STOCK PURCHASE AGREEMENT DATED APRIL 29, 2005

 

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                                                                    EXHIBIT 10.1

 

                            STOCK PURCHASE AGREEMENT

 

      THIS STOCK PURCHASE AGREEMENT is made and entered into effective as of

April 30, 2005, by and among ARCADIA HEALTH SERVICES OF MICHIGAN, INC., a

Michigan corporation ("Buyer"), HOME HEALTH PROFESSIONALS, INC., a Delaware

Corporation ("Company"), and PATRICIA SLAYTON, THOMAS UNGER and GILBERT B.

SILVERMAN ("Silverman"), Michigan residents (individually, "Seller" and

collectively, "Sellers"). Certain other capitalized terms used herein are

defined in Article V and throughout this Agreement.

 

                                   RECITALS :

 

      A. Sellers own 100% of the issued and outstanding shares (the "Shares") of

capital stock of Company.

 

      B. Company is engaged in the home health care employee staffing business

(the "Business").

 

      C. Sellers desire to sell, and Buyer desires to purchase, all of the

Shares upon the terms and subject to the conditions, representations, warrants

and covenants contained in this Agreement.

 

                                    AGREEMENT

 

      NOW, THEREFORE, in consideration of the premises and the mutual promises,

representations, warranties and covenants herein contained, the parties agree as

follows:

 

                                    ARTICLE I

                      SALE AND TRANSFER OF SHARES; CLOSING

 

      1.1 SALE AND PURCHASE OF SHARES; CERTAIN LIABILITIES NOT BEING ASSUMED.

 

            1.1.1 Subject to the terms and conditions of this Agreement, at the

      Closing Sellers will sell, convey, assign, deliver and transfer all of the

      Shares to Buyer, and Buyer will purchase the Shares from Sellers free and

      clear of any Encumbrances.

 

            1.1.2 Notwithstanding that Buyer is purchasing all of the Shares of

      the Company from Sellers, the parties acknowledge and agree that Sellers

      shall specifically retain and indemnify Buyer, and Buyer shall not assume

      or otherwise be responsible for, the following liabilities of the Company

      ("Sellers Retained Liabilities"):

 

                  (a) Any and all lines of credit of the Company with lenders

            and vendors, as detailed in Schedule 1.1.2(a) attached hereto, all

            of which shall be paid and satisfied in full prior to Closing.

 

                  (b) Any Liability for Taxes (including penalties and interest)

            of the Company existing as of the Closing or otherwise attributable

            to any period prior to Closing.

 

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                  (c) Any Liability of the Company to T-Mobile.

 

                  (d) Any Liability in connection with the four (4) automobile

            leases referenced in Schedule 1.1.2(d), which shall be transferred

            as set forth in said schedule.

 

                  (e) Employee paid time off as detailed in Schedule 1.1.2(e).

 

                  (f) Workers compensation liability for any claims first

            arising prior to Closing.

 

      1.2 PURCHASE PRICE AND PAYMENT. Subject to Section 1.3, the purchase price

("Purchase Price") for the Shares shall be paid to Sellers on a pro-rata basis

based upon each Seller's respective ownership percentage and consist of the

following:

 

            1.2.1 Subject to Section 1.3, cash at Closing in the amount of Two

      Million Four Hundred Ninety-Nine Thousand Dollars and No/100 Dollars

      ($2,499,000.00), less the Escrow Amount (as defined in Section 1.3), by

      wire transfer of immediately available funds (the "Cash Payment").

 

            1.2.2 Shares of common stock of Buyer's ultimate parent company,

      Arcadia Resources, Inc. (OTB: ACDI.OB)("ACDI") equal in value to Two

      Million and No/100 Dollars ($2,000,000.00). The number of ACDI shares to

      be provided to Sellers will be based on the average closing price per

      share for each of the last ten (10) trading days prior to Closing (the

      "Stock Payment").

 

            1.2.3 An earnout amount equal to four (4) times the cumulative

      EBITDA of the Company's St. Joseph (Michigan) branch ("Earnout Amount")

      for the twelve month period following the Closing Date ("Earnout Period"),

      payable as follows:

 

                  1.2.3.1 Within thirty (30) days following the end of each

            three month period during the Earnout Period, Buyer shall calculate

            the cumulative Earnout Amount for the three month period just ended

            and each prior three month period during the Earnout Period (the

            "Cumulative Earnout Amount"). If the Cumulative Earnout Amount is a

            positive number, then within five (5) business days following

            Buyer's determination of the Cumulative Earnout Amount, Buyer shall

             make a cash payment to Sellers (on a pro rata basis) equal to

            ("Quarterly Earnout Payment"): (x) fifty (50%) percent of the

            Cumulative Earnout Amount, minus (y) the aggregate amount of

            Quarterly Earnout Payments made by Buyer to Seller pursuant to this

            Section 1.2.3 for all prior three month periods. If the Cumulative

            Earnout Amount or Quarterly Earnout Payment is a negative number,

            then the Quarterly Earnout Payment for that period shall be zero.

 

                  1.2.3.2 Within five (5) business days following the Buyer's

            determination of Cumulative Earnout Amount for the last three (3)

            month period during the Earnout Period, Buyer shall pay to Sellers

            (on a pro rata basis) an amount equal to the entire Cumulative

            Earnout Amount, minus the aggregate amount of the Quarterly Earnout

            Payments previously made by Buyer.

 

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                  1.2.3.3 If the aggregate amount of Quarterly Earnout Payments

            exceeds the actual Earnout Amount for the entire Earnout Period,

            then the Buyer shall be reimbursed the excess amount paid to Sellers

            from the Escrow Amount.

 

                  1.2.3.4 During the Earnout Period, monthly financial

            statements of the Company utilized in determining the Earnout Amount

            shall be provided to Sellers.

 

      1.3 PURCHASE PRICE ADJUSTMENT. The Cash Payment amount due at Closing or

any other amount otherwise due Sellers hereunder shall be adjusted downward if

the Company's "Net Current Asset Value" (as defined herein) as of the Closing

Date is less than the Company's average Net Current Asset Value for the three

(3) month period ending March 31, 2005. For this purpose, the term "Net Current

Asset Value" means the book value of the Company's current assets as of the

applicable measurement date minus the Company's current liabilities as of the

same date, each of which shall be determined in accordance with GAAP. Within

ninety (90) days following the Closing, Buyer shall provide Sellers with a

Schedule prepared by Buyer in good faith showing (i) the Net Current Asset Value

as of the Closing Date, (ii) the average Net Current Asset Value for the three

month period ended March 31, 2005, and (iii) an estimate of the amount of the

adjustment to the Purchase Price, if any ("Buyer's Adjustment Schedule"). In

order for Buyer to prepare its Buyer's Adjustment Schedule, the Sellers shall

provide Buyer a copy of the Company's April 2005 financial statements on or

before May 31, 2005. Unless Sellers shall provide Buyer with written objection

to the Buyer's Adjustment Schedule within thirty (30) days following Sellers'

receipt thereof, the Buyer's Adjustment Schedule shall become final, binding and

conclusive upon the parties for purposes of this Agreement and Buyer shall be

entitled to have the Purchase Price adjustment amount reflected in the Buyer's

Adjustment Schedule released to Buyer from the Escrow Amount or otherwise. If

Sellers timely provide said objection to the Buyer's Adjustment Schedule, and

the parties are unable to reach a mutual agreement as to the Purchase Price

adjustment amount within a period of thirty (30) days following such objection

by Sellers, then within seven (7) days thereafter, the calculation of the

Purchase Price adjustment shall be submitted to an independent certified public

accountant mutually selected, in writing, by the parties for such purpose

("Independent Accountant"). Each party shall thereupon furnish to the

Independent Accountant such work papers and other documents and information

requested by the Independent Accountant. The Independent Accountant shall

determine the Purchase Price adjustment within thirty (30) days following the

date of its appointment, which determination shall be final, binding, and

conclusive upon the parties. The parties shall bear all costs, fees and expenses

of the Independent Accountant equally.

 

      1.4 ESCROW AMOUNT. At the Closing, Buyer shall deposit the sum of Two

Hundred Forty-Five Thousand and No/100 Dollars ($245,000.00) into escrow (the

"Escrow Amount") to be held pursuant to the terms of that certain Escrow

Agreement attached hereto as Exhibit 1.4. The Escrow Amount shall be used to (i)

satisfy any valid indemnification claims that Buyer has against the Sellers,

(ii) reimburse Buyer for the amount of any excess Quarterly Earnout Payments,

and (iii) satisfy any other claims or rights of set off that Buyer has against

Sellers. Within five (5) days following the final determination of the

Cumulative Earnout Amount, the escrow agent shall release to Sellers (on a pro

rata basis) one-half of the remaining balance of the Escrow Amount, less a

reasonable reserve for any pending indemnification claims/offsets.

 

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Within thirty (30) days following the second anniversary date of the Closing

Date, the escrow agent shall release to Sellers the remaining balance of the

Escrow Amount, less a reasonable reserve for pending indemnification

claims/offsets. Once all indemnification claims/set offs have been finally

resolved, the balance of the Escrow Amount, if any, shall be released to

Sellers.

 

      1.5 NATURE OF ACDI STOCK. Each Seller understands that the ACDI stock

acquired by them hereunder has not been registered under the Securities Act of

1933, as amended (the "Act"), or under any applicable state securities law, and

is being issued to them in reliance upon available exemptions from registration,

and is deemed restricted stock within the meaning of Rule 144 promulgated by the

Securities Exchange Commission. Each Seller further acknowledges and understands

that the resale of the ACDI stock has not been registered by ACDI, and the ACDI

stock cannot be resold by Sellers unless the ACDI stock is registered for resale

or an exemption from registration is available under federal and state law. As a

condition to Sellers' receipt of the Stock Payment, each Seller shall be

required to execute and deliver to ACDI the Stock Payment Agreement in the form

attached hereto as Exhibit "1.5". Buyer shall cause ACDI to issue to each Seller

a stock certificate evidencing such Seller's share of the Stock Payment as soon

as reasonably possibly following the Closing.

 

      1.6 CLOSING. The purchase and sale (the "Closing") provided for in this

Agreement will take place at 10:00 a.m. on April 30, 2005 at the offices of

Arcadia Health Services of Michigan, Inc., 26777 Central Park Boulevard, Suite

200, Southfield, Michigan 48076, or at such other time and place as the parties

may mutually agree. The effective date of the transfer of ownership of the

Shares shall be 11:59:59 p.m. on April 30, 2005.

 

      1.7 CLOSING OBLIGATIONS. At the Closing:

 

            1.7.1 Sellers will deliver to Buyer (collectively the "Sellers'

      Closing Documents"):

 

                  (a) Certificates representing the Shares, duly endorsed (or

            accompanied by duly executed stock powers);

 

                  (b) A Release in the form of Exhibit 1.7.1(b) executed by

            Sellers indicating Sellers shall release the Company from any and

            all claims, liabilities or obligations ("Sellers' Release");

 

                  (c) Noncompetition/Non-Solicitation agreements in the form of

            Exhibit 1.7.1(c), executed by Sellers, and key branch personnel to

            be agreed upon by the parties (collectively the "Sellers

            Noncompetition Agreements");

 

                   (d) The Required Consents (as hereinafter defined);

 

                  (e) The resignation of Sellers and such other individuals

            identified on Schedule 1.5.1(e), as officers, directors and

            employees of the Company, effective as of the Closing Date, in the

            form of Exhibit 1.7.1(e);

 

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                  (f) A legal opinion from Sellers' counsel in the form of

            Exhibit 1.7.1(f);

 

                  (g) The Stock Payment Agreement;

 

                  (h) Sellers' proof of tail coverage for professional and

            general liability for claims occurring prior to Closing;

 

                  (i) All other documents, instruments or writings required to

             be delivered to Buyer at or prior to the Closing pursuant to this

            Agreement and such other certificates of authority and documents as

            Buyer may reasonably request.

 

            1.7.2 Buyer will deliver to Sellers (the "Buyer's Closing

      Documents"):

 

                  (a) The Cash Payment;

 

                  (b) The Stock Payment Agreement evidencing each Sellers right

            to receive the Stock Payment;

 

                  (c) An Encumbancy Certificate in the form of Exhibit 1.7.2(c).

 

                  (d) All other documents, instruments or writings required to

            be delivered to Sellers at or prior to the Closing pursuant to this

            Agreement and such other certificates of authority and documents as

            Sellers may reasonably request.

 

      1.8 SELLERS' PAYMENT FOR TAIL LIABILITY INSURANCE.

 

            On or before the Closing, Sellers shall purchase a tail policy and

      provide evidence thereof to Buyer, which policy shall cover all

      professional and general liability risks of the Company for occurrences or

      events occurring prior to Closing.

 

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

                             OF COMPANY AND SELLERS

 

      As a material inducement to Buyer entering into this Agreement and knowing

and acknowledging that Buyer is relying upon the same, the Company and Sellers,

jointly and severally, hereby make, as of the Closing Date, the following

representations and warranties to Buyer.

 

      2.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly

organized, validly existing, and in good standing under the respective laws of

the State of its incorporation, with full power and authority to conduct its

business as it is now being conducted, to own, lease and use the properties and

assets that it purports to own, lease or use, and has the full power and

authority to perform all of its material Contracts. The Company is duly

qualified to do business as a foreign corporation and is in good standing under

the laws of each state or other jurisdiction which either the ownership, leasing

or use of the properties owned, leased or used by it, or the nature of the

activities conducted by it, require such qualification.

 

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      2.2 AUTHORITY/ENFORCEABILITY. This Agreement constitutes the legal, valid,

and binding obligation of Sellers and Company, enforceable against them in

accordance with its terms. Upon the execution and delivery by Sellers of the

Sellers' Closing Documents, the Sellers' Closing Documents will constitute the

legal, valid, and binding obligations of Sellers, enforceable against them in

accordance with their respective terms. Sellers and Company have the absolute

and unrestricted right, power, authority, and capacity to execute and deliver

this Agreement and the Sellers' Closing Documents and to perform their

respective obligations under this Agreement and the Sellers' Closing Documents.

 

      2.3 NO CONFLICT. Neither the execution and delivery of this Agreement nor

the consummation or performance of any of the contemplated transactions

hereunder will, directly or indirectly (with or without notice or lapse of

time): (a) contravene, conflict with, result in a violation of or have any

adverse affect upon (i) any provision of the organizational documents of the

Company, or (ii) any resolution adopted by the Board of Directors or the

stockholders of the Company; (b) contravene, conflict with, or result in a

violation of, or give any Governmental Body or other Person the right to

challenge, any of the transactions contemplated hereunder or to exercise any

remedy or obtain any relief under any Legal Requirement, any Order to which the

Company or Sellers, or any of the assets owned or used by the Company, may be

subject; (c) contravene, conflict with, or result in a violation of any of the

terms or requirements of, or give any Governmental Body the right to revoke,

withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization

that is held by the Company or that otherwise relates to the business of, or any

of the assets owned or used by, the Company; (d) contravene, conflict with, or

result in a violation or breach of any provision of, or give any Person the

right to declare a default or exercise any remedy under, or to accelerate the

maturity or performance of, or to cancel, terminate, or modify, any Contract; or

(e) result in the imposition or creation of any Encumbrance upon or with respect

to any of the assets owned or used by the Company. Except as set forth in

Schedule 2.3 ("Required Consents"), neither Sellers nor Company is or will be

required to give any notice to or obtain any Consent from any Person in

connection with the execution and delivery of this Agreement or the consummation

or performance of any of the transactions contemplated hereunder.

 

      2.4 CAPITALIZATION. The equity securities of the Company are duly

authorized, validly issued, fully paid and non-assessable, and consist solely of

the equity securities described in Schedule 2.4. At the Closing, the Shares

shall represent all of the issued and outstanding shares of capital stock of the

Company. Sellers are and will be on the Closing Date, the legal, record and

beneficial owners and holders of all of the Shares, free and clear of all

Encumbrances, and shall transfer ownership and marketable title to the Shares to

the Buyer, free of all Encumbrances at the Closing. There are no Contracts

relating to the issuance, sale, or transfer of any equity securities or other

securities of the Company, no Person has any rights to acquire any shares of the

capital stock of the Company, and there are no options, calls, warrants or other

securities or rights outstanding which relate to, are convertible into or

exercisable for any securities of the Company. Schedule 2.4 sets forth, with

respect to the Company, the name, address and federal taxpayer identification

number of, and the number of outstanding Shares legally and beneficially owned

by each Seller as of the Closing Date.

 

      2.5 FINANCIAL STATEMENTS. Attached hereto as Schedule 2.5 are the

following financial statements of the Company ("Financial Statements"): (a) the

reviewed balance sheet of

 

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Company as of December 31, 2004 and 2003, and the reviewed related statements of

income for each of the years then ended, together with (b) a balance sheet of

Company as of March 31, 2005 and the related statement of income for the month

then ended (the "Interim Financial Statements"). All Financial Statements are

true, accurate, complete, and present the properties, financial condition and

results of operations of Company as of the respective dates of and for the

periods referred to in such Financial Statements, all in accordance with and

pursuant to GAAP consistently applied, except as expressly stated in Schedule

2.5.

 

      2.6 BOOKS AND RECORDS. The books of account, accounting records, minute

books, and stock record books of the Company (collectively "Records"), are in

all material respects complete, accurate and correct and have been maintained in

accordance with reasonable business practices, except as may be disclosed in the

Financial Statements. All existing Records requested by the Buyer have been made

available to the Buyer for review. The minute books of the Company contain

accurate and complete records of all meetings held of, and corporate action

taken by, the stockholders, the Board of Directors, and committees of the Board

of Directors of the Company, and no meeting of any such stockholders, Board of

Directors or committee has been held for which minutes have not been prepared

and maintained in such minute books, except for any inconsequential and informal

meeting which did not have any significant impact upon the Company and at which

no business of any consequence was conduced, no actions or resolutions were

taken and no liability was incurred. At the Closing, all Records will be

delivered to the Buyer.

 

      2.7 TITLE TO PROPERTIES; ENCUMBRANCES. Except as indicated in Schedule

2.7, the Company owns and has absolute, good and marketable title to all of the

material properties and assets (whether tangible or intangible) located in the

Leased Property, used in the Business or operations of the Company, or reflected

in the books, records or Financial Statements of the Company, and all material

properties and assets purchased or otherwise acquired by the Company since the

date of the Interim Financial Statements (collectively "Company Assets"). All

Company Assets are free and clear of all Encumbrances, except those Encumbrances

described in Schedule 2.7.

 

      2.8 REAL PROPERTY.

 

            2.8.1 Schedule 2.8.1 lists and describes all real property or

       interests in real property leased or subleased to or by the Company

      ("Leased Property"). The Company does not conduct any of its Business and

      no assets of the Company are located at any location other than the Leased

      Property. The Sellers have delivered to the Buyer correct and complete

      copies of the leases and subleases listed in Schedule 2.8.1 and with

      respect to each such lease and sublease, except as disclosed in Schedule

      2.8.1:

 

                  (a) Each is legal, valid, binding, enforceable, and in full

            force and effect in all material respects and will continue to be

            legal, valid, binding, enforceable, and in full force and effect in

            all material respects on identical terms following the consummation

            of the Contemplated Transactions;

 

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                  (b) No Person is in breach or default, and no event has

            occurred which, with or without notice or lapse of time, would

            constitute a breach or default or permit termination, modification,

            or acceleration thereunder;

 

                  (c) No Person has repudiated any provision thereof;

 

                  (d) There are no disputes, material oral agreements, or

            forbearance arrangements in effect as to the lease or sublease;

 

                  (e) With respect to each sublease, the representations and

            warranties set forth in subsections (a) through (d) above are true

            and correct with respect to the underlying lease; and

 

                  (f) The Company has not assigned, transferred, conveyed,

            mortgaged, deeded in trust, or encumbered any interest in the

            leasehold or subleasehold.

 

            2.8.2 Except as disclosed in Schedule 2.8.2, with respect to each

      parcel of Leased Property:

 

                  (a) The Company has received all material Governmental

            Authorizations required in connection with the use or operation

            thereof and each have been operated and maintained in accordance

            with material applicable Legal Requirements;

 

                  (b) Each is supplied with utilities and other services

            necessary for the operation of said Leased Property in the Ordinary

            Course of Business as conducted prior to the Closing;

 

                  (c) There are no pending or threatened condemnation

            proceedings, or lawsuits or administrative actions relating to any

            parcel of Leased Property which could affect the current use or

            occupancy thereof;

 

                  (d) There are no public improvements which should have been

            ordered, threatened, announced or contemplated which have not been

            completed, assessed and fully paid for;

 

                  (e) There are no parties (other than the Company) in

            possession or control of any parcel of Leased Property, except as

            disclosed in Schedule 2.8.2; and

 

                  (f) Each parcel of Leased Property has vehicular access to a

            public road, and access to the Facility provided by paved public

            right-of-way with adequate curb cuts available.

 

      2.9 CONDITION AND SUFFICIENCY OF ASSETS. Except as disclosed in Schedule

2.9, the Leased Property and the Company Assets which are material to the

Business and operations of the Company, are structurally sound, in good

operating condition and repair, and are adequate for the uses to which they are

being put, and none of such Leased Property or the Company

 

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Assets are in need of maintenance or repairs except for ordinary, routine

maintenance and repairs that are not material in nature or cost. All personal

property, fixtures, machinery and equipment owned or used by the Company, which

are material to the operations of the Company, are in reasonable operating

condition and repair, except as disclosed in Schedule 2.9. All real property,

buildings, plants and structures used by the Company are, in all material

respects, structurally sound and in good operating condition, except as

disclosed in Schedule 2.9. The Leased Property and the Company Assets are

sufficient for the continued conduct of the Business after the Closing in

substantially the same manner as conducted prior to the Closing.

 

      2.10 ACCOUNTS RECEIVABLE. All accounts receivable, net of allowances for

doubtful accounts, of the Company that are reflected in the Financial Statements

or in the accounting records of the Company as of the Closing Date (collectively

the "Accounts Receivable") represent and, at the Closing, will represent valid

obligations arising from sales actually made or services actually performed in

the Ordinary Course of Business. Unless paid prior to the Closing Date, the

Accounts Receivable are and at the Closing will be current and collectible, in

full, subject to no offsets or defenses, except for the amount of any respective

reserves shown in the Financial Statements (which reserves are adequate and

calculated in accordance with GAAP and consistent past practice and, in the case

of the reserves as of the Closing Date, will not represent a Material Adverse

Change in the composition of such Accounts Receivable in terms of aging).

Subject to such stated reserves, each of the Accounts Receivable either has been

or will be collected in full, without any set-off, within one hundred twenty

(120) days after the Closing. Sellers agree that in the event that for any

reason whatsoever Buyer, utilizing normal and reasonable collection efforts,

shall not collect the full face amount of each and every account receivable

included in the Financial Statements, within one hundred twenty (120) days

following the Closing, Sellers shall, within fifteen (15) days following Buyer's

request, from time to time, jointly and severally reimburse and indemnify Buyer

for the full uncollected portion thereof, or Buyer shall have the right, at its

option, to be reimbursed from the Escrow Amount or otherwise offset the amount

of such uncollected receivable. In the event that Buyer collects any portion of

a receivable for which Buyer previously received indemnity from Sellers or

reimbursement from the escrow, or offset amounts otherwise owing Sellers, Buyer

shall promptly remit such payment to Sellers. For any and all accounts

receivable for which Buyer is reimbursed out of the Escrow Amount, or otherwise,

Buyer shall thereafter assign such receivable back to Sellers. During the period

any amounts are held in Escrow pursuant to Section 1.4 hereof, the Company shall

provide a weekly Accounts Receivable summary in writing to Sellers.

 

      2.11 INVENTORY. The Company has no inventory.

 

      2.12 TAXES.

 

            2.12.1 The Company has filed or caused to be filed, on a timely

      basis including lawful extensions, all Tax Returns that are or were

      required to be filed by or with respect to it, pursuant to applicable

      Legal Requirements. The Company has paid all Taxes that have or may have

      become due pursuant to those Tax Returns, any Legal Requirement or

      otherwise, or pursuant to any assessment received by Sellers or the

      Company.

 

            2.12.2 Schedule 2.12.2 contains a complete and current list of all

       audits of or adjustments to all Tax Returns of the Company (or its

      predecessors) ending within the

 

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      four (4) year period immediately preceding the date of the Interim

      Financial Statements, including a reasonably detailed description of the

      nature, proposed adjustments and outcome of each audit. Except as

      described in Schedule 2.12.2, neither Sellers nor the Company have given

      or been requested to give waivers or extensions (or are or would be

      subject to a waiver or extension given by any other Person) of any statute

      of limitations relating to the payment of Taxes by the Company or for

      which the Company may be liable. All deficiencies accrued as a result of

      such audits have been paid.

 

            2.12.3 Taxes based on the operations of the Company have been

      reflected on the books and records of the Sellers. The charges, accruals,

      and reserves with respect to Taxes in the Financial Statements of the

      Sellers for the Company are correctly determined in accordance with GAAP.

      All Taxes that the Company is or was required by Legal Requirements to

      pay, withhold or collect have been duly paid, withheld or collected and,

      to the full extent required, have been timely paid to the proper

      Governmental Body or other Person. The Company has no Liability for Taxes,

      except for Taxes reserved in its Closing Financial Statements and accrued

      in the Ordinary Course of Business since the date thereof.

 

            2.12.4 All Tax Returns filed (or that are included on a consolidated

      basis) by the Company are true, correct, and complete and exact copies of

      all Tax Returns filed by the Company during the four (4) year period

      preceding the date hereof have been made available to the Buyer. All Tax

      Returns required to be filed on a consolidated or combined basis with any

      affiliates or related parties have in fact been filed on a consolidated or

      combined basis. There is no tax sharing agreement that will require any

      payment by the Company after the date of this Agreement.

 

            2.12.5 Schedule 2.12.5 describes all tax elections and consents

      filed by the Company with any Governmental Body. The Company has never

      filed any election or consent under IRC Sections 341 or 338.

 

      2.13 NO MATERIAL ADVERSE CHANGE. Since December 31, 2004, there has not

been any Material Adverse Change to the Company, the Company Assets or the

Business, and no event has occurred or circumstance exists that may result in a

Material Adverse Change to the Company, the Company Assets or the Business.

 

      2.14 EMPLOYEE BENEFITS.

 

            2.14.1 Schedule 2.14.1 describes each Employee Benefit Plan that the

      Company maintains or to which the Company contributes and each Employee

      Benefit Plan that the Company formerly maintained or to which the Company

      ever contributed in the past three (3) years.

 

            2.14.2 Except as disclosed in Schedule 2.14.2, each Employee Benefit

      Plan (and each related trust, insurance contract or fund) complies in form

      and in operation in all respects with the applicable requirements of

      ERISA, the IRC and all other Legal Requirements and all required filings,

      returns, reports and descriptions (including Form 5500 Annual Reports,

      Summary Annual Reports, PBGC-1's and Summary Plan

 

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      Descriptions) have been timely filed or distributed appropriately with

      respect to each such Employee Benefit Plan as required by ERISA, the IRC

      and all Legal Requirements.

 

            2.14.3 All required contributions (including all employer

      contributions and employee salary reduction contributions) have been paid

      to each Employee Benefit Plan and all required contributions for any

      period ending on or before the Closing Date which are not yet due have

      been and shall be accrued and reserved in the Company's Interim Financial

      Statements and books and records. All premiums or other payments for all

      periods ending on or before the Closing Date have been paid or have been

      accrued and reserved in the Company's respective Interim Financial

      Statements and books and records with respect to each such Employee

      Benefit Plan.

 

            2.14.4 No funding or asset deficiency of any kind exists under any

      Employee Benefit Plan.

 

            2.14.5 Except as disclosed in Schedule 2.14.5, Sellers have made

      available to Buyer correct and complete copies of all Employee Benefit

      Plans, including without limitation, all agreements, plan documents and

      summary plan descriptions, the most recent determination letter received

      from the IRS, the three (3) most recent Form 5500 Annual Reports, and all

      related trust agreements, insurance contracts and other funding agreements

      which implement or relate to each Employee Benefit Plan.

 

            2.14.6 No such Employee Benefit Plan has been completely or

      partially terminated or been the subject of a reportable event as to which

      notices would be required to be filed with the PBGC within the past three

      (3) years. No proceeding by the PBGC to terminate any such Employee

      Benefit Plan has been instituted or threatened.

 

            2.14.7 To the knowledge of the Sellers and the Company, there have

      been no prohibited transactions with respect to any such Employee Benefit

      Plan. No Fiduciary has any Liability for breach of fiduciary duty or any

      other failure to act or comply in connection with the administration or

      investment of the assets of any such Employee Benefit Plan. No action,

      suit, proceeding, complaint, grievance, hearing or investigation with

      respect to the administration or the investment of the assets of any such

      Employee Benefit Plan (other than routine claims for benefits) is pending

      or threatened. Neither the Company (nor their employees with

      responsibility for employee benefits matters) nor the Sellers have any

      Knowledge of any basis for any such action, suit, grievance, complaint,

      proceeding, hearing or investigation.

 

            2.14.8 The Company has not incurred, and neither the Sellers nor the

      directors and officers (and employees with responsibility for employee

      benefits matters) of the Company has any reason to expect that the Company

      will incur any Liability to the PBGC (other than PBGC premium payments) or

      otherwise under Title IV of ERISA (including any withdrawal Liability) or

      under the Code with respect to any such Employee Benefit Plan which is an

      Employee Benefit Plan.

 

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            2.14.9 The Company does not contribute to, never has contributed to,

      and never has been required to contribute to any Multi-Employer Plan or

      has any Liability (including withdrawal Liability) under any

      Multi-Employer Plan.

 

            2.14.10 Except as disclosed in Schedule 2.14.10, the Company does

      not maintain, has ever maintained, has never contributed, and has never

      been required to contribute to any Employee Benefit Plan providing

      medical, health or life insurance or other welfare-type benefits for

      current or future retired or terminated employees, their spouses or their

      dependents.

 

            2.14.11 The Company has no Liability arising from any Employee Plan,

      except for any liability reflected in the Company's Interim Financial

      Statements or as accrued in the Ordinary Course of Business since the date

      of such Interim Financial Statements.

 

      2.15 COMPLIANCE WITH LEGAL REQUIREMENTS. Except as set forth in Schedule

2.15:

 

            2.15.1 The Company is, and at all times during the last three (3)

      years has been, in full compliance with each material Legal Requirement

      that is or was applicable to it or to the conduct or operation of its

      business or the ownership or use of any of its assets;

 

            2.15.2 No event has occurred or circumstance exists that (with or

      without notice or lapse of time) may constitute or result in a violation

      by the Company under, or a failure on the part of the Company to comply

      with, any Legal Requirement

 

            2.15.3 Neither Company nor Sellers have received any notice or other

      communication (whether oral or written) from any Governmental Body or any

      other Person regarding (i) any actual or, to the Knowledge of the Company,

      alleged violation of, or failure to comply with, any Legal Requirement, or

      (ii) any actual or, to the Knowledge of the Company, alleged obligation on

      the part of the Company to undertake, or to bear all or any portion of the

      cost of, any remedial action of any nature.

 

      2.16 GOVERNMENTAL AUTHORIZATIONS.

 

            2.16.1 Schedule 2.16.1 contains a complete and correct list of each

      Governmental Authorization that is held by the Company or that otherwise

      relates to the Business of, or to any of the Company Assets. Each

      Governmental Authorization listed or required to be listed in Schedule

      2.16.1 is valid and in full force and effect. The Company has fully

      complied with all conditions and requirements for, or relating to, all

      Governmental Authorizations.

 

            2.16.2 The Company has all material Governmental Authorizations

      necessary to permit it to lawfully conduct and operate its business in the

      manner as currently conducted, and to permit it to own and use the Company

      Assets in the manner in which they are currently owned and used.

 

            2.16.3 Neither Company nor Sellers have received any notice or other

       communication regarding any actual or alleged (i) violation or failure to

      comply with

 

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      any Governmental Authorization, or (ii) revocation, withdrawal,

      suspension, cancellation, termination or modification of any material

      Governmental Authorization.

 

      2.17 LEGAL PROCEEDINGS; ORDERS.

 

            2.17.1 Except as disclosed in Schedule 2.17.1, there is no pending

      Proceeding: (a) that has been commenced by or against the Company or any

      Seller or that otherwise relates to or may affect the Business of, or any

      of the Company Assets; or (b) that challenges, or that may have the effect

      of preventing, delaying, making illegal, or otherwise interfering with,

       any of the transactions contemplated hereunder. No such Proceeding has

      been Threatened in writing or orally, and no Proceeding has been

      terminated (by adjudication, settlement or otherwise) within the last

      three (3) years. No event has occurred or circumstance exists that may

      give rise to or serve as a basis for the commencement of any such

      Proceeding; and

 

            2.17.2 There is currently no Order to which the Company, any Seller

      or any of the Business or any of the Company Assets, is subject. The

      Company has complied with all Orders to which it, or any of the Company

      Assets has been subject.

 

      2.18 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in

Schedule 2.18, since December 31, 2004, the Company has conducted its Business

only in the Ordinary Course of Business and there has not been any:

 

            2.18.1 Change in the Company's authorized or issued capital stock;

      grant of any stock option or right to purchase shares of capital stock of

      the Company; issuance of any security convertible into such capital stock;

      or declaration or payment of any dividend or other distribution or payment

      in respect of shares of capital stock;

 

            2.18.2 Amendment to the Organizational Documents of the Company;

 

            2.18.3 Payment of any bonuses to or any increase in any salaries,

      wages, benefits or other compensation of any stockholder, director,

      officer, employee, agent or Representative of the Company or entry into

      any employment or severance agreement or arrangement, or any other

      Contract with such Person except for increases or payments in the Ordinary

      Course of Business;

 

            2.18.4 Payment or accrual of any bonuses, commissions or other

      distributions to any Sellers or any relative of any Sellers;

 

            2.18.5 Adoption of, or increase in the payments to or benefits

      under, any Employee Benefit Plan;

 

            2.18.6 Damage to or destruction or loss of any asset or property of

      the Company, whether or not covered by insurance, in excess of $10,000;

 

            2.18.7 Entry into, termination of, or receipt of notice of

      termination of any Contract or transaction outside the Ordinary Course of

      Business or which involves a total

 

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      remaining commitment by or to the Company of at least $10,000, other than

      such actions that would not reasonably be considered to have a Material

      Adverse Effect;

 

            2.18.8 Sale, license, lease, or other disposition of any asset or

      property of the Company in excess of $10,000 or imposition of any

      Encumbrance on any asset or property of the Company, except in the

      Ordinary Course of Business;

 

            2.18.9 Cancellation, settlement, or waiver of any claims or rights

      of or against the Company in excess of $10,000;

 

            2.18.10 Change in any of the accounting methods or principles used

      by the Company except for any changes necessitated by changes to GAAP or

      as required pursuant to this Agreement; or

 

            2.18.11 The entry into any Contract by the Company to do any of the

      foregoing.

 

      2.19 CONTRACTS; NO DEFAULTS.

 

             2.19.1 Schedule 2.19.1 contains a complete and correct list, and

      Sellers have made available to Buyer true and complete copies, of:

 

                  (a) Each Contract that involves the furnishing or performance

            of services, or the delivery, sale, lease or transfer of goods,

            materials or products, by the Company in an amount or value in

            excess of $10,000, including, but not limited to, purchase orders

            received by the Company;

 

                  (b) Each Contract that involves the furnishing or performance

            of services to, or the purchase, lease or receipt of goods,

            materials, inventory, supplies, products or other personal property

            by the Company in an amount or value in excess of $10,000,

            including, but not limited to, purchase orders issued by the

            Company;

 

                  (c) Each lease, rental or occupancy agreement, license,

            installment and conditional sale agreement, and other Contracts

            affecting the ownership of, leasing of, title to, use of, or any

            leasehold or other interest in, any personal property (except

            personal property leases and installment and conditional sales

            agreements having a value per item or aggregate payments of less

            than $10,000);

 

                  (d) Each Contract under which the Company has created,

            incurred, assumed or guaranteed any indebtedness for borrowed money,

            has incurred any capitalized lease obligation, or under which any of

            its tangible or intangible assets, are Encumbered;

 

                  (e) Each licensing agreement or other Contract with respect to

            any Intellectual Property Assets, including, without limitation,

            agreements with current or former employees, consultants, or

            contractors regarding the appropriation or the non-disclosure of any

            of the Intellectual Property Assets;

 

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                  (f) Each profit sharing, stock option, stock purchase, stock

            appreciation, deferred compensation, severance, or other plan,

            arrangement, contract or Employee Benefit Plan for the benefit of

            it