AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

AMONGST

ALLIANCE HEALTHCARD, INC.

AHC - BENEFIT MARKETING ACQUISITION, INC.

AND

BMS HOLDING COMPANY, INC.

BENEFIT MARKETING SOLUTIONS, LLC

BMS INSURANCE AGENCY, LLC

SUSAN MATTHEWS

BRETT WIMBERLEY

DANNY C. WRIGHT

DATED: December 26, 2006

 

 

Table of Contents

 

 

i

Table of Contents

(continued)

 

 

ii

Table of Contents

(continued)

 

 

iii

Table of Contents

(continued)

 

 

iv

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER , dated as of December 26, 2006 (this “ Agreement ” ), is amongst ALLIANCE HEALTHCARD, INC., a Georgia corporation (“ Parent ”), AHC - BENEFIT MARKETING ACQUISITION, INC., an Oklahoma corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”)BMS HOLDING COMPANY, INC., an Oklahoma corporation (the “ Holding Company ” ), BENEFIT MARKETING SOLUTIONS, LLC, an Oklahoma limited liability company ( “ BMS ” ) and a wholly-owned subsidiary of the Holding Company, and BMS INSURANCE AGENCY, LLC, an Oklahoma limited liability company and a wholly-owned subsidiary of the Holding Company ( “ BMSIA ” and with BMSI and the Holding Company collectively the “ Company ” ), and all of the shareholders of the Company, namely Susan Matthews, Brett Wimberley and Danny C. Wright, each an individual and collectively, the “ Company Shareholders ” or individually, the “ Company Shareholder ” ). Collectively, Parent, Merger Sub, the Company and the Company Shareholders are referred to as the “ Parties ” or individually the “ Party . ”

W I T N E S S E T H:

WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have each determined that it is advisable and in the best interests of their respective shareholders for Parent and the Company to cause the Company to merge with and into the Merger Sub upon the terms and subject to the conditions set forth in this Agreement;

WHEREAS, in furtherance of such combination, the Boards of Directors of Parent, Merger Sub and the Company and the Company Shareholders and the Parent as the sole shareholder of Merger Sub have each approved (as evidenced by their execution of this Agreement) the merger (the “ Merger ” ) of the Company with and into Merger Sub in accordance with the applicable provisions of the Oklahoma General Corporation Act (the “ OGCA ” ), and upon the terms and subject to the conditions set forth in this Agreement;

WHEREAS, Parent, Merger Sub and the Company intend, by approving resolutions authorizing this Agreement, to adopt this Agreement as a plan of reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the “ Code ” ), and the regulations promulgated thereunder

WHEREAS, Parent, Merger Sub and the Company intend that the Merger be accounted for as a purchase acquisition of the Company by Parent under the purchase method of accounting for financial reporting purposes; and

WHEREAS, the Company Shareholders own all of the issued and outstanding common stock, $.001 par value, of the Holding Company (the “ Common Shares ” ) and the Holding Company does not have another class of capital stock outstanding and the Common Shares will be exchanged for the Merger Consideration (as defined below);

 

1

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Merger Sub, the Company and the Company Shareholders hereby agree as follows:

ARTICLE I

THE MERGER

SECTION 1.1 The Merger . (a)  Effective Time . At the Effective Time (as defined in Section 1.2), and subject to and upon the terms and conditions of this Agreement and the OGCA, the Company shall be merged with and into Merger Sub, the separate corporate existence of the Company shall cease, and Merger Sub shall continue as the surviving corporation. Merger Sub as the surviving corporation after the Merger is hereinafter sometimes referred to as the “ Surviving Corporation .”

(b) Closing . Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 7.1 and subject to the satisfaction or waiver of the conditions set forth in Article VI, the consummation of the Merger will take place as promptly as practicable (and in any event within two (2) business days) after satisfaction or waiver of the conditions set forth in Article VI at the offices of Parent and the Company by teleconference, facsimile and email (the “ Closing ”), unless another date, time or place is agreed to in writing by the Parties.

SECTION 1.2 Effective Time . As promptly as practicable after the satisfaction or waiver of the conditions set forth in Article VI, the Parties shall cause the Merger to be consummated by filing Certificate of Merger, in the form attached to this Agreement as Exhibit A (the “ Certificate of Merger ”), as contemplated by the OGCA, together with any required related certificates, with the Secretary of State of the State of Oklahoma, in such form as required by, and executed in accordance with the relevant provisions of, the OGCA (the time of such filing being the “ Effective Time ”).

SECTION 1.3 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of the OGCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

SECTION 1.4 Certificate of Incorporation; By-Laws . (a)  Certificate of Incorporation . In all respects, the Certificate of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by the OGCA and such Certificate of Incorporation.

(b) Bylaws . The Bylaws of the Company, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended as provided by the OGCA, the Certificate of Incorporation of the Surviving Corporation and such Bylaws.

 

2

SECTION 1.5 Directors and Officers . The directors of the Company immediately prior to the Effective Time shall become the directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall become the officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified. Furthermore, at Closing, Brett Wimberley and Danny C. Wright or each of their designee (the “ Company Designees ”) shall be appointed by the Board of Directors of Parent to serve as directors of Parent and the Board of Directors of Parent shall be comprised of no more than seven members, four of which shall be independent directors within the meaning of the Marketplace Rules of The Nasdaq Stock Market, Inc. and one of whom shall be appointed by the pre-merger shareholders of Parent. In addition, subsequent to the Effective Time, Parent and each of Danny C. Wright, Brett Wimberley, Susan Matthews, Robert D. Garces and Thomas W. Kiser shall enter into the Employment Agreement attached to this Agreement as Exhibits E through I , respectively.

SECTION 1.6 Effect on Capital Stock . At the Effective Time, by virtue of the Merger and without any action on the part of the Parent, Merger Sub, the Company or the Company Shareholders:

(a) Conversion of Securities . The outstanding Common Shares and Warrant shall be exchanged, in the aggregate, for the following number of shares of Parent common stock, $.001 par value ( “ Parent Common Stock ” ) and the promissory notes described below (collectively, the “ Merger Consideration ” ) as provided in this Section 1.6(a). At Closing, Parent shall issue and deliver to (i) the Company Shareholders 10,000,000 shares of Parent Common Stock and (ii) the Company Shareholders promissory notes in the aggregate principal sum of $7,147,000 the promissory notes shall be substantially in the form attached hereto as Exhibits B, C and D (the “ Promissory Notes ”).

(b) Cancellation . Omitted.

(c) Assumption of Outstanding Stock Options and Warrants . Omitted.

(d) Capital Stock of Merger Sub . Omitted.

(e) Adjustments to Exchange Ratio . The number of shares of Parent Common Stock into which each outstanding Common Share converted pursuant to this Section 1.6 shall be appropriately adjusted to reflect fully the effect of any stock split, reverse split or stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock) with respect to Parent Common Stock having a record date after the date hereof prior to the Effective Time.

(f) Allocation of Merger Consideration . That portion of the Merger Consideration represented by Parent Common Stock shall be allocated (i) among the Company Shareholders on the basis of the number of Common Shares surrendered by each shareholder relative to the total number of Common Shares surrendered. That portion of the Merger

 

3

Consideration represented by the aggregate principal amount of the Promissory Notes shall be allocated $2,858,800 to Danny C. Wright, $2,858,800 to Brett Wimberley and $1,429,400 to Susan Matthews.

SECTION 1.7 Exchange of Certificates and Delivery of Merger Consideration . (a) The surrender of the Common Shares as provided in this Agreement shall be effected by delivery by the Company Shareholders at Closing of the certificates representing the Common Shares and such other instruments of surrender for exchange, duly executed, as Parent or Merger Sub shall reasonably deem necessary to vest in Parent on the Closing Date good and marketable title to the Common Shares and Warrant, free and clear of any lien, charge, claim, pledge, security interest or other encumbrance of any type or kind whatsoever.

(b) Delivery of Merger Consideration . At the Closing, Parent shall issue and deliver to the Company Shareholders, (i) a certificate or certificates registered in the name of each of the Company Shareholders representing that number of whole shares of Parent Common Stock that each of the Company Shareholders shall be entitled to receive on the basis set forth in Section 1.6(f) of this Agreement, and (ii) Promissory Notes payable to each of the Company Shareholders in the principal sum that each of the Company Shareholders shall be entitled to receive on the basis set forth in Section 1.6(f) of this Agreement.

(c) Withholding Rights . Parent shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any holder of Company Common Shares, such amounts as Parent is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by Parent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Common Shares in respect of which such deduction and withholding was made by Parent.

SECTION 1.8 Dissenting Shares . By execution of this Agreement, each of the Company Shareholders hereby consent to and approve the Merger and by such waives any rights to dissent under the OGCA.

SECTION 1.9 Stock Transfer Books . At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers of the Company Common Stock thereafter on the records of the Company.

SECTION 1.10 No Further Ownership Rights in Company Capital Stock . The Merger Consideration delivered upon the surrender for exchange of Common Shares, in accordance with the terms hereof, shall be deemed to have been issued in full satisfaction of all rights pertaining to such Common Shares, and there shall be no further registration of transfers on the records of the Surviving Corporation of such Common Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates evidencing Common Shares are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I.

SECTION 1.11 Lost, Stolen or Destroyed Certificates . Omitted.

 

4

SECTION 1.12 Taxes . It is intended by the Parties that the Merger shall constitute a reorganization within the meaning of Section 368 of the Code. The Parties hereby adopt this Agreement as a “plan of reorganization” within the meaning of sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.

SECTION 1.13 Taking of Necessary Action; Further Action . Each of Parent, Merger Sub, the Company and the Company Shareholders will take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Merger in accordance with this Agreement as promptly as possible. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Company and Merger Sub immediately prior to the Effective Time are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action.

SECTION 1.14 Material Adverse Effect . When used in connection with the Company or Parent or any of its subsidiaries, as the case may be, the term “ Material Adverse Effect ” means any change, effect or circumstance that, individually or when taken together with all other such changes, effects or circumstances that have occurred prior to the date of determination of the occurrence of the Material Adverse Effect, is or is reasonably likely to be materially adverse to the business, operations, assets (including intangible assets), condition (financial or otherwise), liabilities or results of operations of the Company or Parent and its subsidiaries, as the case may be, taken as a whole in the case of Parent and its subsidiaries.

SECTION 1.15 Investment Intent . Each of the Company Shareholders acknowledges that the shares of Parent Common Stock delivered to the Company Shareholder pursuant to this Article I shall be issued by Parent pursuant to registration exemptions under the Securities Act of 1933, as amended (the “ Securities Act ”) and any applicable state securities laws. Each of the Company Shareholders represents to Parent and its officers and directors that the Parent Common Stock to be issued and delivered to the Company Shareholder pursuant to this Article I, at the time of delivery, will be acquired by the Company Shareholder for investment purposes only without the intent to resell such shares of Parent Common Stock and will not be transferred except pursuant to registration under the Securities Act and the applicable state securities acts or pursuant to exemption from registration under such acts. Each of the Company Shareholders hereby acknowledges that the certificates evidencing the Parent Common Stock to be delivered to the Company Shareholder pursuant to this Article I will bear appropriate restrictive transfer legends as required pursuant to the Securities Act and the applicable state securities acts. Each Company Shareholder has had the opportunity to ask questions of the executive officers of Parent concerning all matters relating to Parent and has received answers to such inquiries and has obtained all additional information concerning Parent, which such Company Shareholder has requested. Each Company Shareholder has such knowledge and expertise in business, financial and tax matters sufficient for each Company Shareholder to evaluate the merits and risks associated with an investment in the Parent Common Stock and to make an informed decision with respect thereto. Each Company Shareholder is able to bear the economic risk of an investment in the Parent Common Stock for an indefinite period.

 

5

SECTION 1.16 Company Shareholders Approval . Each of the Company Shareholders hereby covenants and agrees that he or she has read and has been fully advised by legal counsel as to the meaning and effect of this Agreement and the transactions to be effected by this Agreement, and that he or she hereby approves this Agreement and the transactions contemplated in this Agreement. By execution of this Agreement, (i) each of the Company Shareholders hereby votes all of the issued and outstanding shares of the Company Common Shares in favor of approval of this Agreement and the transactions contemplated in this Agreement and (ii) each of the Company Shareholders hereby consents to all corporate action required to consummate the transactions contemplated in this Agreement without the necessity for a meeting of the shareholders of the Company, to the extent and in the event shareholder approval shall be required for approval of this Agreement and the transactions contemplated in and to be effected by this Agreement.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company and the Company Shareholders, jointly and severally, hereby represent and warrant to Parent and Merger Sub that, except as set forth in the written disclosure schedule delivered by the Company to Parent (the “ Company Disclosure Schedule ”):

SECTION 2.1 Corporate Organization . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma and has all requisite corporate power and authority to own, operate and lease its properties and assets as and where the same are owned, operated or leased and to conduct its business as it is now being conducted. The Company is in good standing and duly qualified or licensed as a foreign corporation to do business in those jurisdictions listed in Section 2.1 of the Company Disclosure Schedule, such jurisdictions being the only jurisdictions in which the location of the property and assets owned, operated or leased by the Company or the nature of the business conducted by the Company makes such qualification or licensing necessary, except where the failure to be so qualified or licensed could not reasonably be expected to have a Material Adverse Effect. The Company has heretofore delivered to the Parent complete and correct copies of the Company’s Certificate of Incorporation and Bylaws, as amended to and as in effect on the date hereof.

SECTION 2.2 Capitalization . (a)   The authorized capital stock of the Company consists of 90,000,000 shares of Company Common Stock, par value $.0001 per share (“ Company Common Stock ”), and 10,000,000 shares of preferred stock, par value $.0001 per share (“ Company Preferred Stock ”). As of the date of this Agreement, 10,000,000 shares of Company Common Stock are issued and no shares of Company Preferred Stock are issued and outstanding.

(b) All outstanding shares of Company Common Stock are validly issued and outstanding, fully paid and non-assessable, and there are no preemptive or similar rights in respect of the Company Common Stock. All outstanding shares of Company Common Stock were issued in compliance with all requirements of all applicable federal and state securities laws.

 

6

SECTION 2.3 Subsidiaries . Other than BMS and BMSIA (the “ Company Subsidiaries ”), there are no entities of which the Company owns any of the outstanding voting securities or other equity interests, directly or indirectly through one or more intermediaries.

SECTION 2.4 No Commitments to Issue Capital Stock . There are no outstanding options, warrants, calls, convertible securities or other rights, agreements, commitments or other instruments pursuant to which the Company is or may become obligated to authorize, issue or transfer any shares of its capital stock or any other equity interest. There are no agreements or understandings in effect among any of the stockholders of the Company or with any other Person and by which the Company is bound with respect to the voting, transfer, disposition or registration under the Securities Act of 1933, as amended (the “ Securities Act ”) of any shares of capital stock of the Company.

SECTION 2.5 Authorization; Execution and Delivery . The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Company, including unanimous approval of this Agreement by the Company Shareholders as evidenced by their execution of this Agreement. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.

SECTION 2.6 Governmental Approvals and Filings . No approval, authorization, consent, license, clearance or order of, declaration or notification to, or filing or registration with, any governmental or regulatory authority is required in order (a) to permit the Company to consummate the Merger or perform its obligations under this Agreement or (b) to prevent the termination of, or Material Adverse Effect on, any governmental right, privilege, authority, franchise, license, permit or certificate (collectively “ Governmental Licenses ”) of the Company to enable the Company to own, operate and lease its properties and assets as and where such properties and assets are owned, leased or operated and to provide service and carry on its business as presently provided and conducted, or to prevent any material loss or disadvantage to the Company ’ s business, by reason of the Merger, except for (i) filing and recording of the Certificate of Merger as required by the OGCA, and (ii) as set forth in Section 2.6 of the Company Disclosure Schedule.

SECTION 2.7 No Conflict . Subject to compliance with the Governmental Licenses described in Section 2.6 of the Company Disclosure Schedule and obtaining the other consents and waivers that are set forth and described in Section 2.7 of the Company Disclosure Schedule (the “ Private Consents ”), neither the execution, delivery and performance of this Agreement by the Company, nor the consummation by the Company of the transactions contemplated hereby, will (i) conflict with, or result in a breach or violation of, any provision of the Certificate of Incorporation (or similar organizational document) or bylaws of the Company; (ii) conflict with, result in a breach or violation of, give rise to a default, or result in the acceleration of performance, or permit the acceleration of performance, under (whether or not after the giving of notice or lapse of time or both) any encumbrance, note, bond, indenture, guaranty, lease, license, agreement or other instrument, writ, injunction, order, judgment or

 

7

decree to which the Company or any of its properties or assets is a party or is subject; (iii) give rise to a declaration or imposition of any encumbrance upon any of the properties or assets of the Company; or (iv) impair the Company’s business or adversely affect any Governmental License necessary to enable the Company to carry on its business as presently conducted, except, in the case of clauses (ii), (iii) or (iv), for any conflict, breach, violation, default, declaration, imposition or impairment that could not reasonably be expected to have a Material Adverse Effect.

SECTION 2.8 SEC Filings . The Company does not have a class of securities registered under the Securities Exchange Act of 1934, as amended (“ Exchange Act ”), and does not have any obligation to file forms, reports or other documents with the United States Securities and Exchange Commission under such Act.

SECTION 2.9 Financial Statements; Absence of Undisclosed Liabilities; Receivables . (a) The Company has heretofore delivered to Parent complete and correct copies of the unaudited balance sheet of the Company (the “ Unaudited Company Balance Sheet ”) at September 30, 2006 (the “ Company Balance Sheet Date ”) and unaudited statements of income, cash flows and stockholders’ equity of the Company for the previous 12 months then ended, and complete and correct copies of the unaudited balance sheet of the Company at September 30, 2005 and unaudited statements of income, cash flows and stockholders’ equity of the Company for the previous 12 months then ended (with the Unaudited Company Balance Sheet, the “ Unaudited Company Financial Statements ”), all of which have been prepared from the books and records of the Company in accordance with generally accepted accounting principles (“ GAAP ”) consistently applied and maintained throughout the periods indicated (except as may be indicated in the notes thereto) and fairly present in all material respects the financial condition of the Company as at their respective dates and the results of the Company ’ s operations and cash flows for the periods covered thereby. Not less than five days prior to the Closing, the Company shall deliver to Parent complete and correct copies of the audited balance sheet of the Company (the “ Audited Company Balance Sheet ” and collectively with the Unaudited Company Balance Sheet, the “ Company Balance Sheet ”) at the Company Balance Sheet Date and audited statements of income, cash flows and stockholders’ equity of the Company for the previous 12 months then ended and complete and correct copies of the audited balance sheet of the Company at September 30, 2005 and audited statements of income, cash flows and stockholders’ equity of the Company for the previous 12 months then ended (with the Audited Company Balance Sheet, the “ Audited Company Financial Statements, audited by Miller Ray Houser & Stewart LLP, independent certified public accountants (collectively the Unaudited Company Financial Statements and the Audited Company Financial Statements, the “ Company Financial Statements ”), all of which have been prepared from the books and records of the Company in accordance with GAAPconsistently applied and maintained throughout the periods indicated (except as may be indicated in the notes thereto) and fairly present in all material respects the financial condition of the Company as at their respective dates and the results of the Company ’ s operations and cash flows for the periods covered thereby. Such statements of income do not contain any items of special or nonrecurring revenue or income or any revenue or income not earned in the ordinary course of business, except as expressly specified therein.

(b) Except as and to the extent reflected or reserved against on the Company Balance Sheet, the Company did not have, as of the Company Balance Sheet Date, any

 

8

liabilities, debts or obligations (whether absolute, accrued, contingent or otherwise) of any nature that would be required as of such date to have been included on a balance sheet prepared in accordance with GAAP. Since the Company Balance Sheet Date, the Company has not incurred or suffered to exist any liabilities, debts or obligations (whether absolute, accrued, contingent or otherwise), except liabilities, debts and obligations incurred in the ordinary course of business, consistent with past practice, none of which will have a Material Adverse Effect. Since the Company Balance Sheet Date, there has been no material adverse change in the business, operations, assets (including intangible assets), condition (financial or otherwise), liabilities or results of operations of the Company, taken as a whole, and no event has occurred which is reasonably likely to cause any such material adverse change.

(c) All receivables of the Company (including accounts receivable, loans receivable and advances) which are reflected in the Company Balance Sheet, and all such receivables which have arisen thereafter and prior to the Effective Time, have arisen or will have arisen only from bona fide transactions in the ordinary course of business and shall be fully collectible at the aggregate recorded amounts thereof (except to the extent of appropriate reserves therefor established in accordance with prior practice and GAAP) and are not and will not be subject to defense, counterclaim or offset.

SECTION 2.10 Certain Other Financial Representations . Since the Company Balance Sheet Date, the Company’s accounts payable have been accrued and paid in a manner consistent with the Company’s prior practice.

SECTION 2.11 Absence of Changes . Except as disclosed in the Company Financial Statements or as set forth in Section 2.11 of the Company Disclosure Schedule, since the Company Balance Sheet Date, the Company has conducted its business only in the ordinary course and the Company has not:

(a) amended or otherwise modified its Certificate of Incorporation or Bylaws (or similar organizational document);

(b) issued or sold or authorized for issuance or sale, or granted any options or warrants or amended or modified in any respect any previously granted option or warrant or made other agreements (other than this Agreement) of the type referred to in Section 2.4 with respect to, any shares of its capital stock or any other of its securities, or altered any term of any of its outstanding securities or made any change in its outstanding shares of capital stock or other ownership interests or its capitalization, whether by reason of a reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, stock dividend or otherwise or redeemed, purchased or otherwise acquired any of its or its parent’s capital stock or agreed to do any of the foregoing (whether or not legally enforceable);

(c) recorded or accrued any item of revenue, except as a result of the provision of services in the ordinary course of business and consistent with prior practice;

(d) incurred any indebtedness for borrowed money, entered into any lease that should be capitalized in accordance with GAAP or subjected to any encumbrance or other restriction any of its properties, business or assets except encumbrances or other restrictions that could not reasonably be expected to have a Material Adverse Effect;

 

9

(e) discharged or satisfied any encumbrance, or paid any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, other than current liabilities shown on the Company Balance Sheet as of Company Balance Sheet Date and current liabilities incurred since that date in the ordinary course of business and consistent with prior practice;

(f) sold, transferred, leased to others or otherwise disposed of any material properties or assets or purchased, leased from others or otherwise acquired any material properties or assets except in the ordinary course of business;

(g) canceled or compromised any debt or claim or waived or released any right of substantial value;

(h) terminated or received any notice of termination of any contract, lease, license or other agreement or any Governmental License, or suffered any damage, destruction or loss (whether or not covered by insurance) that could reasonably be expected to have a Material Adverse Effect;

(i) made any change in the rate of compensation, commission, bonus or other remuneration payable, or paid, agreed, or promised (in writing or otherwise) to pay, provide or modify, conditionally or otherwise, any bonus, extra compensation, pension, severance or vacation pay or any other benefit or perquisite of any other kind, to any director, officer, employee, salesman or agent of the Company except in the ordinary course of business consistent with prior practice and pursuant to or in accordance with plans disclosed in Section 2.14(a) of the Company Disclosure Schedule that were in effect as of the Company Balance Sheet Date;

(j) made any increase in or commitment (whether or not legally enforceable) to increase or communicated any intention to increase any employee benefits, adopted or made any commitment to adopt any additional employee benefit plan or made any contribution, other than regularly scheduled contributions, to any Company Plan (as defined in Section 2.14(b)(i));

(k) lost the employment services of a senior manager or other employee of equal or higher ranking;

(l) made any loan or advance to any Person other than travel and other similar routine advances in the ordinary course of business consistent with past practice, or acquired any capital stock or other securities of any other corporation or any ownership interest in any other business enterprise;

(m) instituted, settled or agreed to settle any material litigation, action or proceeding before any court or governmental body relating to the Company or its properties or assets;

 

10

(n) entered into any transaction, contract or commitment other than in the ordinary course of business;

(o) changed any accounting practices, policies or procedures utilized in the preparation of the Company Financial Statements (including procedures with respect to revenue recognition, payment of accounts payable or collection of accounts receivable); or

(p) entered into any agreement or made any commitment to take any of the types of action described in subparagraphs (a) through (o) of this Section 2.11.

SECTION 2.12 Tax Matters . (a) For purposes of this Agreement, “ Tax ” or “Taxes” shall mean taxes, fees, levies, duties, tariffs, imposts and governmental impositions or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local or foreign taxing authority, including (without limitation) (i) income, franchise, profits, gross receipts, ad valorem , net worth, value added, sales, use, service, real or personal property, special assessments, capital stock, license, payroll, withholding, employment, social security, workers’ compensation, unemployment compensation, utility, severance, production, excise, stamp, occupation, premiums, windfall profits, transfer and gains taxes, and (ii) interest, penalties, additional taxes and additions to tax imposed with respect thereto; and “ Tax Returns ” shall mean returns, reports, and information statements with respect to Taxes required to be filed with the Internal Revenue Service (the “ IRS ”) or any other taxing authority, domestic or foreign, including, without limitation, consolidated, combined and unitary tax returns, including returns required in connection with any Company Plan (as defined in Section 2.14(a) of this Agreement).

(b) The Company represents that, other than as disclosed in Section 2.12(b) of the Company Disclosure Schedule, the Company has timely filed all United States federal income Tax Returns and all other material Tax Returns required to be filed by it. All such Tax Returns are complete and correct in all material respects (except to the extent a reserve has been established as reflected in the Company Balance Sheet). The Company has timely paid and discharged all Taxes due in connection with or with respect to the periods or transactions covered by such Tax Returns and has paid all other Taxes as are due, except such as are being contested in good faith by appropriate proceedings (to the extent that any such proceedings are required), and there are no other Taxes that would be due if asserted by a taxing authority, except with respect to which the Company is maintaining reserves unless the failure to do so could not have a Material Adverse Effect. Except as does not involve or would not result in liability to the Company that could have a Material Adverse Effect, (i) there are no tax liens on any assets of the Company; (ii) the Company has not granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Tax; (iii) no unpaid (or unreserved) deficiencies for Taxes have been claimed, proposed or assessed by any taxing or other governmental authority with respect to the Company; (iv) there are no pending or, to the knowledge of the Company, threatened audits, investigations or claims for or relating to any liability in respect of Taxes of the Company; and (v) the Company has not requested any extension of time within which to file any currently unfiled Tax Returns. The accruals and reserves for Taxes (including deferred taxes) reflected in the Company Balance Sheet are in all material respects adequate to cover all Taxes accruable through the date thereof (including Taxes being contested) in accordance with GAAP.

 

11

(c) The Company represents that, other than as disclosed in Section 2.12(c) of the Company Disclosure Schedule and other than with respect to items the inaccuracy of which could not have a Material Adverse Effect: (i) the Company has not filed or been included in a combined, consolidated or unitary return (or substantial equivalent thereof) of any Person other than the Company; (ii) the Company is not liable for Taxes of any Person other than the Company, or currently under any contractual obligation to indemnify any Person with respect to Taxes, or a party to any tax sharing agreement or any other agreement providing for payments by the Company with respect to Taxes; (iii) the Company is not a party to any joint venture, partnership or other arrangement or contract which could be treated as a partnership for United States federal income tax purposes; (iv) the Company is not a party to any agreement, contract, arrangement or plan that would result (taking into account the transactions contemplated by this Agreement), separately or in the aggregate, in the payment of any “excess parachute payments” within the meaning of Section 280G of the Code; and (v) the Company has not made an election nor is it required to treat any of its assets as owned by another Person for federal income tax purposes or as tax-exempt bond financed property or tax-exempt use property within the meaning of Section 168 of the Code (or any corresponding provision of state, local or foreign law).

(d) Since the organization of the Holding Company, the Holding Company at all times prior to Closing shall have qualified as an “S corporation” within the meaning of Code Section 1361(a) and each of the shareholders of the Holding Company have been and each of the Company Shareholders qualifies as a permitted shareholder of an “S corporation” within the meaning of Code Section 1361(b), (c) and (d).

SECTION 2.13 Relations with Employees . (a) Except as set forth in Section 2.13(a) of the Company Disclosure Schedule:

(i) The Company has satisfactory relationships with its employees.

(ii) The Company is and has been in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment, and wages and hours, including any law, rule or regulation relating to discrimination, fair labor standards and occupational health and safety, wrongful discharge or violation of the personal rights of employees, former employees or prospective employees, and the Company is not or has not engaged in any unfair labor practices, except to the extent a failure to so comply could not, alone or together with any other failure, have a Material Adverse Effect.

(iii) No collective bargaining agreement with respect to the business of the Company is currently in effect or being negotiated. The Company does not have any obligation to negotiate any such collective bargaining agreement. There are no labor unions representing, purporting to represent or attempting to represent any employee of the Company.

(iv) There are no strikes, slowdowns or work stoppages pending or, to the best of the knowledge of the Company and each of the Company Shareholders, threatened with respect to the employees of the Company, nor has any such strike, slowdown or work stoppage occurred or, to the best of the knowledge of the Company and each of the Company Shareholders, been threatened. There is no representation claim or petition or complaint pending

 

12

before the National Labor Relations Board or any state or local labor agency and, to the best of the knowledge of the Company and each of the Company Shareholders, no question concerning representation has been raised or threatened respecting the employees of the Company.

(v) To the best of the knowledge of the Company and each of the Company Shareholders, no charges with respect to or relating to the business of the Company are pending before the Equal Employment Opportunity Commission, or any state or local agency responsible for the prevention of unlawful employment practices, which could reasonably be expected to have a Material Adverse Effect.

(b) Except as set forth in Section 2.13(b) of the Company Disclosure Schedule, the Company is not a contractor or subcontractor with obligations under any federal, state or local government contract.

(c) Except as set forth in Section 2.13(c) of the Company Disclosure Schedule, the Company has not or could not have any material liability, whether absolute or contingent, including any obligations under any of the Company Plans described in Section 2.14 of this Agreement, with respect to any misclassification of a person as an independent contractor rather than as an employee.

(d) Section 2.13(d) of the Company Disclosure Schedule contains a complete and correct list of all employment, management or other consulting agreements with any Persons employed or retained by the Company (including independent consultants), complete and correct copies of which have been delivered to Parent.

SECTION 2.14 Benefit Plans . (a) As used in this Section 2.14, the following terms have the meanings set forth below.

“Company Other Benefit Obligation” means an Other Benefit Obligation owed, adopted, or followed by the Company or an ERISA Affiliate of the Company.

“Company Plan” means all Plans of which the Company or an ERISA Affiliate of the Company is or was a Plan Sponsor, or to which the Company or an ERISA Affiliate of the Company otherwise contributes or has contributed, or in which the Company or an ERISA Affiliate of the Company otherwise participates or has participated. All references to Plans are to Company Plans unless the context requires otherwise.

“Company VEBA” means a VEBA whose members include employees of the Company or any ERISA Affiliate of the Company.

“ERISA Affiliate” means, with respect to the Company, any other person that, together with the Company, would be treated as a single employer under Code Section 414.

“Multi-Employer Plan” has the meaning given in ERISA Section 3(37)(A).

“Other Benefit Obligations” means all obligations, arrangements, or customary practices, whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to present or former directors, employees, or agents, other

 

13

than obligations, arrangements, and practices that are Plans. Other Benefit Obligations include consulting agreements under which the compensation paid does not depend upon the amount of service rendered, sabbatical policies, severance payment policies, and fringe benefits within the meaning of Code Section 132.

“PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto.

“Pension Plan” has the meaning given in ERISA Section 3(2)(A).

“Plan” has the meaning given in ERISA Section 3(3).

“Plan Sponsor” has the meaning given in ERISA Section 3(16)(B).

“Qualified Plan” means any Plan that meets or purports to meet the requirements of Code Section 401(a).

“Title IV Plans” means all Pension Plans that are subject to Title IV of ERISA, 29 U.S.C. Section 1301 et seq., other than Multi-Employer Plans.

“VEBA” means a voluntary employees’ beneficiary association under Code Section 501(c)(9).

“Welfare Plan” has the meaning given in ERISA Section 3(1).

(b) (i) Section 2.14 of the Company Disclosure Schedule contains a complete and accurate list of all Company Plans, Company Other Benefit Obligations, and Company VEBAs, and identifies as such all Company Plans that are (A) defined benefit Pension Plans, (B) Qualified Plans, (C) Title IV Plans, or (D) Multi-Employer Plans.

(ii) Section 2.14 (b)(ii) of the Company Disclosure Schedule contains a complete and accurate list of (A) all ERISA Affiliates of Company, and (B) all Plans of which any such ERISA Affiliate is or was a Plan Sponsor, in which any such ERISA Affiliate participates or has participated, or to which any such ERISA Affiliate contributes or has contributed.

(iii) Section 2.14 (b)(iii) of the Company Disclosure Schedule sets forth, for each Multi-Employer Plan, as of its last valuation date, the amount of potential withdrawal liability of the Company and the Company ’ s other ERISA Affiliates, calculated according to information made available pursuant to ERISA Section 4221(e).

(iv) Section 2.14(b)(iv) of the Company Disclosure Schedule sets forth a calculation of the liability of the Company for post-retirement benefits other than pensions, made in accordance with Financial Accounting Statement 106 of the Financial Accounting Standards Board, regardless of whether the Company is required by this Statement to disclose such information.

 

14

(v) Section 2.14(b)(v) of the Company Disclosure Schedule sets forth the financial cost of all obligations owed under any Company Plan or Company Other Benefit Obligation that is not subject to the disclosure and reporting requirements of ERISA.

(c) Company has delivered to Parent, or will deliver to Parent within ten days of the date of this Agreement:

(i) all documents that set forth the terms of each Company Plan, Company Other Benefit Obligation, or Company VEBA and of any related trust, including (A) all plan descriptions and summary plan descriptions of Company Plans for which Company is required to prepare, file, and distribute plan descriptions and summary plan descriptions, and (B) all summaries and descriptions furnished to participants and beneficiaries regarding Company Plans, Company Other Benefit Obligations, and Company VEBAs for which a plan description or summary plan description is not required;

(ii) all collective bargaining agreements pursuant to which contributions have been made or obligations incurred (including both pension and welfare benefits) by the Company and the ERISA Affiliates of the Company, and all collective bargaining agreements pursuant to which contributions are being made or obligations are owed by such entities;

(iii) written description of any Company Plan or Company Other Benefit Obligation that is not otherwise in writing;

(iv) all registration statements filed with respect to any Company Plan;

(v) all insurance policies purchased by or to provide benefits under any Company Plan;

(vi) all contracts with third party administrators, actuaries, investment managers, consultants, and other independent contractors that relate to any Company Plan, Company Other Benefit Obligation, or Company VEBA;

(vii) all reports submitted within the four years preceding the date of this Agreement by third party administrators, actuaries, investment managers, consultants, or other independent contractors with respect to any Company Plan, Company Other Benefit Obligation, or Company VEBA;

(viii) all notifications to employees of their rights under ERISA Section 601 et seq. and Code Section 4980B;

(ix) the Form 5500 filed in each of the most recent three plan years with respect to each Company Plan, including all schedules thereto and the opinions of independent accountants;

(x) all notices that were given by the Company or any ERISA Affiliate of the Company or any Company Plan to the IRS, the PBGC, or any participant or beneficiary, pursuant to statute, within the four years preceding the date of this Agreement, including notices that are expressly mentioned elsewhere in this Section 2.14;

 

15

(xi) all notices that were given by the IRS, the PBGC, or the Department of Labor to the Company, any ERISA Affiliate of the Company, or any Company Plan within the four years preceding the date of this Agreement;

(xii) with respect to Qualified Plans and VEBAs, the most recent determination letter for each Plan of the Company that is a Qualified Plan; and

(xiii) with respect to Title IV Plans, the Form PBGC-1 filed for each of the three most recent plan years.

(d) Except as set forth in Section 2.14(d) of the Company Disclosure Schedule:

(i) The Company has performed all of its obligations under all Company Plans, Company Other Benefit Obligations, and Company VEBAs. The Company has made appropriate entries in its financial records and statements for all obligations and liabilities under such Plans, VEBAs, and Obligations that have accrued but are not due.

(ii) No statement, either written or oral, has been made by the Company to any Person with regard to any Plan or Other Benefit Obligation that was not in accordance with the Plan or Other Benefit Obligation and that could have an adverse economic consequence to the Company or to the Surviving Corporation.

(iii) The Company, with respect to all Company Plans, Company Other Benefit Obligations, and Company VEBAs, is, and each Company Plan, Company Other Benefit Obligation, and Company VEBA is, in full compliance with ERISA, the Code, and other applicable laws including the provisions of such laws expressly mentioned in this Section 2.14, and with any applicable collective bargaining agreement.

(A) No transaction prohibited by ERISA Section 406 and no “prohibited transaction” under Code Section 4975(c) have occurred with respect to any Company Plan.

(B) The Company has no liability to the IRS with respect to any Plan, including any liability imposed by Chapter 43 of the Code.

(C) The Company has no liability to the PBGC with respect to any Plan or any liability under ERISA Section 502 or Section 4071.

(D) All filings required by ERISA and the Code as to each Plan have been timely filed, and all notices and disclosures to participants required by either ERISA or the Code have been timely provided.

(E) All contributions and payments made or accrued with respect to all Company Plans, Company Other Benefit Obligations, and Company VEBAs are deductible under Code Section 162 or Section 404. No amount, or any asset of any Company Plan or Company VEBA, is subject to tax as unrelated business taxable income.

 

16

(iv) Each Company Plan can be terminated within thirty days, without payment of any additional contribution or amount and without the vesting or acceleration of any benefits promised by such Plan.

(v) Since January 1, 2006 there has been no establishment or amendment of any Company Plan, Company VEBA, or Company Other Benefit Obligation.

(vi) No event has occurred or circumstance exists that could result in a material increase in premium costs of Company Plans and Company Other Benefit Obligations that are insured, or a material increase in benefit costs of such Plans and Obligations that are self-insured.

(vii) Other than claims for benefits submitted by participants or beneficiaries, no claim against, or legal proceeding involving, any Company Plan, Company Other Benefit Obligation, or Company VEBA is pending or, to the knowledge of the Company is threatened.

(viii) No Company Plan is a stock bonus, pension, or profit-sharing plan within the meaning of Code Section 401(a).

(ix) Each Qualified Plan of the Company is qualified in form and operation under Code Section 401(a); each trust for each such Plan is exempt from federal income tax under Code Section 501(a). Each Company VEBA is exempt from federal income tax. No event has occurred or circumstance exists that will or could give rise to disqualification or loss of tax-exempt status of any such Plan or trust.

(x) The Company and each ERISA Affiliate of the Company has met the minimum funding standard, and has made all contributions required, under ERISA Section 302 and Code Section 412.

(xi) No Company Plan is subject to Title IV of ERISA.

(xii) The Company has paid all amounts due to the PBGC pursuant to ERISA Section 4007.

(xiii) Neither the Company nor any ERISA Affiliate of the Company has ceased operations at any facility or has withdrawn from any Title IV Plan in a manner that would subject any entity or Company to liability under ERISA Section 4062(e), Section 4063, or Section 4064.

(xiv) Neither the Company nor any ERISA Affiliate of the Company has filed a notice of intent to terminate any Plan or has adopted any amendment to treat a Plan as terminated. The PBGC has not instituted proceedings to treat any Company Plan as terminated. No event has occurred or circumstance exists that may constitute grounds under ERISA Section 4042 for the termination of, or the appointment of a trustee to administer, any Company Plan.

 

17

(xv) No amendment has been made, or is reasonably expected to be made, to any Plan that has required or could require the provision of security under ERISA Section 307 or Code Section 401(a)(29).

(xvi) No accumulated funding deficiency, whether or not waived, exists with respect to any Company Plan; no event has occurred or circumstance exists that may result in an accumulated funding deficiency as of the last day of the current plan year of any such Plan.

(xvii) The actuarial report for each Pension Plan of the Company and each ERISA Affiliate of the Company fairly presents the financial condition and the results of operations of each such Plan in accordance with GAAP.

(xviii) Since the last valuation date for each Pension Plan of the Company and each ERISA Affiliate of the Company, no event has occurred or circumstance exists that would increase the amount of benefits under any such Plan or that would cause the excess of Plan assets over benefit liabilities (as defined in ERISA Section 4001) to decrease, or the amount by which benefit liabilities exceed assets to increase.

(xix) No reportable event (as defined in ERISA Section 4043 and in regulations issued thereunder) has occurred.

(xx) The Company has no knowledge of any facts or circumstances that may give rise to any liability of the Company, or Surviving Corporation to the PBGC under Title IV of ERISA.

(xxi) Neither the Company nor any ERISA Affiliate of the Company has ever established, maintained, or contributed to or otherwise participated in, or had an obligation to maintain, contribute to, or otherwise participate in, any Multi-Employer Plan.

(xxii) Neither the Company nor any ERISA Affiliate of the Company has withdrawn from any Multi-Employer Plan with respect to which there is any outstanding liability as of the date of this Agreement. No event has occurred or circumstance exists that presents a risk of the occurrence of any withdrawal from, or the participation, termination, reorganization, or insolvency of, any Multi-Employer Plan that could result in any liability of either the Company, Parent, or the Surviving Corporation to a Multi-Employer Plan.

(xxiii) Neither the Company nor any ERISA Affiliate of the Company has received notice from any Multi-Employer Plan that it is in reorganization or is insolvent, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of any excise tax, or that such Plan intends to terminate or has terminated.

(xxiv) No Multi-Employer Plan to which the Company or any ERISA Affiliate of the Company contributes or has contributed is a party to any pending merger or asset or liability transfer or is subject to any proceeding brought by the PBGC.

18

(xxv) Except to the extent required under ERISA Section 601 et seq. and Code Section 4980B, the Company does not provide health or welfare benefits for any retired or former employee nor is it obligated to provide health or welfare benefits to any active employee following such retirement or other termination of service.

(xxvi) The Company has the right to modify and terminate benefits to retirees (other than pensions) with respect to both retired and active employees.

(xxvii) The Company has complied with the provisions of ERISA Section 601 et seq. and Code Section 4980B.

(xxviii) No payment that is owed or may become due to any director, officer, employee, or agent of the Company will be non-deductible to the Company or subject to tax under Code Section 280G or Section 4999; nor will the Company be required to “gross up” or otherwise compensate any such person because of the imposition of any excise tax on a payment to such person.

(xxix) The consummation of the Merger will not result in the payment, vesting, or acceleration of any benefit.

SECTION 2.15 Title to Properties . Except as set forth in Section 2.15 of the Company Disclosure Schedule, the Company has good and indefeasible title to all of its properties and assets, free and clear of all encumbrances, except liens for taxes not yet due and payable and such encumbrances or other imperfections of title, if any, as do not materially detract from the value of or interfere with the present use of the property affected thereby or which could not reasonably be expected to have a Material Adverse Effect, and except for encumbrances which secure indebtedness reflected in the Company Balance Sheet.

SECTION 2.16 Compliance with Laws; Legal Proceedings . (a) The Company is not in violation of, or in default with respect to, any applicable law, statute, regulation, ordinance, writ, injunction, order, judgment, decree or any Governmental License, including any federal state or local law regarding or relating to trespass or violations of privacy rights, which violation or default could reasonably be expected to have a Material Adverse Effect.

(b) Except as set forth in Section 2.16(b) of the Company Disclosure Schedule, there is no order, writ, injunction, judgment or decree outstanding and no legal, administrative, arbitration or other governmental proceeding or investigation pending or, to the best of the knowledge of the Company and each of the Company Shareholders, threatened, and there are no claims (including unasserted claims of which the Company is aware) against or relating to the Company or any of its properties, assets or businesses. There is no legal, administrative or other governmental proceeding or investigation pending or, to the best of the knowledge of the Company and each of the Company Shareholders, threatened against the Company, or any of its directors or officers, as such, that relates to this Agreement, the Merger or any of the transactions contemplated hereby. None of the items listed in Section 2.16(b) of the Company Disclosure Schedule could reasonably be expected to have a Material Adverse Effect. The Company has not been a defendant (either originally, by counter-claim or impleading) in any legal proceedings which have either been filed in the past two (2) fiscal years or are currently pending (all as set

 

19

forth in Section 2.16(b) of the Company Disclosure Schedule). Except as set forth in Section 2.16(b) of the Company Disclosure Schedule, none of the legal proceedings set forth in Section 2.16(b) of the Company Disclosure Schedule has had or, to the best of the knowledge of the Company and each of the Company Shareholders, will have a Material Adverse Effect.

SECTION 2.17 Brokers . Except as set forth in Section 2.17 of the Company Disclosure Schedule, no broker, finder or investment advisor acted, directly or indirectly, as such for the Company or any shareholder of the Company in connection with this Agreement or the Merger, and no broker, finder, investment advisor or other Person is entitled to any fee or other commission, or other remuneration, in respect thereof based in any way on any action, agreement, arrangement or understanding taken or made by or on behalf of the Company or any shareholder of the Company.

SECTION 2.18 Intellectual Property . (a) The Company owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, technology, know-how, computer software programs or applications, and tangible or intangible proprietary information or material that are used in the business of the Company as currently conducted, except as would not reasonably be expected to have a Material Adverse Effect.

(b) Except as disclosed in Section 2.18(b) of the Company Disclosure Schedule or as could not reasonably be expected to have a Material Adverse Effect: (i) The Company is not, nor will it be as a result of the execution and delivery of this Agreement or the performance of its obligations hereunder, in violation of any licenses, sublicenses and other agreements as to which the Company is a party and pursuant to which the Company is authorized to use any patents, trademarks, service marks or copyrights owned by others (“ Company Third-Party Intellectual Property Rights ”); (ii) No claims with respect to the patents, registered and material unregistered trademarks and service marks, registered copyrights, trade names and any applications therefor owned by the Company (the “ Company Intellectual Property Rights ”), any trade secret material to the Company, or Company Third Party Intellectual Property Rights to the extent arising out of any use, reproduction or distribution of Company Third Party Intellectual Property Rights by or through the Company, are currently pending or, to the best of the knowledge of the Company and each of the Company Shareholders, have been threatened by any Person; or (iii) The Company does not know of any valid grounds for any bona fide claims (1) to the effect that the sale, licensing or use of any product or service as now sold, licensed or used, or proposed for sale, license or use by the Company infringes on any copyright, patent, trademark, service mark or trade secret; (2) against the use by the Company of any trademarks, trade names, trade secrets, copyrights, patents, technology, know-how or computer software programs and applications used in the business of the Company as currently conducted or as proposed to be conducted; (3) challenging the ownership, validity or effectiveness of any of the Company Intellectual Property Rights or other trade secret material to the Company; or (4) challenging the license or legally enforceable right to use of Company Third Party Intellectual Rights by the Company.

(c) To the best of the knowledge of the Company and each of the Company Shareholders, there is no material unauthorized use, infringement or misappropriation of any of the Company Intellectual Property Rights by any third party, including any employee or former employee of the Company.

 

20

SECTION 2.19 Insurance . Except as set forth in Section 2.19 of the Company Disclosure Schedule, all material fire and casualty, general liability, business interruption, product liability and other insurance policies maintained by the Company are with reputable insurers, provide adequate coverage for all normal risks incident to the Company’s assets, properties and business operations and are in character and amount at least equivalent to that carried by Persons engaged in a business subject to the same or similar perils or hazards.

SECTION 2.20 Contracts; etc . (a) Set forth on Section 2.20 of the Company Disclosure Schedule is a complete and correct list of each of the following agreements, leases and other instruments, both oral and written, to which the Company is a party or by which Company or its properties or assets are bound:

(i) each service or other similar type of agreement under which services are provided by any other Person to the Company which is material to the business of the Company taken as a whole;

(ii) each agreement that restricts the operation of the business of the Company or the ability of the Company to solicit customers or employees;

(iii) each operating lease (as lessor, lessee, sublessor or sublessee) that is material to the Company of any real or tangible personal property or assets;

(iv) each agreement under which services are provided by the Company to any material customer;

(v) each agreement (including capital leases) under which any money has been or may be borrowed or loaned or any note, bond, indenture or other evidence of indebtedness has been issued or assumed (other than those under which there remain no ongoing obligations of the Company), and each guaranty of any evidence of indebtedness or other obligation, or of the net worth, of any Person (other than endorsements for the purpose of collection in the ordinary course of business);

(vi) each partnership, joint venture or similar agreement;

(vii) each agreement containing restrictions with respect to the payment of dividends or other distributions in respect of the Company’s capital stock;

(viii) each agreement to make unpaid capital expenditures in excess of $25,000 in the aggregate;

(ix) each agreement providing for accelerated or special payments as a result of the Merger, including any shareholder rights plan or other instrument commonly referred as a “poison pill.”

 

21

A complete and correct copy of each written agreement, lease or other type of document, and a true, complete and correct summary of each oral agreement, lease or other type of document, required to be disclosed pursuant to this Section 2.20(a) has been previously delivered to Parent.

(b) Each agreement, lease or other type of document required to be disclosed pursuant to Sections 2.13, 2.14 or 2.20(a) to which the Company is a party or by which the Company or its properties or assets are bound (collectively, the “ Company Contracts ”), except those Company Contracts the loss of which could reasonably be expected to not have a Material Adverse Effect, is valid, binding and in full force and effect and is enforceable by the Company in accordance with its terms. The Company is not (with or without the lapse of time or the giving of notice, or both) in breach of or in default under any of the Company Contracts, and, to the best of the knowledge of the Company and each of the Company Shareholders, no other party to any of the Company Contracts is (with or without the lapse of time or the giving of notice, or both) in breach of or in default under any of the Company Contracts, where such breach or default could reasonably be expected to have a Material Adverse Effect. No existing or completed agreement to which the Company is a party is subject to renegotiation with any governmental body.

SECTION 2.21 Permits, Authorizations, etc . Section 2.21 of the Company Disclosure Schedule sets forth all Governmental Licenses and each other material approval, authorization, consent, license, certificate, order or other permit of any governmental agencies, whether federal, state, local or foreign, necessary to enable the Company to own, operate and lease its properties and assets as and where such properties and assets are owned, leased or operated and to provide service and carry on its business as presently provided and conducted (collectively, the “ Company Permits ”) or required to permit the continued conduct of such business following the Merger in the manner conducted on the date of this Agreement (indicating in each case whether or not the consent of any Person is required for the consummation of the transactions contemplated hereby). The Company has all necessary Company Permits of all governmental agencies, whether federal, state, local or foreign, all of which are valid and in good standing with the issuing agencies and not subject to any proceedings for suspension, modification or revocation, except for such Company Permits which could not reasonably be expected to have a Material Adverse Effect.

SECTION 2.22 Environmental Matters . (a) For purposes of this Agreement, the capitalized terms defined below shall have the meanings ascribed to them below.

(i) “ Environmental Claim ” means any accusation, allegation, notice of violation, action, claim, lien, demand, abatement or other order or dire