MEMBER INTEREST PURCHASE AGREEMENT

Exhibit (2)(1)

 

MEMBER INTEREST PURCHASE AGREEMENT

 

by and among

 

C-COR INCORPORATED,

 

BROADBAND MANAGEMENT SOLUTIONS, LLC

(as “Purchaser”),

 

nCUBE CORPORATION

(as “Seller”),

 

and

 

nCUBE SUB, LLC

(as the “Company”)

 

Dated as of October 20, 2004

 

 

TABLE OF CONTENTS

 

 

i

 

ii

 

iii

 

iv

EXHIBITS

 

 

i

SCHEDULES

 

 

ii

 

MEMBER INTEREST PURCHASE AGREEMENT

 

This Member Interest Purchase Agreement (this “ Agreement ”), dated as of October 20, 2004, is entered into by and among C-COR Incorporated, a Pennsylvania corporation (“ C-COR ”), Broadband Management Solutions, LLC, a Delaware limited liability company (“ Purchaser ”), nCUBE Sub, LLC, a Delaware limited liability company (the “ Company ”), and nCUBE Corporation, a Delaware corporation (“ Seller ”) and the parties executing the Joinder attached to this Agreement (the “ Seller Additional Parties ”).

 

RECITALS :

 

WHEREAS, the boards of directors of C-COR, Purchaser, Seller and the Company have determined that it is advisable and in the best interests of their respective stockholders (or unit-holders, as applicable) for C-COR, Purchaser, Seller and the Company to enter into a purchase transaction on the terms and subject to the conditions set forth herein;

 

WHEREAS, immediately prior to the closing of the purchase transaction, Seller will contribute certain assets and liabilities to the Company;

 

WHEREAS, pursuant to the purchase transaction, Seller will sell to Purchaser all of the outstanding member interests of the Company, which consists of 100 member interests (“ Units ”), all of which are held by Seller, on the terms and subject to the conditions described below, so that Purchaser and its Affiliates will become the sole owner of all of the member interests of the Company (the “ Unit Transfer ”);

 

WHEREAS, pursuant to the purchase transaction, C-COR Europe Holdings, B.V., an entity formed under the laws of the Netherlands and an indirect, wholly-owned subsidiary of Purchaser (“ BV ”), will acquire from Seller all of the outstanding interests in nCube UK Ltd., and nCube Deutschland GmbH , on the terms and subject to the conditions described below (the “ Subsidiary Interest Transfer ”);

 

WHEREAS, pursuant to the purchase transaction, Broadband Royalty Corporation, a Delaware corporation and an indirect, wholly-owned subsidiary of Purchaser (“ BRC ”), will acquire from Seller all of the Business Intellectual Property (as defined herein), on the terms and subject to the conditions described below (the “ IP Transfer ” and, together with the Unit Transfer and the Subsidiary Interest Transfer, the “ Transaction ”);

 

WHEREAS, a portion of the consideration otherwise payable to Seller in connection with the Transaction shall be placed in escrow by Purchaser at the Closing (as defined below) for purposes of satisfying indemnification obligations of Seller and the Seller Additional Parties to Purchaser, and shall be disbursed in accordance with an escrow agreement, substantially in the form attached hereto as Exhibit A (the “ Escrow Agreement ”), to be entered into prior to the Closing of the Transaction, by and among Purchaser, Seller and the Escrow Agent (as defined herein);

 

WHEREAS, C-COR shall pay a portion of the consideration payable to Seller in connection with the Transaction by issuing to those creditors of Seller set forth on Exhibit B (each a “ Creditor ”), shares of C-COR Common Stock and general unsecured senior notes, which

 

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rank equal in right of payment to all other existing and future unsecured and unsubordinated indebtedness of C-COR, and which are convertible into shares of C-COR Common Stock (together, the “ Non-Cash Consideration ”);

 

WHEREAS, as an inducement to Purchaser to enter into this Agreement, simultaneously with the execution of this Agreement, certain stockholders of Seller have entered into a Voting Agreement with Purchaser in the form attached hereto as Exhibit C (the “ Voting Agreements ”);

 

WHEREAS, as an inducement to Purchaser to enter into this Agreement, prior to Closing, each Creditor will enter into a Lock-Up Agreement with C-COR in substantially the form attached hereto as Exhibit B (the “ Creditor Lock-Up Agreements ”); and

 

WHEREAS, as an inducement to Seller to enter into this Agreement, prior to Closing, C-COR and each officer and director of C-COR will enter into a Lock-Up Agreement in substantially the form attached hereto as Exhibit E (the “ C-COR Lock-Up Agreements ”).

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:

 

SECTION 1. DEFINITIONS

 

1.1 Certain Definitions . As used in this Agreement, the following terms shall have the meanings set forth or as referenced below:

 

“ Action ” shall mean any litigation and proceeding of any nature, whether at law or in equity, before any court, arbitrator, arbitration panel or Governmental Authority.

 

“ Affiliate ” of a Person shall mean any Person which, directly or indirectly, controls, is controlled by or is 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.

 

“ Agreement ” shall have the meaning set forth in the initial paragraph of this Agreement.

 

“ Ancillary Agreements ” shall mean the Escrow Agreement, the Voting Agreements, the Indenture, the C-COR Debt Securities, the Joint Defense Agreement and the Lock-Up Agreements.

 

“ Assumed Liabilities ” shall have the meaning set forth in Section 2.2(a) of this Agreement.

 

“ Audited Financial Statements ” shall have the meaning set forth in Section 4.7(a) of this Agreement.

 

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“ Auditor ” shall have the meaning set forth in Section 2.4(a) of this Agreement.

 

“ Auditor’s Report ” shall have the meaning set forth in Section 2.4(a) of this Agreement.

 

“ Average Price ” shall mean the volume-weighted average price per share of C-COR Common Stock as reported by Bloomberg, L.P. on the NASDAQ National Market System for the ten (10) consecutive Trading Days immediately preceding the business day prior to Closing.

 

“ Balance Sheet ” shall have the meaning set forth in Section 4.7(a) of this Agreement.

 

“ Balance Sheet Date ” shall mean December 31, 2003.

 

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

 

“ Business ” shall mean Seller’s business, based on its proprietary technology and Intellectual Property, of video on demand, ad insertion and any other business of Seller, on the date hereof to and including the Closing unless otherwise specifically set forth herein.

 

“ Business Employees ” shall mean all individuals who are employed by Seller or by the Company on or after the date hereof, excluding any individuals who first become employed by the Company or Seller after the Closing.

 

“ Business Intellectual Property ” shall have the meaning set forth in Section 4.11(a).

 

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

 

“ C-COR ” shall have the meaning set forth in the initial paragraph of this Agreement.

 

“ C-COR Common Stock ” shall mean the common stock of C-COR, par value $0.05 per share.

 

“ C-COR Debt Securities ” shall have the meaning set forth in Section 2.3(a) of this Agreement.

 

“ C-COR Lock-Up Agreements ” shall have the meaning set forth in the Recitals to this Agreement.

 

“ C-COR Shares ” shall have the meaning set forth in Section 2.3(a) of this Agreement.

 

“ Claim Notice ” shall have the meaning set forth in Section 11.4(a) of this Agreement.

 

“ Closing ” shall have the meaning set forth in Section 3.1 of this Agreement.

 

“ Closing Cash Payment ” shall have the meaning set forth in Section 2.3(a) of this Agreement.

 

“ Closing Date ” shall have the meaning set forth in Section 3.1 of this Agreement.

 

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“ COBRA ” shall mean the continuation of health coverage requirements of Section 4980B of the Code and Sections 601 through 608 of ERISA, as they may be amended from time to time.

 

“ Code ” shall mean the Internal Revenue Code of 1986 and the rules and regulations promulgated thereunder, as amended.

 

“ Company ” shall have the meaning set forth in the initial paragraph of this Agreement.

 

“ Company Group ” shall have the meaning set forth in the introductory paragraph of Section 4.

 

“ Company Group Plan ” shall have the meaning set forth in Section 4.19(a).

 

“ Contracts ” shall mean all written contracts, agreements, indentures, licenses, leases, commitments, arrangements, sales orders and purchase orders of every kind.

 

“ Contributed Assets ” shall have the meaning set forth in Section 2.2(a) of this Agreement.

 

“ Contribution ” shall mean the transactions described in Section 2.2 of this Agreement.

 

“ Conversion Price ” means the product of the Average Price multiplied by 1.33.

 

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

 

“ Creditor Lock-Up Agreements ” shall have the meaning set forth in the Recitals to this Agreement.

 

“ Damage Threshold ” shall have the meaning set forth in Section 11.5(d) of this Agreement.

 

“ Damages ” shall mean, collectively, all losses, Liabilities, costs, damages, claims and expenses (including reasonable fees and disbursements of counsel, consultants or experts and expenses of investigation) after taking into account all insurance proceeds or other cash receipts or sources of reimbursement available as an offset against such Damages and subtracting the costs of recovery and the amount of premiums paid, and making adjustment for future premium increases. Damages shall specifically exclude punitive damages in all cases other than fraud. Damages to the extent arising from a breach of the following representations and warranties shall exclude consequential, special and incidental damages: Sections 4.1; 4.6; 4.11 through 4.13; 4.16; 4.17; 4.19 through 4.26; 4.28 through 4.30; 5.1; 5.2; 5.4; 5.6; 5.8; and 5.10.

 

“ Debt for Borrowed Money ” shall mean (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person, including reimbursement obligations in respect of letters of credit, banker’s acceptances, surety or other bonds and similar instruments whether

 

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or not matured, and (d) contingent obligations of the type referenced in clauses (a) through (c) of this paragraph, whether or not secured, in respect of the obligations of other Persons.

 

“ Direct Claim ” shall have the meaning set forth in Section 11.4(a) of this Agreement.

 

“ Disclosure Schedule ” shall have the meaning set forth in the introductory paragraph of Section 4.

 

“ Dollars ” and “ $ ” shall mean United States dollars.

 

“ Employment Laws ” shall mean all federal, state, local and municipal Laws in effect at or prior to Closing relating to employees, dependent contractors and independent contractors and their employment, or rendition of services, including taxation, health, labor, labor/management relations, occupational health and safety, pay equity, employment equity or discrimination, employment standards, benefits and workers’ compensation.

 

“ Environmental Condition ” shall mean the state of the environment, including natural resources ( e.g. , flora and fauna), soil, surface water, ground water, any present or potential drinking water supply, subsurface strata or ambient air, relating to or arising out of the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaking, pumping, pouring, emptying, discharging, injecting, escaping, leaching, disposal, dumping or threatened release of Hazardous Substances by Seller or the Company or any of its predecessors in interest, or by its respective agents, representatives, employees or independent contractors when acting in such capacity on behalf of Seller or the Company.

 

“ Environmental Laws ” shall mean all of the following, to the extent in effect as of the Closing: applicable Laws relating to pollution or protection of the environment (including ambient air, surface water, ground water, land surface, or subsurface strata), including, (i) laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, industrial materials, wastes or other substances into the environment and (ii) laws relating to the identification, generation, manufacture, processing, distribution, use, treatment, storage, disposal, recovery, transport or other handling of pollutants, contaminants, chemicals, industrial materials, wastes or other substances. Environmental Laws shall include, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Toxic Substances Control Act, as amended, the Hazardous Materials Transportation Act, as amended, the Resource Conservation and Recovery Act, as amended, the Clean Water Act, as amended, the Safe Drinking Water Act, as amended, the Clean Air Act, as amended, the Occupational Safety and Health Act, as amended, and all analogous laws promulgated or issued by any state or other Governmental Authority.

 

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

 

“ ERISA Affiliate ” shall have the meaning set forth in Section 4.19(a) of this Agreement.

 

“ ERISA Plans ” shall have the meaning set forth in Section 4.19(a) of this Agreement.

 

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“ Escrow Agent ” shall mean the escrow agent under the Escrow Agreement, which escrow agent shall be designated by Purchaser and Seller prior to Closing, or any alternative or successor agent.

 

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

 

“ Escrow Amount ” shall mean an amount equal to the sum of (i) 10% of the Closing Cash Payment before subtracting the Substituted Cash Escrow, (ii) 10% of the principal amount of the C-COR Debt Securities issued at the Closing, and (iii) the product of 450,000 multiplied by the Average Price.

 

“ Escrow Period ” shall have the meaning set forth in Section 11.5(a) of this Agreement.

 

“ Escrowed Consideration ” shall have the meaning set forth in Section 2.3(a) of this Agreement.

 

“ Escrowed Shares ” shall have the meaning set forth in Section 2.3(a) of this Agreement.

 

“ Estimated Closing Balance Sheet ” shall have the meaning set forth in Section 2.4(a) of this Agreement.

 

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“ Excluded Assets ” shall have the meaning set forth in Section 2.2(b) of this Agreement.

 

“ Expenses ” shall have the meaning set forth in Section 10.2(b) of this Agreement.

 

“ Excluded Liabilities ” shall have the meaning set forth in Section 2.2(c) of this Agreement.

 

“ Financial Statements ” shall have the meaning set forth in Section 4.7(a) of this Agreement.

 

“ GAAP ” shall mean generally accepted accounting principles, as in effect in the United States.

 

“ Governmental Authority ” shall mean any agency, public or regulatory authority, instrumentality, department, commission, court, ministry, tribunal or board of any government, whether foreign or domestic and whether national, federal, provincial, state, regional, local or municipal.

 

“ Governmental Permits ” shall mean any and all of the governmental permits, licenses, certificates, building permits, variances, approvals, registrations, authorizations, consents and other licenses relating to the use or occupancy of the Real Property, issued to the Company or Seller or which are used by the Company or Seller, or are otherwise necessary or material to, the operation of the Business, the use by any member of Company or Seller of the Real Property, or the conduct of the Business at the Real Property.

 

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“ Guarantees ” shall mean all guarantees and endorsements, whether secured or not, in respect of the obligations of other Persons.

 

“ Hazardous Substances ” shall mean all pollutants, contaminants, chemicals, wastes, and any other carcinogenic, ignitable, corrosive, reactive, toxic or otherwise hazardous substances or materials (whether solids, liquids or gases) subject to regulation, control or remediation under Environmental Laws excluding, however, such substances or materials used in office and janitorial products by or for Seller or the Company in compliance with Environmental Laws.

 

“ Holdback ” shall have the meaning set forth in Section 2.4(a) of this Agreement.

 

“ HSR Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any regulations promulgated thereunder.

 

“ Indebtedness ” shall mean (a) Debt for Borrowed Money, (b) all obligations of such Person under capital leases, and (c) liabilities in respect of unfunded vested benefits.

 

“ Indemnifying Party ” shall mean any Person or Persons required to provide indemnification under this Agreement.

 

“ Indemnifying Seller ” shall have the meaning set forth in Section 11.1.

 

“ Indemnitee ” shall mean any Person or Persons entitled to indemnification under this Agreement.

 

“ Intellectual Property ” shall mean all (i) Patents, inventions, whether or not patentable, that have been reduced to practice or made the subject of one or more pending Patent applications, (ii) registered trademarks, service marks, trade dress, logos, slogans, trade names and corporate names in the United States and all other nations throughout the world, including all registered variations, derivations, combinations, registrations and applications for registration or renewals of the foregoing and all goodwill associated therewith, (iii) 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, 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, (iv) 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 domains) and all other nations throughout the world, (v) trade secrets and other proprietary 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), (vi) industrial designs (whether or not registered), and (vi) proprietary databases and data collections.

 

“ Indenture ” shall have the meaning set forth in Section 2.3(a).

 

“ Investigation ” shall mean any investigation of any nature by any Governmental Authority.

 

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“ IP Transfer ” shall have the meaning set forth in the Recitals of this Agreement.

 

“ Joint Defense Agreement ” shall mean those certain Joint Defense Agreements, dated as of October 11, 2004 and October 14, 2004 between C-COR and Seller.

 

“ Knowledge ” shall mean with respect to any representation, warranty or statement of any Person that is qualified by such Person’s “knowledge,” the actual knowledge after due inquiry of such Person, which, in the case of any Person that is an entity, means the knowledge of the employee-officers of such Person, after due inquiry of any such officer internally within such Person and in the case of the Company, means the knowledge of the employee-officers of Seller after due inquiry of any such officer internally within such Person.

 

“ Laws ” shall mean statutes, common laws, rules, ordinances, regulations, codes, licensing requirements, orders, judgments, injunctions, decrees, licenses, permits and bylaws of a Governmental Authority.

 

“ Liabilities ” shall mean debts, liabilities, commitments, obligations, duties and responsibilities of any kind and description, whether absolute or contingent, monetary or non-monetary, direct or indirect, known or unknown or matured or unmatured, or of any other nature.

 

“ Lien ” shall mean any security interest, lien, mortgage, claim, charge, pledge, restriction or encumbrance of any nature and in the case of securities any put, call or similar right of a third party with respect to such securities.

 

“ Litigation ” shall mean any Action, demand, claim or investigation pending, or to the Knowledge of the Company or Seller, threatened against, or brought by or against any of the Seller, the Company, or the Seller’s or the Company’s directors, officers or employees, in such capacity.

 

“ Lock-Up Agreement ” shall mean the C-COR Lock Up Agreements and the Creditor Lock Up Agreements.

 

“ Make-Whole Increase ” shall have the meaning set forth in Section 2.4(b) of this Agreement.

 

“ Material Adverse Effect ” shall mean, with respect to any Person, any events, acts, conditions or occurrences, whether individually or in the aggregate, that has had or would reasonably be expected to have a material adverse effect on or material adverse change in (a) any of the business, condition (financial or otherwise), operations, assets or liabilities, or results of operations of the Person and its subsidiaries, taken as a whole, (b) the legality or enforceability against such Person of this Agreement or (c) the ability of such Person to perform his, her or its obligations and to consummate the transactions under this Agreement, in each case excluding effects resulting from (i) the announcement or pendency of the Transaction, (ii) general economic conditions (iii) conditions affecting the video on demand and ad insertion industry generally, (iv) actions taken by any Person at the specific request or with the agreement or consent of C-COR or Purchaser (if such Person is the Company or Seller) or Seller (if such Person is C-COR or Purchaser) and (v) with respect to Seller or the Company, continued financial losses by Seller or the Company consistent with the historical financial losses of Seller.

 

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“ Material Contracts ” shall have the meaning set forth in Section 4.14(a) of this Agreement.

 

“ Non-Assignable Assets ” shall have the meaning set forth in Section 10.9 of this Agreement.

 

“ Non-Cash Consideration ” shall have the meaning set forth in the Recitals to this Agreement.

 

“ Notice to Defend ” shall have the meaning set forth in Section 11.3(a) of this Agreement.

 

“ Options ” 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 stockholder or interest holder 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 ” shall mean all 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 extensions of the foregoing).

 

“ Patent Litigations ” shall have the meaning set forth in Section 10.2(b) of this Agreement.

 

“ Permitted Liens ” shall mean (i) any Lien set forth on Schedule 4.10 , (ii) any Lien created pursuant to this Agreement or the Ancillary Agreements, (iii) any Lien for Taxes not yet due and payable or that Seller is contesting in good faith, and (iv) statutory liens of landlords, liens of carriers, warehousepersons, mechanics and material persons incurred in the ordinary course for sums not yet due and payable or that Seller is contesting in good faith.

 

“ Person ” shall mean any natural person, corporation, business trust, joint venture, association, limited liability company, firm, partnership or other entity or government or Governmental Authority.

 

“ Plans ” shall have the meaning set forth in Section 4.19(a) of this Agreement.

 

“ Proceeds ” shall have the meaning set forth in Section 10.2(b) of this Agreement.

 

“ Purchase Price ” shall have the meaning set forth in Section 2.3(a) of this Agreement.

 

“ Purchaser ” shall have the meaning set forth in the initial paragraph of this Agreement.

 

“ Purchaser Indemnitee ” shall have the meaning set forth in Section 11.1 of this Agreement.

 

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“ Purchaser’s Reconciliation Payment ” shall have the meaning set forth in Section 2.4(a) of this Agreement.

 

“ Purchaser’s Working Capital Certificate ” shall have the meaning set forth in Section 2.4(a) of this Agreement.

 

“ Real Property ” shall have the meaning set forth in Section 4.13(a) of this Agreement.

 

“ Registered Intellectual Property ” shall mean all Intellectual Property owned solely by Seller that is registered or filed with or issued by any Governmental Authority, including all Patents, registered copyrights, registered service marks and registered trademarks and all applications for any of the foregoing by Seller.

 

“ Registration Statement ” shall have the meaning set forth in Section 10.8(a) of this Agreement.

 

“ Reports ” shall have the meaning set forth in Section 5.6(a) of this Agreement.

 

“ Response Period ” shall have the meaning set forth in Section 11.4(a) of this Agreement.

 

“ Schedules ” shall have the meaning set forth in the introductory paragraph of Section 4.

 

“ SEC ” shall have the meaning set forth in Section 5.6(a) of this Agreement.

 

“ Securities Act ” shall mean the Securities Act of 1933, as amended.

 

“ Seller ” shall have the meaning set forth in the initial paragraph of this Agreement.

 

“ Seller Additional Parties ” shall have the meaning set forth in the initial paragraph of this Agreement.

 

“ Seller’s Reconciliation Payment ” shall have the meaning set forth in Section 2.4(a) of this Agreement.

 

“ Seller’s Working Capital Certificate ” shall have the meaning set forth in Section 2.4(a) of this Agreement.

 

“ SPD ” shall have the meaning set forth in Section 4.19(b) of this Agreement.

 

“ Stockholder Approval ” shall have the meaning set forth in Section 4.27(a) of this Agreement.

 

“ Subsidiary ” with shall mean any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Company or Seller.

 

“ Subsidiary Interests ” shall mean all of the outstanding equity interests in nCUBE UK Ltd. and nCUBE Deutschland GmbH.

 

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“ Subsidiary Interest Plan ” shall have the meaning set forth in Section 4.19(a).

 

“ Substituted Cash Escrow ” shall have the meaning set forth in Section 2.3(a) of this Agreement.

 

“ Supplemental Financial Statements ” shall have the meaning set forth in Section 6.9 of this Agreement.

 

“ Tax Returns ” or “ Returns ” shall mean all returns, declarations, reports, forms, estimates, information returns, statements or other documents (including any related or supporting information) filed or required to be filed with or supplied to any Governmental Authority in connection with any Taxes, and any Forms W-2, 1099 or similar documents required to be provided to a person other than a Governmental Authority.

 

“ Taxes ” shall mean all taxes, charges, fees, duties, levies, penalties or other assessments, including, without limitation, income, gross receipts, excise, real and personal property, sales, transfer, license, payroll, withholding, social security, franchise, unemployment insurance, workers’ compensation, employer health tax, windfall profits, customs, duties, value-added taxes, Built-In Gain Tax 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.

 

“ Ten-Day Notice ” shall have the meaning set forth in Section 2.4(a) of this Agreement.

 

“ Third Party Claim ” shall have the meaning set forth in Section 11.3(a) of this Agreement.

 

“ Trading Day ” shall mean any day on which the NASDAQ National Market System is open and available for at least five (5) hours for the trading of securities.

 

“ Transferred Working Capital ” shall mean the current assets minus the current liabilities of the Company and the subsidiaries calculated in accordance with GAAP, excluding deferred revenue, deferred costs, amounts accrued for the account of Purchaser and C-COR pursuant to Section 6.11(a), Excluded Assets and Excluded Liabilities.

 

“ Transfer Taxes ” shall have the meaning set forth in Section 13.3 of this Agreement.

 

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

 

“ Transaction Documents ” shall mean this Agreement, the Ancillary Agreements and all instruments and documents contemplated thereby.

 

“ Transition Plan ” shall have the meaning set forth in Section 7.3(a) of this Agreement.

 

“ Unaudited Statements ” shall have the meaning set forth in Section 4.7(a) of this Agreement.

 

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

 

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“ Unit Transfer ” shall have the meaning set forth in the Recitals of this Agreement.

 

“ Voting Agreements ” shall have the meaning set forth in the Recitals of this Agreement.

 

1.2 Terms Generally . The definitions in Section 1.1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation” even if not actually followed by such phrase unless the context expressly provides otherwise. All references herein to Annexes, Articles, Sections, paragraphs, Exhibits and Schedules shall be deemed references to this Agreement unless the context shall otherwise require. Unless otherwise expressly defined, terms defined in the Agreement shall have the same meanings when used in any section, Exhibit or Schedule and terms defined in any section, Exhibit or Schedule shall have the same meanings when used in the Agreement or in any other section, Exhibit or Schedule. The words “herein,” “hereof,” “hereto” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement.

 

SECTION 2. THE PROPOSED TRANSACTION

 

2.1 Purchase and Sale .

 

(a) On the terms and subject to the conditions set forth in this Agreement, on the Closing Date, Seller will sell, convey, assign, transfer and deliver the Units to Purchaser, the Subsidiary Interests to BV and the Business Intellectual Property to BRC; and Purchaser will purchase and acquire the Units, will cause BV to purchase and acquire the Subsidiary Interests and will cause BRC to purchase and acquire the Business Intellectual Property from Seller, for the Purchase Price set forth in Section 2.3 below.

 

(b) Seller shall, and shall cause the Company to take all steps necessary to complete the Contribution prior to the Closing as set forth in Section 2.2 below.

 

2.2 Contribution .

 

(a) Immediately prior to the Closing:

 

(1) Seller shall contribute, transfer, assign, convey and deliver to the Company, and the Company shall acquire and accept from Seller, all of Seller’s right, title and interest in and to all of its assets, properties, agreements, licenses, Intellectual Property and other rights which are necessary to enable Company after the Closing to operate the Business, (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 Liens other than Permitted Liens (“ Contributed Assets ”), but subject to Section 10.9.

 

(2) The Company shall assume and agree to pay, perform or otherwise discharge, in accordance with its terms and subject to the respective conditions thereof, all of the liabilities of Seller other than the Excluded Liabilities (the “ Assumed Liabilities ”).

 

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(b) Except as provided under Section 6.11(a) of this Agreement, Seller shall not contribute, transfer or assign to the Company, and the Company shall not acquire or accept from Seller any cash of Seller, any of the Company Group Plans, Business Employees not included in the Transition Plan, deferred tax assets of Seller, any interest in any entity in which Enron Corporation or any of its Subsidiaries is an Affiliate, Business Intellectual Property, Subsidiary Interests, or any of the assets listed on Schedule 2.2(b) (the “ Excluded Assets ”).

 

(c) It is hereby acknowledged and agreed that the Company shall not assume or be obligated to pay, perform or otherwise discharge any of the following obligations or liabilities of Seller, whether or not related to the Business and whether direct or indirect, known or unknown, or absolute or contingent (all of such obligations and liabilities not so assumed by Company being herein called the “ Excluded Liabilities ”):

 

(1) any liabilities, payables or obligations to the extent related solely and exclusively to Excluded Assets other than the Business Intellectual Property and the Subsidiary Interests;

 

(2) any Tax Liabilities for Tax periods ending prior to Closing which are related to or could be offset by any Tax assets that are Excluded Assets, including income Taxes;

 

(3) 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 Company, or similar taxes incident to the Contribution, if any;

 

(4) any liability in respect of management incentive payments or the disposition of Options under Seller’s Option plans;

 

(5) 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 transfer or sale of the Business or any material 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 Financial Statements);

 

(6) any liability or obligation of Seller or any of its Affiliates for Debt for Borrowed Money, Guarantees, accrued interest expenses related thereto or any credit facility guarantee fees;

 

(7) any liability or obligation to which the Company, any Contributed 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;

 

(8) any Liabilities under any Company Group Plan for benefits or compensation earned based on service with Company Group prior to the Closing Date, or claims incurred prior to the Closing Date, except to the extent that C-COR or Purchaser has specifically agreed to assume such Liabilities pursuant to Section 6.11.

 

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(9) any other liability or obligation designated as an Excluded Liability on Schedule 2.2(c)(11) .

 

(d) Seller and the Company shall take all steps reasonably necessary to cause the transactions set forth in this Section 2.2 to be treated as a contribution by Seller to the capital of the Company pursuant to the Code.

 

2.3 Purchase Price

 

(a) Purchase Price for the Units, the Business Intellectual Property and the Subsidiary Interests . Subject to Section 2.4, payment of the purchase price for the Units, the Business Intellectual Property and the Subsidiary Interests (the “ Purchase Price ”) shall be made as follows:

 

(1) At Closing, Purchaser shall deliver a payment equal to $20,000,000 plus the Make-Whole Increase, if any, less the amount of the Holdback, if any, less the amount of the Substituted Cash Escrow, if any (the “ Closing Cash Payment ”), by wire transfer of immediately available federal funds to Seller.

 

(2) At Closing, Purchaser shall deliver to Seller 4,500,000 shares of C-COR Common Stock (“ C-COR Shares ”), less the number of C-COR Shares (the “ Escrowed Shares ”) equal to the quotient obtained by dividing (x) the Escrow Amount by (y) the Average Price; provided that in the event that nCUBE so elects, by written notice delivered to Purchaser (no later than the day before Closing if such substitution shall occur or on before Closing), nCUBE may substitute all or any portion of the Escrowed Shares with cash at the Average Price if such substitution shall occur at Closing or at the volume-weighted average price per share of C-COR Common Stock as reported by Bloomberg L.P. on the NASDAQ National Market System for the ten (10) consecutive Trading Days immediately preceding the business day prior to the date of substitution (“ Substituted Cash Escrow ” Substituted Cash Escrow or Escrowed Shares, as the case may be, the “ Escrowed Consideration ”).

 

(3) At Closing, C-COR shall issue to Seller general unsecured senior notes which rank equal in right of payment to all other existing and future unsecured and unsubordinated indebtedness of C-COR, and which are convertible into shares of C-COR Common Stock at the Conversion Price, in substantially the form attached to the Indenture, and issued pursuant to the Indenture of C-COR to Wachovia Bank, N.A. as Trustee in substantially the form attached hereto as Exhibit D (“ Indenture ”) (such notes, the “ C-COR Debt Securities ”) in the principal amount of $35,000,000 less the Make-Whole Increase, if any.

 

(4) Within the time periods set forth in Section 2.4(a), Purchaser shall deliver a payment equal to the amount of Purchaser’s Reconciliation Payment due pursuant to Section 2.4, if any, by wire transfer of immediately available federal funds to Seller, or Seller shall deliver a payment equal to the amount of Seller’s Reconciliation Payment due pursuant to Section 2.4, if any, by wire transfer of immediately available federal funds to Purchaser.

 

(b) In connection with the issuance and delivery of the C-COR Shares to Seller and the Escrowed Consideration to the Escrow Agent pursuant to Section 2.3, at Closing:

 

(1) Seller, Purchaser and the Escrow Agent shall have executed and delivered the Escrow Agreement;

 

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(2) C-COR, each officer and director of C-COR and each Creditor shall have executed and delivered the applicable Lock-Up Agreement.

 

2.4 Purchase Price Adjustments . The Purchase Price and form of Purchase Price payment shall be adjusted as follows:

 

(a) Working Capital Adjustment.

 

(1) At the Closing, the Chief Financial Officer of Seller will deliver to Purchaser an estimated balance sheet of Company as of the Closing prepared according to GAAP and in a manner consistent with the Financial Statements (except as set forth in Section 6.11(b)) (the “ Estimated Closing Balance Sheet ”), which shall include a certificate of the Chief Financial Officer calculating Seller’s estimate of Company’s Transferred Working Capital as of Closing (“ Seller’s Working Capital Certificate ”). In the event that the estimated Transferred Working Capital of Company as reflected on Seller’s Working Capital Certificate is less than $4,571,000, then Purchaser shall reduce the Purchase Price paid at Closing by the amount of such shortfall (the “ Holdback ”).

 

(2) On or before the forty-fifth (45 ^th ) day after the Closing Date, Purchaser shall calculate Company’s Transferred Working Capital as of the Closing Date, according to GAAP and in a manner consistent with the Financial Statements, and shall submit to Seller a certificate of the Chief Financial Officer of Purchaser stating the Transferred Working Capital of the Company as of the Closing Date (“ Purchaser’s Working Capital Certificate ”).

 

(3) In the event that the Transferred Working Capital of the Company as reflected on Purchaser’s Working Capital Certificate is less than $4,571,000, then the Purchase Price shall be adjusted downward on a dollar for dollar basis equal to the amount of such shortfall, if any; (the amount of such downward adjustment, the “ Working Capital Adjustment ”).

 

(4) In the event that the Transferred Working Capital of the Company as reflected on Purchaser’s Working Capital Certificate is less than $4,571,000 and the amount of the Working Capital Adjustment is less than the amount of the Holdback, Purchaser shall retain from the Holdback an amount equal to the Working Capital Adjustment and pay to Seller the balance of the Holdback within fifteen (15) days after Purchaser’s Working Capital Certificate becomes final (the “ Purchaser’s Reconciliation Payment ”).

 

(5) In the event that the Transferred Working Capital of the Company as reflected on Purchaser’s Working Capital Certificate is less than $4,571,000, and the amount of the Working Capital Adjustment exceeds the amount of the Holdback, Purchaser shall retain the entire amount of the Holdback and Seller shall pay the difference to Purchaser within fifteen (15) days after Purchaser’s Working Capital Certificate becomes final (the “ Seller’s Reconciliation Payment ”).

 

(6) In the event that Seller disputes the amount of the Working Capital Adjustment, then Seller shall deliver a written notice of dispute to Purchaser setting forth in

 

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reasonable detail the nature of the dispute within ten (10) business days after receipt of Purchaser’s Working Capital Certificate (“ Ten Day Notice ”). Purchaser shall provide Seller with reasonable access to such records as may be necessary for Seller to review Purchaser’s Working Capital Certificate. Seller and Purchaser shall negotiate in good faith to resolve such dispute within twenty (20) business days after delivery of the Ten Day Notice. In the event that Seller fails to deliver the Ten Day Notice within the time set forth in this subsection, the Purchaser Working Capital Adjustment shall be deemed final and conclusive, and shall be binding on the parties. If Seller delivers a Ten-Day Notice, no payments shall be made by either party on account of the Working Capital Adjustment until the amount of the Working Capital Adjustment becomes final. If Seller delivers a Ten-Day Notice and Seller and Purchaser are unable to agree upon the amount of any Working Capital Adjustment within twenty (20) business days after delivery of the Ten Day Notice, then an independent “Big Four” or other nationally recognized accounting firm to be mutually agreed upon by Purchaser and Seller (the “ Auditor ”) shall be requested to conduct a review and determine the amount of the actual Working Capital Adjustment. The Auditor shall be instructed in performing such review to provide Purchaser and Seller with copies of any and all correspondence and drafts distributed to any party. Each of Seller and Purchaser shall be granted reasonable access to all documents made available to the Auditor by the other party, provided that any information contained in such documents shall be subject to the confidentiality provisions set forth in this Agreement. Prior to issuing its final determination, the Auditor shall issue a draft of its report to Purchaser and Seller and Purchaser and Seller shall have the opportunity to provide the Auditor with input and any additional information that such party deems relevant, provided that the Auditor shall not be required to use any such input or information in connection with its review and determination. The Auditor shall promptly deliver copies of its report to Purchaser and Seller, setting forth its determination of the Working Capital Adjustment and the amount of any Seller’s Reconciliation Payment or Purchaser’s Reconciliation Payment to be made (the “ Auditor’s Report ”). If the Auditor determines that Purchaser is entitled to 50% or less of the portion of the Working Capital Adjustment in dispute, Purchaser shall pay all of the Auditor’s fees and expenses in connection with this Section 2.4(a)(8). If the Auditor determines that Purchaser is entitled to more than 50% of the portion of the Working Capital Adjustment in dispute, Seller shall pay all of the Auditor’s fees and expenses in connection with this Section 2.4(a)(6).

 

(b) Reduced Principal Adjustment. In the event that the quotient obtained by dividing $35,000,000 by the Conversion Price exceeds 4,000,000, then the principal amount of the C-COR Debt Securities shall be reduced by an amount equal to the difference between $35,000,000 and the product of the Conversion Price multiplied by 4,000,000 (such difference shall be the “ Make-Whole Increase ”). For the avoidance of doubt, in no event shall C-COR be required to issue more than 4,000,000 shares of C-COR Common Stock in connection with the issuance of the C-COR Debt Securities (subject to stock splits and the other adjustments provided in the Indenture).

 

SECTION 3. CLOSING

 

3.1 Time, Place and Effective Date . The delivery of the Units, the Business Intellectual Property and the Subsidiary Interests pursuant to Section 2.1 and the payment of the Purchase Price pursuant to Section 2.3 (the “ Closing ”) of the transactions contemplated by this Agreement shall take place at the offices of Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street,

 

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51st Floor, Philadelphia, Pennsylvania 19103, or at such other place as shall be mutually agreed to by the parties hereto, as soon as practicable following the satisfaction of all of the closing conditions set forth in Sections 8 and 9 hereto, but no later than 10:00 a.m. (East Coast time) on the tenth (10th) business day after satisfaction of all of the Closing conditions set forth in Sections 8 and 9 hereto, or such other date (the “ Closing Date ”) as mutually agreed by Purchaser and Seller after the satisfaction or waiver of all of the Closing conditions. The effective time of the transactions contemplated to be consummated at Closing shall be deemed to take effect at 12:01 a.m. (East Coast time) on the Closing Date.

 

3.2 Closing Deliveries .

 

(a) To Purchaser . At the Closing, Seller and the Company shall deliver or cause to be delivered to Purchaser the following:

 

(1) certificates representing the Units duly endorsed by the Seller, for transfer to Purchaser or accompanied by duly executed unit interest powers, in either case executed in blank and otherwise in form acceptable for transfer on the books of the Company;

 

(2) the certificates required to be delivered pursuant to Section 8.6;

 

(3) the resignations of the directors and officers of the Company and Seller’s Subsidiaries, pursuant to Section 8.7;

 

(4) the ledgers and minute books of the Company;

 

(5) a copy of the Certificate of Incorporation (or its equivalent) for Seller certified by the Secretary of State of Delaware, and Certificates of Good Standing (or their equivalent) from the Secretaries of State (or such similar officer which perform the customary functions of a Secretary of State) of the states identified on Schedule 4.1(b) , and dated not more than ten (10) days before the Closing Date.

 

(6) a copy of the Certificate of Formation of the Company, certified by the Secretary of State of the State of Delaware, and Certificates of Good Standing (or their equivalent) from the Secretaries of State (or such similar offices which perform the customary functions of a Secretary of State) of the states identified on Schedule 4.1(b) , each dated not more than 10 days before the Closing Date;

 

(7) copies of the operating agreement of the Company and the minutes of the Company authorizing this transaction, along with a certificate executed by the Secretary of the Company, dated as of the Closing Date, certifying that such copies and are true, correct and complete, and that such operating agreement was duly adopted and have not been amended or rescinded;

 

(8) the bylaws and the minutes of the Seller and each of its Subsidiaries, if applicable, along with a certificate executed by the Secretary of the Seller and each Seller Subsidiary dated as of the Closing Date certifying that such copies are true, correct and complete and that such bylaws and the minutes were duly adopted and have not been amended or rescinded.

 

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(9) executed counterparts of the Escrow Agreement;

 

(10) executed counterparts of the Lock-Up Agreements;

 

(11) executed counterparts of all bills of sale and assignment and assumption agreements as may be necessary to transfer the Business Intellectual Property to BRC and the Subsidiary Interests to BV; and

 

(12) an affidavit of Seller stating, under penalties of perjury, the Seller’s United States taxpayer identification number and that Seller is not a foreign person for purposes of Section 1445 of the Code.

 

(b) To Seller . At the Closing, Purchaser and C-COR shall deliver or cause to be delivered to Seller the following:

 

(1) the Closing Cash Payment;

 

(2) stock certificates for the C-COR Shares, less the Escrowed Shares, issued in the name of the Creditors;

 

(3) the C-COR Debt Securities issued in the name of the Creditors;

 

(4) the officer’s certificates described in Section 9.7;

 

(5) a copy of the Certificate of Formation of Purchaser, certified by the Secretary of State of the State of Delaware, and a Certificate of Good Standing from the Secretary of State of the State of Delaware, each dated not more than ten (10) days before the Closing Date;

 

(6) a copy of the Articles of Incorporation of C-COR, certified by the Secretary of the Commonwealth of the Pennsylvania, and a Certificate of Good Standing from the Secretary of State of the State of Delaware, each dated not more than 10 days before the Closing Date;

 

(7) a certificate executed by the Secretary of Purchaser certifying that the copies of the operating agreement of Purchaser and of the minutes of Purchaser authorizing this transaction attached to such certificate are true, correct and complete copies thereof and that such operating agreement and minutes were duly adopted and have not been amended or rescinded;

 

(8) a certificate executed by the Secretary of C-COR certifying that the copies of the bylaws of C-COR and of the minutes of C-COR authorizing this transaction attached to such certificate are true, correct and complete copies thereof and that such bylaws and minutes were duly adopted and have not been amended or rescinded;

 

(9) fully executed Indenture;

 

(10) executed counterparts of the Escrow Agreement;

 

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(11) executed counterparts of the Lock-Up Agreements; and

 

(12) executed counterparts of all bills of sale and assignment and assumption agreements as may be necessary to transfer the Business Intellectual Property to BRC and the Subsidiary Interests to BV.

 

(c) To BRC and BV .

 

(1) At the Closing, Seller shall deliver or cause to be delivered to BV the Subsidiary Interests and executed counterparts of all bills of sale and assignment and assumption agreements as may be necessary to transfer the Subsidiary Interests to BV.

 

(2) At the Closing, Seller shall deliver or cause to be delivered to BRC the Business Intellectual Property and executed counterparts of all bills of sale and assignment and assumption agreements as may be necessary to transfer the Business Intellectual Property to BRC.

 

(d) To the Escrow Agent .

 

(1) At the Closing, Seller, C-COR and Purchaser shall deliver executed counterparts of the Escrow Agreement to the Escrow Agent.

 

(2) At the Closing, C-COR shall deliver the Escrowed Consideration to the Escrow Agent.

 

SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY

 

Each of Seller and the Company, jointly and severally, represents and warrants to Purchaser and C-COR that the statements contained in this Section 4 are correct and complete as of the date of this Agreement, except as otherwise set forth in the various Schedules identified below in this Section 4 delivered by Seller to Purchaser on the date hereof (the “ Disclosure Schedule ” or “ Schedule ”). As provided below, the Disclosure Schedule will be arranged in paragraphs corresponding to the Sections and lettered paragraphs contained in this Section 4. Disclosure made in any particular Schedule shall be deemed made in any other Schedule or Schedules to which the relevance of such disclosure is reasonably apparent from the text of such Schedule. As used in this Section 4, the term “ Company Group ” means the Seller with respect to all periods prior to the Contribution and the Company with respect to all periods on and after the Contribution.

 

4.1 Organization and Good Standing .

 

(a) The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has no Subsidiaries, and does not have a direct or indirect ownership interest in any Person. The Company is qualified to do business in the jurisdictions set forth in Schedule 4.1(a) . The

 

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Company has the power and authority (limited liability company and otherwise) to own, lease and operate its respective properties and assets and to carry on its business as now being conducted and is duly qualified or licensed to do business as a foreign corporation in good standing in the jurisdictions in which the ownership, lease or operation of its property or the conduct of its business requires such qualification, except where such failure to be qualified would not reasonably be expected to have a Material Adverse Effect on the Company. Seller has delivered to Purchaser complete and correct copies of the Company’s certificate of formation, operating agreement and organizational documents and all amendments thereto as of the date hereof.

 

(b) Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Except for the Company and as set forth on Schedule 4.1(b) , Seller has no Subsidiaries, and does not have a direct or indirect ownership interest in any Person. Seller is qualified to do business in the jurisdictions set forth in Schedule 4.1(b) . Seller has the power and authority (corporate and otherwise) to own, lease and operate its respective properties and assets and to carry on its business as now being conducted and is duly qualified or licensed to do business as a foreign corporation in good standing in the jurisdictions in which the ownership, lease or operation of its property or the conduct of its business requires such qualification, except where such failure to be qualified would not reasonably be expected to have a Material Adverse Effect on Seller. Seller has delivered to Purchaser complete and correct copies of Seller’s charter documents and all amendments thereto to the date hereof.

 

(c) Each Subsidiary set forth on Schedule 4.1(b) , is duly organized, validly existing and in good standing in the jurisdictions set forth opposite to such Subsidiary’s name on such schedules, and has the power and authority (corporate and otherwise) to own, lease and operate its respective properties and assets and to carry on its business as now being conducted and is duly qualified or licensed to do business as a foreign corporation in good standing in the jurisdictions in which the ownership, lease or operation of its property or the conduct of its business requires such qualification, except where such failure to be qualified would not reasonably be expected to have a Material Adverse Effect on Seller. Seller or the Company has delivered to Purchaser complete and correct copies of each such Subsidiary’s charter and organizational documents and all amendments thereto to the date hereof.

 

4.2 Ownership of Units . The Units are owned by Seller of record and beneficially free and clear of all Liens, other than restrictions imposed by federal and state securities laws and this Agreement. Upon the consummation of the transactions contemplated hereby, Purchaser will acquire good title to the Units, free and clear of all Liens, other than the restrictions on subsequent transfers imposed by federal and state securities laws.

 

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4.3 Authority . Each of Seller and the Company has full power and authority to execute, deliver and perform their respective obligations under this Agreement, the Ancillary Agreements and the documents and instruments contemplated hereby and thereby, and to carry out the transactions contemplated hereby and thereby. Each of Seller and the Company has duly approved and authorized the execution and delivery of this Agreement, the Ancillary Agreements and the documents and instruments contemplated hereby and thereby, and the consummation of the transactions contemplated hereby and thereby and, other than the Stockholder Approval, no other proceedings or other action on the part of Seller, the Company or any stockholders of Seller as such are necessary to approve and authorize the execution, delivery and performance by Seller and the Company of this Agreement, the Ancillary Agreements and the documents and instruments contemplated hereby or thereby, or the consummation by Seller and the Company of the transactions contemplated hereby or thereby. This Agreement constitutes, and when executed the Ancillary Agreements will constitute, a legal, valid and binding agreement of Seller and the Company, enforceable against Seller and the Company in accordance with its terms, except that (a) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors’ rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

 

4.4 No Conflicts . Except as set forth in Schedule 4.4 , neither the execution, delivery or performance of this Agreement, the Ancillary Agreements or the other documents and instruments to be executed and delivered by each of Seller and the Company pursuant hereto, nor the consummation by Seller or the Company of the transactions contemplated hereby or thereby, nor compliance by Seller or the Company with any of the provisions hereof or thereof will (a) conflict with or result in any breach of any provision of the Certificate of Incorporation, Bylaws or similar organizational documents of Seller, (b) conflict with or result in any breach of any provision of the Certificate of Formation, operating agreement or similar organizational documents of the Company, (c) require the consent from or the giving of notice to a third party, result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, or result in the creation of any Lien (other than a Permitted Lien) upon or affecting any of Seller’s or the Company’s material assets or properties pursuant to, any of the terms, conditions or provisions of any material contractual obligation of Seller or the Company, (d) violate any order, writ, injunction, decree specifically naming the Company or Seller, or any statute, rule or regulation of any Governmental Authority or Governmental Permit applicable to Seller or the Company or, or to which any of their properties or assets may be bound, or (e) result in triggering of any right of first refusal or other similar right under any agreement to which Seller or the Company is a party.

 

4.5 Consents and Approvals of Governmental Authorities . Except under the HSR Act, no Governmental Permit is required in connection with the execution, delivery and performance of this Agreement, the Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby by Seller or the Company.

 

4.6 Capitalization . The authorized capital of the Company consists solely of the Units, all of which are issued and outstanding. The authorized capital of the Subsidiaries consists

 

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solely of the Subsidiary Interests, all of which are issued and outstanding. Seller holds of record and owns beneficially all of the Units and the Subsidiary Interests. Except for the Units, there are no outstanding Options or securities of Company, including any rights of conversion or exchange under any outstanding securities or other instruments. Except for the Subsidiary Interests, there are no outstanding Options or securities of Subsidiaries, including any rights of conversion or exchange under any outstanding securities or other instruments. All outstanding Units and Subsidiary Interests have been validly issued and, if applicable, are fully paid, nonassessable and free of preemptive or similar rights.

 

4.7 Financial Statements; Books and Records .

 

(a) Attached hereto as Schedule 4.7(a) are (i) the consolidated financial statements of Seller as of and for fiscal year ended December 31, 2001, which have been audited by the former accountants for Seller (the “ Audited Financial Statements ”), (ii) the balance sheet of Seller as of December 31, 2003 (the “ Balance Sheet ”); (iii) the unaudited consolidated financial statements of Seller as of and for the fiscal years ending December 31, 2002 and December 31, 2003, and (iv) the unaudited financial statements of Seller for the period ended September 30, 2004 (the financial information described in clauses (ii), (iii) and (iv) of this sentence being referred to collectively as the “ Unaudited Statements ” and, the Unaudited Statements, together with the Audited Financial Statements being referred to collectively as the “ Financial Statements ”). The Financial Statements have been compiled from and are in all material respects in accordance with Seller’s books and records and (A) fairly present in all material respects the financial condition, assets and liabilities of Seller and the Company as of their dates and the results of operations of Seller and the Company for the periods then ended and (B) have been prepared in all material respects in accordance with GAAP consistently applied (except as noted therein and except that the Unaudited Statements may not include footnotes and shall be subject to nonmaterial recurring year-end adjustments).

 

(b) The Supplemental Financial Statements, when delivered pursuant to Section 6.9, will have been compiled from and will be in all material respects in accordance with Seller’s books and records and (A) will fairly present in all material respects 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 (B) will have been prepared in all material respects in accordance with GAAP consistently applied.

 

(c) Neither Seller nor the Company has factored or offered, and it is not in Seller’s or the Company’s ordinary course of business to factor or offer, any prompt discounts with respect to its payment of accounts receivable.

 

4.8 Events Subsequent to Balance Sheet Date . Except as set forth on Schedule 4.8 , from the Balance Sheet Date through the date hereof, (a) Seller has conducted its business only in the ordinary course and consistent with past practice, except for such changes as would not reasonably be expected to have a Material Adverse Effect on Seller, and (b) except as contemplated in this Agreement, including the Contribution, neither Seller nor the Company has:

 

(1) adopted any amendment to its certificate of incorporation, bylaws, certificate of formation, operating agreement or similar organization documents;

 

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(2) (A) sold, leased, transferred or disposed of any assets or rights other than in the ordinary course of business consistent with past practice, which assets or rights do not involve more than $100,000 in the aggregate, (B) incurred any Lien thereupon, except for Liens incurred in the ordinary course of business consistent with past practice which Liens would not in the aggregate exceed $100,000, (C) acquired or leased any assets or rights other than assets or rights in the ordinary course of business consistent with past practice, that individually or in the aggregate would involve more than $100,000 or (D) entered into any commitment or transaction with respect to (A), (B) or (C) above;

 

(3) (A) incurred, assumed or refinanced any Indebtedness, or (B) made any loans, advances or capital contributions to, or investments in, any Person other than a wholly-owned Subsidiary in the ordinary course of business and consistent with past practice;

 

(4) paid, discharged or satisfied any liability, obligation, or Lien other than payment, discharge or satisfaction of (A) Indebtedness as it matured and became due and payable or (B) liabilities, obligations or Liens in the ordinary course of business consistent with past practice;

 

(5) (A) changed any of the accounting or tax principles, practices or methods used by Seller or the Company, except as required by changes in applicable Tax Laws or (B) changed reserve amounts or policies;

 

(6) entered into any employment contract or other arrangement or made any change in the compensation payable or to become payable to any of Seller’s or the Company’s officers, employees, agents, consultants or Persons acting in a similar capacity (other than general increases in wages to employees and salaries to officers or Persons acting in a similar capacity in the ordinary course consistent with past practice), or to Persons providing management services, entered into or amended any employment, severance, consulting, termination or other agreement or employee benefit plan or made any loans to any of its Affiliates, officers, employees, agents or consultants or Persons acting in a similar capacity or made any change in its existing borrowing or lending arrangements for or on behalf of any of such Persons pursuant to an employee benefit plan or otherwise;

 

(7) paid or made any accrual or arrangement for payment of any pension, retirement, allowance or other employee benefit pursuant to any existing plan, agreement or arrangement to any Affiliate, officer, employee or Person acting in a similar capacity, or paid or agreed to pay or made any accrual or arrangement for payment to any Affiliate, officers, employees or Persons acting in a similar capacity of any material amount relating to unused vacation days, except payments and accruals made in the ordinary course consistent with past practice; except contemplated by this Agreement, grant, issue, accelerate or accrue salary or other material payments or material benefits pursuant to any pension, profit sharing, bonus, extra compensation, incentive, deferred compensation, stock purchase, stock option, stock appreciation right, group insurance, severance pay, retirement or other employee benefit plan, agreement or arrangement or any employment or consulting agreement with or for the benefit of any Affiliate, officer, employee, agent or consultant or Person acting in a similar capacity, whether past or present; or amend in any material respect any such existing plan, agreement or arrangement in a manner consistent with the foregoing;

 

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(8) entered into any collective bargaining agreement;

 

(9) made any payments (other than regular compensation payable to officers and employees or Persons acting in a similar capacity of Seller or the Company in the ordinary course consistent with past practice), loans, advances or other distributions, or enter into any transaction, agreement or arrangement with the stockholders of the Seller or any of Seller’s or Company’s Affiliates, officers, employees, agents, consultants or Persons acting in a similar capacity, stockholders of their Affiliates, associates or family members;

 

(10) made or authorized any capital expenditures, except (A) in the ordinary course of business consistent with past practice, and (B) for fiscal year ended December 31, 2003 in the ordinary course of business consistent with past practice, which in each case are not in excess of $100,000 individually or $500,000 in the aggregate;

 

(11) settled or compromised any Tax liability or agreed to any adjustment of any Tax attribute or made any election with respect to Taxes;

 

(12) failed to duly and timely file any Tax Return with the appropriate Governmental Authorities required to be filed by it in a true and complete and correct form or to timely pay all Taxes shown to be due thereon;

 

(13) (A) entered into, amended, renewed or permitted the automatic renewal of, terminated or waived any right under, any Material Contract, or (B) taken any action or failed to take any action that, with or without either notice or lapse of time, would constitute a default under any Material Contract;

 

(14) (A) made any material change in its working capital practices generally, including accelerating any collections of cash or accounts receivable or deferring payments, (B) failed to make timely accruals, including with respect to accounts payable and liabilities incurred in the ordinary course of business, or (C) made any change in any reserve or other account existing as of the Balance Sheet Date, except as required by GAAP;

 

(15) failed to renew (at levels consistent with presently existing levels), terminated or amended or failed to perform any of its material obligations or permitted any material default to exist or caused any material breach under, or entered into (except for renewals in the ordinary course of business consistent with past practice), any policy of insurance;

 

(16) experienced any material damage, destruction, or loss to its property not covered by insurance;

 

(17) disposed of or permitted to lapse any Business Intellectual Property or granted any license or sublicense of any rights under or with respect to any Business Intellectual Property, other than in the ordinary course of business consistent with past practice;

 

(18) except pursuant to appropriate confidentiality agreements, and except as required by any Law or any existing agreements set forth on Schedule 4.14 or as may be reasonably necessary to secure or protect Intellectual Property or other property rights of

 

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Seller or the Company, provided any confidential information to any Person other than Purchaser;

 

(19) suffered material loss of business of any customers;

 

(20) suffered any material change in the normal operating balances of the Seller’s inventory;

 

(21) changed in any material respect the compensation level applicable to any class of Seller or Company employees;

 

(22) paid any bonuses payable or to become payable to any stockholders of Seller or any of Seller’s or the Company’s officers, employees, agents, consultants or Persons acting in a similar capacity;

 

(23) declared, set aside or paid any dividend or made any distribution with respect to its capital stock or member interest, as the case may be (whether in cash or in kind); or

 

(24) cancelled, compromised, waived or released any material right or claim outside the ordinary course of business.

 

4.9 Liabilities; Assets and Liabilities Prior to Contribution .

 

(a) Neither Seller nor the Company has any Liabilities that would be material to the Company, except for such Liabilities as (a) are set forth on Schedule 4.9(a) hereto as of the date hereof, (b) are reflected on the Financial Statements as of the date hereof, (c) were as of the date hereof, incurred since the Balance Sheet Date in the ordinary course of business consistent with past practice and which individually and in the aggregate have not exceeded $150,000 and could not reasonably be expected, with the passage of time, to exceed $150,000 or (d) were incurred since the date hereof in the ordinary course of business consistent with past practice.

 

(b) Except as set forth on Schedule 4.9(b) , prior to the consummation of the Contribution, the Company had no assets or Liabilities of any kind.

 

4.10 Tangible Purchased Assets .

 

(a) Seller, as of the date hereof and up to the Contribution, and the Company as of the Contribution and up to the Closing, own, or otherwise have a valid leasehold interest providing sufficient and legally enforceable rights to use, all of the tangible property and tangible assets used in the conduct of its businesses as currently conducted. Except as set forth on Schedule 4.10(a) , each of Seller, as of the date hereof and up to the Contribution, and the Company as of the Contribution and up to the Closing, has good and marketable title to all tangible assets reflected on the Financial Statements or acquired since the Balance Sheet Date, free and clear of all Liens, other than Permitted Liens and immaterial assets disposed of since the Balance Sheet Date in the ordinary course of business consistent with past practice. Such assets are in good operating condition and repair (ordinary wear and tear excepted), have been

 

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reasonably maintained consistent with standards generally followed in the industry are suitable for their present uses.

 

(b) Schedule 4.10(b) sets forth by office location as of September 30, 2004, a complete and accurate list of all furniture, equipment, automobiles and all other tangible personal property (including its net book value) owned by, in the possession of, or used by the Seller in connection with its business as currently conducted up to the Contribution and used by the Company on and after the Contribution, and which have an initial book value in excess of $2,000 per item.

 

(c) Each of Seller’s and the Company’s inventory as of the date hereof consists of raw materials, work-in-process and consignment and finished goods salable by Seller or the Company in the ordinary course of business. The Financial Statements reflect an adequate reserve for all Seller’s and the Company’s inventory that is slow-moving, as determined in accordance with Seller’s or the Company’s customary practices, or is obsolete, damaged or defective.

 

(d) Upon the consummation of the Contribution pursuant to Section 2.2, Company shall have acquired good title to the Contributed Assets, free and clear of all Liens, other than Permitted Liens subject to obtaining any applicable third party consents pursuant to Section 10.9.

 

4.11 Intellectual Property .

 

(a) Schedule 4.11(a) sets forth a true and complete list, as of the date of this Agreement, of (i) all Registered Intellectual Property and (ii) all written agreements pursuant to which a third party has licensed Intellectual Property to Seller (other than “shrink-wrap” or similar licenses for generally available, commercial, off-the-shelf software), and, in each case, that are necessary for the conduct of the Business (“Business Intellectual Property”).

 

(b) To Seller’s Knowledge and with respect to the Business Intellectual Property, as of the date hereof, except as set forth in Schedule 4.11(b) , Seller has not infringed upon, misappropriated, or otherwise violated any Intellectual Property of third parties. As of the date hereof, Seller has not received any written charge, complaint, claim, demand, or notice alleging any such infringement, misappropriation, or violation (including any claim that Seller must license or refrain from using any Business Intellectual Property. To the Knowledge of Seller as of the date hereof, except as set forth in Schedule 4.11(b) , no third party has infringed upon, misappropriated, or otherwise violated any Business Intellectual Property.

 

(c) Schedule 4.11(c) identifies each written agreement in which Seller has granted to any third party any license under or to any Business Intellectual Property owned by Seller (except for licenses granted in the ordinary course of business) as of the date hereof. With respect to the Business Intellectual Property owned by Seller, Seller has delivered to Purchaser correct and complete copies of all such license agreements (as amended to date) With respect to each item of Business Intellectual Property owned by Seller: !

 

(1) except as set forth on Schedule 4.11(c), Seller possesses all right, title, and interest in and to such Business Intellectual Property, free and clear of any security interest, license, or restriction other than Permitted Liens;

 

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(2) such Business Intellectual Property is not subject to any outstanding injunction, judgment, order, decree or ruling; and

 

(3) no Action, claim or, investigation is pending or threatened, which challenges the legality, validity, enforceability, use, or ownership of such Business Intellectual Property; and

 

(4) Seller has not agreed to indemnify any person for or against any interference, infringement, misappropriation, or other conflict with respect to the items, except for the express infringement indemnities included in standard form sales or license agreements entered into by Seller in the ordinary course of business.

 

(d) Schedule 4.11(d) identifies each item of Business Intellectual Property that, to Seller’s Knowledge, any third party owns and that Seller uses pursuant to license, sublicense, agreement, or permission with respect to the Business or the Contributed Assets (excluding “shrink-wrap” or similar licenses for generally available, commercial, off-the-shelf software). With respect to each item of Business Intellectual Property rights required to be identified and licensed to Seller by a third party and listed in Schedule 4.11(d) , to Seller’s Knowledge, as of the date hereof:

 

(1) the license, sublicense, agreement, or permission covering the item is legal, valid, binding, enforceable, and in full force and effect as to Seller and the other parties thereto, if any;

 

(2) except as otherwise provided in Schedule 4.11(d ), the license, sublicense, agreement, or permission covering the item will continue to be legal, valid, binding, enforceable, and in full force and effect as to Seller on materially similar terms following the consummation of the transactions contemplated hereby;

 

(3) no party to the license, sublicense, agreement, or permission is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration thereunder by the other party;

 

(4) no party to the license, sublicense, agreement, or permission has repudiated any material provision thereof; and

 

(5) no Action, investigation, charge, complaint, claim, or demand about which Seller has received written notice is pending, or to Seller’s Knowledge, is threatened, which challenges the legality, validity, or enforceability of the third party’s Intellectual Property rights listed in Schedule 4.11(d) .

 

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4.12 Tax Matters . Except as set forth on Schedule 4.12 :

 

(a) Seller and each Subsidiary of Seller have (i) duly filed or provided, or has had filed or provided on its behalf, all material Tax Returns required to be filed by it, and each such Tax Return is true, complete and accurate in all material respects; (ii) paid, or has had paid on its behalf, all material Taxes required to be paid with respect to such Returns (other than those Taxes which are being challenged in good faith and for which adequate reserves have been provided); and (iii) has provided for, on its books of account and related records, liability for all other current material Taxes not yet paid. The unpaid Taxes of Seller and its Subsidiaries (x) did not, as of the date of the Unaudited Statement for the fiscal year ending September 30, 2004, exceed by any material amount the reserve for Tax liabilities (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth in such Unaudited Statement; (y) will not, as of the date of the Supplemental Financial Statement for the fiscal year ending September 20, 2004 to be delivered pursuant to Section 6.9, exceed by any material amount the reserve for Tax liabilities set forth in such Supplemental Financial Statement; and will not, as of September 30, 2004, exceed by any material amount such reserve for Tax liabilities as adjusted for the passage of time from date of the Supplemental Financial Statement for the fiscal year ending September 30, 2004 through the Effective Time in accordance with the past custom and practice of Seller and its Subsidiaries in filing their Tax Returns.

 

(b) Seller has not filed a consent under Code Sec. 341(f) concerning collapsible corporations.

 

(c) Neither Seller nor any of Seller’s Subsidiaries is a party to any Tax allocation or sharing agreement. Neither Seller nor any of Seller’s Subsidiaries (A) has been a member of an “affiliated group” filing a consolidated federal income Tax Return (other th