STOCK PURCHASE AGREEMENT BY AND AMONG VILLAGEEDOCS ACQUISITION CORP. PHOENIX FORMS, INC. AND ITS SHAREHOLDERS

Exhibit 2.1

STOCK PURCHASE AGREEMENT

 

BY AND AMONG

 

VILLAGEEDOCS ACQUISITION CORP.

 

PHOENIX FORMS, INC.

 

AND ITS SHAREHOLDERS

 

Effective April 1, 2005

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT, is made effective as of April 1, 2005 (the " Agreement "), is by and among VILLAGEEDOCS ACQUISITION CORP., a Florida corporation (the " Purchaser "), and a wholly-owned subsidiary of VillageEDOCS, a California corporation ("VillageEDOCS"), PHOENIX FORMS, INC., a Georgia corporation (the " Company "), each of Alexander Riess and William R. Falcon (together, the " Shareholders ").  Each of the Purchaser, the Company and the Shareholders is a " Party " and, collectively, they are the " Parties ."

W I T N E S S E T H:

               WHEREAS, the Shareholders own in the aggregate 100% of the issued and outstanding shares of common stock, $.10 par value per share, of the Company (the " Common Stock ");

               WHEREAS, the Purchaser desires to purchase from the Shareholders, and the Shareholders desire to sell to the Purchaser, all of the Common Stock, which constitutes all of the issued and outstanding capital stock of the Company, upon the terms and conditions set forth herein (the " Stock Sale ");

               WHEREAS, the Company is in the business of developing, distributing and supporting software in the content management marketplace; and

               WHEREAS, each of the Parties is making certain representations, warranties, covenants and indemnities as expressly set forth herein as an inducement to the other Parties to enter into this Agreement.

               NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements stated herein, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, covenant and agree as follows:

ARTICLE I.

DEFINITIONS

                 As used in this Agreement, certain words and terms shall have the meanings ascribed to them in the Glossary attached hereto as Exhibit A .  Other initially capitalized terms have the meanings ascribed to them elsewhere in this Agreement and all accounting terms shall be construed in accordance with generally accepted accounting principles applied on a consistent basis (" GAAP ").

 

ARTICLE II.

CLOSING

            Section 2.1          Closing.  The Stock Sale as provided for in this Agreement (the " Closing ") shall take place at the offices of Purchaser's counsel, Johnson, Pope, Bokor, Ruppel & Burns LLP, at 911 Chestnut Street, Clearwater, Florida 33765, or at such other place as the Purchaser and the Shareholders shall agree in writing.  The Closing shall be effective as of April 1, 2005 and such date is referred to herein as the " Closing Date ."

ARTICLE III.

SALE OF COMMON STOCK

            Section 3.1.          Common Stock.  Upon the terms and conditions of this Agreement, the Shareholders will sell, transfer and deliver to the Purchaser, and the Purchaser will purchase from the Shareholders, the Common Stock on the Closing Date.  In addition to the Common Stock being sold pursuant to this Agreement, the Company hereby, acting as the sole holder of Class A Membership Interests of Resolutions, LLC, ("Resolutions")  sells all the assets of  Resolutions to the Purchaser.

            Section 3.2.          Purchase Price.  Upon the terms and conditions of this Agreement, and as full consideration for the Common Stock and the representations, warranties, covenants and agreements provided by the Shareholders herein, the Purchaser will make the following payments to, or on behalf of, the Shareholders:

               (a)          To the Shareholders, a promissory note in the form of Exhibit 3.2(a)(1) and 3.2(a)(2) attached hereto in the aggregate amount of $200,000 (the "Purchaser Notes").  Subject to certain rights of the Purchaser to defer payments, the Purchaser Notes shall be payable, with interest  at five (5%) per annum commencing upon satisfaction of the condition for payment stated therein and continuing on the same day of each subsequent month until paid.   VillageEDOCS will guarantee payment of the Purchaser Notes.

               (b)          At the Closing, the Purchaser will pay up to $432,000.00 owed by the Company and Shareholders to Bonnie Golden and John Moran ("Golden and Moran"), subject to delivery to the Company by Golden and Moran of a release in the form attached hereto as Exhibit3.2(b).

               (c)          To the Shareholders, warrants in the form attached hereto as Exhibits 3.2(c)(1) and 3.2(c)(2) for the purchase of an aggregate of 10,000,000 shares of VillageEDOCS common stock (the "Warrants").  The exercise price for the Warrants shall be $0.15 per share.  The Warrants shall vest according to the following schedule:

                              (i)           twenty percent (20%) of the Warrants (an aggregate of 2,000,000 Warrants) on June 30, 2005, which warrants will be subject to reduction upon the occurrence of certain events as set forth in the Warrant ;

                              (ii)          thirty percent (30%) of the Warrants (an aggregate of 3,000,000 Warrants) twelve (12) months after the Closing;

                              (iii)        twenty percent (20%) of the Warrants (an aggregate of 2,000,000 Warrants) twenty-four (24) months after the Closing; and

                              (iv)         thirty percent (30%) of the Warrants (an aggregate of 3,000,000 Warrants) thirty-six (36) months after the Closing, 1,000,000 of which shall be subject to reduction upon the occurrence of certain events as set forth in the Warrant.

                Section 3.3.          Closing Deliveries.

(a)          At or prior to the Closing, the Shareholders shall deliver the following to the Purchaser:

 

(i)           stock certificates representing the Common Stock, duly endorsed for transfer to the Purchaser or accompanied by duly executed assignment documents, which shall transfer to the Purchaser good and valid title to the Common Stock, free and clear of all Encumbrances;

 

(ii)          evidence of consents, if any, as shall be required to enable Purchaser to continue to enjoy the benefit of any Governmental Authorization, lease, license, permit, contract, or other agreement or instrument to or of the Company, or of which the Company is a party or a beneficiary;

 

(iii)        pay-off letters for all Indebtedness of the Company, except Indebtedness owed to Golden and Moran, for money borrowed and evidence that such Indebtedness has been repaid and fully satisfied as of the Closing Date;

 

(iv)         the release described in Section 3.2(b);

 

(v)          evidence that notice of the transactions described in this Agreement have been delivered to all holders of Restricted Class B shares of Resolutions, LLC in accordance with its Certificate of Organization, operating agreement and other agreements defining the rights of holders of such Restricted Class B shares;

 

(vi)         the audited financial statements described in Section 6.5;

 

(vii)       an Employment Agreement, in the form attached hereto as Exhibit 3.3(a)(vii) (the " Riess Employment Agreement "), executed by Alexander Riess;

 

(viii)      an Employment Agreement, in the form attached hereto as Exhibit 3.3(a)(viii) (the " Falcon Employment Agreement "), executed by William R. Falcon;

 

(ix)         Release of Claims Agreements, in the form attached hereto as Exhibit 3.3(a)(ix), executed by each of the Shareholders and officers and directors of the Company releasing the Company from any and all prior claims of such officers, directors and Shareholders in their capacity as such;

 

(x)          all corporate, accounting, business and tax records of the Company;

 

(xi)         certificates, dated within 15 days of the Closing Date, from the Secretary of State of the State of Georgia and of comparable authority in other jurisdictions in which the Company or its Subsidiaries are qualified to do business, establishing that each is a validly existing corporation or limited liability company in good standing to transact business;

 

(xii)      a copy of the Articles of Incorporation of the Company and Articles of Organization of Resolutions, LLC, certified by the Secretary of State of the State of Georgia within ten days of the Closing Date;

 

(xiii)     a copy of the Bylaws of the Company and the Operating Agreement of Resolutions, LLC in effect as of the Closing, certified by an appropriate officer;

 

(xiv)     written resignations of each of the directors and officers of the Company, in a form acceptable to the Purchaser;

 

(xv)        a bill of sale for the Resolutions assets; and

(xiv)      such other documents as may be required by this Agreement or reasonably requested by the Purchaser.

 

(b)          At or prior to the Closing, the Purchaser shall deliver the following:

 

(i)           the Purchaser Notes;

 

(ii)             the Warrants;

 

(iii)        payment of amounts owed to Golden and Moran;

 

(iv)         to Alexander Riess, the Riess Employment Agreement executed by the Company and/or the Purchaser;

 

(v)          to William R. Falcon, the Falcon Employment Agreement executed by the Company and/or the Purchaser; and

 

(vi)         to the Shareholders, such other documents as may be required by this Agreement or reasonably requested by the Shareholders.

 

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

Subject to the exceptions set forth in the disclosure letter of the Purchaser delivered to the Shareholders concurrently with the Parties' execution of this Agreement (the " Purchaser Disclosure Lette r"), the Purchaser represents and warrants to the Shareholders as follows, except as set forth in the Purchaser's SEC Reports:

 

Section 4.1.          Organization and Qualification.   The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted.   VillageEDOCS is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted.  VillageEDOCS and its Subsidiaries, including the Purchaser, is each duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the properties owned, leased, or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified and in good standing would not have, or could not reasonably be anticipated to have, individually or in the aggregate, a Material Adverse Effect.

 

Section 4.2.          Authority; Non-Contravention; Approvals.

 

(a)          The Purchaser has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby.  No approval of the shareholders of the Purchaser is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.  This Agreement has been duly executed and delivered by the Purchaser, and, assuming the due authorization, execution and delivery hereof by the Company and the Shareholders, constitutes a valid and legally binding agreement of the Purchaser enforceable against it in accordance with its terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) general equitable principles.

 

(b)          The execution and delivery of this Agreement by and the consummation by the Purchaser of the transactions contemplated hereby do not and will not violate or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance, upon any of the properties or assets of the Purchaser, VillageEDOCS or any of its Subsidiaries under any of the terms, conditions or provisions of (i) the respective charters or bylaws of the Purchaser, VillageEDOCS or any of its Subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or Governmental Authority applicable to the Purchaser, VillageEDOCS or any of its Subsidiaries or any of their respective properties or assets (assuming compliance with the matters referred to in Section 4.2(c) ) or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which the Purchaser or any of its Subsidiaries is now a party or by which the Purchaser or any of its Subsidiaries or any of their respective properties or assets may be bound or affected, except, in the case of clauses (ii) and (iii), for matters as would not have, or could not reasonably be anticipated to (x) have, individually or in the aggregate, a Material Adverse Effect, or (y) materially impair the ability of the Purchaser to consummate the transactions contemplated by this Agreement.

 

(c)          No declaration, filing or registration with, or notice to, or authorization, consent or approval of, any Governmental Authority is necessary for the execution and delivery of this Agreement by the Purchaser or the consummation by the Purchaser of the transactions contemplated hereby, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not made or obtained, as the case may be, would not, have, or could not reasonably be anticipated to have, individually or in the aggregate, a Material Adverse Effect or materially impair the ability of the Purchaser to consummate the transactions contemplated by this Agreement.

Section 4.3.         Brokers and Finders.  The Purchaser has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby.

Section 4.4.         Litigation.  Other than that which is disclosed in the Purchaser SEC Reports, there is no litigation, action, suit, proceeding or governmental investigation pending or, to the knowledge of the Purchaser, threatened against the Purchaser or affecting any of the Purchaser's properties or assets, which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the consummation of the transactions contemplated by this Agreement.

 

ARTICLE V.

SEVERAL, AND NOT JOINT, REPRESENTATIONS AND WARRANTIES

OF THE SHAREHOLDERS

 

Each of the Shareholders hereby, severally and not jointly, represents and warrants to Purchaser as follows:

 

Section 5.1.          Ownership.  Such Shareholder owns, beneficially and of record, the number of shares of Common Stock set forth on the duly executed stock power being delivered by such Stockholder to the Purchaser concurrently with the execution and delivery of this Agreement, free and clear of any adverse claim of any other Person, including without limitation, any Encumbrances.  There are no outstanding subscriptions, options, calls, agreements, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, debenture, instrument or other agreement, obligating such Shareholder to deliver or sell, or cause to be delivered or sold, shares of the capital stock of the Company or obligating such Shareholder to grant, extend or enter into any agreement or commitment described above.  There are no shareholder or stockholder agreements, voting trusts, proxies or other agreements or understandings to which such Shareholder is a party or is bound with respect to the voting of any shares of capital stock of the Company.

 

S ection 5.2.          Authority; Non-Contravention; Approvals.

 

(a)          Such Shareholder has full power and authority to execute and deliver this Agreement and to sell, transfer and deliver the shares of Common Stock of the Company to be sold by such Shareholder.  This Agreement has been duly executed and delivered by such Shareholder and, assuming the due authorization, execution and delivery hereof by the Purchaser, constitutes a valid and legally binding agreement of such Shareholder, enforceable against such Shareholder in accordance with its terms, except that such enforcement may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (b) general equitable principles.

 

(b)          The execution and delivery of this Agreement by such Shareholder and the consummation by such Shareholder of the transactions contemplated hereby do not and will not violate or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration (i) under any material agreement or instrument to which such Shareholder is bound or (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any Governmental Authority applicable to such Shareholder.

 

(c)          No declaration, filing or registration with, or notice to, or authorization, consent or approval of, any Governmental Authority is necessary for the execution and delivery of this Agreement by such Shareholder or the consummation by such Shareholder of the transactions contemplated hereby.

 

ARTICLE VI.

JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES

OF THE SHAREHOLDERS

 

Subject to the exceptions set forth in the disclosure letter of the Shareholders delivered to Purchaser concurrently with the Parties' execution of this Agreement (the " Shareholder Disclosure Letter "), each of the Shareholders hereby, jointly and severally, represents and warrants to Purchaser as follows:

 

Section 6.1.          Organization and Qualification.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted.  The Company is duly qualified to do business and is in good standing in each jurisdiction in which the properties owned, leased, or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified and in good standing would not have, or could not reasonably be anticipated to have, individually or in the aggregate, a Material Adverse Effect on the Company.  True, accurate and complete copies of the Company's Articles of Incorporation and Bylaws, in each case as in effect on the date hereof including all amendments thereto, have heretofore been delivered to Purchaser.

 

Section 6.2.          Capitalization; Ownership.

 

(a)          The authorized capital stock of the Company consists of 2,000,000 shares of Common Stock.  As of the Closing there will be 1,850,000 shares of Common Stock issued and outstanding and no other shares of capital stock of the Company issued and outstanding.  All of such issued and outstanding shares of Common Stock are validly issued, fully paid, nonassessable and free of preemptive rights, and are owned beneficially and of record as set forth on the Ownership Schedule.  All dividends and other distributions declared with respect to the issued and outstanding shares of the capital stock or other equity interests of the Company have been paid or distributed.

 

(b)          There are no outstanding (i) subscriptions, options, calls, agreements, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, debenture, instrument or other agreement, obligating the Company or any Shareholder to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of the Company or obligating the Company or any Shareholder to grant, extend or enter into any agreement or commitment described above or (ii) obligations of the Company or any Shareholder to repurchase, redeem or otherwise acquire any securities referred to in clause (i) above.  There are no shareholder or stockholder agreements, voting trusts, proxies or other agreements or understandings to which the Company or any Shareholder is a party or is bound with respect to the voting of any shares of capital stock of the Company.

 

Section 6.3.          Subsidiaries.   The Company owns all outstanding Class A shares of Resolutions, LLC.  Resolutions, LLC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted.  Resolutions, LLC does not transact business in any jurisdiction.  True, accurate and complete copies of Resolutions, LLC's Certificate of Organization, Operating Agreement and other agreements defining the rights of its shareholders, in each case as in effect on the date hereof including all amendments thereto, have heretofore been delivered to Purchaser.

 

Section 6.4.          Authority; Non-Contravention; Approvals.

 

(a)          The Company has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby.  This Agreement has been approved by the board of directors of the Company, and no other corporate proceedings on the part of the Company or the Shareholders are necessary to authorize the execution and delivery of this Agreement or the consummation by the Company of the transactions contemplated hereby.  This Agreement has been duly executed and delivered by the Company, and, assuming the due authorization, execution and delivery hereof by the Purchaser, constitutes a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except that such enforcement may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (b) general equitable principles.

 

(b)          The execution and delivery of this Agreement by the Company and the Shareholders and the consummation by the Company and the Shareholders of the transactions contemplated hereby do not and will not violate or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or Encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (i) the charter or bylaws of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any Governmental Authority applicable to the Company or any Shareholder, or any of their respective properties or assets, or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which the Company is now a party or by which the Company or any of its properties or assets may be bound or affected.

 

(c)          No declaration, filing or registration with, or notice to, or authorization, consent or approval of, any Governmental Authority is necessary for the execution and delivery of this Agreement by the Company and the Shareholders or the consummation by the Company and the Shareholders of the transactions contemplated hereby.

 

Section 6.5.          Financial Statements.  The unaudited balance sheet, cash flow statement and income statement of the Company attached to the Shareholder Disclosure Letter (collectively, the " Company Financial Statements ") are true, correct and complete, and fairly present the financial position of the Company as of December 31, 2004, and the results of its operations and cash flows for the periods then ended, on an accrual basis of accounting and on a basis consistent with the books and records of the Company and prior periods, subject to normal year-end adjustments and any other adjustments described therein.  On or before the Closing Date, the Company shall deliver audited balance sheets, cash flow statements and income statements of the Company for the period ending December 31, 2004 in a form acceptable to VillageEDOCS's certified public accountants, and will deliver an unaudited balance sheet and income statement of the Company for the quarter ended March 31, 2005 in a form acceptable to the Purchaser.

 

Section 6.6.          Absence of Undisclosed Liabilities.  The Company has not incurred any liabilities or obligations (whether absolute, accrued, contingent or otherwise) of any nature, except liabilities, obligations or contingencies (i) which are accrued on or reserved against the Company Financial Statements or reflected in the notes thereto, or (ii) which were incurred after December 31, 2004, were incurred in the ordinary course of business and consistent with past practices and are immaterial.

 

Section 6.7.          Absence of Certain Changes or Events.  Since January 1, 2005, (i) the Company has not, directly or indirectly, purchased, redeemed or otherwise acquired any of its securities; (ii) the Company has not granted any increase in the compensation of its officers, directors or employees (including any increase pursuant to any bonus, pension, profit-sharing or other plan or commitment) and has not paid any bonuses to any officers, directors or employees; (iii) the Company has not adopted, entered into or amended any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, health care, employment or other employee benefit plan, agreement, trust fund or arrangement for the benefit or welfare of any employee or retiree, except as required to comply with changes in applicable law; (iv) the Company has not made any amendment to its Articles of Incorporation or Bylaws or changed the character of its business in any material manner; (v) the business of the Company has been conducted in the ordinary course of business consistent with past practices; (vi) there has not been any event, occurrence, development or state of circumstances or facts which has had, or could reasonably be anticipated to have, individually or in the aggregate, a Material Adverse Effect on the Company; (vii) the Company has not authorized a stock split; and (viii) the Company has not permitted or allowed any of its material assets to be subject to any Encumbrance, except for Permitted Encumbrances.

 

Section 6.8.          Litigation.  There are no claims, suits, actions, inspections, investigations or proceedings pending or, to their knowledge, threatened against, relating to or affecting the Company before any Governmental Authority, or any mediator or arbitrator, and, to their knowledge, there is no reasonable basis for same.  The Company is not subject to any order of any Governmental Authority specifically applicable to the Company, or any mediator or arbitrator.

 

Section 6.9.          Billed but Uncollected Invoices.  All billed but uncollected invoices of the Company represent bona fide sales actually made in the ordinary course of business and are collectible within 90 days after the applicable billing date, without set off or counterclaim.  To their knowledge, none of the parties owing funds to the Company is involved in a bankruptcy or insolvency proceeding or is generally unable to pay its debts as they become due.  The Company has good and valid title to the claims represented by the billed but uncollected invoices free and clear of all Encumbrances.  No goods or services, the sale or provision of which gave rise to any billed but uncollected invoices, have been returned or rejected by any account debtor or lost or damaged prior to the receipt thereby.

 

Section 6.10.        No Violation of Law; Compliance with Agreements.

 

(a)          The Company is not in violation of, and has not been given notice or been charged with any violation of, any Legal Requirement of any Governmental Authority.  No investigation or review by any Governmental Authority is pending or, to their knowledge, threatened, nor has any Governmental Authority indicated an intention to conduct the same.  The Company has all permits, licenses, franchises, variances, exemptions, orders and other governmental authorizations, consents and approvals required or necessary to conduct its business as presently conducted (collectively, the " Company Permits ").  The Company is not in violation of the terms of any Company Permit.

 

(b)          The Company is not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default under, (i) the charter, bylaws or similar organizational instruments of the Company or (ii) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which the Company is a party or by which it is bound or to which any of its properties or assets is subject.

 

Section 6.11.        Insurance.  The Shareholder Disclosure Letter sets forth a list of all insurance policies owned by the Company or by which the Company or any of its properties or assets is covered against present losses, all of which have been for the periods covered, and are currently, in full force and effect.  The scope and amount of such listed insurance policies are customary and reasonable for the businesses in which the Company has been engaged during the last three years and provide adequate insurance coverage for the assets and the operations of the Company for all risks normally insured against by a Person carrying on the same business or businesses as the Company.  No insurance has been refused with respect to any operations, properties or assets of the Company nor has coverage of any insurance been limited by any insurance carrier that has carried, or received any application for, any such insurance during the last three years.  No insurance carrier has denied any claims made against any of the policies listed in the Shareholder Disclosure Letter.  Further, all such policies are sufficient for compliance with all Legal Requirements and Contracts to which the Company is a party, and will continue in full force and effect following the consummation of the transactions contemplated hereby.

 

Section 6.12. Taxes.          (i) The Company has (x) duly filed (or there has been filed on its behalf) with the appropriate taxing authorities all Tax Returns required to be filed by it on or prior to the date hereof, and (y) duly paid in full or made adequate provision therefor on its financial statements (or there has been paid or adequate provision has been made on its behalf) for the payment of all Taxes for all periods ending through the date hereof (whether or not shown on any Tax Return); (ii) all such Tax Returns filed by or on behalf of the Company are true, correct and complete in all material respects and have been prepared in substantial compliance with all applicable laws and regulations; (iii) no claim has ever been made in writing by any authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction; (iv) there are no liens for Taxes upon any property or assets of the Company, except for liens for Taxes not yet due and payable; (v) the Company has complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and has, within the time and the manner prescribed by law, withheld and paid over to the appropriate taxing authority all Taxes required to be so withheld and paid over under all applicable laws in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party; and (vi) the Company has been a validly electing S corporation within the meaning of Sections 1361 and 1362 of the Internal Revenue Code of 1986, as amended (the "Code") at all times during its existence, and the Company will be an S corporation up to and including the Closing.

 

Section 6.13.        Employee Benefit Plans. Except as set forth in the Shareholder Disclosure Letter, the Company does not maintain, and has never maintained, any employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.

 

Section 6.14.        Employee and Labor Matters.

 

(a)          At or prior to Closing, the Company has separately provided Purchaser with a true and complete list, dated as of April 1, 2005 (the " Employee Schedule "), of all employees of the Company listing the title or position held, base salary or wage rate and any bonuses, commissions, profit sharing, or other material compensation or perquisites payable to, and all material employee benefits received, by such employees.  The Company has not entered into any agreement or agreements pursuant to which the combined annual payroll of the Company, including projected pay increases, overtime and fringe benefit costs, required to operate its business (including all administrative and support personnel) would be materially greater than as listed on the Employee Schedule.

 

(b)          The Company has provided Purchaser copies of all health, dental, life and disability insurance plans of the Company.

 

(c)          The Company is not a party to or bound by any written employment agreements or commitments, other than on an at-will basis.

 

(d)          The Company is not a party to or bound by any collective bargaining or similar agreement with any labor organization or work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company and none of the employees of the Company is represented by any labor organization.

 

(e)          There is no unfair labor practice charge or complaint against the Company pending or, to their knowledge, threatened before the National Labor Relations Board or any similar state or  local agency responsible for administering such charges or complaints.

 

(f)           Except as set forth in the Company's employee handbook, there are no material written personnel policies, rules or procedures applicable to employees of the Company.

 

(g)          There are no proceedings pending or, to their knowledge, threatened against the Company in any forum by or on behalf of any present or former employee of the Company, any applicant for employment, or classes of the foregoing, alleging breach of any express or implied contract of employment, any law or regulation governing employment or the termination thereof or other discriminatory, wrongful or tortious conduct in connection with the employment relationship.

 

(h)          The Company is, and at all times has been, in material compliance with all Legal Requirements applicable to the Company respecting employment and employment practices, terms and conditions of employment, wages, hours of work, overtime, leave time, immigration, and occupational safety and health, and is not engaged in any unfair labor practices as defined in the National Labor Relations Act or other Legal Requirements applicable to the Company.

 

(i)           The Company is not a party to any agreement with any employee or other party that provides for compensation, severance pay, benefits, or the vesting of options or shares as a result of the transactions contemplated by this Agreement.

 

(j)           Prior to April 1, 2005, the Company terminated two employees, Output Solutions, and a marketing contractor resulting in a reduction in monthly operating costs of approximately $20,000.  Prior to April 1, 2005, the Company, with the Purchaser's knowledge and consent, hired two additional sales representatives.

 

Section 6.15.        Non-Competition Agreements.  The Company has provided Purchaser true and complete copies of all confidentiality, non-solicitation and/or non-competition agreements between the Company and any of the Shareholders, between the Company and any employee of the Company, or between Alexander Riess or William R. Falcon and a party other than the Company.  Neither the Company nor any Shareholder is a party to any agreement which purports to restrict or prohibit any of them from, directly or indirectly, engaging in any business currently engaged in by the Company.  None of the Company's shareholders, officers, directors, or key employees is a party to any agreement which, by virtue of such Person's relationship with the Company, restricts the Company or any subsidiary of the Company from, directly or indirectly, engaging in any of the businesses of the Company.

 

Section 6.16.       Environmental Matters.  The Company is in compliance with, and has at all times been in compliance with, all Environmental Laws in connection with the conduct of the business of the Company and the use, maintenance and operation of any of its business facilities.

 

Section 6.17.        Title to Assets.  The Company has good and saleable title to all its material assets and valid leasehold interests in its leased assets and properties, as reflected in the most recent balance sheet included in the Company Financial Statements, except for properties and assets that have been disposed of in the ordinary course of business since the date of the latest balance sheet included therein, free and clear of all Encumbrances of any nature whatsoever, except for Permitted Encumbrances.  All leases under which the Company leases any real property have been delivered to Purchaser and are in good standing, valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event which with notice or lapse of time or both would become a default by or on behalf of the Company or its Subsidiaries, or by or on behalf of any third party.

 

Section 6.18.        Contracts, Agreements, Plans and Commitments.  The Shareholders have set forth in the Shareholder Disclosure Letter a complete list of all written and oral contracts, agreements, plans and commitments (collectively, the " Contracts ") to which the Company is a party or by which the Company or any of its assets is bound as of the date hereof, including:

(a)          any contract, commitment or agreement that involves aggregate expenditures by the Company of more than $5,000 per year;

 

(b)          any contract or agreement (including any such contracts or agreements entered into with any Governmental Authority) relating to the maintenance or operation of the business that involves aggregate expenditures by the Company of more than $5,000;

 

(c)          any indenture, loan agreement, or note under which the Company has outstanding indebtedness, obligations or liabilities for borrowed money;

 

(d)          any contract (or group of related contracts) for the lease of personal property to or from any Person providing for lease payments in excess of $5,000 per annum;

 

(e)          any lease or sublease for the use or occupancy of real property;

 

(f)           any agreement concerning confidentiality or that restricts the right of the Company to engage in any type of business;

 

(g)          any guarantee, direct or indirect, by any Person of any Contract, lease or agreement entered into by the Company;

 

(h)          any partnership, joint venture or construction and operation agreement;

 

(i)           any agreement of surety, guarantee or indemnification with respect to which the Company is the obligor, outside of the ordinary course of business;

 

(j)  &n