STOCK PURCHASE AGREEMENT

Exhibit 2.1

STOCK PURCHASE AGREEMENT

By and among

RAINIER ACQUISITION CORP.

as the Buyer,

RAINIER SURGICAL INCORPORATED

as the Corporation,

and GARTH LUKE,

as the Seller

May 11, 2007

TABLE OF CONTENTS

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STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated May 11, 2007, is entered into by and among Garth Luke (the "Seller"), Rainier Surgical Incorporated a Washington corporation (the "Corporation") and Rainier Acquisition Corp., a Delaware corporation (the "Buyer") and a wholly-owned subsidiary of Andover Medical, Inc. ("AMI").

W I T N E S S E T H :

WHEREAS , the Seller owns 100% of the issued and outstanding shares of common stock, no par value (the "Stock"), of the Corporation; and

WHEREAS , the Seller wishes to sell and the Buyer wishes to purchase the Stock on the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.               Sale and Purchase of the Stock .

Upon the terms and subject to the conditions set forth in this Agreement, at the Closing (as hereinafter defined), the Seller shall sell, transfer and deliver to the Buyer all shares of Stock owned by it, and the Buyer shall purchase from the Seller all such shares of Stock, which collectively constitute one hundred percent (100%) of the issued and outstanding shares of capital stock of the Corporation, all of which shall be transferred to the Buyer free and clear of all liens, mortgages, deeds of trust, security interests, pledges, charges, encumbrances, liabilities and claims of every kind, except those contemplated by the terms of this Agreement or arising under applicable federal and state securities laws.

Section 2.               Closing .

The closing of the sale and purchase of the Stock provided for in Section 1 of this Agreement (the "Closing") shall take place at the offices of Phillips Nizer LLP, 666 Fifth Avenue, New York, New York 10103-0084, within twenty (20) days of Buyer’s receipt of the Audited Financial Statements under Section 4(a)(ix) hereof, or at such other location as may be agreed to by the parties.  The deliveries to be made by each of the parties at the Closing are specified in Sections 12 and 13 below.

Section 3.               Purchase Price .

(a)            (i)  Subject to the provisions of Section 3(b) below, at Closing, in consideration for Seller’s sale and transfer of his shares of Stock to the Buyer, the Buyer shall pay and deliver to Seller and his designees set forth on Schedule 3(a)(i) an aggregate purchase price of Three Million Five Hundred Seventy-Five Thousand Dollars ($3,575,000.00) consisting of (i) Two Million Six Hundred Seventy-Five Thousand Dollars ($2,675,000.00) in cash (the "Cash Purchase Price"), and (ii) an aggregate number of shares of Common Stock of AMI (the

"Shares") equal in value to Nine Hundred Thousand Dollars ($900,000.00) based on the average closing price of Common Stock of AMI for the ten (10) consecutive trading days ending two (2) trading days before the Closing Date.  The total of the Shares and the Cash Purchase Price, after giving effect to any adjustment required pursuant to Section 3(c) herein, shall be referred to herein as the "Purchase Price."

(ii)            In addition to the Purchase Price, Seller and its designees set forth on Schedule 3(a)(ii) shall be entitled to receive earnout payments ("Earnout Payments") equal to ten percent (10%) of the Corporation’s Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") from the Corporation’s operations as they exist on the Closing Date on a stand alone basis before income taxes (without taking into account the Earnout Payments, if any), which Earnout Payments shall be payable annually for each of the 12 month periods in the fiscal years ended 2007, 2008, 2009 and 2010.  The Earnout Payments, if any, shall be paid by Buyer within 15 days of Buyer’s receipt of the computation of the Corporation’s EBITDA prepared on a stand alone basis for the Corporation after giving effect to the Corporation’s disposition of all of the assets and liabilities associated with its Wright Medical division and the real property in which the Corporation is headquartered (collectively, the "Divestiture") in the relevant fiscal year, as determined by the Buyer’s independent auditors hereinafter referred to as "EBITDA".  As used herein, EBITDA shall specifically exclude any expenses of the Corporation attributable to corporate overhead.

(iii)           In addition to the Shares to be issued pursuant to (i) above, Seller and his designees set forth in Schedule 3(a)(i) shall be entitled to receive up to an aggregate of $555,000 of restricted shares of Common Stock of AMI ("Performance Shares") based on the average closing price of said Common Stock for the ten (10) consecutive trading days prior to the issuance of the Performance Shares if (1) (A) Seller and/or his designee, as the case may be, is employed by either the Corporation or the Buyer from the date hereof until the date on which the Performance Shares are to be delivered or (B) Seller and/or his designee, as the case may be, is terminated other than for "Cause" or resigns for "Good Reason" (each as defined in Seller’s or such designee’s Employment Agreement attached hereto as Exhibit 3(d)) (as Seller or such designee shall then be deemed to be employed for purposes of this provision), and (2) the Corporation’s business on a stand alone basis after the Divestiture achieves EBITDA targets (the "Targets") in each of fiscal years ended 2007, 2008 and 2009 as follows:

In each of the said three fiscal years $183,333 of AMI’s Common Stock shall be issued if EBITDA Targets are met for such fiscal year.  In the event that either or both Targets are not met in any such fiscal year or years, the Performance Shares for such year or years nevertheless shall be issued if such shortfalls are made up by EBITDA figures in excess of the annual Targets in the following fiscal year or years (but only taking into account fiscal years through December 31, 2009 and only using such excess amounts to make up Target shortfalls once).  The Performance Shares shall be delivered by Buyer within 30 days of Buyer’s computation of Revenue and Net Income and a calculation of the amount required to be withheld with respect to such payment

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(the "Required Withholding"). The Performance Shares shall not be delivered to Seller until Seller remits cash in an amount equal to the Required Withholding. Notwithstanding the foregoing, if cumulative EBITDA for the three fiscal years ended 2009 is at least $2,925,000, Seller and his designees shall be entitled to receive $444,000 in the aggregate of restricted shares of Common Stock of AMI based on the average closing price of said Common Stock for the ten (10) consecutive trading days prior to the issuance thereof.

(iv)           Any computations of EBITDA shall be made by the independent auditors of the Buyer and shall be final and binding on all parties.

(b)            Escrow .  At Closing, the Buyer shall withhold from the Cash Purchase Price payment an amount equal to Three Hundred Thousand Dollars ($300,000) (the "Escrow Amount"), and the Buyer shall deposit such amount at Closing directly into an escrow account, to serve as collateral security against the payment and performance of the Seller’s obligations with respect to (i) the Purchase Price adjustment provisions of Section 3(c) hereof and/or (ii) the indemnification provisions of Section 6(b) hereof.  The Escrow Amount shall be deposited by the Buyer with Phillips Nizer LLP as escrow agent ("Escrow Agent") to be held and released pursuant to the terms of the escrow agreement to be entered into by and among the Buyer, the Seller and the Escrow Agent in substantially the form attached hereto as Exhibit 3(b) (the "Escrow Agreement").

(c)            (i) The parties hereto agree that the purchase and sale of the Stock shall be accounted for on the close of business on the Closing Date.  The Seller agrees to consult with Buyer on any material issues, events, conditions or contract prior to the Closing.  An adjusted Purchase Price (the "Adjusted Purchase Price") shall be calculated and agreed to by both the Seller and the Buyer which shall adjust the Purchase Price as follows.  The Purchase Price is based upon the Audited Financial Statements (defined in Section 4(a)(ix)) reflecting (A) accounts receivable of at least $1,100,000, (B) inventory of at least $873,000 and (C) EBITDA of at least $900,000, all as adjusted for the Divestiture.  The Seller shall deliver to Buyer, within forty-five (45) days after the Closing Date, and submit for Buyer’s review, an unaudited balance sheet effective as of the Closing Date as adjusted for the Divestiture ("Closing Balance Sheet"), prepared in accordance with GAAP, as historically and consistently applied to the Corporation and as used in preparation of the Audited Financial Statements (defined in Section 4(a)(ix)).  If the Closing Balance Sheet reflects (A) accounts receivable of less than $1,100,000, and (B) inventory of less than $873,000 as of the Closing Date, then the Cash Purchase Price shall be decreased by one dollar for each dollar of (A) accounts receivable less than $1,100,000, and/or (B) inventory less than $873,000.  In addition, if the Audited Financial Statements reflect EBITDA less than $900,000, the Cash Purchase Price shall be decreased prior to Closing by one dollar for each dollar of EBITDA less than $900,000, as adjusted for the Divestiture.

Buyer shall have the right, for a period of up to forty-five (45) days from receipt of the Closing Balance Sheet to review same.  If the Buyer wishes to dispute the Closing Balance Sheet, then the Buyer shall, within such forty-five (45) day period, deliver notice of such dispute to the Seller which notice shall contain an explanation of the Buyer’s dispute with the proposed Closing Balance Sheet.  If no such notice is received by Seller, a post closing adjustment shall be made to the Purchase Price and the post-closing adjustment shall be refunded to Buyer from the proceeds of the escrow account in accordance with the terms of the Escrow Agreement.  If such a

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notice is received by Seller, Buyer and Seller shall attempt, for a period of twenty (20) days after delivery of any such notice, to reach an agreement with respect to the Closing Balance Sheet at which time the post-closing adjustment shall be paid.  If the Seller and the Buyer and their respective accountants are unable to determine the matter by mutual agreement within such twenty (20) day period, then both parties shall cause the disagreement to be submitted to binding arbitration as set forth in Section 19 herein;

(ii) In addition to the adjustments to the Purchase Price set forth in (i) above, the Purchase Price may also be reduced by way of a delivery to Buyer from the Escrow Amount in the event that for the first full twelve (12) months from Closing EBITDA for the Corporation on a stand alone basis, as adjusted for the Divestiture is less than $1,000,000.  If Buyer is entitled to reduce the Purchase Price pursuant to this paragraph, the Escrow Amount shall be reduced by one dollar for each dollar that EBITDA for the 12 month period following the Closing is less than $1,000,000.

(d)            Employment Agreements .  As an additional and material inducement to Buyer to enter into this Agreement, at Closing, Garth Luke, Sue Beck and James Ort shall enter into an employment agreements (in substantially the form attached hereto as Exhibit 3(d)(i), (ii) and (iii) providing for, among other matters, (i) their current base salary, (ii) participation in the Andover Medical, Inc. Stock Incentive Plan and (iii) a non-compete period of two (2) years post-employment or three (3) years from the Closing, whichever is greater, to apply in the event of voluntary termination by the employee or termination for cause, during which the employee shall not engage in any activity competitive with the Corporation, and including customary provisions regarding employee’s non-solicitation of the Corporation’s personnel and non-interference with the Corporation’s relationship with its current vendors or customers.

(e)            Excluded Liabilities . As an additional and material inducement to Buyer to enter into this Agreement, at Closing the Seller shall enter into the Bills of Sale and Assignment and Assumption Agreements (in substantially the forms attached hereto as Exhibit 3(e) ) providing for, among other matters, the assumption by Seller of certain of the Corporation’s liabilities existing as of the Closing Date (as reflected on the Closing Balance Sheet) and as set forth on Schedule 3(e) attached hereto, including the following: (A) existing bank loan F-250 in the aggregate principal amount of approximately $28,587.56; associated with the lease or ownership of a certain Ford truck, VIN # 1FTSW21P85EB71426; and (B) all obligations relating to the Corporation’s Wright Medical division (including, but not limited to, any real estate leasehold obligations) which shall be spun-off prior to the Closing Date as the Divestiture (collectively, the "Retained Liabilities").  Other than the Retained Liabilities, Buyer shall be solely responsible for all liabilities of the Corporation existing as of the Closing Date as set forth on Schedule 3(e) attached hereto and as confirmed on the Closing Balance Sheet.  Buyer shall also be responsible for all liabilities of the Corporation which accrue from and after the Closing Date.

Section 4.               Representations and Warranties of the Seller .  The representations and warranties of the Seller to the Buyer are as set forth in this Section 4.

(a)            Seller hereby represents and warrants to the Buyer as of the date hereof and against as of the Closing Date, as follows:

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(i)             Ownership of Shares .  Seller is the owner, beneficially and of record, of the shares of Stock set forth opposite his name in Schedule 4(a)(i) hereto (the "Seller’s Shares").  Seller’s Shares are not pledged, mortgaged or otherwise encumbered in any way and there is no lien, mortgage, charge, claim, liability, security interest or encumbrance of any nature against the Seller’s Shares arising from such Seller’s actions.  Except as set forth on Schedule 4(a)(i) hereto, Seller is not party to any outstanding options, warrants, rights of subscription or conversion, calls, commitments, agreements, arrangements, understandings, plans, contracts, proxies, voting trusts, voting agreements or instruments of any kind or character, oral or written, relating to the issuance, voting or sale of Seller’s Shares or of any securities representing the right to purchase or otherwise receive any such Shares.  Seller is not party to any stockholders agreements, preemptive rights or other agreements, arrangements, commitments or understandings, oral or written, relating to the voting, issuance, acquisition or disposition of the Seller’s Shares or the conduct or management of the Corporation by its Board of Directors, other than as set forth on Schedule 4(a)(i) hereto.  At the Closing, the Seller shall have good and marketable title to the Seller’s Shares and full right to transfer title to such Shares, subject to any restrictions imposed by state or federal securities laws, free and clear of all liens, mortgages, charges, liabilities, claims, security interests or encumbrances of every type whatsoever.  The sale, conveyance, transfer and delivery of the Seller’s Shares by the Seller to the Buyer pursuant to this Agreement, against payment therefor in accordance with the terms hereof, will transfer full legal and equitable right, title and interest in the Seller’s Shares to the Buyer, free and clear of all liens, mortgages, charges, claims, liabilities, security interests and encumbrances of any nature whatsoever other than as contemplated by this Agreement and the other agreements and instruments to be entered into in connection with the transactions contemplated hereby (the "Other Agreements").

(ii)            Capacity .  Seller has full capacity to enter into and perform its respective obligations under this Agreement and all Other Agreements to which it is a party, and to consummate such transactions.  No consent of any other persons or corporations is required to be obtained by Seller as a condition to its ability to consummate such transactions.  Except as set forth on Schedule 4(a)(ii) the Seller has no equity interest in any entity engaged in any businesses competitive with those of the Corporation. This Agreement and each of the Other Agreements to which Seller is a party have been duly executed and delivered by Seller.  This Agreement and each of the Other Agreements to which Seller is a party constitute the legal, valid and binding obligation of Seller enforceable against Seller in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally or by general equitable principles.

(iii)           The Stock .  The shares of Stock set forth on Schedule 4(a)(i) hereto constitute one hundred percent (100%) of the issued and outstanding shares of capital stock of the Corporation.  The Stock is the sole voting stock of the Corporation and is duly authorized, validly issued, fully paid and non-assessable.  The Stock is not subject to any pledge, mortgage or other encumbrance arising by or through any act of the Corporation, and there is no lien, mortgage, charge, claim, liability, security interest or encumbrance of any nature against the Stock. There are no outstanding options, warrants, rights of subscription or conversion, calls, commitments, agreements, arrangements, understandings, plans, contracts, proxies, voting trusts, voting agreements or instruments of any kind or character, oral or written, to which the

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Corporation is party or by which the Corporation is bound, relating to the issuance, voting or sale of the Stock or any authorized but unissued shares of capital stock of the Corporation or of any securities representing the right to purchase or otherwise receive any such shares of capital stock.  Except as set forth in Schedule 4(a)(i), the Corporation is not party to any stockholders agreements, preemptive rights or other agreements, arrangements, commitments or understandings, oral or written, relating to the voting, issuance, acquisition or disposition of the Stock of the Corporation or the conduct or management of the Corporation by its Board of Directors.

(iv)           Organization; Standing; Capitalization .  The Corporation has full corporate power and authority to enter into and perform its obligations under this Agreement and all Other Agreements to which it is a party, and to consummate such transactions.  Except as set forth on Schedule 4(a)(iv) of this Agreement, the Corporation has no subsidiaries.  Except as set forth on Schedule 4(a)(iv) of this Agreement, the Corporation does not hold any equity interest in any entity that is engaged in businesses competitive with those of the Corporation.  This Agreement and each of the Other Agreements to which the Corporation is a party have been duly executed and delivered by the Corporation.  This Agreement and each of the Other Agreements to which the Corporation is a party constitute the legal, valid and binding obligation of the Corporation, enforceable against it in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally or by general equitable principles.  The Corporation is duly organized and validly existing under the laws of the State of Washington, has full corporate power and authority to conduct its business as it is now being conducted and is duly qualified to do business in each jurisdiction where the nature of the property owned or leased, or the nature of the business conducted by the Corporation requires such qualification, except where the failure to have such power and authority or to so qualify would not have a material adverse effect on the Corporation and as set forth on Schedule 4(a)(iv) with respect to prior business conducted in Oregon.  The Certificate of Incorporation of the Corporation, as amended, and the By-laws, as amended, and the minutes and stock records of the Corporation delivered to the Buyer are complete and correct.  The Corporation has all necessary licenses and authority to operate its business as now being conducted, except where the failure to have such licenses or authority would not have a material adverse effect on the Corporation.  The authorized capital stock of the Corporation consists of 10,000 shares of voting common stock, no par value, all of which shares are issued and outstanding.

(v)            Legal Proceedings . Except as disclosed in Schedule 4(a)(v) of this Agreement:

• • (A)           Neither the Seller nor the Corporation is a named party or otherwise directly involved in any pending litigation, arbitration, administrative proceeding or to any investigation related to the business of the Corporation, and no such litigation, arbitration, administrative proceeding or investigation that, if adversely decided, would result in a material adverse change in the financial condition, business or properties of the Corporation, is threatened.

    (B)            The Seller has no knowledge of and has not received written notice of any claims, threats, plans or intentions to discontinue commercial relations or

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• • transactions from any major customer of the Corporation, any purchaser of a material amount of goods or services from the Corporation, any employee or independent contractor significant to the conduct or operation of the Corporation or its businesses or any party to any material agreement to which the Corporation is a party that, if resulting in the actual discontinuance of such commercial relations or transaction, would result in a material adverse change in the financial condition, business or properties of the Corporation .

    (C)            The Seller has received no written notice of any claim (whether on whatever theory) relating directly or indirectly to any product manufactured or sold, or any services performed by the Corporation asserting that the Corporation is liable for an alleged deficiency in such product or services that, if adversely decided, would result in a material adverse change in the financial condition, business or properties of the Corporation.

    (D)           The Corporation is under no obligation with respect to the return of goods in the possession of customers except for those occurring in the ordinary course of business, which are not in the aggregate material to the Corporation’s business, or against which the Corporation has established a reserve on its financial statements.

(vi)           Encumbrances .  Except as disclosed in Schedule 4(a)(vi) , there are no liens, mortgages, deeds of trust, claims, charges, security interests or other encumbrances or liabilities of any type whatsoever to which any of the assets of the Corporation, including, but not limited to the land, building, improvements and equipment (the "Fixed Assets"), or the Corporation’s inventory (the "Inventory"), are subject, except for those (A) arising in the ordinary course of business or by operation of law, (B) arising in connection with the Retained Liabilities, and/or (C) which do not materially interfere with the ownership or operation of such assets.

(vii)          Trade Names .  The Corporation owns, free of any Encumbrances, or holds the license rights to use, the trade names, trademarks, service marks, assumed names, copyrights and registrations therefor, if any (collectively "Trademarks") specified in Schedule 4(a)(vii) .  The Trademarks have been duly issued and have not been canceled, abandoned or otherwise terminated except as otherwise indicated in Schedule 4(a)(vii) .  The Corporation has not received any written notice that it is in default under any of the licenses or agreements relating to the Trademarks as listed in Schedule 4(a)(vii) and all of such licenses and agreements are in effect.  The Corporation has not granted licenses or other rights to use such Trademarks.  No other Trademarks are either owned or used by the Corporation.  To Seller’s knowledge the operation of the Corporation’s business does not infringe on the Trademarks of any third party, and, except as set forth on Schedule 4(a)(vii) ,  no written claim has been received by the Corporation that there is any such infringement.  No Trademark of any other person infringes the Trademarks of the Corporation.

(viii)         Patents .  The Corporation owns, or holds license rights to use, the inventions, letters patent, applications for letters patent and patent license rights, inventions, processes, designs, formulas, trade secrets, know-how and other industrial property rights (collectively "Patents") necessary for the conduct of its business, as specified in Schedule

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4(a)(viii).   The Patents have been duly issued and have not been canceled, abandoned or otherwise terminated except as otherwise indicated in Schedule 4(a)(viii) .  The Corporation has not received any written notice that it is in default under any of the licenses or agreements relating to the Patents as listed in Schedule 4(a)(viii) and all of such licenses and agreements are in effect.  The Corporation has not granted licenses or other rights to use such Patents.  No other Patents are owned or used by the Corporation.  The operation of the Corporation’s business does not infringe on the Patent rights of any third party, and no written claim has been received by the Corporation that there is any such infringement.  No Patent of any person infringes the Patents of the Corporation.

(ix)            Audited Financial Statements .

• • (A)           The audited financial statements of the Corporation as of and for the periods ended December 31, 2006 and 2005 (the "Audited Financial Statements"), together with the related notes and schedules, and the interim financial statements of the Corporation for any period required thereafter (the "Interim Financial Statements"), together with the related notes and schedules (collectively, the "Financial Statements"), true, correct and complete copies of which are attached hereto as Exhibit 4(a)(ix) , (B) have been prepared in accordance with generally accepted accounting principles ("GAAP"); (C) present fairly and in all material respects, the financial condition , results of operations, and cash flows of the Corporation as of and for the periods specified therein; (D) have been audited by a certified public accountant and include an unqualified opinion; (E) are true, correct and complete statements in all material respects of the financial condition and the results of operations of the Corporation as at and for the periods therein specified; (F) do not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by the Financial Statements; and (G) have been prepared from and are in accordance with the accounting Books and Records of the Corporation.

    (B)            Except as and to the extent shown or provided for in the Financial Statements or as disclosed in any of the Schedules to this Agreement or such current liabilities as may have been incurred since December 31, 2006 in the ordinary course of business, the Corporation has no liabilities or obligations (whether accrued, absolute, contingent or otherwise) which would be Retained Liabilities.  As of December 31, 2006, there was no material asset used by the Corporation in its operations that has not been reflected in the Financial Statements, and, except as set forth in the Financial Statements or disclosed in any Schedule to this Agreement, no material assets have been acquired by the Corporation since such date except those acquired in the ordinary course of business.

    (C)            There has not been a decrease in stockholders’ equity of 5% or greater as compared with the amount shown for such stockholders’ equity at December 31, 2006, as reflected in the Audited Financial Statements.

(x)             Absence of Certain Changes .  Except as disclosed on Schedule 4(a)(x) , since December 31, 2006, there has not been any material adverse change in the condition

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(financial or otherwise), operations, assets, liabilities, earnings, business or results of operations of the Corporation.

(xi)            Tax Matters .

Except as disclosed on Schedule 4(a)(xi) the Corporation has timely filed all federal, state and local income tax returns and has timely filed with all other appropriate governmental agencies all sales, ad valorem, franchise and other tax (including any real estate, personal property, or any other tax that may be due in connection with the Fixed Assets), license, gross receipts and other similar returns and reports required to be filed by the Corporation.  The Corporation has reported all taxable income and losses on those returns on which such information is required to be reported and paid or provided for the payment of all taxes due and payable by the Corporation on said returns or taxes due pursuant to any assessment received by it, including without limitation, any taxes required by law to be withheld and/or paid in connection with any officer’s or employee’s compensation or due pursuant to any assessment received by it, other than those being contested in good faith.  There are no agreements for the extension of time for the assessment or payment of any amounts of tax.  The Seller and the Corporation have made available to the Buyer for inspection copies of income tax returns that are true and complete copies of the federal and applicable state, local or other income tax returns filed by the Corporation for the taxable years ended December 31, 2005, 2004, and 2003, and any other open tax periods.  The Seller shall bear all expenses and responsibilities for the filing of federal and applicable state, local or other income tax returns and reports of the Corporation for all taxable years ended December 31, 2006.  All tax liabilities of the Corporation arising through the end of the taxable year ended December 31, 2006 have been paid.  Seller is responsible for the payment of all taxes for all periods through the Closing.  No federal or applicable state, local or other tax return of the Seller or the Corporation for any period has been or is currently under audit by the Internal Revenue Service or any state, except the current audit being conducted by the Washington Department of Revenue, local or other tax authorities.  No claim has been made by federal, state, local or other authorities relating to any such returns or any audit. For purposes of this Section 4(a)(xi), the word "timely" shall mean that such returns were filed within the time prescribed by law for the filing thereof, including the time permitted under any applicable extensions.  The Seller not aware of any facts which they believe would constitute the basis for the proposal of any tax deficiencies for any unexamined year.  All taxes which the Corporation is required by law to withhold and collect have been duly withheld and collected, and has been timely paid over to the proper authorities to the extent due and payable.

(xii)           Accounts Receivable and Inventory .

• • (A)           Accounts Receivable .  The accounts receivable of the Corporation reflected in the Audited Financial Statements as of December 31, 2006, in the amount of approximately $1,100,000, and the accounts receivable acquired by the Corporation since such date, represent valid subsisting claims for the aggregate amounts thereof net of the reserves or allowances for doubtful receivables reflected either in the Audited Financial Statements or in the Corporation’s books and records for the period following the date of such Audited Financial Statements (which books and records have been uniformly maintained in a manner consistent with the Financial Statements, and accounted for in accordance with generally accepted accounting principles).  The Seller knows of no

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• • reason that would make such accounts receivable, net of such amounts as the Corporation has reserved in the Audited Financial Statements or on its books and records, taken as a whole, not collectible.

    (B)            Inventory .  The inventory of the Corporation reflected in the Audited Financial Statements as of December 31, 2006, in the amount of approximately $873,000 and the inventory acquired by the Corporation since such date (a) has been fully paid for unless otherwise reflected in the Financial Statements, in the Corporation’s books and records, or disclosed in a Schedule to this Agreement, and (b) is marketable or adequate provision for obsolescence has been provided.

(xiii)          Title of Properties .

• • (A)           The Corporation does not own any real property except as disclosed on Schedule 4(a)(xiii) .  Except as disclosed on Schedule 4(a)(xiii) , the Corporation has good, marketable and insurable title to all properties and assets, real and personal, tangible and intangible, as reflected in the Audited Financial Statements or acquired subsequent to December 31, 2006 (other than those which have been disposed of in the ordinary course of business prior to the Closing Date).

    (B)            Schedule 4(a)(xiii) contains an accurate list of all leases and other agreements requiring aggregate payments by the Corporation in excess of $20,000 under which the Corporation is lessee of any personal property.  Each such lease and other agreement is in full force and effect and constitutes the legal, valid and binding obligation of the Corporation and of the other parties thereto.

    (C)            Except as disclosed in Schedule 4(a)(xiii) , the Seller is not aware of, nor has he received notice of, the violation of any applicable zoning regulation, ordinance or other law, order, regulation or requirement in force on the date hereof relating to the Corporation’s business or its owned or leased real or personal properties, with which the Corporation has not complied (other than such noncompliance as would not result in a material adverse effect on the Corporation).

(xiv)         Material Contracts .

• • (A)           Schedule 4(a)(xiv) contains a complete and correct list as of the date hereof of all material agreements, contracts and commitments, obligations and understandings, as amended, requiring aggregate payments or services to or by the Corporation in excess of $20,000 which are not set forth in any other Schedule ("Material Contracts"). All such Material Contracts are in full force and effect and, except as disclosed in Schedule 4(a)(xiv) , the Corporation has and, to the best knowledge of the Seller, all other parties to, or otherwise bound by, such Material Contracts have performed all obligations required to be performed by them to date.  The Corporation has not received written notice that it is in default of any Material Contract, and to the best knowledge of the Seller, no event, occurrence, condition or act exists which gives rise to (or which with notice or the lapse of time, or both, would result in) a default or right of cancellation, acceleration or loss of contractual benefits under any Material Contract.

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• • There has been no written threatened cancellations thereof, and the Corporation is not involved in any outstanding disputes under any Material Contract.  Except as set forth in Schedule 4(a)(xiv) , no consent of any counterparty to any Material Contract is required as a condition to the Corporation’s execution and delivery of this Agreement.  Any contracts, agreements, leases or commitments relating to the business of the Corporation, but held in the name of the Seller (and set forth in the Schedules hereto) shall be assigned to either the Buyer or the Corporation on the Closing Date.

    (B)            Except as otherwise set forth in Schedule 4(a)(xiv) , each Material Contract constitutes a valid and binding obligation of the Corporation and, to the best knowledge of the Seller, of the other respective parties to such agreements.  To the best knowledge of the Seller, no counterparty to any Material Contract is in default thereof, nor are they aware of any event that, with notice, lapse of time or both, would constitute a default by the Corporation or such other parties in respect of which adequate steps have not been taken to cure such default or to prevent a default from occurring or continuing.

    (C)            No agreement, contract, commitment, obligation or undertaking listed on the Schedules hereto which the Corporation is a party or by which it or any of its properties is bound, contains any provision, the performance of which materially adversely affects the condition, properties, assets, liabilities, business, operations or prospects of the Corporation following the date hereof.

(xv)          Default; Violations or Restrictions .  The execution, delivery and performance of this Agreement and of any Other Agreement by the Corporation, and the consummation of any of the transactions contemplated hereby or thereby will not (or with the giving of notice or the lapse of time or both would) (A) result in the breach of any term or provision of the Certificate of Incorporation or By-laws of the Corporation; or (B) violate any provision of or result in the breach of, or constitute a default under any law, order, writ, injunction, decree, statute, rule or regulation of any court, governmental agency or arbitration tribunal applicable to the Corporation (other than such violations, breaches or defaults that would not result in a material adverse effect on the Corporation); or (C) violate any provision of or result in the breach of, modification of, acceleration of the maturity of obligations under, or constitute a default, or give rise to any right of termination, cancellation, acceleration or otherwise be in conflict with or result in a loss of material contractual benefits to the Corporation under any of the terms, conditions or provisions of any contract, lease, note, bond, mortgage, deed of trust, indenture, license, security agreement, agreement or other instrument or obligation to which the Corporation is a party or by which it is bound (other than such violations, breaches, modifications, defaults or conflicts that would not result in a material adverse effect on the Corporation); or (D) require any consent, approval or notice under any law, rule or decree, document or instrument (other than where the failure to obtain such consent or approval, or give such notice, would not result in a material adverse effect on the Corporation); or (E) result in the creation or imposition of any lien, claim, restriction, charge or encumbrance upon the Corporation’s assets (other than such liens, claims, restrictions, charges or encumbrances that would not, in the aggregate, have a material adverse effect on the Corporation).

(xvi)         Court Orders and Decrees .  The Corporation has not received written or oral notice that there is outstanding, pending, or threatened any order, writ, injunction or decree

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of any court, governmental agency or arbitration tribunal against the Corporation or involving the Stock or any of the Corporation’s material assets.

(xvii)        Books and Records .  The books and records of the Corporation are, in all material respects, complete and correct and have been maintained in accordance with good business practice.  True and complete copies of the Certificate of Incorporation and By-laws of the Corporation and all amendments thereto and true and complete copies of all minutes, resolutions, stock certificates and stock transfer records of the Corporation are contained in the minute books and stock transfer books that have been previously delivered to the Buyer for inspection, and will be transferred and delivered to the Buyer at the Closing.

(xviii)       Pension and Welfare Plans .

• • (A)           Pension and Profit Sharing Plans .  Except as disclosed in Schedule 4(a)(xviii) , the Corporation does not have in effect any pension, profit sharing or other employee benefit plan described under Section 3(2)(A) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").  All benefits payable under any terminated employee pension benefit plan (as such term is defined in Section 3(2)(A) of ERISA) previously maintained by the Corporation or to which it has previously contributed (if any) have been paid in full.  The Corporation does not have any unfunded liability in respect of any such plan to the Pension Benefit Guaranty Corporation or to the participants in such plan or to the beneficiaries of such participants.  Each such terminated plan (if any) was terminated substantially in accordance with the applicable provisions of law or any agreement or contract relating to any such plan and has been terminated without liability to the Corporation.

    (B)            Welfare Plans .  For any plan, fund, or arrangement of the Corporation which is an employee welfare benefit plan, whether or not currently maintained (within the meaning of ERISA Section 3(1)) (a "Welfare Plan"), the following is true

    • • • • (1)            each such Welfare Plan intended to meet the requirements for tax-favored treatment under Subchapter B of Chapter 1 of the Code meets such requirements;

            (2)            there is no voluntary employees’ beneficiary association (within the meaning of Section 501(c)(9) of the Code) maintained with respect to any such Welfare Plan;

            (3)            there is no disqualified benefit (as such term is defined in Code Section 4976(b)) which would subject the Corporation or the Buyer to a tax under Code Section 4976(a);

            (4)            each such Welfare Plan which is a group health plan (if any) complies and has complied with the applicable requirements of Code Section 4980B and would comply with Sections 9801 through 9806 if such provisions were now in effect, Title XXII of the Public Health Service Act, and the applicable provisions of the Social Security Act and

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• • • • • • is not and has not been a nonconforming group health plan under Section 5000(c) of the Code;

            (5)            each such Welfare Plan may be amended or terminated by the Corporation or the Buyer, on or at anytime after, the Closing Date and after any advance notice to participants or similar measures required by law which are non-waivable under the Welfare Plan;

            (6)            no such Welfare Plan provides