AGREEMENT AND PLAN OF REORGANIZATION

EXHIBIT 10.1

THIS AGREEMENT IS SUBJECT TO ARBITRATION UNDER THE FEDERAL ARBITRATION ACT, 9

U.S.C. § ET SEQ., PURSUANT TO THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION,

AS MODIFIED PURSUANT TO SECTION 10.9 HEREIN.

AGREEMENT AND PLAN OF REORGANIZATION

ACQUISITION OF ASSETS OF

VERSION3, INC.

BY

COMPUTER SOFTWARE INNOVATIONS, INC.

August 18, 2008

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the “Agreement”) is entered into effective as of the 18 ^th day of August, 2008, by and among Computer Software Innovations, Inc. , a Delaware corporation (“Buyer”); Version3, Inc. , a South Carolina corporation with its principal place of business in Columbia, South Carolina (“Seller”); Robert Ginsburg, Andrew Sakalian, and Kurt Haas (collectively, the “Majority Shareholders”); and Donald Jones, Steven Kean and Richard Wakeman (collectively, the “Minority Shareholders”)(Majority Shareholders and Minority Shareholders collectively, “Shareholders” ).

RECITALS:

WHEREAS, Seller is engaged in the provision of software products and services related to access and identity management (the “Business”); and

WHEREAS, Buyer wishes to acquire substantially all of the properties and assets of Seller and the Business and assume certain obligations of Seller, and Seller wishes to convey such assets to Buyer, subject to such obligations, in exchange for shares of common stock of Buyer as part of a statutory reorganization in accordance with Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the “IRC”) and subject to the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration for the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, in order to consummate said sale, the parties hereto agree as follows:

ARTICLE 1. PURCHASE AND SALE OF ASSETS.

1.1 Sale of Assets .

(a) Subject to the provisions of this Agreement and except for those assets expressly excluded in subsection (b) (the “Excluded Assets”), Seller agrees to sell and Buyer agrees to purchase, at the Closing (as defined in Section 1.6 hereof), all of the properties, assets and business of Seller of every kind and description, tangible and intangible, real, personal or mixed, and wherever located, including without limitation:

(i) all cash representing any and all monies received prior to the Closing Date for services to be performed after the Closing Date, and any other items for which services have been prepaid;

(ii) all accounts receivable representing any and all invoices or billings received or sent prior to the Closing Date for services to be performed after the Closing Date;

(iii) all assets shown or reflected on the Base Balance Sheet (as defined in Section 2.7 hereof) of Seller, other than those identified in paragraph (b) below;

(iv) all work in process (the “WIP”);

(v) all furniture, fixtures, machinery, equipment, supplies, and raw materials;

(vi) any rights of Seller in software developed or owned by Seller, including all versions, variations, modifications, enhancements, additions or replacements thereof, the source codes and object codes (in all media), all software program documentation and user materials, and all associated utilities and support software and any rights of Seller in any software licensed by it together with all software program documentation and user materials for such software (collectively, the “Software”), subject to the rights of all licensees of such Software;

 

(vii) any hardware and related products of Seller or used in connection with the Business, including all versions, variations, modifications, enhancements, additions or replacements thereof, and all hardware documentation and user materials (collectively, the “Hardware”);

(viii) all technical and descriptive materials relating to the acquisition, design, development, manufacture, use, support or maintenance of the Software or the Hardware, including the computer source and/or object code and program documentation and related materials to the extent Seller has rights therein (collectively, the “Technical Documentation”);

(ix) all business records and contracts, including project files and customer histories other than those identified in paragraph (b) below (the “Business Records”);

(x) all of Seller’s goodwill and intangible assets including, without limitation, all, customer lists, brochures, marketing literature, licenses, permits, processes, files and records; and

(xi) all of Seller’s intellectual property including, without limitation, all trademarks, trade names, service marks, logos, patents, copyrights, website and domain names, technology, trade secrets and other intangible assets used in the Business including, but not limited to, the exclusive right to use the name of Seller as all or part of a trade or corporate name (collectively, the “Intellectual Property”).

The assets, property and business of Seller to be sold to and purchased by Buyer under this Agreement are hereinafter sometimes referred to as the “Subject Assets.”

(b) The following assets shall be excluded from the Subject Assets as Excluded Assets:

(i) assets and property disposed of since the date of the Base Balance Sheet in the ordinary course of business;

(ii) Seller’s corporate franchise, stock record books, corporate record books containing minutes of meetings of directors and Shareholders, original tax returns and financial statements, such other records as have to do exclusively with Seller’s organization or stock capitalization, and copies of such documents of Seller which Seller deems necessary to substantiate its income and other tax returns;

(iii) all benefit plans, if any, including the assets held by Seller under said benefit plans;

(iv) all the assets set forth on Schedule 1.1(b)(iv) hereto.

1.2 Assumption of Liabilities .

Upon the sale and purchase of the Subject Assets, with the exception of those matters listed in Schedule 1.2 hereto (the “Assumed Liabilities”), Buyer shall not assume and shall not be liable for any debt, obligation, responsibility or liability of Seller, or any Affiliate (as defined below), or any claim against any of the foregoing or against the Subject Assets of the Business arising prior to Closing, whether known or unknown, contingent or absolute, asserted or unasserted, or otherwise. Without limiting the foregoing sentence, Buyer shall have no responsibility with respect to the following, whether or not disclosed in the Base Balance Sheet or a Schedule, including without limitation:

(i) any liabilities and obligations related to or arising from the transactions with any officer, director or Shareholders of Seller or any person or organization controlled by, controlling, or under common control with any of them (an “Affiliate”);

 

(ii) liabilities and obligations for taxes of any kind, including taxes related to or arising solely from the transfers contemplated hereby, which transfer taxes shall be the responsibility of Seller, provided, ad valorem property taxes due on the Subject Assets (or under any real or personal property lease) shall be prorated among Buyer and Seller based upon the number of days in the taxable period to which such ad valorem property taxes apply that each party owns the Subject Assets;

(iii) liabilities and obligations of Seller for damage or injury to person or property, including, without limitation, injuries to employees;

(iv) liabilities and obligations to employees of Seller, whether for accident, disability, or workers compensation insurance or benefits, benefits under employee benefit plans, or obligations related to or resulting from severance of employment by Seller;

(v) workmen’s liens on any of the Subject Assets;

(vi) liabilities incurred by Seller or Shareholders in connection with this Agreement and the transactions provided for herein, including counsel, broker and accountant’s fees, filing fees, transfer and other taxes, and expenses pertaining to Seller’s liquidation or the performance by Seller of its obligations hereunder;

(vii) liabilities of Seller related to environmental matters, including without limitation, liabilities associated with any disposal or use of hazardous materials or substances under Federal (including CERCLA) or state laws, common law or otherwise;

(viii) liabilities of Seller related to the Occupational Safety and Health Act (“OSHA”), or any other similarly applicable state law, and liabilities for healthcare expenses incurred prior to Closing;

(ix) liabilities of Seller with respect to any options, warrants, agreements or convertible or other rights to acquire any shares of its capital stock of any class or under any benefit plans;

(x) liabilities of Seller regarding any products manufactured or distributed by Seller prior to the Closing Date; and

(xi) any other liabilities arising out of facts or circumstances existing prior to the Closing Date or the operation of Seller’s Business prior to the Closing Date, save and except to the extent, if any, included within the Assumed Liabilities.

1.3 Consideration and Payment .

(a) In consideration of the sale, transfer, conveyance, assignment and delivery of the Subject Assets by Seller to Buyer, and in reliance upon the representations and warranties made herein by Seller and Shareholders, Buyer will pay to Seller, or the Shareholders as its permitted assigns, the following consideration (collectively, the “Consideration”):

(i) the issuance of one million three hundred fifty three thousand one hundred forty three (1,353,143) shares of common stock of Buyer, par value of $.001 (the “Initial Stock”). The number of shares of Initial Stock assumes sufficient cash would remain in the business to cover the billed and unfulfilled portion of any Assumed Liabilities (other than the assumed loan obligation owing to Andrew Sakalian by Seller, such loan to be paid by Buyer and satisfied in full at Closing) and such number may be reduced for any shortfall; and

(ii) the issuance of eight hundred thousand (800,000) shares of common stock of Buyer, par value $.001 (the “Earn Out Shares”)(the Initial Stock and the Earn Out Shares collectively, the

 

“Stock”), to be held in escrow by Smith Moore Leatherwood, LLP (the “Escrow Agent”) and released pursuant to that certain Escrow Agreement by and among Buyer, Seller (or the Shareholders as its permitted assigns) and the Escrow Agent dated simultaneously herewith (the “Escrow Agreement”). In accordance with the Escrow Agreement, the Earn Out Shares shall be released to the Seller or the Shareholders as its permitted assigns only upon the Business achieving certain revenue and EBITDA targets during each of the first three complete twelve month periods designated below following the Closing Date (the “Earn Out Periods”). If the Business achieves the Revenue (hereinafter defined) and EBITDA (hereinafter defined) targets set forth for any of the Earn Out Periods, then the number of Earn Out Shares set forth below with respect to any such period shall be released from escrow to the Seller or the Shareholders as its permitted assigns. If the Business does not achieve the Revenue or EBITDA target set forth for any of the Earn Out Periods, then the number of Earn Out Shares set forth below with respect to any such period shall be deemed to have been forfeited by the Seller and the Shareholders and then returned to Buyer for cancellation on Buyer’s books.

 

(b) To the extent the Earn Out Shares have not been forfeited in accordance with the Escrow Agreement and subsection (a) above, the Seller or the Shareholders as its permitted assigns shall be reflected as the owners of such Earn Out Shares for purposes of voting the shares and the receipt of any dividends distributed by the Buyer as a result of such shares. Until the Earn Out Shares are released under the Escrow Agreement, the Seller or the Shareholders as its permitted assigns shall not be permitted to sell, transfer, assign, or otherwise encumber the Earn Out Shares.

(c) For purposes of this Section 1.3, Revenues of the Business shall mean the total of all amounts billed plus all amounts earned but unbilled during each the Earn Out Periods. For purposes of this Section 1.3, EBITDA of the Business for during the Earn Out Periods shall mean its earnings from operations before interest, taxes, depreciation and amortization, calculated as if it were being operated as a separate and independent corporation. EBITDA shall be calculated using the components as included in the definition above determined in accordance with generally accepted accounting principles (GAAP) as consistently applied by Seller as determined by the firm of independent certified public accountants engaged by Buyer for purposes of its own audit.

1.4 Delivery of Noncompetition Agreement; Nonsolicitation Agreements .

(a) At the Closing, Seller and the Majority Shareholders shall enter into a confidentiality and noncompetition agreement with and for the benefit of Buyer (collectively, the “Noncompetition Agreements”), in the form attached hereto as Exhibit A .

(b) At the Closing, the Minority Shareholders shall enter into a confidentiality and nonsolicitation agreement with and for the benefit of Buyer (collectively, the “Nonsolicitation Agreements”), in the form attached hereto as Exhibit B .

1.5 Delivery of Employment Agreements . At the Closing, the Majority Shareholders shall each enter into employment agreements with Buyer (the “Employment Agreements”), in the form attached hereto as Exhibit C .

1.6 Time and Place of Closing . The closing of the purchase and sale provided for in this Agreement (herein called the “Closing”) shall be held at the offices of Smith Moore Leatherwood, LLP, Greenville, South Carolina, on August 18, 2008 but with an effective date and time of 12:01 a.m. on August 18, 2008 (the “Closing Date”); provided, however, that the Closing may be postponed for such period as mutually agreed by the parties. Notwithstanding the foregoing, the parties acknowledge and agree that

 

although the physical location of the Closing shall be in Greenville, South Carolina, each of the parties that desire to do so may execute and deliver all documents and instruments at Closing by facsimile or other mutually agreeable method of transmission with originally executed documents to be delivered separately.

1.7 Transfer of Subject Assets; Proration .

(a) At the Closing, Seller shall deliver or cause to be delivered to Buyer good and sufficient instruments of transfer transferring to Buyer title to all the Subject Assets including bills of sale, assignments of contracts, leases, and such other instruments of transfer as may be required. Such instruments of transfer (i) shall be in the form and will contain the warranties, covenants and other provisions (not inconsistent with the provisions hereto) which are usual and customary for transferring the type of property involved under the laws of the jurisdictions applicable to such transfers, (ii) shall be in form and substance satisfactory to counsel for Buyer, and (iii) except as expressly provided herein, shall effectively vest in Buyer good and marketable title to all the Subject Assets and all of Seller’s rights and interest therein free and clear of all liens, restrictions and encumbrances, except liens for taxes not yet due and payable, it being understood that Seller shall procure and deliver at the Closing such certificates or other confirmations from the taxing authorities of the State of South Carolina as are generally issuable by such authorities regarding Seller’s payment of taxes prior to the Closing, and, provided further, that Seller shall, after the Closing, promptly pay when due such taxes as are not included in the Assumed Liabilities.

(b) At the Closing, Buyer and Seller shall prorate as of the Closing Date all rents, utilities and other charges affecting the Subject Assets so that amounts attributable to periods prior to the Closing Date are borne by Seller (or, in the case of any benefits, received by Seller) and amounts attributable to periods commencing on the Closing Date are borne by Buyer (or, in the case of any benefits, received by Buyer).

1.8 Delivery of Records and Contracts . At the Closing, Seller shall deliver or cause to be delivered to Buyer all of Seller’s leases, contracts, commitments and rights, with such assignments thereof and consents to assignments as are necessary to assure Buyer of the full benefit of the same. Seller shall also deliver to Buyer at the Closing all of Seller’s Business Records, tax returns for the five (5) years prior to the Closing, books and other data relating to the Subject Assets, and the Business and operations represented thereby (except corporate records, original tax returns and financial statements, and other property of Seller excluded under Section 1.1(b)) and Seller shall take all requisite steps to put Buyer in actual possession and operating control of the assets and Business of Seller. After the Closing, Buyer shall afford to Seller and its accountants and attorneys reasonable access to the books and records of Seller delivered to Buyer under this Section 1.8, all of which shall be retained by Buyer until December 31, 2015, and shall permit Seller to make extracts and copies therefrom for the purpose of preparing such tax returns of Seller as may be required after the Closing and for other proper purposes approved by Buyer. Similarly, after the Closing, Seller shall afford to Buyer and its accountants and attorneys reasonable access to the books and records of Seller retained by Seller under Section 1.1(b) and shall permit Buyer to make extracts and copies therefrom for any proper purpose.

1.9 Change of Name . Immediately following the Closing, Seller shall file with the Secretary of State of South Carolina an amendment to its Charter (as hereafter defined) changing its name to a name which does not include the phrase “Version3” or any derivation or permutation thereof, or any name confusingly similar to the name of Buyer or any of its subsidiaries or divisions (such names to be provided to Seller upon request). In connection with the Closing, Seller shall deliver to Buyer a statement consenting to the use of the name “Version3” by Buyer or any affiliate thereof, or shall have taken such other steps within Seller’s power to permit Buyer or any affiliate thereof to use the name.

1.10 Further Assurances . Seller and Shareholders from time to time after the Closing at the request of Buyer and without further consideration shall execute and deliver further instruments of transfer and assignment (in addition to those delivered under Section 1.8) and take such other action as Buyer may reasonably require to more effectively transfer and assign to, and vest in, Buyer each of the Subject Assets.

 

To the extent that the assignment of any lease, contract, commitment or right shall require the consent of other parties thereto, this Agreement shall not constitute an assignment thereof except to the extent such consent is obtained; however, Seller shall use its best efforts before and after the Closing to obtain any necessary consents or waivers to assure Buyer of the benefits of such leases, contracts, commitments or rights. Seller shall cooperate with Buyer to permit Buyer to enjoy Seller’s rating and benefits under the worker’s compensation laws and unemployment compensation laws of applicable jurisdictions, to the extent permitted by such laws. Nothing herein shall be deemed a waiver by Buyer of its right to receive at the Closing an effective assignment of each of the leases, contracts, commitments or rights of Seller.

1.11 Tax Returns . Seller shall promptly prepare and file on or before the due date or any extension thereof all required Federal, state and local tax returns with respect to Seller’s operations prior to the Closing. Seller shall provide Buyer with copies of all such tax returns, the contents of which shall be kept confidential by Buyer unless disclosure is otherwise required by law, subpoena, court order or governmental audit.

1.12 Statutory Reorganization . It is the intent of this Agreement and of the parties hereto that the acquisition of the assets and Business of Seller as contemplated hereunder shall be considered a statutory reorganization pursuant to Section 368(a)(1)(C) of the IRC and that this Agreement shall be considered a “plan of reorganization” for such purpose. The exchange of the Stock by Buyer for the assets and Business of Seller shall be considered a non-taxable exchange pursuant to Section 354 of the IRC.

1.13 Right to Hire Employees . Seller shall use its reasonable efforts to make available to Buyer all of Seller’s employees for hire at or after the Closing. Seller shall be responsible for all wages, benefits, severance obligations, vacation and sick leave accruals (if any such accruals exist) and other obligations for such employees relating to the period prior to the date such employee is no longer an employee of Seller. The standard procedure established in Section 4 of Revenue Procedure 84-77, 1984-2 C.B. 753, relating to employment tax returns and statements shall be adopted by Buyer for the employees of Seller hired by Buyer after Closing. In timely fashion, Seller agrees to furnish Buyer with information it has which Buyer needs to comply with this procedure. Buyer will be the “successor employer” for FICA/FUTA purposes.

1.14 Shareholder Consent . Seller and Shareholders shall provide a Written Consent in Lieu of a Meeting of the Shareholders of Version3, Inc. setting forth that (i) the transactions contemplated by this Agreement has been unanimously approved by the Shareholders and (ii) that each Shareholder has unconditionally waived any and all dissenters’ rights such Shareholder has regarding the transactions contemplated by this Agreement.

1.15 Microsoft Contracts . Buyer acknowledges and agrees that the Seller’s current contracts with Microsoft are not assignable to Buyer. Following the Closing, the Seller and the Majority Shareholders shall use their best efforts to assist Buyer in obtaining new substantially similar contracts with Microsoft.

1.16. Assignment of Stock . Seller and Shareholders acknowledge and agree that Seller shall transfer, convey and assign of all its right, title and interest in and to the Initial Stock issued to Seller pursuant to Section 1.3 hereof upon the Closing of the transactions contemplated herein. Following the expiration of the Earn Out Periods and upon the final determination of the amount of the Earn Out Shares to be released by the Escrow Agent pursuant to the terms of the Escrow Agreement, Seller shall transfer, convey and assign of all its right, title and interest in and to the released Earn Out Shares.

 

ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND MAJORITY SHAREHOLDERS.

Seller and Majority Shareholders, jointly and severally, hereby represent and warrant to Buyer as follows:

2.1 Organization and Qualification of Seller . Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of South Carolina, with full power and authority to own, lease and operate its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is conducted by it. The copies of Seller’s Articles of Incorporation or equivalent document as amended to date (“Charter”), certified by the Secretary of State of the State of South Carolina and filed in the appropriate county in South Carolina as required by the South Carolina Business Corporation Act, and of Seller’s bylaws as amended to date, certified by Seller’s Secretary (or the equivalent), previously delivered to Buyer’s counsel, are, and will be at the Closing, complete and correct. Seller is not qualified to do business as a foreign corporation in any jurisdiction and is not required to be licensed or qualified to conduct its business or own its property in any other jurisdiction where the failure to be so qualified or in good standing would have a material adverse effect upon the business, business prospects, assets, operations or condition (financial or otherwise) of Seller (a “Material Adverse Effect”).

2.2 Capitalization of Seller . All of the issued and outstanding capital stock of Seller is owned of record and beneficially by the persons set forth on Schedule 2.2 of that certain letter delivered by Seller and Shareholders to Buyer concurrently with the execution and delivery of this Agreement (the “Seller Disclosure Letter”).

2.3 Subsidiaries . Seller does not own, directly or indirectly, any capital stock of any corporation and has no subsidiaries. Except as reflected on the Financial Statements (as defined in Section 2.7(a) hereof), Seller does not own securities issued by any other business organization or governmental authority and Seller is not a partner or participant in any joint venture or partnership of any kind.

2.4 Authorization of Transaction . Shareholders and Seller have the full power and authority to execute, deliver and perform this Agreement and to carry out the transactions contemplated hereby. All necessary action, corporate or otherwise, including receipt of the requisite unanimous approval of the Shareholders of Seller, has been taken by Seller to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby, the Agreement has been executed and delivered by Seller and Shareholders, and the Agreement is the legal, valid and binding obligation of Seller and Shareholders, enforceable against Seller and Shareholders in accordance with its terms.

2.5 Present Compliance with Obligations and Laws . Seller is not: (a) in violation of its Charter or bylaws; (b) in default in the performance of any obligation, agreement or condition of any debt instrument which would (with or without the passage of time or the giving of notice) afford to any person the right to accelerate any indebtedness or terminate any right; (c) in default of or breach of (with or without the passage of time or the giving of notice) any other contract to which it is a party or by which it or any of its assets are bound; or (d) in violation of any law, regulation, administrative order or judicial order, decree or judgment applicable to it or its business or assets or to which it is subject or by which any of its assets or business may be bound, where any such violation or default under any one or more of subparts (b), (c), or (d) of this Section 2.5, individually or in the aggregate, could have a Material Adverse Effect.

2.6 No Conflict of Transaction With Obligations and Laws . Neither the execution, delivery and performance of this Agreement, nor the performance of the transactions contemplated hereby, will: (i) constitute a breach or violation of any provision of the Charter or bylaws of Seller; (ii) require any consent, approval or authorization of or declaration, filing or registration with any person, (iii) conflict with or constitute (with or without the passage of time or the giving of notice) a breach of, or default under, any debt instrument by Seller or to which Seller is a party, or give any person the right to accelerate any indebtedness or terminate, modify or cancel any right; (iv) constitute (with or without the passage of time or giving of notice) a default under or breach by Seller or Shareholders of any other agreement, instrument or obligation to which Seller or Shareholders is a party or by which either or both or any of their respective assets are bound; (v) result in a violation of any law, regulation, administrative order or judicial order applicable to Seller or its business or assets or to which it is subject, or by which its assets or business may be bound; (vi) invalidate or adversely affect any permit, license or authorization used in Seller’s Business or (vii) result in the creation of any lien upon any of the assets of Seller.

 

2.7 Financial Statements .

(a) Seller has delivered or will deliver to Buyer at Closing (i) financial statements of Seller for the periods ended December 31, 2006 and December 31 2007, and (ii) a balance sheet and income statement for the six (6) month period ended June 30, 2008 (the “Financial Statements”) all of which are complete and correct and fairly present in all material respects the financial position of Seller on the date of such statements and the results of its operations on the applicable basis for the periods covered thereby, and such Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) consistently applied throughout the periods involved and prior periods, save and except as follows: certain deferred revenues are not GAAP; and GAAP requirements pertaining to financial statement footnotes have not been adhered to.

The balance sheet dated June 30, 2008 included in the Financial Statements is sometimes referred to hereinafter as the “Base Balance Sheet.”

(b) The books of account and other financial records of Seller: (i) have been maintained in accordance with good business and accounting practices, and reflect all items of income and expense and all assets and liabilities required to be reflected therein; and (ii) are in all material respects complete and correct, and do no contain or reflect any material inaccuracies or discrepancies.

2.8 Absence of Certain Changes and Undisclosed Liabilities .

(a) Since the date of the Base Balance Sheet, Seller has operated the Business in the normal and ordinary course of business and there has not been any change in the financial condition, working capital, earnings, reserves, properties, assets, liabilities, business or operations of Seller which change by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has had or could be reasonably expected to have a Material Adverse Effect with respect to Seller.

(b) There are no Liabilities of Seller, other than Liabilities (i) reflected or reserved against on the Base Balance Sheet or (ii) disclosed on Schedule 2.8(b) of the Seller Disclosure Letter. For the purposed of this Section 2.8(b), “Liabilities” shall mean any debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including those arising under any law, legal action or governmental order and those arising under any contract, agreement, arrangement, commitment or undertaking.

2.9 Payment of Taxes . Seller has duly and timely filed all federal, state, local, and foreign government income, excise, gross receipts or franchise tax returns, real estate and personal property tax returns, sales and use tax returns, employee tax and contribution returns, and all other tax returns, reports and declarations, including valid extensions therefor, or estimated taxes required to be filed by it, with respect to all applicable taxes (“Tax Returns”) including without limitation, with respect to all income, profit, franchise, sales, use, real property, personal property, ad valorem, excise, employment, social security and wage withholding, severance, stamp, occupation, and windfall profit taxes, of every kind, character or description, and imposed by any government or quasi-governmental authority (domestic or foreign), and any interest or fines, and any and all penalties or additions relating to such taxes, charges, fees, levies or other assessments (“Taxes”).

2.10 Title to Premises; Liens; Condition of Properties .

(a) Seller owns no real property.

 

(b) Seller has delivered to Buyer true, correct and complete copies of all material leases, subleases, rental agreements, tenancies or licenses related to all real property occupied by Seller (the “Real Property”) and any of its personal property.

(c) Except as specifically disclosed in the Base Balance Sheet, Seller has good and marketable title to all its owned personal property, free from liens, pledges and encumbrances and each of its leases is valid, binding and enforceable in accordance with its terms against Seller and, to the knowledge of Seller and Shareholders, against the other parties thereto, is subsisting and (subject to obtaining required consents) fully assignable by Seller, and no default by Seller exists thereunder, or to the knowledge of Seller and Shareholders, by any other party. Seller has not received notice that any party to any such lease intends to cancel, terminate or refuse to renew the same or to exercise or decline to exercise any option or any right thereunder.

(d) Except as otherwise specified in Schedule 2.10(d) of the Seller Disclosure Letter, to the knowledge of Seller and Shareholders, all machinery and equipment of Seller, and the HVAC system used by Seller, are in good condition, working order and repair, age and reasonable wear and tear excepted, are adequate for the uses to which they are put, have been maintained in accordance with the past practices of Seller’s business in a responsible manner as historically conducted, substantially conform with all applicable ordinances, regulations and zoning, safety or other laws, and do not encroach on property of others.

2.11 Work-in-Process; Accounts Receivable . All work in process and accounts receivable of Seller existing as of the Closing Date hereof represent valid contracts for Seller’s services for which Seller, subject to applicable payment terms, is entitled to receive full payment.

2.12 Title to Intellectual Property .

(a) Except as set forth on Schedule 2.12(a) of the Seller Disclosure Letter (the “Permitted Intellectual Property Encumbrances”), Seller owns good and marketable title, free and clear from all encumbrances, to the Intellectual Property. Seller has delivered to Buyer true, correct and complete copies of all of the Intellectual Property. There are no oral contracts, agreements, licenses, or other commitments or arrangements between Seller and any person or entity in effect which evidence any intellectual property rights, trade secrets, or other proprietary information, processes, or formulae used in, or incidental to, the sale, license, sublicense, development, manufacture, support or maintenance of, or arising from Software or Hardware, or otherwise necessary for the ownership or use of the Subject Assets.

(b) All personnel, including employees, agents, consultants, and contractors, who have contributed to or participated in the conception and development of the Software, Hardware, Technical Documentation, or the Intellectual Property on behalf of Seller either (i) have been party to a “work-for-hire” arrangement or agreement with Seller, in accordance with applicable federal and state law, that has accorded Seller full, effective, exclusive, and original ownership of all tangible and intangible property thereby arising; or (ii) have executed appropriate instruments of assignment in favor of Seller as assignee that have conveyed to Seller full, effective, and exclusive ownership of all tangible and intangible property thereby arising.

(c) No claims have been asserted by any person or entity with respect to the use of the Subject Assets and neither Seller nor Shareholders know of any valid basis for any such claim. To the knowledge of Seller and Shareholders, the use of the Intellectual Property, such as patents and trademarks, by Seller does not infringe on the rights of any person or entity.

2.13 Technical Documentation . Seller shall provide to Buyer any Technical Documentation including all object code, source code, system documentation, statements of principles of operation, and schematics for the Software. The Technical Documentation also includes any program (including compilers), “workbenches,” tools, and higher level (or “proprietary”) language used for the development, maintenance, and implementation of the Software, if any. The Technical Documentation also includes the product manufacture documentation, statements of principles of operation, and schematics for the Hardware, if any.

 

2.14 Third Party Components in the Software and the Hardware .

(a) Software. Seller has validly and effectively obtained the right and license to use, copy, modify, and distribute the third-party programming and materials contained in the Software and the Technical Documentation. The Software and the Technical Documentation owned by Seller contain no other programming or materials in which any third party may claim superior, joint, or common ownership, including any right or license. The Software and the Technical Documentation owned by Seller do not contain derivative works of any programming or materials not owned in their entirety by Seller and included in the Subject Assets.

(b) Hardware. Seller has validly and effectively obtained the right and license to use, copy, modify, and distribute the third-party products and materials contained in the Hardware and the Technical Documentation. The Hardware and the Technical Documentation contain no other products or materials in which any third party may claim superior, joint, or common ownership, including any right or license. The Hardware and the Technical Documentation owned by Seller do not contain derivative works of any products or materials not owned in their entirety by Seller and included in the Subject Assets.

2.15 Third Party Interests or Marketing Rights in the Software and the Hardware . Seller has not granted, transferred, or assigned any right or interest in the Software, the Hardware, the Technical Documentation or the Intellectual Property to any person or entity, except as set forth on Schedule 2.15 of the Seller Disclosure Letter. Except as set forth in Schedule 2.15 of the Seller Disclosure Letter, all Material Contracts relating to the Software constitute only end-user agreements, each of which grants the end-user thereunder solely the nonexclusive right and license to use an identified piece of Software and related user documentation, for internal purposes only, on a single central processing unit (“CPU”). There are no contracts, agreements, licenses, or other commitments or arrangements in effect with respect to the marketing, distribution, licensing, or promotion of the Software or the Hardware or any other Technical Documentation, or the Intellectual Property by any independent salesperson, distributor, sub licensor, or other remarketer or sales organization.

2.16 Labor and Employee Relations .

(a) Except as shown on Schedule 2.16(a) of the Seller Disclosure Letter, there are no currently effective consulting or employment agreements or other material agreements with individual consultants or employees to which Seller is a party. Complete and accurate copies of all such written agreements have been delivered by Seller to Buyer.

(b) None of the employees of Seller is covered by any collective bargaining agreement with any trade or labor union, employees’ association or similar association. Seller has complied with all applicable laws, rules and regulations relating to the employment of labor, including without limitation those relating to wages, hours, unfair labor practices, discrimination, and payment of social security and similar taxes, except where failure to comply would not have a Material Adverse Effect. There are no representation elections, arbitration proceedings, labor strikes, slowdowns or stoppages, or claims of discrimination or unfair labor practices pending, or, to the knowledge of Seller and Shareholders, threatened, with respect to the employees of Seller.

(c) There are no complaints against Seller pending or, to the knowledge of Seller and Shareholders, threatened, before the National Labor Relations Board or any similar state or local labor agencies, or before the Equal Employment Opportunity Commission or any similar state or local agency, by or on behalf of any employee or former employee of Seller.

 

(d) There is no contingent liability or accruals for sick leave, vacation time, severance pay or similar items not set forth on the Base Balance Sheet. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not trigger any severance pay obligation under any contract or at law or any notice requirement under any Federal or state plant closing law.

(e) There has not been any citation, fine or penalty imposed or asserted against Seller under any law or regulation relating to employment, immigration or occupational safety matters.

(f) Seller has furnished Buyer a complete and accurate list of all employees of Seller, their date of hire and their rate of compensation as of the date of this Agreement (including a breakdown of the portion thereof attributable to salary, bonus and other compensation). Except as previously disclosed to Buyer in writing, each of Seller’s employees is an employee at will and will be no longer employed by Seller on the Closing Date. Buyer may hire such of Seller’s then former employees on the day following the Closing Date as Buyer decides to hire upon such terms as determined by Buyer in its sole discretion. Seller shall be responsible for all severance and other employment related payments accrued as of the Closing Date.

2.17 ERISA and Employee Benefits

(a) Set forth on Schedule 2.17 of the Seller Disclosure Letter is a list of each employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1976, as amended (“ERISA”) which is or has been maintained for the benefit of employees of Seller.

(b) As of the Closing, none of the Subject Assets will be subject to any lien arising under ERISA, and Seller will not have any liability in respect to any Employee Benefit Plan for which Buyer could be held liable. For purposes of this Agreement, “Employee Benefit Plans” mean all pension, retirement, profit sharing, deferred compensation, stock ownership, stock purchase, stock option, restricted stock, bonus, severance or termination pay, payroll practice, vacation, cafeteria, medical, group, life, health, accident, disability, death, or other employee benefit plans or arrangements, including (without limitation) any pension plan (within the meaning of Section 3(2) of ERISA) and any welfare plan (within the meaning of Section 3(1) of ERISA), covering any present or former employees, consultants, officers, or directors (or dependents or beneficiaries of any such persons) of Seller or to which Seller is a party or bound or by which Seller otherwise may have any liability to any present or former employee, consultant, officer, or director (or to any dependent or beneficiary of any such person) of Seller.

2.18 Environmental Matters . To Seller and Majority Shareholder’s knowledge: (a) there are no and have not been any Hazardous Materials or underground storage tanks at, on, under or around the Real Property; (b) the Real Property has been operated and used in compliance with all applicable environmental laws; (c) there are no actions, suits, claims, proceedings, investigations or enforcement actions pending or threatened under any environmental law with respect to the Real Property; and (d) neither Seller nor Majority Shareholder has received any notice, claim or demand from any governmental entity or other person regarding the presence of Hazardous Materials at, on, under or around the Real Property or alleging that the Real Property are in violation of any environmental laws. Seller has delivered to Buyer copies of all environmental reports in Seller’s possession. To Seller or Majority Shareholder’s knowledge, the environmental reports are accurate and complete and neither Seller nor Majority Shareholder is aware of any other reports or information pertaining to the environmental condition of the Real Property, other than as set forth in the environmental reports. “Hazardous Materials” shall mean any waste, pollutant, chemical, hazardous material, hazardous substance, toxic substance, hazardous waste, special waste, solid waste, asbestos, radioactive materials, polychlorinated biphenyls, petroleum or petroleum-derived substance or waste (regardless of specific gravity), or any constituent or decomposition product of any such pollutant, material, substance or waste, including, but not limited to, any hazardous substance or constituent contained within any waste and any other pollutant, material, substance or waste regulated under or as defined by any environmental laws.

 

2.19 Permits . Seller holds and is in compliance with all licenses, permits, registrations, orders, authorizations, approvals and franchises which are required to permit it to conduct its business as presently conducted, except where failure to so comply would not have a Material Adverse Effect. Seller has not received any notification of any asserted present failure (or past and unremedied failure) by it to have obtained any such license, permit, registration, order, authorization, approval or franchise. Seller has not received any notification of non-compliance or violation with any such license, permit, registrations, order, authorizations, approvals or franchises.

2.20 Material Contracts .

(a) Seller has or has caused to be delivered to Buyer true, correct and complete copies of all contracts and agreements (including oral and informal arrangements) of Seller having a financial consequence to Seller of more than Five Thousand and no/100ths Dollars ($5,000.00) and/or a maximum term, including extensions, of more than one (1) year and all agreements relating to Intellectual Property (collectively, the “Material Contracts”).

(b) Each Material Contract is valid and binding on the respective parties thereto and is in full force and effect. Neither Seller nor Majority Shareholders have received any notice that Seller is in breach of or default under any Material Contract or that any event occurred or failed to occur which, with the giving of notice or passage of time or both, would constitute a breach of or default under any Material Contract.

(c) To the knowledge of Seller and the Majority Shareholders, no other party to any Material Contract is in breach thereof or default thereunder in any material respect nor has any event occurred or failed to occur which, with the giving of the notice or passage of time or both, would constitute a material breach of or default under any Material Contract by any other party to any Material Contract.

(d) There is no contract, agreement or other arrangement granting any person any preferential right to purchase, other than in the ordinary course of business consistent with past practice, any of the properties or assets of Seller, including the Subject Assets.

2.21 Warranty or Other Claims . Neither Seller nor Majority Shareholders know of, or have reason to know of, any existing or threatened claims, or any facts upon which a claim could be based, against Seller for product that is defective or fails to meet any product warranty. No claim is being asserted against Seller for renegotiation or price redetermination of any business transaction, and neither Seller nor Majority Shareholders have knowledge of any facts upon which any such claim could be based.

2.22 Litigation . Schedule 2.22 of the Seller Disclosure Letter sets forth an accurate and complete list of (a) all claims, actions, suits, arbitration or other proceedings or investigations (collectively, “Actions”) in the past five (5) years by or against Seller (or by or against any Affiliate, including Shareholders, relating to the Business or Seller), or affecting any of the Subject Assets or the Business, and (b) all Actions which to the knowledge of Seller or Shareholders are currently threatened to be brought. Except for matters described in Schedule 2.22 of the Seller Disclosure Letter, there are no Actions pending (or, to the knowledge of Seller and Shareholders, threatened) against Seller and there are no outstanding court orders, court decrees, or court stipulations to which Seller is a party or by which any of its assets are bound, any of which (a) question this Agreement or affect the transactions contemplated hereby, or (b) restrict the present business, properties, operations, prospects, assets or condition, financial or otherwise, of Seller, or (c) will result in any material adverse change in the business, properties, operations, prospects, or assets of Seller, on a standalone or consolidated basis. Neither Seller nor Shareholders has any reason to believe that any such claim, action, suit, arbitration or other proceeding or investigation may be brought against Seller.

2.23 Insurance . Seller maintains (i) insurance on all of its property (including leased premises) that insures against loss or damage by fire or other casualty (including extended coverage) and (ii) insurance against liabilities, claims and risks of a nature and in such amounts as are normal and customary in its

 

industry. Seller has delivered to Buyer true, correct and complete copies of all policies of insurance maintained by Seller (including insurance providing benefits for employees) in effect on the date hereof, together with complete and correct information with respect to the premiums, coverages, insurers, expiration dates, and deductibles in respect of such policies. To the knowledge of Seller and Majority Shareholders, such policies are sufficient for compliance with all requirements of law currently applicable to Seller and of all agreements to which Seller is a party, will remain in full force and effect through the respective expiration dates of such policies without the payment of additional premiums. There are no claims pending or, to the knowledge of Seller and Majority Shareholders, overtly threatened, under any of said policies, or disputes with insurers, and all premiums due and payable thereunder have been paid, and all such policies are in full force and effect in accordance with their respective terms. No notice of cancellation or termination has been received with respect to any such policy. Seller has not been refused any insurance with respect to its assets or operations, nor has its coverage been limited, by any insurance carrier with which it has applied for any such insurance or with which it has carried insurance.

2.24 Finder’s Fee . Neither Seller nor Majority Shareholders has incurred or become liable for any broker’s commission or finder’s fee relating to or in connection with the transactions contemplated by this Agreement.

2.25 Full Disclosure . No representation or warranty made by the Seller or Shareholders in this Agreement and no certificate or document furnished or to be furnished to the Buyer pursuant to this Agreement contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading subject to any limitation, qualification or caveat expressly contained in such statement. Except as set forth or referred to in this Agreement, Seller and Shareholders do not have any agreement or understanding with any person relating to acquiring, holding, voting or disposing of any equity securities of the Buyer.

2.26 DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES . EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 2, SELLER AND THE SHAREHOLDERS MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF ANY OF ITS ASSETS (INCLUDING, WITHOUT LIMITATION, THE SUBJECT ASSETS), LIABILITIES OR OPERATIONS, INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. BUYER HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT TO THE EXTENT SPECIFICALLY SET FORTH IN THIS SECTION 2, BUYER IS PURCHASING THE SUBJECT ASSETS ON AN “AS-IS, WHERE-IS” BASIS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER AND THE SHAREHOLDERS MAKE NO REPRESENTATION OR WARRANTY REGARDING ANY ASSETS OTHER THAN THE SUBJECT ASSETS OR ANY LIABILITIES OTHER THAN THE ASSUMED LIABILITIES, AND NONE SHALL BE IMPLIED AT LAW OR IN EQUITY.

ARTICLE 3. CERTAIN REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS.

Seller and Shareholders, jointly and severally, hereby represent and warrant to Buyer as follows:

3.1 Knowledge . To the best knowledge of Shareholders, there exists no past, present or imminent or threatened occurrence of any event or the existence of any information which would cause or constitute a breach of any of the representations and warranties of Seller and Shareholders contained in or referred to in this Agreement.

3.2 Disclosure of Material Information . Neither this Agreement nor any exhibit hereto or certificate issued pursuant hereto (including but not limited to the Seller Disclosure Letter) contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements herein or therein not misleading, relating to the business or affairs of Seller. There is no fact known to Seller or

 

Shareholders which adversely affects, or is likely to (so far as now can be reasonably foreseen) materially adversely affect, the business, condition (financial or otherwise) or prospects of Seller which has not been specifically disclosed herein.

3.3 Financial Risks . Each of the Seller and the Shareholders acknowledge that he, she or it is able to bear the financial risks associated with an investment in the securities being transferred as part of the Consideration of the transactions contemplated herein and that each has been given full access to such records of the Buyer and the subsidiaries and to the officers of the Buyer and the subsidiaries as it has deemed necessary or appropriate to conduct its due diligence investigation. Each of the Seller and the Shareholders is capable of evaluating the risks and merits of an investment in the securities being transferred from the Buyer by virtue of his, her, or its experience as an investor and its knowledge, experience, and sophistication in financial and business matters and each is capable of bearing the entire loss of the securities being transferred from the Buyer.

3.4 Investment Experience . Each of the Seller and the Shareholders is (i) except as set forth in the Shareholder’s Agreement (as such term is hereinafter defined) executed by each Shareholder, an “ accredited investor ” as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”) , (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers and professional advisors (who are not affiliated with or compensated in any way by the Buyer or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) able to afford the entire loss of its investment in the securities being transferred to the Seller by the Buyer.

3.5 Knowledge of Buyer. The Seller, the Shareholders and their advisors, if any, have received, fully reviewed and understand the information concerning the Buyer, its condition and operations, in the Private Offering Memorandum of Buyer dated August 4, 2008 (the “Memorandum”) provided to the Seller and the Shareholders and, upon request, have been furnished with all other materials relating to the business, finances and operations of the Buyer and materials relating to the securities of the Buyer. The Seller, the Shareholders and their advisors, if any, have been afforded the opportunity to ask questions of the Buyer and have received complete and satisfactory answers to any such inquiries.

3.6 Risk Factors . Each of the Seller and the Shareholders understands that the investment in the securities of the Buyer involves a high degree of risk, and has reviewed and considered, among other risks, those risks and other information designated in the “Risk Factors” section of Buyer’s of the Memorandum. The Seller and the Shareholders understand that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the securities being transferred to the Seller by the Buyer. The Seller and the Shareholders warrant that they are able to bear the complete loss of its investment in the securities.

3.7 Investment Intent. The Seller (and the Shareholders if any stock is assigned to him) are acquiring the Stock for their own account as an investment and without an intent to sell, transfer or distribute the Stock.

3.8 Unregistered Securities . The Stock has not been registered under the Securities Act or under the securities or “blue sky” laws of any state and thus the Seller (or the Shareholders, as applicable) must bear the economic risk of the investment indefinitely because the Stock may not be sold unless subsequently registered under the Securities Act and under any applicable state securities or “blue sky” laws, unless permitted by Rule 144 of the Securities and Exchange Commission or unless exemptions from such registration requirements are available; registration under the Securities Act or under the securities or “blue sky” laws of any state is unlikely at any time in the future; Buyer is not obligated to file a registration statement under the Securities Act or under the securities or “blue sky” laws of any state; and Buyer has not covenanted to take any action necessary to make any exemption for sale of the Stock without registration available.

 

3.9 Waiver of Dissenters’ Rights. Each of the Shareholders acknowledge their right to dissent from the transactions contemplated by this Agreement as set forth in Section 1.14 above and as more fully detailed in Chapter 13 of Title 33 of the S.C. Code, which is attached hereto as Exhibit D , (the rights collectively, the “Dissenters’ Rights”). Each Shareholder hereby acknowledges receipt and review of the Memorandum of Buyer and specifically acknowledges review and acknowledgement of that section of the Memorandum entitled “Shareholders Dissenters Rights.” Shareholders acknowledge and agree that a condition to the Buyer consummating the transactions contemplated herein is the waiver by each of the Shareholders of all of their Dissenters’ Rights and each of Shareholders represent and warrant that such Dissenters’ Rights have been so waived.

3.10 Consent to Transaction . Each of the Shareholders acknowledge and agree that a condition to the Buyer consummating the transactions contemplated herein is the unanimous approval by the Shareholders of this Agreement and the transactions detailed herein and each of the Shareholders represent and warrant that such unanimous approval has been given.

ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER.

Buyer hereby represents and warrants to Seller and Shareholders as follows:

4.1 Organization of Buyer . Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with full power to own or lease its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is conducted by it. Buyer is, or prior to the Closing, will be duly qualified to transact business in the State of South Carolina.

4.2 Authorization of Transaction . Buyer has the full power and authority to execute, deliver and perform this Agreement and to carry out the transactions contemplated hereby. All necessary action, corporate or otherwise, including approval of the board of directors of Buyer, has been taken by Buyer to authorize the execution, delivery and performance of this Agreement and the transactions and agreements contemplated hereby and the same constitute the legal, valid and binding obligations of Buyer enforceable in accordance with their respective terms.

4.3 No Conflict of Transaction with Obligations and Laws .

(a) Neither the execution, delivery and performance of this Agreement or any of the agreements contemplated hereby, nor the performance of the transactions contemplated hereby, will: (i) constitute a breach or violation of Buyer’s Charter or bylaws; (ii) conflict with or constitute (with or without the passage of time or the giving of notice) a breach of, or default under any material agreement, instrument or obligation to which Buyer is a party or by which it or its assets are bound which would materially affect the performance by Buyer of its obligations under this Agreement; or (iii) result in a violation of any law, regulation, administrative order or judicial order applicable to Buyer.

(b) The execution, delivery and performance of this Agreement and the transactions contemplated hereby by Buyer do not require the consent, waiver, approval, authorization, exemption of or giving of notice to any governmental authority, except for Buyer’s obligations to disclose under the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the “Exchange Act”) and federal and state laws and regulations relating the issuance of the Stock.

4.4 Finder’s Fee . Buyer has not incurred or become liable for any broker’s commission or finder’s fee relating to or in connection with the transactions contemplated by this Agreement.

4.5 Authorization from Others . Buyer has obtained and delivered to Seller all authorizations, consents and permits of others required to permit the consummation by Buyer of the transactions contemplated by this Agreement and the agreements contemplated hereby.

 

4.6 Litigation . Except as set forth on Schedule 4.6 of that certain letter delivered by Buyer to Seller and Shareholders concurrently with the execution and delivery of this Agreement (the “Buyer Disclosure Letter”), there is no litigation pending or, to the knowledge of Buyer, threatened against Buyer which will have a material adverse effect on its properties, assets or business or which would prevent or hinder the consummation of the transactions contemplated by this Agreement.

4.7 Stock . The Buyer’s common stock is traded in the over the counter market and quoted on the OTC Bulletin Board (the “OTCBB”). There is no action or proceeding by the OTCBB, the Securities and Exchange Commission, or any other person or entity, the intent of which is to restrict or terminate the trading of the Buyer’s common stock on the OTCBB, and Buyer has no knowledge that any such action or proceeding is threatened by any person or entity.

4.8 Absence of Certain Changes and Undisclosed Liabilities . Since the date of the Buyer’s most recently filed Form 10-Q, Buyer has operated its business in the normal and ordinary course of business and there has not been any change in the financial condition, working capital, earnings, reserves, properties, assets, liabilities, business or operations of Buyer which change by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has had or could be reasonably expected to have a Material Adverse Effect with respect to Buyer.

4.9 Full Disclosure . No representation or warranty made by the Buyer in this Agreement and no certificate or document furnished or to be furnished to the Seller and Shareholders pursuant to this Agreement contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading subject to any limitation, qualification or caveat expressly contained in such statement.

4.10 No Knowledge of Breach . Based on Buyer’s due diligence of Seller, Buyer has no knowledge of any claim, breach, misrepresentation, event, fact or circumstance that would cause Seller and Shareholders to be in default or breach any of the representations and warranties given by Seller and Shareholders in Articles 2 and 3 above.

ARTICLE 5. CONDITIONS TO OBLIGATIONS OF BUYER.

The obligations of Buyer to consummate this Agreement and the transactions contemplated hereby are subject to the condition that on or before the Closing the actions required by this Article 5 will have been accomplished or waived in writing by Buyer.

5.1 Representations; Warranties; Covenants . Each of the representations and warranties of Seller and Shareholders contained in Article 2 and Article 3 shall be true and correct in all material respects as though made on and as of the Closing. Seller and Shareholders shall, on or before the Closing, have performed in all material respects all of their respective obligations hereunder which by the terms hereof are to be performed on or before the Closing; and Seller shall have delivered to Buyer a certificate of Seller’s President dated as of the Closing to the foregoing effect.

5.2 Absence of Certain Litigation . There shall not be any (a) injunction, restraining order or order of any nature issued by any court of competent jurisdiction which directs that this Agreement or any material transaction contemplated hereby shall not be consummated as herein provided, (b) suit, action or other proceeding by any federal, state, local or foreign government (or any agency thereof) pending before any court or governmental agency, or threatened to be filed or initiated, wherein such complainant seeks the restraint or prohibition of the consummation of any material transaction contemplated by this Agreement or asserts the illegality thereof or (c) suit, action or other proceeding by a private party pending before any court or governmental agency, or threatened to be filed or initiated, which in the reasonable opinion of counsel for Buyer is likely to result in the restraint or prohibition of the consummation of any material transaction

 

contemplated hereby or the obtaining of an amount in payment (or indemnification) of material damages from or other material relief against any of the parties or against any directors or officers of Buyer, in connection with the consummation of any material transaction contemplated hereby.

5.3 No Bankruptcy . Seller shall not (i) have commenced a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or substantially all of its property, or have consented to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or have made a general assignment for the benefit of its creditors, or (ii) have an involuntary case or other proceeding commenced against it seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereinafter in effect or seeking the appointing of a trustee, receiver, liquidator, custodian or