. The Company has never sold or received any consideration for
providing Products to clinical sites or health care providers in connection with clinical
trials sponsored by the Company. The Company has never extended warranties in connection with
the Product.

	2.29  	Relations with Suppliers. No material current supplier of the Company has canceled
any contract or order for provision of, and there has been no threat by any such supplier not
to provide, raw materials, products, supplies or services to the businesses of the Company
either prior to or following the Effective Time. The Disclosure Schedule lists each supplier
to the Company that is the source of a particular raw material, product, supply or service
with respect to which locating and qualifying a replacement source would involve significant
cost or delay.

	2.30  	Indemnification Obligations. The Company is not a party to any Contract that
contains any provisions requiring the Company to indemnify any Person (excluding indemnities
contained in the Company’s standard terms and conditions of sale, copies of which have been
provided to Parent). There is no event, circumstance or other basis that is reasonably likely
to give rise to any indemnification obligation of the Company or to its officers and directors
under the Company’s Certificate of Incorporation, Bylaws, similar governing documents or any
Contract between the Company and any of its officers or directors or to any other Person under
any Contract.

	2.31  	Absence of Certain Business Practices. Neither the Company, any director, officer,
employee or agent of the Company, nor, to the Company’s Knowledge, any other person acting on
behalf of the Company has, directly or indirectly, given or agreed to give any gift or similar
benefit or agreed to make or made any payment to any customer, supplier, governmental employee
or other person who is or may be in a position to help or hinder the business of the Company,
taken as a whole (or assist it in connection with any actual or proposed transaction) which
(a) would reasonably be expected to subject the

31

 

Company, Parent or Merger Subsidiary to any damage or penalty in any civil, criminal or
governmental litigation proceeding, or (b) violated or violates any Applicable Law.

	2.32  	Brokers. Neither the Company nor any of its directors, officers or employees has
employed any broker, finder, or financial advisor or incurred any liability for any brokerage
fee or commission, finder’s fee or financial advisory fee, in connection with the transactions
contemplated hereby.

	2.33  	Minute Books. The minute books of the Company, as previously made available to
Parent and its representatives, contain, in all material respects, complete and accurate
records of all meetings of and corporate actions or written consents by the stockholders,
Boards of Directors, and committees of the Boards of Directors of the Company.

	2.34  	Business Generally. There has been no event, transaction or information that, as it
relates directly to the businesses of Company, could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company.

	2.35  	Stockholder Agreements. Concurrently with the execution and delivery of this
Agreement, the Company has delivered to Parent the stockholder agreements in substantially the
form attached hereto as Exhibit C (the “Stockholder Agreements”) from Persons
who hold in the aggregate a number of shares of Company Common Stock (assuming the exercise by
such Persons of all Company Stock Options held by them and the issuance to such Persons of the
underlying shares of Company Common Stock) and Company Preferred Stock sufficient to adopt and
approve this Agreement and the Merger under the DGCL and, in any case, from all Persons who
hold (individually or in the aggregate with each such Person’s Affiliates) more than five
percent (5%) of the Company’s fully diluted outstanding shares of Company Capital Stock.

	2.36  	Disclosure. No representation or warranty by Company in this Agreement and no
statement contained or to be contained in any document or certificate furnished or to be
furnished by the Company to the Parent or Merger Subsidiary in response to the Parent’s
reasonable due diligence requests in connection with the transactions contemplated hereby,
contains any untrue statement of a material fact or omits or will omit to state any material
fact necessary in order to make the statements therein, in the light of the circumstances
under which they were made and as of the date so made, not misleading.

	2.37  	Investigation by Parent. Except as provided for on the Disclosure Schedule, (a) no
investigation by Parent shall affect the representations and warranties of the Company under
this Agreement or contained in any other writing to be furnished to Parent in connection with
the transactions contemplated hereunder and (b) such representations and warranties shall not
be affected or deemed waived by reason of the fact that Parent knew or should have known that
any of the same is or might be inaccurate in any respect.

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF

PARENT AND MERGER SUBSIDIARY

     As a material inducement to the Company to enter into this Agreement, with the understanding
that the Company will be relying thereon in consummating the transactions contemplated hereunder,
Parent and Merger Subsidiary hereby, jointly and severally, represent and warrant to the Company
that the statements contained in this Article 3 are true and correct.

	3.1  	Corporate Existence and Power. Parent and Merger Subsidiary are corporations duly
organized, validly existing and in good standing under the laws of their respective states of
incorporation and each has all requisite corporate power and authority required to own,
operate and lease their respective assets and properties as now owned, leased and operated and
to carry on their respective businesses as now being conducted. Parent and Merger Subsidiary
are each duly qualified or licensed to do business as a foreign corporation and are in good
standing in every jurisdiction in which the character or location of their properties and
assets owned, leased or operated by them or the nature of their business require such
licensing or qualification, except where the failure to be so qualified, licensed or in good
standing in such other jurisdiction would not, individually or in the aggregate, have a
Material Adverse Effect on Parent or Merger Subsidiary. Merger Subsidiary is a recently
formed Delaware corporation that has not conducted, and prior to the Effective Time will not
conduct, any activities other than those incident to its formation and in connection with the
consummation of the Merger.

	3.2  	Authorization. Parent and Merger Subsidiary have the requisite corporate power and
authority to enter into this Agreement and to carry out the transactions contemplated
hereunder. The Boards of Directors of Parent and Merger Subsidiary and Parent, as the sole
shareholder of Merger Subsidiary, have taken all action required by law, their respective
Certificates of Incorporation and Bylaws and otherwise to duly and validly authorize and
approve the execution, delivery and performance by Parent and Merger Subsidiary of this
Agreement and the consummation by Parent and Merger Subsidiary of the transactions
contemplated herein and no other corporate proceedings on the part of Parent or Merger
Subsidiary are, or will be, necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly executed and
delivered by each of them and, assuming the due authorization, execution and delivery by the
Company of this Agreement, constitutes the legal, valid and binding obligations of Parent and
Merger Subsidiary enforceable against each of them in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors’ rights generally and rules of law governing specific
performance, injunctive relief or other equitable remedies.

	3.3  	Consents and Approvals. No Consent by any individual or entity, including without
limitation any Governmental Authority or Person, is required in connection with the execution,
delivery or performance of this Agreement by Parent and Merger Subsidiary or the consummation
by Parent and Merger Subsidiary of the transactions contemplated herein, other than (a)
requirements of the DGCL for filing of appropriate documents to

33

 

effect the Merger, or (b) where the failure to make any such filing, or to obtain such
permit, authorization, Consent or approval, would not prevent or delay consummation of the
Merger or would not otherwise prevent Parent or Merger Subsidiary from performing their
obligations under this Agreement.

	3.4  	Available Capital Resources. The Parent has existing cash reserves and borrowing
capacity under existing credit facilities necessary to pay the Merger Consideration and
satisfy the obligations of Parent and Merger Subsidiary hereunder.

	3.5  	Disclosure. No representation or warranty by Parent or Merger Subsidiary in this
Agreement and no statement contained or to be contained in any document, certificate or other
writing furnished or to be furnished by either Parent or Merger Subsidiary to the Company in
connection with the transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact or omits or will omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances under which they
were made, not misleading.

	3.6  	Non-Contravention. Neither the execution, delivery and performance by Parent or
Merger Subsidiary of this Agreement nor the consummation of the transactions contemplated
herein will (a) contravene or conflict with the respective Certificate of Incorporation or
Bylaws of Parent and Merger Subsidiary; (b) contravene or conflict with or constitute a
violation of any provision of any Applicable Law binding upon or applicable to Parent or
Merger Subsidiary or any of the Parent’s or Merger Subsidiary’s assets (c) result in the
creation or imposition of any Lien on any of Parent’s or Merger Subsidiary’s assets, other
than Permitted Liens or (d) be in conflict with, constitute (with or without due notice or
lapse of time or both) a default under, result in the loss of any material benefit under, or
give rise to any right of termination, cancellation, increased payments or acceleration under
any terms, conditions or provisions of any note, bond, lease, mortgage, indenture, license,
contract, franchise, permit, instrument or other agreement or obligation to which Parent or
Merger Subsidiary is a party, or by which any of their respective properties or assets may be
bound, except in the cases of clause (b) where such conflicts or other occurrences would not
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

	3.7  	Brokers. Neither Parent nor Merger Subsidiary, nor any of their directors, officers
or employees has employed any broker, finder, or financial advisor or incurred any liability
for any brokerage fee or commission, finder’s fee or financial advisory fee, in connection
with the transactions contemplated hereby.

	3.8  	Litigation. There are no claims, actions, suits, proceedings, or investigations
pending against Parent or Merger Subsidiary or, to the Parent’s or Merger Subsidiary’s
knowledge, threatened against Parent or Merger Subsidiary (a) that if determined adversely to
Parent or Merger Subsidiary would be reasonably likely to have a Material Adverse Effect on
Parent or Merger Subsidiary, or (b) that challenge or seek to prevent, enjoin, alter or delay
any of the transactions contemplated hereby.

34

 

ARTICLE 4

COVENANTS

	4.1  	Conduct of the Business. Except as contemplated by this Agreement or to the extent
that Parent otherwise consents in writing, during the period from the date of this Agreement
until the earlier of the termination of this Agreement or the Closing, the Company shall
maintain its assets and properties and carry on its businesses and operations in the ordinary
course of business in a manner consistent with past practice; and the Company shall use
commercially reasonable efforts to preserve intact its business organizations, existing
business relationships (including without limitation its relationships with officers,
employees, dealers, distributors, independent contractors, customers and suppliers), good will
and going concern value.

	4.2  	Company’s Agreements as to Specified Matters. Except as specifically set forth on
the Disclosure Schedule, or as contemplated by this Agreement, or as may be otherwise agreed
in writing by Parent, from the date hereof until the earlier of the termination of this
Agreement or the Closing, the Company shall not:

	 	(a)  	Amend its Certificate of Incorporation or Bylaws (or other similar governing
instruments);
	 
	 	(b)  	Borrow or agree to borrow any funds in excess of $350,000;
	 
	 	(c)  	Except for trade payables, accrued payroll, and other customary expenses
incurred in the ordinary course of business and consistent with past practice, create,
incur or assume any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse the obligations of any Person, or make any loans, advances
or capital contributions to, or investments in, any other Person;
	 
	 	(d)  	Pay, discharge or satisfy any claims, liabilities or obligations in an amount
in excess of $25,000 in the aggregate, other than in the ordinary course of business
and consistent with past practice;
	 
	 	(e)  	Permit or allow any of its properties or assets which are material to the
operation of their businesses to be subjected to any Lien, except Permitted Liens;
	 
	 	(f)  	Write down the value of any inventory or write off as uncollectible any notes
or accounts receivable or any trade accounts or trade notes, other than in the ordinary
course of business consistent with past practices;
	 
	 	(g)  	Cancel or amend any debts, waive any claims or rights or sell, transfer or
otherwise dispose of any properties or assets, other than for such debts, claims,
rights, properties or assets which, individually or in the aggregate, are not material
to the conduct of their businesses;
	 
	 	(h)  	License, sell, transfer, pledge, modify, disclose, dispose of or permit to
lapse any right to the use of any Intellectual Property Rights other than for such
Intellectual

35

 

Property Rights which, individually or in the aggregate, are not material to the
conduct of their businesses;

	 	(i)  	Sell, assign, lease, license, transfer or otherwise dispose of, or mortgage,
pledge or encumber (other than with Permitted Liens), any of their respective assets,
except for sales of inventory in the ordinary course of business consistent with past
practice;
	 
	 	(j)  	(i) Terminate, enter into, adopt, institute or otherwise become subject to or
amend in any material respect any collective bargaining agreement or employment or
similar agreement or arrangement with any of its directors, officers or employees; (ii)
except as required by Applicable Law, terminate, enter into, adopt, institute or
otherwise become subject to or amend in any material respect any Benefit Plan; (iii)
contribute, set aside for contribution or authorize the contribution of any amounts for
any such Benefit Plan except as required (and not discretionary) by the terms of such
Benefit Plan; or (iv) grant or become obligated to grant any bonus or general increase
in the compensation of any directors, officers or employees (including without
limitation any such increase pursuant to any Benefit Plan);
	 
	 	(k)  	Make or enter into any commitment for capital expenditures for additions to
property, plant or equipment individually in excess of Twenty-Five Thousand Dollars
($25,000);
	 
	 	(l)  	Except as specifically contemplated by this Agreement, (i) declare, pay or set
aside for payment any dividend or other distribution in respect of, or split, combine
or reclassify, its capital stock or other securities (including without limitation
distributions in redemption or liquidation) or redeem, purchase or otherwise acquire
any shares of its capital stock or other securities, except pursuant to Company
repurchase or reacquisition rights arising upon termination of an individual’s status
as an employee, director or consultant; (ii) issue, grant or sell any shares of its
capital stock or equity securities of any class, or any options, warrants, conversion
or other rights to purchase or acquire any such shares or equity securities or any
securities convertible into or exchangeable for such shares or equity securities,
except issuance of Company Common Stock pursuant to the exercise of Company Stock
Options outstanding on the date hereof; (iii) become a party to any merger, exchange,
reorganization, recapitalization, liquidation, dissolution or other similar corporate
transaction; or (iv) organize any new subsidiary, acquire any capital stock or other
equity securities or other ownership interest in, or assets of, any person or entity or
otherwise make any investment by purchase of stock or securities, contributions to
capital, property transfer or purchase of any properties or assets of any person or
entity;
	 
	 	(m)  	Pay, lend or advance any amounts to, or sell, transfer or lease any properties
or assets to, or enter into any agreement or arrangement with, any director, officer,
employee or stockholder;

36

 

	 	(n)  	Terminate, enter into or amend in any material respect any Scheduled Contract,
or take any action or omit to take any action which will cause a breach, violation or
default (however defined) under any Scheduled Contract;
	 
	 	(o)  	Resolve any dispute or examination related to Taxes, make any election with
respect to Taxes, file any amended Tax Returns, pay any estimated Taxes in excess of
$10,000, consent to the extension or waiver of the limitations period applicable to any
claim or assessment with respect to Taxes or apply for any change in Tax accounting
method; or
	 
	 	(p)  	Agree, whether in writing or otherwise, to take any action described in this
subsection.

	4.3  	Full Access. The Company, upon reasonable notice, shall afford to Parent and its
directors, officers, employees, counsel, accountants, investment advisors and other authorized
representatives and agents, at Parent’s expense, reasonable access to the facilities,
properties, books and records of the Company during normal business hours in order that Parent
may have full opportunity to make such investigations as it shall desire to make of the
affairs of the Company; provided, however, that any such investigation shall
be conducted in such a manner as not to interfere unreasonably with business operations; and
the Company shall furnish such additional financial and operating data and other information
as Parent shall, from time to time, reasonably request, including without limitation access to
the working papers of their independent certified public accountants; provided,
further, that any such investigation shall not affect or otherwise diminish or obviate
in any respect any of the representations and warranties of the Company herein.

	4.4  	Confidentiality. Each of the parties hereto agrees that it will not use, or permit
the use of, any of the information relating to any other party hereto furnished or made
available to it in connection with the transactions contemplated herein
(“Information”) for any purpose or in any manner other than solely in connection with
its evaluation or consummation of the transactions contemplated by this Agreement in a manner
that the disclosing party has approved and shall in no event use or permit the use of any of
such Information in a manner or for a purpose detrimental to such other party, and that they
will not disclose, divulge, provide or make accessible (collectively, “Disclose”), or
permit the Disclosure of, any of the Information to any person or entity, other than solely to
their responsible directors, officers, employees, investment advisors, accountants, counsel
and other authorized representatives and agents (collectively, the “Representatives”)
who have a “need to know” to carry out the purposes of this Agreement, except as may be
required by judicial or administrative process or, in the opinion of such party’s regular
counsel, by other requirements of Applicable Law; provided, however, that
prior to any Disclosure of any Information permitted hereunder, the disclosing party shall
first obtain the recipients’ undertaking to comply with the provisions of this subsection with
respect to such Information. Each party shall instruct its Representatives to observe the
terms of this Agreement and shall be responsible for any breach of this Agreement by any of
its Representatives. The term “Information” as used herein shall not include any information
relating to a party which the party receiving such information can show: (i)

37

 

to have been rightfully in its possession prior to its receipt from another party hereto;
(ii) to be now or to later become generally available to the public through no fault of the
receiving party; (iii) to have been received separately by the receiving party in an
unrestricted manner from a person entitled to disclose such information; or (iv) to have
been developed independently by the receiving party without regard to any Information
received in connection with this transaction. Each party hereto also agrees to promptly
return to the party from whom originally received all original and duplicate copies of
materials containing Information and to destroy any summaries, analyses or extracts thereof
or based thereon (whether in hard copy form or intangible media) should the transactions
contemplated herein not occur. A party hereto shall be deemed to have satisfied its
obligations to hold the Information confidential if it exercises the same care as it takes
with respect to its own similar information, which shall in no event be less than reasonable
care. The provisions of this Section 4.4 shall survive indefinitely any termination of this
Agreement.

	4.5  	Filings; Consents; Removal of Objections. Subject to the terms and conditions
herein, the parties hereto shall use commercially reasonable efforts to take or cause to be
taken all actions and do or cause to be done all things necessary, proper or advisable under
Applicable Laws to consummate and make effective, as soon as reasonably practicable, the
transactions contemplated hereby, including without limitation obtaining all Consents of any
person or entity, whether private or governmental, required in connection with the
consummation of the transactions contemplated herein. In furtherance, and not in limitation
of the foregoing, it is the intent of the parties to consummate the transactions contemplated
herein at the earliest practicable time, and they respectively agree to exert commercially
reasonable efforts to that end, including without limitation: (a) the removal or satisfaction,
if possible, of any objections to the validity or legality of the transactions contemplated
herein; and (b) the satisfaction of the conditions to consummation of the transactions
contemplated hereby.

	4.6  	Further Assurances; Cooperation; Notification.

	 	(a)  	Each party hereto shall, before, at and after Closing, execute and deliver such
instruments and take such other commercially reasonable actions as the other party or
parties, as the case may be, may reasonably require in order to carry out the intent of
this Agreement including the satisfaction of all conditions contained in Articles 5 and
6 of this Agreement.
	 
	 	(b)  	At all times from the date hereof until the Closing, each party shall promptly
notify the other in writing of the occurrence of any event which it reasonably believes
will or is reasonably likely to result in a failure by such party to satisfy the
conditions specified in Articles 5 or 6 of this Agreement.

	4.7  	Approval of Stockholders. As promptly as practicable after the execution of this
Agreement, the Company will take all action necessary in accordance with the DGCL and its
Certificate of Incorporation and Bylaws to convene a meeting of the Stockholders to consider
and vote upon or to solicit consent in writing regarding the adoption and approval of this
Agreement and the consummation of the transactions contemplated

38

 

hereby, including without limitation, the delivery to the Stockholders of an information
statement (the “Information Statement”) which shall not, on the date the Information
Statement is mailed to Stockholders or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Information Statement shall be subject to review and
reasonable approval by Parent and include information regarding the Company, the terms of
the Merger and this Agreement and the unanimous recommendation of the Board of Directors of
the Company in favor of the Merger and this Agreement and the transactions contemplated
hereby. The Board of Directors of the Company has on the date of this Agreement unanimously
adopted a resolution recommending that the Stockholders vote to adopt and approve the Merger
and this Agreement and the consummation of the transactions contemplated herein. The
Company will use commercially reasonable efforts to solicit from the Stockholders votes in
favor of the proposal to adopt and approve the Merger and this Agreement and will take other
commercially reasonable action reasonably necessary or advisable to secure a vote in favor
of the Merger and the adoption and approval of this Agreement. Notwithstanding the
foregoing, the Board of Directors of the Company may withhold, withdraw, amend or modify its
recommendation (and, may recommend that its stockholders accept a Superior Proposal) (any of
the foregoing actions, a “Change of Recommendation”), (a) if the Board of Directors of the
Company has concluded in good faith, after consultation with its outside legal counsel that
the Change of Recommendation is required in order for the Company’s Board of Directors to
comply with its fiduciary duties under Applicable Law or (b) as a result of the Third Party
Right. The Company shall also seek Stockholder approval of any payments of cash or stock
that are described in Section 2.22 of the Disclosure Schedule that may be deemed to
constitute “parachute payments” pursuant to Section 280G of the Code, such that all such
payments will not be deemed to be “parachute payments” pursuant to Section 280G of the Code
or shall be exempt from such treatment under such Section 280G or will not be made if not so
approved.

	4.8  	Update Disclosure; Breaches. Not less than two (2) Business Days prior the Closing,
the Company shall supplement or amend the Disclosure Schedule (a) if any representation or
warranty made by the Company in this Agreement was when made, or has subsequently become,
untrue in any material respect, and (b) of the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which may cause any condition to the obligations of any party
hereto to effect the transactions contemplated by this Agreement not to be satisfied. For
purposes of determining the accuracy as of the Closing of the representations and warranties
of the Company contained in Article 2 in order to determine the fulfillment of the conditions
set forth in Section 5.1 and to determine whether a material breach has occurred pursuant to
Section 7.1(d), the Disclosure Schedule will be deemed to exclude any material information
contained in any update to the Disclosure Schedule delivered after the date of this Agreement.
The delivery of any notice pursuant to this Section 4.8 shall not cure any breach of any
representation or warranty requiring disclosure of such matter prior to the date of this
Agreement or otherwise limit or affect the rights of, or the remedies available to, Parent.

39

 

	4.9  	No Solicitation. The Company agrees (i) it will negotiate exclusively with Parent
and its authorized representatives regarding the transaction contemplated hereby and will not,
directly or indirectly, encourage or solicit the submission of, entertain inquiries, proposals
or offers from, or enter into any agreement or negotiate with any person or entity (other than
Parent and other any such actions taken in connection with the Third-Party Right) for the
acquisition of the Company (whether by merger, combination, sale of assets, sale of stock or
otherwise) or other disposition of assets or technology other than in the ordinary course of
business, and (ii) it will not furnish to any person any information with respect to any
transaction prohibited by this Section 4.9. The Company agrees to take the necessary steps to
promptly inform any such third party of the obligations undertaken in this Section 4.9 and
this Agreement. The Principal Stockholders and the Company agree to immediately inform Parent
of any such inquiry from any such third party, including the material terms thereof (including
without limitation, any terms regarding price) and the identity of the Person making such
inquiry, and to keep the Parent informed, on a current basis, of the status and terms of any
such proposals or offers. Notwithstanding the foregoing, in the event that, prior to
obtaining the approval of its stockholders, the Company’s Board of Directors receives a
Superior Proposal, the Company’s Board of Directors may, if it determines in good faith, by
resolution duly adopted after consultation with outside legal counsel to the Company, that
such action is required in order for the Company’s Board of Directors to comply with its
fiduciary duties under Applicable Law or to comply with the Third Party Right, approve or
recommend such Superior Proposal and terminate this Agreement as permitted pursuant to the
terms of Section 7.1(h); provided that:

	 	(a)  	the Company notifies Parent in writing that it intends to take such action,
which notice must identify the party making such proposal, set forth the material terms
of such proposal, and have attached to it the most current version of any such written
agreement;
	 
	 	(b)  	Parent shall not have proposed, within five (5) Business Days after receipt of
such notice from the Company, to amend this Agreement to provide for terms superior to
those of the Superior Proposal;
	 
	 	(c)  	for a period of five (5) Business Days after receipt of Parent’s proposal to
amend this Agreement, the Company shall have reasonably considered and discussed in
good faith all proposals submitted by the Parent and, without limiting the foregoing,
met with, and caused its legal advisors to meet with, Parent and its advisors from time
to time as reasonably requested by Parent to reasonably consider and discuss in good
faith the Parent’s proposals;
	 
	 	(d)  	the Company’s Board of Directors in good faith determines, after consultation
with its legal advisors, that after taking into account any amendments to this
Agreement proposed by the Parent as of the end of such five (5) Business Day
negotiation, the Parent’s proposal is not more favorable to the stockholders of the
Company as the Superior Proposal; and

40

 

	 	(e)  	if the party making the Superior Proposal amends or modifies its proposal on
one more occassions in response to Parent amending or proposing to amend this Agreement
pursuant to this Section 4.9, the Company shall comply with the procedures set forth in
clauses (a) through (d) of this Section 4.9 with respect to each such amended or
modified Superior Proposal, subject to the Company’s termination right under Section
7.1(c).

	4.10  	Public Announcements. None of the parties hereto shall make any public announcement
with respect to the transactions contemplated herein without the prior written consent of the
other parties, which consent shall not be unreasonably withheld or delayed, except as required
by Applicable Law, rule or regulation. The Company may disclose this Agreement and the terms
hereof as required pursuant to such actions taken in connection with the Third Party Right.

	4.11  	Preparation of Tax Returns: Tax Matters.

	 	(a)  	Pre-Closing Tax Returns. The Company shall timely file at its expense
all Tax Returns required to be filed by the Company on or before the Closing Date;
provided, however, that, after the date hereof, the Company shall not
file any such Tax Returns, or other returns, elections, claims for refund or
information statements with respect to any liabilities for Taxes (other than federal,
state or local sales, use, property, withholding or employment tax returns or
statements) for any Tax period without prior consent from Parent, which consent shall
not be unreasonably withheld.
	 
	 	(b)  	Post-Closing Tax Returns. Parent will file (or cause to be filed) all
Tax Returns of the Company required to be filed after the Closing Date, including Tax
Returns for Tax Periods (or portions thereof) ending on or prior to the Closing Date.
Neither Parent nor its Affiliates or representatives shall take any action (i)
inconsistent with the tax treatment of the Merger as a sale of stock by the
Stockholders or (ii) which has the direct or indirect effect of treating the Merger as
a purchase of assets by Parent or the Merger Subsidiary.
	 
	 	(c)  	Tax Election. The Stockholders will cause the Company not to make any
new elections with respect to Taxes, or any changes in current elections with respect
to Taxes after the date of the Latest Balance Sheet without the prior written consent
of Parent.
	 
	 	(d)  	Clearance Certificates. The Stockholders will on or before the Closing
Date hereof provide Parent with any clearance certificates or similar documents that
may be required by any Governmental Authority in order to relieve Parent of any
obligation to withhold any portion of the Merger Consideration.
	 
	 	(e)  	Termination of Tax Allocation Agreements. Any and all tax allocation
or sharing agreements or arrangements (other than this Agreement), whether or not
written, that may have been entered into by and between Company or its Subsidiaries, on
the one hand, and any other person, shall be terminated as to the Company and the

41

 

Subsidiaries as of the Effective Time, and no payments which are owed by or to the
Company or any Subsidiary pursuant thereto shall be made thereunder.

	 	(f)  	Assistance and Cooperation. Each of Parent and Stockholders will
provide the other with such assistance as may reasonably be requested by each of them
in connection with the preparation of any Tax Return, any audit or other examination by
any Governmental Authority, or any judicial or administrative proceedings relating to
liability for Taxes, and each will provide the other with any records or information
which may be relevant to such Tax Return, audit or examination, proceedings or
determination. Such assistance shall include making employees available on a mutually
convenient basis to provide additional information and explanation of any material
provided hereunder and shall include providing copies of any relevant Tax Return and
supporting work schedules.
	 
	 	(g)  	Tax Withholding. Parent or the Payment Agent shall be entitled to
deduct and withhold from the Merger Consideration or other payments otherwise payable
pursuant to this Agreement, the amounts required to be deducted and withheld under the
Code, or any provision of state, local or foreign tax law, with respect to the making
of such payments. To the extent that amounts are so withheld, such withheld amounts
shall be promptly remitted by Parent or the Payment Agent to the applicable
Governmental Authority requiring such withholding and shall be treated for all purposes
of this Agreement as having been paid to the person for whom such deduction and
withholding was made.
	 
	 	(h)  	Imputed Interest. Stockholders acknowledge that a portion of the
Contingent Merger Consideration they may receive pursuant to Section 1.9 will be
considered to be imputed interest. Parent will compute and report such imputed
interest as provided in Section 1.483-4 of the Treasury Regulations.

	4.12  	Expenses Related to Certain Third-Party Proceedings. Notwithstanding any other
provision herein, if (a) any legal proceedings are brought by any third party that seeks to
prevent or delay the Merger from being consummated, and (b) upon notification to Parent of
such legal proceedings, Parent determines to proceed with the Merger, Parent shall advance to
the Company up to $50,000 to cover the costs and expenses of defending any such proceedings
(such funds, “Legal Advance Funds”). As set forth in Section 1.9(a), the Legal
Advance Funds shall reduce, on a dollar-for-dollar basis, the payment to be made in connection
with the First Milestone.

	4.13  	Employment Matters. As of and following the Closing Date, Parent will allow the
individuals identified on Schedule 4.13 hereto (“Continuing Employees”), and, as
applicable, their eligible dependents, to participate in employee welfare benefit plans,
programs or policies (including without limitation any vacation, sick, or personal time off
plans or programs) of Parent and any plan of Parent intended to qualify within the meaning of
Section 401(a) of the Code on terms no less favorable than those provided to similarly
situated employees of Parent or its subsidiaries; provided, further, that (i)
each such Continuing Employee will receive credit for purposes of eligibility to participate
and vesting under such plans for years of service with Company prior to the Closing Date,

42

 

and (ii) Parent will cause any and all pre-existing condition limitations, eligibility
waiting periods and evidence of insurability requirements under any group health plans
(other than disability plans) of Parent in which such employees and their eligible
dependents will participate to be waived.

	4.14  	Notice to Holder of Third-Party Right. The Company shall deliver a right of first
refusal notice to Conceptus pursuant to Section 5.1 of the Settlement and License Agreement,
including a copy of this Agreement, promptly following the execution of this Agreement, unless
the Company has previously delivered such notice to Conceptus.

	4.15  	Conduct of the Business After the Closing. Until the expiration of the Contingent
Period, Parent will use, and will cause the Surviving Corporation and their Affiliates to use,
commercially reasonable efforts to (i) complete the Milestones, (ii) complete development of
the Product, (iii) bring the Product to market and sell the Product in a timely manner, (iv)
after the PMA-Approval Date, maintain inventory in quantities of the Product sufficient to
support sales orders, (v) in good faith not undertake any action the primary purpose of which
is to negatively impact the amount of Contingent Merger Consideration, and (vi) have in place
valid and binding insurance policies (including without limitation, product liability
insurance policies) insuring the Surviving Corporation, its assets, properties and business in
scope and amount that is commercially reasonable for the Surviving Corporation’s assets,
properties and business. Until the earlier of (a) the date that is the one-year anniversary
of the Closing Date and (b) the completion of the Second Milestone, none of Parent, the
Surviving Corporation, or their respective Affiliates will develop, market or sell any product
that competes with the Product.

ARTICLE 5

CONDITIONS TO PARENT’S AND MERGER SUBSIDIARY’S OBLIGATIONS

     The obligation of Parent and Merger Subsidiary to effect the transactions contemplated herein
shall be subject to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived by Parent:

	5.1  	Representations and Warranties True. The representations and warranties of the
Company contained in this Agreement qualified by “materiality” or “Material Adverse Effect”
shall be true and correct in all respects and the representations and warranties of the
Company not so qualified shall be true and correct in all material respects, in each case, as
of the date when made and at and as of the Closing as though such representations and
warranties were made at and as of such time (it being understood that, in determining the
accuracy of such representations and warranties for purposes of this Section 5.1, any
disclosure made pursuant to Section 4.8 shall be disregarded), except for (a) changes
specifically permitted or contemplated by this Agreement, and (b) representations and
warranties made as of a certain date which shall be true and correct as of such date.

43

 

	5.2  	Performance. The Company shall have performed and complied in all material respects
with all agreements, covenants, obligations and conditions required by this Agreement to be
performed or complied with by the Company on or prior to the Closing.

	5.3  	Filed Certificate of Merger. The Certificate of Merger shall have been filed with
the Secretary of State of Delaware.

	5.4  	Required Approvals and Consents.

	 	(a)  	All action required by Applicable Law and otherwise to be taken by the Board of
Directors of the Company and the Stockholders to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions contemplated
hereby shall have been duly and validly taken.
	 
	 	(b)  	The Company shall have delivered written evidence satisfactory to Parent that
all holders of Company Stock Options have approved the treatment of their Company Stock
Options as contemplated hereunder.

	5.5  	No Proceeding or Litigation. No suit, action, investigation, inquiry or other
proceeding by any Governmental Authority or other person or entity shall have been instituted
which (a) questions the validity or legality of the transactions contemplated hereby, or (b)
is reasonably expected either individually or in the aggregate, to have a Material Adverse
Effect on the Company.

	5.6  	No Exercise of Third-Party Right. The Third Party Right shall have expired or have
been waived without having been exercised.

	5.7  	Legislation. No Applicable Law shall have been enacted which prohibits, restricts or
delays the consummation of the transactions contemplated hereby or any of the conditions to
the consummation of such transaction.

	5.8  	No Material Adverse Effect. Parent shall not have discovered any fact, event or
circumstance which has not been disclosed to Parent in the Disclosure Schedule as of the date
of this Agreement which has had, or would reasonably be expected to have, a Material Adverse
Effect on the Company.

	5.9  	Certificates. Parent shall have received such certificates of the Company’s
officers, in a form and substance reasonably satisfactory to Parent, dated the Closing Date,
to evidence compliance with the conditions set forth in this Article 5 and such other matters
as may be reasonably requested by Parent.

	5.10  	Other Receipts; Good Standing. Parent shall have received a copy of the Certificate
of Incorporation of the Company certified by the Secretary of State of the State of Delaware;
and Certificates of Good Standing (or their equivalent) from the Secretary of State of each
other state in which the Company is required to be qualified to do business.

44

 

	5.11  	Opinions of Company Counsel. Parent shall have received an opinion from Wilson
Sonsini Goodrich & Rosati, P.C., counsel to the Company dated the Closing Date, in form and
content reasonably satisfactory to Parent.

	5.12  	Employment Offers. The Principal Stockholders shall have executed and accepted
written offers of employment from Parent, in substantially the form attached hereto as
Exhibit D.

	5.13  	Escrow Agreement. The Stockholders’ Representative and Escrow Agent shall have
executed and delivered the Escrow Agreement, in substantially the form attached hereto as
Exhibit E.

	5.14  	Payment Agreement. The Company, the Stockholders’ Representative and Payment Agent
shall have executed and delivered the Payment Agreement, in substantially the form attached
hereto as Exhibit F.

	5.15  	Stockholder Agreements. The Stockholder parties thereto shall have executed and
delivered the Stockholder Agreements.

	5.16  	Royalty Agreement. The Company and the other parties thereto shall have executed and
delivered a royalty agreement in substantially the form attached hereto as Exhibit G
(the “Royalty Agreement”).

	5.17  	Conversion of Company Preferred Stock. The Company shall have delivered written
evidence satisfactory to Parent that the all outstanding shares of Company Preferred Stock
have been converted into shares of Company Common Stock in accordance with the Company’s
Certificate of Incorporation and Applicable Law.

	5.18  	Dissenting Shares. Not more than five percent (5%) of the issued and outstanding
            shares of Company Capital Stock as of the Closing Date shall be Dissenting Shares and, in any
case, no Person who holds (individually or in the aggregate with such Person’s Affiliates)
more than two percent (2%) of the Company’s fully diluted outstanding shares of Company
Capital Stock shall have exercised its dissenters’ rights under the DGCL.

	5.19  	Resignation and Release. Parent shall have received Letters of Resignation and
Release of Claims, dated effective as of the Effective Time, in substantially the form of
Exhibit H from the officers and directors of the Company.

	5.20  	Tax Withholding Forms. Parent shall have received, from each Stockholder, IRS Form
W-9, Form W-8BEN, Form W-8ECI, or other applicable form, as appropriate, establishing
exemption from any backup or income Tax withholding on the Merger Consideration.

45

 

ARTICLE 6

CONDITIONS TO COMPANY’S OBLIGATIONS

     The obligation of the Company to effect the transactions contemplated herein shall be subject
to the satisfaction at or prior to the Closing of each of the following conditions, any of which
may be waived by the Company:

	6.1  	Representations and Warranties True. The representations and warranties of Parent
and Merger Subsidiary contained in this Agreement qualified by “materiality” or “Material
Adverse Effect” shall be true and correct in all respects and the representations and
warranties of Parent and Merger Subsidiary not so qualified shall be true and correct in all
material respects as of the date when made and at and as of the Closing, as though such
representations and warranties were made at and as of such time, except for (a) changes
specifically permitted or contemplated by this Agreement, and (b) representations and
warranties made as of a certain date which shall be true and correct as of such date.

	6.2  	Performance. Parent shall have performed and complied in all material respects with
all agreements, covenants, obligations and conditions required by this Agreement to be
performed or complied with by Parent at or prior to the Closing.

	6.3  	Filed Certificate of Merger. The Certificate of Merger shall have been filed with
the Secretary of State of Delaware.

	6.4  	Corporate Approvals.

	 	(a)  	The Boards of Directors of Parent and Merger Subsidiary and Parent, as sole
stockholder of Merger Subsidiary, shall have approved the transactions contemplated
hereby. All action required to be taken by Parent to authorize the execution, delivery
and performance of this Agreement by Parent and the consummation of the transactions
contemplated hereby shall have been duly and validly taken.
	 
	 	(b)  	All Consents of or from all Governmental Authorities required hereunder to
consummate the transactions contemplated herein.

	6.5  	No Proceeding or Litigation. No suit, action, investigation, inquiry or other
proceeding by any Governmental Authority or other person or entity shall have been instituted
which (a) questions the validity or legality of the transactions contemplated hereby, or (b)
which is reasonably expected either individually or in the aggregate, to have a Material
Adverse Effect on Parent.

	6.6  	No Exercise of Third-Party Right. The Third Party Right shall have expired or have
been waived without having been exercised.

	6.7  	Legislation. No Applicable Law shall have been enacted which prohibits, restricts or
delays the consummation of the transactions contemplated hereby or any of the conditions to
the consummation of such transaction.

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	6.8  	Certificates. Parent shall have furnished the Company with such certificates of
Parent’s officers, in a form and substance reasonably acceptable to the Company, dated the
Closing Date, to evidence compliance with the conditions set forth in this Article 6 and such
other matters as may be reasonably requested by the Company.

	6.9  	Other Receipts; Good Standing. The Company shall have received copies of the
Certificate of Incorporation, or similar governing document of Parent and Merger Subsidiary,
certified by the Secretary of State of the state of incorporation of Parent and Merger
Subsidiary.

	6.10  	Opinion of Parent Counsel. Parent shall have delivered to Company an opinion from
Oppenheimer Wolff & Donnelly LLP, counsel to Parent, dated the Closing Date, in form and
content reasonably satisfactory to the Company.

	6.11  	Escrow Agreement. Parent and the Escrow Agent shall have executed and delivered the
Escrow Agreement and the appropriate funding obligations with respect thereto shall have been
satisfied.

	6.12  	Payment Agreement. Parent and the Payment Agent shall have executed and delivered
the Payment Agreement.

ARTICLE 7

TERMINATION

	7.1  	Methods of Termination. Subject to the other provisions of this Article 7, this
Agreement may be terminated and the transactions contemplated herein may be abandoned at any
time notwithstanding approval thereof by the Stockholders, at any time prior to the Closing:

	 	(a)  	By mutual written consent of Parent, Merger Subsidiary and the Company; or
	 
	 	(b)  	By Parent and Merger Subsidiary on or after the Termination Date, or such later
date as may be established pursuant to Section 1.3, if any of the conditions provided
for in Article 5 of this Agreement have not been reasonably satisfied or waived in
writing by Parent prior to such date (unless the failure results primarily from a
breach by Parent or Merger Subsidiary of any representation, warranty or covenant
contained in this Agreement); or
	 
	 	(c)  	By the Company on or after the Termination Date, or such later date as may be
established pursuant to Section 1.3, if any of the conditions provided for in Article 6
of this Agreement have not been reasonably satisfied or waived in writing by the
Company prior to such date (unless the failure results primarily from a breach by the
Company of any representation, warranty or covenant contained in this Agreement); or
	 
	 	(d)  	By Parent and Merger Subsidiary if there has been a material breach of any
representation, warranty, covenant or agreement which remains uncured for thirty

47

 

(30) days after written notice thereof on the part of the Company set forth in this
Agreement; or

	 	(e)  	By the Company if there has been a material breach of any representation,
warranty, covenant or agreement which remains uncured for thirty (30) days after
written notice thereof on the part of Parent or Merger Subsidiary set forth in this
Agreement; or
	 
	 	(f)  	By either party if any court of competent jurisdiction or any other
governmental body has issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the transactions
contemplated hereby and such order, decree, ruling or other action has become final and
nonappealable; or
	 
	 	(g)  	By Parent upon written notice to the Company if, prior to obtaining the
approval of its Stockholders, the Board of Directors of the Company (i) withdraws,
modifies or changes its recommendation regarding the approval of this Agreement or the
Merger in a manner adverse to Parent; (ii) approves, accepts or enters into a
definitive agreement for a Superior Proposal; or (iii) recommends to the Stockholders a
Superior Proposal; or
	 
	 	(h)  	By the Company upon written notice to Parent if, prior to obtaining the
approval of its Stockholders, the Board of Directors of the Company (i) approves,
accepts or enters into a definitive agreement for a Superior Proposal; or (ii)
recommends to the Stockholders a Superior Proposal, in each case pursuant to Section
4.9.

	7.2  	Procedure Upon Termination. In the event of termination and abandonment pursuant to
Section 7.1, written notice thereof will forthwith be given to the other party or parties,
and, Subject to Article 8, the transactions contemplated herein will be abandoned, without
further action by any party hereto.

	7.3  	Effect of Termination. If this Agreement is terminated as provided herein:

	 	(a)  	each party will, upon request, return all documents, work papers and other
material of any other party (and all copies thereof) relating to the transactions
contemplated herein, whether so obtained before or after the execution hereof, to the
party furnishing the same;
	 
	 	(b)  	the obligations of Sections 4.4 (Confidentiality), 4.10 (Public Announcements),
7.4 (Termination Fee) and 11.3 (Expenses) and Article 9 (Arbitration) will continue to
be applicable; and
	 
	 	(c)  	except for the Company’s obligation with respect to Section 7.4, no party
hereto shall have any liability to any other party to this Agreement except for any
willful or intentional breach of, or knowing misrepresentation made in, this Agreement
occurring prior to termination of this Agreement.

48

 

	7.4  	Termination Fee. In recognition of the time, efforts and expenses expended and
incurred by Parent with respect to the Company and the opportunity that the acquisition of the
Company presents to Parent, if (i) Parent or Merger Subsidiary terminates this Agreement
pursuant to Section 7.1(d) as a result of a willful or intentional breach of Section 4.9 or
7.1(g) or (ii) if the Company terminates this Agreement pursuant Section 7.1(h), then the
Company shall (x) repay the Loans, the Supplemental Advance, and the Legal Advance Funds
within thirty (30) days of such termination, and (y) pay to Parent a termination fee (the
“Termination Fee”) of Two Million Dollars ($2,000,000), upon the closing of a sale of
the Company to a third party that is consummated within twelve (12) months following such
termination of this Agreement. If this Agreement is terminated for any other reason, the
Company shall repay the Loans, the Supplemental Advance and the Legal Advance Funds upon the
earlier of: (i) one (1) year following the termination of this Agreement or (ii) the closing
of a sale of the Company to a third party. In the event Parent or Merger Subsidiary
terminates this Agreement in accordance with Section 7.1(b) and the Company has not willfully
or intentionally breached this Agreement, Parent shall loan the Company Five Hundred Thousand
Dollars ($500,000) upon such standard terms and conditions as are mutually agreed to by Parent
and the Company. The Company acknowledges that the provisions of this Section 7.4 are an
integral part of the transactions contemplated by this Agreement and are not a penalty. In no
event will the Company be required to pay more than one Termination Fee.

ARTICLE 8

SURVIVAL AND INDEMNIFICATION

	8.1  	Survival. The representations and warranties of each party contained in this
Agreement, and the indemnification obligations of the Company and the Stockholders with
respect thereto, will survive the Closing and shall expire twelve (12) months after the
Closing Date. Notwithstanding the preceding sentence, the representations and warranties
contained in Sections 2.19 (Benefit Plans) and 2.24 (Tax Matters), and the indemnification
obligations of the Company and the Stockholders with respect thereto, shall survive the
Closing for a period of six (6) months after all applicable statutes of limitations with
respect to any claims governing the respective matters set forth therein have expired.
Notwithstanding the foregoing, any representation or warranty that would otherwise terminate
in accordance with this Section 8.1 shall continue to survive, if a notice of Claim pursuant
to this Article 8 shall have been timely given under Section 8.4 on or prior to such
termination date, until the related claim has been satisfied or otherwise resolved as provided
herein. The covenants set forth in this Agreement shall survive the Closing indefinitely.
The right to indemnification or any other remedy based on representations, warranties,
covenants and obligations in this Agreement will not be affected by any investigation
conducted with respect to, or any knowledge acquired (or capable of being acquired) at any
time, whether before or after the execution and delivery of this Agreement or the Closing
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification or any other remedy based
on such representations, warranties, covenants and obligations.

49

 

	8.2  	Indemnification by Stockholders. Subject to Section 8.5, the Stockholders, jointly
and severally, agree to indemnify, defend and hold harmless Parent, its directors, officers,
employees, agents and Affiliates, from and against any and all Damages asserted against,
relating to, imposed upon, suffered or incurred by Parent, Merger Subsidiary, its officers,
directors, employees, agents and Affiliates, in connection with enforcing their
indemnification rights pursuant to this Section 8.2 by reason of or resulting from (a) any
untrue representation of, or breach of warranty by, the Company in any part of this Agreement,
(b) any non-fulfillment of any covenant, agreement or undertaking of the Company in any part
of this Agreement, (c) any Product Liability Claim or other third party claim relating to the
Company, whether presently in existence or arising hereafter from or related to any medical
procedure performed on or before the Closing Date which utilized the Product, regardless of
whether such Product Liability Claim or third party claim arises out of or constitutes a
breach of any representation, warranty or covenant in this Agreement, (d) any Liabilities
related to the Interference Requests, regardless of whether such Liabilities arise out of or
constitute a breach of any representation, warranty or covenant in this Agreement, (e) any
Liabilities related to the Musket Litigation, regardless of whether such Liabilities arise out
of or constitute a breach of any representation, warranty or covenant in this Agreement and
(f) any payments made to Dissenting Stockholders pursuant to the DGCL or the CCC in excess of
the Merger Consideration per share of Company Common Stock or Company Preferred Stock held by
Dissenting Stockholders (each of the above shall be referred to herein as an
“Indemnification Liability”). Notwithstanding the foregoing, if the Closing does not
occur, the indemnification obligations set forth in this Section 8.2 shall be the obligation
of the Company and not the Stockholders.

	8.3  	Indemnification by Parent. Subject to Section 8.5, Parent and the Surviving
Corporation agree to indemnify, defend and hold harmless each of the Stockholders, its
directors, officers, employees, agents and Affiliates from and against any and all Damages
asserted against, relating to, imposed upon, suffered or incurred by them in connection with
enforcing their indemnification rights pursuant to this Section 8.3 by reason of or resulting
from (a) any untrue representation of, or breach of warranty by, Parent or Merger Subsidiary
in any part of this Agreement, (b) any non-fulfillment of any covenant, agreement or
undertaking of Parent or Merger Subsidiary in any part of this Agreement, (c) any liability of
the Company or the Surviving Corporation arising out of the operation of the Company,
Surviving Corporation or any Subsidiary or any of their respective businesses after the
Closing Date, (d) any Liabilities for Taxes of the Company, the Surviving Corporation, any
Subsidiary or any respective predecessor in interest with respect to any tax period or part
thereof beginning after the Closing Date; and (e) any Product Liability Claim or other third
party claim relating to the Company or any Subsidiary, arising from acts, events, conditions
or circumstances existing or occurring after the Effective Time.

	8.4  	Claims for Indemnification.

	 	(a)  	Subject to Section 8.1, whenever any claim arises for indemnification hereunder
the party seeking indemnification (the “Indemnified Party”), will promptly
notify in writing the party from whom indemnification is sought (the “Indemnifying

50

 

Party”) of the claim and, when known, the facts constituting the basis for
such claim; provided, however, that any failure to give such notice
will not waive any rights of the Indemnified Party, except to the extent the rights
of the Indemnifying Party are materially prejudiced. In the event that the
Stockholders are seeking indemnification as the Indemnified Party hereunder, or
indemnification is sought against the Stockholders as an Indemnifying Party
hereunder, then in either such case, the Stockholders’ Representative shall be
entitled to act on behalf of, and receive notice on behalf of, the Stockholders for
any and all purposes stated therein. In the case of any such claim for
indemnification hereunder resulting from or in connection with any claim or legal
proceedings of a third party, other than a claim or legal proceeding relating to the
Interference Requests (a “Third Party Claim”), the notice to the
Indemnifying Party will specify with reasonable specificity, if known, the basis
under which the right to indemnification is being asserted and the amount or an
estimate of the amount of the liability arising therefrom. The Indemnifying Party
shall have the right to dispute and defend all Third Party Claims and thereafter so
defend and pay any adverse final judgment or award or settlement amount in regard
thereto. Such defense shall be controlled by the Indemnifying Party, and the cost
of such defense shall be borne by the Indemnifying Party, except that the
Indemnified Party shall have the right to participate in such defense at its own
expense; provided, however, that the Indemnifying Party must first
acknowledge that the claim is a bona fide indemnification claim under this
Agreement. The Indemnified Party shall cooperate in all reasonable respects in the
investigation, trial and defense of any such claim, including making personnel,
books, and records relevant to the claim available to the Indemnifying Party,
without charge, except for reasonable out-of-pocket expenses. If the Indemnifying
Party fails to take action within thirty (30) days as set forth above, then the
Indemnified Party shall have the right to pay, compromise or defend any Third Party
Claim and to assert the amount of any payment on the Third Party Claim plus the
reasonable expenses of defense or settlement of the claim. The Indemnified Party
shall also have the right and upon delivery of advance written notice to such effect
to the Indemnifying Party, exercisable in good faith, to take such action as may be
reasonably necessary to avoid a default judgment prior to the assumption of the
defense of the Third Party Claim by the Indemnifying Party, and any reasonable
expenses incurred by Indemnified Party so acting shall be paid by the Indemnifying
Party. Except as otherwise provided herein, the Indemnified Party will not, except
at its own cost and expense, settle or compromise any Third Party Claim for which it
is entitled to indemnification hereunder without the prior written consent of the
Indemnifying Party, which will not be unreasonably withheld. The parties intend
that all indemnification claims be made as promptly as practicable.

	 	(b)  	If the Indemnifying Party is of the opinion that the Indemnified Party is not
entitled to indemnification, or is not entitled to indemnification in the amount
claimed in such notice, the Indemnifying Party will deliver, within ten (10) business
days after the receipt of such notice, a written objection to such claim which will
include, to the extent actually known to the Indemnifying Party: (i) specifications in
reasonable detail of the aspects or details objected to, and (ii) the

51

 

grounds for such objection. If the Indemnifying Party filed timely written notice
of objection to any claim for indemnification, the validity and amount of such claim
will be determined by arbitration pursuant to Article 9. If timely notice of
objection is not delivered or if a claim by an Indemnified Party is expressly
admitted in writing by an Indemnifying Party or if an arbitration award is made in
favor of an Indemnified Party, the Indemnified Party, as a non-exclusive remedy,
will have the right to set-off the amount of such claim or award against any amount
yet owed, whether due or to become due, by the Indemnified Party or any subsidiary
thereof to any Indemnifying Party by reason of this Agreement or any agreement or
arrangement or contract to be entered into at the Closing.

	 	(c)  	Parent shall have the right to dispute, defend, control and settle all claims
or legal proceedings relating to the Interference Requests. Neither Parent nor the
Surviving Corporation shall enter into any settlement of any claims relating to the
Interference Requests that would result in a claim for indemnification hereunder,
without the written consent of the Stockholder’s Representative. The Stockholder’s
Representative may withhold his consent for any amendment, waiver or other alteration
to the terms of the Settlement and License Agreement if such amendment, waiver or other
alteration would result in any Indemnification Liability of the Stockholders hereunder.
The Stockholder’s Representative and the Principal Stockholders shall consent to any
amendment, waiver or other alteration to the terms of the Settlement and License
Agreement if such amendment, waiver or other alteration would not result in any
Indemnification Liability of the Stockholders hereunder. The Principal Stockholders
shall cooperate in all reasonable respects in the investigation, trial and defense of
any such claim relating to the Interference Requests, including making personnel,
books, and records relevant to the claim available to Parent, without charge, except
for reasonable out-of-pocket expenses.
	 
	 	(d)  	The Principal Stockholders shall have the right to dispute, defend, control and
settle all claims or legal proceedings relating to the Musket Litigation. The Parent
and Surviving Corporation shall cooperate in all reasonable respects in the
investigation, trial and defense of any such litigation.

	8.5  	Indemnification Limits.

	 	(a)  	Subject to the remainder of this Section 8.5 and except for fraud, the
indemnification provisions set forth in this Article 8 shall be the sole and exclusive
remedy for the Indemnified Party for a breach of any representation, warranty or
covenant by the Indemnifying Party and shall be in lieu of any rights the Indemnified
Party may have under law or in equity with respect to any such breaches or otherwise.
Except for claims based on fraud or claims under Section 8.2(d), the maximum aggregate
liability of all Stockholders under Section 8.2 shall be limited to fifty percent (50%)
of the Merger Consideration actually paid to the Stockholders (the “Maximum
Amount”). Parent and the Stockholders shall each be responsible for one-half of
any Damages resulting from Section 8.2(d) in excess of the Five Hundred Thousand
Dollars ($500,000), which initial amount

52

 

shall be the obligation of Parent and Surviving Corporation; provided
however, in no event shall the maximum aggregate liability of all
Stockholders under Section 8.2(d), exceed Five Million Dollars ($5,000,000) (the
“Maximum Interference Liability”). If Parent receives any damages or
amounts in settlement from Conceptus as a result of the Interference Requests,
Parent and the Stockholders shall share equally in such damages or amounts received
in settlement. Any claim for indemnification pursuant to Section 8.2(d) must be
made by the end of the Contingent Period. If any such claim is not made by the end
of the Contingent Period, the Stockholders shall not have any further liability
under Section 8.2(d). If Parent receives any damages or amounts in settlement as a
result of the Musket Litigation, the Stockholders shall be entitled to all such
damages or amounts received in settlement. The maximum liability of each particular
Stockholder, including the Principal Stockholders, as an Indemnifying Party under
Section 8.2 shall be limited to such Stockholder’s interest in the Escrow Fund and
the Contingent Merger Consideration, if any; provided that no Stockholder shall be
required to refund to Parent any Merger Consideration that has been previously
distributed to such Stockholder. Except for claims based on fraud or related to the
Parent’s failure to pay the Merger Consideration under Sections 1.8 and 1.9, the
maximum aggregate liability of Parent and the Surviving Corporation under Section
8.3 shall be limited to an amount equal to fifty percent (50%) of the Merger
Consideration.

	 	(b)  	Except as expressly provided otherwise herein, and subject to the provisions of
Section 8.4, neither the Stockholders nor the Parent, as the case may be, will be
entitled to indemnification for any Damages under this Article 8 unless the aggregate
of all Damages is more than One Hundred Thousand Dollars ($100,000) (the “Basket
Amount”), other than (i) Damages under clauses (e) and (f) of Section 8.2, which
shall not be subject to the Basket Amount, (ii) Damages resulting from Parent’s failure
to pay the Merger Consideration under Sections 1.8 and 1.9, which shall not be subject
to the Basket Amount, and (iii) Damages arising solely under clause (d) of Section 8.2
which shall be subject to a Five Hundred Thousand ($500,000) deductible. When the
aggregate amount of all Damages subject to the Basket Amount equals or exceeds the
Basket Amount, the Parent or the Stockholders, as the case may be, will be entitled to
full indemnification of all claims, including the One Hundred Thousand Dollars
($100,000) that amounted to the Basket Amount. The parties hereto agree that the
Basket Amount is not a deductible amount and that the Basket Amount will not be deemed
to be a definition of “material” for any purpose in this Agreement. In no event will
any Damages resulting from matters disclosed on any update to the Disclosure Schedule
delivered pursuant to Section 4.8 be applied to the Basket Amount, unless there exists
a material misstatement or omission on such update to the Disclosure Schedule that when
read together with Section 2 results in a breach of a representation or warranty in
this Agreement.
	 
	 	(c)  	The parties shall make appropriate adjustments for any insurance benefits
actually received by the Indemnified Party in determining Damages for purposes of this
Article 8.

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	8.6  	Right of Set-Off. Parent shall be entitled to set-off against any amounts otherwise
payable by Parent to the Stockholders under this Agreement (including without limitation the
Contingent Merger Consideration) any amounts to which Parent is entitled pursuant to a claim
for indemnification by Parent under this Article 8 (collectively, the “Set-Off
Amounts”); provided, however, that Parent deposits any such Set-Off
Amounts in an escrow account to be held by the Escrow Agent pending resolution of any such
claim. Neither the exercise of, nor the failure to exercise, such right of set-off will
constitute an election of remedies or limit Parent in any manner in the enforcement of any
other remedies that may be available to it.

	8.7  	Escrow Funds. The Escrow Funds and the Additional Escrow Funds, if any, will be held
in an interest-bearing escrow account as established pursuant to the Escrow Agreement for the
purpose of satisfying claims by an Indemnified Party for indemnification under this Article 8
and will be released to an Indemnified Party only in accordance with the terms of the Escrow
Agreement. Subject to, and in accordance with, the terms and conditions set forth in the
Escrow Agreement, the Escrow Agent shall deliver or cause to be delivered to the Stockholders
the balance, if any, of the Escrow Funds and the Additional Escrow Funds.

	8.8  	Expenses of Stockholders’ Representative. The reasonable out-of-pocket costs and
expenses of the Stockholders’ Representative incurred on the Stockholders’ behalf in
connection with this Agreement or the Escrow Agreement (including legal and other fees
incurred in connection with the defense of claims under Article 8) shall be paid out of the
Escrow Funds; provided, however, that in the event the Escrow Funds are
insufficient or have been released pursuant to the terms of the Escrow Agreement, such costs
and expenses shall be paid out of the Contingent Merger Consideration, if any.

ARTICLE 9

ARBITRATION

	9.1  	Dispute. Except for any controversy, claim or dispute arising out of the failure by
any party to this Agreement to consummate the Merger and the transactions contemplated by this
Agreement and subject to the last sentence of this Section 9.1, any controversy, claim or
dispute of whatever nature arising between the parties under this Agreement or in connection
with the transactions contemplated hereunder, including those arising out of or relating to
the breach, termination, enforceability, scope or validity hereof, whether such claim existed
prior to or arises on or after the Effective Time (a “Dispute”), shall be resolved by
mediation or, failing mediation, by binding arbitration. The agreement to mediate and
arbitrate contained in this Article 9 shall continue in full force and effect despite the
expiration, rescission or termination of this Agreement. Notwithstanding the foregoing, prior
to Closing either party may seek injunctive relief with respect to any controversy or claim
arising out of or relating to any provision of this Agreement in any court of competent
jurisdiction.

	9.2  	Mediation. No party shall commence an arbitration proceeding pursuant to the
provisions set forth below unless such party shall first give a written notice (a “Dispute
Notice”) to the other parties setting forth the nature of the Dispute. The parties shall

54

 

	   	attempt in good faith to resolve the
Dispute by mediation under the CPR
Institute for Dispute Resolution
(“CPR”) Model Mediation Procedure for
Business Disputes (the “CPR
Procedure”) in effect at the time of
the Dispute. If the parties cannot
agree on the selection of a mediator
within twenty (20) days after receipt
of the Dispute Notice, the mediator
will be selected in accordance with
the CPR Procedure.
	 
	9.3  	Arbitration.

	 	(a)  	If the Dispute has not been resolved by mediation as provided in Sections 9.1
and 9.2 within sixty (60) days after receipt of the Dispute Notice or such greater
period as the parties may agree upon in writing, or if a party fails to participate in
a mediation, then the Dispute shall be determined by binding arbitration in
Minneapolis, Minnesota. The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (“AAA”) in
effect on the date on which the Dispute Notice is sent, subject to any modifications
contained in this Agreement. The Dispute shall be determined by one (1) arbitrator,
except that if the Dispute involves an amount in excess of One Million Dollars
($1,000,000), exclusive of interest and costs, three (3) arbitrators shall be
appointed. Persons eligible to serve as arbitrators shall be members of the AAA Large,
Complex Case Panel or a CPR Panel of Distinguished Neutrals, or persons who have
professional credentials similar to those persons listed on such AAA or CPR panels.
The award shall be in writing and include the findings of fact and conclusions of law
upon which it is based.
	 
	 	(b)  	The arbitration shall be governed by the substantive laws of the State of
Minnesota, without regard to conflicts-of-law rules, and by the arbitration law of the
Federal Arbitration Act (Title 9, U.S. Code). Judgment upon the award rendered may be
entered in any court having jurisdiction.
	 
	 	(c)  	Except as otherwise required by law, the parties and the arbitrator(s) agree to
keep confidential and not disclose to third parties any information or documents
obtained in connection with the arbitration process, including the resolution of the
Dispute. If a party fails to proceed with arbitration as provided in this Agreement,
or unsuccessfully seeks to stay the arbitration, or fails to comply with the
arbitration award, or is unsuccessful in vacating or modifying the award pursuant to a
petition or application for judicial review, the other party or parties, as applicable,
shall be entitled to be awarded costs, including reasonable attorneys’ fees, paid or
incurred in successfully compelling such arbitration or defending against the attempt
to stay, vacate or modify such arbitration award and/or successfully defending or
enforcing the award.

ARTICLE 10

DEFINITIONS

	10.1  	Definitions. The following terms, as used herein, have the following meanings:

55

 

	 	(a)  	“Affiliate” means, with respect to any Person, (i) any Person directly or
indirectly controlling, controlled by or under direct or indirect common control with
such other Person, through the ownership of all or part of any Person, or (ii) any
Person who may be deemed to be an “affiliate” under Rule 145 of the Securities Act of
1933, as amended.
	 
	 	(b)  	“Applicable Law” means, with respect to any Person, any domestic or foreign,
federal, state or local common law, case law or ruling, statute, law, ordinance, rule,
administrative interpretation, regulation, code, order, writ, injunction, directive,
judgment, decree or other requirement of any Governmental Authority (including any
Environmental, Safety and Health Laws) applicable to such Person or any of its
Affiliates or Plan Affiliates or any of their respective properties, assets, officers,
directors, employees, consultants or agents (in connection with such officer’s,
director’s, employee’s, consultant’s or agent’s activities on behalf of such Person or
any of its Affiliates or Plan Affiliates).
	 
	 	(c)  	“Acquisition Proposal” shall mean any inquiry, offer or proposal, or any
indication of interest in making any offer or proposal, relating to (i) a possible
transaction or series of related transactions pursuant to which any Person acquires 25%
or more of the outstanding shares of the Company’s capital stock, including without
limitation a tender offer or an exchange offer which, if consummated, would result in
any Person acquiring 25% or more of the outstanding shares of the Company’s capital
stock, (ii) a possible merger or other business combination involving the Company
pursuant to which any Person acquires securities representing 25% or more of the
aggregate voting power of all outstanding securities of the company surviving the
merger or business combination, or (iii) any other transaction pursuant to which any
Person might acquire control of assets (including for this purpose the outstanding
equity securities of any Company Subsidiary) of the Company having a fair market value
equal to 25% or more of the fair value of all of the consolidated assets of the Company
immediately prior to such a transaction; provided, however, that the
term “Acquisition Proposal” shall not include the Merger and the other transactions
contemplated by this Agreement.
	 
	 	(d)  	“Alternative Stockholder’s Representative” shall have the meaning set forth in
Section 11.13.
	 
	 	(e)  	“Benefit Plan” means all Pension Plans, Welfare Plans and Compensation Plans.
	 
	 	(f)  	“Bridge Loans” means the in the loans to the Company in the amounts and from
the Persons set forth on Schedule 1.8(b) hereto.
	 
	 	(g)  	“Business Day” means a day other than a Saturday, Sunday or other day on which
commercial banks in Minneapolis, Minnesota are authorized or required by law to close.
	 
	 	(h)  	“Certificates” shall have the meaning set forth in Section 1.12(a).

56

 

	 	(i)  	“Clinical Trial” shall have the meaning set forth in Section 1.9(a).
	 
	 	(j)  	“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, as set forth in Section 4980B of the Code, part 6 of Title I of ERISA and
applicable regulations issued thereunder.
	 
	 	(k)  	“Code” means the Internal Revenue Code of 1986, as amended, and the regulations
or other binding pronouncements promulgated thereunder.
	 
	 	(l)  	“Company Capital Stock” means Company Common Stock and Company Preferred Stock.
	 
	 	(m)  	“Company Common Stock” means the common stock, $0.001 par value, of the
Company.
	 
	 	(n)  	“Company Preferred Stock” means the Series A Convertible Preferred Stock,
$0.001 par value, of the Company.
	 
	 	(o)  	“Company Securities” shall have the meaning set forth in Section 2.4.
	 
	 	(p)  	“Company Stock Option” means an option to purchase a share of the Company’s
Common Stock granted pursuant to the Company Stock Option Plans.
	 
	 	(q)  	“Company Stock Option Plans” means the Company’s 2004 Stock Plan.
	 
	 	(r)  	“Company Warrant” means the warrants to purchase Series A Convertible Preferred
Stock of the Company.
	 
	 	(s)  	“Company’s Knowledge” means the actual knowledge of the Company’s officers and
directors, and such knowledge as such Persons would have obtained upon the exercise of
reasonable diligence.
	 
	 	(t)  	“Compensation Plan” means any material benefit or arrangement that is not
either a Pension Plan or a Welfare Plan, including, without limitation, (i) each
employment or consulting agreement, (ii) each arrangement providing for insurance
coverage or workers’ compensation benefits, (iii) each bonus, incentive bonus or
deferred bonus arrangement, (iv) each arrangement providing termination allowance,
severance or similar benefits, (v) each equity compensation plan, (vi) each current or
deferred compensation agreement, arrangement or policy, (vii) each compensation policy
and practice maintained by the Company or any ERISA Affiliate of the Company covering
the employees, former employees, directors and former directors of the Company and the
beneficiaries of any of them, and (viii) each agreement, arrangement or plan that
provides for the payment of compensation to any person who provides services to the
Company and who is not an employee, former employee, director or former director of the
Company.
	 
	 	(u)  	“Conceptus” means Conceptus, Inc., a Delaware corporation.

57

 

	 	(v)  	“Contingent Calculation” shall have the meaning set forth in Section 1.9(e).
	 
	 	(w)  	“Contingent Merger Consideration” shall have the meaning set forth in Section
1.9.
	 
	 	(x)  	“Contingent Period” shall have the meaning set forth in Section 1.9(d).
	 
	 	(y)  	“Contracts” means all contracts, agreements, options, leases, licenses, sales
and accepted purchase orders, commitments and other instruments of any kind, whether
written or oral, to which the Company is a party on the Closing Date, including the
Scheduled Contracts.
	 
	 	(z)  	“Damages” means all demands, claims, actions or causes of action, assessments,
losses, damages, costs, expenses, Liabilities, judgments, awards, fines, sanctions,
penalties, charges and amounts paid in settlement, without giving effect to any
qualifications as to materiality of Material Adverse Effect contained in any
representation or warranty contained herein, including, but not limited to, (i)
interest on cash disbursements in respect of any of the foregoing at the “prime rate”
as published in The Wall Street Journal, from time to time from the date each such cash
disbursement is made until the Person incurring the same shall have been indemnified in
respect thereof, and (ii) reasonable costs, fees and expenses of attorneys,
accountants, bankers and other agents of the Person incurring such expenses. For
purposes of calculating Damages, the value of the royalties due to the Company from
Conceptus under the Settlement and License Agreement shall be deemed to be Three
Million Five Hundred Thousand Dollars ($3,500,000).
	 
	 	(aa)  	“Dissenting Shares” shall have the meaning set forth in Section 1.11.
	 
	 	(bb)  	“Dissenting Stockholders” shall have the meaning set forth in Section 1.11.
	 
	 	(cc)  	“Environmental, Safety and Health Laws” means all Applicable Laws in any way
relating to Environmentally Regulated Materials, or the environment, including, without
limitation, the Safe Drinking Water and Toxic Enforcement Act (“Proposition
65”), the Federal Resource Conservation and Recovery Act (“RCRA”), the
Federal Comprehensive Environmental Response Compensation and Liability Act
(“CERCLA”), the Federal Clean Air Act, the Federal Water Pollution Control Act,
the Federal Safe Drinking Water Act, the Federal Toxic Substances Control Act
(“TSCA”), the Federal National Environmental Policy Act, the Federal
Insecticide Fungicide and Rodenticide Act, the Federal Emergency Planning and Community
Right to Know Act, the Federal Hazard Communication Act, the Federal Occupational
Safety and Health Act, any requirements promulgated pursuant to these laws, amendments,
or restatements, all as amended to date.
	 
	 	(dd)  	“Environmental Liabilities” means all Liabilities of a Person (whether such
Liabilities are owed by such Person to Governmental Authorities, third parties, or

58

 

	 	  	otherwise) whether currently in existence or arising hereafter which arise under any
Environmental, Safety or Health Laws.
	 
	 	(ee)  	“Environmentally Regulated Material” means any element, compound, waste,
pollutant, contaminant, substance, material or any mixture thereof that has been
defined or designated as a “hazardous waste”, “hazardous substance”, “toxic”,
“explosive”, “corrosive”, “flammable”, “infectious”, “radioactive”, “carcinogenic”,
“mutagenic”, or otherwise a danger to human health or the environment, including
without limitation gasoline, diesel fuel or other petroleum hydrocarbons,
polychlorinated biphenols (PCBs), and friable asbestos, but excluding office and
janitorial supplies properly and safely maintained.
	 
	 	(ff)  	“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
	 
	 	(gg)  	“ERISA Affiliate” means any “person,” within the meaning of Section 7701(a)(1)
of the Code, that together with the Company or any Subsidiary is considered a single
employer pursuant to Section 414(b), (c), (m) or (o) of the Code or Section 3(5) or
4001(b)(1) of ERISA.
	 
	 	(hh)  	“Escrow Agent” shall have the meaning set forth in Section 1.12(a).
	 
	 	(ii)  	“Escrow Agreement” means the agreement, in substantially the form attached
hereto as Exhibit E, to be entered into by and among Parent, the Stockholders’
Representative and the Escrow Agent, pursuant to which a portion of the Initial Merger
Consideration will be held in escrow in accordance with Section 1.8.
	 
	 	(jj)  	“Escrow Funds” shall have the meaning set forth in Section 1.8(b).
	 
	 	(kk)  	“FDA” means the United States Food and Drug Administration.
	 
	 	(ll)  	“Final Contingent Payment” shall have the meaning set forth in Section 1.9(d).
	 
	 	(mm)  	“First Loan” shall have the meaning set forth in the Recitals.
	 
	 	(nn)  	“First Milestone” shall have the meaning set forth in Section 1.9(a).
	 
	 	(oo)  	“GAAP” means generally accepted accounting principles in the United States.
	 
	 	(pp)  	“Governmental Authority” means any foreign, domestic, federal, territorial,
state or local governmental authority, quasi-governmental authority, instrumentality,
court, government or self-regulatory organization, commission, tribunal or organization
or any regulatory, administrative or other agency, or any political or other
subdivision, department or branch of any of the foregoing.
	 
	 	(qq)  	“Group Health Plan” means any group health plan, as defined in Section
5000(b)(1) of the Code.

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	 	(rr)  	“HIPAA Privacy Regulations” means the regulations (Title 45, Parts 160 and 164,
of the Code of Federal Regulations) issued by the U.S. Department of Health and Human
Services pursuant to the Health Insurance Portability and Accountability Act of 1996.
	 
	 	(ss)  	“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
	 
	 	(tt)  	“IRS” means the Internal Revenue Service.
	 
	 	(uu)  	“Initial Merger Consideration” shall have the meaning set forth in Section
1.8(b).
	 
	 	(vv)  	“Initial Payment” shall have the meaning set forth in Section 1.8(b).
	 
	 	(ww)  	“Intellectual Property” shall mean all rights in patents, patent applications,
trademarks (whether registered or not), trademark applications, service mark
registrations and service mark applications, trade names, trade dress, logos, slogans,
tag lines, uniform resource locators, Internet domain names, Internet domain name
applications, corporate names, copyright applications, registered copyrighted works and
commercially significant unregistered copyrightable works (including proprietary
software, books, written materials, prerecorded video or audio tapes, and other
copyrightable works), technology, software, trade secrets, know-how, technical
documentation, specifications, data, designs and other intellectual property and
proprietary rights, other than off-the-shelf computer programs, that is used in or
necessary to the conduct of the business of the Company as currently conducted.
	 
	 	(xx)  	“Interference Requests” shall mean the pending requests by Conceptus for an
interference to be declared, for the subject matter of the count(s) proposed by
Conceptus, between (a) Conceptus Application No. 10/600,298 and Ovion Application No.
08/770,123, (b) Conceptus Application No. 10/641,333 and Ovion Patent No. 6,432,116,
and (c) Conceptus Application No. 10/779,541 and Ovion Application No. 10/272,840.
	 
	 	(yy)  	“Legal Advance Funds” shall have the meaning set forth in Section 4.12.
	 
	 	(zz)  	“Liability” or “Liabilities” means any liabilities, obligations or claims of
any kind whatsoever whether absolute, accrued or un-accrued, fixed or contingent,
matured or un-matured, asserted or unasserted, known or unknown, direct or indirect,
contingent or otherwise and whether due or to become due, including without limitation
any foreign or domestic tax liabilities or deferred tax liabilities incurred in respect
of or measured by the Company’s income, or any other debts, liabilities or obligations
relating to or arising out of any act, omission, transaction, circumstance, sale of
goods or services, state of facts or other condition which occurred or existed on or
before the date hereof, whether or not known, due or payable, whether or not the same
is required to be accrued on the financial statements or is disclosed on the Disclosure
Schedule.

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	 	(aaa)  	“Lien” means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance, adverse claim or charge of any kind in respect of such asset.
	 
	 	(bbb)  	“Loans” shall have the meaning set forth in Section 1.8(a).
	 
	 	(ccc)  	“Material Adverse Effect” means, with respect to the Company or Parent, in
either case as applicable, an individual or cumulative adverse change in or effect on
the business, customers, customer relations, operations, properties, working capital
condition (financial or otherwise), assets, properties, liabilities or prospects
(financial or otherwise) of such party which (i) is reasonably expected to be
materially adverse to the business, properties, working capital condition (financial or
otherwise), assets, liabilities or prospects (financial or otherwise) of such party; or
(ii) would prevent such party from consummating the transactions contemplated hereby,
other than as a result of (A) changes, conditions or events that are generally
applicable to the industry in which the Company, Parent or the Merger Subsidiary, as
applicable, operates or the U.S. economy in general, or acts of war, armed hostilities
or terrorism, or (B) changes in Applicable Law or U.S. GAAP or interpretations thereof.
	 
	 	(ddd)  	“Maximum Interference Liability” shall have the meaning set forth in Section
8.5.
	 
	 	(eee)  	“Merger Consideration” means the aggregate consideration that becomes payable
to the Stockholders under this Agreement, including the Initial Merger Consideration
and the Contingent Merger Consideration.
	 
	 	(fff)  	“Merger Subsidiary Common Stock” shall have the meaning set forth in Section
1.10(d).
	 
	 	(ggg)  	“Milestones” shall have the meaning set forth in Section 1.9(d).
	 
	 	(hhh)  	“Musket Litigation” means any litigation by Musket Research Associates, Inc.
against the Company or any of its officers, directors, employees or agents relating to
the causes of action alleged in that certain complaint filed on or about March 7, 2005
in the United States District Court for the District of Massachusetts.
	 
	 	(iii)  	“Net Initial Merger Consideration” shall have the meaning set forth in Section
1.8(b).
	 
	 	(jjj)  	“Net Sales” means Parent’s properly recognized consolidated aggregate net
sales of the Products during the Contingent Period, calculated in accordance with GAAP
consistently applied by Parent in accordance with its audited revenue recognition
policies. Whenever a Product is sold as part of a Bundled Product, the “Net Sales” for
the Product resulting from such sale of such Bundled Product shall be the product of
(X) the net revenues reported by Parent or its Affiliate, whichever is applicable, for
such Bundled Product multiplied by (Y) a fraction, the numerator of which is the per
unit average selling price of such Product and

61

 

	 	   	the denominator of which is the sum of the aggregate per unit average selling prices
of all products, including the Product, included in such Bundled Product.
	 
	 	(kkk)  	“Payment Agent” shall have the meaning set forth in Section 1.12(a).
	 
	 	(lll)  	“Payment Agreement” shall have the meaning set forth in Section 1.12(a).
	 
	 	(mmm)  	“Pension Plan” means an “employee pension benefit plan” as such term is
defined in Section 3(2) of ERISA.
	 
	 	(nnn)  	“Permitted Liens” means (i) Liens for Taxes or governmental assessments,
charges or claims the payment of which is not yet due, or for Taxes the validity of
which are being contested in good faith by appropriate proceedings and which are
described on Schedule 2.24; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens imposed
by Applicable Law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith; (iii) Liens relating to deposits made in
the ordinary course of business in connection with workers’ compensation, unemployment
insurance and other types of social security or to secure the performance of leases,
trade contracts or other similar agreements; (iv) Liens and Encumbrances specifically
identified in the Latest Balance Sheet; (v) Liens securing executory obligations under
any lease that constitutes an “operating lease” under GAAP; and (vi) other Liens set
forth on the Disclosure Schedule; provided, however, that, with respect
to each of clauses (i) through (v), to the extent that any such Lien on any of the
Company’s or its Subsidiaries’ assets arose prior to the date of the Latest Balance
Sheet and relates to, or secures the payment of, a Liability that is required to be
accrued for under GAAP, such Lien shall not be a Permitted Lien unless all such
Liabilities have been fully accrued or otherwise reflected on the Latest Balance Sheet.
Notwithstanding the foregoing, no Lien arising under the Code or ERISA with respect to
the operation, termination, restoration or funding of any Benefit Plan sponsored by,
maintained by or contributed to by the Company or any of its ERISA Affiliates or
arising in connection with any excise tax or penalty tax with respect to such Benefit
Plan shall be a Permitted Lien.
	 
	 	(ooo)  	“Person” means an individual, corporation, partnership, limited liability
company, association, trust, estate or other entity or organization, including a
Governmental Authority.
	 
	 	(ppp)  	“Plan Affiliate” means, with respect to any Person, any Benefit Plan sponsored
by, maintained by or contributed to by such Person, and with respect to any Benefit
Plan, any Person sponsoring, maintaining or contributing to such plan or arrangement.
	 
	 	(qqq)  	“PMA-Approval Date” shall have the meaning set forth in Section 1.9(c).
	 
	 	(rrr)  	“Product” or “Products” means (a) the Company’s fallopian tube occlusion
device, including the delivery device, and (b) any products developed, modified

62

 

	 	  	or derived directly therefrom for occluding the fallopian tubes that are covered by
any valid claim in any patents listed in Section 2.21 of the Disclosure Schedule,
any valid claim in any patent issuing from any patent application listed in Section
2.21 of the Disclosure Schedule or any valid claim in any issued patent claiming
priority to any of the foregoing, including any valid claim issuing in any
divisional, continuation, reissue or reexamination thereof. For the purposes of
this definition, a valid claim shall mean a claim in any unexpired patent which has
not been held invalid or unenforceable by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within the
time period allowed for appeal, or which has not been admitted to be invalid through
reissue, reexamination or disclaimer.
	 
	 	(sss)  	“Properties” means any real property owned or leased by or to the Company or a
Subsidiary.
	 
	 	(ttt)  	“Purchase Price Adjustment” shall have the meaning set forth in Section 1.8(c).
	 
	 	(uuu)  	“Scheduled Contracts” shall have the meaning set forth in Section 2.18.
	 
	 	(vvv)  	“Securities Act” means the Securities Act of 1933, as amended.
	 
	 	(www)  	“Second Loan” shall have the meaning set forth in the Recitals.
	 
	 	(xxx)  	“Second Milestone” shall have the meaning set forth in Section 1.9(b).
	 
	 	(yyy)  	“Section 409A Benefit Plan” shall have the meaning set forth in Section
2.19(o).
	 
	 	(zzz)  	“Set-Off Amounts” shall have the meaning set forth in Section 8.6.
	 
	 	(aaaa)  	“Settlement and License Agreement” means the Settlement and License Agreement,
effective November 4, 2003, by and among, the Company, Conceptus and the Principal
Stockholders.
	 
	 	(bbbb)  	“Stockholders” means the Persons who hold of record immediately prior to the
Effective Time shares of Company Common Stock or Company Preferred Stock or holders of
Company Options or Company Warrants who do not exercise such options or warrants prior
to the effective time pursuant to Section 1.10(b).
	 
	 	(cccc)  	“Stockholder Expenses” mean expenses to be borne by the Stockholders pursuant to
Section 11.3 or otherwise as authorized and approved by the Stockholders’
Representative.
	 
	 	(dddd)  	“Stockholders’ Representative” has the meaning set forth in Section 11.13.
	 
	 	(eeee)  	“Superior Proposal” means either (a) an unsolicited, bona fide written Acquisition
Proposal for all of the outstanding shares of the capital stock or all of the voting
power of the Company which (x) the Company’s Board of Directors determines in good
faith to be more favorable to the Stockholders than the

63

 

	 	   	Merger, after consultation with the Company’s legal advisors that the value of the
consideration provided for in such proposal is superior to the value of the
consideration provided for in the Merger, taking into account all the terms and
conditions of the Acquisition Proposal and this Agreement deemed relevant by the
Company’s Board of Directors, (y) for which financing is not required, and (z) which
is reasonably likely to be consummated, within a period of time not materially
longer in duration that the period of time reasonably believed to be necessary to
consummate the Merger, on the terms set forth, taking into account all legal,
financial, regulatory and other aspects of such Acquisition Proposal including the
Termination Fee, or (b) the receipt by the Company from Conceptus of an executed
definitive agreement substantially similar to this Agreement (with the only
deviation in terms and conditions those allowed for under Section 5.1(b)(iii) of the
Settlement and License Agreement and except that Conceptus would be the “Parent” and
a subsidiary of Conceptus would be the “Merger Subsidiary”) pursuant to the valid
and timely exercise by Conceptus of the Third Party Right.
	 
	 	(ffff)  	“Supplemental Advance” shall have the meaning set forth in Section 4.12.
	 
	 	(gggg)  	“Surviving Corporation Common Stock” shall have the meaning set forth in Section
1.10(d).
	 
	 	(hhhh)  	“Tax” or “Taxes” means all taxes imposed of any nature including federal, state,
local or foreign net income tax, alternative or add-on minimum tax, profits or excess
profits tax, franchise tax, gross income, adjusted gross income or gross receipts tax,
employment related tax (including employee withholding or employer payroll tax, FICA or
FUTA), real or personal property tax or ad valorem tax, sales or use tax, excise tax,
stamp tax or duty, any withholding or back up withholding tax, value added tax,
severance tax, prohibited transaction tax, premiums tax, environmental tax, intangibles
tax or occupation tax, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Authority (domestic or foreign)
responsible for the imposition of any such tax, including, without limitation, any
penalties for failing to report any “reportable transactions” required by Section 6011
of the Code. The term Tax shall also include any Liability of the Company or the
Subsidiaries for the Taxes of any other Person under U.S. Treasury Regulations Section
1.1502-6 (or similar provisions of state, local or foreign law), as a transferee or
successor by contract or otherwise.
	 
	 	(iiii)  	“Tax Return” means all returns, declarations, reports, estimates, forms, information
returns, schedules, notices and statements or other document or information required to
be filed with or submitted to any Governmental Authority in connection with the
determination, assessment, collection or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any legal
requirement relating to any Tax.

64

 

	 	(jjjj)  	“Termination Date” shall mean the date that is ninety (90) days from the date of this
Agreement.
	 
	 	(kkkk)  	“Termination Fee” shall have the meaning set forth in Section 7.4.
	 
	 	(llll)  	“Third Loan” shall have the meaning set forth in Section 1.8(a).
	 
	 	(mmmm)  	“Third Milestone” shall have the meaning set forth in Section 1.9(c).
	 
	 	(nnnn)  	“Third Party Right” means any right of first refusal that may be held by Conceptus
pursuant to Section 5.1 of the Settlement and License Agreement.
	 
	 	(oooo)  	“Transaction Expenses” means all fees and expenses accrued after the date of the
Letter of Intent by or on behalf of the Company in connection with the Merger payable
to a third party including, without limitation, all legal, accounting, financial
advisory, investment banking, consulting and all other fees and expenses of third
parties incurred in connection with the negotiation and preparation of this Agreement
and the transactions contemplated hereby.
	 
	 	(pppp)  	“U.S. Government” means the United States Government, including any agencies,
commissions, branches, instrumentalities and departments thereof.
	 
	 	(qqqq)  	“Welfare Plan” means an “employee welfare benefit plan” as such term is defined in
Section 3(1) of ERISA (including without limitation a plan excluded from coverage by
Section 4 of ERISA).

ARTICLE 11

MISCELLANEOUS

	11.1  	Notices. All notices, requests, demands, claims and other communications hereunder
shall be in writing. Any notice, request, demand, claim, or other communication hereunder
shall be deemed duly given (a) if personally delivered, when so delivered, (b) if mailed, two
(2) Business Days after having been sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set forth below, (c) if
given by facsimile, once such notice or other communication is transmitted to the facsimile
number specified below and electronic confirmation is received; provided,
however, that such notice or other communication is promptly thereafter mailed in
accordance with the provisions of clause (b) above, or (d) if sent through an overnight
delivery service in circumstances to which such service guarantees next day delivery, the day
following being so sent:
	 
	   	If to the Company prior to Closing:

	 	 	 	 	 
	

	 	To:
	 	Ovion Inc.
	

	 	 	 	1900 O’Farrell Street, Suite 210
	

	 	 	 	San Mateo, California 94403
	

	 	 	 	Attn: Jeffrey Callister with a copy to W. Steven Tremulis
	

	 	 	 	Fax: (650) 212-4407

65

 

	 	 	 	 	 	 	 
	 	 	 	 	With a copy to:
	 
	 	 	 	 	 	 
	

	 	 	 	 	 	Wilson Sonsini Goodrich & Rosati, P.C.
	

	 	 	 	 	 	650 Page Mill Road
	

	 	 	 	 	 	Palo Alto, CA 94304-1050
	

	 	 	 	 	 	Attn: J. Casey McGlynn and Philip H. Oettinger
	

	 	 	 	 	 	Fax: (650) 493-6811
	 
	 	 	 	 	 	 
	 	 	If to the Company after Closing or to the Parent or Merger Subsidiary:
	 
	 	 	 	 	 	 
	

	 	 	 	To:
	 	American Medical Systems, Inc.
	

	 	 	 	 	 	10700 Bren Road West
	

	 	 	 	 	 	Minnetonka, Minnesota 55343
	

	 	 	 	 	 	Attn: Chief Executive Officer
	

	 	 	 	 	 	Fax: (612) 930-6695
	 
	 	 	 	 	 	 
	 	 	 	 	With a copy to:
	 
	 	 	 	 	 	 
	

	 	 	 	 	 	Oppenheimer Wolff & Donnelly LLP
	

	 	 	 	 	 	3300 Plaza VII
	

	 	 	 	 	 	45 South Seventh Street
	

	 	 	 	 	 	Minneapolis, Minnesota 55402
	

	 	 	 	 	 	Attn: Thomas A. Letscher, Esq.
	

	 	 	 	 	 	Fax: (612) 607-7100
	 
	 	 	 	 	 	 
	 	 	If to the Stockholders’ Representative:
	 
	 	 	 	 	 	 
	

	 	 	 	To:
	 	Jeffrey Callister
	

	 	 	 	 	 	C/o J. Casey McGlynn
	

	 	 	 	 	 	Wilson Sonsini Goodrich & Rosati, P.C.
	

	 	 	 	 	 	650 Page Mill Road
	

	 	 	 	 	 	Palo Alto, CA 94304-1050
	

	 	 	 	 	 	Fax: (650) 493-6811

     Any party may give any notice, request, demand, claim or other communication hereunder using
any other means (including ordinary mail or electronic mail), but no such notice, request, demand,
claim or other communication shall be deemed to have been duly given unless and until it actually
is received by the individual for whom it is intended. Any party may change the address to which
notices, requests, demands, claims and other communications hereunder are to be delivered by giving
the other parties notice in the manner herein set forth.

	11.2  	Amendments; No Waivers.

	 	(a)  	Subject to Applicable Law, any provision of this Agreement may be amended or
waived if, and only if, such amendment or waiver is in writing and signed, in the case
of an amendment, by all parties hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.

66

 

	 	(b)  	No waiver by a party of any default, misrepresentation or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent occurrence.
No failure or delay by a party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other right,
power or privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law.

	11.3  	Expenses. Except as otherwise provided herein, all costs, fees and expenses incurred
in connection with the negotiation, preparation, execution, delivery and performance of this
Agreement and in closing and carrying out the transactions contemplated hereby shall be paid
by the party incurring such cost or expense. This Section 11.3 shall survive the termination
of this Agreement.

	11.4  	Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted assigns. No party
hereto may assign either this Agreement or any of its rights, interests or obligations
hereunder without the prior written approval of each other party.

	11.5  	Governing Law. This Agreement shall be governed by, construed and enforced in
accordance with the internal laws of the State of Minnesota (regardless of the laws that might
otherwise govern under applicable principles of conflicts of law).

	11.6  	Counterparts; Effectiveness. This Agreement may be signed in any number of
counterparts and the signatures delivered by facsimile, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received a counterpart
hereof signed by the other parties hereto.

	11.7  	Entire Agreement. This Agreement (including the Disclosure Schedule, all Exhibits
and Schedules and all other agreements referred to herein or therein which are hereby
incorporated by reference and the other agreements executed simultaneously herewith)
constitutes the entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements, understandings and negotiations, both written and oral,
between the parties with respect to the subject matter of this Agreement, including, without
limitation, the Letter of Intent. Neither this Agreement nor any provision hereof is intended
to confer upon any Person other than the parties hereto any rights or remedies hereunder.

	11.8  	Captions. The captions herein are included for convenience of reference only and
shall be ignored in the construction or interpretation hereof. All references to an Article
or Section include all subparts thereof.

67

 

	11.9  	Severability. If any provision of this Agreement, or the application thereof to any
Person, place or circumstance, shall be held by a court of competent jurisdiction to be
invalid, unenforceable or void, the remainder of this Agreement and such provisions as applied
to other Persons, places and circumstances shall remain in full force and effect only if,
after excluding the portion deemed to be unenforceable, the remaining terms shall provide for
the consummation of the transactions contemplated hereby in substantially the same manner as
originally set forth at the later of the date this Agreement was executed or last amended.

	11.10  	Construction. The parties hereto intend that each representation, warranty and
covenant contained herein shall have independent significance. If any party has breached any
representation, warranty or covenant contained herein in any respect, the fact that there
exists another representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) that the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first representation,
warranty or covenant.

	11.11  	Cumulative Remedies. Except as otherwise provided herein, the rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.

	11.12  	Third Party Beneficiaries. No provision of this Agreement shall create any third
party beneficiary rights in any Person, including any employee of Parent or Merger Subsidiary
or employee or former employee of the Company or any Affiliate thereof (including any
beneficiary or dependent thereof).

	11.13  	Appointment of Stockholders’ Representative; Enforcement of Rights, Benefits and
Remedies.

	 	(a)  	By adopting this Agreement, the Stockholders hereby irrevocably constitute and
appoint Jeffrey P. Callister as the Stockholders’ Representative, and W. Stephen
Tremulis as the Alternative Stockholders’ Representative, effective as of the Effective
Time, for the purpose of performing and consummating the transactions contemplated by
this Agreement and the Escrow Agreement. The appointment of such Stockholders’
Representative is coupled with an interest and all authority hereby conferred shall be
irrevocable and such Stockholders’ Representative is hereby authorized and directed to
perform and consummate all of the transactions contemplated by this Agreement. Not by
way of limiting the authority of the Stockholders’ Representative, each and all of the
Stockholders, by their adoption of this Agreement, for themselves and their respective
heirs, executors, administrators, successors and assigns hereby authorize the
Stockholders’ Representative to:

	 	(i)  	effect any amendment to this Agreement or the Escrow Agreement
which the Stockholders’ Representative deems necessary or desirable,

68

 

	 	(ii)  	execute and deliver on their behalf all documents and
instruments which may be executed and delivered pursuant to this Agreement or
the Escrow Agreement, except that all stock powers and letters of transmittal
with respect to the transfer of the Company Common Stock or Company Preferred
Stock shall be personally executed by the Stockholders,
	 
	 	(iii)  	make and receive notices and other communications pursuant to
this Agreement or the Escrow Agreement and service of process in any legal
action or other proceeding arising out of or related to this Agreement or the
Escrow Agreement or any of the transactions hereunder,
	 
	 	(iv)  	settle any dispute, claim, action, suit or proceeding arising
out of or related to this Agreement or the Escrow Agreement or any of the
transactions hereunder, including, without limitation, the calculation of the
Merger Consideration or the defense, settlement or compromise of any claim,
action or proceeding for which Parent or Merger Subsidiary may be entitled to
indemnification,
	 
	 	(v)  	receive and distribute the Initial Merger Consideration and
Contingent Merger Consideration,
	 
	 	(vi)  	appoint or provide for successor agents, and
	 
	 	(vii)  	pay expenses incurred or which may be incurred by or on behalf
of the Stockholders (and to be reimbursed by the Stockholders for their pro
rata share of such expenses out of the sums held by the Escrow Agent pursuant
to the Escrow Agreement) in connection with this Agreement and the Escrow
Agreement.

In the event of the death or disability of the Stockholders’ Representative, the
Alternative Stockholders’ Representative shall automatically become the
Stockholders’ Representative and, in the event of the death or disability of such
person, a majority of the remaining Stockholders shall promptly appoint a
replacement. No person serving as the Stockholders’ Representative under this
Agreement shall have any personal liability to any Stockholder or its permitted
assigns with respect to any action taken, suffered or omitted by him hereunder as a
Stockholders’ Representative while acting in good faith and in the absence of gross
negligence or willful misconduct, and any act done, suffered or omitted pursuant to
the advice of counsel shall be deemed hereunder to have been done in good faith,
except to the extent that such person may have liability as a Stockholder hereunder.
The Stockholders shall severally and not jointly indemnify the Stockholders’
Representative and hold him harmless against any loss, liability or expense incurred
without bad faith or gross negligence on the part of the Stockholders’
Representative and arising out of or in connection with the acceptance or
administration of their duties hereunder.

69

 

	 	(b)  	Any claim, action, suit, or other proceeding, whether in law or equity, to
enforce any right, benefit or remedy granted to Stockholders under this Agreement or
the Escrow Agreement shall be asserted, brought, prosecuted or maintained only by the
Stockholders’ Representative. With respect to any matter contemplated by this Section
11.13, the Stockholders shall be bound by any determination in favor of or against the
Stockholders’ Representative or the terms of any settlement or release to which the
Stockholders’ Representative shall become a party.

	 	(c)  	Any notice given the Stockholders’ Representative will constitute notice to
each and all of the Stockholders at the time the notice is given to the Stockholders’
Representative. Any action taken by, or instruction received from, the Stockholders’
Representative will be deemed to be action be, or notice or instruction from, each and
all of the Stockholders. Parent may, and the Escrow Agent will, disregard any notice
or instruction received directly from any of the Stockholders other than the
Stockholders’ Representative.

	 	(d)  	At any time during the term of the Escrow Agreement, holders of a majority in
interest of the Escrow Funds can remove and replace the Stockholders’ Representative by
sending notice and a copy of the written consent appointing such new individual or
individuals signed by holders of a majority in interest of the Escrow Funds to Parent
and the Escrow Agent.

[Remainder of Page Intentionally Left Blank]

70

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.

	 	 	 	 	 	 	 
	PARENT:	 	AMERICAN MEDICAL SYSTEMS, INC.	 	 
	 

	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	

	 	 	 	Martin J. Emerson	 	 
	

	 	 	 	President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	MERGER SUBSIDIARY:	 	OAK MERGER CORP.	 	 
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	

	 	 	 	Martin J. Emerson	 	 
	

	 	 	 	President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	COMPANY:	 	OVION INC.	 	 
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	

	 	 	 	W. Stephen Tremulis	 	 
	

	 	 	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	PRINCIPAL STOCKHOLDER:	 	Jeffrey P. Callister	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	PRINCIPAL STOCKHOLDER:	 	W. Stephen Tremulis	 	 
	 
	 	 	 	 	 	 
	STOCKHOLDER
	 	 	 	 	 	 
	 	 	 	 	 
	REPRESENTATIVE:	 	Jeffrey P. Callister	 	 

SIGNATURE PAGE

AGREEMENT AND PLAN OF MERGER

 

 

EXHIBIT INDEX

EXHIBIT A            Form of Certificate of Merger

EXHIBIT B            Certificate of Incorporation of Merger Subsidiary

EXHIBIT C            Form of Stockholder Agreement

EXHIBIT D            Form of Employment Offer

EXHIBIT E            Form of Escrow Agreement

EXHIBIT F            Form of Payment Agreement

EXHIBIT G            Form of Royalty Agreement

EXHIBIT H            Form of Letter of Resignation and Release of Claimsexv10w1

 

Exhibit 10.1

FORM OF VOTING AGREEMENT

     THIS VOTING AGREEMENT (this “Agreement”) is made and entered into as of June 2, 2005, by and
among Sun Microsystems, Inc., a Delaware corporation (“Parent”), Storage Technology Corporation, a
Delaware corporation (the “Company”), and the undersigned stockholder (“Stockholder”) of
the Company.

RECITALS

     A. Concurrently with the execution of this Agreement, Parent, Stanford Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and the
Company have entered into an Agreement and Plan of Merger (the “Merger Agreement”), which provides
for the merger (the “Merger”) of Merger Sub with and into the Company.

     B. Pursuant to the Merger, all of the issued and outstanding shares of capital stock of the
Company will be canceled and converted into the right to receive the consideration set forth in the
Merger Agreement, all upon the terms and subject to the conditions set forth in the Merger
Agreement.

     C. In order to induce Parent to execute the Merger Agreement, Stockholder desires to vote the
Shares, or any other shares of capital stock of the Company acquired by Stockholder hereafter and
prior to the Expiration Date (as defined in Section 1(b) hereof) so as to facilitate the
consummation of the Merger. The execution and delivery of this Agreement and of the attached form
of proxy is a material condition to Parent’s willingness to enter into the Merger Agreement.

     NOW, THEREFORE, the parties hereto hereby agree as follows:

     1. Certain Definitions. Capitalized terms not defined herein shall have the meanings ascribed
to them in the Merger Agreement. For purposes of this Agreement:

          (a) A Person shall be deemed to “Beneficially Own” a security if such Person, directly or
indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has or
shares: (i) voting power, which includes the power to vote, or to direct the voting of, such
security; and/or (ii) investment power, which includes the power to dispose, or to direct the
disposition of, such security.

          (b) “Expiration Date” shall mean the earlier to occur of (i) such date and time as the Merger
shall become effective in accordance with the terms and provisions of the Merger Agreement, or (ii)
such date and time as the Merger Agreement shall have been validly terminated pursuant to Article
VII thereof.

          (c) “Options” shall mean all securities Beneficially Owned by Stockholder that are convertible
into, or exercisable or exchangeable for, shares of capital stock of the

 

 

Company, including options, warrants and other rights to acquire shares of Company Common
Stock or other shares of capital stock of the Company.

          (d) “Person” shall mean any (i) individual, (ii) corporation, limited liability company,
partnership or other entity, or (iii) governmental authority.

          (e) “Shares” shall mean all shares of capital stock of the Company Beneficially Owned by
Stockholder, including all shares of capital stock of the Company of which Stockholder acquires
Beneficial Ownership during the period from the date of this Agreement through the Expiration Date,
including, without limitation, shares issued or issuable upon the conversion, exercise or exchange,
as the case may be, of Options.

          (f) “Tender” shall mean, with respect to any security, the direct or indirect assignment,
sale, transfer or tender of such security or any right, title or interest therein to any Person or
“group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934) advocating or
making any proposal in opposition to, or in competition with, consummation of the Merger and the
transactions contemplated by the Merger Agreement.

     2. No Tender of Shares or Options. Stockholder agrees that, at all times during the period
beginning on the date hereof and ending on the Expiration Date, Stockholder shall not cause or
permit any Tender of any Shares or Options, or make any agreement relating thereto.

     3. No Transfer of Voting Rights. Stockholder agrees that, during the period from the date of
this Agreement through the Expiration Date, Stockholder shall not deposit (or permit the deposit
of) any Shares or Options in a voting trust or grant any proxy or enter into any voting agreement
or similar agreement in contravention of the obligations of Stockholder under this Agreement with
respect to any of the Shares or Options.

     4. Agreement to Vote Shares. Until the Expiration Date, at every meeting of stockholders of
the Company called with respect to any of the following, and at every adjournment or postponement
thereof, and on every action or approval by written consent of stockholders of the Company with
respect to any of the following, Stockholder shall vote, to the extent not voted by the Person(s)
appointed under the Proxy (as defined below), the Shares or cause the Shares to be voted:

          (i) in favor of adoption and approval of the Merger Agreement, in favor of approval of the
Merger and its principal terms and in favor of each of the other actions contemplated by the Merger
Agreement and the Proxy and any action required in furtherance thereof;

          (ii) against approval of any proposal made in opposition to, or in competition with,
consummation of the Merger and the transactions contemplated by the Merger Agreement, and against
any action or agreement that would result in a breach of any representation, warranty, covenant,
agreement or other obligation of the Company in the Merger Agreement; and

2

 

          (iii) against any of the following actions (other than those actions that relate to the Merger
and the transactions contemplated by the Merger Agreement): (A) any merger, consolidation,
business combination, sale of assets, reorganization or recapitalization of the Company or any
subsidiary of the Company with any party, (B) any sale, lease, license or transfer of any
significant part of the assets of the Company or any subsidiary of the Company, (C) any
reorganization, recapitalization, dissolution, liquidation or winding up of the Company or any
subsidiary of the Company, (D) any material change in the capitalization of the Company or any
subsidiary of the Company, or the corporate structure of the Company or any subsidiary of the
Company, or (E) any other action that is intended, or could reasonably be expected to, impede,
interfere with, delay, postpone, discourage or adversely affect the Merger or any of the other
transactions contemplated by the Merger Agreement.

     Prior to the Expiration Date, Stockholder shall not enter into any agreement or understanding
with any person to vote or give instructions in any manner inconsistent with this Section 4.

     5. Irrevocable Proxy. Concurrently with the execution of this Agreement, Stockholder agrees
to deliver to Parent an irrevocable proxy in the form attached hereto as Exhibit A (the “Proxy”),
which shall be irrevocable to the fullest extent permitted by applicable law, covering the total
number of Shares, and shall automatically terminate upon the Expiration Date.

     6. Representations, Warranties and Covenants of Stockholder. Stockholder represents, warrants
and covenants to Parent as follows:

          (i) Stockholder has the full power to vote or direct the voting of the Shares for and on
behalf of all beneficial owners of the Shares.

          (ii) As of the date hereof, the Shares are, and at all times up until the Expiration Date the
Shares will be, free and clear of any rights of first refusal, co-sale rights, security interests,
liens, pledges, claims, options, charges or other encumbrances of any kind or nature, in each case
that would impair Stockholder’s ability to fulfill its obligations under Section 4. The execution
and delivery of this Agreement by Stockholder do not, and Stockholder’s performance of its
obligations under this Agreement will not conflict with or violate any order, decree, judgment or
agreement applicable to Stockholder or by which Stockholder or any of Stockholder’s properties or
Shares is bound.

          (iii) Stockholder has full power and authority to make, enter into and carry out the terms of
this Agreement, the Proxy and any other related agreements to which Stockholder is a party.

          (iv) Stockholder agrees that it will not bring, commence, institute, maintain, prosecute,
participate in or voluntarily aid any action, claim, suit or cause of action, in law or in equity,
in any court or before any governmental entity, which (a) challenges the validity of or seeks to
enjoin the operation of any provision of this Agreement or (b) alleges that the execution and
delivery of this Agreement by Stockholder, either alone or together with the other Company

3

 

voting agreements and proxies to be delivered in connection with the execution of the Merger
Agreement, or the approval of the Merger Agreement by the board of directors of the Company,
breaches any fiduciary duty of the board of directors of the Company or any member thereof.

     7. Additional Documents. Stockholder and the Company hereby covenant and agree to execute and
deliver any additional documents reasonably necessary or desirable, in the reasonable opinion of
Parent, to carry out the purpose and intent of this Agreement.

     8. Consents and Waivers. Stockholder hereby gives any consents or waivers that are reasonably
required for the consummation of the Merger under the terms of any agreement or instrument to which
Stockholder is a party or subject or in respect of any rights Stockholder may have.

     9. Termination. This Agreement and the Proxy delivered in connection herewith shall
automatically terminate and shall have no further force or effect as of the Expiration Date.

     10. Capacity. The parties hereto acknowledge and agree that this Agreement and the Proxy are
entered into by Stockholder in Stockholder’s capacity as a stockholder of the Company and shall not
be construed to have any effect on Stockholder’s fiduciary obligations as a member of the Board of
Directors of the Company.

     11. Miscellaneous.

          (a) Waiver. No failure on the part of Parent to exercise any power, right, privilege or
remedy under this Agreement, and no delay on the part of Parent in exercising any power, right,
privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege
or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right, privilege or remedy.
Parent shall not be deemed to have waived any claim arising out of this Agreement, or any power,
right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written instrument duly executed and delivered on
behalf of Parent; and any such waiver shall not be applicable or have any effect except in the
specific instance in which it is given.

          (b) Notices. All notices and other communications hereunder shall be in writing and shall be
deemed duly given (i) on the date of delivery if delivered personally or by courier service, (ii)
on the date of confirmation of receipt (or the first business day following such receipt if the
date is not a business day) if sent via facsimile (receipt confirmed), or (iii) on the date of
confirmation of receipt (or the first business day following such receipt if the date is not a
business day) if delivered by a nationally recognized courier service. All notices hereunder shall
be delivered to the parties at the following addresses or facsimile numbers (or pursuant to such
other instructions as may be designated in writing by the party to receive such notice):

4

 

	 	(i)  	if to Parent, to:
	 
	 	   	Sun Microsystems, Inc.

4120 Network Circle

Santa Clara, CA 95054

Attention: Brian Sutphin and Brian Martin

Facsimile: (408) 276-4601
	 
	 	   	with a copy to:
	 
	 	   	Wilson Sonsini Goodrich & Rosati

Professional Corporation

650 Page Mill Road

Palo Alto, California 94304

Attention: Martin W. Korman

Facsimile: (650) 493-6811
	 
	 	(ii)  	if to Company, to:

Storage Technology Corporation

One StorageTek Drive

Louisville, Colorado 80028

Attention: Patrick J. Martin

Facsimile: (303) 673-4150
	 
	 	   	with a copy to:
	 
	 	   	Cadwalader, Wickersham & Taft LLP

One World Financial Center

New York, NY 10281

Attention: Dennis J. Block

Facsimile: (212) 504-6666
	 
	 	(iii)  	if to Stockholder: To the address for notice
set forth on the signature page hereof.

          (c) Headings. All captions and section headings used in this Agreement are for convenience
only and do not form a part of this Agreement.

          (d) Counterparts. This Agreement may be executed in one or more counterparts (including
execution by facsimile signature), all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of the parties and
delivered to the other party, it being understood that all parties need not sign the same
counterpart.

5

 

          (e) Entire Agreement; Amendment. This Agreement and the Proxy constitutes the entire
agreement among the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with respect to the subject
matter hereof. This Agreement may not be changed or modified, except by an agreement in writing
specifically referencing this Agreement and executed by each of the parties hereto.

          (f) Severability. In the event that any provision of this Agreement, shall be determined to
be invalid, unlawful, void or unenforceable to any extent, the remainder of this Agreement shall
not be impaired or otherwise affected and shall continue to be valid and enforceable to the fullest
extent permitted by law.

          (g) Governing Law. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflicts of law thereof. Each of the parties hereto irrevocably consents to the
exclusive jurisdiction and venue of the Delaware Court of Chancery and any state appellate court
therefrom within the State of Delaware (or, if the Delaware Court of Chancery declines to accept
jurisdiction over a particular matter, any state or federal court within the State of Delaware) in
connection with any matter based upon or arising out of this Agreement or the matters contemplated
herein, agrees that process may be served upon them in any manner authorized by the laws of the
State of Delaware for such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction, venue and such process.

          (h) Remedies. The parties acknowledge that Parent will be irreparably harmed and that there
will be no adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any other remedies that
may be available to Parent upon any such violation, Parent shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or by any other means available
to Parent at law or in equity.

          (i) Binding Effect; No Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and
permitted assigns, but, except as otherwise specifically provided herein, neither this Agreement
nor any of the rights, interests or obligations of the parties hereto may be assigned by any of the
parties without the prior written consent of the other parties.

6

 

     IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first above
written.

	 	 	 
	SUN MICROSYSTEMS, INC.

	 	STOCKHOLDER:
	 
	 	 
	By:                                                                                

	 	                                                                                
	Name:

	 	Signature
	Title:
	 	 
	 
	 	 
	

	 	                                                                                
	

	 	Print Name
	 
	 	 
	STORAGE TECHNOLOGY CORPORATION

	 	                                                                                
	 
	 	 
	

	 	                                                                                
	By:                                                                                

	 	Address
	Name:
	 	 
	

	 	Title:

[SIGNATURE PAGE TO VOTING AGREEMENT]

 

 

EXHIBIT A

IRREVOCABLE PROXY

     The undersigned stockholder (“Stockholder”) of Storage Technology, Inc., a Delaware
corporation (the “Company”), hereby irrevocably (to the fullest extent permitted by law) appoints
the Chief Financial Officer and the General Counsel of Sun Microsystems, Inc., a Delaware
corporation (“Parent”), and each of them, as the sole and exclusive attorneys-in-fact and proxies
of the undersigned, with full power of substitution and resubstitution, to vote and exercise all
voting and related rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that are beneficially owned by the
undersigned, and any and all other shares or securities of the Company issued or issuable in
respect thereof on or after the date hereof (collectively, the “Shares”), in accordance with the
terms of this Proxy until the Expiration Date (as defined in the that certain Voting Agreement,
dated of even date herewith, by and among Parent, the Company and Stockholder (the “Voting
Agreement”)). Upon the undersigned’s execution of this Proxy, any and all prior proxies given by
the undersigned with respect to any Shares are hereby revoked and the undersigned hereby agrees not
to grant any subsequent proxies with respect to the Shares until after the Expiration Date (as
defined in the Voting Agreement).

     This Proxy is irrevocable (to the fullest extent permitted by law), is coupled with an
interest and is granted pursuant to the Voting Agreement, and is granted in consideration of Parent
entering into that certain Agreement and Plan of Merger (the “Merger Agreement”), dated as of June
2, 2005, by and among Parent, Stanford Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent (“Merger Sub”) and the Company. The Merger Agreement provides for the
merger of Merger Sub with and into the Company in accordance with its terms (the “Merger”), and
Stockholder is receiving a portion of the proceeds of the Merger.

     The attorneys-in-fact and proxies named above are hereby authorized and empowered by the
undersigned, at any time prior to the Expiration Date (as defined in the Voting Agreement), to act
as the undersigned’s attorney-in-fact and proxy to vote the Shares, and to exercise all voting,
consent and similar rights of the undersigned with respect to the Shares (including, without
limitation, the power to execute and deliver written consents), at every annual, special, adjourned
or postponed meeting of stockholders of the Company and in every written consent in lieu of such
meeting:

     (i) in favor of adoption and approval of the Merger Agreement, in favor of approval of the
Merger and its principal terms and in favor of each of the other actions contemplated by the Merger
Agreement and the Proxy and any action required in furtherance thereof;

     (ii) against approval of any proposal made in opposition to, or in competition with,
consummation of the Merger and the transactions contemplated by the Merger Agreement, and

 

 

against any action or agreement that would result in a breach of any representation, warranty,
covenant, agreement or other obligation of the Company in the Merger Agreement; and

     (iii) against any of the following actions (other than those actions that relate to the Merger
and the transactions contemplated by the Merger Agreement): (A) any merger, consolidation,
business combination, sale of assets, reorganization or recapitalization of the Company or any
subsidiary of the Company with any party, (B) any sale, lease, license or transfer of any
significant part of the assets of the Company or any subsidiary of the Company, (C) any
reorganization, recapitalization, dissolution, liquidation or winding up of the Company or any
subsidiary of the Company, (D) any material change in the capitalization of the Company or any
subsidiary of the Company, or the corporate structure of the Company or any subsidiary of the
Company, or (E) any other action that is intended, or could reasonably be expected to, impede,
interfere with, delay, postpone, discourage or adversely affect the Merger or any of the other
transactions contemplated by the Merger Agreement.

     The attorneys-in-fact and proxies named above may not exercise this Proxy on any other matter
except as provided in clauses (i), (ii) or (iii) above, and Stockholder may vote the Shares on all
other matters.

     Any obligation of the undersigned hereunder shall be binding upon the successors and assigns
of the undersigned.

[Remainder of Page Intentionally Left Blank]

*****

 2

 

     This Proxy shall terminate, and be of no further force and effect, automatically upon the
Expiration Date (as defined in the Voting Agreement).

Dated: June 2, 2005

                                                                                

Signature

                                                                                

Print Name

                                                                                

                                                                                

Address

[SIGNATURE PAGE TO PROXY]

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