ACQUISITION AGREEMENT

Exhibit 2.1

 

EXECUTION COPY

 

ACQUISITION AGREEMENT

 

by and among

 

C-COR INCORPORATED

 

and

 

BROADBAND ROYALTY CORPORATION

 

(as Buyer)

 

and

 

OPTINEL SYSTEMS, INC.

 

(as Seller)

 

August 27, 2004

Table of Contents

 

 

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ACQUISITION AGREEMENT

 

THIS ACQUISITION AGREEMENT (the “Agreement”) is dated as of August 27, 2004 between Optinel Systems, Inc., a Delaware corporation (“Seller”), C-COR Incorporated, a Pennsylvania corporation (“C-COR”), and Broadband Royalty Corporation, a Delaware corporation and wholly-owned subsidiary of C-COR (“BRC” and together with C-COR, “Buyer”).

 

RECITALS

 

WHEREAS , Seller is engaged in the Business (as hereinafter defined);

 

WHEREAS , the Board of Directors of Seller and the Boards of Directors of Buyer have determined that Seller’s sale of certain assets and liabilities of the Business to Buyer on the terms and conditions set forth herein (the “Sale”) is consistent with and in furtherance of the long-term business strategies of Seller and Buyer, and is fair to, and in the best interests of Seller, Buyer and their respective stockholders; and

 

WHEREAS , Seller will transfer certain assets and liabilities of the Business to Buyer, and Buyer will accept such assets and assume such liabilities from Seller, on the terms and conditions set forth herein. Seller and Buyer will enter into the Escrow Agreement (as hereinafter defined), assumption agreements and other ancillary agreements regarding certain actions relating to implementation of the transactions contemplated hereby (the “Ancillary Agreements”); and

 

NOW, THEREFORE , in consideration of the premises, representations, warranties, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

1.1. Defined Terms . For the purposes of this Agreement, the following words and phrases shall have the following meanings:

 

“ Accounting Principles ” shall have the meaning set forth in Section 3.4.

 

“ Accounts Payable ” shall have the meaning set forth in Section 3.20.

 

“ Accounts Receivable ” shall have the meaning set forth in Section 3.20.

 

“ Affiliate ” of a Person means any Person controlling, controlled by, or under common control with, such Person. For purposes of this definition, “control” means the power to direct the management and policies of a Person, whether through the ownership of voting securities, by agreement or otherwise.

 

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“ Agreement ” shall have the meaning set forth in the Recitals.

 

“ Ancillary Agreements ” shall have the meaning set forth in the Recitals.

 

“ Appraisal ” shall have the meaning set forth in Section 5.15.

 

“ Asset Acquisition Statement ” shall have the meaning set forth in Section 5.3.

 

“ Assumed Liabilities ” shall have the meaning set forth in Section 2.3.

 

“ Audited Financial Statements ” shall have the meaning set forth in Section 5.16.

 

“ Balance Sheet ” shall mean the balance sheet of the Seller as of June 30, 2004.

 

“ BRC ” shall have the meaning set forth in the Recitals.

 

“ Bridge Loan Waivers ” shall have the meaning set forth in Section 5.27.

 

“ Business ” shall mean the manufacture, sale and service of communications network systems and components carried on by Seller from any time during the period beginning twelve (12) months prior to the date of this Agreement through the Closing. Business shall exclude Excluded Liabilities, Excluded Assets and Business Employees other than Transferred Employees.

 

“ Business Enterprise Product ” shall mean the following products offered for sale as of the Closing Date by Seller: product families of customer premise equipment, layer two switches, media converters, CWDM mux/demux, and associated hardware such as chassis and power supply as more specifically set forth on Schedule 1.1 , and any versions of such products offered for sale after the Closing Date by Buyer notwithstanding any change in name or product number related to such products.

 

“ Business Financial Statements ” shall have the meaning set forth in Section 3.4.

 

“ Business Intellectual Property ” shall have the meaning set forth in Section 3.18.

 

“ Business Day ” means each day on which banks in New York, New York are open for business.

 

“ Business Employees ” means all individuals who are employed by Seller in relation to the Business, including all independent contractors engaged by Seller as of the date hereof.

 

“ Buyer ” shall have the meaning set forth in the Recitals.

 

“ Certified Financial Statements ” shall have the meaning set forth in Section 5.16.

 

“ Closing ” shall have the meaning set forth in Section 2.5.

 

“ Closing Balance Sheet ” shall have the meaning set forth in Section 2.6.

 

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“ Closing Date ” shall have the meaning set forth in Section 2.5.

 

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

 

“ Confidential Information ” means any information concerning the business and affairs of Seller or its Affiliates or the Business that is not generally available to the public, unless such information is or becomes readily ascertainable from published information or trade sources or is publicly disclosed through no breach of any confidentiality obligation.

 

“ Contract ” or “ Contracts ” shall mean all contracts, contractual rights, agreements, leases, purchase orders, warranty rights, sales order or any other agreement relating to the Business, the Purchased Assets or the Assumed Liabilities.

 

“ Damage ” or “ Damages ” means any and all losses, liabilities, damages, penalties, obligations, awards, fines, deficiencies, diminution in value, interest, claims (including third party claims, whether or not meritorious), costs and expenses whatsoever (including reasonable attorneys’, accountants’ and environmental consultants’ fees and disbursements).

 

“ Earn-Out Payment ” shall have the meaning set forth in Section 2.6.

 

“ Earn-Out Payment Calculation ” shall have the meaning set forth in Section 2.6.

 

“ Earn-Out Dispute Notice ” shall have the meaning set forth in Section 2.6.

 

“ Employee Compensation Payments ” shall mean (a) any amounts due to Business Employees for accrued wages, salaries, vacation or other benefits, (b) deferred salary obligations, including employee benefit, pension, health, retirement, option, stock, bonus, incentive or other such plan or compensation arrangement of Seller and (c) any payments in connection with Business Employee severance and any amounts due to Business Employees as a result of the Sale, to the extent required to be paid before, or as a result of, the Closing, including those certain employment agreements entered into by and between Seller and Irl Duling, Sandeep Vohra and James Faust, respectively.

 

“ Encumbrance ” shall mean any encumbrance of any kind whatsoever and includes any charge, claim, security interest, community property interest, mortgage, deed of trust, lien, judgment, tax lien, sewer rent, assessment, mechanics’ or materialmen’s liens, hypothecation, pledge, use, condition, occupancy, assignment, operation or ownership, easement, servitude, right of way, restriction, tenancy, encroachment or burden or any other right or claim and any restrictive covenant or other agreement, restriction or limitation of the subject property.

 

“ Environmental Laws ” shall have the meaning set forth in Section 3.12.

 

“ Environmental Liabilities ” means, regardless of whether any of the following are contained in any disclosure schedule to this Agreement or otherwise disclosed to Buyer prior to Closing, any and all Damages, known or unknown, foreseen or unforeseen, whether contingent or otherwise, fixed or absolute, present or future, arising out of or related to:

 

(i) environmental conditions, including, the presence, Release, threat of Release or Management of Hazardous Substances, occurring or existing prior to the Closing Date, at, on, in, under or from the Premises, the Purchased Assets or any other property now or previously owned, operated or leased by Seller or in connection with the operation of the Business; or

 

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(ii) environmental conditions arising from the off-site transportation, storage, treatment, recycling or disposal of Hazardous Substances prior to the Closing Date generated by or on behalf of Seller or in connection with the operation of the Business; or

 

(iii) any violation which occurred prior to the Closing of any then-applicable Environmental Law (including costs and expenses for pollution control or monitoring equipment required by Environmental Laws to bring the Business into compliance with Environmental Laws and fines, penalties and reasonable defense costs incurred for such reasonable time after the Closing to come into compliance).

 

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

 

“ ERISA Affiliate ” means (i) any corporation included with Seller in a controlled group of corporations within the meaning of Section 414(b) of the Code; (ii) any trade or business (whether or not incorporated) which is under common control with Seller within the meaning of Section 414(c) of the Code; (iii) any member of an affiliated service group of which Seller is a member within the meaning of Section 414(m) of the Code; or (iv) any other person or entity treated as an affiliate of Seller under Section 414(o) of the Code.

 

“ Escrow Agreement ” shall have the meaning set forth in Section 2.7.

 

“ Escrow Fund ” shall have the meaning set forth in Section 2.7.

 

“ Estoppel Certificates ” shall have the meaning set forth in Section 5.12.

 

“ Excluded Assets ” shall have the meaning set forth in Section 2.2.

 

“ Excluded Liabilities ” shall have the meaning set forth in Section 2.4.

 

“ Facilities Lease ” means that certain Lease Agreement, dated October 12, 2000, as amended by First Amendment to Lease, entered into August 24, 2004, between Seller, as lessee, and Brit-6835 Deerpath, LLC, as landlord.

 

“ GAAP ” means United States generally accepted accounting principles.

 

“ Governmental Authority ” means the government of the United States of America or any foreign country, or any state, province, municipality or other political subdivision thereof or therein, or any court, tribunal, agency, department, board, instrumentality, authority or commission (including regulatory and administrative bodies) of any of the foregoing.

 

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“ Governmental Permits ” shall mean any and all of the governmental permits, licenses, certificates, building permits, variances, approvals, registrations, authorizations and other licenses relating to the use or occupancy of the Premises, issued to Seller with respect to the Business or which are used by Seller in, or otherwise necessary or material to, the operation of the Business, the use by Seller of the Premises, or the conduct of the Business at the Premises, or which are otherwise required by law to be transferred to Buyer.

 

“ Hazardous Substances ” shall have the meaning set forth in Section 3.12.

 

“ Including ” or any variation thereof means “including without limitation” and the term “including” or any variation thereof shall not be construed to limit any general statement which it follows to the specific or similar items or matters immediately following it.

 

“ Indebtedness ” means (i) all liabilities for borrowed money or for the deferred purchase price of property or services, (ii) liabilities as lessee under leases of real and/or personal property which have been or should be, in accordance with GAAP, recorded as capital leases, (iii) liabilities secured by any Encumbrance on property owned or acquired, whether or not such liability shall have been assumed, (iv) guaranties, endorsements (other than for collection in the ordinary course of business) and other contingent obligations whether secured or not in respect of the obligations of other Persons, (v) liabilities in respect of unfunded vested benefits, (vi) reimbursement obligations in respect of letters of credit, banker’s acceptances, surety or other bonds and similar instruments whether or not matured, and (vii) all obligations arising under any consulting or noncompetition agreement entered into in connection with an acquisition of assets or the purchase of stock or other equity interests of any Person, to the extent such obligations have been capitalized.

 

“ Indemnified Person ” shall have the meaning set forth in Section 7.1.

 

“ Indemnifying Person ” shall have the meaning set forth in Section 7.1.

 

“ Initial Working Capital Adjustment ” shall have the meaning set forth in Section 2.6.

 

“ Intellectual Property ” means (i) inventions, whether or not patentable, reduced to practice or made the subject of one or more pending Patent applications, and whether or not under design or development, (ii) national and multinational statutory invention registrations, Patents and all improvements to the inventions disclosed in each such registration or Patent, (iii) trademarks, service marks, trade dress, logos, slogans, trade names and corporate names (whether or not registered) in the United States and all other nations throughout the world, including all variations, derivations, combinations, registrations and applications for registration or renewals of the foregoing and all goodwill associated therewith, (iv) copyrights (whether or not registered) and registrations and applications for registration or renewals thereof in the United States and all other nations throughout the world, including all derivative works, moral rights, renewals, extensions, reversions or restorations associated with such copyrights, now or hereafter provided by law, regardless of the medium of fixation or means of expression, (v) Internet domain names and registrations and applications for registration or renewals thereof registered in the United States ( e.g. , associated with the .com, .de, ca, .au, .net or .org top level

 

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domains) and all other nations throughout the world, (vi) computer software (including source code, object code, firmware, operating systems and specifications), (vii) trade secrets and, whether or not confidential, business information (including pricing and cost information, business and marketing plans and customer and supplier lists) and know-how (including manufacturing and production processes and techniques and research and development information) owned or licensed by Seller, (viii) industrial designs (whether or not registered), (ix) databases and data collections, (x) copies and tangible embodiments of any of the foregoing, in whatever form or medium (including electronic media), (xi) all rights to obtain and rights to apply for Patents and to register trademarks and copyrights, (xii) all rights in all of the foregoing provided by treaties, conventions and common law, (xiii) all rights to sue or recover and retain damages and costs and attorneys’ fees for past, present and future infringement or misappropriation of any of the foregoing, and (xiv) licenses to any of the foregoing.

 

“ IRS ” means the U.S. Internal Revenue Service.

 

“ Knowledge ” means with respect to any representation, warranty or statement of any Person that is qualified by such Person’s “knowledge,” the actual knowledge of such Person, and (i) in the case of Seller, the knowledge, after reasonable investigation, of the following executives: Sandeep Vohra and Barry Utz; and (ii) in the case of Buyer, the knowledge, after reasonable investigation, of the following executives: David A. Woodle and William T. Hanelly.

 

“ Leased Real Estate ” shall have the meaning set forth in Section 3.16.

 

“ Lease ” or “ Leases ” shall have the meaning set forth in Section 3.16.

 

“ Leave of Absence ” means an approved absence from employment that is classified as sick time, personal leave, family leave, industrial leave or Medical Leave.

 

“ Manage ” or “ Management ” when used with respect to Hazardous Substances, has the meaning set forth in Section 3.12.

 

“ Material Adverse Effect ” means any change or effect (or series of related changes or effects) which has had or could have a material adverse change in or effect upon the condition (financial or otherwise) or results of operations of the Business or the Purchased Assets in the aggregate, excluding any change or effect attributable to or resulting from (i) this Agreement or the transactions contemplated hereby or the announcement thereof, (ii) actions or omissions, or effects of actions or omissions, taken with the prior written consent, or at the direction, of Buyer, (iii) changes in general economic or market conditions or prevailing interest rates, including, without limitation, changes affecting the industry in which Seller operates, or (iv) changes in laws or accounting standards, principles or interpretations.

 

“ Material Real Estate Impairment ” shall mean a material impairment or interference of the use of, or the conduct of the Business at, any one or more of the individual Premises so affected.

 

“ Measurement Period ” means the period beginning on the Closing Date and ending on the date that is thirty (30) days after the first anniversary of the Closing Date.

 

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“ Medical Leave ” means an absence from employment that is classified as short-term disability, long-term disability or permanent medical leave.

 

“ Multiemployer Plan ” shall have the meaning ascribed thereto in Sections 3(37) and 4001(a)(3) of ERISA.

 

“ Non-Assignable Assets ” shall have the meaning set forth in Section 2.8.

 

“ Option ” means outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement and also including any rights plan or other anti-takeover agreement, obligating Seller or any of its Affiliates or any stockholder thereof to issue, deliver or sell, or cause to be issued, delivered or sold or otherwise to become outstanding, additional equity interests of Seller or obligating Seller to grant, extend or enter into any such agreement or commitment.

 

“ Patents ” means U.S. and non-U.S. patents, patent applications and industrial design registrations together with any continuations, continuations-in-part or divisional applications thereof, all patents and industrial design registrations issuing thereon, and all patents, industrial design registrations and applications claiming priority therefrom (including reissues, renewals and reexaminations of the foregoing).

 

“ Permitted Encumbrances ” means (i) the Encumbrances and exceptions set forth in Schedule 3.6.1 ; (ii) any Encumbrance created pursuant to this Agreement or the Ancillary Agreements, (iii) any lien for current Taxes not yet due and payable or that Seller is contesting in good faith through applicable proceedings, and (iv) other customary imperfections in title not material in extent or amount and which, individually or in the aggregate, do not interfere with the conduct of the Business or with the use of the Purchased Assets, do not cause a Material Real Estate Impairment to any Premises and do not materially affect the value of the Purchased Assets, taken collectively.

 

“ Person ” means and includes any individual, corporation, partnership, firm, association, joint venture, joint stock company, trust or other entity, or any government or regulatory administrative or political subdivision or agency, department or instrumentality thereof.

 

“ Plans ” shall have the meaning set forth in Section 3.10.

 

“ Premises ” means the Leased Real Estate.

 

“ Purchased Assets ” shall have the meaning set forth in Section 2.1.

 

“ Purchased Business Intellectual Property ” shall mean the Business Intellectual Property owned by Seller and conveyed to Buyer as a Purchased Asset.

 

“ Release ” shall have the meaning set forth in Section 3.12.

 

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“ Remediation” means investigation, cleanup, remedial action or other response action.

 

“ Returns ” means all returns, declarations, reports, statements and other documents required under a Tax Law to be filed with a Governmental Authority in respect of Taxes, and includes any Forms W-2, 1099 or similar documents required under any Tax Law to be provided to a person other than a Governmental Authority (and “ Return ” means any one of the foregoing Returns).

 

“ Sale ” shall have the meaning set forth in the Recitals.

 

“ Seller ” shall have the meaning set forth in the Recitals.

 

“ Seller’s Working Capital Certificate ” shall have the meaning set forth in Section 2.6.

 

“ Shortfall ” shall have the meaning set forth in Section 2.6.

 

“ Single Employer Plan ” shall have the meaning ascribed thereto in Section 4001(a)(15) of ERISA.

 

“ Statement of Allocation ” shall have the meaning set forth in Section 5.3.

 

“ Straddle Period Taxes ” shall have the meaning set forth in Section 5.4.

 

“ Stockholders Approval ” shall have the meaning set forth in Section 3.26.

 

“ Sub-Lease ” shall have the meaning set forth in Section 5.22.

 

“ Sub-Lease Consent ” shall have the meaning set forth in Section 5.22.

 

“ Subsidiary ” means as to any Person, a corporation or other entity of which shares of stock or other equity ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such corporation or other entity are at the time owned, directly or indirectly, through one or more intermediaries, or both, by such Person.

 

“ Taxes ” means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, add on or alternative minimum tax, occupancy, withholding, payroll, fringe benefits, employment, excise, severance, stamp, value added, goods and services, occupation, premium, property (including, without limitation, real property taxes and any assessments, special or otherwise), windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto (and “Tax” means any one of the foregoing Taxes).

 

“ Tax Law ” means a statute, regulation or administrative rule or judicial opinion enacted, issued or promulgated for the determination, imposition, assessment or collection of any Tax.

 

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“ Third Party Business Intellectual Property ” means Intellectual Property used in the Business or the Purchased Assets but is owned by a third party and licensed by Seller.

 

“ Transfer Taxes ” shall have the meaning set forth in Section 5.4.

 

“ Transferred Employees ” shall have the meaning set forth in Section 5.5.

 

“ Working Capital ” means, as of any date, the amount equal to the difference between current assets less Excluded Assets and current liabilities less Excluded Liabilities, as determined in accordance with GAAP.

 

ARTICLE II

 

THE TRANSACTION

2.1. Sale and Purchase of Assets .

 

(a) Purchase and Sale of the Purchased Assets . Upon the terms and subject to the conditions of this Agreement, on the Closing Date, Seller shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase from Seller, all of Seller’s right, title and interest in and to all assets of Seller other than Purchased Business Intellectual Property, including the assets listed on Schedule 2.1 (including causes of action, rights of action, contract rights and warranty and product liability claims against third parties) other than Excluded Assets, free and clear of any Encumbrances except Permitted Encumbrances (together with the Purchased Business Intellectual Property, the “Purchased Assets”).

 

(b) Purchase and Sale of the Purchased Business Intellectual Property . Upon the terms and subject to the conditions of this Agreement, on the Closing Date, Seller shall sell, transfer, assign, convey and deliver to BRC, and BRC shall purchase and assume from Seller, all of Seller’s right, title and interest in and to the Purchased Business Intellectual Property free and clear of any Encumbrances, except Permitted Encumbrances.

 

2.2. Excluded Assets . It is hereby expressly acknowledged and agreed that Seller is not selling, transferring or assigning to Buyer, and Buyer is not purchasing or acquiring from Seller the assets listed on Schedule 2.2 (the “Excluded Assets”).

 

2.3. Assumed Liabilities . On the Closing Date, Buyer shall assume and agree to pay, perform or otherwise discharge, in accordance with its terms and subject to the respective conditions thereof, subject to the provisions of Section 2.4, all of the liabilities of Seller to the extent reflected on Schedule 2.3 and all of the liabilities arising from the Contracts set forth on Schedule 2.1 , other than the Excluded Liabilities set forth in Section 2.4(a) through (k) (the “Assumed Liabilities”).

 

2.4. Excluded Liabilities . It is hereby acknowledged and agreed that, except for the Assumed Liabilities, Buyer shall not assume or be obligated to pay, perform or otherwise discharge any obligations or liabilities of Seller or any of its Affiliates, whether or not related to the Business and whether direct or indirect, known or unknown, or absolute or contingent, including, but not limited to, the following (all of such obligations and liabilities not so assumed by Buyer being herein called the “Excluded Liabilities”):

 

(a) any liabilities, payables or obligations to the extent related to Excluded Assets;

 

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(b) any Taxes of Seller or any of its Affiliates as a result of Seller’s operation of the Business or ownership of the Purchased Assets prior to the Closing;

 

(c) except as otherwise provided in Section 5.4 hereof, any liability for Taxes of Seller incident to or arising from the consummation of the transactions contemplated under this Agreement, including any bulk sales, sales or use taxes imposed on the transfer of the assets from Seller to Buyer, or similar taxes incident to the Sale;

 

(d) any liability for any Taxes of Seller or any of its Affiliates or of any consolidated, combined or unitary group of which Seller is or was a member, including (but not limited to) any liability pursuant to Treasury Regulation Section 1.1502-6 or any analogous state, local or foreign tax provisions;

 

(e) any liability for Taxes of another Person resulting from an agreement entered into by Seller or any of its Affiliates, pursuant to which Seller or any of its Affiliates has an obligation in respect of the Taxes of such other Person;

 

(f) any liability in respect of any Employee Compensation Payments or the disposition of Options under Seller’s Option Plan;

 

(g) any liabilities or obligations of Seller or any of its Affiliates for any professional, financial advisory or consulting fees and expenses incident to or arising out of the negotiation, preparation, approval or authorization of this Agreement and the transactions contemplated hereby, or any other proposed transaction for the direct or indirect sale of the Business or any portion thereof, including, the fees, expenses and disbursements of Seller’s counsel and accountants (including accountants fees, expenses and disbursements in connection with the preparation of the Business Financial Statements);

 

(h) any liability or obligation of Seller or any of its Affiliates for Indebtedness, including any secured convertible promissory notes and promissory notes in favor of Western Technology Investment;

 

(i) any liability or obligation to which any Buyer, any Purchased Assets or the Business becomes subject that would not otherwise constitute an Assumed Liability arising as a result of failure to comply with bulk sales laws or any similar law;

 

(j) any liability or obligation for which Seller has agreed to indemnify Buyer under this Agreement or the Ancillary Agreements; and

 

(k) any liability or obligation designated as an Excluded Liability on Schedule 2.4(k) or any other Schedule to this Agreement.

 

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(l) any liability, except to the extent of Buyer’s obligations pursuant to the Sub-Lease, arising out of or relating to the Facilities Lease or the letter of credit in the initial amount of $872,400 in favor of the landlord to secure payments required pursuant to the Facilities Lease.

 

2.5. The Closing . The closing (the “Closing”) of the transactions contemplated by this Agreement shall take place at the offices of Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, or at such other place as shall be mutually agreed to by the parties hereto, on the date and time (the “Closing Date”) selected by Buyer that is within five (5) Business Days after the satisfaction or waiver of all of the Closing conditions set forth in Article VI hereto. The effective time of the transactions contemplated hereby shall be deemed to be 11:59 p.m. (EST) on the Closing Date.

 

2.6. Purchase Price.

 

(a) Buyer will pay Seller an aggregate purchase price of nine million five hundred thousand dollars ($9,500,000) in cash (the “Initial Purchase Price”) minus the Working Capital Adjustment, if any, plus the Earn-Out Payments in cash for the Purchased Assets (collectively, the “Purchase Price”), plus the assumption of the Assumed Liabilities.

 

(b) The Initial Purchase Price shall be adjusted as follows:

 

(i) At the Closing, the Chief Financial Officer of Seller will deliver to Buyer an estimated balance sheet of Seller as of the Closing (the “Closing Balance Sheet”), which shall include a certificate of the Chief Financial Officer calculating Seller’s estimate of Working Capital as of Closing computed on the same basis as the Business Financial Statements (“Seller’s Working Capital Certificate”). In the event that the estimated Working Capital as reflected on Seller’s Working Capital Certificate is less than $0 (in such event, the difference shall be the “Shortfall”), then Buyer shall hold back from the Purchase Price one hundred thousand dollars ($100,000) (the “Holdback”) plus an amount equal to the Shortfall, if any (“Initial Working Capital Adjustment”).

 

(ii) Within sixty (60) days after the Closing Date, Buyer shall calculate, computed on the same basis as the Business Financial Statements, and submit to Seller a certificate of Chief Financial Officer of Buyer stating the Working Capital as of the Closing Date of Seller (“Buyer’s Working Capital Certificate”).

 

(A) In the event that the Working Capital as reflected on Buyer’s Working Capital Certificate is less than $0, then Buyer shall be entitled to a downward adjustment in the Initial Purchase Price on a dollar for dollar basis equal to the amount of such shortfall if any (the amount of such adjustment, the “Working Capital Adjustment”). Buyer shall retain from the Holdback an amount equal to the Working Capital Adjustment and remit the balance of the Holdback, if any, within fifteen (15) Business Days after delivery of Buyer’s Working Capital Certificate.

 

(B) In the event that the Working Capital as reflected on Buyer’s Working Capital Certificate is equal to or greater than $0, Buyer shall remit the entire amount of the Holdback to Seller within fifteen (15) Business Days after delivery of Buyer’s Working Capital Certificate.

 

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(iii) In the event that Seller disputes the Buyer Working Capital Adjustment, then Seller shall deliver a written notice of dispute to Buyer setting forth in detail the nature of the dispute within ten (10) Business Days after receipt of Buyer’s Working Capital Certificate (“Ten Day Notice”), Seller and Buyer shall negotiate in good faith to resolve such dispute within thirty (30) days after delivery of Buyer’s Working Capital Certificate. If the parties cannot resolve such dispute within such time period, then they shall submit such dispute to arbitration pursuant to provisions of Section 7.4. In the event that Seller fails to deliver the Ten Day Notice within the time set forth in this subsection, the Buyer Working Capital Adjustment shall be deemed final and conclusive.

 

(c) At the Closing, Seller shall pay all Employee Compensation Payments; including any “gross up” amounts Seller is required to pay in the event of any 280G adjustments required to be paid as a result of such Employee Compensation Payments.

 

(d) In addition to the Initial Purchase Price, Buyer shall pay to Seller earn-out payments equal to the product of revenue recognized during the Measurement Period from the sale of Business Enterprise Products, in excess of $600,000, multiplied by one and five tenths (1.5) (the “Earn-Out Payments”). The Earn-Out Payments shall be calculated and paid as follows:

 

(i) On or before forty-five (45) days following the end of each fiscal quarter during the Measurement Period, Buyer shall deliver to Seller a statement of the Earn-Out Payment due for such fiscal quarter (“Earn-Out Payment Calculation”), which statement shall be accompanied by supporting documentation including information related to revenue recognition for that fiscal quarter based on sales of Business Enterprise Product, provided that for the last fiscal quarter during the Measurement Period, Buyer shall not be obligated to deliver the Earn-Out Payment Calculation prior to the completion of audited financial statements covering such Measurement Period, but in no event later than seventy-five (75) days following the close of the last fiscal quarter of the Measurement Period. A copy of Buyer’s policy for revenue recognition is set forth on Schedule 2.6(i) .

 

(ii) In the event that Seller disputes any Earn-Out Payment Calculation, then Seller shall deliver a written notice of dispute to Buyer setting forth in detail the nature of the dispute within ten (10) Days after receipt of the Earn-Out Payment Calculation (“Earn-Out Dispute Notice”). Seller and Buyer shall negotiate in good faith to resolve such dispute within thirty (30) days after delivery of the Earn-Out Dispute Notice. During such thirty (30) day period, Seller shall have access to the books and records of Buyer necessary to verify the Earn-Out Payment Calculation. If the parties cannot resolve such dispute within such thirty (30) day period, then they shall submit such dispute to arbitration pursuant to provisions of Section 7.4. In the event that Seller fails to deliver the Earn-Out Dispute Notice within the ten (10) day time period set forth in this subsection, the Earn-Out Payment Calculation shall be deemed final and conclusive.

 

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(iii) In the event that Seller does not deliver an Earn-Out Dispute Notice, Buyer shall pay to Seller on or before ninety (90) days following the end of the fiscal quarter covered by the Earn-Out Payment Calculation, the Earn-Out Payment reflected thereon; provided that with respect to the last fiscal quarter during the Measurement Period, Buyer shall pay the Earn-Out Payment on or before one hundred and twenty (120) days following the end of the last fiscal quarter of the Measurement Period.

 

(iv) The aggregate amount of all Earn-Out Payments shall not exceed six million dollars ($6,000,000).

 

(v) Buyer shall in good faith make all sales of Business Enterprise Product reasonably practicable during the last quarter of the Measurement Period.

 

(e) Buyer shall pay the Purchase Price to Seller in cash as follows: (i) at Closing, the Initial Purchase Price less amounts equal to (A) the Initial Working Capital Adjustment; (B) the Holdback and (C) the Escrow Fund; (ii) pursuant to the terms of Section 2.6(b)(ii), the amount of the Holdback in excess of the Working Capital Adjustment; (iii) pursuant to the terms of Section 2.6(d), the Earn-Out Payments; and (iv) pursuant to the terms of Article VII and the Escrow Agreement, the balance of the Escrow Fund. All cash payments shall be made by wire transfer of immediately available funds into an account specified by Seller at least three (3) Business Days prior to the Closing. The allocation of the Purchase Price among the Purchased Assets shall be mutually agreed upon by the parties.

 

2.7. Escrow Account. At Closing, Seller, Buyer and the Escrow Agent will execute and deliver an escrow agreement, in substantially the form of Exhibit 2.7 (the “Escrow Agreement”). At Closing, upon execution of the Escrow Agreement, Buyer will issue and deliver to the Escrow Agent cash in an amount equal to three hundred fifty thousand dollars ($350,000) (the “Escrow Fund”) which will be placed in escrow and held pursuant to Article VII. By executing the Escrow Agreement, Seller shall, without any further act, be deemed to have consented to and approved the deposit of the Escrow Fund with the Escrow Agent and to all of the other terms, conditions and limitations set forth in the Escrow Agreement.

 

2.8. Consent of Third Parties; Further Assurances . From time to time following the Closing, Seller shall execute and deliver, or cause to be executed and delivered, to Buyer such additional instruments of conveyance and transfer as Buyer may reasonably request or as may be otherwise reasonably necessary to more effectively convey or transfer to, and vest in, Buyer and put Buyer in possession of, any part of the Purchased Assets. Nothing in this Agreement shall be construed as an attempt or agreement to assign any asset, Contract, permit, license or other right which would otherwise be included in the Purchased Assets or Assumed Liabilities, as appropriate, but which is by its terms or by law nonassignable without the consent of the other party or parties thereto or any Governmental Authority unless such consent shall have been given, or as to which all the remedies for the enforcement thereof enjoyed by Seller or the Business would not, as a matter of law, pass to Buyer as an incident of the assignments provided for by this Agreement, as set forth on Schedule 2.8(a) (the “Non-Assignable Assets”). Seller agrees to use its commercially reasonable efforts to obtain any such consents promptly. At such time as any Non-Assignable Asset is properly assigned to Buyer, such Non-Assignable Asset shall become a Purchased Asset or Assumed Liability, as appropriate. Following the Closing

 

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and until such time as such Non-Assignable Assets may be properly assigned to Buyer, such Non-Assignable Assets shall be held by Seller in trust for Buyer and the covenants and obligations thereunder shall be performed by Buyer in the name of Seller and all benefits and obligations existing thereunder shall be for the account of Buyer. During such period, Seller shall take or cause to be taken such action in its name or otherwise as Buyer may reasonably request, at Buyer’s expense, so as to provide Buyer with the benefits of the Non-Assignable Assets and to effect collection of money or other consideration to become due and payable under the Non-Assignable Assets and Seller shall promptly pay over to Buyer all money or other consideration received by it (or its Affiliates) in respect of all Non-Assignable Assets. Following the Closing, Seller authorizes Buyer, to the extent permitted by applicable law and the terms of the Non-Assignable Assets, at Buyer’s expense, to perform all of the obligations and receive all of the benefits under the Non-Assignable Assets.

 

2.9. Customer Billing . In the event that Seller or any of its Affiliates receives payment after the Closing Date on invoices relating to the Purchased Assets on or after the Closing Date, Seller will promptly notify Buyer of such receipt and will promptly remit, or will cause such Affiliate to promptly remit, such payment to Buyer.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller represents and warrants to Buyer that the statements contained in this Article III are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article III), except as set forth in the various Schedules identified below in this Article III delivered by Seller to Buyer on the date hereof (the “Disclosure Schedule” or “Schedule”). As provided below, the Disclosure Schedule will be arranged in paragraphs responding to the Sections and lettered paragraphs contained in this Article III and any items set forth on such Disclosure Schedule shall only modify those representations and warranties specifically noted with a cross reference to the appropriate Section hereof or as to which the applicability of such information to such other representation or warranty is clear on the face of the Disclosure Schedule.

 

3.1. Organization and Authority . Seller is a corporation duly organized, validly existing and in good standing under the laws of the jurisdictions set forth in Schedule 3.1 , and Seller has full corporate power and corporate authority to execute and deliver this Agreement and the Ancillary Agreements and transactions or documents contemplated thereby, and effect the transactions contemplated hereby and thereby and has duly authorized the execution, delivery and performance of this Agreement and the Ancillary Agreements and transactions or documents contemplated thereby by all necessary corporate action. Seller has all corporate power and corporate authority necessary to carry on the Business as now conducted and to own or lease and operate its properties as and in the places where the Business is now conducted and such properties are now owned, leased or operated. Seller has no Subsidiaries.

 

3.2. Authorization; Binding Obligation . This Agreement has been duly executed and delivered by Seller, and constitutes the valid and legally binding obligations of Seller,

 

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enforceable against it in accordance with its terms; except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors’ rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

 

3.3. No Violations.

 

(a) Except as disclosed on Schedule 3.3(a) , the execution, delivery and performance of this Agreement and the Ancillary Agreements by Seller and the consummation of the transactions contemplated hereby and thereby do not and will not (i) result in a breach or violation of any provision of the charter or by-laws or other governing document of Seller, (ii) result in a violation of any statute, rule, regulation or ordinance applicable to Seller or the Purchased Assets, (iii) subject to the receipt of any consents of third Persons described in Section 3.3(b), violate or result in a breach of or constitute an event of default (or an event which might, upon the passage of time or the giving of notice, or both, constitute an event of default) under any provision of, result in acceleration or cancellation of any obligation under, or give rise to a right by any party to terminate or amend its obligations under, any mortgage, deed of trust, conveyance to secure debt, note, loan, indenture, lien, Governmental Permit, material lease, agreement, Contract, license, instrument, or other Encumbrance, material arrangement or commitment which relates to the Business, the Assumed Liabilities or the Purchased Assets, (iv) violate any order, judgment, decree, rule or regulation of any court or any governmental agency or body, having jurisdiction over Seller or any of the Purchased Assets or (v) violate any Lease or Permitted Encumbrance, except in the case of Section 3.3(a)(iii) where failure of compliance would not individually or in the aggregate have a material adverse effect on or delay the ability of Seller to consummate the transactions contemplated hereby, or have a Material Adverse Effect.

 

(b) Except as set forth on Schedule 3.3(b), no consent, approval, order or authorization of, or registration, declaration or filing with, any Person is required by Seller in connection with the execution and delivery of this Agreement and the Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby, and except for such consents, approvals, orders or authorizations, registrations, declarations or filings where failure of compliance would not individually or in the aggregate have a material adverse effect on or delay the ability of Seller to consummate the transactions contemplated hereby or have a Material Adverse Effect.

 

3.4. Financial Statements . Attached hereto as Schedule 3.4 are the consolidated financial statements of Seller for the three (3) years ended and as at December 31, 2003 together with the consolidated financial statements of Seller through the quarter ended June 30, 2004, which have, with respect to the two (2) years ended December 31, 2002, been audited by former independent auditors for Seller (such financial statements of the Business and the Balance Sheet being referred to collectively herein as the “Business Financial Statements”). The Business Financial Statements have been compiled from and are in all material respects in accordance with Seller’s books and records for the Business. The Business Financial Statements (i) fairly present the financial condition, assets and liabilities of Seller as of their dates and the results of operations of Seller for the periods then ended and (ii) have been prepared in accordance with GAAP consistently applied (the “Accounting Principles”) except for the absence of the notes thereto and

 

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subject to normal year-end adjustments. During the five (5) fiscal years ended December 31, 2003, there has not been any material change in the method of accounting or keeping of books of account or accounting practices with respect to Seller other than as required by changes in GAAP, in which event Seller has timely implemented all such required changes.

 

3.5. Absence of Changes . Except as disclosed on Schedule 3.5 , since December 31, 2003:

 

(a) Seller has (i) conducted the Business only in the ordinary course and (ii) operated the Business in accordance with past practices;

 

(b) there has not been any material adverse change (or series of changes) in the business, condition (financial or otherwise), properties, assets, prospects or results of operations of Seller;

 

(c) Seller has not made or promised to make any increase in any salaries, rates of pay or other compensation or benefits of any Business Employees set forth on Schedule 5.5(b) ;

 

(d) Seller has not suffered any Damage, destruction or loss of any tangible or intangible assets, properties or items that would be a Purchased Asset in excess of $10,000;

 

(e) Seller has not suffered any strike or other labor trouble that has had or would reasonably be expected to have a material adverse effect on the relationship between Seller and the Transferred Employees, and has not entered into any material agreement or material negotiation with any labor union or other collective bargaining representative of any Business Employees;

 

(f) there has not been any adverse change or, to the Knowledge of Seller, any threat of any adverse change in any of its relations with, or any loss or, to the Knowledge of Seller, threat of loss of, any of the suppliers, distributors or customers who account for more than 5% of the source of supply or sales of the Business or which, individually or in the aggregate, has had or reasonably could be expected to have a Material Adverse Effect;

 

(g) there has not been any cancellation, expiration, non-renewal or waiver of any right under any Contract, license or permit which cancellation, expiration, non-renewal or waiver, has had or reasonably could be expected to have a Material Adverse Effect or a Material Real Estate Impairment; and

 

(h) there has not been any sale, transfer or other disposition of, or subjection to any Encumbrance of, any assets, Contracts, properties or rights of the Business, except for Permitted Encumbrances, sales of inventory or obsolete or Damaged equipment or retirement of equipment, in each case in the ordinary course of business consistent with past practice.

 

3.6. Title . Except as disclosed on Schedule 3.6 , Seller has, and upon consummation of the transactions contemplated by this Agreement, Buyer will have good and marketable title to, or leasehold interest in, all of the Purchased Assets (other than the Non-Assignable Assets) free and clear of any Encumbrances, except for the Permitted Encumbrances set forth on Schedule 3.6.1 .

 

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3.7. Personal Property. Except as set forth on Schedule 3.7 , the items of personal property included in the Purchased Assets are in good operating condition, free of any material defects (except those resulting from normal wear and operation) which individually or in the aggregate, reasonably could be expected to have a Material Adverse Effect.

 

3.8. Permits, Licenses . Except as set forth on Schedule 3.8, there are no Governmental Permits, licenses, certificates of inspection, certificates of occupancy or other consents or authorizations necessary for or used to carry on the Business, use the Purchased Assets, or to use and occupy any one or more of the Premises, as they are currently being used or conducted, occupied or utilized by Seller. Except as set forth on Schedule 3.8, Seller has all Governmental Permits, licenses, certificates of inspection, certificates of occupancy or other consents or authorizations necessary for or used to carry on the Business, use the Purchased Assets, or to use and occupy any one or more of the Premises, as they are currently occupied or utilized by Seller, which are required by currently effective laws, rules or regulations. Seller is and has been in material compliance with, such Governmental Permits, licenses, certificates of inspection, certificates of occupancy or other consents or authorizations, and all such Governmental Permits, licenses, certificates of inspection, certificates of occupancy or other consents or authorizations are readily transferable to Buyer.

 

3.9. Compliance with Laws and Litigation . Except as set forth on Schedule 3.9 , with respect to the Business, the Purchased Assets, the Premises as they are currently being conducted, occupied and utilized by Seller, Seller is in material compliance with all applicable laws, rules, regulations, ordinances, decrees, orders and judgments of or from governmental authorities, including, without limitation, those relating to the use and operation of any one or more of the Premises. Except as set forth on Schedule 3.9 , there are no actions, suits, proceedings or governmental investigations pending or, to the Knowledge of Seller, threatened against it with respect to the Business, the Purchased Assets or the Assumed Liabilities, or with respect to Premises, as they are currently being conducted, occupied and utilized by Seller.

 

3.10. Employee Matters.

 

(a) Except as described in Schedule 3.10(a) , Seller is not, in respect of any Business Employees set forth on Schedule 5.5(b) , a party to or bound as of the date hereof by any written or oral:

 

(i) collective bargaining agreements, employment agreements; consulting, advisory, or service agreements; deferred compensation agreements; confidentiality agreements; noncompetition agreements; termination agreements; severance agreements; retention agreements; change of control agreements; or similar agreements or policies;

 

(ii) stock option, stock appreciation, restricted stock, phantom stock, stock purchase, bonus, or other incentive plans or agreements.

 

(b) Except as described in Schedule 3.10(b), Seller, and each ERISA Affiliate of Seller, does not maintain, and is not required to contribute to, is not subject to any liability with respect to, and has not maintained, any ‘employee benefit plan’ , as such term is defined in Section 3(3) of ERISA, whether or not subject to ERISA, nor any severance pay plan, stock

 

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purchase plan, stock option plan, fringe benefit plan, bonus or incentive compensation plan, or any other deferred compensation or post-retirement insurance plan or arrangement (including any such plan or arrangement contained in an individual employment or consulting contract). Each of the plans described in Schedule 3.10(b) (the “Plans”) which is intended to qualify under Section 401(a) of the Code is tax-qualified, either (i) has received a favorable determination letter from the IRS as to its qualification under the Code that takes into account the changes required under the Tax Reform Act of 1986, and as to the tax exemption of each trust forming a part of any such Plan under Section 501(a) of the Code or (ii) is entitled to rely on an opinion letter issued with respect to a prototype or volume submitter plan with respect to such matters. Each of the Plans complies in form in all material respects and has been administered in all material respects in accordance with all applicable requirements of law and regulations thereunder. No determination letter with regard to the Plans has been revoked and, to the Knowledge of Seller, there is no reason for such revocation. Neither Seller, nor any ERISA Affiliate of Seller, maintains or contributes to, or has ever maintained or had an obligation to contribute to, a Multiemployer Plan or a plan subject to Title IV of ERISA.

 

(c) Seller and each affiliated entity has complied with the health care continuation requirements of Section 601, et seq., of ERISA and Section 4980B of the Code with respect to the Business Employees set forth on Schedule 5.5(b) , and Seller will continue to maintain the Plans that are “group health plans” as defined in Section 4980B(g) of the Code and Section 607 of ERISA (including without limitation any medical expense flexible spending accounts) and will extend to the Business Employees set forth on Schedule 5.5(b) and other qualified beneficiaries their COBRA continuation coverage rights arising as the result of qualifying events occurring on or before the Closing Date, including with respect to the terminations of employment with Seller contemplated with respect to the transactions described in this Agreement. It is intended that Buyer shall under no circumstances be liable with respect to COBRA continuation coverage under Seller’s group health plans.

 

(d) Except as described in Schedule 3.10(d) , there is no pending or, to the Knowledge of Seller, threatened claim which alleges any violation of any Plan or any requirement of applicable law and regulations thereunder (i) by or on behalf of any Plans or fiduciaries of any Plans, or (ii) by any employee or any participant or beneficiary against any Plan. Without limiting the generality of the foregoing, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not give rise to or subsequently result in any obligation or liability (with respect to accrued benefits or otherwise) on the part of Buyer, or any affiliate of Buyer, or any of the officers, directors, or employees of any Buyer, to any Transferred Employee or any employee or former employee of the Business, or otherwise under Sections 404, 406, 409, 502, 4069, 4201, et seq of ERISA or Section 4975 of the Code. Furthermore, Seller has complied with, shall be responsible for and have the obligation for satisfying any notice requirements in respect of events occurring, services rendered or compensation paid on or prior to the Closing Date which are required by ERISA and the Code regarding its Plans, including notices required by Sections 204(h), 606, and 4043 of ERISA and 4980B of the Code.

 

(e) All contributions required to have been made by Seller and each ERISA Affiliate to any Plan under the terms of any such Plan or pursuant to any applicable collective bargaining agreement or requirement of law or any regulations thereunder have been made within the time (whichever is earliest) prescribed by such Plan, collective bargaining agreement, or requirement of law or any regulations thereunder.

 

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(f) Except as specifically described in Schedule 3.10(f) , the consummation of the transactions contemplated by this Agreement, either alone or in conjunction with subsequent events, will not cause any liability to Buyer with respect to (i) the entitlement of any Business Employee to severance pay, unemployment compensation, or any similar payment with respect to such Business Employee’s employment with Seller or the termination of such employment, or (ii) the acceleration of the time of payment or vesting or the increase in the amount of any compensation or benefits due to any such Business Employee in connection with the transactions contemplated by this Agreement.

 

(g) Except as described in Schedule 3.10(g) , no Business Employee set forth on Schedule 5.5(b) is or may become entitled to post-employment benefits of any kind by reason of employment in the Business, including, without limitation, death, life insurance, or medical benefits (whether or not insured), other than (i) coverage mandated by Section 4980B of the Code, (ii) retirement benefits payable under any Plan qualified under Section 401(a) of the Code (iii) or welfare benefits through the end of the month in which the Closing Date occurs. Except as otherwise provided in Schedule 3.10(g) of this Agreement, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder will not result at any time in any obligation or liability under any of the Plans (with respect to accrued benefits or otherwise) of Buyer to any Business Employee set forth on Schedule 5.5(b) , any employee or former employee of any ERISA Affiliate, any of the Plans, any plan of any type maintained by any ERISA Affiliate or the Pension Benefit Guaranty Corporation (the “PBGC”).

 

(h) Schedule 3.10(h)(i) separately lists each Business Employee whose salary exceeds $20,000 per year and the position, title, remuneration (including any scheduled salary or remuneration increases), and date of employment of such Business Employee. Schedule 3.10(h)(ii) contains a true and complete list of all employment, managerial, advisory and consulting agreements; employee confidentiality or other agreements protecting proprietary processes, formulae or information; and any employee handbook(s). Seller has complied in all material respects with all requirements of law or any regulations thereunder pertaining to the employment of employees, including, without limitation, those relating to prices, wages, hours, employment practices, sexual harassment, discrimination, labor relations, collective bargaining, and operation of its business and is not liable for any arrears of wages or any Tax or penalty for failure to comply with any of the foregoing. Neither Seller nor Buyer is or will be liable for any retroactive workers’ compensation insurance premium or retroactive unemployment compensation experience rating or charge relating to any period of time prior to the Closing Date.

 

(i) Except as set forth on Schedule 3.10(i) , at the present time and during the past three years, (A) no unfair labor practice complaint or charge against Seller has been brought before, or threatened by, the National Labor Relations Board or any other government agency or any court; (B) there has not occurred or been threatened any labor strike, dispute, picketing, slowdown, stoppage, or other similar labor activity against or involving Seller; (C) Seller is not and has not been party to any collective bargaining agreement and there are no labor unions or other organizations representing, purporting to represent, or attempting to represent any

 

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employee; (D) Seller is not and has not been a party to, or affected by or threatened with, any union organizing or election activity or any dispute or controversy with a union involving the Employees; (E) Seller is not and has not been affected by any dispute or controversy with a union or with respect to unionization or collective bargaining involving any supplier or customer of Seller (F) Seller has not experienced any material labor difficulty; and (G) Seller has no Knowledge that Seller’s relations with its Employees are other than satisfactory. To the Knowledge of Seller, no Business Employee listed on Schedule 5.5(b) intends to terminate employment with Seller.

 

(j) Seller maintains policies on the proper classification for all employees, leased employees, consultants and independent contracts, for all purposes (including, without limitation, for all Tax purposes and for purposes of determining eligibility to participate in any Plans.)

 

(k) Except as set forth in Schedule 3.10(k) , Buyer will not be obligated to make any payments that, separately or in the aggregate (whether in connection with any termination of employment or otherwise) would result in an “excess parachute payment” within the meaning of section 280G of the Code with respect to any Transferred Employee.

 

3.11. Agreements . Schedule 3.11 contains a complete and correct list of all material Contracts necessary to conduct the Business as currently conducted by Seller, including, but not limited to, all Contracts, (a) which have unexpired terms of more than one (1) year or cannot be terminated by Seller as a party thereto without penalty or payment on thirty (30) days notice or less; (b) which would require over the full term thereof payments by or to Seller or the Business of more than $10,000; or (c) pursuant to which there were payments by or to Seller or the Business of more than $10,000 for the calendar year ended December 31, 2003. True and correct copies of the Contracts listed on Schedule 3.11 have been delivered to Buyer. Each of such Contracts, to the extent Seller is a party thereto, is valid, binding and enforceable against Seller and the other parties thereto, in accordance with its terms, and to the Knowledge of Seller is in full force and effect. Except as set forth in Schedule 3.11 , to the Knowledge of Seller, each of the other parties thereto, have performed in all material respects all obligations required to be performed by them under, and are not in default in any material respect under, any of such Contracts, and no event has occurred which, with notice or lapse of time, or both, would constitute such a default. Except as disclosed on Schedule 3.11 , Seller has not received any written claim from any other party to any such Contract that Seller has breached any obligations to be performed by it thereunder, or is otherwise in default or delinquent in performance thereunder. Except as disclosed on Schedule 3.11 , there are no Contracts to which Seller is a party that contain provisions relating to agreements not to compete that bind Seller which affect or restrict the conduct of the Business as currently conducted by Seller or could reasonably be expected to affect or restrict the conduct of the Business by Buyer after Closing.

 

3.12. Environmental Matters.

 

(a) Except as set forth on Schedule 3.12(a) , Seller holds and is in compliance with all Governmental Permits required under all applicable statutes, rules, regulations, ordinances and orders of any governmental entity relating to the protection of the environment, Hazardous Substances (as defined below) and human and employee health and safety (“Environmental Laws”) in connection with the Business, the Premises and the Purchased Assets, and all of such

 

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Governmental Permits are in full force and effect. All such Governmental Permits are listed on Schedule 3.12(a) and any that are not transferable are so designated. Seller has made timely application for renewals of all such Governmental Permits for which Environmental Laws require that applications must be filed on or before the Closing to maintain such Governmental Permits in full force and effect. Seller has no reason to believe that such renewals will not be issued in the ordinary course or will require payment of money (other than customary renewal fees in amounts not greater than $5,000 in the aggregate) or imposition of conditions not currently contained in such Governmental Permits. Except as set forth on Schedule 3.12(a), Seller has, in connection with the Business (which for purposes of Section 3.12 shall include the Business as now or formerly operated) materially complied with and is not in material violation of Environmental Laws. Seller will use commercially reasonable efforts to prepare and file all applications for the transfer of such Governmental Permits in adequate time for transfer to Buyer prior to Closing.

 

(b) Except as set forth on Schedule 3.12(b) , no notice, citation, summons or order has been issued, no complaint has been filed, no material penalty has been