STOCK PURCHASE AGREEMENT

 

STOCK PURCHASE AGREEMENT

 

This STOCK PURCHASE AGREEMENT (this “ Agreement ”) is made as of July 31, 2008, by and among EBIX, INC. , a Delaware corporation (the “ Buyer ” or “ Buyer ”); ACCLAMATION SYSTEMS, INC ., a Pennsylvania corporation (the “ Company ”); and Joseph Ott as the sole shareholder of the Company hereunder (the “ Seller ”).  Buyer, the Company and the Seller are sometimes collectively referred to herein as the “ Parties ” and each individually as a “ Party .”  Unless otherwise defined herein, certain terms used in this Agreement with initial capital letters are defined in Appendix A .

 

WITNESSETH:

 

WHEREAS , the Company is engaged in the business of providing software and related services to insurance carriers, health plan providers and third party administrators (the “ Business ”).

 

WHEREAS , the Seller is the beneficial owner and holder of record of all issued and outstanding Shares of the Company.

 

WHEREAS , upon the terms and subject to the conditions of this Agreement, Seller desires to sell to Buyer at Closing, and Buyer desires to purchase and acquire from Seller at Closing, all of the Shares of the Company for the consideration and on the terms and conditions hereinafter set forth (the “ Transaction ”).

 

WHEREAS , the respective Boards of Directors of Buyer and the Company have each determined that the Transaction and the other transactions contemplated hereby are consistent with, and in furtherance of, their respective business strategies and goals.

 

WHEREAS , the Company, the Seller and the Buyer desire to make certain representations, warranties, covenants and agreements in connection with the Transaction and also to prescribe various conditions to the Transaction.

 

NOW, THEREFORE , in consideration of the mutual covenants of the Parties as hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Parties, intending to be legally bound, hereto hereby agree as follows:

 

ARTICLE I
PURCHASE AND SALE OF SHARES

 

SECTION 1.1       BASIC TRANSACTION.   On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees to sell to the Buyer, on and as of the Closing Date, all of the Shares for the consideration specified below in this Section 1.2.

 

SECTION 1.2       PURCHASE PRICE.   The purchase price for the Shares shall equal Twenty-Two Million United States Dollars (US$22,000,000) (the “ Closing Purchase Price ”), plus or minus the adjustment pursuant to Section 1.2(c) and Section 1.2(d) hereof  plus

 

 

 

the Post-Closing Purchase Price (as defined in Section 1.2(b) below )(collectively, the “ Total Purchase Price ”).

 

(a)           Consideration at Closing  The Closing Purchase Price will be paid in cash at Closing by wire transfer of immediately available funds of $21,010,000 to the Seller, $990,000 to Software Equity Group, LLC (“SEG”) and, to the extent that the following amounts have not been paid by the Company prior to the Closing Date, Seller shall then direct by wire of immediately available funds up to $5,169,188 to the following Persons in satisfaction of the Seller’s assumption under Section 1.3(a) of this Agreement of the Company’s obligations remaining as of the Closing Date to the following individuals pursuant to their Release Agreements with the Company:

 

Jim Senge		$	1,476,911		less applicable withholding taxes
Susan Pastroff		$	1,476,911		less applicable withholding taxes
Mark Brown		$	1,476,911		less applicable withholding taxes
Robert Rokicki		$	738,455		less applicable withholding taxes
The Company		All applicable wage withholding taxes on the foregoing payments to be immediately paid by the Company to the requisite Governmental Authorities.

 

The Seller, at his sole discretion, may cause the Company to pay before the Closing Date all or a portion of any of the amounts described in the immediately preceding sentence to the Persons named therein.

 

(b)           Post-Closing Purchase Price.  In the event that either of the Year One Gross Revenue Target or the Year Two Cumulative Gross Revenue Target (each, a “ Target ”) (as defined below) is met, the amounts set forth below with respect to such achieved Target will be paid in cash in immediately available funds by the Buyer to or on behalf of the Seller (the “ Post-Closing Purchase Price ”) in addition to any other amounts payable hereunder:

 

$1,432,500 will be paid to the Seller, $67,500 will be paid to SEG and Seller will immediately direct $932,500 to be paid to the following Persons in partial satisfaction of the Seller’s assumption under Section 1.3(a) of this Agreement of the Company’s obligations to the following individuals pursuant to their Release Agreements with the Company:

 

Jim Senge		$	266,428.50		less applicable withholding taxes
Susan Pastroff		$	266,428.50		less applicable withholding taxes
Mark Brown		$	266,428.50		less applicable withholding taxes
Robert Rokicki		$	133,214.50		less applicable withholding taxes
The Company		All applicable wage withholding taxes on the foregoing payments to be immediately paid by the Company to the requisite Governmental Authorities,

 

with payment to be made promptly after financial results for the 12-month period beginning at the Closing Date are available (but in no event later

 

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than 45 days after the end of such 12-month period), provided the  Company or the Business, whether operated as a subsidiary of or a division of the Buyer or of a third party (including but not limited to sales, licenses or other transfers involving any property of the Company or the Business or services provided by employees or agents of the Business), generates gross revenues (“ Year One Gross Revenues ”) of more than $13,000,000 in the 12-month period beginning at the Closing Date (the “ Year One Gross Revenue Target ”);

AND

 

An additional $1,432,500 will be paid to the Seller, an additional $67,500 will be paid to SEG and Seller will immediately direct $932,500 to be paid to the following Persons in partial satisfaction of the Seller’s assumption under Section 1.3(a) of this Agreement of the Company’s obligations to the following individuals pursuant to their Release Agreements with the Company:

 

Jim Senge		$	266,428.50		less applicable withholding taxes
Susan Pastroff		$	266,428.50		less applicable withholding taxes
Mark Brown		$	266,428.50		less applicable withholding taxes
Robert Rokicki		$	133,214.50		less applicable withholding taxes
The Company		All applicable wage withholding taxes on the foregoing payments to be immediately paid by the Company to the requisite Governmental Authorities,

 

with payments to be made promptly after financial results for the 24-month period beginning at the Closing Date are available (but in no event later than 45 days after the end of such 24-month period), provided the  Company or the Business, whether operated as a subsidiary of or a division of the Buyer or of a third party (including but not limited to sales, licenses or other transfers involving any property of the Company or the Business or services provided by employees or agents of the Business), generates gross revenues (“ Year Two Cumulative Gross Revenues ”) of at least $27,000,000 in the 24-month period beginning at the Closing Date (the “ Year Two Cumulative Gross Revenue Target ”);

 

(i)            For purposes of this Section 1.2 , gross revenues shall mean all revenues of any type or nature, without exception, as recognized in accordance with GAAP as consistently applied by the Company prior to Closing (the “ Gross Revenues ”).  The Post-Closing Purchase Price shall be determined and paid by wire transfer of immediately available funds.

 

(ii)           Not later than thirteen months following the Closing Date, the Buyer shall deliver to the Seller a copy of the financial statements of the Buyer and/or the Company supporting the calculation of the Year One Gross Revenues and a certificate showing the calculation of the Year One Gross Revenues for the 12-month period following the Closing Date, certified by the Chief Financial Officer of Buyer to be a complete, accurate and good faith

 

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calculation of the Year One Gross Revenues derived from the accounting records of the Buyer and/or the Company (the “ Year One Gross Revenue Certificate ”).

 

(iii)          Not later than twenty-five months following the Closing Date, the Buyer shall deliver to the Seller a copy of the financial statements of the Buyer and/or the Company supporting the calculation of the Year Two Cumulative Gross Revenues and a certificate showing the calculation of the Year Two Cumulative Gross Revenues for the 24-month period following the Closing Date, certified by the Chief Financial Officer of Buyer to be a complete, accurate and good faith calculation of the Year Two Revenues derived from the accounting records of the Buyer and/or the Company (the “ Year Two Cumulative Gross Revenue Certificate ”).

 

(iv)          Buyer shall make available to the Seller (and his advisors) copies of all work papers, documents, receipts, invoices and other materials and grant the Seller (and his advisors) such access to Buyer’s and the Company’s personnel and outside auditors during regular business hours as may be necessary or reasonably requested by the Seller in his review of either the Year One Gross Revenue Certificate or the Year Two Cumulative Gross Revenue Certificate, and the workpapers from which they were derived,  or in connection with any dispute or disagreement relating to the determination or payment of the Post-Closing Purchase Price.  If the Seller does not timely deliver a Year One Gross Revenue Certificate Contest Notice (as defined below) or Year Two Cumulative Gross Revenue Certificate Contest Notice (as defined below) in accordance with Section 1.2(b)(v) , the Year One Gross Revenue Certificate and the Year Two Cumulative Gross Revenue Certificate, as the case may be, shall be final and binding on all Parties.

 

(v)           In the event the Seller contests any part of the calculation of either the Year One Gross Revenue or the Year Two Cumulative Gross Revenue, as set forth in the Year One Gross Revenue Certificate or the Year Two Cumulative Gross Revenue Certificate, as the case may be, the Seller shall deliver to the Buyer written notice of his objections thereto (a “ Gross Revenue Consideration Certificate Contest Notice ”) within 15 Business Days following the delivery of either the Year One Gross Revenue Consideration Certificate or the Year Two Cumulative Gross Revenue Certificate.

 

(vi)          During the 30-day period following the delivery of the Gross Revenue Consideration Certificate Contest Notice, the Buyer and the Seller shall attempt to resolve in writing any differences which the Buyer and the Seller may have with respect to any matter specified in the Gross Revenue Consideration Certificate Contest Notice.  If at the end of the 30-day period, Buyer and the Seller shall fail to reach a written agreement with respect to all of such matters, then all such matters specified in the Gross Revenue Consideration Contest Notice with respect to which a written agreement has not been reached shall be resolved by a mutually acceptable independent accounting firm in accordance with the provisions set forth in Section 1.2(c)(iii) except for the last two sentences of Section 1.2(c)(iii).  In the case of a Gross Revenue Consideration Certificate Contest Notice, the expenses of the accounting firm shall be paid by the Party who is determined to be incorrect in its or his assertion as to whether the Year One Gross Revenue Target or the Year Two Cumulative Gross Revenue Target, respectively, was or was not achieved.

 

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(vii)         During the 24-month period following the Closing, Buyer and the Company (and any successor entity to the Company) shall use their best efforts to:

 

(A)          Retain the services of Jim Senge and Mark Brown throughout such period to manage the gross revenue-generating activities of the Company (and any successor entity to the Company) and the Business relevant to the Gross Revenues;

 

(B)           Cause the Business to maintain standards of customer service to enable it to continue the growth pattern the Company and the Business have established in recent years preceding the Closing; and

 

(C)           To maintain the Company’s (and any successor entity to the Company’s) and the Business’ product services and pricing levels at or above current levels.

 

(c)           Adjustment Relating to Closing Date Net Book Value

 

(i)            For purposes of this Agreement, “ Closing Date Net Book Value ” shall be the Net Book Value of the Company as of the close of business on the day immediately prior to the Closing Date plus $32,821.66 (certain severance pay and related payroll taxes on certain severed employees on 7/31/08), provided, however, that the liabilities of the Company shall not include any amounts payable by the Company to Jim Senge, Mark Brown, Susan Pastroff or Robert Rokicki pursuant to their Release Agreements, any bonuses or severance payable to the Company’s employees, and related payroll taxes to the extent such amounts are paid on the Closing Date from amounts contributed to the Company by the Seller or the Buyer on the Closing Date or are otherwise paid by the Seller.

 

(ii)           Within 15 Business Days following the Closing Date, the Buyer will prepare and deliver to the Seller a calculation of Closing Date Net Book Value (the “ Buyer-Determined Closing Date Net Book Value Calculation ”), which calculation shall be determined consistent with the preparation of the Financial Statements.  The Buyer will make the workpapers and back-up materials used in preparing the Buyer-Determined Closing Date Net Book Value, as well as the personnel of Buyer and the Company with knowledge regarding any underlying matters, as well as use its best efforts to make its outside auditors available to the Seller (and his advisors) at reasonable times and upon reasonable notice.

 

(iii)          If the Seller shall not deliver the Buyer a statement describing any objections to the Buyer-Determined Closing Date Net Book Value within 15 Business Days after receipt, then such Buyer-Determined Closing Date Net Book Value shall be deemed to be the “ Stipulated Closing Date Net Book Value .”  If, however, the Seller shall deliver to the Buyer a statement describing any objections to the Buyer-Determined Closing Date Net Book Value within such 15-Business Day period, then the Buyer will exercise commercially reasonable efforts to resolve, in good faith, any such objections with the Seller.  If the Buyer and the Seller reach a resolution of all such objections, then the Buyer-Determined Closing Date Net Book Value as modified by such resolution shall be deemed to be the “ Stipulated Closing Date Net Book Value .”  If such a resolution is not reached within 10 Business Days after the Buyer has received a statement describing the Seller’s objections to the Buyer-Determined Closing Date Net Book Value, then any disputes regarding any accounting-related aspects of the calculation or

 

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computation of such Stipulated Closing Date Net Book Value will be submitted promptly to a mutually acceptable independent accounting firm for resolution.  Buyer, on the one hand, and the Seller, on the other hand, may provide the accounting firm, within five Business Days of its selection, with a definitive statement of their position with respect to each unresolved objection.  The accounting firm will be provided with access to the books and records of Buyer and the Company germane to the Buyer-Determined Closing Date Net Book Value Calculation.  The accounting firm will be asked to resolve any objections on an expedited basis, and shall in any event have no more than 20 Business Days to carry out a review of the unresolved objections.  The accounting firm will be asked to prepare a written statement of its determination regarding each unresolved objection, and the Buyer-Determined Closing Date Net Book Value Calculation as modified by the accounting firm’s determination of Seller’s unresolved objections shall be deemed to be the “ Stipulated Closing Date Net Book Value .”  The determination of the accounting firm will be conclusive and binding, absent manifest error.  If objections are submitted to the accounting firm for resolution as provided in this Section 1.2(c)(iii) and the Buyer does not prevail, by dollar amount, as to a majority of the objections asserted by the Seller, then the Buyer shall pay all of the fees and expenses of the accounting firm.  If the Buyer does prevail, by dollar amount, as to a majority of the objections asserted by the Seller, then the fees and expenses of the accounting firm shall, for purposes of the Stipulated Closing Date Net Book Value, be treated as a current liability of the Company accrued and actually payable as of the Closing Date, and the Stipulated Closing Date Net Book Value shall be determined accordingly.

 

(d)           In the event that the Stipulated Closing Date Net Book Value is greater than $2,780,000, then an amount equal to such difference shall be immediately paid to the Seller in immediately available funds, as an addition to the aggregate Purchase Price.  In the event that the Stipulated Closing Date Net Book Value is less than $2,780,000, then an amount equal to such difference shall be immediately paid by the Seller to the Buyer in immediately available funds.  If any payment to be made pursuant to this Section 1.2(d) is not made within sixty (60) Business Days following the Closing Date, interest also shall be paid on such payment by the payor to the payee from the Closing Date to the date on which such payment is made at an annual rate of six percent (6%); provided, however, that if Buyer does not timely comply with its obligations under Section 1.2(c)(ii) and the Seller is required to make a payment pursuant to the immediately preceding sentence of this Section 1.2(d), the Seller shall be relieved from any obligation to pay interest provided the Seller pays the Buyer the amount due pursuant to the immediately preceding sentence of this Section 1.2(d) within five (5) Business Days from the date the Stipulated Closing Date Net Book Value is finally determined.

 

SECTION 1.3       PAYMENTS TO PRE-CLOSING COMPANY EMPLOYEES PURSUANT TO RELEASE AGREEMENTS.

 

(a)           To the extent such payments have not been made by the Company prior to the Closing Date, the Seller hereby agrees to pay on behalf of the Company (and as a contribution to capital of the Company), through the payments described in Section 1.2 to be made to the Company and the individual parties to the Release Agreements, the Company’s remaining obligations to make such payments under the Release Agreements.

 

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(b)           The Parties hereto understand and agree that the payments described in Section 1.2 to be made to Persons other than the Seller are payments for services rendered by such Persons to the Company on or prior to the Closing and are not for any services rendered to the Company or the Buyer after the Closing.

 

SECTION 1.4       CLOSING.   This Agreement shall take effect at 11:59 p.m. on July 31, 2008 Eastern Daylight Time.  The closing of the transactions contemplated by this Agreement  (the “ Closing ”) shall take place at the offices of Buyer’s counsel, Carlton Fields, P.A., 1201 West Peachtree Street, Atlanta, Georgia 30309, commencing at 8:00 a.m. Eastern Daylight Time on August 1, 2008 (the “ Closing Date ”).  The sale and purchase under this Agreement shall, contingent upon the completion of the Closing, be effective as of 12:01 a.m., Eastern Daylight Time on the Closing Date (the “ Effective Time ”).  The Parties may agree to conduct the Closing remotely via facsimile or electronic mail.

 

SECTION 1.5       Each Party, at the reasonable request of another Party and whether at or following the Closing, shall execute and deliver such other instruments and do and perform such other acts and things as may be reasonably necessary for effecting completely the consummation of this Agreement and the transactions contemplated hereby.

 

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER CONCERNING THE TRANSACTION

 

The Seller represents and warrants to the Buyer that the statements contained in this Article II are correct and complete as of the date of this Agreement and the Closing (as though given and made on and as of the Closing Date).

 

SECTION 2.1       Authorization of Transaction .  The Seller has full legal capacity to execute and deliver this Agreement and to perform his obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Seller enforceable in accordance with its terms and conditions, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws or equitable principles of general application to or affecting the enforcement of contractual rights generally.  The Seller is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated in this Agreement.

 

SECTION 2.2       Non-contravention .  Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will: (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject; (B) except as set forth in Schedule 2.2 of the Disclosure Schedule which is attached hereto, incorporated herein and made a part hereof (the “ Disclosure Schedule ”), conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any Person the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Seller is a party or by which the

 

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Seller is bound or to which any of his assets are subject; or (C) result in the imposition or creation of a Lien upon or with respect to the Shares.

 

SECTION 2.3       Shares .  Except as set forth in Schedule 2.3 to the Disclosure Schedule, the Seller: (a) holds of record and owns beneficially the Shares, free and clear of any restrictions on transfer, Taxes, Liens, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands; (b) except for contracts or commitments which have been terminated on or before the Closing Date, is not a party to any option, warrant, purchase right, or other contract or commitment (other than this Agreement) that could require the Seller to sell, transfer, or otherwise dispose of any Shares, or require, or which could be construed to require, the Company to issue any new or additional Shares to any Persons; and (c) is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting or transferability of any Shares of the Company.

 

SECTION 2.4       Brokers’ Fees .  Except as set forth on Schedule 2.4 of the Disclosure Schedule, no agent, broker, investment banker, Person or firm acting on behalf of the Company or the Company, or under the authority thereof, is or will be entitled to any brokers’ or finders’ fee or any other commission or similar fee directly or indirectly from the Buyer hereto in connection with any of the transactions contemplated hereby.

 

ARTICLE III
AGREEMENTS AND COVENANTS OF THE COMPANY OR BUYER

 

SECTION 3.1       AFFILIATE TRANSACTIONS .  On or before the Closing and except as provided in the Release Agreements and Section 1.2 , all Indebtedness and other amounts owing under Contracts between the Seller, any officer, director or Affiliate or Employee of the Seller or any Affiliate of any of the foregoing (other than the Company), on the one hand, and the Company, on the other hand, will be paid in full.

 

ARTICLE IV
AGREEMENTS AND COVENANTS OF BUYER

 

SECTION 4.1       TRANSFER TAXES .  Any transfer, documentary, sales, or use taxes assessed upon or with respect to the Transaction and any recording or filing fees with respect thereto shall be borne by Buyer.

 

SECTION 4.2       EMPLOYEE TRANSITION MATTERS .

 

(a)           From and after the Closing Date, through September 30, 2008, Buyer shall cause the Company to keep in place the Employee Benefit Plans maintained by the Company immediately before the Closing.  Thereafter, Buyer shall, or shall cause the Company to, use commercially reasonable efforts to provide coverage under employee benefit plans maintained by Buyer or the Company to the Company’s employees who remain employed on the Closing Date.  To the extent commercially reasonable and permitted under applicable Law, Buyer will endeavor to have (i) deductibles paid by such continuing employees while employed by the Company recognized by Buyer’s or the Company’s provider, and (ii) the provider waive any waiting periods, pre-existing conditions and comparable requirements.

 

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(b)           Buyer shall either cause the Company to continue in place the Company’s retirement plan or permit the Company’s employees who remain employed on the Closing Date to transfer their account balances under the Company’s retirement plan to a retirement plan maintained by Buyer to the extent permitted by the terms of the plans and applicable Law.

 

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE COMPANY

 

The Disclosure Schedule is comprised of separate schedules, each of which is labeled by reference to the particular Section or sub-Section of this Agreement to which each such separate schedule pertains.  The separate schedules which comprise the Disclosure Schedule provide for either (a) lists of certain items (each, a “List Schedule”), or (b) exceptions to representations and warranties made by Seller in Article II hereof and by the Company in this Article V (each, an “Exception Schedule”), and such separate schedules (or portions of such separate schedules in the case of separate schedules which are comprised of both a list(s) and an exception(s)) are also so labeled as a “List” or an “Exception”. Except as set forth in the Disclosure Schedule (it being understood and agreed that (i) the disclosure of any item included in a particular List Schedule constitutes full and complete disclosure of the items so listed for any other particular List Schedule; and (ii) the disclosure of any matter included in an Exception Schedule constitutes full and complete disclosure of such exception matter for any other particular Exception Schedule; provided, however, (iii) the inclusion of an item on a List Schedule does not constitute full and complete disclosure on any Exception Schedule), the Seller and the Company represent and warrant to the Buyer as follows:

 

SECTION 5.1       ORGANIZATION, STANDING AND AUTHORITY .

 

(a)           The Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization.  True, complete and correct copies of the Company’s Articles of Incorporation and By-laws, in each case as amended, have been made available to Buyer in the on-line data room established by Software Equity Group, LLC to enable Buyer’s due diligence in connection with the transactions contemplated by this Agreement (the “ Data Room ”), and such Articles of Incorporation and By-laws are in full force and effect.  The Company has full power and authority to carry on the Business as conducted by it and to own or hold under lease the properties and assets it now owns or holds under lease.  Except as set forth in Schedule 5.1(a)  of the Disclosure Schedule, the Company is duly qualified to do business and is in good standing as a foreign corporation or company (as applicable) in all jurisdictions where the nature of the property owned or leased by it, or the nature of its business, makes such qualification necessary and where the absence of such qualification would have a Material Adverse Effect on the business, financial condition or operations of such company, which jurisdictions are listed opposite such company’s name on Schedule 5.1(a)  of the Disclosure Schedule.

 

(b)           The Company does not have any Subsidiary.

 

(c)           The name of each director and officer of the Company is set forth opposite the position held by same, on Schedule 5.1(c)  of the Disclosure Schedule.

 

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SECTION 5.2       AUTHORIZATION .

 

(a)           The Company has full right, power, capacity and authority to execute and deliver this Agreement and each of the Transaction Documents to be executed and delivered by or on behalf of the Company, to consummate the transactions contemplated hereby and thereby and to comply with the terms, conditions and provisions hereof and thereof.

 

(b)           This Agreement has been, and each of the Transaction Documents to be executed and delivered by or on behalf of the Company will be, duly executed and delivered by the Company and constitutes or, in the case of the Transaction Documents, will constitute when so executed and delivered, the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws or equitable principles of general application to or affecting the enforcement of contractual rights generally, and statutes, rules or procedures and applicable case law limiting the availability or prescribing the procedural requirements for the exercise of remedies.

 

SECTION 5.3       CAPITALIZATION AND OWNERSHIP .

 

(a)           Schedule 5.3(a)  of the Disclosure Schedule sets forth the authorized and issued and outstanding Shares, and the ownership interest of each Shareholder in the Company.  All Shares of the Company have been duly and validly issued, were issued in compliance with all applicable federal and state securities laws, and are fully paid and non-assessable.  Except as set forth on Schedule 5.3(a)  of the Disclosure Schedule or provided by Law, all Shares of the Company have been issued without any options, warrants, rights, calls or other preemptive rights with respect to additional Shares.  Except as set forth on Schedule 5.3(a)  of the Disclosure Schedule or provided by Law, no options, warrants, preemptive or other rights to acquire any Shares or any debt or equity interest in the Company have been issued which remain outstanding.

 

(b)           Except as set forth on Schedule 5.3(b)  of the Disclosure Schedule or provided by Law, the Company is not a party or subject to any agreement or understanding and (other than voting agreements entered into in connection with this Agreement) there is no agreement or understanding between any Persons that affects or relates to the voting or giving of written consents with respect to any securities of the Company or the voting of any securities of the Company by the Seller, director or officer of the Company.  The Company has no contractual or, to its Knowledge, other obligation to register under the securities laws of any jurisdiction any of its presently outstanding securities or any of its securities that may hereafter be issued.

 

(c)           Except as set forth on Schedule 5.3(c)  of the Disclosure Schedule, the Company is not a party or subject to any agreement that grants any rights of refusal, rights of first offer, co-sale or tag-along rights, drag-along rights, registration rights or similar rights with respect to the Shares.

 

(d)           The Seller is, or on the Closing Date will be, the record owner of the equity interests indicated in Schedule 5.3(a)  of the Disclosure Schedule as owned by the Seller (or to be owned as of the Closing Date) and is the only owner or holder of any Shares.  Except as set forth in Schedule 5.3(a)  of the Disclosure Schedule, to the Knowledge of the Company there

 

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are no agreements, arrangements, options, warrants, calls, rights or commitments of any character relating to the sale, purchase, redemption or other transfer of the Shares held by the Seller which will not be terminated as of the Closing Date.

 

SECTION 5.4       NO CONFLICTS .  Except as set forth on Schedule 5.4 of the Disclosure Schedule, neither the execution and delivery of this Agreement and the Transaction Documents by the Company nor the performance by the Company of the transactions contemplated hereby or thereby will:

 

(a)           violate or conflict with or result in a breach of any of the terms, conditions or provisions of the articles of incorporation or bylaws of the Company;

 

(b)           violate any Law;

 

(c)           constitute (with or without notice or lapse of time or both) a default under or otherwise violate any material Permit, Contract, mortgage, note, bond, license or other instrument to which the Company is a party or by which the properties or assets of any of the foregoing are bound;

 

(d)           constitute an event which would permit any party to terminate, or accelerate the maturity of any Indebtedness or other obligation under, any Contract, mortgage, note, bond, license or other instrument to which the Company is a party or by which the properties or assets of any the Company are bound;

 

(e)           result in the creation or imposition of any Lien upon the Shares or the assets of the Company; or

 

(f)            require any Permit, authorization, consent, approval, exemption or other action by or notice to any Person, court or administrative or governmental body pursuant to any Laws.

 

SECTION 5.5       FINANCIAL STATEMENTS .  Schedule 5.5 of the Disclosure Schedule contains the following financial statements of the Company (collectively, the “Financial Statements”):

 

(a)           The balance sheet of the Company as of December 31, 2007, and the related statements of income, shareholders’ equity and cash flows for the year then ended (collectively, the “ 2007 Financial Statements ”);

 

(b)           The balance sheets of the Company as of December 31, 2006 and as of December 31, 2005, and the related statements of income, shareholders’ equity and cash flows for the years then ended; and

 

(c)           (c)           A balance sheet of the Company as of June 30, 2008 (the “ Latest Balance Sheet ”) (the “ Latest Balance Sheet Date ”) and the related statements of income, changes in shareholders’ equity, and cash flow for the six (6) months then ended (the “ Interim Financial Statements ”), including in each case, the notes thereto, if any.

 

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Except as set forth in the immediately succeeding sentence and except for consideration of obligations for and payments to be made to employees pursuant to the Release Agreements, in all material respects, the Financial Statements are (a) complete and correct; (b) consistent with the Books and Records; and (c) other than as set forth on Schedule 5.5 of the Disclosure Schedule, fairly present the financial condition, assets and liabilities of the Company, taken as a whole, as of their respective dates and the results of operations and cash flows for the periods related thereto, in a manner consistent with the Company’s historical practices (except as may be indicated in the notes thereto and in the case of the Interim Financial Statements, subject to normal year-end adjustments and the absence of footnote disclosure).  Except for payments made to employees as consideration for their acceptance of the Release Agreements and as otherwise provided herein, since the Latest Balance Sheet Date there has been no change in the Company’s polices on reserves or accrual amounts.

 

SECTION 5.6       ABSENCE OF UNDISCLOSED LIABILITIES .

 

(a)           Except as disclosed in Schedule 5.6 and/or other Schedules of the Disclosure Schedule, the Company does not have any material Liabilities, whether due or to become due (other than the obligation to provide services, warranties and indemnities under contracts with its customers), arising out of transactions entered into on or prior to the date hereof, or any transaction, series of transactions, action or inaction occurring on or prior to the date hereof, or any state of facts or conditions existing on or prior to the date hereof (regardless of when such liability or obligation is asserted), including, without limitation, Liabilities on account of Taxes or Employee Benefit Plans, or in respect thereof, except as and to the extent clearly and accurately reflected and accrued for or reserved against in, the 2007 Financial Statements and on the Latest Balance Sheet or incurred in the Ordinary Course of Business consistent with past practice since the Latest Balance Sheet Date (none of which is a Liability for breach of contract, breach of warranty, product liability, tort or infringement, or a claim or lawsuit, or an environmental liability), except to the extent set forth on Schedule 5.6(a)  and/or other Schedules of the Disclosure Schedule.

 

(b)           Except as set forth on Schedule 5.6(b)  of the Disclosure Schedule, the Company does not have any Liabilities to any Affiliate.

 

SECTION 5.7       TANGIBLE PERSONAL PROPERTY .  Except as set forth in Schedule 5.7 of the Disclosure Schedule:

 

(a)           Title.  The Company is in possession of and has good title to, or valid leasehold interests in or valid rights under Contract to use, all material tangible personal property (including, without limitation, all fixtures, leasehold improvements (other than floor and wall coverings), equipment (including computer hardware and communications equipment), whether or not such equipment constitutes a fixture under applicable Law, office, operating and other supplies, parts, furniture, and other tangible personal property of the Company) used in the conduct of the Business by the Company as presently conducted, including all tangible personal property reflected on the Latest Balance Sheet, and tangible personal property acquired since the Latest Balance Sheet Date, other than property disposed of since such date in the Ordinary Course of Business consistent with past practice.  All such tangible personal property is free and clear of all Liens, other than Permitted Liens.  No Person other than the Company owns or has

 

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any right to the use or possession of such tangible personal property other than lessors and licensors of such tangible personal property constituting leasehold interests or licenses.

 

(b)           Condition.  All of the assets of the Company are in good condition and repair consistent with industry standards (ordinary wear and tear excepted), and are useable in the Ordinary Course of Business.  Except for tangible personal property having a fair market value of less than $1,000, Schedule 5.7(b)  of the Disclosure Schedule includes all of the fixed assets of the Company, and each item of tangible personal property owned by the Company and the location thereof.  Schedule 5.7(b)  of the Disclosure Schedule lists all leases of tangible personal property to which the Company is a party or is bound, and the lessee and location of such leased tangible personal property.

 

SECTION 5.8       CONTRACTS .  Schedule 5.8(a)  of the Disclosure Schedule is a correct and complete list of each material Contract of the Company, including but not limited to, all Contracts that require the Company to pay, or entitle the Company to receive, in the aggregate, $1,000 or more during any twelve (12)-month period, all Contracts that restrict any of the Company’s business activity anywhere in the world, and all Contracts that are not terminable by the Company upon not more than thirty (30) days’ prior notice without penalty or payment (each a “Material Contract”).  Correct and complete copies of the Material Contracts listed on Schedule 5.8(a)  of the Disclosure Schedule have been made available for Buyer to review in the Data Room, excluding purchase orders or sales of products in the Ordinary Course of Business on customary terms valued at less than $1,000 in the aggregate and terminable without penalty upon notice of thirty (30) days or less.  Except as set forth on Schedule 5.8(b)  of the Disclosure Schedule, the Company is not in material default and no event has occurred which with the giving of notice or the passage of time or both would constitute a material default by the Company under any Material Contract and, to the Knowledge of the Company no event has occurred which with the giving of notice or the passage of time or both would constitute a default by any other party to any such Material Contract.  Each of the Material Contracts of the Company is in full force and effect, is, in a case properly decided, valid and enforceable in accordance with its terms and is not subject to any claims, charges, set-offs or defenses.  Except as set forth on Schedule 5.8(c) , all of the Material Contracts of the Company will continue in full force and effect without any change or modification resulting from the consummation of the transactions contemplated by this Agreement, without the necessity of obtaining any consent, approval, novation or waiver of any third party.  Except as set forth on Schedule 5.8(d)  of the Disclosure Schedule, the Company is not a party to, or bound by the provisions of, any Material Contract (including purchase orders, blanket purchase orders and agreements and delivery orders) that remains executory in whole or in part with any Federal, state, local or foreign Governmental Authority or governmental body.  Except as set forth on Schedule 5.8(e)  of the Disclosure Schedule, no Material Contract of the Company is required to be treated as a capital lease by GAAP.

 

SECTION 5.9       REAL PROPERTY .  No real property is owned by the Company.  Schedule 5.9 of the Disclosure Schedule lists all real property used or held for use by the Company which is leased by the Company from third parties (the “Leased Real Property”), and indicates the notice addresses and the owners of the Leased Real Property.  Except as other described in Schedule 5.9 of the Disclosure Schedule, the Company is the sole legal and equitable holder of the leasehold interest it holds in the Leased Real Property and to the

 

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Knowledge of the Company, possesses a valid leasehold interest thereto, free and clear of all Liens (other than Permitted Liens) that could impair the ability of the Company to realize the benefits of the rights provided to it under any lease, and the right to quiet enjoyment of such Leased Real Property.  Accurate and complete copies of all existing lease agreements with respect to the Leased Real Property as of the Closing Date have heretofore been made available to Buyer in the Data Room.  The Company has not exercised any option to purchase any parcel of Leased Real Property.  The Leased Real Property constitutes the only real property used or occupied by the Company in the conduct of the Business.  Other than as set forth in Schedule 5.9 of the Disclosure Schedule, (a) there are no leases, subleases, licenses, concessions or other agreements, written or oral, granting to any party or parties the right of use or occupancy of any portion of any parcel of the Leased Real Property, or any options or rights of first refusal with respect thereto; (b) there are no parties (other than the Company) in possession of the Leased Real Property and (c) the Company enjoys peaceful and undisturbed possession of the Leased Real Property, subject to the terms and conditions of the leases set forth on Schedule 5.9 of the Disclosure Schedule.  To the Knowledge of the Company, within the last twelve (12) months, no notice from any Governmental Authority has been received by the Company or has been served upon the Leased Real Property requiring or calling attention to the need for any work, repair, construction, alteration or installation on or in connection with the Leased Real Property.  To the Knowledge of the Company, no notice has been received by the Company stating that the buildings and improvements on the Leased Real Property, or the Business as presently conducted thereon by the Company, are not in compliance with any applicable Law.

 

SECTION 5.10     LITIGATION .  Except as set forth in Schedule 5.10 of the Disclosure Schedule, (a) there is no suit, action, proceeding, arbitration, mediation, claim or order pending or, to the Knowledge of the Company, threatened against the Company (or pending or threatened against any of the current or former officers, directors or employees of the Company with respect to their service as an officer, director or employee of the Company) before any court, or before any governmental department, commission, board, agency, or instrumentality; nor (b) to the knowledge of the Company is there any reasonable basis for any such action, proceeding or investigation.  Except as set forth in Schedule 5.10 of the Disclosure Schedule and/or other Schedules to the Disclosure Schedule, the Company (i) is not subject to any judgment, order or decree of any court or governmental agency; (ii) is not engaged in any legal action in which a claim has been filed to recover monies due it or for damages sustained by it; or (iii) has not received any opinion or memorandum or legal advice from counsel to the effect that it is exposed, from a legal standpoint, to any Liability which may be material to its business.  Schedule 5.10 of the Disclosure Schedule, also sets forth a complete and correct list and description of all material claims, suits, actions, proceedings and, to the Knowledge of the Company, investigations made, filed or otherwise initiated in connection with the Company which have been resolved in the past two (2) years and the resolution thereof.

 

SECTION 5.11     COMPLIANCE WITH APPLICABLE LAWS .  The Company (a) to its Knowledge is not, or has not been in the past five (5) years, in violation of any Law the violation of which would have a Material Adverse Effect, including, without limitation, regarding any alleged failure to possess any material, license, Permit, authorization or other approval, (b) has not received notice of any such material violation, and (c) has no Knowledge that any facts or circumstances exist which would reasonably be expected to cause the Company

 

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to be in any such material violation in the future, except as set forth on Schedule 5.11 of the Disclosure Schedule.

 

SECTION 5.12     INTELLECTUAL PROPERTY .  The Company owns no patents, registered trade or service marks, registered copyrights or corporate or trade names other than the Company’s corporate name registered with the Commonwealth of Pennsylvania by the filing of its Articles of Incorporation, as amended.  The Company has made no applications for any patent, trade name, trade or service mark or copyright.  Schedule 5.12 of the Disclosure Schedule contains a complete and correct list of all unregistered trademarks, service marks, trade names domain names, websites and software (other than “off-the-shelf” commercial software), which are owned or licensed by the Company, including all licenses and other rights granted from or to any third party with respect to any Intellectual Property necessary for the operation of the Company.  Except as set forth on Schedule 5.12 of the Disclosure Schedule, to the Knowledge of the Company (a) the Company owns and possesses all right, title and interest in and to, or has a valid license to use, all of the Intellectual Property and proprietary rights and information necessary for the operation of the Business as presently conducted by the Company ( “Necessary Intellectual Property”) ; (b) each item of Necessary Intellectual Property owned or used by the Company prior to the Closing will be owned or available for use by the Company on identical terms and conditions immediately subsequent to the Closing; and (c) no claim by any third party contesting the validity, enforceability, use or ownership of any Necessary Intellectual Property has been asserted against the Company or is threatened, and there is no reasonable basis for any such claim.  The Company has not received any notices of, nor does the Company have Knowledge of any reasonable basis for, an allegation of any infringement or misappropriation by, any third party with respect to any Necessary Intellectual Property, nor has any such Person received any claims of infringement or misappropriation of any intellectual property of any third party.  To the Knowledge of the Company; the Company has not infringed, misappropriated or otherwise violated any intellectual property of any third parties and no other Person is infringing, misappropriating or otherwise violating, or has infringed, misappropriated or otherwise violated, the Necessary Intellectual Property.  Except as set forth on Schedule 5.12 of the Disclosure Schedule and/or other Schedules of the Disclosure Schedule, to the Knowledge of the Company, the Company is not required to pay any fee, royalty or other compensation for the use of any third party intellectual property.  The Company has not granted any exclusive right with respect to any Necessary Intellectual Property.  All Necessary Intellectual Property owned by the Company was created by employees of the Company within the scope of their employment, or by third parties who have assigned all of their rights in such Necessary Intellectual Property to the Company (or to others who in turn assigned their rights to the Company) pursuant to written agreements.

 

SECTION 5.13     CONDUCT OF BUSINESS .  Except as set forth on Schedule 5.13 and/or other Schedules of the Disclosure Schedule, since December 31, 2007, the Business of the Company has been conducted only in the Ordinary Course of Business consistent with past custom and practice, and the Company has not incurred any liabilities other than in the Ordinary Course of Business consistent with past custom and practice and there has been no Material Adverse Effect on the Business (other than those affecting the economy generally or the Company’s industry in particular), or the condition (financial or otherwise), assets, operations, operating results or customer relations of the Company, and no event (other than those affecting the economy generally or the Company’s industry in particular) has occurred that could

 

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reasonably be expected to have such an effect.  Without limiting the generality of the foregoing and except as set forth on Schedule 5.13 of the Disclosure Schedule and/or other Schedules of the Disclosure Schedule, since December 31, 2007, the Company has not, except in the Ordinary Course of Business consistent with past practice:

 

(a)           sold, assigned or transferred any material asset except for the sale of products in the Ordinary Course of Business, or mortgaged, pledged or subjected any material asset or the Leased Real Property to any Lien (other than Permitted Liens), charge or other restriction;

 

(b)           sold, assigned, transferred, abandoned or permitted to lapse any licenses or Permits, any Necessary Intellectual Property or other material intangible assets, or disclosed any material proprietary confidential information to any Person other than as set forth on Schedule 5.13 of the Disclosure Schedule, granted any license or sublicense of any rights under or with respect to any Necessary Intellectual Property other than in the Ordinary Course of Business;

 

(c)           made or granted any increase in the compensation of any employee, or amended or terminated any existing employee plan, program, policy or arrangement, including, without limitation, any Employee Benefit Plan, or adopted any new Employee Benefit Plan other than in the Ordinary Course of Business;

 

(d)           conducted its cash management customs and practices (including, without limitation, the timing of collection of receivables and payment of payables and other current liabilities) and maintained the books and records of the Company other than in the usual and Ordinary Course of Business;

 

(e)           made any loans or advances to, or guarantees for the benefit of, or entered into any transaction with any employee, officer, director, shareholder, agent or Affiliates, or paid or otherwise distributed funds to the Company or any Affiliate thereof in an amount in excess of $2,000 in the aggregate;

 

(f)            suffered any extraordinary loss, damage, destruction or casualty loss to the Business or waived any rights of material value, whether or not covered by insurance and whether or not in the Ordinary Course of Business;

 

(g)           changed any pricing, investment, financial reporting, inventory, credit, allowance, material Tax election, material Tax accounting method or accounting policy or practice, any method of calculating any bad debt, contingency or other reserve for accounting or financial reporting or Tax purposes, or its fiscal year;

 

(h)           declared, set aside or paid any dividend or distribution of cash, the Shares or other property to any shareholder or purchased, redeemed or otherwise acquired any Shares, made any other payments to any shareholder or issued any Shares or granted any other equity (or phantom equity or similar interest) interest or option or right to acquire any Shares or other equity (or phantom equity or similar) interest;

 

(i)            entered into any other material transaction including but not limited to any merger, acquisition, joint venture, partnership or incurrence of any Indebtedness (other than trade

 

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payables incurred and leases entered into in the Ordinary Course of Business), or formed any other new arrangement for the operation of the Business, other than in the Ordinary Course of Business;

 

(j)            amended its certificate or articles of incorporation or bylaws (or other comparable corporate charter documentation) since the latest amendments thereto made July 14, 2008, or engaged in any merger, consolidation reorganization, reclassification, liquidation, dissolution or similar transaction; or

 

(k)           committed to do any of the foregoing.

 

SECTION 5.14     ABSENCE OF QUESTIONABLE PAYMENTS .  To the Knowledge of the Company, the Company has not, and none of its respective directors, officers, agents, employees, Affiliates or any other persons acting on their respective behalf has:  (a) used or committed to use in violation of any applicable provincial, foreign, federal or state law any corporate funds for unlawful contributions, payments, gifts or entertainment, or made or committed to make any unlawful expenditures relating to political activity to government officials or others or established or maintained any unlawful or unrecorded funds; (b) accepted or received any unlawful contributions, payments, expenditures or gifts; or (c) established or maintained any fund or asset that has not been recorded in the books and records of the Company as required by GAAP.

 

SECTION 5.15     INSURANCE .  Schedule 5.15 of the Disclosure Schedule is a correct and complete list including policy numbers, carriers, amounts of coverage and expiration dates, of all insurance policies with respect to liability, property, workers’ compensation, directors’ and officers’ liability of the Company, correct and complete copies of which policies have been made available for to Buyer in the Data Room.  To the Knowledge of the Company, such policies are valid, binding and in full force and effect, and it is not in default thereunder.  Schedule 5.15 of the Disclosure Schedule also contains a list of all pending claims filed by the Company with any insurance company and any instances within the previous five (5) years of a denial of coverage of the Company by any insurance company.

 

SECTION 5.16     PERMITS .  Except as set forth on Schedule 5.16 and/or other Schedules of the Disclosure Schedule, (a) the Company holds all material Permits and approvals of Governmental Authorities necessary or desirable for its current conduct, ownership, use, occupancy or operation of its assets, the Business and the Leased Real Property; (b) upon the Closing, the Company and Buyer will hold or will be able to obtain without undue expense or delay all material Permits and approvals of Governmental Authorities necessary or desirable for the current conduct, ownership, use or operation of the Company’s assets in the Business, the Business and the Leased Real Property; and (c) the Company is and has been in the five (5) years immediately prior to the date hereof in material compliance with all material Permits and approvals.  To the Knowledge of the Company, none of the Permits or approvals will require the consent, approval, novation or waiver of, or giving of notice to, any governmental entity or other third party in connection with the consummation of the transactions contemplated by this Agreement, and all such Permits and approvals will continue in full force and effect without any change or modification thereto after such consummation.

 

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SECTION 5.17     EMPLOYEE BENEFIT PLANS .

 

(a)           Schedule 5.17(a)  of the Disclosure Schedule sets forth, a complete list of (i) all “employee pension benefit plans” as defined in Section 3(2) of ERISA which the Company or any predecessor that operated the Business of the Company has maintained, made contributions to, or with respect to which has or had any other liability (contingent or otherwise), and (ii) all Employee Benefit Plans other than “employee pension benefit plans” as defined in Section 3(2) of ERISA which the Company or any predecessor that operated the Business of the Company has maintained, made contributions to, or with respect to which has or had any other liability (contingent or otherwise) at any time during the five (5) years prior to the date hereof.  Except for the Employee Benefit Plans of the Company described on Schedule 5.17(a)  of the Disclosure Schedule, to the Company’s Knowledge, the Company has no liability or potential liability for any Employee Benefit Plan maintained or contributed to by a current or former Company Plan Affiliate.

 

(b)           The Company has made available to Buyer in the Data Room complete copies of (i) each written Employee Benefit Plan currently maintained by the Company, as amended to the Closing, together with audited financial statements for the Company’s 401(k) Plan and actuarial reports for the three (3) most recent plan years, if any; (ii) the most recent and any other determination letter, ruling or notice issued by or filed with any Governmental Authority with respect to such plan; (iii) the Form 5500 Annual Report and any Pension Benefit Guaranty Corporation Form 1 for the three (3) most recent plan years; (v) the most recent summary plan description or summary of modifications; and (iv) each other document, explanation or communication which describes any relevant aspect of any such plan that is not disclosed in previously delivered materials.  A description of any unwritten Employee Benefit Plans of the Company, including a description of any material terms of such plan, is set forth in Schedule 5.17(a)  of the Disclosure Schedule.  Schedule 5.17(a)  of the Disclosure Schedule also sets forth a complete and accurate description, in all material respects, of the Company’s severance practices and lists all employment agreements containing severance provisions.

 

(c)           Other than as set forth on Schedule 5.17(c)  of the Disclosure Schedule, to the Company’s Knowledge, (i) each Employee Benefit Plan of the Company has been in material compliance and currently complies in all material respects in form and in operation in all respects with all applicable requirements under ERISA, the Code or any other applicable Law, and in accordance with its terms; (ii) the Company has complied in all material respects with all applicable Law relating to such Employee Benefit Plans; and (iii) no act or omission has occurred and no condition exists with respect to any Employee Benefit Plan of the Company that could subject the Company to any material fine, penalty or tax imposed under any applicable Law.

 

(d)           Neither the Company nor any predecessor that operated the Business of the Company or any Company Plan Affiliate has at any time participated in or made contributions to or had any other liability with respect to, a plan which is a “multiemployer plan” as defined in Section 4001 of ERISA or Section 3(37) of ERISA, a “multiple employer plan” within the meaning of Code Section 413(c), a “multiple employer welfare arrangement” within the meaning of Section 3(40) of ERISA, a plan which is subject to Title IV of ERISA, or a plan or arrangement applicable to employees located outside the United States.

 

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(e)           There are no actions, suits or claims pending or, to the Company’s knowledge, actually threatened with respect to any Employee Benefit Plan of the Company, or the assets thereof (other than routine claims for benefits).  To the Knowledge of the Company, there are no facts which could give rise to any material liability, action, suit, investigation or claim relating to any Employee Benefit Plan of the Company.

 

(f)            Except to the extent not reasonably likely to result in material Liability to the Company, with respect to any Employee Benefit Plan of the Company, to the Company’s Knowledge: (i) there has been no non-exempt “prohibited transaction,” as defined in ERISA and the Code, (ii) no Person has breached any fiduciary obligation, and (iii) no Person otherwise has any liability for any failure to act or comply in connection with the administration or investment of the assets of any such plan.

 

(g)           Except for benefits that do not extend beyond the end of the month of termination of employment under the Company’s fully-insured group health plan(s), no Employee Benefit Plan of the Company provides, at the expense of the Company, medical, health, life insurance or other welfare-type benefits to retirees or former employees, owners or consultants or individuals who terminate (or have terminated) employment with the Company, or the spouses or dependents of any of the foregoing, except for coverage required under Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA and similar state law; provided that beneficiaries/covered individuals pay the applicable premiums.

 

(h)           Schedule 5.17(h)  of the Disclosure Schedule contains a complete and accurate list of all Employee Benefit Plans and any other arrangements that will result in any payment, acceleration, vesting or increase in benefits, or transfer of money, property or other consideration on account of or in connection with the transactions contemplated by this Agreement or any subsequent termination of employment and not otherwise contemplated by this Agreement.  The Company has no obligation to make “parachute payments,” within the meaning of Code Section 280G(b)(2), that are “contingent,” within the meaning of such Code Section and the Treasury Regulations promulgated thereunder, on the consummation of the transactions contemplated by this Agreement.

 

(i)            Each Employee Benefit Plan of the Company can be amended, terminated or otherwise discontinued at any time in accordance with its terms without material liability to the Company.  The Company is in good faith compliance with Code Section 409A.

 

SECTION 5.18     AFFILIATE TRANSACTIONS .  Except (a) for customer relationships conducted on an ordinary arm’s-length basis and (b) as set forth in Schedule 5.18 of the Disclosure Schedule, neither the Company