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STOCK PURCHASE AGREEMENT

Purchase and Sale Agreement

STOCK PURCHASE AGREEMENT | Document Parties: HealthStream, Inc | Jackson Organization, Research Consultants, Inc You are currently viewing:
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HealthStream, Inc | Jackson Organization, Research Consultants, Inc

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Title: STOCK PURCHASE AGREEMENT
Governing Law: Tennessee     Date: 3/13/2007
Law Firm: Venable;Bass Berry    

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EXHIBIT 2.1

STOCK PURCHASE AGREEMENT

     This Stock Purchase Agreement (the “ Agreement ”), dated as of March 12, 2007, is by and among (a) HealthStream, Inc., a Tennessee corporation (“ Buyer ”), (b) David Jackson and The Jackson Charitable Remainder Trust (the “ Sellers ”) and (c) The Jackson Organization, Research Consultants, Inc., a Maryland corporation (the “ Company ”). Capitalized terms used in this Agreement are defined as set forth in Annex A attached hereto. Buyer, Sellers and the Company are sometimes referred to individually as a “ Party ” and collectively as the “ Parties .”

     WHEREAS, Sellers own 850 shares of common stock of the Company (the “ Shares ”), which Shares constitute all of the issued and outstanding shares of capital stock of the Company;

     WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of the Shares, for the consideration and on the terms set forth in this Agreement; and

     WHEREAS, the Company, in consideration of the anticipated benefits to be received by the Company in connection with the closing of the transactions contemplated hereby, and in order to induce Buyer to enter into this Agreement, has agreed to be a Party to this Agreement for certain purposes as set forth herein.

     NOW, THEREFORE, in consideration of the mutual benefits to be derived from the Agreement, the representations, warranties, conditions and promises hereinafter contained, and other consideration, the receipt and sufficiency of which consideration are hereby acknowledged, each of the Parties hereby agrees as follows:

ARTICLE I
SALE AND TRANSFER OF SHARES; CLOSING

     Section 1.1. Sale and Transfer of Shares . Subject to the terms and conditions of this Agreement, at the Closing, Sellers shall sell and transfer the Shares to Buyer, and Buyer shall purchase the Shares from Sellers.

     Section 1.2. Purchase Price . The purchase price (the “ Purchase Price ”) for the Shares shall be $12,650,000, adjusted initially by the Estimated Closing Adjustment Amount and finally by the Closing Adjustment Amount. In accordance with Section 1.4(b), at the Closing, the Purchase Price, prior to adjustment by the Closing Adjustment Amount, shall be delivered as follows:

          (a) $5,206,380.41, adjusted by the Estimated Closing Adjustment Amount, if applicable, payable in cash by Buyer to Sellers by wire transfer of immediately available funds (the “ Cash Consideration ”);

          (b) $200,000, payable in cash by Buyer to the Escrow Agent by wire transfer of immediately available funds to be held pursuant to the Cash Escrow Agreement (the “ Working Capital Cash Escrow ”);

          (c) $1,560,000 payable in cash by Buyer to the Escrow Agent by wire transfer of immediately available funds to be held pursuant to the Cash Escrow Agreement (the “ Additional Cash Escrow ” and together with the Working Capital Cash Escrow, the “ Cash Escrow ”);

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          (d) $3,262,375, payable in cash by Buyer to the Escrow Agent by wire transfer of immediately available funds to be held pursuant to the Guaranty Escrow Agreement (the “ Guaranty Escrow ”);

          (e) the number of shares of HealthStream Stock having a value equal to $1,000,000, with the value of each share of HealthStream Stock to be equal to the Average Price (such HealthStream Stock delivered to the Escrow Agent to be held pursuant to the Stock Escrow Agreement, the “ Escrow Stock ”);

          (f) $299,000 to Tim Grugeon as payment for all financial advisory fees and expenses owed as a result of the Closing;

          (g) $32,000 to Venable LLP as payment for all legal fees and expenses owed as a result of the Closing;

          (h) $530,244.59 to Paul Staros in full satisfaction of that certain Promissory Note, dated August 11, 2006, issued by the Company to Paul Staros;

          (i) $447,232.60 to Branch Banking and Trust Company as payment of the Company’s outstanding debt as set forth on the Financial Statements.

          (j) $100,000 to Thomas S. Hutchinson pursuant to Section 2.27(a); and

          (k) $10,000 to Karen Reynolds pursuant to Section 2.27(a).

The Closing Adjustment Amount shall be paid by Buyer or Sellers, as the case may be, following the Closing in accordance with Section 1.6.

     Section 1.3. Closing . The closing of the transactions contemplated by this Agreement (the “ Closing ”) will take place at the offices of Bass, Berry & Sims PLC, 315 Deaderick Street, Suite 2700, Nashville, Tennessee 37238-3001 at 2:00 p.m. (local time) on the later of (i) the satisfaction or waiver of all the closing conditions set forth in Article V of this Agreement, or (ii) March 12, 2007, or at such other time and place as Buyer and Sellers may agree in writing (the date of the Closing, the “ Closing Date ”). Subject to the provisions of Article VI, failure to consummate the purchase and sale provided for in this Agreement on the date and time and at the place determined pursuant to this Section 1.3 will not result in the termination of this Agreement and will not relieve any Party of any obligations under this Agreement. In such event, the Closing will occur as soon as practicable, subject to Article VI.

     Section 1.4. Closing Obligations . In addition to any other documents to be delivered under other provisions of this Agreement, at the Closing:

          (a) Sellers shall deliver, or cause to be delivered, to Buyer:

     (i) certificates representing the Shares, duly endorsed (or accompanied by duly executed stock powers), for transfer to Buyer;

     (ii) releases in substantially the form attached hereto as Exhibit A , executed by each of the Sellers (the “ Releases ”);

     (iii) a consulting agreement in substantially the form attached hereto as Exhibit B , executed by David Jackson (the “ Consulting Agreement ”);

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     (iv) employment agreements in substantially the form attached hereto as Exhibit C , executed by each of Tom Hutchinson, Ariel Adams, Berke Bilbay, Ted Gumer, Karen Sorensen, Christine Gilbert, Bonnie Lowry, Allan Acton, Rob Reigle, Karen Reynolds, Teresa Diamante and Lisa Marrow (the “ Employment Agreements ”);

     (v) a noncompetition, nondisclosure and nonsolicitation agreement in substantially the form attached hereto as Exhibit D , executed by David Jackson (the “ Noncompetition Agreement ”);

     (vi) an escrow agreement relating to the Cash Escrow in substantially the form attached hereto as Exhibit E , executed by Sellers and the Escrow Agent (the “ Cash Escrow Agreement ”);

     (vii) an escrow agreement relating to the Escrow Stock in substantially the form attached hereto as Exhibit F , executed by Sellers and the Escrow Agent (the “ Stock Escrow Agreement ”);

     (viii) an escrow agreement relating to the Guaranty Escrow in substantially the form attached hereto as Exhibit G , executed by Sellers and the Escrow Agent (the “ Guaranty Escrow Agreement ”);

     (ix) a cross receipt in substantially the form attached hereto as Exhibit H , executed by Paul Staros;

     (x) Legal Opinion of Venable LLP in the form set forth as Exhibit I ;

     (xi) Lease Agreement in substantially the form attached hereto as Exhibit J , executed by the Company and MOR Montpelier 3 LLC (the “ New Lease ”);

     (xii) an agreement in substantially the form attached hereto as Exhibit K , executed by David Jackson, the Company and Buyer (the “ Payoff Agreement ”).

          (b) Buyer shall deliver, or caused to be delivered, to Sellers or the Escrow Agent, as applicable:

     (i) the Cash Consideration to Sellers by wire transfer of immediately available funds to an account specified in writing by Sellers, to be allocated pursuant to the percentages set forth on Schedule 1.4(b)(i) ;

     (ii) the Cash Escrow Agreement, executed by Buyer and the Escrow Agent, together with the delivery to the Escrow Agent of the Cash Escrow by wire transfer to an account specified by the Escrow Agent;

     (iii) the Stock Escrow Agreement, executed by Buyer and the Escrow Agent, together with the delivery to the Escrow Agent of the stock certificates for the Escrow Stock;

     (iv) the Guaranty Escrow Agreement, executed by Buyer and the Escrow Agent, together with the delivery to the Escrow Agent of the Guaranty Escrow by wire transfer to an account specified by the Escrow Agent;

     (v) the Consulting Agreement, executed by Buyer;

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     (vi) the Employment Agreements, executed by Buyer;

     (vii) the Noncompetition Agreement, executed by Buyer;

     (viii) the New Lease, executed by Buyer; and

     (viii) the Payoff Agreement, executed by Buyer.

     Section 1.5. Estimated Closing Adjustment Amount .

          (a) The “ Estimated Closing Adjustment Amount ” will be the amount, if any, by which the Working Capital deficit of the Company as reflected on the Estimated Balance Sheet (as prepared and delivered pursuant to Section 1.5(b) below) is greater than $1,100,000. For example, if the Working Capital deficit of the Company as reflected on the Estimated Balance Sheet is $1,300,000, then the Estimated Closing Adjustment Amount would be $200,000. The Estimated Closing Adjustment Amount, if any, will be subtracted from the cash portion of the Purchase Price payable by Buyer to Sellers pursuant to Section 1.4(b)(i).

          (b) No later than one (1) Business Day prior to the Closing Date, Sellers shall cause an estimated balance sheet of the Company as of December 31, 2006 (as adjusted to reflect the cost of the transaction and other Transaction Expenses or other transactions or adjustments in anticipation of Closing, as set forth on Schedule 1.5(b) (the “ Estimated Balance Sheet ”) to be prepared and delivered to Buyer, which will be accompanied by an estimated calculation of the Working Capital of the Company as of December 31, 2006, which calculation shall also reflect the items set forth on Schedule 1.5(b) ; however, for purposes of the Estimated Closing Adjustment Amount, any current portion of outstanding debt shall be excluded from the calculation of Working Capital.

     Section 1.6. Closing Adjustment Amount .

          (a) Subject to the provisions set forth below, the “ Closing Adjustment Amount ” will be an amount (which shall be a positive number) equal to the difference between (x) the Working Capital of the Company as reflected on the Closing Balance Sheet and (y) the Working Capital of the Company as reflected on the Estimated Balance Sheet.

     (i) If the Working Capital deficits of the Company as reflected on the Closing Balance Sheet and on the Estimated Balance Sheet are both less than $1,100,000, then the Closing Adjustment Amount shall automatically equal zero.

     (ii) If (A) the Working Capital deficit of the Company as reflected on the Estimated Balance Sheet is less than the Working Capital deficit of the Company as reflected on the Closing Balance Sheet and (B) the Working Capital deficit of the Company as reflected on the Estimated Balance Sheet is greater than or equal to $1,100,000, then the Closing Adjustment Amount will be paid to Buyer to an account specified by Buyer from and to the extent of the Working Capital Cash Escrow held by the Escrow Agent under the Cash Escrow Agreement, and to the extent the Closing Adjustment Amount is greater than the Working Capital Cash Escrow, the excess will be paid to Buyer first from the Additional Cash Escrow and secondly from the Escrow Stock.

     (iii) If (A) the Working Capital deficit of the Company as reflected on the Estimated Balance Sheet is less than the Working Capital deficit of the Company as reflected on the Closing Balance Sheet and (B) the Working Capital deficit of the Company as reflected on the

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Estimated Balance Sheet is less than $1,100,000, then the Closing Adjustment Amount shall be calculated assuming that the Working Capital deficit of the Company as reflected on the Estimated Balance Sheet was equal to $1,100,000. Such amount will be paid to Buyer to an account specified by Buyer from and to the extent of the Working Capital Cash Escrow held by the Escrow Agent under the Cash Escrow Agreement, and to the extent the Closing Adjustment Amount is greater than the Working Capital Cash Escrow, the excess will be paid to Buyer first from the Additional Cash Escrow and secondly from the Escrow Stock.

     (iv) If (A) the Working Capital deficit of the Company as reflected on the Closing Balance Sheet is less than the Working Capital deficit of the Company as reflected on the Estimated Balance Sheet, and (B) the Working Capital deficit of the Company as reflected on the Closing Balance Sheet is greater than or equal to $1,100,000, then the Closing Adjustment Amount will be paid by wire transfer of immediately available funds by Buyer to Sellers to the account specified by Sellers.

     (v) If (A) the Working Capital deficit of the Company as reflected on the Closing Balance Sheet is less than the Working Capital deficit of the Company as reflected on the Estimated Balance Sheet, and (B) the Working Capital deficit of the Company as reflected on the Closing Balance Sheet is less than $1,100,000, then the Closing Adjustment Amount shall be calculated assuming that the Working Capital deficit of the Company as reflected on the Closing Balance Sheet was equal to $1,100,000. Such amount will be paid by wire transfer of immediately available funds by Buyer to Sellers to the account specified by Sellers.

          (b) Within three (3) Business Days after the calculation of the Closing Adjustment Amount becomes binding and conclusive on the Parties pursuant to Sections 1.6(d) and 1.6(e), Sellers or Buyer, as the case may be, will make the payment provided for in Section 1.6(a) and/or Buyer and Sellers will deliver joint written instructions to the Escrow Agent under the Cash Escrow Agreement directing that the appropriate amount be paid to Buyer from the Working Capital Cash Escrow (and the Additional Cash Escrow and/or Escrow Stock, if applicable) with any remaining amount of the Working Capital Cash Escrow, if any, being distributed to Sellers. If the payment provided for in Section 1.6(a) is not made within 10 Business Days after such Closing Adjustment Amount becoming binding and conclusive on a Party, interest at the rate of 8% per annum shall accrue and be payable on the Closing Adjustment Amount.

          (c) Buyer shall prepare a balance sheet of the Company as of the Closing Date (the “ Closing Balance Sheet ”), which will include a calculation of the Working Capital of the Company as of the Closing Date. Buyer shall deliver the Closing Balance Sheet to Sellers within sixty (60) days following the Closing Date (the date of such delivery, the “ Delivery Date ”).

          (d) If within fifteen (15) days following the Delivery Date, Sellers have not given Buyer written notice of their objection to the Closing Balance Sheet calculation (which notice must contain (i) a statement of Sellers’ calculation of the Company’s Working Capital as of the Closing Date and (ii) the basis of Sellers’ objection), then the Working Capital amount reflected in the Closing Balance Sheet will be binding and conclusive on the Parties and will be used in computing the Closing Adjustment Amount.

          (e) If Sellers duly give Buyer such notice of objection within fifteen (15) days following the Delivery Date, and if Sellers and Buyer fail to resolve the issues outstanding with respect to the Closing Balance Sheet and the calculation of the Working Capital reflected in the Closing Balance Sheet within fifteen (15) days of Buyer’s receipt of the objection notice from Sellers, Sellers and Buyer shall submit the issues remaining in dispute to Lattimore Black Morgan & Cain, PC (the “ Independent

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Accountants ”) for resolution. If issues are submitted to the Independent Accountants for resolution, (i) Sellers and Buyer shall furnish or cause to be furnished to the Independent Accountants such work papers and other documents and information relating to the disputed issues as the Independent Accountants may request and are available to that Party or its agents and shall be afforded the opportunity to present to the Independent Accountants any material relating to the disputed issues and to discuss the issues with the Independent Accountants; (ii) the determination by the Independent Accountants, as set forth in a notice to be delivered to Sellers and Buyer within thirty (30) days of the submission to the Independent Accountants of the issues remaining in dispute, will be final, binding and conclusive on Sellers and Buyer; and (iii) Sellers and Buyer shall pay equal percentages of the fees and costs of the Independent Accountants in connection with such determination, unless one Party’s calculation of the Working Capital of the Company as of the Closing Date differs from the calculation of the Working Capital of the Company as of the Closing Date by the Independent Accountants by more than 33.33% in which case such Party shall then pay one-hundred percent (100%) of the Independent Accountant’s fees and costs in connection with such determination. In the event that both Parties’ calculation of the Closing Adjustment Amount differs from the determination of the Independent Accountant by more than 33.33%, then the Party whose calculation differs from the determination of the Independent Accountants by the greatest amount shall pay one-hundred percent (100%) of the Independent Accountant’s fees and costs.

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANY

     Sellers and the Company, jointly and severally, represent and warrant to Buyer as follows:

     Section 2.1. Organization and Good Standing .

          (a)  Schedule 2.1(a) contains a complete and accurate list of the Company’s jurisdiction of incorporation and any other jurisdictions in which it is qualified to do business as a foreign corporation. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to conduct its business as it is now being conducted, to own or use its properties and assets and to perform all of its obligations under the Applicable Contracts. The Company is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where the failure to so qualify would not have a Material Adverse Effect.

          (b) True and complete copies of the Articles of Incorporation and Bylaws of the Company, as currently in effect, have been delivered to Buyer.

          (c) The Company does not, directly or indirectly, own, and has not agreed to purchase or otherwise acquire, the capital stock or other equity interests of, or any interest convertible into or exchangeable or exercisable for capital stock or other equity interests of, any Person.

     Section 2.2. Authority; No Conflict .

          (a) This Agreement constitutes the valid and binding obligation of each of Seller Parties, enforceable against each of Seller Parties in accordance with its terms. Upon the execution and delivery by Sellers or the Company, respectively, of each document or instrument to be executed or delivered by Sellers and the Company at Closing pursuant to Section 1.4(a) or any other provision of this Agreement (collectively, the “ Seller Closing Documents ”), each of the Seller Closing Documents will constitute the valid and binding obligation of Sellers and the Company, as applicable, enforceable against

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Sellers and the Company, as applicable, in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors’ rights generally, (ii) general equitable principles and (iii) the discretion of courts in granting equitable remedies. The Company has all requisite corporate power and authority and Sellers have all requisite power, authority and capacity, to execute and deliver this Agreement and the Seller Closing Documents and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement by the Company and the consummation of the transactions contemplated hereby have been duly and validly authorized and approved by the Company, and no other corporate action on the part of the Company is necessary to authorize the execution and delivery of this Agreement by the Company or the consummation of the transactions contemplated hereby.

          (b) Except as set forth in Schedule 2.2(b) , neither the execution and delivery of this Agreement by Seller Parties nor the consummation of the transactions contemplated hereby will, directly or indirectly (with or without notice or lapse of time):

     (i) conflict with or violate the Articles of Incorporation or Bylaws of the Company;

     (ii) conflict with or violate, or give any Governmental Authority or other Person the right to challenge any of the transactions contemplated hereby or exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which any Seller Party, or any of the assets owned or used by the Company, may be subject;

     (iii) cause Buyer or the Company to become subject to, or to become liable for, the payment of any Tax resulting from the transactions contemplated by this Agreement;

     (iv) breach any provision of any Applicable Contract, or give any Person the right to declare a default under, exercise any remedy under, accelerate the maturity or performance of or payment under, or cancel, terminate or modify, any Applicable Contract; or

     (v) result in the imposition or creation of any Lien upon or with respect to any of the assets owned or used by the Company.

          (c) Except as set forth in Schedule 2.2(c) , no Selling Party is or will be required to give any notice to or obtain any consent or approval from (i) any Governmental Authority, (ii) any party to any Applicable Contract, or (iii) any other Person, in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

     Section 2.3. Capitalization . The authorized equity securities of the Company consist of 1,000 shares of common stock, of which 850 shares are issued and outstanding and are defined herein as the “ Shares .” Sellers are and will be on the Closing Date the record and beneficial owners of the Shares as set forth on Schedule 2.3 , free and clear of any Liens. All of the Shares have been duly authorized and validly issued and are fully paid and non-assessable. The Shares have not been issued in violation of, and the capital stock of the Company is not subject to, any preemptive or subscription rights or rights of first refusal. None of the Shares were issued in violation of the Securities Act or any other Legal Requirement. There are no options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments that obligate the Company to issue, transfer or sell any shares of capital stock of the Company. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Company. There is no obligation, contingent or otherwise, of the Company to repurchase, redeem or otherwise acquire any Shares. There are no voting

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trusts, proxies or other agreements to which any Seller is a party with respect to the voting or transfer of any Shares.

     Section 2.4. Financial Statements . Attached as Schedule 2.4 are copies of (i) the unaudited balance sheet of the Company as of December 31, 2003, and the related unaudited income statement for the year then ended, (ii) the unaudited balance sheet of the Company as of December 31, 2006 (the “ Most Recent Balance Sheet ”), and the related unaudited income statement for the year then ended and (iii) the audited balance sheets of the Company for the years ended December 31, 2004 and 2005, and the related audited income statements for the years then ended (the financial statements referred to in clauses (i), (ii) and (iii) above, including the notes thereto, if any, the “ Financial Statements ”), each of which are accurate and complete in all material respects. The Financial Statements fairly present in all material respects (and the financial statements to be delivered pursuant to Section 4.7 will fairly present in all material respects) the financial condition and results of operations of the Company as at the respective dates of and for the periods referred to in such Financial Statements. The Financial Statements have been prepared from the books and records of the Company (which books and records are accurate and complete in all material respects) in accordance with GAAP and reflect the consistent application of accounting principles throughout the periods involved, except as disclosed in the notes to the Financial Statements.

     Section 2.5. Real Property .

          (a) The Company does not own any real property.

          (b)  Schedule 2.5(b) lists (i) all real property with respect to which the Company holds a leasehold interest or subleasehold interest, or otherwise has a license or other right to use (the “ Leased Real Property ”), and (ii) each agreement, contract or other arrangement under which the Company leases or otherwise has the right to use any such Leased Real Property (listing, with respect to each such agreement, the date of the agreement and any amendments thereto, any assignments thereof, the names of the parties to the agreement, the address of the Leased Real Property, the rentable square footage and annual rent thereunder, the expiration date, and the existence of any renewal terms). The Company enjoys peaceful and undisturbed possession of the Leased Real Property. The Company has not entered into any subleases, arrangements, licenses or other agreements relating to the use or occupancy of all or any portion of the Leased Real Property by any Person other than the Company.

          (c) The Leased Real Property, and the use of the Leased Real Property by the Company for the purposes for which it is currently being used, conforms to all applicable fire, safety, zoning and building laws and ordinances, laws relating to the disabled, and other applicable Legal Requirements. To the Knowledge of Seller Parties, there are no pending or threatened eminent domain, condemnation, zoning, or other Proceedings affecting the Leased Real Property that would result in the taking of all or any part of the Leased Real Property or that would prevent or hinder the continued use of the Leased Real Property as currently used in the conduct of the Company Business. All Leased Real Property has adequate rights of access to dedicated public ways and is served by water, electric, sewer and other necessary facilities and services.

     Section 2.6. Personal Property .

          (a) The Company has good and valid title to, or a valid and enforceable right to use under a contract listed in Schedule 2.15(a) , all property and assets (whether tangible or intangible) used or held for use by the Company in connection with its business, including all such assets reflected in the Most Recent Balance Sheet or acquired since December 31, 2006 (the “ Most Recent Balance Sheet Date ”), free and clear of all Liens other than (i) any Lien for Taxes not yet due and payable, (ii) any landlord’s, carriers’, warehousemen’s, mechanics’, materialmen’s or similar Liens arising or incurred in

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the ordinary course of business with respect to obligations that are not yet due or delinquent, and (iii) any Liens identified on Schedule 2.6(a) (the “ Permitted Liens ”).

          (b) Each item of machinery, equipment, furniture, and other tangible personal property used or held for use by the Company in connection with its business is in good repair and good operating condition, ordinary wear and tear excepted, is suitable for the purposes for which it is presently used, and is free from any latent and patent defects. All such tangible personal property is in the possession of the Company.

     Section 2.7. Taxes .

          (a) The Company has timely filed all Tax Returns required to be filed by it in accordance with applicable Legal Requirements, other than any Tax Returns in respect of which the Company has been the beneficiary of any extension of time within which to file any such Tax Returns as disclosed on Schedule 2.7(a) . All such Tax Returns are true and accurate. Except as set forth in Schedule 2.7(a) , no such Tax Return has been audited or examined by any taxing authority, court or other Governmental Authority, and, to the Knowledge of Seller Parties, no such audit or examination is threatened. The Company has not received from any foreign, federal, state, or local taxing authority any (i) notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against the Company. True and complete copies of such Tax Returns for the past three years and any examination reports and statements of deficiencies relating thereto assessed against or agreed to by the Company have been delivered to Buyer.

          (b) All Taxes due and owing by the Company (whether or not shown on any Tax Return) have been paid. All Taxes that the Company is or was required by applicable Legal Requirements to withhold or collect have been withheld or collected, and, to the extent required, have been properly paid on a timely basis to the appropriate Governmental Authority or other Person. The (i) unpaid Taxes of the Company (computed consistent with the Company’s historical accounting principles and practices provided that such principles and practices are consistent with applicable Tax law) do not exceed the reserve for Taxes (rather than any reserve for deferred Taxes established to reflect timing differences between book and tax income) set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto), and (ii) reserve set forth on the Most Recent Balance Sheet represents an accurate estimate of the Taxes due with respect to the periods ended December 31, 2006.

          (c) There is no dispute or claim concerning (i) any Liability of the Company for additional Taxes, or (ii) any obligation of the Company to file Tax Returns or pay Taxes in any jurisdiction in which it does not file Tax Returns or pay Taxes, either (x) claimed or raised by any Governmental Authority in any notice or other communication provided to the Company, or (y) as to which any Seller Party has Knowledge. No assessment or other Proceeding by any taxing authority, court or other Governmental Authority is pending, or to the Knowledge of the Company, threatened, with respect to the Taxes or Tax Returns of the Company. There are no Liens for Taxes upon any assets of the Company.

          (d) There are no outstanding agreements, waivers or arrangements extending the statutory period of limitations applicable to any claim for or the period for the collection or assessment of Taxes due by the Company for any taxable period.

          (e) The Company does not have any liability for Taxes of any Person other than the Company (i) under Treasury Regulations Section 1.1502-6 (or any similar provision of applicable law); or (ii) as a transferee or successor by contract or otherwise. The Company has not been a member of an

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“affiliated group” within the meaning of Section 1504(a) of the Code. The Company is not a party to any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement or similar agreement.

          (f) None of the assets of the Company is “tax-exempt use property” within the meaning of Section 168(h) of the Code.

          (g) The Company has not made any payments, is not obligated to make any payments, and is not a party to any agreement that under certain circumstances could obligate it or any successor to make payments, that (i) will not be deductible under Section 280G of the Code (including any payments required to be made in connection with the consummation of the transactions contemplated hereby), or (ii) to any employee that would not be deductible under Section 162 of the Code.

          (h) The Company has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code.

          (i) No closing agreement pursuant to Section 7121 of the Code or any similar provision of applicable law has been entered into with respect to the Company or any of its assets.

          (j) There are no joint ventures, partnerships or other arrangements or contracts to which the Company is a party that could be treated as a partnership for federal income tax purposes.

          (k) The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any:

     (i) change in method of accounting for a taxable period ending on or prior to the Closing Date;

     (ii) installment sale or open transaction disposition made on or prior to the Closing Date; or

     (iii) prepaid amount received on or prior to the Closing Date.

          (l) The Company has not distributed stock of another Person, nor had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code.

     Section 2.8. Employees .

          (a)  Schedule 2.8(a) sets forth a complete and accurate list of (i) each employee of the Company, including each employee on leave of absence or layoff status, and (ii) each director of the Company, giving, with respect to each such individual, name, job title, current annual salary with the Company, any bonuses paid by the Company in addition to such annual salary during the twelve (12) months preceding the date of this Agreement, vacation and sick leave that is accrued but unused, and services credited for purposes of vesting and eligibility to participate under any Employee Benefit Plan (in each case, to the extent applicable).

          (b) There is no collective bargaining agreement in effect between the Company and any labor unions or organizations in respect of its employees. The Company has not experienced any organized slowdown, work interruption strike or work stoppage by its employees, and, to the Knowledge

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of Seller Parties, there is no strike, labor dispute or union organization activities pending or threatened affecting the Company.

          (c) The Company is, and since January 1, 2003 (the “ Compliance Date ”), has been, in compliance with all Legal Requirements regarding employment and employment practices, terms and conditions of employment, wages and hours, benefits, equal employment opportunity, anti-discrimination, immigration, occupational health and safety, unfair labor practices and collective bargaining (the “ Employment Matters ”), except where such noncompliance would not have a Material Adverse Effect. Since the Compliance Date, there have been no Proceedings or claims regarding the Employment Matters, whether oral or in writing, by or against the Company or that otherwise relate to or may affect the business of, or any of the assets owned or used by, the Company.

          (d) Except as set forth in Schedule 2.8(d) , the Company is not a party to any employment, non-competition, severance or other contract or agreement with any employee or director of the Company. To the Knowledge of Seller Parties, no employee or director of the Company is bound by any contract or agreement that purports to limit the ability of such director or employee to engage in or continue or perform any conduct, activity, duties or practice relating to the business of the Company, or that requires the employee to transfer, assign, or disclose information concerning his work to anyone other than the Company.

     Section 2.9. Employee Benefits .

          (a)  Schedule 2.9(a) lists all employment, consulting, executive compensation, bonus, deferred compensation, incentive compensation, stock purchase, stock option or other equity-based, retention, change in control, severance or termination pay, hospitalization or other medical, life, disability or other insurance, supplemental unemployment benefits, profit-sharing, pension or retirement plans, programs, agreements or arrangements, and each other fringe or other employee benefit plan, program, agreement or arrangement (including any “employee benefit plan”, within the meaning of Section 3(3) of ERISA), sponsored, maintained or contributed to or required to be contributed to by the Company or by any ERISA Affiliate for the benefit of any employee or former employee of the Company, or any beneficiaries thereof, or with respect to which the Company or any ERISA Affiliate may have any Liability (the “ Employee Benefit Plans ”).

          (b) Each Employee Benefit Plan is and has been maintained and administered in material compliance with its terms and with the applicable requirements of ERISA, the Code and any other applicable Legal Requirements. The Company has timely segregated or transferred all employee contributions and paid all other contributions, premiums and expenses payable to or in respect of each Employee Benefit Plan under the terms thereof and in accordance with the Code, ERISA, and other applicable Legal Requirements. Neither the Company, nor, to the Knowledge of Seller Parties, any other Person, has engaged in any transaction with respect to any Employee Benefit Plan that would be reasonably likely to subject the Company or Buyer to any Tax or penalty (civil or otherwise) imposed by ERISA, the Code or other applicable Legal Requirements.

          (c) With respect to each Employee Benefit Plan, the Company has delivered to Buyer complete copies of each of the following documents; (i) a copy of each Employee Benefit Plan (including any amendments thereto); (ii) a copy of the three most recent Form 5500 and annual report, if any, required under ERISA or the Code; (iii) a copy of the three most recent nondiscrimination reports, if any, required under the Code; (iv) a copy of the most recent Summary Plan Description, if any, required under ERISA; (v) if the Employee Benefit Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement (including any amendments thereto); and (vi) if the

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Employee Benefit Plan is intended to be qualified under Section 401(a) of the Code, the most recent determination letter (if any) received from the Internal Revenue Service.

          (d) No Employee Benefit Plan is a “multiemployer plan,” as such term is defined in Section 3(37) of ERISA or a plan that is subject to Title IV of ERISA, and neither the Company nor any ERISA Affiliate has at any time within the last six years contributed to, maintained, or incurred any liability with respect to such a plan.

          (e) None of the Employee Benefit Plans that are “welfare benefit plans,” within the meaning of Section 3(1) of ERISA, provide for continuing benefits or coverage after termination or retirement from employment, except for COBRA rights under a “group health plan” as defined in Section 4980B(g) of the Code and Section 607 of ERISA.

          (f) Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been established using prototype documents which may rely upon an IRS Opinion Letter, and there are no facts or circumstances that would be reasonably likely to adversely affect the qualified status of any such Employee Benefit Plan.

          (g) Except as set forth in Schedule 2.9(g) , the consummation of the transactions contemplated hereby will not (i) result in an increase in or accelerate the vesting of any of the benefits available under any Employee Benefit Plan, or (ii) otherwise entitle any current or former director or employee of the Company to any severance pay, bonus payments or other payment from the Company.

          (h) There are no pending or, to the Knowledge of Seller Parties, threatened, Proceedings that have been asserted relating to any Employee Benefit Plan by any employee or beneficiary covered under any Employee Benefit Plan or otherwise involving any Employee Benefit Plan (other than routine claims for benefits), and neither the Company, any ERISA Affiliate nor, to the Knowledge of the Seller Parties, any other Person has engaged in a nonexempt prohibited transaction described in Section 406 of ERISA or Section 4975 of the Code with respect to any Employee Benefit Plan. No examination or audit of any Employee Benefit Plan by any Governmental Authority is currently in progress or, to the Knowledge of Seller Parties, threatened. The Company is not a party to any agreement or understanding with the Pension Benefit Guaranty Corporation, the Internal Revenue Service or the Department of Labor with respect to any Employee Benefit Plan.

     Section 2.10. Compliance with Legal Requirements . Except as set forth on Schedule 2.10 , the Company is, and at all times since the Compliance Date, has been, in compliance with all Legal Requirements, including any Legal Requirements related to escheat laws, that are or were applicable to the operation of its business or the ownership or use of any of its assets, except where such noncompliance would not have a Material Adverse Effect. Except as set forth on Schedule 2.10 , the Company has not received, at any time since the Compliance Date, any notice or other communication from any Governmental Authority or other Person regarding any actual, alleged or potential violation of or failure to comply with any Legal Requirement.

     Section 2.11. Governmental Authorizations . Schedule 2.11 contains a true and complete list of each Governmental Authorization that is held by the Company. Each such Governmental Authorization is valid and in full force and effect. Except as set forth in Schedule 2.11 , the Company is, and at all times since the Compliance Date, has been, in compliance with each such Governmental Authorization, except where such noncompliance would not have a Material Adverse Effect. Except as set forth in Schedule 2.11 , the Company has not received, at any time since the Compliance Date, any notice or other communication from any Governmental Authority or other Person regarding (a) any actual, alleged or potential violation of or failure to comply with any term or requirement of any such Governmental

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Authorization, or (b) any actual, proposed, or potential revocation, suspension, cancellation or termination of, or modification to, any such Governmental Authorization. The Governmental Authorizations listed in Schedule 2.11 collectively constitute all of the Governmental Authorizations necessary to permit the Company to lawfully conduct and operate its business in the manner it is currently conducted.

     Section 2.12. Legal Proceedings; Orders .

          (a) There are no pending Proceedings or claims, whether oral or in writing (i) by or against the Company or that otherwise relate to or may affect the business of, or any of the assets owned or used by, the Company, or (ii) that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby. To the Knowledge of Seller Parties no such Proceeding or claim, whether oral or in writing, has been threatened, and no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Proceeding or claim. Except as set forth in Schedule 2.12(a) , there have not been any orders, judgments or decrees rendered against, or any settlements effected by, the Company in connection with any Proceedings or claims, whether oral or in writing, brought by or against the Company or that otherwise relate to or may affect the business of, or any of the assets owned or used by, the Company.

          (b) There are no Orders outstanding (i) against the Company or that otherwise relate to or may affect the business of, or any of the assets owned or used by, the Company; or (ii) that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby. To the Knowledge of Seller Parties, no such Order has been threatened, and no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Order.

     Section 2.13. Environmental Matters .

          (a) The Company is and has been in compliance with all Environmental Laws, and does not have any Liability under any Environmental Laws with respect to the Leased Real Property or any other properties and assets (whether real, personal, or mixed) in which the Company (or any predecessor) has or had an interest, except where such noncompliance or Liability would not have a Material Adverse Effect.

          (b) There are no Hazardous Materials present on or in the environment at the Leased Real Property. There has been no emission, disposal, discharge or other release or, to the Knowledge of Seller Parties, threat of release, of any Hazardous Materials at or from the Leased Real Property or, during the period of the Company’s ownership or lease thereof, at, on, under or from any property formerly owned or leased by the Company.

          (c) The Company has not received any citation, notice or other communication from any Governmental Authority regarding any alleged, actual or potential violation of any Environmental Law, or any alleged, actual or potential obligation to undertake or bear the cost of any Liabilities under any Environmental Law.

     Section 2.14. Insurance . Schedule 2.14 contains a true and complete list of (a) all policies of property, fire and casualty, products liability, workers’ compensation and other forms of insurance under which any of the assets or properties of the Company are covered or otherwise relating to the business of the Company, and (b) all life insurance policies covering the life of any employee of the Company for which the Company or any employee of the Company has paid any premiums. Such policies are in full force and effect, and the Company or such employee has paid all premiums due, and has otherwise

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performed all of its obligations under, all such policies of insurance. Neither the Company nor any employee of the Company has received any notice of (a) cancellation or intent to cancel, or (b) an increase or intent to increase premiums with respect to such insurance policies, and is not aware of any basis for any such action. True and complete copies of such insurance policies have been delivered to Buyer.

     Section 2.15. Contracts .

          (a)  Schedule 2.15(a) lists each contract, agreement or other commitment to which the Company is a party or by which the Company is otherwise bound, excluding the agreements disclosed in Schedule 2.5(b) , Schedule 2.8(d) and Schedule 2.16(c) (such contracts, agreements and obligations, together with the agreements disclosed in Schedule 2.5(b) , Schedule 2.8(d) and Schedule 2.16(c) , the “ Applicable Contracts ”):

          (b) Except as set forth in Schedule 2.15(b) :

     (i) Each Applicable Contract is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to (A) applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors’ rights generally, (B) general equitable principles and (C) the discretion of courts in granting equitable remedies.

     (ii) The Company and, to the Knowledge of Seller Parties, each other party to any Applicable Contract is, and at all times since January 1, 2003, has been, in compliance with all applicable terms and requirements of each Applicable Contract.

     (iii) Since January 1, 2003, the Company has not given to, or received from, any other party to any Applicable Contract, any notice or other communication regarding any actual or alleged breach of or default under any Applicable Contract by the Company or any other party to such Applicable Contract.

          (c) True and complete copies of each of the Applicable Contracts have been delivered to Buyer.

     Section 2.16. Intellectual Property .

          (a) The term “ Intellectual Property Assets ” means all intellectual property owned, licensed (as licensor or licensee) or used by the Company, including:

     (i) the Company’s name, all fictional business names, trade names, trade dress, registered and unregistered trademarks, registered and unregistered service marks, and applications for any of the foregoing (collectively, “ Marks ”);

     (ii) all patents, patent applications, and inventions and discoveries that may be patentable or unpatentable worldwide (collectively, “ Patents ”);

     (iii) all registered and unregistered copyrights in both published works and unpublished works, and copyright applications (collectively, “ Copyrights ”);

     (iv) all rights in Internet web sites and Internet domain names (collectively, “ Internet Rights ”);

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     (v) all computer software (excluding off-the-shelf software components licensed to the Company pursuant to non-negotiable standard form, mass-market or “shrink wrap” licenses involving payments of less than $3,000 on an annual basis) (the “ Software ”);

     (vi) all confidential or proprietary know-how, information, customer lists, technical information, data, process technology, plans, drawings, and blue prints pertaining to the business of the Company and maintained by the Company as trade secrets (collectively, “ Trade Secrets ”); and

     (vii) all general know-how, business information, customer and supplier lists, technical information, data processing technology, plans, drawings and blue prints pertaining to the business of the Company but which are not Trade Secrets (collectively, “ Business Knowledge ”).

          (b)  Schedule 2.16(b) contains a true and complete list of the Intellectual Property Assets (other than the Trade Secrets) in each case listing, as applicable, (i) the title of the application or registration, (ii) the name of the applicant/registrant and current owner, (ii) the jurisdiction where the application/registration is located, (iv) the application or registration number, (v) filing date, and (vi) whether each such Intellectual Property Asset is owned or licensed. Prior to the date of this Agreement, the Company has provided Buyer with specimens showing the use of each Mark in commerce.

          (c)  Schedule 2.16(c) contains a true and complete list of agreements and contracts under which the Company licenses any Intellectual Property Assets (as a licensor or licensee). The Intellectual Property Assets constitute all of the intellectual property necessary to the conduct of the Company’s business as currently conducted. The Company has good and valid title to, or a valid and enforceable right to use under an agreement listed in Schedule 2.16(c) , each of the Intellectual Property Assets, free and clear of all Liens. The Company has the right to use without payment to a third party each of the Intellectual Property Assets, other than any payment required under any agreement listed in Schedule 2.16(c) . Neither this Agreement nor the transactions contemplated by this Agreement, including the assignment to Buyer by operation of law or otherwise of any contracts or agreements to which the Company is a party, will result in (i) Buyer granting to any Person any right to or with respect to any Intellectual Property Assets; or (ii) Buyer being bound by, or subject to, any non-compete or other restriction on the operation or scope of its business.

          (d) None of the Intellectual Property Assets is infringed by any patent, proprietary right, trade name, trademark, trade dress, service mark, copyright, domain name or other intellectual property or proprietary right of any other Person or, to the Knowledge of Seller Parties, has been challenged or threatened in any way. None of the Intellectual Property Assets infringes or interferes with or is alleged to infringe or interfere with any patent, trade name, trademark, trade dress, service mark, copyright, domain name or other intellectual property right of any other Person, or misappropriates any trade secret or proprietary rights of any other Person.

          (e) There are no pending or, to the Knowledge of Seller Parties, threatened, Proceedings asserting that any of the Intellectual Property Assets is infringed by the intellectual property rights of any other Person or that any of the Intellectual Property Assets infringes or interferes with any intellectual property or proprietary rights of any other Person, or otherwise relating to the Intellectual Property Assets.

          (f) All Patents, Marks and Copyrights that have been registered, and all Internet Rights, are in compliance with all formal Legal Requirements (including the payment of any required maintenance fees), and are valid and enforceable.

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          (g) The Company has taken all commercially reasonable precautions to protect the secrecy, confidentiality and value of all Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and, to the Knowledge of Seller Parties, the Trade Secrets have not been used, divulged, or appropriated either for the benefit of any Person (other than the Company) or to the detriment of the Company. To the Knowledge of Seller Parties, the Business Knowledge has not been appropriated either for the benefit of any Person (other than the Company) or to the detriment of the Company.

          (h) To the extent that any work, invention or material relating to the business of the Company has been developed or created by any employee or third party for the Company, the Company has entered into a written agreement with such employee or third party with respect thereto and thereby has obtained ownership of, and is the exclusive owner of, all intellectual property in such work, including all Marks, Copyrights, Patents, Trademarks and Trade Secrets, material or invention by operation of law or by valid assignment. The Company has not licensed any computer software source code included in the Intellectual Property Assets to any Person in source code format.

          (i) Except as set forth in Schedule 2.16(i) , all proprietary software of the Company conforms in all material respects to the specifications and documentation therefor and is otherwise in compliance with applicable law. No open source, public source or freeware software, code or other technology, or any modification or derivative thereof, including, without limitation, any version of any software licens


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