exv10w55



 






Exhibit 10.55




EQUITY PURCHASE AGREEMENT




     This Equity Purchase Agreement (“Agreement”) is dated August 5, 2005, by and among
PolyMedica Corporation, a Massachusetts corporation (“Buyer”), National Pharmacies Group,
Inc., a Delaware corporation (“Seller”), and National Diabetic Pharmacies, Inc., a Virginia
corporation (together with any successor in interest, collectively, the “Company”).



RECITALS




     WHEREAS, the Company is a nationwide specialized pharmaceutical distribution company focusing
on diabetes management products, including diabetes testing supplies, insulin pumps, respiratory
medications, wound care supplies and prescriptions (the “Business”);



     WHEREAS, Seller owns all of the issued and outstanding shares (the “Shares”) of
capital stock of the Company;



     WHEREAS, Seller intends to cause the Company to be converted into a single member limited
liability company in Virginia prior to the Closing Date (as defined herein);



     WHEREAS, as of the Conversion (as defined herein), Seller shall own all of the issued and
outstanding membership interests (the “Interests”) of the Company; and



     WHEREAS, Seller desires to sell, and Buyer desires to purchase, all of the Interests for the
consideration and on the terms set forth in this Agreement.



AGREEMENT




     The parties, intending to be legally bound, agree as follows:



1. Sale and Transfer of Interests; Closing




     1.1 Interests. Upon the terms and subject to the conditions set forth herein, at the
Closing, but effective as of the Effective Time, Seller will sell, convey, assign, transfer and
deliver to Buyer, and Buyer will purchase and acquire from Seller, free and clear of any
Encumbrances, the Interests.



     1.2 Purchase Price. The purchase price for the Interests will be $55,000,000.00
plus the Adjustment Amount (such sum, as so adjusted is herein referred to as the
“Purchase Price”). On the Closing Date, Buyer shall make payment on account of the
Purchase Price as follows: $55,000,000.00 plus the Estimated Closing Working Capital
Excess or minus the Estimated Closing Working Capital Shortfall by wire transfer to
an account designated by Seller as set forth on Schedule 1.2(a).



     1.3 Closing. The purchase and sale of the Interests provided for in this Agreement
(the “Closing”) will take place at the offices of Buyer’s counsel at Weil, Gotshal & Manges
LLP, 100 Federal Street, 34th Floor, Boston, Massachusetts 02110, commencing at 10:00 a.m. (local
time) on the later of (a) August 22, 2005, or (b) the date that is five (5) Business Days following
the termination of the applicable waiting period under the HSR
Act,
unless Buyer and Seller



 









 







otherwise agree. Subject to the provisions of Section 8,
failure to consummate the purchase and sale provided for in this Agreement on the date and time and
at the place determined pursuant to this Section 1.3 will not result in the termination of
this Agreement and will not relieve any party of any obligation under this Agreement. In such a
situation, the Closing will occur as soon as practicable, subject to Section 8. The Closing
shall be deemed effective as of 12:01 a.m. local time, on the Closing Date (the “Effective
Time”).



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



          (a) Seller and the Company will deliver to Buyer:




               (i) the Interests Certificate duly endorsed (or accompanied by a duly executed power) for
transfer to Buyer;



               (ii) a release in the form of Exhibit A duly executed by Seller (the “Seller’s
Release”);



               (iii) [Intentionally Omitted]



               (iv) a noncompetition agreement in the form of Exhibit C duly executed by Robert Haft
(the “Noncompetition Agreement”);



               (v) the Seller’s Secretary Certificate;



               (vi) the Consents listed on Schedule 1.4(a)(vi).



               (vii) the Seller’s Officer Certificate;



               (viii) certificates of the Secretaries of State of the State of Delaware and the Commonwealth
of Virginia certifying the good standing of Seller and the Company, respectively, dated as of a
recent date prior to the Closing Date; and



               (ix) resignations of each of the Company’s officers and directors from such positions
effective as of the Effective Time.



          (b) Buyer will deliver to Seller:




               (i) the Purchase Price to be paid to Seller on the Closing Date in accordance with Section
1.2;



               (ii) the Buyer’s Secretary Certificate; and



               (iii) the Buyer’s Officer Certificate.


Each of the deliveries pursuant to this Section 1.4 will be deemed to occur simultaneously
and no delivery shall be made unless all other deliveries have been made.




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          1.5 Adjustment Amount. (a) Pre-Closing Date Purchase Price Adjustment Estimate.




               (i) Not later than three (3) Business Days prior to the Closing Date, the Seller shall provide
Buyer with a statement (the “Estimated Closing Statement”) setting forth in reasonable
detail a calculation of its good faith estimation of the Closing Working Capital (“Estimated
Closing Working Capital”). The Estimated Closing Statement and Estimated Closing Working
Capital shall be prepared by the Company in good faith in accordance with GAAP applied using the
same accounting methods, practices, principles, policies and procedures, with consistent
classifications, judgments and valuation and estimation and accrual methodologies that were used in
the preparation of the Company’s audited Financial Statements for the most recent fiscal year end
as if such Estimated Closing Statement and Estimated Closing Working Capital were being prepared
and audited as of a fiscal year end. Notwithstanding the foregoing or any other provision of this
Agreement, the Estimated Closing Statement, the Estimated Working Capital and the Closing Working
Capital Statement shall reflect the reserves set forth on Schedule 1.5 attached hereto
(collectively, the “Supplemental Reserves”). The Supplemental Reserves shall be
disregarded for the purposes of calculating any adjustment required to be made under this
Section 1.5.



               (ii) If Estimated Closing Working Capital is less than Target Working Capital, then the
Purchase Price payable at Closing will be decreased by the positive difference between Estimated
Closing Working Capital and Target Working Capital (the “Estimated Closing Working Capital
Shortfall”). If Estimated Closing Working Capital is greater than Target Working Capital, then
the Purchase Price payable at Closing will be increased by the positive difference between
Estimated Closing Working Capital and Target Working Capital (the “Estimated Closing Working
Capital Excess”).



          (b) Post-Closing Date Purchase Price Adjustment.




               (i) Following the Closing, the Purchase Price shall be adjusted as provided herein to reflect
the difference between Closing Working Capital and Target Working Capital (the “Adjustment
Amount”).



               (ii) Within sixty (60) days following the Closing Date, Buyer shall deliver to Seller a
statement of Closing Working Capital (the “Closing Working Capital Statement”) setting
forth in reasonable detail Buyer’s calculations of Closing Working Capital. The Closing Working
Capital Statement shall be prepared in accordance with GAAP applied using the same accounting
methods, practices, principles, policies and procedures, with consistent classifications, judgments
and valuation and estimation methodologies that were used in the preparation of the Company’s
audited Financial Statements for the most recent fiscal year end as if such Closing Working Capital
Statement was as of a fiscal year end. In order for the Seller and its Representatives to review
such Closing Working Capital Statement, Buyer will promptly furnish to Seller and its
Representatives such work papers, supporting schedules, analyses and other documents and
information as Seller and its Representatives may reasonably request. Buyer shall reasonably
cooperate with Seller to assist Seller’s and its Representatives’ review of any such Closing
Working Capital Statement and if requested, Buyer’s accounting



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personnel will meet in person with Seller and its Representatives to discuss the Closing
Working Capital Statement.



               (iii) If, within forty-five (45) days following delivery of the Closing Working Capital
Statement, Seller has not given Buyer written notice of its objection as to the Adjustment Amount
(which notice shall state in reasonable detail the basis of Seller’s objection or identify
additional information reasonably required by Seller and its Representatives to evaluate the
determination made by Buyer), then the Adjustment Amount calculated by Buyer shall be binding and
conclusive on the parties.



               (iv) If Seller gives Buyer such written notice of objection, and if Seller and Buyer fail to
resolve the issues outstanding with respect to the Closing Working Capital Statement and the
calculation of the Adjustment Amount within thirty (30) days of Buyer’s receipt of Seller’s
objection notice, Seller and Buyer shall submit the issues remaining in dispute as identified in
Seller’s notice of objection to Deloitte & Touche LLP or such other independent public accounting
firm mutually selected by Buyer and Seller (the “Independent Accountants”) for resolution
applying the principles, policies and practices referred to in Section 1.5(b)(ii). If
issues are submitted to the Independent Accountants for resolution, (i) Seller and Buyer shall
furnish or cause to be furnished to the Independent Accountants such work papers, supporting
schedules, analyses and other documents and information relating to the disputed issues as the
Independent Accountants may request and are available to that party or its agents and shall be
afforded the opportunity to present to the Independent Accountants any material relating to the
disputed issues and to discuss the issues with the Independent Accountants; and (ii) the
determination by the Independent Accountants, as set forth in a notice to be delivered to both
Seller and Buyer within sixty (60) days of the submission to the Independent Accountants of the
issues remaining in dispute, shall be final, binding and conclusive on the parties and shall be
used in the calculation of the Adjustment Amount. Copies of all materials submitted or furnished
by a Party to the Independent Accountants shall also be provided to the other Party and its
Representatives and all meetings and communications with the Independent Accountants shall be held
so that all Parties are given a reasonable opportunity to participate. The costs and expenses of
the Independent Accountants in a dispute regarding the Adjustment Amount shall be paid by Seller if
(A) the positive difference between (i) the Adjustment Amount resulting from determination of the
Independent Accountants, and (ii) the Adjustment Amount set forth in Seller’s notice of objection,
is greater than (B) the positive difference between (i) the Adjustment Amount resulting from
determination of the Independent Accountants, and (ii) Buyer’s calculation of the Adjustment Amount
as delivered to Seller; otherwise, such costs and expenses of the Independent Accounts will be paid
by Buyer. The Independent Accounts will be entitled to the privileges and immunities of
arbitrators.



               (v) If Closing Working Capital is greater than the Estimated Closing Working Capital, the
difference shall be paid by Buyer to Seller within five (5) days of either the delivery of the
Closing Working Capital Statement or, if Seller gives notice pursuant to Section
1.5(b)(iii) herein, the determination of the Independent Accountants. If Closing Working
Capital
is less than Estimated Closing Working Capital, the difference shall be paid by Seller to
Buyer
within five (5) days of either the delivery of the Closing Working Capital



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Statement or, if
Seller gives notice pursuant to Section 1.5(b)(iii) herein, the determination of the
Independent Accountants.




               (vi) The Independent Accountants shall have not been engaged by any Party or any Related
Person of such Party within the prior five (5) year period ending on the date of this Agreement.



2. Representations and Warranties of Seller and the Company




     In order to induce Buyer to enter into this Agreement, except as set forth in the Seller
Disclosure Schedule to the specific reference to the section as to which the disclosure applies or
to the extent reasonably apparent in any section of such Seller Disclosure Schedule (the
“Seller Disclosure Schedule”), Seller and the Company, jointly and severally, subject to
the limitations set forth in Section 10, represent and warrant to Buyer as follows:



     2.1 Organization, Good Standing and Capitalization.



          (a) Each of Seller and the Company is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation, with full corporate power and authority
to conduct its business as it is now being conducted, to own or use the properties and assets that
it purports to own or use, and to perform all its obligations under the Applicable Contracts. The
Company is duly qualified and licensed to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which either the property owned, leased or operated
by it or the nature of the Business as currently conducted makes such qualification or license
necessary, except where the failure to be so qualified or licensed and in good standing would not
have, individually or in the aggregate, a Material Adverse Effect.




          (b) Seller has delivered or made available to Buyer copies of all Governing Documents of
Seller and the Company as currently in effect.




          (c) Prior to the Conversion, the authorized equity securities of the Company consist of 5,000
shares of voting common stock and 5,000 shares of non-voting common stock, without par value, all
of which are issued and outstanding and constitute the Shares. Following the Conversion, the
authorized equity securities of the Company will consist of one hundred units of limited liability
company interests, all of which will be issued and outstanding and constitute the Interests. Seller
is the record and beneficial owner and holder of the Shares, free and clear of all Encumbrances and
will be on the Closing Date the record and beneficial owner and holder of the Interests, free and
clear of all Encumbrances other than Permitted Encumbrances. The Shares have been duly authorized
and validly issued and are fully paid and nonassessable, and following the Conversion, the
Interests will be duly authorized and validly issued and fully paid and nonassessable. There are
no Contracts relating to the issuance, sale or transfer of any equity securities or other
securities of the Company. None of the Shares were issued in violation of the Securities Act or
any other Legal Requirement, and following the
Conversion, none of the Interests will have been issued in violation of the Securities Act or
any other Legal Requirement.

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          (d) Except for the Interests, neither the Company nor the Seller owns, or has any Contract to
acquire, any equity securities or other securities of any Person or other direct or indirect equity
or other ownership interest in any other business.




     2.2 Enforceability; Authority; No Conflict.



          (a) This Agreement constitutes the legal, valid and binding obligation of Seller and the
Company, enforceable against each of them in accordance with its terms. Upon the execution and
delivery by Seller or the Company of each other agreement to be executed or delivered by Seller or
the Company at the Closing (collectively, the “Seller’s Closing Documents”), each of the
Seller’s Closing Documents will constitute the legal, valid and binding obligation of Seller and/or
the Company, enforceable against it/them in accordance with its terms. Seller and the Company have
the absolute and unrestricted right, power and authority to execute and deliver this Agreement and
the Seller’s Closing Documents and to perform their obligations under this Agreement and Seller’s
Closing Documents, and such action has been duly authorized by all necessary action by Seller’s and
the Company’s shareholders and boards of directors.




          (b) Except as set forth on Schedule 2.2(b), neither the execution and delivery of this
Agreement nor the consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time): (i) Breach (A) any provision of
any of the Governing Documents of Seller or the Company or (B) any resolution adopted by the board
of directors or the shareholders of Seller or the Company; (ii) Breach or give any Governmental
Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any
remedy or obtain any relief under any Legal Requirement or any Order to which Seller or the Company
may be subject; (iii) contravene, conflict with or result in a violation or breach 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 Seller or the Company
that otherwise relates to the Business; (iv) cause Buyer or the Company to become subject to, or to
become liable for the payment of, any Tax; (v) Breach 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 payment under, or to cancel, terminate or modify, any Contract identified or
required to be identified on Schedule 2.20(a); or; (vi) result in the imposition or
creation of any Encumbrance upon or with respect to any asset owned or used by the Company.




          (c) Except as set forth on Schedule 2.2(c), neither Seller nor the 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
Contemplated Transactions; provided that, in the case of Contracts, this representation applies
only to Contracts identified or required to be identified on Schedule 2.20(a).




     2.3 Financial Statements. Seller has delivered to Buyer: (a) an audited consolidated
balance sheet of the Company and Seller as at December 31, in each of the years 2002 through 2004,
and the related audited consolidated statements of income, changes in shareholders’ equity and cash
flows for each fiscal year then ended, including the notes thereto (the “Annual Financial



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Statements”); and (b) an interim unaudited consolidated balance sheet of the Company and Seller
as at June 30, 2005 (the “Balance Sheet Date”), including the notes thereto (the
“Balance Sheet”) and the related statements of income, changes in shareholders’ equity, and
cash flows for the period then ended (together with the Balance Sheet, the “Most Recent
Financial Statements” and together with the Annual Financial Statements, the “Financial
Statements”). The Financial Statements fairly present, in all material respects, the
consolidated financial condition and the results of operations, changes in shareholders’ equity and
cash flows of the Company and Seller as at the respective dates of and for the periods referred to
therein, all in accordance with GAAP, applied on a consistent basis throughout the periods covered
thereby, subject in the case of the Most Recent Financial Statements to footnotes and normal year
end adjustments. The Financial Statements have been prepared from and are in accordance with the
accounting records of the Company and Seller.



     2.4 Books and Records. The books of account, minute books, stock record books, and
other records of the Company and Seller, all of which have been made available to Buyer, are
complete and correct in all material respects and have been maintained in accordance with sound
business practices.



     2.5 Title to Properties; Encumbrances.



     (a) Schedule 2.5(a) contains a list of all real property leased (“Leased Real
Property”) by the Company. The Company does not own any real property. Except as set forth in
Schedule 2.5(a), the Company has valid and subsisting leasehold estate in, and enjoys
peaceful and undisturbed possession of, all Leased Real Property, subject only to (i) any Permitted
Encumbrances and (ii) Encumbrances constituting a lease, sublease or occupancy agreement that gives
any third party any right to occupy any portion of the Leased Real Property (which have been
disclosed in Schedule 2.5(a)).



     (b) Except as set forth in Schedule 2.5(b), the Company owns and has good title to or
a valid leasehold in all material buildings, machinery, equipment and other tangible assets (i)
shown on the Most Recent Financial Statements and (ii) necessary for the conduct of the Business as
currently conducted, in each case free and clear or all Encumbrances other than Permitted
Encumbrances, except for properties and assets disposed of in the Ordinary Course of Business since
the Balance Sheet Date.



     2.6 Condition and Sufficiency of Assets. The buildings, plants, structures, and
equipment of the Company are in good operating condition and repair, and are adequate for the uses
to which they are currently being used, except as would not reasonably be expected to have a
Material Adverse Effect. None of such buildings, plants, structures or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs that are not material
in nature or cost. The assets of the Company used in the Business are, taken as a whole,
sufficient for the continued conduct of the Business after the Closing in substantially the
same manner as conducted prior to the Closing.



     2.7 Accounts Receivable. All Accounts Receivable of the Company that are reflected on
the Balance Sheet or the accounting records of the Company as of the Closing Date represent



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or will
represent valid obligations arising from sales actually made or services actually performed by the
Company in the Ordinary Course of Business.



     2.8 Inventories. The Inventories, taken as a whole, consist of a quality and quantity
usable and, with respect to finished goods, saleable, in the Ordinary Course of Business, except
for obsolete items and items of below-standard quality arising in the Ordinary Course of Business.
The Company is not in possession of any Inventories not owned by it, including goods already sold.
All Inventories not written off have been valued using the weighted average cost method, which
approximates the first-in, first-out (FIFO) method.



     2.9 No Undisclosed Liabilities. Except as set forth on Schedule 2.9, the
Company has no Liability that would be required to be reflected on a balance sheet of the Company
prepared as of the date hereof in accordance with GAAP (excluding footnotes and normal year end
adjustments), except for Liabilities reflected, accrued for or reserved against in the Most Recent
Financial Statements and liabilities incurred in the Ordinary Course of Business since the Balance
Sheet Date.



     2.10 Taxes. Except as set forth on Schedule 2.10:



          (a) The Company has filed or caused to be filed on a timely basis all Tax Returns that are or
were required to be filed by or with respect to it, either separately or as a member of a group of
Persons, pursuant to applicable Legal Requirements. Seller has delivered or made available to Buyer
copies of all such Tax Returns filed by Seller or the Company with respect to the tax periods
ending on December 31, 2001, December 31, 2002, December 31, 2003 and December 31, 2004 and
Schedule 2.10(a) lists all federal and state income Tax Returns filed by Seller or the
Company with respect to tax periods ending on December 31, 2001, December 31, 2002, December 31,
2003 and December 31, 2004. All Tax Returns and reports filed by Seller and/or the Company are
true, correct and complete in all material respects. The Company has timely paid all of its Taxes
that have or may have become due for all periods covered by the Tax Returns, or pursuant to any
assessment received by Seller or the Company, except such Taxes, if any, as are listed on
Schedule 2.10(a) and are being contested in good faith and as to which either adequate
reserves (as required and as determined in accordance with GAAP) have been provided in the Balance
Sheet (subject to any footnote and normal year-end adjustment) or which will be taken into account
in the calculation of Closing Working Capital. Except as provided on Schedule 2.10(a),
neither Seller nor the Company currently is the beneficiary of any extension of time within which
to file any Tax Return. No written claim has been made within the past five years by any
Governmental Body in a jurisdiction where Seller or the Company do not file Tax Returns that either
of them is or may be subject to taxation by that jurisdiction. There are no Encumbrances on any of
the assets of the Company that arose in connection with any failure (or alleged failure) to pay any
Tax.




          (b) Schedule 2.10(b) contains a list of all Tax Returns of Seller and the Company that
have been audited within the past three years or are currently under audit and accurately describes
any deficiencies or other amounts that were paid or are currently being contested with respect to
such audits. All deficiencies proposed in writing as a result of such audits have been paid,
settled or are being contested in good faith by appropriate proceedings as




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described on
Schedule 2.10(b). Seller has delivered, or made available to Buyer, copies of any
examination reports, statements or deficiencies or similar items with respect to such audits. There
is no outstanding dispute or claim concerning any Taxes of the Company claimed or raised by any
Governmental Body in writing. Except as described in Schedule 2.10(b), neither Seller nor
the Company has given or been requested to give waivers or extensions that are still in effect (or
is 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 of Seller or the Company or for the Company may be
liable after the Closing Date.




          (c) Except as set forth on Schedule 2.10(c), as of the date of the Balance Sheet, the
charges, accruals and reserves with respect to Taxes on the Balance Sheet of the Company are
adequate (as required and as determined in accordance with GAAP) and are at least equal to the
Company’s liability for Taxes as of the date of the Balance Sheet as determined and as required by
GAAP, subject to any footnotes and normal year end adjustments. No consent to the application of
former Section 341(f)(2) of the Code has been filed with respect to any property or assets of the
Company. All Taxes that the Company is or was required by Legal Requirements to withhold or
collect have been duly withheld or collected and, to the extent required, have been paid to the
proper Governmental Body or other Person.




          (d) There is no tax sharing agreement or tax allocation agreement with respect to the
Company’s Taxes that will require any payment by the Company after the Closing Date. The Company
is not a party to any advance pricing agreement or any closing agreement that would require any
payment by the Company after the Closing Date. The Company (A) has not been a member of an
affiliated group within the meaning of Code Section 1504(a) (or any similar group defined under a
similar provision of state, local or foreign law) and (B) has no liability for Taxes of any other
Person under Treas. Reg. sect. 1.1502-6 (or any similar provision of state, local or foreign law),
as a transferee or successor by contract or otherwise.




          (e) For federal income tax purposes Seller is an S corporation as defined in Code Section
1361. Prior to the Conversion, for federal income tax purposes the Company was a Qualified
Subchapter S Subsidiary as defined under Section 1361 of the Code. Following the Conversion,
Seller shall not take or cause to be taken any action that would prevent the Company from being
disregarded as an entity separate from its owners under Treas. Reg. § 301.7701-3 for federal income
tax purposes, and to the extent permitted, for all other income tax purposes.




2.11 Employees.




          (a) Schedule 2.11 contains a list of the following information, as of July 25, 2005,
for each employee or director of the Company, including each employee on leave of absence or layoff
status: employer; name; job title; current base compensation and target bonus, status as exempt or
non-exempt and any material change in compensation since January 1, 2005;
date of hire; and, to the extent different from date of hire, service credited for purposes of
vesting and eligibility to participate under the Company’s pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock option, cash bonus, employee stock
ownership (including investment credit or payroll stock ownership), severance pay, insurance,
medical, welfare, vacation plan or any other Employee Plan.




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          (b) To the Knowledge of the Seller and the Company, no employee or director of the Company is
a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee or director and any other
Person (“Proprietary Rights Agreement”) that in any way materially adversely affects or
will affect (i) the performance of his duties as an employee or director of the Company, or (ii)
the ability of the Company to conduct its business, including any Proprietary Rights Agreement with
Seller or the Company by any such employee or director. To the Knowledge of Seller and the Company,
no director, officer, or other key employee of the Company intends to terminate his employment with
the Company within 30 days after Closing.




          (c) Schedule 2.11 also contains a list of the following information for each retired
employee or director of the Company, or their dependents, receiving retiree benefits from the
Company or scheduled to receive retiree benefits in the future from the Company: name, retiree
medical insurance coverage, retiree life insurance coverage, and other retiree benefits.




     2.12 Labor Disputes; Compliance. Since January 1, 2003, the Company has not been or
is not a party to any collective bargaining or other labor Contract. Since January 1, 2003, there
has not been and, there is not presently pending, existing or to the Knowledge of Seller and the
Company, Threatened (a) any material strike, slowdown, picketing, organizing campaign, work
stoppage, or employee grievance process, (b) any material Proceeding against or affecting the
Company relating to the alleged violation of any Legal Requirement pertaining to labor relations or
employment matters, including any material charge or complaint filed by an employee or union with
the National Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable
Governmental Body, organizational activity, or other material labor or employment dispute against
or affecting the Company or its premises, or (c) any application for certification of a collective
bargaining agent. There is no lockout of the employees by the Company, and no such action is
contemplated by the Company. Except as set forth on Schedule 2.12, the Company has complied
in all material respects with all Legal Requirements relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the
payment of social security and similar taxes, occupational safety and health, and plant closing.
The Company is not liable for the payment of any material compensation, damages, taxes, fines,
penalties, or other amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements.



     2.13 WARN Act. Since January 1, 2003, neither Seller nor the Company has effectuated
(a) a “plant closing” (as defined in the Worker Adjustment and Retraining Notification Act (the
“WARN Act”), 29 U.S.C. §§ 2101 et seq.,) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of the Business, or (b) a
“mass layoff” (as defined in the WARN Act) affecting any site of
employment or facility of the Business where liabilities under the WARN Act remain, nor has
Seller or the Company been affected by any transaction or engaged in layoffs or employment
terminations relating to the Business sufficient in number to trigger application of any similar
state or local law where liabilities under such law remain.



2.14 Employee Benefits.





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          (a) Set forth on Schedule 2.14(a) is a list of all “employee benefit plans” as defined
by Section 3(3) of ERISA, all specified fringe benefit plans as defined in Section 6039D of the
Code, and all other bonus, incentive-compensation, deferred-compensation, profit-sharing,
stock-option, stock-appreciation-right, stock-bonus, stock-purchase, employee-stock-ownership,
savings, severance, change-in-control, supplemental-unemployment, layoff, salary-continuation,
retirement, pension, health, life-insurance, disability, accident, group-insurance, vacation,
holiday, sick-leave, fringe-benefit or welfare plan, and any other benefit plan, agreement, policy,
practice, commitment, contract or understanding (whether qualified or nonqualified, currently
effective or terminated, written or unwritten) and any trust, escrow or other agreement related
thereto that (i) is maintained or contributed to by the Company or any other Person controlled by,
controlling or under common control with the Company (within the meaning of Section 414 of the Code
or Section 4001(a)(14) or 4001(b) of ERISA) (“ERISA Affiliate”) or has been maintained or
contributed to in the last six years by the Company or any ERISA Affiliate, and with respect to
which the Company has or may have any liability, and (ii) provides benefits, or describes policies
or procedures applicable to any current or former director, officer, employee or service provider
of the Company or any ERISA Affiliate, or the dependents of any thereof, regardless of how (or
whether) liabilities for the provision of benefits are accrued or assets are acquired or dedicated
with respect to the funding thereof (collectively the “Employee Plans”). No Employee Plan
is (x) a “Defined Benefit Plan” (as defined in Section 414(l) of the Code); (y) a
“Multiemployer Plan” (as defined in Section 3(37) of ERISA); or (z) a plan subject to Title
IV of ERISA, other than a Multiemployer Plan.




          (b) Seller has delivered to Buyer copies of (i) the material documents comprising each
Employee Plan (or, with respect to any Employee Plan which is unwritten, a detailed written
description of eligibility, participation, benefits, funding arrangements, assets and any other
material documents which relate to the obligations of Seller, the Company or any ERISA Affiliate);
(ii) all trust agreements, insurance contracts or any other funding instruments related to the
Employee Plans; (iii) the most recent rulings, determination letters, no-action letters or advisory
opinions from the IRS, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation
(“PBGC”) or any other Governmental Body that pertain to any Employee Plan and any open
requests therefor; (iv) the most recent actuarial and financial reports (audited and/or unaudited)
and the annual reports filed with any Government Body with respect to the Employee Plans during the
current year and each of the three preceding years; (v) all collective bargaining agreements
pursuant to which contributions to any Employee Plan(s) have been made or obligations incurred
(including both pension and welfare benefits) by the Company or any ERISA Affiliate, and all
collective bargaining agreements pursuant to which contributions are being made or obligations are
owed by such entities; (vi) all contracts with third-party administrators, actuaries, investment
managers, consultants and other independent contractors
that relate to any Employee Plan; and (vii) all summary plan descriptions, employee handbooks
and other material written communications regarding the Employee Plans.




          (c) Except as set forth on Schedule 2.14(c), full payment has been made for all
amounts that are required under the terms of each Employee Plan to be paid as contributions with
respect to all periods prior to and including the last day of the most recent fiscal year of such
Employee Plan ended on or before the date of this Agreement and all periods thereafter




-11-









 




prior to the
Closing Date, and no accumulated funding deficiency or liquidity shortfall (as those terms are
defined in Section 302 of ERISA and Section 412 of the Code) has been incurred with respect to any
such Employee Plan, whether or not waived. The Company is not required to provide security to an
Employee Plan under Section 401(a)(29) of the Code.




          (d) The Company has, at all times, complied, and currently complies, in all material respects
with the applicable continuation requirements for its welfare benefit plans, including (1) Section
4980B of the Code (as well as its predecessor provision, Section 162(k) of the Code) and Sections
601 through 608, inclusive, of ERISA, which provisions are hereinafter referred to collectively as
“COBRA” and (2) any applicable state statutes mandating health insurance continuation coverage for
employees.




          (e) Except as set forth on Schedule 2.14(e), the form of all Employee Plans is in
compliance in all material respects with the applicable terms of ERISA, the Code, and any other
applicable laws, including the Americans with Disabilities Act of 1990, the Family Medical Leave
Act of 1993 and the Health Insurance Portability and Accountability Act of 1996, and such plans
have been operated in material compliance with such laws and the written Employee Plan documents.
Neither Seller nor the Company has violated the requirements of Section 404 of ERISA.




          (f) Each Employee Plan that is intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the IRS, and neither Seller nor the Company has
Knowledge of any circumstances that will result in revocation of any such favorable determination
letter. Each trust created under any Employee Plan has been determined to be exempt from taxation
under Section 501(a) of the Code, and neither Seller nor the Company has Knowledge of any
circumstance that will result in a revocation of such exemption. No Employee Plan utilizes a
funding vehicle described in Section 501(c)(9) of the Code or is subject to the provisions of
Section 505 of the Code. With respect to each Employee Plan, no event has occurred or condition
exists that will or could reasonably be expected to give rise to a loss of any intended tax
consequence or to any Tax under Section 511 of the Code.




          (g) There is no material pending or to the Knowledge of the Seller and the Company threatened
Proceeding relating to any Employee Plan, nor to the Knowledge of the Seller and the Company, is
there any basis for any such Proceeding. Neither Seller, the Company nor any fiduciary of an
Employee Plan has engaged in a transaction with respect to any Employee Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could subject Seller, the Company
or Buyer to a material Tax or penalty imposed by either Section 4975 of the Code or Section 502(l)
of ERISA or a violation of Section 406 of ERISA. The Contemplated Transactions will not result in
the potential assessment of a Tax or
penalty under Section 4975 of the Code or Section 502(l) of ERISA nor result in a violation of
Section 406 of ERISA.




          (h) Seller and the Company have maintained workers’ compensation coverage as required by
applicable state law through purchase of insurance and not by self-insurance or otherwise.




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          (i) Except as required by Legal Requirements or as set forth on Schedule 2.14(i), the
consummation of the Contemplated Transactions will not accelerate the time of vesting or the time
of payment, or increase the amount, of compensation due to any director, employee, officer, former
employee or former officer of Seller or the Company. Except as disclosed on Schedule
2.14(i), there are no contracts or arrangements providing for payments by Seller or the
Company, in their current form, that could subject any Person to Liability for tax under Section
4999 of the Code.




          (j) Except for the continuation coverage requirements of COBRA or similar statute, the Company
has no potential Liability for benefits to employees, former employees or their respective
dependents with respect to claims incurred following termination of employment or retirement under
any of the Employee Plans that are Employee Welfare Benefit Plans.




          (k) Except as set forth on Schedule 2.14(k), no Contemplated Transaction will result
in an amendment, modification or termination of any of the Employee Plans. No written or oral
representations have been made to any employee or former employee of Seller or the Company
promising or guaranteeing any employer payment or funding for the continuation of medical, dental,
life or disability coverage for any period of time beyond the end of the current plan year (except
to the extent of coverage required under COBRA or similar statute). Except as set forth in Section
6.1 hereof, no written or oral representations have been made by Seller or the Company to any
employee or former employee of Seller or the Company concerning the employee benefits of Buyer.




     2.15 Compliance With Legal Requirements; Governmental Authorizations.



          (a) Except as set forth on Schedule 2.15(a): (i) the Company is, and at all times
since January 1, 2001 has been, in material compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of the Business, including its reimbursement,
marketing, billing and collection practices; (ii) notwithstanding any qualifications as to time and
materiality set forth in subsection (a)(i) above, no event has occurred or circumstance exists that
(with or without notice or lapse of time) may give rise to any obligation on the part of the
Company to undertake, or to bear all or any portion of the cost of, any repayment of overpayments
made to the Company by Medicare, Medicaid or any other governmentally funded health care
reimbursement program or payment of penalties or other amounts in connection therewith; (iii) no
event has occurred or circumstance exists that (with or without notice or lapse of time) may give
rise to any 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 material nature; and (iv) the Company has not received, at
any time since January 1, 2001, any notice or other communication (whether oral or written) from
any Governmental Body regarding (A) any
actual or alleged material violation of, or material failure to comply with, any Legal
Requirement, (B) any actual or 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 material nature, or (C) any
obligation on the part of the Company to undertake, or to bear all or any portion of the cost of,
any repayment of overpayments made to the Company by Medicare, Medicaid or any other governmentally
funded health care reimbursement program or payment of penalties or other


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amounts in connection
therewith. Neither Seller nor the Company has received notice of any material change and does not
have Knowledge of any potential material change in its status as a Medicare or Medicaid
participating supplier with Medicare or Medicaid. Neither the Seller nor the Company, nor, to the
Knowledge of Company, any officer, director, employee, contractor or vendor of any of them, is now
or has ever been suspended or excluded from participation in Medicare, Medicaid or any other
governmentally funded health care reimbursement program.




          (b) The Company holds all Governmental Authorizations that are material to operation of the
Business, including those necessary to be a Medicare or Medicaid participating supplier. Each
Governmental Authorization material to operation of the Business is valid and in full force and
effect. Except as set forth on Schedule 2.15(b): (i) the Company is, and at all times since
January 1, 2001, has been, in material compliance with the terms and requirements of each
Governmental Authorization material to operation of the Business; (ii) no event has occurred or
circumstance exists that may (with or without notice or lapse of time) (A) constitute or result
directly or indirectly in a material violation of or a failure to comply with any material term or
requirement of any Governmental Authorization material to operation of the Business or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation or termination of,
or any modification to, any Governmental Authorization material to operation of the Business; (iii)
the Company has not received, at any time since January 1, 2001, any notice or other communication
(whether oral or written) from any Governmental Body regarding (A) any actual or alleged violation
of or failure to comply with any term or requirement of any Governmental Authorization or (B) any
actual or proposed revocation, withdrawal, suspension, cancellation, termination of or modification
or restriction to any Governmental Authorization; and (iv) all applications required to have been
filed for the renewal of the Governmental Authorizations material to operation of the Business have
been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings
required to have been made with respect to such Governmental Authorizations have been duly made on
a timely basis with the appropriate Governmental Bodies.




          (c) Notwithstanding any disclosure made elsewhere herein, since January 1, 2001, neither
Seller nor the Company has engaged in any activities, nor, to the Knowledge of Company, has any
event occurred or circumstance existed, which would constitute or give rise to a material violation
of, or subject Seller or the Company to mandatory or permissive exclusion under, 31 U.S.C. §3729,
or 42 U.S.C. §§1320a-7, 1320a-7a or §1320a-7b or any regulation promulgated thereunder, or any
comparable state or local statutes or regulations, or which are prohibited by rules of professional
conduct including, but not limited to, the following: (i) making or causing to be made a materially
false statement or representation of a material fact in any application for any benefit or payment;
(ii) making or causing to be made any materially false statement or representation of a material
fact for use in determining rights to any benefit or
payment; (iii) any failure by a claimant to disclose knowledge of the occurrence of any
material event affecting the initial or continued right to any benefit or payment on its own behalf
or on behalf of another, with the intent to fraudulently secure such benefit or payment; and (iv)
offering or paying, or soliciting or receiving, any remuneration (including and kickback, bribe or
rebate) directly or indirectly, overtly or covertly, in cash or in kind, or offering to pay or
receive such remuneration (I) in return for referring an individual to a Person for the furnishing
or




-14-









 




arranging for the furnishing of any item or service for which payment may be made in whole or in
part by Medicare, Medicaid or any other federal or state health care program, as defined in such
statutes and regulations, or (II) in return for or to induce purchasing, leasing or ordering or
arranging for, or recommending, purchasing, leasing or ordering any good, facility, service or item
for which payment may be made in whole or in part by Medicare, Medicaid or any other federal or
state health care program, as defined in such statutes and regulations.




          (d) This Section 2.15 does not pertain to matters concerning any Environmental Law or
Environmental, Health and Safety Liabilities, which, for purposes of this Agreement, are
exclusively addressed in Section 2.22 hereof.




     2.16 Legal Proceedings; Orders.



          (a) Except as set forth on Schedule 2.16(a), there is no pending Proceeding (provided
that with respect to any Proceeding involving an audit or investigation, so long as no written
notice of such audit or investigation has been received by the Company, to the Knowledge of the
Seller and the Company, there is no such audit or investigation): (i) by or against the Company or
that otherwise relates to or may materially affect the Business; or (ii) that challenges, or that
may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of
the Contemplated Transactions. To the Knowledge of Seller and the Company, (1) no such Proceeding
has been Threatened, and (2) no event has occurred or circumstance exists that is likely to give
rise to or serve as a basis for the commencement of any such Proceeding. Seller has delivered or
made available to Buyer copies of all pleadings, correspondence and other documents relating to
each Proceeding listed on Schedule 2.16(a). The Proceedings listed or required to be
listed on Schedule 2.16(a) will not have a Material Adverse Effect.




          (b) Except as set forth on Schedule 2.16(b): (i) there is no Order to which the
Company or the Business is subject requiring payment in excess of $100,000; and (ii) neither Seller
or the Company, nor any officer or director of Seller or the Company is subject to any Order that
prohibits Seller, the Company or any such officer or director of Seller or the Company from
conducting the Business.




          (c) Except as set forth on Schedule 2.16(c): (i) the Company is, and, at all times
since January 1, 2000, has been in compliance in all material respects with all of the terms and
requirements of each Order to which it or any of the assets owned or used by it, is or has been
subject; (ii) no event has occurred or circumstance exists that may constitute or result in (with
or without notice or lapse of time) a material violation of or failure to comply in any material
respects with any term or requirement of any Order to which the Company, or any of the assets owned
or used by the Company, is subject; and (iii) neither Seller nor the Company has
received, at any time since January 1, 2000, any notice or other communication (whether oral
or written) from any Governmental Body or any other Person regarding any actual, alleged, possible
or potential material violation of, or failure to comply with, any term or requirement of any Order
to which the Company, or any of the assets owned or used by the Company, is or has been subject.




-15-









 








          (d) This Section 2.16 does not pertain to matters concerning any Environmental, Health
and Safety Liabilities or to any Proceeding or Order relating to any Environmental Law, which, for
purposes of this Agreement, are exclusively addressed in Section 2.22 hereof.




     2.17 No Material Adverse Change. Except as set forth on Schedule 2.17, to the
Knowledge of Seller and the Company, since the Balance Sheet Date, there has not been any Material
Adverse Change.



     2.18 Absence of Certain Changes and Events. Except as set forth on Schedule
2.18, since the Balance Sheet Date, the Company has operated the Business only in the Ordinary
Course of Business and, to the Knowledge of Seller and the Company, there has not been any event,
change, occurrence or circumstance that has had or would reasonably be expected to have a Material
Adverse Effect. Without limiting the generality of the foregoing, since the date of the Balance
Sheet there has not been any:



          (a) 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; grant of any registration rights; purchase, redemption, retirement, or other
acquisition by the Company of any shares of any such capital stock; or declaration or payment of
any dividend or other distribution or payment in respect of shares of capital stock;




          (b) amendment to the Governing Documents of the Company;




          (c) except in the Ordinary Course of Business, payment or increase by the Company of any
bonuses, salaries, or other compensation to any shareholder, director, officer, or employee or
entry into any severance or similar Contract with any director, officer, or employee;




          (d) except in the Ordinary Course of Business, adoption of, or material increase in the
payments to or benefits under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with any employees of the
Company;




          (e) except in the Ordinary Course of Business, damage to or destruction or loss of any asset
or property of the Company, whether or not covered by insurance, materially and adversely affecting
the properties, assets, business, financial condition, or prospects of the Company;




          (f) except in the Ordinary Course of Business, entry into, termination of, or receipt of
notice of termination of (i) any license, distributorship, dealer, sales representative, joint
venture, credit, or similar agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to the Company of at least $100,000;




          (g) sale (other than sales of inventory in the Ordinary Course of Business), lease, or other
disposition of any asset or property of the Company or Encumbrance on any




-16-









 




material asset or
property of the Company, including the sale, lease, or other disposition of any of the Intellectual
Property Assets;




          (h) except in the Ordinary Course of Business, cancellation or waiver of any claims or rights
with a value to the Company in excess of $100,000;




          (i) material change in the accounting methods used by the Company;




          (j) except for the Conversion, any election or rescinding of any election relating to Taxes of
the Company or settlement or compromise of any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes of the Company, or except as may
be required by applicable law, any changes to any of the Company’s methods of reporting income or
deductions for federal income tax purposes from those employed in the preparation of its or Sellers
most recently filed federal tax returns if any of the foregoing actions would have an adverse
effect on Buyer or the Company following the Closing Date; or




          (k) agreement, whether oral or written, by the Company to do any of the foregoing.




     2.19 Third Party Payors and Suppliers.



          (a) Set forth on Schedule 2.19(a) is a list of the eight (8) most significant third
party payors (the “Major Customers”) in terms of revenue to the Company during the
twelve-month periods ended December 31, 2002, 2003 and 2004 and the six month period ended June
30, 2005, showing the approximate total revenue of the Company from each such payor during the
periods then ended. Except to the extent set forth on Schedule 2.19(a), since December 31,
2004, neither Seller nor the Company has received notice that any Major Customer has ceased, or
intends to cease, to do business with the Seller, the Company or Buyer, or has reduced, or will
reduce, its business in a manner that has a Material Adverse Effect. All of the Company’s claims
billed to third party payors have been for items and services actually provided, and such claims,
items and services have been billed and provided in accordance with all applicable requirements of
such third party payors.




          (b) Set forth on Schedule 2.19(b) is a list of the ten most significant suppliers (the
“Major Suppliers”) of services (including, without limitation, subcontractors), supplies,
merchandise or other goods for the Company in terms of purchases by the Company for the
twelve-month periods ended December 31, 2002, 2003 and 2004 and the six month period ended June 30,
2005, showing the amount paid to each such Major Supplier during such period. Except as disclosed
on Schedule 2.19(b), since December 31, 2004, neither Seller nor the Company has
received any notice that any such Major Supplier will not sell supplies, merchandise or other
goods to Buyer and the Company on substantially the same terms and conditions as those used in its
current sales to Seller and the Company, subject only to general and customary price increases or
other customary changes in terms, or changes in general business conditions or the like.




     2.20 Contracts; No Defaults.



-17-









 





          (a) Schedule 2.20(a) contains a list, and Seller has delivered to Buyer copies, of:
(i) each Applicable Contract that involves performance of services or delivery of goods or
materials by the Company to the Major Customers; (ii) each Applicable Contract that involves
performance of services or delivery of goods or materials to the Company by the Major Suppliers;
(iii) each Applicable Contract that was not entered into in the Ordinary Course of Business and
that involves expenditures or receipts of the Company in excess of $25,000; (iv) each lease, rental
or occupancy agreement, license, installment and conditional sale agreement, and other Applicable
Contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases and installment and
conditional sales agreements having a value per item or aggregate payments of less than $25,000 and
with terms of less than one year); (v) each licensing agreement or other Applicable Contract with
respect to patents, trademarks, copyrights, or other intellectual property (other than licenses to
use “shrink-wrap” or “off-the-shelf” software or any other software which is generally commercially
available), including agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual Property Assets; (vi)
each collective bargaining agreement and other Applicable Contract to or with any labor union or
other employee representative of a group of employees of the Company; (vii) each joint venture,
partnership, and other Applicable Contract (however named) involving a sharing of profits, losses,
costs, or liabilities by the Company with any other Person; (viii) each Applicable Contract
containing covenants that in any way purport to restrict the business activity of the Company or
any Related Person of the Company or limit the freedom of the Company or any Related Person of the
Company to engage in any line of business or to compete with any Person; (ix) each Applicable
Contract providing for payments to or by any Person based on sales, purchases, or profits, other
than direct payments for goods; (x) each power of attorney that is currently effective and
outstanding; (xi) each Applicable Contract entered into other than in the Ordinary Course of
Business that contains or provides for an express undertaking by the Company to be responsible for
consequential damages; (xii) each Applicable Contract for capital expenditures in excess of
$25,000; (xiii) each written warranty, guaranty, and or other similar undertaking with respect to
contractual performance extended by the Company other than in the Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or written) in respect of any of
the foregoing.




          (b) Except as set forth on Schedule 2.20(b), to Seller’s and the Company’s Knowledge,
no officer, director, agent, employee, consultant, or contractor of the Company is bound by any
Contract that purports to limit the ability of such officer, director, agent, employee, consultant,
or contractor to (A) engage in or continue any conduct, activity, or practice relating to the
Business, or (B) assign to the Company any rights to any invention, improvement, or discovery.




          (c) Except as set forth on Schedule 2.20(c), each Contract identified or required to
be identified on Schedule 2.20(a) is in full force and effect and is valid and enforceable
in accordance with its terms (except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization and other similar Legal Requirements affecting creditors’
rights generally and (ii) the general principles of equity, regardless of whether asserted in a
Proceeding in equity or at law).




-18-









 








          (d) Except as set forth on Schedule 2.20(d): (i) the Company is, and at all times
since January 1, 2003 has been, in compliance in all material respects with all applicable terms
and requirements of each Contract identified or required to be identified on Schedule 2.20(a); (ii)
to the Knowledge of Seller and the Company, each other Person that has or had any Liability under
each Contract identified or required to be identified on Schedule 2.20(a) is, and at all
times since January 1, 2003 has been, in compliance in all material respects with all applicable
terms and requirements of such Contract; (iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may contravene, conflict with, or result in a violation
or breach of, or give the Company or, to the Knowledge of Seller and the Company, any other 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 identified or required to be
identified on Schedule 2.20(a); and (iv) the Company has not given to or received from any
other Person, at any time since January 1, 2003, any notice or other communication (whether oral or
written) regarding any actual, alleged, possible, or potential violation or breach of, or default
under, any Contract identified or required to be identified on Schedule 2.20(a), except
where any such failure would not have a Material Adverse Effect.




     2.21 Insurance.



          (a) Seller has delivered to Buyer: (i) copies of all policies of insurance to which the
Company is a party or under which the Company, or any director of the Company, is or has been
covered at any time within the three years preceding the date of this Agreement; (ii) copies of all
pending applications for policies of insurance; copies of all applications filed in connection with
current policies and (iii) any statement by the auditor of the Company’s financial statements with
regard to the adequacy of such entity’s coverage or of the reserves for claims. Set forth on
Schedule 2.21(a) is a list of all policies of insurance to which the Company is a party,
including the policy number of each such policy.




          (b) Schedule 2.21(b) describes: (i) any self-insurance arrangement by or affecting the
Company, including any reserves established thereunder and any partial self-insurance such as
through deductibles of more than $25,000 each occurrence, at any time during the two years
preceding the date of this Agreement, (ii) any current or previous contract or arrangement, other
than a policy of insurance, for the transfer or sharing of any material risk by the Company,
including any captive insurance company participation; and (iii) all obligations of the Company to
the Major Customers with respect to insurance and identifies the policy under which such coverage
is provided.




          (c) Schedule 2.21(c) sets forth, by year, for the current policy year and each of the
two preceding policy years: (i) a summary (whether internally prepared or insurance
company issued) of the loss experience under each policy; (ii) a statement describing each
open claim and all closed claims for an amount in excess of $25,000 under an insurance policy,
which sets forth: (A) the name of the claimant; (B) a description of the policy by insurer, type of
insurance, and period of coverage; and (C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that were self-insured, including
the number and aggregate cost of such claims.




-19-









 








          (d) Except as set forth on Schedule 2.21(d): (i) All policies to which the Company is
a party or that provide coverage to Seller, the Company, or any director or officer of the Company:
(A) are valid, outstanding, and enforceable; (B) are issued by an insurer that is to the Knowledge
of Seller and the Company financially sound and reputable; (C) are sufficient for compliance with
all Legal Requirements and Contracts to which the Company is a party or by which it is bound; (D)
will continue in full force and effect following the consummation of the Contemplated Transactions,
except with respect to Seller; and (E) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the Company. (ii) Neither Seller nor the Company
has received (A) any refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be renewed or that the issuer of any policy
is not willing or able to perform its obligations thereunder. (iii) The Company has paid all
premiums due, and has otherwise performed all of its obligations, under each policy to which the
Company is a party or that provides coverage to the Company or any director thereof. (iv) The
Company has given notice to the insurer of all material claims that may be insured thereby.




     2.22 Environmental Matters. Except as set forth on Schedule 2.22, and except
as would not reasonably be expected to have a Material Adverse Effect:



          (a) The Company is in compliance with, and has not been and is not in violation of or subject
to material liability under, any Environmental Law. Neither Seller nor the Company has any basis to
expect, nor has any of them received, any actual or Threatened order, notice, or other
communication from any Governmental Body or other person alleging any actual or potential violation
or failure to comply with any Environmental Law, or of any actual or Threatened obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any
of the Facilities in which Seller or the Company has had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated, manufactured, refined,
transferred, imported, used, or processed by Seller or the Company.




          (b) Seller has delivered to Buyer copies of any Phase 1 or Phase 2 reports, and similar
environmental self-assessment documentation pertaining to the Facilities, or concerning compliance
by the Company with Environmental Laws.




          2.23 Intellectual Property Assets.




          (a) Set forth on Schedule 2.23(a) is a list and description of all material patents,
patent rights, trademarks, service marks, trade names, brands and copyrights (whether or
not registered and, if applicable, including pending applications for registration) owned,
used, licensed or held by the Company as of the date hereof. Except as set forth on Schedule
2.23(a), (vii) (A) to the Seller’s and the Company’s Knowledge, the Company is the owner of all
right, title and interest in and to all of the material Intellectual Property Assets owned by the
Company, free and clear of any Encumbrances other than Permitted Encumbrances, and (B) the Company
has the right to use and license the same in the conduct of the Business as currently conducted;
(viii) there have been no claims made against Seller or the Company asserting the invalidity,




-20-









 




abuse, misuse, or unenforceability of any of the Intellectual Property Assets; (ix) neither Seller
nor the Company has made any claim of any material violation or infringement by others of any of
its Intellectual Property Assets or interests therein and, to the Knowledge of Seller and the
Company, no grounds for any such claims exist; (x) neither Seller nor the Company has received any
notice that it is in conflict with or infringing upon the asserted intellectual property rights of
others in connection with the Intellectual Property Assets and, to the Knowledge of Seller and the
Company, neither the use of the Intellectual Property Assets nor the operation of the Business is
infringing or has infringed upon any intellectual property rights of others; (xi) the Intellectual
Property Assets are, in the aggregate, sufficient and include all intellectual property rights
necessary for the Company to lawfully operate the Business as presently being operated; and (xii)
to the Knowledge of Seller and the Company, no interest in any of Seller’s or the Company’s
Intellectual Property Assets has been assigned, transferred, licensed or sublicensed by Seller or
the Company to any Person other than Buyer pursuant to this Agreement.




          (b) Schedule 2.23(b) contains a list and of all internet web sites and internet domain
names presently used by the Company comprising part of the Intellectual Property Assets of the
Company (collectively “Net Names”). All Net Names have been registered in the name of the
Company. No Net Name has been or is now involved in any dispute, opposition, invalidation or
cancellation Proceeding and, to the Knowledge of Seller and the Company, no such action is
Threatened with respect to any Net Name. To the Knowledge of Seller and the Company, there is no
domain name application pending of any other Person which would or would potentially interfere with
or infringe any Net Name. No Net Name is infringed or, to the Knowledge of Seller and the Company,
has been challenged, interfered with or threatened in any way. To the Knowledge of Seller and the
Company, no Net Name infringes, interferes with or is alleged to interfere with or infringe the
trademark, copyright or domain name of any other Person.




     2.24 Certain Payments. Since January 1, 2003, neither the Company or any of its
directors or officers, nor any employee authorized by any such director or officer, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or
other payment to any Person, private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, (iii) to obtain special concessions or for special concessions
already obtained, for or in respect of the Company or any Related Person of the Company, or (iv) in
violation of any Legal Requirement, (b) established or maintained any fund or asset belonging to
the Company that has not been recorded in the books and records of the Company.



     2.25 Relationships With Related Persons. Neither Seller nor any Related Person of
Seller or of the Company has, or since January 1, 2003 has had, any interest in any property
(whether real, personal, or mixed and whether tangible or intangible), used in or pertaining to the
Business of the Company . Neither Seller nor any Related Person of Seller or of the Company is, or
since January 1, 2003 has owned (of record or as a beneficial owner) an equity interest or any
other financial or profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with the Company, or (ii) engaged in direct competition with
the Company with respect to any of the line of the products or services of the Company set forth



-21-









 







in
Schedule 2.25 (a “Competing Business”) in any market presently served by the
Company, except for less than five percent (5%) of the outstanding capital stock of any Competing
Business that is publicly traded on any recognized exchange or in the over-the-counter market.



     2.26 Brokers or Finders. Seller and its Representatives have incurred no Liability
for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with
this Agreement.



     2.27 Disclosure.



          (a) No representation or warranty of Seller or the Company in this Agreement omits to state a
material fact necessary to make the statements herein or therein, in light of the circumstances in
which they were made, not misleading.




          (b) No notice given pursuant to Section 4.5 will contain any untrue statement or omit
to state a material fact necessary to make the statements therein or in this Agreement, in light of
the circumstances in which they were made, not misleading.




3. Representations and Warranties of Buyer




     In order to induce Seller and the Company to enter into this Agreement, Buyer represents and
warrants to Seller and the Company as follows:



     3.1 Organization and Good Standing. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation, with full corporate
power and authority to conduct its business as it is now conducted.



     3.2 Authority; No Conflict.



          (a) This Agreement constitutes the legal, valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms. Upon the execution and delivery by Buyer of each
agreement to be executed or delivered by Buyer at Closing (collectively, the “Buyer’s Closing
Documents”), each Buyer’s Closing Document will constitute the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its respective terms. Buyer has
the absolute and unrestricted right, power and authority to execute and deliver this Agreement and
the Buyer’s Closing Documents and to perform its obligations under this Agreement and the Buyer’s
Closing Documents, and such action has been duly authorized by all necessary corporate action.




          (b) Neither the execution and delivery of this Agreement by Buyer nor the consummation or
performance of any of the Contemplated Transactions by Buyer will give any Person the right to
prevent, delay or otherwise interfere with any of the Contemplated Transactions pursuant to: (i)
any provision of Buyer’s Governing Documents; (ii) any resolution adopted by the board of directors
or the shareholders of Buyer; (iii) any Legal Requirement or Order to which Buyer may be subject;
or (iv) any Contract to which Buyer is a party or by which Buyer may be bound.

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     Except as set forth on Schedule 3.2, Buyer is not and will not be required to 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 Contemplated Transactions.



     3.3 Investment Intent. Buyer is acquiring the Interests for its own account and not
with a view to their distribution within the meaning of Section 2(11) of the Securities Act.



     3.4 Certain Proceedings. There is no pending Proceeding that has been commenced
against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal
or otherwise interfering with, any of the Contemplated Transactions. To Buyer’s Knowledge, no such
Proceeding has been Threatened.



     3.5 Brokers or Finders. Buyer and its Representatives have incurred no Liability for
brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this
Agreement.



     3.6 No Outside Reliance. Buyer acknowledges that it has conducted to its satisfaction
an independent investigation of the financial condition, results of operations, assets,
liabilities, properties and projected operations of the business of the Company and the Seller and,
in making the determination to proceed with the Contemplated Transactions, has relied solely on the
results of its own independent investigation and the representations and warranties set forth in
Section 2 hereof, provided, however, that no such investigation shall in any way preclude or limit
Buyer’s ability to recover for breaches of such representations and warranties under Section
10 herein. Such representations and warranties constitute the sole and exclusive
representations and warranties of the Company and the Seller, respectively, to Buyer in connection
with the Contemplated Transactions, and Buyer acknowledges and agrees that neither the Company nor
Seller is making any representation or warranty whatsoever, express or implied, beyond those
expressly given in this Agreement, including any implied warranty as to the condition,
merchantability or suitability as to any of the assets or properties of the Company. Buyer further
acknowledges and agrees that any estimates, projections, forecasts or other predictions that may
have been provided to Buyer or any of its employees, agents or Representatives are not
representations or warranties of the Company or Seller, or any of their respective Related Persons,
and were not relied upon by the Buyer in entering into this Agreement or consummating the
Contemplated Transactions.



     3.7 Disclosure.



          (a) No representation or warranty of Buyer in this Agreement omits to state a material fact
necessary to make the statements herein or therein, in light of the circumstances in which they
were made, not misleading.




          (b) No notice given pursuant to Section 5.3 will contain any untrue statement or omit
to state a material fact necessary to make the statements therein or in this Agreement, in light of
the circumstances in which they were made, not misleading.




4. Seller’s Preclosing Covenants




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     4.1 Access and Investigation. Between the date of this Agreement and the Closing
Date, Seller and the Company will and will cause their Representatives to, (a) afford Buyer and its
Representatives (collectively, “Buyer’s Advisors”) reasonable access to the Company’s
personnel, properties (including subsurface testing), Contracts, books and records, and other
documents and data during the Company’s normal business hours, (b) furnish Buyer and Buyer’s
Advisors with copies of all such Contracts, books and records, and other existing documents and
data as Buyer may reasonably request, and (c) furnish Buyer and Buyer’s Advisors with such
additional financial, operating, and other data and information as Buyer may reasonably request.
Notwithstanding the foregoing, Buyer shall not, without Seller’s prior written consent, which may
be withheld at Seller’s sole and absolute discretion, contact or otherwise communicate with any of
Seller’s or the Company’s employees, customers, lenders, prospects, vendors or suppliers or any
other third parties with whom Seller or the Company has a contractual relationship concerning this
Agreement, provided, however, that Buyer (through individuals approved by Seller) shall be
permitted to meet in person, together with a Representative of the Company, with the Company’s
contacts at its top four (4) commercial payors (United Healthcare, Sentara Health, Anthem Blue
Cross Blue Shield of Virginia, and Catalyst RX) at such time and place each as shall be mutually
agreed upon by Buyer, Seller and the Company. Buyer, Seller and the Company agree that the purpose
of these meetings is to introduce Buyer to the representatives of such payors and to assure such
payors that the Company’s business will be conducted in accordance with historic practices.



     4.2 Operation of the Business. Between the date of this Agreement and the Closing
Date, Seller and the Company will:



          (a) conduct the Business only in the Ordinary Course of Business; and




          (b) use their Best Efforts to preserve intact the current business organization of the
Company, keep available the services of the current officers, employees, and agents of the Company,
and maintain the relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with the Company.




     4.3 Negative Covenant. Except as set forth on Schedule 4.3 or as otherwise
expressly permitted by this Agreement, between the date of this Agreement and the Closing Date,
Seller and the Company will not, without the prior consent of Buyer, take any of the following
actions:



          (a) change the Company’s authorized or issued capital stock; grant any stock option or right
to purchase shares of capital stock of the Company; issue any security convertible into such
capital stock; grant any registration rights; purchase, redemption, retirement, or other
acquisition by the Company of any shares of any such capital stock; or declare or pay any dividend
or otherwise distribute or pay in respect of shares of capital stock;




          (b) amend the Governing Documents of the Company, except as required by any Legal Requirement
and except in connection with the Conversion;




          (c) enter into any employment or similar Contract with any director, officer, or employee or,
except in the Ordinary Course of Business consistent with past practice, pay or




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increase any
severance payment, bonuses, salaries, or other compensation to any shareholder, director, officer,
or employee;




          (d) adopt any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement or other employee benefit plan or, except in the Ordinary Course consistent with past
practice of Business, increase the payments to or benefits under, any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for
or with any employees of the Company;




          (e) materially change the accounting methods used by the Company; or




          (f) agree, whether oral or written, to do any of the foregoing.




     4.4 Required Approvals. As promptly as practicable after the date of this Agreement,
Seller and the Company will make all filings required by Legal Requirements to be made by them in
order to consummate the Contemplated Transactions (including all filings under the HSR Act, which
shall be made no later than three (3) Business Days after the date hereof) and use their best
efforts to furnish or cause to be furnished as promptly as practicable all information and
documents requested with respect to such Legal Requirements (including specifically under the HSR
Act) and shall otherwise cooperate with the applicable Governmental Body in order to obtain any
Legal Requirements and Consents in connection therewith as expeditiously as possible. Between the
date of this Agreement and the Closing Date, Seller and the Company will (a) reasonably cooperate
with Buyer (at no out-of-pocket expense to Seller and the Company) with respect to all filings that
Buyer elects to make or is required by Legal Requirements to make in connection with the
Contemplated Transactions, and (b) reasonably cooperate with Buyer in obtaining all consents
identified on Schedule 3.2; provided that this Agreement will not require Seller to dispose
of or make any change in any portion of its business or to incur any other burden to obtain a
Governmental Authorization. Seller and the Company shall use their best efforts to resolve such
objections, if any, as any Governmental Body may assert with respect to this Agreement and the
Contemplated Transactions in connection with the Legal Requirements. In the event that a suit is
instituted by a Person or Governmental Body challenging this Agreement and the Contemplated
Transactions as a violation of applicable antitrust or competition laws, Seller and the Company
shall use their best efforts to resist or resolve such suit. Seller and the Company each shall,
upon request by the other, furnish Buyer with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other
matters as may reasonably be necessary or advisable in connection with any statement, filing,
ruling request, notice or application made by or on behalf of Seller, the Company, Buyer or any of
their respective Subsidiaries to any third party and/or any Governmental Body in connection with
this Agreement and the Contemplated Transactions.



     4.5 Notification.



          (a) Between the date of this Agreement and the Closing Date, Seller will promptly notify Buyer
in writing if Seller or the Company becomes aware of any fact or condition that causes or
constitutes a Breach of any of Seller’s and the Company’s representations and warranties as of the
date of this Agreement or becomes aware of the




-25-









 




occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this Agreement) cause or
constitute a Breach of any such representation or warranty had such representation or warranty been
made as of the Closing Date. The Seller and the Company shall promptly supplement or amend the
Disclosure Schedule to reflect any fact necessary to make the representations true and correct.
Any such supplement or amendment shall be deemed to qualify the Seller’s and the Company’s
representations and warranties contained herein in determining Buyer’s rights under Sections 7 and
10 unless such supplement or amendment arose out of a fact which, as of the date of execution of
the Agreement, constituted a breach of a representation or warranty contained herein.




     4.6 Payment of or Cancellation of Indebtedness. Except as expressly provided in this
Agreement or on Schedule 4.6, Seller will, prior to Closing, (i) cause all indebtedness
owed to the Company by Seller or any Related Person of Seller to be paid in full prior to Closing,
(ii) cancel all indebtedness of the Company to Seller or any Related Person of Seller, (iii) pay
off any indebtedness owed or guaranteed by the Company to any bank or other financial institution,
and (iv) use its Best Efforts to pay off in full all amounts owed under the Master Lease Agreement
between CitiCapital Technology Finance Inc. and the Company, dated February 22, 2005.



     4.7 No Negotiation. After the date of this Agreement and until such time, if any, as
this Agreement is terminated pursuant to Section 9, Seller and the Company will not, and
will cause each of their Representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public
information to, or consider the merits of any unsolicited inquiries or proposals from, any Person
(other than Buyer) relating to any transaction involving the sale of the Business, or any of the
capital stock of the Company, or any merger, consolidation, business combination, or similar
transaction involving the Company. If Seller, the Company, or any of their officers, directors,
officers, agents, employees or affiliates receives any such inquiry or proposal, Seller shall
provide written notice to Buyer as soon as practicable of any such inquiry or proposal by any such
Person.



     4.8 Best Efforts. Between the date of this Agreement and the Closing Date, Seller and
the Company will use their Best Efforts to cause (i) the conditions in Sections 7 and
8 to be satisfied and (ii) the Master Lease Agreement between CitiCapital Technology
Finance Inc. and the Company, dated February 22, 2005, to be terminated and of no further force and
effect as of the Effective Time.



     4.9 Change of Name. On or before the Closing Date, Seller shall (a) amend its
Governing Documents and take all other actions necessary to change its name to one sufficiently
dissimilar to Seller’s present name, in Buyer’s reasonable judgment, to avoid confusion and (b)
take all actions requested by Buyer to enable Buyer and the Company to utilize Seller’s present
name following Closing.



     4.10 Interim Financial Statements. Until the Closing Date, Seller shall deliver to
Buyer within twenty (20) Business Days after the end of each month, copies of consolidated balance
sheets, statements of income and shareholders equity and statements of cash flows for the Company
and Seller for such month prepared in accordance with GAAP (without footnotes



-26-









 







and normal year end
adjustments) and certified by Seller’s chief financial officer as to compliance with Section
2.3.



     4.11 Conversion of Company. No later than three (3) Business Days prior to the
Closing Date, Seller shall cause the Company to convert into a single member limited liability
company in Virginia (the “Conversion”). Following the Conversion, Seller shall not take or
cause to be taken any action that would prevent the Company from being disregarded as an entity
separate from its owners under Treas. Reg. § 301.7701-3 for federal income tax purposes, and to the
extent permitted, for all other income tax purposes.



5. Buyer’s Preclosing Covenants




     5.1 Required Approvals. Buyer acknowledges that the Parties proceeding to Closing as
expeditiously as possible is an important element of the Contemplated Transactions for Seller and,
as promptly as practicable after the date of this Agreement, Buyer will make all filings required
by Legal Requirements to be made by it in order to consummate the Contemplated Transactions
(including all filings under the HSR Act, which shall be made no later than three (3) Business Days
after the date hereof) and use its best efforts to furnish or cause to be furnished as promptly as
practicable all information and documents requested with respect to such Legal Requirements
(including specifically under the HSR Act) and shall otherwise cooperate with the applicable
Governmental Body in order to obtain any Legal Requirements and Consents in connection therewith as
expeditiously as possible. Between the date of this Agreement and the Closing Date, Buyer will (a)
reasonably cooperate with Seller and the Company (at no out-of-pocket expense to Buyer) with
respect to all filings that Seller and the Company elect to make or are required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b) diligently pursue
obtaining all consents identified on Schedule 3.2; provided that this Agreement will not
require Buyer to dispose of or make any change in any portion of its business or to incur any other
burden to obtain a Governmental Authorization. Buyer shall use its best efforts to resolve such
objections, if any, as any Governmental Body may assert with respect to this Agreement and the
Contemplated Transactions in connection with the Legal Requirements. In the event that a suit is
instituted by a Person or Governmental Body challenging this Agreement and the Contemplated
Transactions as a violation of applicable antitrust or competition laws, Buyer shall use its best
efforts to resist or resolve such suit. Buyer shall, upon request by Seller and the Company,
furnish the other with all information concerning itself, its Related Persons, directors, officers
and stockholders and such other matters as may reasonably
be necessary or advisable in connection with any statement, filing, ruling request, notice or
application made by or on behalf of the Seller, the Company, Buyer or any of their respective
Subsidiaries to any third party and/or any Governmental Body in connection with this Agreement and
the Contemplated Transactions.



     5.2 Best Efforts. Except as set forth in the proviso to Section 5.1, between
the date of this Agreement and the Closing Date, Buyer will use its Best Efforts to cause the
conditions in Sections 7 and 8 to be satisfied.



     5.3 Notification. Between the date of this Agreement and the Closing Date, Buyer will
promptly notify Seller in writing if Buyer becomes aware of any fact or condition that



-27-









 







causes or
constitutes a Breach of any of Buyer’s representations and warranties as of the date of this
Agreement that would reasonably be expected to result in a failure to satisfy the condition in
Section 8.1, or if Buyer becomes aware of the occurrence after the date of this Agreement
of any fact or condition that would (except as expressly contemplated by this Agreement) cause or
constitute a Breach of any such representation or warranty had such representation or warranty been
made as of the Closing Date that would reasonably be expected to result in a failure to satisfy the
condition in Section 8.1.



6. Additional Covenants




     6.1 Employee Matters.



          (a) Employees. For a period of one year following the Closing Date (or such longer
period as provided in any written employment agreement), Buyer covenants and agrees that the
employees of the Company who remain employed with the Company (it being understood that Buyer shall
in its sole discretion determine who shall continue to be so employed) shall maintain at least the
same salary or hourly wage rate in effect immediately prior to the Closing. Such individuals who
continue their employment with Company following the Closing Date are hereinafter referred to as
the “Continuing Employees”.




          (b) Benefits.




               (i) For a period of no more than one year following the Closing Date, or such longer period of
time required by applicable Law or in any applicable employment agreement, Buyer shall cause to be
maintained the Employee Plans, programs arrangements and policies of the Company, for each of the
Continuing Employees or shall otherwise provide such transferred employees with compensation
(including salary, wages and opportunities for commissions, bonuses, incentive pay, overtime and
premium pay), employee benefits, location of employment and a position of employment that are, in
each case, at least substantially equivalent (in the aggregate) to those provided to such
Continuing Employee immediately prior to the Closing.



               (ii) For purposes of eligibility and vesting (but not benefit accrual) under the employee
benefit plans of Buyer providing benefits to Continuing Employees, but expressly excluding the
Buyer’s employee stock purchase plan, (the “Buyer Plans”), Buyer shall
credit each Continuing Employee with his or her years of service with the Company, its Related
Persons and any of their predecessor entities, to the same extent as such Continuing Employee was
entitled immediately prior to the Closing to credit for such service under any similar Employee
Plan. The Buyer Plans shall not deny Continuing Employee coverage on the basis of pre-existing
conditions and shall credit such Continuing Employee for any deductibles and out-of-pocket expenses
paid in the year of initial participation in the Buyer Plans.



               (iii) Buyer shall be liable for any and all obligations and Liabilities in respect of
employees of the Company (to the extent arising on or after the Closing Date), in each case arising
under WARN or any similar state Legal Requirement, including any Liabilities imposed or incurred as
a result of the failure of any Party to this Agreement to give any requisite



-28-









 




notice under the WARN
or any similar state Legal Requirement (including in connection with the transactions contemplated
herein).




               (iv) For the eighteen (18) month period following Closing, Buyer shall offer to provide to
Robert Haft and his wife and children health continuation medical care coverage under COBRA, at his
sole expense.



7. Conditions Precedent To Buyer’s Obligation To Close




     Buyer’s obligation to purchase the Interests and to take the other actions required to be
taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each
of the following conditions (any of which may be waived by Buyer, in whole or in part):



     7.1 Accuracy of Representations. The representations and warranties contained in
Section 2 of this Agreement (i) that are qualified by materiality or Material Adverse
Effect shall be true and correct as if made on the Closing Date and (ii) that are not qualified by
materiality or Material Adverse Effect shall be true and correct in all material respects as if
made on the Closing Date, except, in each case, for inaccuracies or omissions that would not
reasonably be expected to have a Material Adverse Effect, and except for the representations and
warranties in Sections 2.1 and 2.2, which shall be true in all respects.



     7.2 Seller’s and the Company’s Performance.



          (a) All of the covenants and obligations that Seller and the Company are required to perform
or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively),
and each of these covenants and obligations (considered individually), must have been duly
performed and complied with in all material respects.




          (b) Each document required to be delivered pursuant to Section 1.4 must have been
delivered, and each of the other covenants and obligations in Section 4 must have been
performed and complied with in all material respects.




     7.3 Consents. Each Consent identified on Schedule 1.4(a)(vi), must have been
obtained and must be in full force and effect.



     7.4 No Proceedings. No temporary restraining order, preliminary or permanent
injunction or other order issues by a court or other Governmental Authority of competent
jurisdiction shall be in effect and have the effect of making the Contemplated Transactions illegal
or otherwise prohibiting consummation of the Contemplated Transactions; provided, however, that the
provisions of this Section 7.4 shall not be available to Buyer if its failure to fulfill
its obligations shall have been the cause of, or shall have resulted in, such order or injunction.



     7.5 No Claim Regarding Stock Ownership or Sale Proceeds. There must not have been
made or Threatened by any Person any claim asserting that such Person (a) is the holder or the
beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any stock



-29-









 







of, or any other voting, equity, or ownership interest in, the Company, or (b) is entitled to all
or any portion of the Purchase Price payable for the Interests.



     7.6 Termination of Certain Agreements. Seller and the Company shall have caused to be
terminated prior to the Effective Time the loan agreement between the Company and Wachovia, N.A.
and the Guaranty of the Seller’s obligations to Wachovia N.A., and shall have provided lien release
waivers from Wachovia, N.A. with respect thereto.



     7.7 UnitedHealth. UnitedHealth shall not have notified Seller or the Company prior to
Closing that it will cease or materially reduce its business with the Company before Closing or
within thirty (30) days thereafter.



8. Conditions Precedent To Seller’s Obligation To Close




     Seller’s obligation to sell the Interests and to take the other actions required to be taken
by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Seller, in whole or in part):



     8.1 Accuracy of Representations. The representations and warranties contained in
Section 3 of this Agreement (i) that are qualified by materiality or Material Adverse
Effect shall be true and correct as if made on the Closing Date and (ii) that are not qualified by
materiality or Material Adverse Effect shall be true and correct in all material respects as if
made on the Closing Date, except, in each case, for inaccuracies or omissions that would not
reasonably be expected to have a Material Adverse Effect, and except for the representations and
warranties in Sections 3.1 and 3.2, which shall be true in all respects.



     8.2 Buyer’s Performance.



          (a) All of the covenants and obligations that Buyer is required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been performed and complied with in
all material respects.




          (b) Buyer must have delivered each of the documents required to be delivered by Buyer pursuant
to Section 1.4 and must have made the cash payments required to be made by Buyer pursuant
to Section 1.4(b)(i).




     8.3 No Injunction. There must not be in effect any Legal Requirement or any
injunction or other Order that (a) prohibits the sale of the Interests by Seller to Buyer, and (b)
has been adopted or issued, or has otherwise become effective, since the date of this Agreement.



     8.4 Consents. Each Consent identified on Schedule 3.2, must have been
obtained and must be in full force and effect.



9. Termination




-30-









 








     9.1 Termination Events. This Agreement may, by notice given prior to or at the
Closing, be terminated:



          (a) by either (i) Buyer or (ii) Seller and the Company, if a material Breach of any provision
of this Agreement has been committed by the other party or parties and such Breach has not been
waived and has continued without cure for a period of five (5) days following notice thereof by the
terminating Party;




          (b) (i) by Buyer if any condition in Section 7 has not been satisfied as of October 1,
2005 or if satisfaction of such a condition is or becomes impossible (other than through the
failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or (ii) by Seller and the Company, if any condition in
Section 8 has not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Seller or the Company to
comply with their obligations under this Agreement) and neither Seller nor the Company has waived
such condition on or before the Closing Date;




          (c) by mutual consent of Buyer, Seller and the Company; or




          (d) by either (i) Buyer or (ii) Seller and the Company if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to comply with its
obligations under this Agreement) on or before September 15, 2005, or such later date as the
parties may agree upon.




     9.2 Effect of Termination. Each party’s right of termination under Section
9.1 is in addition to any other rights it may have under this Agreement or otherwise, and the
exercise of a right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under this
Agreement will terminate, except that the obligations in Sections 11.1 and 11.3
will survive; provided, however, that if this Agreement is terminated by a party
because of a willful or intentional Breach of the Agreement by the other party or parties or
because one or more of the conditions to the terminating party’s obligations under this Agreement
is not satisfied as a result of the other party’s or parties’ failure
to comply with its or their obligations under this Agreement in all material respects, the
terminating party’s right to pursue all legal remedies will survive such termination unimpaired.



10. Indemnification; Remedies




     10.1 Survival and Right to Indemnification. All representations, warranties,
covenants, and obligations in this Agreement, the supplements to Seller’s and the Company’s
schedules, the certificates delivered pursuant to Section 1.4, and any other certificate or
document delivered pursuant to this Agreement will survive the Closing; provided,
however that all of the Company’s Liability with respect to its representations,
warranties, covenants and obligations pursuant hereto (whether or not made jointly with Seller)
shall terminate at Closing and each such representation, warranty, covenant and obligation shall be
deemed to be solely the representation, warranty, covenant or obligation of Seller as if the
Company was not a party to this Agreement. The right to indemnification, payment of Damages or
other remedy based on



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such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of
being acquired) at any time, whether before or after the execution and delivery of this Agreement
or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of Damages, or other
remedy based on such representations, warranties, covenants, and obligations.



     10.2 Indemnification and Payment of Damages by Seller and the Company. Prior to
Closing, Seller and the Company will jointly and severally and following the Closing Seller solely
will indemnify and hold harmless Buyer, the Company, and their respective Representatives,
shareholders, controlling persons, and affiliates (collectively, the “Buyer Indemnified
Persons”) for, and will pay to the Indemnified Persons the amount of, any Damages, arising,
directly or indirectly, from or in connection with:



          (a) any Breach of any representation or warranty made by Seller or the Company in this
Agreement (without giving effect to any supplement to Seller’s and the Company’s schedules) or any
other certificate or document delivered by Seller pursuant to this Agreement;




          (b) any Breach by Seller or the Company of any covenant or obligation of Seller or the Company
in this Agreement; or




          (c) any claim by any Person for brokerage or finder’s fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such Person with Seller or
the Company (or any Person acting on its behalf) in connection with any of the Contemplated
Transactions.




     Notwithstanding the foregoing, neither the Seller nor the Company shall be obligated to
provide indemnification for any Breach of a representation or warranty contained herein to the
extent that the amount of Damages arising from such Breach is provided for in the Supplemental
Reserves.



     10.3 Indemnification and Payment of Damages by Buyer. Buyer will indemnify and hold
harmless Seller and its Representatives, shareholders, controlling persons and affiliates
(collectively, “Seller Indemnified Persons”), and will pay to the Seller Indemnified
Persons the amount of any Damages arising, directly or indirectly, from or in connection with (a)
any Breach of any representation or warranty made by Buyer in this Agreement or in any certificate
delivered by Buyer pursuant to this Agreement, (b) any Breach by Buyer of any covenant or
obligation of Buyer in this Agreement, or (c) any claim by any Person for brokerage or finder’s
fees or commissions or similar payments based upon any agreement or understanding alleged to have
been made by such Person with Buyer (or any Person acting on its behalf) in connection with any of
the Contemplated Transactions.



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     10.4 Time Limitations. If the Closing occurs, Seller will have liability (for
indemnification or otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, for a period of eighteen
(18) months after the Closing Date; provided, however, that the representations and warranties set
forth in Sections 2.1, 2.2, 2.10, 2.14, 2.22, and
2.26 and the indemnification obligation set forth in Section 10.7 shall survive the
Closing for a period of three (3) years, and provided further that the representations and
warranties set forth in Section 2.15 shall survive the Closing for a period of four (4)
years. If the Closing occurs, Buyer will have liability (for indemnification or otherwise) with
respect to any representation or warranty, or covenant or obligation to be performed and complied
with prior to the Closing Date, for a period of eighteen (18) months after the Closing Date;
provided, however, that the representations and warranties set forth in Section 3.5 or a
claim for indemnification or reimbursement based upon Section 10.6(e) shall survive the
Closing for a period of four (4) years.



     10.5 Monetary Limitations.



          (a) If the Closing occurs, Seller will have no liability (for indemnification or otherwise)
with respect to the matters described in this Section 10.5(a), or, to the extent relating
to any failure to perform or comply prior to the Closing Date, clause (b) of Section 10.2,
or, subject to the last sentence of this Section 10.5(a), indemnification claims made under
Section 10.7 unless the total of all Damages with respect to such matters is at least
$750,000, at which time the Seller shall be liable for all Damages in excess of $250,000 (the
“Basket”). The maximum aggregate liability of the Seller as a result of all Damages
described in Section 10.2 and in Section 10.7 shall not exceed $11,400,000.00 (the
“Cap Amount”). The Basket will not apply to any Breach of any of Seller’s representations
and warranties set forth in Section 2.15 or to any Damages arising out of the failure of
the Company to pay Income Taxes for taxable periods (or portions thereof) ending on or before the
Closing Date and neither the Basket nor the Cap Amount will apply to any Breach of any of Seller’s
representations and warranties set forth in Sections 2.1, 2.2, or 2.26 such that
Buyer shall be entitled to recover the full amount of such Damages, which shall not exceed the
aggregate consideration that the Seller received hereunder.




          (b) If the Closing occurs, Seller’s liability for any Damages with respect to any Breach of
Seller’s representations and warranties set forth in Section 2.15 shall be as follows, with
the remaining liability to be assumed and paid by Buyer: (i) with respect to the first
$1,000,000.00 of Damages, liability for fifty percent (50%) of such Damages; (ii) with respect to
up to the next $4,000,000.00 of Damages, liability for eighty percent (80%) of such Damages; and
(iii) with respect to up to the next $6,400,000.00 of Damages, liability for one hundred percent
(100%) of such Damages. For the avoidance of doubt, liability for all such damages shall be
cumulative and subject, together with any other claims under Section 10.2, to the Cap
Amount.




          (c) [Intentionally omitted.]




          (d) If the Closing occurs, in no event shall the total Liability of Seller or Buyer with
respect to claims under this Section 10 exceed the Purchase Price.




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          (e) The amount of any Damages shall be reduced or reimbursed, as the case may be, by any
amount received by the Indemnified Person with respect thereto under any insurance coverage or from
any other party. An Indemnified Person shall use reasonable efforts to collect any amounts
available under such insurance coverage or from such other party. If an Indemnified Person
receives an amount under insurance coverage or from a third party with respect to Damages at any
time subsequent to any indemnification provided by an Indemnifying Party, then such Indemnified
Person shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by
such party in connection with providing such indemnification up to such amount received by the
Indemnified Person.




          (f) Any indemnification payments required to be made hereunder with respect to any matter
shall be reduced by the amount of any economic benefits (including, income tax benefits) that are
readily quantifiable and have been received by the Indemnified Person as a result of the same
matter.




          (g) To the extent Seller discharges any claim for indemnification hereunder, it shall be
subrogated to all related rights of the Buyer Indemnified Parties against third parties.




          (h) The Buyer Indemnified Parties shall not be entitled to indemnification with respect to any
matters or amounts which are the subject of a Closing Working Capital adjustment pursuant to
Section 1.5.




          (i) The Basket shall be increased dollar for dollar by any refund or recovery actually
received (net of Tax costs associated with such refund or recovery) by the Company after Closing in
connection with (1) the matter described on Schedule 10.5(i) with respect to the DMERC
Audit and (2) the Company’s amended Sales and Use Tax Returns for the State of California, which is
described on Schedule 2.10(b).




          (j) From and after the Closing, the indemnification provided in this Section 10 shall
be the sole and exclusive remedy of any Party hereto with respect to this Agreement and the
Contemplated Transactions, except with respect to the Noncompetition Agreement.
Notwithstanding any provision of this Agreement to the contrary, nothing contained in this
Agreement shall in any way limit, impair, modify or otherwise affect the rights of Buyer to bring
any claim, demand, suit or cause of action otherwise available to Buyer based upon, or to seek or
recover any Damages arising from or related to, an allegation or allegations that an indemnifying
party had an intent to defraud (as such term applies under common law and securities law
principles) or made a willful, intentional or reckless misrepresentation or omission of a material
fact in connection with this Agreement or any of the agreements contemplated hereby.




     (k) To the extent that a Breach of a representation or warranty contained in Section 2 arises
out of a review being conducted by the State of Virginia first described in Item 2 to Schedule
2.9, then any Damages arising from such Breach shall first be applied toward the Basket and
then any excess Damages arising from such Breach shall be funded eighty percent (80%) by Seller and
twenty percent (20%) by Buyer; provided, that Seller’s total liability for Damages under this
Section 10.5(k) shall be cumulative and subject to the Cap Amount along with other Damages subject
to the Cap Amount.




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     10.6 Procedure For Indemnification — Third Party Claims.



          (a) Promptly after receipt by an indemnified party under Sections 10.2 or 10.3
of notice of the commencement of any Proceeding against it, such indemnified party will, if a claim
is to be made against an indemnifying party under such Section, give notice to the indemnifying
party of the commencement of such claim, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any indemnified party, except
to the extent that the indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnifying party’s failure to give such notice.




          (b) If any Proceeding referred to in Section 10.6(a) is brought against an indemnified
party and it gives notice to the indemnifying party of the commencement of such Proceeding, the
indemnifying party will, be entitled to participate in such Proceeding and, to the extent that it
wishes (unless (i) the indemnifying party is also a party to such Proceeding and the indemnified
party determines in good faith that joint representation would be inappropriate, or (ii) the
indemnifying party fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to such Proceeding), to
assume the defense of such Proceeding with counsel reasonably satisfactory to the indemnified party
(Latham & Watkins, LLP being acceptable to Buyer for these purposes) and, after notice from the
indemnifying party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other counsel or any
other expenses with respect to the defense of such Proceeding, in each case subsequently incurred
by the indemnified party in connection with the defense of such Proceeding, other than reasonable
costs of investigation conducted at the request of the indemnifying party. If the indemnifying
party assumes the defense of a Proceeding, (i) it will be conclusively established for purposes of
this Agreement that the claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected by the
indemnifying party without the indemnified party’s consent (not
to be unreasonably withheld, conditioned or delayed) unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights of any Person and
no effect on any other claims that may be made against the indemnified party, and (B) the sole
relief provided is monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or settlement of such
claims effected without its consent (not to be unreasonably withheld, conditioned or delayed). If
notice is given to an indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within thirty (30) days after the indemnified party’s notice is given, give notice
to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying
party will be bound by any determination made in such Proceeding or any compromise or settlement
effected by the indemnified party.




          (c) Notwithstanding the foregoing, if an indemnified party determines in good faith that there
is a reasonable probability that a Proceeding may adversely affect it or its affiliates other than
as a result of monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying




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party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying party will not be
bound by any determination of a Proceeding so defended or any compromise or settlement effected
without its consent (which may not be unreasonably withheld).




          (d) Seller hereby consents to the non-exclusive jurisdiction of any court in which a
Proceeding is brought against any Indemnified Person for purposes of any claim that an Indemnified
Person may have under this Agreement with respect to such Proceeding or the matters alleged
therein, and agrees that process may be served on Seller with respect to such a claim anywhere in
the world.




          (e) The Parties covenant and agree that the protocol set forth on Schedule 10.6(e)
shall be followed without exception in connection with any matters involving Medicare or Medicaid,
including indemnification claims arising under Section 2.15.




          (f) The Indemnified Party shall cooperate with the Indemnifying Party and its counsel in such
defense and make available to the Indemnifying Party all witnesses, records, materials, and
information in the Indemnified Party’s possession or under the Indemnified Party’s control relating
thereto as may be reasonably requested by the Indemnifying Party, and in contesting any claim,
demand or Proceeding which the Indemnifying Party defends, or if appropriate and related to the
claim, demand or Proceeding in question, in making any counterclaim against the Person asserting
the Third Party Claim, or any cross-complaint against any Person. In the event the Indemnifying
Party fails to assume the defense of such Third Party Claim within thirty (30) days after receipt
of notice thereof in accordance with the terms hereof, (A) the Indemnified Party against which such
Third Party Claim has been asserted shall have the right to undertake the defense, and (B) the
Indemnifying Party agrees to cooperate with the Indemnified Party in such defense and make
available to the Indemnified Party, all witnesses, records, materials and information in the
Indemnifying Party’s possession or under the
Indemnifying Party’s control relating thereto as may be reasonably requested by the
Indemnified Party.




     10.7 Tax Indemnification.



     In addition to Section 10.2, without duplication, Seller agrees to indemnify and hold
harmless the Indemnified Persons from any Damages for (i) any Taxes imposed on the Company with
respect to Tax periods ending on or prior to the Closing Date (a “Pre-Closing Tax Period”)
and (ii) any Taxes imposed on the Company with respect to Tax periods beginning before and ending
after the Closing Date, but only with respect to the portion of such period up to and including the
Closing Date (such portion, a “Pre-Closing Partial Period”), to the extent such Taxes are
allocable pursuant to Section 11.4(b) to the Pre-Closing Partial Period, including, without
limitation, any Taxes (other than Transfer Taxes which are governed under Section 12.2)
arising as a result of the transactions contemplated in this Agreement to be undertaken by Seller
or the Company (including, without limitation, the Conversion described in Sections 4.11)
on or prior to the Closing Date. Notwithstanding the foregoing, Seller shall not be liable to the
Indemnified Parties for Taxes to the extent of the amount of Taxes that are taken into account in
determining Closing Working Capital or any Taxes imposed on the Company that are payable as



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a result of any events occurring on the Closing Date after the Closing that are outside of the
ordinary course of business. Seller’s indemnification obligation under this Section 10.7
shall survive the Closing for a period of three (3) years and as provided in Section 10.5,
Seller’s indemnification obligations with respect to Taxes (other than Income Taxes) shall be
subject to the Basket.




     10.8 Procedure For Indemnification — Other Claims. A claim for indemnification for
any matter not involving a Third-Party Claim may be asserted by notice to the party from whom
indemnification is sought.



     10.9 Payment of Indemnification Obligations. All indemnification amounts payable to
any party hereto in connection with a claim for indemnification pursuant to this Section 10
shall be effected immediately upon final determination of the amount of the indemnification
liability by payment of cash or delivery of a cashier’s check in the amount of the indemnification
liability.



     10.10 Retention of Holdback Amount by the Seller.



          (a) At the Closing, the Seller shall retain $11,400,000.00 from the proceeds of the Purchase
Price (the “Holdback Amount”) to satisfy payment of any future indemnification obligations
of the Seller or the Company pursuant to the terms of this Section 10. The Seller shall
invest at least $5,700,000.00 of the Holdback Amount in Required Investments. The term “Required
Investments” means (A) the following investments so long as they have maturities of six (6) months
or less: (a) obligations issued or guaranteed by the United States or by any person controlled or
supervised by or acting as an instrumentality of the United States pursuant to authority granted by
Congress; (b) obligations issued or guaranteed by any state or political subdivision thereof rated
either AA or higher, or MIG 1 or higher, by Moody’s Investors Service, Inc. or AA or higher, or an
equivalent, by Standard & Poor’s Corporation, both of New York,
New York, or their successors; (c) commercial or finance paper which is rated either Prime-1
or higher or an equivalent by Moody’s Investors Service, Inc. or A-1 or higher or an equivalent by
Standard & Poor’s Corporation, both of New York, New York, or their successors; (d) certificates of
deposit or time deposits of banks or trust companies, organized under the laws of the United
States, having a minimum equity of $500,000,000 or (e) money market funds and (B) equity securities
freely tradeable without regard to volume limitations and traded on either Nasdaq or The New York
Stock Exchange, Inc. The Seller shall be entitled to invest the remainder of the Holdback Amount
as it determines.




          (b) The Seller shall not pay dividends or make liquidating distributions involving all or a
portion of the Holdback Amount until the date that is four (4) years following the Closing;
provided, however, that if on the date that is four (4) years following the Closing there is a
pending claim or controversy governed by the terms of this Section 10, the Seller shall be
obligated to maintain that amount of the Holdback Amount, necessary to satisfy such pending claim
or controversy. In such event, the first Five Million Seven Hundred Thousand ($5,700,000) Dollars
of such Holdback Amount shall be in the form of Required Investments.




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     10.11 Access to Company Employees. Buyer shall make available to Seller from time to
time, at no charge, members of the Company’s management as well as other Company personnel as may
be reasonably requested by Seller to assist Seller after Closing in connection with the process
described in Section 1.5 hereof or with any claim for indemnification under this
Section 10.



     10.12 Tax Treatment of Indemnity Payments. Seller and Buyer agree to treat any
indemnity payment made pursuant to this Section 10 as an adjustment to the Purchase Price
for federal, state, local and foreign income tax purposes unless a contrary treatment is required
under applicable law.



11. Additional Covenants




11.1 Noncompetition, Nonsolicitation and Nondisparagement.




          (a) Noncompetition. For a period of three (3) years after the Closing Date, Seller shall not,
directly or indirectly, invest in, own, manage, operate, finance, control, advise, render services
to or guarantee the obligations of any company identified on Schedule 11.1(a) (each, a
“Competing Company” and, together, the “Competing Companies”), provided,
however, that Seller may purchase or otherwise acquire up to (but not more than) five
percent (5%) of any class of the securities of any such Competing Company (but may not otherwise
participate in the activities of such Person) if such securities are listed on any national
securities exchange.




          (b) Nonsolicitation. For a period of three (3) years after the Closing Date, Seller shall
not, directly or indirectly: (i) cause, induce or attempt to cause or induce any customer,
supplier, licensee, licensor, franchisee, employee, consultant or other business relation of the
Company as of the date of this Agreement to cease doing business with the Company or to deal with
any Competing Company; (ii) cause, induce or attempt to cause or induce any customer, supplier,
licensee, licensor, franchisee, employee, consultant or other business relation
of Seller or the Company on the Closing Date or within the year preceding the Closing Date to
cease doing business with the Company or, to deal with any Competing Company; or (iii) hire, retain
or attempt to hire or retain any Continuing Employee (other than by general solicitations of
employment) or in any way interfere with the relationship between the Company and any of its
Continuing Employees.




          (c) Modification of Covenant. If a final judgment of a court or tribunal of competent
jurisdiction determines that any term or provision contained in Sections 11.1(a) and
(b) is invalid or unenforceable, then the parties agree that the court or tribunal will
have the power to reduce the scope, duration or geographic area of the term or provision, to delete
specific words or phrases or to replace any invalid or unenforceable term or provision with a term
or provision that is valid and enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision. This Section 11.1 will be enforceable as
so modified after the expiration of the time within which the judgment may be appealed. This
Section 11.1 is reasonable and necessary to protect and preserve Buyer’s legitimate
business interests and the value of the Company and the Business and to prevent any unfair
advantage conferred on Seller.




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11.2 Intentionally Omitted.




     11.3 Confidentiality.



          (a) Seller and Buyer have entered into a letter agreement dated August 26, 2004 (the “NDA
Agreement”) and the terms of the NDA Agreement are hereby incorporated herein by reference as
if set forth in full in this Section 11.3.




          (b) Following the Closing, Seller shall and shall cause its Related Persons to, hold in strict
confidence all, and not divulge or disclose any Confidential Information, except to the extent
required in connection with any Legal Requirement (including preparation and filing of tax returns
for pre-closing periods) or as required or requested by any Governmental Body.




     11.4 Tax Matters.



          (a) Seller shall be responsible for preparing and filing all Income Tax Returns with
respect to Taxes relating to the Company for taxable periods (or portions thereof) ending on or
prior to the Closing Date, including any form 1120S’s to be filed by Seller after the Closing Date,
and all other Tax Returns of the Company (including all sales and use Tax Returns) that are filed
on or before the Closing Date). Buyer shall prepare or cause to be prepared all Tax Returns of the
Company, other than those described in the preceding sentence, that are due to be filed after the
Closing Date and those Tax Returns of the Company which are filed after the Closing Date, including
all sales and use and property Tax Returns. Buyer shall furnish copies of all such Tax Returns for
periods that end on before the Closing Date and for Straddle Periods (as defined below in
Section 11.4(b)) with respect to Taxes relating to the Company, to Seller for its review at
least ten (10) days prior to the due date for filing such Tax Returns and shall make any revisions
to such Tax Returns as are not unreasonably requested by Seller to the extent such revisions relate
to Taxes of the Company for a period that ends on or prior to the Closing Date or for a Pre-Closing
Partial Period. Such Tax Returns shall be prepared on a basis consistent with
those prepared for prior taxable periods, unless a different treatment of any item is required
by applicable law or such different treatment does not result in increased Tax Liability to the
Seller or an increased Tax Liability to the Company with respect to a Pre-Closing Tax Period or a
Pre-Closing Partial Period. Not later than five (5) Business Days prior to the due date for the
payment of any Tax on any such Tax Return, Seller shall pay to Buyer or the Company the amount of
Taxes owed by Seller pursuant to Section 10.7. Buyer and Seller shall provide such
assistance (including the provision of information and any required consents, powers of attorney,
authorizations or signatures) necessary or desirable to allow the applicable party to file any Tax
Returns described in this section.




     (b) In order to apportion appropriately any Taxes relating to a taxable period that
includes (but does not end on) the Closing Date (a “Straddle Period”), the parties hereto
will, to the extent permitted by applicable law, elect with the relevant taxing authority to treat
for all purposes the Closing Date as the last day of a taxable period of the Company (a “Short
Period”). In any case where applicable law does not permit Seller to elect the Closing Date as
the last day of a Short Period, then, for purposes of this Agreement, the portion of each Tax
relating to the Company for the Pre-Closing Partial Period shall be (i) in the case of ad valorem
or property



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Taxes, be deemed to be the amount of such Taxes for the entire Straddle Period
multiplied by a fraction, the numerator of which is the number of calendar days during the
Pre-Closing Partial Period and the denominator of which is the total number of calendar days in the
Straddle Period, and (ii) in the case of all other Taxes be determined based on an interim closing
of the books as of the close of business on the Closing Date.



     (c) For federal income tax purposes, and to the extent permitted, for all other income tax
purposes, the parties acknowledge and agree that Buyer shall be treated as acquiring the assets
held by the Company in exchange for the Purchase Price. Buyer and Seller shall report the
transaction hereunder in a manner consistent with such treatment. Buyer and Seller agree to
negotiate in good faith to determine the amount of the Purchase Price to be allocated to the
non-competition agreement that Seller is entering into pursuant to Section 11.1(a) of this
Agreement (the “Seller Non-Compete”) and that $0 of the Purchase Price shall be allocated
to all other non-competition agreements entered into in connection with this Agreement and the
remainder of the Purchase Price plus any liabilities of the Company that are treated as being
assumed by the Buyer for federal income tax purposes shall be allocated among the Company’s assets
in accordance with Section 1060 of the Code as provided in this Section 11.4(c), provided
that in no event will the amount allocated to the Seller Non-Compete exceed $100,000 (the
“Asset Allocation”). Consistent with the foregoing sentence, Buyer and Seller shall use
good faith efforts to agree upon, prior to Closing the Asset Allocation and if agreed upon prior to
Closing will incorporate the Asset Allocation on a schedule to be attached hereto prior to or at
Closing. If Buyer and Seller are unable to agree upon the Asset Allocation by the Closing Date,
they shall determine the Asset Allocation within sixty (60) days of the Closing Date. If Seller
and Buyer are unable to reach a resolution within such sixty (60) day period, then all remaining
disputed issues shall be submitted for resolution by an independent accounting firm mutually
acceptable to Seller and Buyer which shall make a final determination as to the disputed items
within thirty (30) days after such submission, and such determination shall be final, binding and
conclusive on the Seller and Buyer. Each of the parties hereto agree that (i) none of the parties
shall take a
position on any Tax Return (including IRS Form 8594), that is in any way inconsistent with such
Asset Allocation without the written consent of the other party or unless specifically required by
an applicable governmental authority, and (ii) they shall promptly advise each other regarding the
existence of any tax audit, controversy or litigation related to such Asset Allocation.
Notwithstanding the foregoing, nothing contained herein shall prevent Buyer or Seller from settling
any proposed deficiency or adjustment by any governmental authority based upon or arising out of
the Asset Allocation, and neither Buyer nor Seller shall be required to litigate before any court
any proposed deficiency or adjustment by any governmental authority challenging such Asset
Allocation.



     (d) If after the Closing Date either party hereto receives any notice, letter, correspondence,
claim or decree relating to Taxes of the Company from any taxing authority (a “Tax Notice”)
for periods or portions of period that end or prior to the Closing Date or for which an
indemnification claim may be made hereunder, the party receiving such Tax Notice shall deliver such
Tax Notice to the other party hereto. Seller shall have the right to handle, defend, conduct and
control any Tax audit or other proceeding that relates to Taxes for which Seller may have liability
provided that Seller shall not compromise or settle any such Tax audit or



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proceeding without
obtaining Buyer’s consent, which consent shall not be unreasonably withheld, conditioned or
delayed. In the event that Seller fails to provide Buyer with a written notice that it elects to
defend a Tax audit or proceeding described in this Section 11.4(d) within thirty (30) days of
receiving a Tax Notice, Buyer shall have the right to handle, defend, conduct and control such Tax
audit or proceeding and Seller shall have the right to participate in such Tax audit or proceeding
at its own expense. Buyer shall also have the right to compromise or settle any such Tax audit or
proceeding that it controls pursuant to the preceding sentence, subject to Seller’s consent, which
consent shall not be unreasonably withheld, conditioned or delayed. To the extent of any conflict
between the provision set forth in this Section 11.4(d) and the provision set forth in Section
10.6 of this Agreement, the provisions set forth in this Section shall control.



     (e) Without the Seller’s prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed, the Buyer shall not and it shall not permit or cause the Company
or any of its Affiliates to make or change any Tax election, amend any Tax Return of the Company
for a period that ends on prior to the Closing or for a Straddle Period, take any action or enter
into any transaction that results in any increased Tax liability of the Seller or the owners of the
Seller or that would increase the indemnification obligation of the Seller under this Agreement
unless such election, amendment, action or transaction is required by applicable law.



     (f) Buyer agrees to assume the preparation and filing of all income tax withholding
and employment tax forms (including Forms W-2) for all Company employees for the full 2005 calendar
year in accordance with the alternate procedure set forth in Rev. Proc. 2004-53, 2004-34 I.R.B.
320.



     (g) Buyer and Seller shall furnish or cause to be furnished to each other, as
promptly as practicable, such information and assistance relating to the Company as is reasonably
necessary for the preparation and filing of any Tax Return, claim for refund or other filings relating
to Tax matters, for the preparation for any Tax audit, for the preparation for any Tax protest, for
the prosecution or defense of any suit or other proceeding relating to Tax matters.



12. General Provisions




     12.1 Expenses. Except as otherwise expressly provided in this Agreement, each party
to this Agreement will bear its respective expenses incurred in connection with the preparation,
execution, and performance of this Agreement and the Contemplated Transactions, including all fees
and expenses of agents, representatives, counsel, and accountants in connection with this Agreement
and the Contemplated Transactions; provided that the fees and expenses of Seller’s and the
Company’s attorneys, finders and brokers will be borne by Seller. Buyer will pay one-half and
Seller will pay one-half of the HSR Act filing fee. In the event of termination of this Agreement,
the obligation of each party to pay its own expenses will be subject to any rights of such party
arising from a Breach of this Agreement by another party.



     12.2 Transfer Taxes. All Transfer Taxes applicable to, or resulting from, the
purchase of the Interests contemplated under this Agreement shall be borne equally by Seller and
Buyer.



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     12.3 Public Announcements. Any public announcement or similar publicity with respect
to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in
such manner as agreed by each of the parties hereto, except as required by Legal Requirements.
Unless consented to in writing by each party hereto in advance or required by Legal Requirements,
prior to the Closing, each party to this Agreement shall, and shall cause the Company to, keep this
Agreement strictly confidential and may not make any disclosure of this Agreement to any Person.
Seller and Buyer will consult with each other concerning the means by which the Company’s
employees, customers, and suppliers and others having dealings with the Company will be informed of
the Contemplated Transactions, and Buyer will have the right to be present for any such
communication. The foregoing will in no way preclude communications or disclosures by the parties
necessary to comply with any applicable accounting, stock exchange or federal securities disclosure
obligations.



     12.4 Notices. All notices, notifications, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written
confirmation of receipt), provided that a copy is mailed by registered mail, return receipt
requested, or (c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a party may designate
by notice to the other parties):



	 	 	 
	Seller:

	 	National Pharmacies Group, Inc.
	 

	 	2157 Apperson Drive
	 

	 	Salem, Virginia 24153
	 

	 	Attention: David Dixon and J. O’Neil Leftwich
	 

	 	Facsimile No.: (540) 777-0015 (Dixon)
	 

	 	Facsimile No.: (888) 797-4643 (Leftwich)
	 
	 	 
	with copies to

	 	Latham & Watkins, LLP
	 

	 	555 Eleventh Street, NW
	 

	 	Washington, DC 20004
	 

	 	Attention: Michael Schlesinger, Esq.
	 

	 	Facsimile No.: (202) 637-2201
	 

	 	Robert Haft
	 

	 	2346 Massachusetts Avenue NW
	 

	 	Washington, DC 20008
	 
	 	 
	Buyer:

	 	PolyMedica Corporation
	 

	 	11 State Street
	 

	 	Woburn, Massachusetts 01801
	 

	 	Attention: Chief Executive Officer
	 

	 	Facsimile No.: (781) 938-6950






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	with copies to

	 	PolyMedica Corporation
	 

	 	11 State Street
	 

	 	Woburn, Massachusetts 01801
	 

	 	Attention: Devin Anderson, Esq.
	 

	 	Facsimile No.: (781) 935-0695
	 

	 	Weil, Gotshal & Manges LLP
	 

	 	100 Federal Street, 34th Floor
	 

	 	Boston, Massachusetts 02110
	 

	 	Attention: James Westra, Esq.
	 

	 	Facsimile No.: (617) 772-8333






     12.5 Jurisdiction; Service Of Process. Any action or proceeding seeking to enforce
any provision of, or based on any right arising out of, this Agreement may be brought against any
of the parties in the courts of the State of Delaware, or, if it has or can acquire jurisdiction,
in any United States District Court sitting in Delaware, and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in the world. Each party
waives personal service of any and all process upon it, and irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by certified mail, postage prepaid, to such party at the address set forth above,
such service to become effective five business days after mailing.



     12.6 Waiver of Jury Trial. THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS,
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE
PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE
OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE TRIAL
BY JURY AND THAT ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE
CONTEMPLATED TRANSACTIONS SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.



     12.7 Enforcement of Agreement. The parties acknowledge and agree that in the event of
a Breach of this Agreement, the non-breaching party would be irreparably damaged and could not be
adequately compensated in all cases by monetary damages alone. Accordingly, in addition to any
other right or remedy to which the non-breaching party may be entitled, at law or in equity, it
shall be entitled to enforce any provision of this Agreement by a decree of specific performance
and to temporary, preliminary and permanent injunctive relief to prevent Breaches or threatened
Breaches of any of the provisions of this Agreement, without posting any bond or other undertaking.



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     12.8 Further Assurances. The parties agree (a) to furnish upon request to each other
such further information, (b) to execute and deliver to each other such other documents, and (c) to
do such other acts and things, all as the other party may reasonably request for the purpose of
carrying out the intent of this Agreement and the documents referred to in this Agreement.



     12.9 Waiver. The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in exercising any right, power,
or privilege under this Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right, power, or privilege
or the exercise of any other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in
this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is given; and (c) no notice
to or demand on one party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.



     12.10 Entire Agreement and Modification. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter and constitutes (along with the
documents referred to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement may not be
amended except by a written agreement executed by the party to be charged with the amendment.



     12.11 Disclosure Schedules.



          (a) The schedules to this Agreement, and any supplement thereto, must relate only to the
representations and warranties in the Section of the Agreement to which they expressly relate or to
which any disclosure therein is readily apparent.




          (b) In the event of any inconsistency between the statements in the body of this Agreement and
those in the schedules, the statements in the body of this Agreement will control.




     12.12 Assignments, Successors, and No Third-Party Rights. No party may assign any of
its rights under this Agreement without the prior consent of the other parties, except that Buyer
may assign any of its rights under this Agreement to any Related Person of the Buyer; provided that
no such assignment shall release Buyer from its liabilities hereunder. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit
of the successors and permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this Agreement any legal
or equitable right, remedy, or claim under or with respect to this Agreement or any provision of
this Agreement. This Agreement and all of its provisions and conditions are



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for the sole and
exclusive benefit of the parties to this Agreement and their successors and assigns.



     12.13 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only
in part or degree will remain in full force and effect to the extent not held invalid or
unenforceable.



     12.14 Section Headings, Construction. The headings of Sections in this Agreement are
provided for convenience only and will not affect its construction or interpretation. All
references to “Section” or “Sections” refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word “including” does not limit the
preceding words or terms.



     12.15 Time of Essence. With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.



     12.16 Governing Law. This Agreement will be governed by the laws of the State of
Delaware without regard to conflicts of laws principles.



     12.17 Legal Fees. Each party shall pay its own attorneys’ fees and other costs and
expenses incurred as a result of any legal proceeding commenced in connection with this Agreement.



     12.18 Execution of Agreement. This Agreement may be executed in counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement. The exchange of copies of this
Agreement and of signature pages by facsimile transmission shall constitute effective execution and
delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for
all purposes. Signatures of the parties transmitted by facsimile shall be deemed to be their
original signatures for all purposes.



13. Definitions And Usage




     13.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for
purposes of this Agreement, the following terms and variations thereof have the meanings specified
or referred to in this Section 13.1:



     “Accounts Receivable”—all accounts receivable and other rights to payment from
customers of the Company for products sold or services rendered thereto, whether or not generated
in the Ordinary Course of Business, including the full benefit of all security for such accounts or
rights to payment and any claim, remedy or other related right.



     “Adjustment Amount”—as defined in Section 1.5(b)(i).



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     “Agreement”—as defined in the preamble.



     “Annual Financial Statements”—as defined in Section 2.3.



     “Applicable Contract”—any Contract (a) under which the Company has or may acquire any
rights, (b) under which the Company has or may become subject to any obligation or liability, or
(c) by which the Company or any of the assets owned or used by it is or may become bound.



     “Asset Allocation”—as defined in Section 11.4(c).



     “Balance Sheet”—as defined in Section 2.3.



     “Balance Sheet Date”—as defined in Section 2.3.



     “Basket” —as defined in Section 10.5(a).



     “Best Efforts”—the efforts that a prudent business Person desirous of achieving a
result would use in similar circumstances to achieve that result as expeditiously as possible.



     “Breach”—(a) any breach of, or any inaccuracy in, any representation or warranty, (b)
any claim (by any Person) or other occurrence or circumstance that is or was inconsistent with any
representation or warranty or (c) any breach of, or failure to perform or comply with, any covenant
or obligation.



     “Business”—as defined in the recitals of this Agreement.



     “Business Day”—any day other than (a) Saturday or Sunday or (b) any other day on which
banks in Woburn, Massachusetts are permitted or required to be closed.



     “Buyer”—as defined in the preamble.



     “Buyer Plans”—as defined in Section 6.1(b)(ii).



     “Buyer Indemnified Persons”—as defined in Section 10.2.



     “Buyer’s Advisors”—as defined in Section 4.1.



     “Buyer’s Closing Documents”—as defined in Section 3.2(a).



     “Buyer’s Officer Certificate” – a certificate of an officer of Buyer in the form of
Exhibit G.



     “Buyer’s Secretary Certificate” – a certificate of the Secretary of Buyer in the form
of Exhibit H.



     “Cap Amount” – as defined in Section 10.5(a).



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     “Closing”—as defined in Section 1.3.



     “Closing Working Capital” – as of Closing, the excess of (x) the sum of the Company’s
cash, cash equivalents, accounts receivables, inventory, prepaid assets and other assets that may
be properly classified as current assets in conformity with GAAP, over (y) the Company’s
liabilities that may be properly classified as current liabilities in conformity with GAAP.
Closing Working Capital shall be calculated after giving effect to payment in full of that certain
Master Lease Agreement between CitiCapital Technology Finance Inc. and the Company, dated February
22, 2005, whether or not paid off by the Effective Time. In addition, Closing Working Capital
shall be prepared in good faith in accordance with GAAP applied using the same accounting methods,
practices, principles, policies and procedures, with consistent classifications, judgments and
valuation and estimation and accrual methodologies that were used in the preparation of the
Company’s audited Financial Statements for the most recent fiscal year end Closing Working Capital
was being prepared and audited as of a fiscal year end.



     “Closing Working Capital Statement” – as defined in Section 1.5(b)(ii).



     “Closing Date”—the date and time as of which the Closing actually takes place.



     “COBRA”— the Consolidated Omnibus Reconciliation Act of 1985, as amended, and the
rules and regulations promulgated thereunder.



     “Code”—the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder.



     “Company”—as defined in the preamble.



     “Competing Business”—as defined in Section 2.25.



     “Competing Company”—as defined in Section 11.1(a).



     “Confidential Information”—all knowledge, documents, materials and information, not
generally known to the public, regarding matters relating to the Company and/or the Company’s
Business, including its finances, financial condition, owners, technology, products, services,
research and development, marketing, operations or plans, technical data, trade secrets or
know-how, equipment procurement plans or designs, ideas, inventions, specifications, techniques,
discoveries, models, software, including source code and object code, systems, technology research
and development partners and/or materials vendors, customer lists and customers and employees
(including names, contacts and other information relating to existing or potential key employees of
the Company).



     “Consent”—any approval, consent, ratification, waiver or other authorization of any
Person.



     “Contemplated Transactions”— (a) the sale of the Interests by Seller to Buyer; (b) the
execution, delivery and performance of the Noncompetition Agreement and the Seller’s Release;



-47-









 




(c) the performance by Buyer, Seller and the Company of their respective covenants and obligations
under this Agreement; and (d) Buyer’s acquisition of the Interests.




     “Continuing Employees”—as defined in Section 6.1(a).



     “Contract”—any agreement, contract, Lease, consensual obligation, promise or
undertaking (whether written or oral and whether express or implied), which is, or intended to be,
legally binding.



     “Conversion” —as defined in Section 4.11.



     “Damages” – means any and all costs, Taxes, liabilities, obligations, damages,
expenses, and reasonable attorneys’ fees. Notwithstanding anything to the contrary in his
Agreement, “Damages” shall expressly exclude lost profits, consequential damages, special damages,
punitive damages, exemplary damages, multiple damages and other penalty damages, except and solely
to the extent such types of Damages are actually paid in respect of a Third Party Claim.



     “Effective Time”—as defined in Section 1.3.



     “Employee Plans”—as defined in Section 2.14(a).



     “Encumbrance”—any charge, claim, community or other marital property interest,
condition, equitable interest, lien, option, pledge, security interest, mortgage, right of way,
easement, encroachment, building or use restriction, servitude, conditional sales agreement, right
of first option, right of first refusal or similar restriction, encumbrance or right of third
parties, whether voluntarily or by operation of law, and includes any agreement to give any of the
foregoing in the future, and any contingent sale or other title retention agreement or lease
in the nature thereof.



     “Environment”—soil, land surface or subsurface strata, surface waters (including
navigable waters, ocean waters, streams, ponds, drainage basins and wetlands), groundwaters,
drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life
and any other environmental medium or natural resource.



     “Environmental, Health and Safety Liabilities”—any cost, damage, expense, liability,
obligation or other responsibility arising from or under any Environmental Law or Occupational
Safety and Health Law.



     “Environmental Law”—any Legal Requirement that requires or relates to (a) advising
appropriate authorities, employees or the public of intended or actual Releases of pollutants or
hazardous substances or materials, violations of discharge limits or other prohibitions that could
have significant impact on the Environment; (b) preventing or reducing to acceptable levels the
Release of pollutants or hazardous substances or materials into the Environment; (c) reducing the
quantities, preventing the Release or minimizing the hazardous characteristics of wastes that are
generated; (d) assuring that products are designed, formulated, packaged and used so that they do
not present unreasonable risks to human health or the Environment when used or disposed of; (e)



-48-









 







protecting resources, species or ecological amenities; (f) reducing to acceptable levels the risks
inherent in the transportation of hazardous substances, pollutants, oil or other potentially
harmful substances; or (g) cleaning up pollutants that have been Released, preventing the Threat of
Release or paying the costs of such clean up or prevention.



     “ERISA”—the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations promulgated thereunder.



     “ERISA Affiliate”—as defined in Section 2.14(a).



     “Estimated Closing Statement” – as defined in Section 1.5(a)(i).



     “Estimated Closing Working Capital” – as defined in Section 1.5(a)(i).



     “Estimated Closing Working Capital Excess” – as defined in Section 1.5(a)(ii).



     “Estimated Closing Working Capital Shortfall” – as defined in Section
1.5(a)(ii).



     “Exchange Act”—the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.



     “Facilities”—any real property, leaseholds, or other interests currently owned or
operated by the Company and any buildings, plants, structures, or equipment (including motor
vehicles, tank cars, and rolling stock) currently or formerly owned or operated by the Company.



     “Financial Statements”—as defined in Section 2.3.



     “GAAP”—generally accepted accounting principles for financial reporting in the United
States, in effect from time to time applied consistently with the Balance Sheet and the other
Financial Statements.



     “Governing Documents”—with respect to any corporation, the corporate charter and the
bylaws; as amended or supplemented from time to time, all equityholders’ agreements, voting
agreements, voting trust agreements, joint venture agreements, registration rights agreements or
other agreements or documents, as amended or supplemented from time to time, relating to the
organization, management or operation thereof or relating to the rights, duties and obligations of
the equityholders thereof.



     “Governmental Authorization”—any Consent, license, registration or permit issued,
granted, given or otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.



     “Governmental Body”—any: (a) nation, state, county, city, town, borough, village,
district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; (c) governmental or quasi-governmental authority of any nature (including any
agency, branch, department, board, commission, court, tribunal or other entity exercising
governmental or quasi-governmental powers); (d) multinational organization or body; (e) body



-49-









 







exercising, or entitled or purporting to exercise, any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or power; or (f) official of any of the
foregoing.



     “Hazardous Material”—any substance, material or waste which is regulated by any
Governmental Body, including any material, substance or waste which is defined as a “hazardous
waste,” “hazardous material,” “hazardous substance,” “extremely hazardous waste,” “restricted
hazardous waste,” “contaminant,” “toxic waste” or “toxic substance” under any provision of
Environmental Law, and including petroleum, petroleum products, asbestos, presumed
asbestos-containing material or asbestos-containing material, urea formaldehyde and polychlorinated
biphenyls.



     “Holdback Amount”—as defined in Section 10.10(a).



     “HSR Act”—the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or any successor
law, and regulations and rules issued pursuant to that act or any successor law.



     “Income Taxes” means all federal, state, local and foreign income taxes imposed on or
measured by net income (including gains and capital gains) of the relevant entity, together with
any interest and any penalty, addition to tax or additional amount imposed with respect thereto.



     “Independent Accountants”—as defined in Section 1.5(b)(iv).



     “Intellectual Property Assets”—collectively, all worldwide intellectual property and
associated rights, including patents, patent applications, rights to file for patent applications
(including but not limited to continuations, continuations-in-part, divisionals and reissues),
trademarks, logos, confidential documentation, service marks, trade names and service names (in
each case whether or not registered) and applications for and the right to file applications
for registration thereof, Internet domain name or application for an Internet domain name, Internet
and World Wide Web URLs or addresses, copyrights (whether or not registered) and applications for
and the right to file applications for registration thereof, moral rights, mask work rights, mask
work registrations and applications therefor, franchises, licenses, license or lease rights with
respect to software or hardware, inventions, trade secrets, trade dress, know-how, customer lists,
supplier lists, proprietary processes and formulae, software source code and object code,
algorithms, net lists, architectures, structures, screen displays, layouts, inventions, development
tools, designs, blueprints, specifications, technical drawings (or similar information in
electronic or digital format), publicity and privacy rights and any other intellectual property
rights arising under the laws of the United States of America, any state thereof, or any other
country or province thereof, and all documentation and media (in whatever form) constituting,
describing or relating to the foregoing, including, without limitation, manuals, programmers’
notes, memoranda and records.



     “Interests”—as defined in the recitals to this Agreement.



     “Interests Certificate” – a certificate representing the Interests in the form of
Exhibit D.



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     “Inventories”—all inventories of the Company attributable to the Business, held for
resale, wherever located, and all of the Company’s raw materials, work in process, finished
products, supplies and packing items and similar items with respect to the Business, in each case
wherever located.



     “IRS”—the United States Internal Revenue Service and, to the extent relevant, the
United States Department of the Treasury.



     “Knowledge”— an individual will be deemed to have Knowledge of a particular fact or
other matter if that individual is actually aware of that fact or matter. The Company and Seller
will each be deemed to have Knowledge of a particular fact or other matter if any of Robert Haft,
David Dixon, Scott Snead, Samuel Silek or J. O’Neil Leftwich has, or at any time had, Knowledge of
that fact or other matter. The Buyer will be deemed to have Knowledge of a particular fact or
other matter if any individual who is serving, or who has at any time served, as a director,
officer or manager of that Person (or in any similar capacity) has, or at any time had, Knowledge
of that fact or other matter.



     “Lease”—any lease or rental agreement, license, right to use or installment and
conditional sale agreement to which the Company is a party and any other Contract pertaining to the
leasing or use of any Tangible Personal Property.



     “Leased Real Property”—as defined in Section 2.5(a).



     “Legal Requirement”— any (i) federal, state, local, municipal, foreign, international
or multinational law (statutory, judicial or otherwise), ordinance, rule, regulation, judgment,
order, injunction, writ, decree or award of any Governmental Body, including without limitation
laws, regulations, manual instructions, and Centers for Medicare and Medicaid Services (“CMS”)
program memoranda relating to participation as a provider or supplier in the Medicare and
Medicaid programs or other governmentally funded health care reimbursement programs and to the
provision of, and billing and collection for, items and services provided to beneficiaries of such
programs; and (ii) standards of organizations offering accreditation or certification programs in
which the Company participates or must participate.



     “Liability”—with respect to any Person, any liability or obligation of such Person of
any kind, character or description, whether known or unknown, absolute or contingent, accrued or
unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or
several, due or to become due, vested or unvested, executory, determined, determinable or
otherwise, and whether or not the same is required to be accrued on the financial statements of
such Person.



     “Major Customers”—as defined in Section 2.19(a).



     “Major Suppliers”—as defined in Section 2.19(b).



     “Material Adverse Effect” or “Material Adverse Change”— with respect to the
Business, any material adverse effect or material adverse change in the condition (financial or
other),



-51-









 







business, results of operations or operations of the Business or on the ability of Seller
to consummate the Contemplated Transactions, provided that none of the following events set forth
in clauses (a) through (h) below shall be deemed to constitute a Material Adverse Effect or
Material Adverse Change for one or more of the following occurrences: (a) changes in general
business or economic conditions, including such conditions related to the Business, (b) changes in
national or international political or social conditions, (c) changes in financial, banking, or
securities markets, (d) changes in the United States generally accepted accounting principles, (e)
changes in law, rules, regulations, orders, or other binding directives issued by any governmental
entity, (f) any change, circumstance, event or effect that relates to or results from the
announcement of the execution of this Agreement or the pendency of the consummation of the
Contemplated Transactions, (g) the taking of any action contemplated by this Agreement and the
other agreements contemplated hereby or (h) the termination or reduction or Threatened termination
or reduction of business with the Company by any of the Company’s Major Customers or Major
Suppliers, with the exception of UnitedHealth.



     “Most Recent Financial Statements”—as defined in Section 2.3.



     “Multiemployer Plan”—as defined in Section 2.14(a).



     “NDA Agreement”—as defined in Section 11.3(a).



     “Net Names”—as defined in Section 2.23(b).



     “Noncompetition Agreement”—as defined in Section 1.4(a)(iv.



     “Occupational Safety and Health Law”—any Legal Requirement designed to provide safe
and healthful working conditions and to reduce occupational safety and health hazards, including
the Occupational Safety and Health Act.



     “Order”—any award, decision, injunction, judgment, order, decree, ruling, assessment
(including without limitation overpayment notice or demand), subpoena, or verdict entered, issued,
made or rendered by any court, administrative agency, or other Governmental Body or by any
arbitrator.



     “Ordinary Course of Business”—an action taken by a Person will be deemed to have been
taken in the Ordinary Course of Business only if that action: (i) is consistent in nature, scope
and magnitude with the past practices of such Person and is taken in the ordinary course of the
normal, day-to-day operations of such Person; and (ii) does not require authorization by the board
of directors of such Person (or by any Person or group of Persons exercising similar authority) and
does not require any other separate or special authorization of any nature.



     “Party” or “Parties” – one or more of Seller, Buyer and the Company.



     “PBGC”—as defined in Section 2.14(b).



-52-









 





     “Permitted Encumbrances”—means (i) all defects, exceptions, restrictions, easements,
rights of way and Encumbrances disclosed in policies of title insurance which have been made
available to Buyer; (ii) statutory liens for current Taxes, assessments or other governmental
charges not yet delinquent or the amount or validity of which is being contested in good faith by
appropriate proceedings, provided an appropriate reserve is established therefor; (iii) mechanics’,
carriers’, workers’, repairers’ and similar liens arising or incurred in the Ordinary Course of
Business that are not material to the business, operations and financial condition of the property
so encumbered or the Company; (iv) zoning, entitlement and other land use and environmental
regulations by any Governmental Body, provided that such regulations have not been violated; and
(v) such other imperfections in title, charges, easements, restrictions and encumbrances which do
not materially detract from the value of or materially interfere with the present use of any Leased
Real Property subject thereto or affected thereby.



     “Person”—any individual, partnership, corporation, business trust, limited liability
company, general, limited or limited liability partnership, joint stock company, trust,
unincorporated association, joint venture or other entity or a Governmental Body.



     “Pre-Closing Partial Period” as defined in Section 10.7.



     “Pre-Closing Tax Period” as defined in Section 10.7.



     “Proceeding”—any action, arbitration, audit, governmental health care program
integrity review, hearing, investigation, litigation or suit (whether civil, criminal,
administrative, judicial or investigative, whether formal or informal, whether public or private)
commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Body
or other Person.



     “Proprietary Rights Agreement”—as defined in Section 2.11(b).



     “Purchase Price”—as defined in Section 1.2.



     “Related Person”—With respect to a particular individual (a) each other member of such
individual’s Family; (b) any Person that is directly or indirectly controlled by any one or more
members of such individual’s Family; (c) any Person in which members of such individual’s Family
hold (individually or in the aggregate) a Material Interest; and (d) any Person with respect to
which one or more members of such individual’s Family serves as a director, officer, partner,
executor or trustee (or in a similar capacity).



     With respect to a specified Person other than an individual (a) any Person that directly or
indirectly controls, is directly or indirectly controlled by or is directly or indirectly under
common control with such specified Person; (b) any Person that holds a Material Interest in such
specified Person; (c) each Person that serves as a director, officer, partner, executor or trustee
of such specified Person (or in a similar capacity); (d) any Person in which such specified Person
holds a Material Interest; and (e) any Person with respect to which such specified Person serves as
a general partner or a trustee (or in a similar capacity).



-53-









 





     For purposes of this definition, (a) “control” (including “controlling,”
“controlled by,” and “under common control with”) means the possession, direct or
indirect, of the power to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise, and shall be
construed as such term is used in the rules promulgated under the Exchange Act; (b) the
“Family” of an individual includes (i) the individual, (ii) the individual’s spouse, (iii)
any other natural person who is related to the individual or the individual’s spouse within the
second degree and (iv) any other natural person who resides with such individual; and (c)
“Material Interest” means direct or indirect beneficial ownership (as defined in Rule 13d-3
under the Exchange Act) of voting securities or other voting interests representing at least
twenty-five percent (25%) of the outstanding voting power of a Person or equity securities or other
equity interests representing at least twenty-five percent (25%) of the outstanding equity
securities or equity interests in a Person.



     “Release”—any release, spill, emission, leaking, pumping, pouring, dumping, emptying,
injection, deposit, disposal, discharge, dispersal, leaching or migration on or into the
Environment or into or out of any property.



     “Remedial Action”—all actions, including any capital expenditures, required or
voluntarily undertaken (a) to clean up, remove, treat or in any other way address any Hazardous
Material or other substance; (b) to prevent the Release or Threat of Release or to minimize the
further Release of any Hazardous Material or other substance so it does not migrate or endanger or
threaten to endanger public health or welfare or the Environment; (c) to perform pre-remedial
studies and investigations or post-remedial monitoring and care; or (d) to bring the Premises and
the operations conducted thereon into compliance with Environmental Laws and environmental
Governmental Authorizations.



     “Representative”—with respect to a particular Person, any director, officer, manager,
employee, agent, consultant, advisor, accountant, financial advisor, legal counsel or other
representative of that Person.



     “Securities Act”—the Securities Act of 1933, as amended, or any successor law, and
regulations and rules issued pursuant to that act or any successor law.



     “Seller”—as defined in the preamble.



     “Seller Disclosure Schedule”—as defined in Section 2.



     “Seller Indemnified Persons”—as defined in Section 10.3.



     “Seller Non-Compete”—as defined in Section 11.4(c).



     “Seller’s Closing Documents”—as defined in Section 2.2(a).



     “Seller’s Officer Certificate” – a certificate of an officer of the Seller in the form
of Exhibit E.



-54-









 





     “Seller’s Release”—as defined in Section 1.4(a)(ii).



     “Seller’s Secretary Certificate” – a certificate of the Secretary of Seller in the
form of Exhibit F.



     “Shares”—as defined in the recitals to this Agreement.



     “Straddle Period” shall have the meaning as set forth in Section 11.4(b).



     “Short Period” shall have the meaning set forth in Section 11.4(b).



     “Subsidiary”—with respect to any Person (the “Owner”), (a) any other Person of
which securities or other interests having the power to elect a majority of that Person’s board of
directors or similar governing body, or otherwise having the power to direct the business and
policies of that other Person (other than securities or other interests having such power only upon
the happening of a contingency that has not occurred), are held by the Owner or one or more of its
Subsidiaries; or (b) any Person that is directly or indirectly controlled by the Owner.



     “Supplemental Reserves”—as defined in Section 1.5(a)(i).



     “Tangible Personal Property”—all machinery, equipment, tools, furniture, office
equipment, fixtures, leasehold improvements, computer hardware, supplies, materials, vehicles and
other items of tangible personal property (other than Inventories) of every kind owned or leased by
the Company (wherever located and whether or not carried on the Company’s books), together with any
express or implied warranty by the manufacturers or sellers or lessors of any item or component
part thereof and all maintenance records and other documents relating thereto.



     “Target Working Capital” shall be $3,075,000.00.



     “Tax”—any income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental, windfall profit, customs, vehicle, airplane,
boat, vessel or other title or registration, capital stock, franchise, employees’ income
withholding, foreign or domestic withholding, social security, unemployment, disability, real
property, personal property, sales, use, transfer, value added, alternative, add-on minimum and
other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever and any interest,
penalty, addition or additional amount thereon imposed, assessed or collected by or under the
authority of any Governmental Body.



     “Tax Notice”—as defined in Section 11.4(d).



     “Tax Return”—any return (including any information return), report, statement,
schedule, notice, form, declaration, claim for refund or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental Body in connection
with the determination, assessment, collection or payment of any Tax or in connection with the



-55-









 







administration, implementation or enforcement of or compliance with any Legal Requirement relating
to any Tax.



     “Third Party”—a Person that is not a party to this Agreement.



     “Third-Party Claim”—any claim against any Indemnified Person by a Third Party, whether
or not involving a Proceeding.



     “Threat of Release”—a reasonable likelihood of a Release that may require action in
order to prevent or mitigate damage to the Environment that may result from such Release.



     “Threatened”—a claim, Proceeding, dispute, action, or other matter will be deemed to
have been “Threatened” if any demand or statement has been made (orally or in writing) or any
notice has been given (orally or in writing), or if any other event has occurred or any other
circumstances exist, that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action or other matter is likely to be asserted, commenced, taken or otherwise pursued in
the future.



     “Transfer Tax” means all sales, use, transfer, intangible, recordation, documentary,
stamp or similar taxes or charges of any nature whatsoever.



     “WARN Act” —as defined in Section 2.13.



     13.2 Usage.



          (a) Interpretation. In this Agreement, unless a clear contrary intention appears: (i) the
singular number or term includes the plural number or term and vice versa; (ii) reference to any
Person includes such Person’s successors and assigns but, if applicable, only if such successors
and assigns are not prohibited by this Agreement, and reference to a Person in
a particular capacity excludes such Person in any other capacity or individually; (iii)
reference to any gender includes each other gender; (iv) reference to any agreement, document or
instrument means such agreement, document or instrument as amended or modified and in effect from
time to time in accordance with the terms thereof; (v) reference to any Legal Requirement means
such Legal Requirement as amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations promulgated thereunder, and
reference to any section or other provision of any Legal Requirement means that provision of such
Legal Requirement from time to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section or other provision; (vi)
“hereunder,” “hereof,” “hereto,” and words of similar import shall be deemed references to this
Agreement as a whole and not to any particular Article, Section or other provision hereof; (vii)
“including” (and with correlative meaning “include”) means including without limiting the
generality of any description preceding such term; (viii) “or” is used in the inclusive sense of
“and/or”; (ix) with respect to the determination of any period of time, “from” means “from and
including” and “to” means “to but excluding”; and (x) references to documents, instruments or
agreements shall be deemed to refer as well to all addenda, exhibits, schedules or amendments
thereto.




-56-









 





          (b) Accounting Terms and Determinations. Unless otherwise specified herein, all accounting
terms used herein shall be interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP.




          (c) Legal Representation of the Parties. This Agreement was negotiated by the parties with the
benefit of legal representation, and any rule of construction or interpretation otherwise requiring
this Agreement to be construed or interpreted against any party shall not apply to any construction
or interpretation hereof.




[Signature Page Follows.]




-57-









 





     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written
above.



	 	 	 	 	 	 	 
	Buyer:

	 	 	 	Seller:	 	 
	 
	 	 	 	 	 	 
	PolyMedica Corporation	 	National Pharmacies Group, Inc.
	 
	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 
	 

	 	Name:
	 	 	 	Name:
	 

	 	Title:
	 	 	 	Title:
	 
	 	 	 	 	 	 
	 	 	 	 	The Company:
	 
	 	 	 	 	 	 
	 	 	 	 	National Diabetic Pharmacies, Inc.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 

	 	 	 	 	 	Title:











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TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	1.	 	SALE AND TRANSFER OF INTERESTS; CLOSING	 	 	1	 
	 

	 	 	1.1	 	 	Interests
	 	 	1	 
	 

	 	 	1.2	 	 	Purchase Price
	 	 	1	 
	 

	 	 	1.3	 	 	Closing
	 	 	1	 
	 

	 	 	1.4	 	 	Closing Obligations
	 	 	2	 
	 

	 	 	1.5	 	 	Adjustment Amount
	 	 	3	 
	2.	 	REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY	 	 	5	 
	 

	 	 	2.1	 	 	Organization, Good Standing and Capitalization
	 	 	5	 
	 

	 	 	2.2	 	 	Enforceability; Authority; No Conflict
	 	 	6	 
	 

	 	 	2.3	 	 	Financial Statements
	 	 	6	 
	 

	 	 	2.4	 	 	Books and Records
	 	 	7	 
	 

	 	 	2.5	 	 	Title to Properties; Encumbrances
	 	 	7	 
	 

	 	 	2.6	 	 	Condition and Sufficiency of Assets
	 	 	7	 
	 

	 	 	2.7	 	 	Accounts Receivable
	 	 	7	 
	 

	 	 	2.8	 	 	Inventories
	 	 	8	 
	 

	 	 	2.9	 	 	No Undisclosed Liabilities
	 	 	8	 
	 

	 	 	2.10	 	 	Taxes
	 	 	8	 
	 

	 	 	2.11	 	 	Employees
	 	 	9	 
	 

	 	 	2.12	 	 	Labor Disputes; Compliance
	 	 	10	 
	 

	 	 	2.13	 	 	WARN Act
	 	 	10	 
	 

	 	 	2.14	 	 	Employee Benefits
	 	 	10	 
	 

	 	 	2.15	 	 	Compliance With Legal Requirements; Governmental Authorizations
	 	 	13	 
	 

	 	 	2.16	 	 	Legal Proceedings; Orders
	 	 	15	 
	 

	 	 	2.17	 	 	No Material Adverse Change
	 	 	16	 
	 

	 	 	2.18	 	 	Absence of Certain Changes and Events
	 	 	16	 






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(continued)




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 

	 	 	2.19	 	 	Third Party Payors and Suppliers
	 	 	17	 
	 

	 	 	2.20	 	 	Contracts; No Defaults
	 	 	17	 
	 

	 	 	2.21	 	 	Insurance
	 	 	19	 
	 

	 	 	2.22	 	 	Environmental Matters
	 	 	20	 
	 

	 	 	2.23	 	 	Intellectual Property Assets
	 	 	20	 
	 

	 	 	2.24	 	 	Certain Payments
	 	 	21	 
	 

	 	 	2.25	 	 	Relationships With Related Persons
	 	 	21	 
	 

	 	 	2.26	 	 	Brokers or Finders
	 	 	22	 
	 

	 	 	2.27	 	 	Disclosure
	 	 	22	 
	3.	 	REPRESENTATIONS AND WARRANTIES OF BUYER	 	 	22	 
	 

	 	 	3.1	 	 	Organization and Good Standing
	 	 	22	 
	 

	 	 	3.2	 	 	Authority; No Conflict
	 	 	22	 
	 

	 	 	3.3	 	 	Investment Intent
	 	 	23	 
	 

	 	 	3.4	 	 	Certain Proceedings
	 	 	23	 
	 

	 	 	3.5	 	 	Brokers or Finders
	 	 	23	 
	 

	 	 	3.6	 	 	No Outside Reliance
	 	 	23	 
	 

	 	 	3.7	 	 	Disclosure
	 	 	23	 
	4.	 	SELLER’S PRECLOSING COVENANTS	 	 	23	 
	 

	 	 	4.1	 	 	Access and Investigation
	 	 	24	 
	 

	 	 	4.2	 	 	Operation of the Business
	 	 	24	 
	 

	 	 	4.3	 	 	Negative Covenant
	 	 	24	 
	 

	 	 	4.4	 	 	Required Approvals
	 	 	25	 
	 

	 	 	4.5	 	 	Notification
	 	 	25	 
	 

	 	 	4.6	 	 	Payment of or Cancellation of Indebtedness
	 	 	26	 
	 

	 	 	4.7	 	 	No Negotiation
	 	 	26	 
	 

	 	 	4.8	 	 	Best Efforts
	 	 	26	 
	 

	 	 	4.9	 	 	Change of Name
	 	 	26	 






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(continued)




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 

	 	 	4.10	 	 	Interim Financial Statements
	 	 	26	 
	 

	 	 	4.11	 	 	Conversion of Company
	 	 	27	 
	5.	 	BUYER’S PRECLOSING COVENANTS	 	 	27	 
	 

	 	 	5.1	 	 	Required Approvals
	 	 	27	 
	 

	 	 	5.2	 	 	Best Efforts
	 	 	27	 
	 

	 	 	5.3	 	 	Notification
	 	 	27	 
	6.	 	ADDITIONAL COVENANTS	 	 	28	 
	 

	 	 	6.1	 	 	Employee Matters
	 	 	28	 
	7.	 	CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE	 	 	29	 
	 

	 	 	7.1	 	 	Accuracy of Representations
	 	 	29	 
	 

	 	 	7.2	 	 	Seller’s and the Company’s Performance
	 	 	29	 
	 

	 	 	7.3	 	 	Consents
	 	 	29	 
	 

	 	 	7.4	 	 	No Proceedings
	 	 	29	 
	 

	 	 	7.5	 	 	No Claim Regarding Stock Ownership or Sale Proceeds
	 	 	29	 
	 

	 	 	7.6	 	 	Termination of Certain Agreements
	 	 	30	 
	 

	 	 	7.7	 	 	UnitedHealth
	 	 	30	 
	8.	 	CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE	 	 	30	 
	 

	 	 	8.1	 	 	Accuracy of Representations
	 	 	30	 
	 

	 	 	8.2	 	 	Buyer’s Performance
	 	 	30	 
	 

	 	 	8.3	 	 	No Injunction
	 	 	30	 
	 

	 	 	8.4	 	 	Consents
	 	 	30	 
	9.	 	TERMINATION	 	 	30	 
	 

	 	 	9.1	 	 	Termination Events
	 	 	31	 
	 

	 	 	9.2	 	 	Effect of Termination
	 	 	31	 
	10.	 	INDEMNIFICATION; REMEDIES	 	 	31	 
	 

	 	 	10.1	 	 	Survival and Right to Indemnification
	 	 	31	 
	 

	 	 	10.2	 	 	Indemnification and Payment of Damages by Seller and the Company
	 	 	32	 






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(continued)




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 

	 	 	10.3	 	 	Indemnification and Payment of Damages by Buyer
	 	 	32	 
	 

	 	 	10.4	 	 	Time Limitations
	 	 	33	 
	 

	 	 	10.5	 	 	Monetary Limitations
	 	 	33	 
	 

	 	 	10.6	 	 	Procedure For Indemnification — Third Party Claims
	 	 	34	 
	 

	 	 	10.7	 	 	Tax Indemnification
	 	 	36	 
	 

	 	 	10.8	 	 	Procedure For Indemnification — Other Claims
	 	 	37	 
	 

	 	 	10.9	 	 	Payment of Indemnification Obligations
	 	 	37	 
	 

	 	 	10.10	 	 	Retention of Holdback Amount by the Seller
	 	 	37	 
	 

	 	 	10.11	 	 	Access to Company Employees
	 	 	37	 
	 

	 	 	10.12	 	 	Tax Treatment of Indemnity Payments
	 	 	38	 
	11.	 	ADDITIONAL COVENANTS	 	 	38	 
	 

	 	 	11.1	 	 	Noncompetition, Nonsolicitation and Nondisparagement
	 	 	38	 
	 

	 	 	11.2	 	 	Intentionally Omitted
	 	 	38	 
	 

	 	 	11.3	 	 	Confidentiality
	 	 	38	 
	 

	 	 	11.4	 	 	Tax Matters
	 	 	39	 
	12.	 	GENERAL PROVISIONS	 	 	41	 
	 

	 	 	12.1	 	 	Expenses
	 	 	41	 
	 

	 	 	12.2	 	 	Transfer Taxes
	 	 	41	 
	 

	 	 	12.3	 	 	Public Announcements
	 	 	41	 
	 

	 	 	12.4	 	 	Notices
	 	 	42	 
	 

	 	 	12.5	 	 	Jurisdiction; Service Of Process
	 	 	43	 
	 

	 	 	12.6	 	 	Waiver of Jury Trial
	 	 	43	 
	 

	 	 	12.7	 	 	Enforcement of Agreement
	 	 	43	 
	 

	 	 	12.8	 	 	Further Assurances
	 	 	44	 
	 

	 	 	12.9	 	 	Waiver
	 	 	44	 
	 

	 	 	12.10	 	 	Entire Agreement and Modification
	 	 	44	 
	 

	 	 	12.11	 	 	Disclosure Schedules
	 	 	44	 






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(continued)




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 

	 	 	12.12	 	 	Assignments, Successors, and No Third-Party Rights
	 	 	44	 
	 

	 	 	12.13	 	 	Severability
	 	 	45	 
	 

	 	 	12.14	 	 	Section Headings, Construction
	 	 	45	 
	 

	 	 	12.15	 	 	Time of Essence
	 	 	45	 
	 

	 	 	12.16	 	 	Governing Law
	 	 	45	 
	 

	 	 	12.17	 	 	Legal Fees
	 	 	45	 
	 

	 	 	12.18	 	 	Execution of Agreement
	 	 	45	 
	13.	 	DEFINITIONS AND USAGE	 	 	45	 
	 

	 	 	13.1	 	 	Definitions
	 	 	45	 
	 

	 	 	13.2	 	 	Usage
	 	 	56	 






v









 





EXHIBITS




	 	 	 
	A

	 	Form of Seller’s Release
	B

	 	[Reserved]
	C

	 	Noncompetition Agreement of Robert Haft
	D

	 	Form of Interests Certificate
	E

	 	Form of Seller’s Officer’s Certificate
	F

	 	Form of Seller’s Secretary’s Certificate
	G

	 	Form of Buyer’s Officer’s Certificate
	H

	 	Form of Buyer’s Secretary’s Certificate






i









 





SCHEDULES




	 	 	 
	1.2(a)

	 	Designated Seller’s Account
	1.4(a)(vi)

	 	Consents Deliveries
	1.5

	 	Supplemental Reserves
	2.2(b)

	 	Enforceability; Authority; No Conflict
	2.2(c)

	 	Notice/Consents
	2.5(a)

	 	Leased Real Property
	2.5(b)

	 	Title to Properties; Encumbrances
	2.9

	 	Undisclosed Liabilities
	2.10(a)

	 	Tax Returns
	2.10(b)

	 	Audited Tax Returns
	2.10(c)

	 	Tax Assessments and Deficiencies
	2.11

	 	Employees
	2.12

	 	Labor Disputes; Compliance
	2.14(a)

	 	Employee Benefits
	2.14(c)

	 	Contributions to Employee Plans
	2.14(e)

	 	Employee Plan Compliance
	2.14(i)

	 	Accelerated Payments
	2.14(k)

	 	Promised Benefits
	2.15(a)

	 	Compliance with Legal Requirements
	2.15(b)

	 	Governmental Authorization
	2.16(a)

	 	Legal Proceedings
	2.16(b)

	 	Orders
	2.16(c)

	 	Compliance
	2.17

	 	Material Adverse Changes
	2.18

	 	Absence of Certain Changes and Events
	2.19(a)

	 	Major Customers
	2.19(b)

	 	Major Suppliers
	2.20(a)

	 	Material Contracts
	2.20(b)

	 	Seller’s Rights and Liabilities
	2.20(c)

	 	Contract Validity
	2.20(d)

	 	Contract Compliance
	2.21(a)

	 	Insurance Policies
	2.21(b)

	 	Third Party Insurance
	2.21(c)

	 	Insurance Claims
	2.21(d)

	 	Policy Validity
	2.22

	 	Environmental Matters
	2.23(a)

	 	Intellectual Property Assets
	2.23(b)

	 	Net Names
	2.25

	 	Relationships with Related Persons
	3.2

	 	Consents
	4.3

	 	Negative Covenant
	4.6

	 	Payment or Cancellation of Indebtedness by or to Related Persons
	10.5(i)

	 	DMERC Audit
	10.5(b)(i)

	 	California Sales and Use Tax Returns
	10.6(e)

	 	Medicare Protocol






ii









 





	 	 	 
	11.1(a)

	 	Competing Companies







iii