<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
THIS ASSET
PURCHASE AGREEMENT (this "Agreement"), dated as of June 10,
2005, is entered into by and among John H.
Harland Company, a Georgia
corporation ("Buyer"), Justice Acquisition
Corporation, a Minnesota corporation
and wholly-owned subsidiary of Buyer
("Sub"), Liberty Enterprises, Inc., a
Minnesota corporation (the "Company"), and
the shareholders of the Company
listed on the signature page hereto (the
"Controlling Shareholders").
W I T N E S S E T H:
WHEREAS,
the Company operates a business involving the development,
marketing and sale of checks, credit, debit
and ATM cards and the provision of
marketing services, consulting services and
training to community financial
institutions (the "Business"); and
WHEREAS,
the Boards of Directors of Buyer and the Company deem it
advisable and in the best interests of each
respective corporation and its
shareholders that Sub purchases from the
Company the Purchased Assets (as
defined in Section 1.1) and assumes from
the Company the Assumed Liabilities (as
defined in Section 1.2) upon the terms and
conditions set forth herein (the
"Purchase");
NOW,
THEREFORE, in consideration of the foregoing and the
representations,
warranties, covenants and agreements
contained in this Agreement, and intending
to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
THE PURCHASE; CLOSING
Section
1.1. Sale of Assets. At the Closing (as defined in Section
1.5),
the Company shall sell, assign, transfer,
convey and deliver to Sub, all of the
Company's property and assets owned as of
the Closing Date (as defined in
Section 1.5), whether real, personal or
mixed, tangible and intangible, of every
kind and description, wherever located (the
"Purchased Assets"), but excluding
the assets described in SCHEDULE 1.1, which
will be retained by the Company (the
"Excluded Assets").
Section
1.2. Assumption of Liabilities. Except for the Excluded
Liabilities (as defined in Section 1.3),
Buyer shall assume and be responsible
for all of the debts, liabilities,
obligations, contracts and agreements of the
Company and each of its Subsidiaries,
whether accrued or unaccrued, liquidated
or unliquidated, absolute, contingent or
otherwise, and whether due or to become
due (the "Assumed Liabilities"), such that
upon the Closing, the only debts,
liabilities, obligations, contracts or
agreements of the Company shall consist
of the Excluded Liabilities. The intent of
this Agreement and the Purchase is
that, other than the Excluded Liabilities,
as between the parties, the Purchase
shall be treated for the purpose of
determining Assumed Liabilities under this
Section 1.2 as if Sub purchased the stock
of the Company and its Subsidiaries
(as defined in Section 2.8). To the extent
any of the Assumed Liabilities are
incurred or paid by the Company or the
Controlling Shareholders after the
Closing Date and providing Buyer written
notice of and a reasonable opportunity
to pay such Assumed Liabilities, Buyer will
promptly reimburse the Company or
the Controlling Shareholders, as
applicable, upon receipt of reasonable proof of
payment.
Section
1.3. Excluded Liabilities. Subject to the terms and conditions
of
this Agreement, Sub will not assume the
following liabilities (the "Excluded
Liabilities"):
<PAGE>
(a) all
"Indebtedness for Borrowed Money," which means (i) the amount
owed
to Bank One, NA (successor by merger to
Bank One, Wisconsin) as of the Closing
Date pursuant to that certain Credit and
Term Loan Agreement dated as of August
28, 2000, as amended, between Bank One, NA
and the Company, nor will such
agreements be assigned to Sub in connection
with the Purchase, and (ii) any
other indebtedness for borrowed money of
the Company as of the Closing Date all
of which is set forth on SCHEDULE
1.3(a);
(b) any
and all liabilities for Taxes (as defined in Section 2.8)
imposed
at any time (i) on the Company or its
Subsidiaries (as defined in Section 2.8)
other than Cavion LLC ("Cavion"), as income
Taxes, franchise Taxes or similar
Taxes with respect to any net income,
business operations or assets of the
Company or such Subsidiary; (ii) on the
Company's shareholders with respect to
the Company's net income imputed to them
under applicable Tax Laws; or (iii) on
the Company, any of its shareholders or any
of its Subsidiaries with respect to
any income resulting from either (A) the
Company's sale of the Purchased Assets
hereunder, or (B) any failure of the
Company to be a validly electing S
corporation within the meaning of Sections
1361 and 1362 of the Internal Revenue
Code of 1986, as amended (the "Code") at
all times from December 31, 1997,
through the Closing Date; and
(c) The
amounts owed by the Company as a result of the Purchase
pursuant
to:
(i) the engagement agreement between the Company and Duff &
Phelps,
LLC
(formerly, Valuemetrics Capital, L.L.C.) dated September 2, 2004
and
amended on
October 25, 2004;
(ii) the Liberty Enterprises, Inc. Directors' Equity Share
Incentive
Plan,
effective January 1, 2005;
(iii) any executive transaction success bonuses due to the
Company's
Chief
Executive Officer, Chief Financial Officer, Executive Vice
President
- Sales
and Executive Vice President - Marketing as determined by the
Company's
Board of Directors and the project bonuses due two employees in
the
aggregate amount of $40,000; and
(iv) all fees and expenses payable by the Company to its legal,
accounting, tax and other professional advisors and, to the
extent
applicable, the amounts payable by the Company to the trustee,
financial
advisor
and legal counsel of the Liberty Shares Freedom Plan that was a
shareholder of the Company until the time immediately before the
time the
transactions contemplated by this Agreement are consummated (the
"Freedom
Plan"),
all in connection with the transactions contemplated by this
Agreement
incurred prior to the Closing Date ("Professional Fees").
(d) That
certain Promissory Note with the Company as the borrower and
Buyer as the lender, dated as of the
Closing Date in the amount of $26,711,040
(the "Note"). Buyer shall have the right,
on the Closing Date, to offset against
the Closing Purchase Price, the face amount
of the Note.
Section
1.4. Consideration. The total purchase price for the Purchased
Assets shall be $160,000,000 (the "Purchase
Price"). Buyer shall pay the
Purchase Price by delivery in the following
manner:
(a)
$153,500,000 in cash by wire transfer at the Closing to the
Company
(the "Closing Purchase Price"); and
2
<PAGE>
(b)
$6,500,000 in cash (the "Escrow Fund"), by wire transfer to
SunTrust
Bank (the "Escrow Agent"), to be held in
escrow by the Escrow Agent pursuant to
the terms of the Escrow Agreement
substantially in the form attached as EXHIBIT
A hereto (the "Escrow Agreement"). The
parties agree that the Company is, and
shall be treated as, the owner of the
Escrow Fund, together with any earnings
thereon, for federal and state income Tax
purposes and that the Company shall,
except as may otherwise be provided in the
Escrow Agreement, include in taxable
income any earnings on the Escrow Fund.
Each of the parties hereto which is a
party to the Escrow Agreement agrees to
execute and deliver the Escrow Agreement
on the Closing Date, and Buyer agrees to
cause the Escrow Agent to execute and
deliver the Escrow Agreement on the Closing
Date.
Section
1.5. Closing. The closing of the Purchase (the "Closing") will
take place at 10:00 a.m., Central time, on
June 10, 2005 (the "Effective Date"
or the "Closing Date"), at the offices of
Maslon Edelman Borman & Brand, LLP or
at such other place and time as may be
mutually agreed by the Company and Buyer.
The transaction will be deemed effective as
of the close of the Company's
business on the Closing Date.
Section
1.6. Purchase Price Allocation and Reporting.
(a)
Purchase Price Allocation. Within 90 days after the Closing
Date,
Buyer shall provide the Company with an
interim proposed schedule (the
"Allocation Schedule") allocating the
Purchase Price, plus any assumed
liabilities and all other items comprising
the "Aggregate Grossed-up Basis" of
the Company's assets ("AGUB"), in each case
that are apportioned among the
Company's Business and Purchased Assets
(the "Section 1060 Allocable Amount").
Such AGUB and Allocation Schedule shall
comply with the rules of Section 1060 of
the Code and the Treasury Regulations
promulgated thereunder; provided, however,
that the parties agree that the fair market
value of both the Company's tangible
personal property (other than inventory)
and the Company's other personal
property acquired by the Company prior to
the Closing Date (other than cash,
accounts receivable, prepaid expenses and
the Company's investment in Cavion),
does not exceed $13,000,000. The Company
must either accept or reject the AGUB
and the Allocation Schedule within 30 days
of receipt thereof. If the Company
accepts the AGUB and the Allocation
Schedule, they shall become final and
binding on the parties hereto. If the
Company rejects the AGUB or the Allocation
Schedule, the parties shall in good faith
attempt to resolve the dispute within
15 days after written notice to Buyer of
that rejection. Any such resolution
shall be final and binding on all of the
parties hereto. Any unresolved disputes
shall be promptly submitted to Ernst &
Young LLP or such other independent
accounting firm of national reputation as
may be mutually acceptable to the
Company and Buyer (the "Independent
Accountants") for resolution, with such
resolution being final and binding on the
parties hereto. Buyer and the Company
(from the Escrow Fund), will each pay
one-half of the fees and expenses of the
Independent Accountants. The parties shall
cooperate with each other and the
Independent Accountants in connection with
the matters contemplated by this
Section 1.6(a), including, without
limitation, by furnishing such information
and access to books, records (including,
without limitation, accountants work
papers), personnel and properties as may be
reasonably requested.
(b)
Revisions. The parties hereto will revise the Allocation Schedule
to
the extent necessary to reflect any
indemnification payment made under Article
VII hereof or any other post-Closing
payment made pursuant to or in connection
with this Agreement. In the case of any
such payment, Buyer shall propose a
revised Allocation Schedule, and the
parties hereto shall follow the procedures
outlined above with respect to review,
dispute and resolution in respect of such
revision.
(c)
Consistent Treatment. Each of the parties hereto agrees to (i)
prepare
and timely file all Tax Returns (as defined
in Section 2.8), including, without
limitation, Treasury Form 8594 (and all
3
<PAGE>
supplements thereto) in a manner consistent
with the Allocation Schedule as
finalized and (ii) act in accordance with
the Allocation Schedule for all Tax
purposes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to Buyer that:
Section
2.1. Organization and Standing.
(a) The
Company and each of its subsidiaries (i) is a corporation duly
organized, validly existing and in good
standing under the laws of the state of
its incorporation, (ii) has all corporate
power and authority to own, lease and
operate its properties and assets and to
carry on its Business as presently
conducted, (iii) is qualified as a foreign
corporation to do business and is in
good standing under the laws of each
jurisdiction in which the conduct of its
Business or the ownership or leasing of its
properties or assets requires such
qualification, except for such
jurisdictions where the failure to be so
qualified does not have a Material Adverse
Effect (as defined below), and (iv)
has all necessary government approvals to
own, lease and operate its properties
and assets and to carry on its Business as
presently conducted, except where the
failure to have such approvals does not
have a Material Adverse Effect. SCHEDULE
2.1 sets forth a complete and accurate list
of each of the Company's
subsidiaries and the jurisdictions in which
they are qualified to do business.
For purposes of this Agreement, a "Material
Adverse Effect" shall mean a
material adverse effect on the financial
condition, operations, assets or
liabilities of the Company or such
subsidiary or the ability of the Company to
consummate the transactions contemplated by
this Agreement; provided, however,
that in no event shall either of the
following be deemed to constitute, nor
shall they be taken into account in
determining whether there has been or will
be a Material Adverse Effect: (i) any
changes affecting the industry in which
the Company operates or any changes in
general economic conditions that do not
disproportionately impact in any material
respect the Company, or (ii) any
action required by this Agreement or to
which Buyer has given its prior written
consent.
(b) The Company
has made available for Buyer's review complete and correct
copies of its Articles of Incorporation
(the "Company Articles of
Incorporation") and Bylaws (the "Company
Bylaws"), each as amended to date. The
Company Articles of Incorporation and the
Company Bylaws are in full force and
effect, and the Company is not in violation
of any material provision of either
thereof.
(c) The
minutes of the meetings of the directors and shareholders and
the
stock records of the Company previously
made available for review by Buyer are
complete and accurate records of such
meetings, through the date hereof.
Section
2.2. Authority for Agreement.
(a) The
Company has all necessary corporate power and authority to
execute
and deliver this Agreement, and subject to
the approval of the Purchase by the
holders of the Company's Common Stock
("Common Stock"), to perform its
obligations hereunder and to consummate the
transactions contemplated hereby.
The execution, delivery and performance by
the Company of this Agreement, and
the consummation by the Company of the
transactions contemplated hereby, have
been duly authorized by all necessary
corporate action, other than the approval
of the Purchase and the adoption of this
Agreement by the holders of the Common
Stock. This Agreement has been duly
executed and delivered by the Company and
constitutes a valid and binding obligation
of the Company enforceable against
the Company in accordance with its terms,
except as enforcement thereof may be
limited by
4
<PAGE>
(i) bankruptcy, insolvency, reorganization,
moratorium and similar laws
affecting the enforcement of creditors'
rights or remedies in general as from
time to time in effect or (ii) the exercise
by courts of equity powers.
(b) The
Controlling Shareholders have the right, power and capacity to
execute, deliver and perform this Agreement
and to consummate the transactions
contemplated hereby. This Agreement has
been duly executed and delivered by the
Controlling Shareholders and constitutes a
valid and binding obligation of the
Controlling Shareholders enforceable
against each of them in accordance with its
terms.
Section
2.3. No Conflict.
(a) Except
as disclosed on SCHEDULE 2.3, the execution and delivery of
this Agreement by the Company do not, and,
subject to the terms of this
Agreement, the performance of this
Agreement by the Company and the consummation
of the transactions contemplated hereby
will not, (i) conflict with or violate
the Company Articles of Incorporation or
Company Bylaws, (ii) conflict with or
violate in any material respect any United
States federal, state or local
statutes, laws, rules, regulations,
ordinances, codes, orders, decrees or other
requirements or rules of law ("Laws")
applicable to the Company or by which any
property or asset of the Company is bound
or affected, or (iii) result in a
breach of or constitute a default under any
agreement to which the Company is a
party or by which it is bound, except for
(a) any such breaches or defaults
which in the aggregate would not reasonably
be expected to have a Material
Adverse Effect on the Company and (b) any
such breaches or defaults which result
from the conveyance, transfer or assignment
of the Purchased Assets, the failure
to obtain any necessary consent or approval
in connection with the assignment or
the Purchase or from the failure to follow
any procedure or pay any amount in
connection with the Purchase or any
assignment, consent or approval.
(b) Except
as disclosed on SCHEDULE 2.3, the execution and delivery of
this Agreement by the Controlling
Shareholders do not, and the performance by
the Controlling Shareholders of their
obligations under this Agreement and the
consummation of the transactions
contemplated hereby will not, (i) violate in
any material respect any provision of any
Law applicable to the Controlling
Shareholders, or (ii) violate or conflict
with in any material respect, or
result in a material breach or default
under, any term or condition of any court
order, agreement, document or other
instrument to which any Controlling
Shareholder is a party or by which any
Common Stock held by a Controlling
Shareholder are bound.
Section
2.4. Required Filings and Consents. The execution and delivery
of
this Agreement by the Controlling
Shareholders and the Company do not, and the
performance of this Agreement by the
Controlling Shareholders and the Company
will not, require any consent, approval,
authorization or permit of, or filing
with or notification to, any United States
federal, state or local or any
foreign government or any court,
administrative or regulatory agency or
commission or other governmental authority
or agency, domestic or foreign (a
"Governmental Entity"), except for (i)
those required by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and (ii) such
other consents, approvals, authorizations,
permits, filings or notifications by
or with any Governmental Entity, which in
the aggregate, if not obtained or
made, would not reasonably be expected to
have a Material Adverse Effect on the
Company.
Section
2.5. Compliance. The Company (i) has been operated in
compliance
in all material respects with all Laws
applicable to the Company or by which any
property or asset of the Company is bound
or affected, and (ii) is not in
default or violation in any material
respect of any note, mortgage, indenture,
contract, lease, license, permit, franchise
or other agreement to which the
5
<PAGE>
Company is a party or by which any property
or asset of the Company is bound,
except for any noncompliance, defaults or
violations which in the aggregate
would not reasonably be expected to have a
Material Adverse Effect on the
Company.
Section
2.6. Financial Statements; Absence of Undisclosed Liabilities.
SCHEDULE 2.6 sets forth the audited
consolidated balance sheets of the Company
as of December 31, 2003 and 2004, the
related consolidated statements of income
and cash flows for the year then ended and
the footnotes related thereto,
together with the audit report of Grant
Thornton LLP (the "Financial
Statements"). The Financial Statements (i)
have been prepared in accordance with
generally accepted accounting principles
("GAAP") consistently applied
throughout the periods indicated, (ii) have
been prepared from, and are in
accordance with, the books and records of
the Company, and (iii) present fairly,
in all material respects, the financial
position of the Company as of each
balance sheet date and the results of its
operations for the periods indicated.
To the Company's Knowledge (as defined in
Section 2.8), the Company has not,
prior to the Closing Date, incurred any
material debt, Indebtedness for Borrowed
Money, liability or obligation of any
nature, whether accrued, absolute,
contingent or otherwise, that would
reasonably be expected to have a Material
Adverse Effect, except (i) as reflected or
reserved against in the Financial
Statements, (ii) those arising in the
ordinary course of business of the
Company, or (iii) as reflected on any
Schedule to this Agreement.
Section
2.7. Absence of Certain Changes or Events. Except as
contemplated
by this Agreement or disclosed on SCHEDULE
2.7, since December 31, 2004 the
Company has conducted its business only in
the ordinary course and consistent
with prior practice, and there has not been
(i) any event that has had or would
reasonably be expected to have a Material
Adverse Effect, (ii) any declaration
or payment of any dividend or other
distribution with respect to the capital
stock of the Company other than tax
dividends in the ordinary course of
business, or (iii) any material change in
accounting methods, principles or
practices employed by the Company.
Section
2.8. Tax Matters.
(a) All
Tax Returns required to be filed by or on behalf of the Company
or
any of its direct or indirect, partly or
wholly-owned subsidiaries, including
interests in partnerships, trusts and
limited liability companies (collectively
referred to as the "Subsidiaries") have
been duly and timely filed with the
appropriate Governmental Entity in all
jurisdictions in which such Tax Returns
are required to be filed, and all such Tax
Returns are true, complete and
correct in all material respects. All Taxes
(whether or not shown on any Tax
Return) payable by or on behalf of the
Company or any of its Subsidiaries at any
time before the Closing Date have been
timely paid when due under applicable
Laws. With respect to any period for which
Tax Returns of or relating to the
Company or any of its Subsidiaries have not
yet been filed or for which Taxes
are not yet due or owing as of the date
hereof, the Company or one of its
Subsidiaries, as applicable, has made
adequate accruals for such Taxes on its
books and records in accordance with
GAAP.
(b) The
Company and each of its Subsidiaries has complied in all
material
respects with all applicable Laws relating
to the payment and withholding of
Taxes and has duly and timely withheld and
paid over to the appropriate
Governmental Entity all amounts required to
be so withheld and paid under all
applicable Laws.
(c) Buyer
has been given the opportunity to review complete copies of all
federal, state, local and foreign income or
franchise Tax Returns of the Company
and each of its Subsidiaries that have been
filed for the taxable periods ended
December 31, 2001, and thereafter.
6
<PAGE>
(d) Except
as disclosed on SCHEDULE 2.8(d), there have been no audits or
notice of pending audits or inquiries by
the IRS or any other Governmental
Entity within the last four years relating
to any Taxes due from or with respect
to the Company or any of its Subsidiaries.
No issue has been raised by a
Governmental Entity in any prior
examination of the Company or any of its
Subsidiaries that, by application of the
same or similar principles, could
reasonably be expected to result in a
proposed deficiency for any subsequent
taxable period. No claim has been made or,
to the Knowledge of the Company,
threatened by a Governmental Entity, in a
jurisdiction where the Company or any
of its Subsidiaries does not file Tax
Returns, that any of them is or may be
subject to taxation by that jurisdiction.
Except as set forth on SCHEDULE
2.8(d), none of the Company or any of its
Subsidiaries has consented to extend
the statute of limitations with respect to
any Tax.
(e) None
of the Company, any of its Subsidiaries, the Controlling
Shareholders or the Freedom Plan, or any
other person on their behalf has filed
a consent pursuant to Section 341(f) of the
Code (as in effect prior to the
repeal under the Jobs and Growth Tax
Reconciliation Act of 2003) or agreed to
have Section 341(f)(2) of the Code (as in
effect prior to the repeal under the
Jobs and Growth Tax Reconciliation Act of
2003) apply to any disposition of a
subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code)
owned by the Company or any Subsidiary.
(f) None
of the Company, any of its Subsidiaries, the Controlling
Shareholders, the Freedom Plan, or any
other person on their behalf: (i) is
required to make any adjustments pursuant
to Section 481(a) of the Code or any
similar provision of Law or has any
Knowledge that any Governmental Entity has
proposed any such adjustment, or has any
application pending with any
Governmental Entity requesting permission
for any changes in accounting methods
that relate to the Company or any
Subsidiary, (ii) has executed or entered into
a closing agreement pursuant to Section
7121 of the Code or any similar
provision of Law with respect to the
Company or any Subsidiary, or (iii) has
granted to any Person any power of attorney
that is currently in force with
respect to any Tax matter.
(g) The
Company has not been a U.S. real property holding corporation
within the meaning of Section 897(c)(2) of
the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of
the Code.
(h)
Neither the Company nor any Subsidiary is a party to any Tax
sharing,
allocation, indemnity or similar agreement
or arrangement (whether or not
written) pursuant to which it will have any
obligation to make any payments
after the Closing. Except as disclosed on
SCHEDULE 2.8(h), neither the Company
nor any of its Subsidiaries has ever been a
member of any consolidated,
combined, affiliated or unitary group of
corporations for any Tax purposes.
Neither the Company nor any of its
Subsidiaries is subject to any private letter
ruling of the IRS or comparable rulings of
any foreign, state or local
Governmental Entity that has been directed
specifically to such entity.
(i) There
are no Liens (as defined below), other than Permitted Liens (as
defined below), as a result of any unpaid
Taxes upon any of the assets of the
Company or any of its Subsidiaries.
(j)
SCHEDULE 2.8(j) sets forth each corporation in which the
Company
either currently or previously has held
shares, directly or indirectly. Except
as set forth in SCHEDULE 2.8(j), each of
the entities set forth on SCHEDULE
2.8(j) (each a "Schedule 2.8(j) Entity") is
or was (prior to its sale or
dissolution), as appropriate, a qualified
subchapter S subsidiary within the
meaning of Section 1361(b)(3)(B) of the
Code. Except as set forth on SCHEDULE
2.8(j), each Schedule 2.8(j) Entity is or
was (prior to its sale or
dissolution), as appropriate, a qualified
subchapter S subsidiary in all states
(including the District of Columbia) that
follow Federal income Tax Laws
concerning qualified subchapter S
subsidiaries and in which the Company is
required to file a Tax Return.
7
<PAGE>
(k)
SCHEDULE 2.8(k) sets forth each partnership, limited liability
company
or other entity, foreign or domestic, in
which the Company has owned any equity
interest (other than marketable securities)
since December 31, 1997. Except as
noted on SCHEDULE 2.8(k), each entity set
forth therein is or was (prior to its
sale or dissolution), as appropriate,
either (i) properly treated as a
disregarded entity under Treasury
Regulations Section 301.7701-3 and under
similar provisions of state or local Law in
each jurisdiction where such entity
is or was required to file a Tax Return, or
(ii) properly treated as a
partnership under Subchapter K of the Code
and in each jurisdiction where such
entity is or was required to file a Tax
Return.
(l) The
Company has been a validly electing S corporation within the
meaning of Sections 1361 and 1362 of the
Code at all times from December 31,
1997, through the Closing Date. Except as
set forth on SCHEDULE 2.8(l), at all
times from December 31, 1997, through the
Closing Date the Company has been a
valid S corporation in all states
(including the District of Columbia) that
follow Federal income Tax laws concerning S
corporation elections and in which
the Company is required to file a Tax
Return.
(m)
SCHEDULE 2.8(m) sets forth each trust, estate or any other person
who
is not an individual that has owned any
capital stock in the Company and the
period for which the stock was owned. Each
trust listed on SCHEDULE 2.8(m) is a
trust described in Section 1361(c)(2)(A)(i)
or Section 1361(c)(6) of the Code.
All of the shareholders of the Company are
permitted shareholders of an S
corporation within the purview of Section
1361(b)(1)(B) and (C) of the Code.
(n) The
Company does not have more than one class of stock within the
meaning of Section 1361(b)(1)(D) of the
Code.
(o) The
Company has not, since January 1, 1998, acquired assets from
another corporation in a transaction in
which the Company's Tax basis for the
acquired assets was determined, in whole or
in part, by reference to the Tax
basis of the acquired assets in the hands
of the transferor.
(p) None
of the Company or any of its Subsidiaries has constituted
either
a "distributing corporation" or a
"controlled corporation" (within the meaning
of Section 355(a)(1)(A) of the Code) during
a distribution of stock qualifying
for tax-free treatment under Section 355 of
the Code (i) in the two years prior
to the date of this Agreement or (ii) in a
distribution that could otherwise
constitute part of a "plan" or "series of
related transactions" (within the
meaning of Section 355(e) of the Code) in
conjunction with the transactions
contemplated by this Agreement.
(q) There
is no taxable income of the Company or any of its Subsidiaries
that will be required under applicable Tax
Law to be reported by the Company or
any of its Subsidiaries for a taxable
period beginning after the Closing Date,
which taxable income will be or was
realized prior to the Closing Date.
(r) None
of the Company or any of its Subsidiaries has participated in
any
reportable transaction, as defined in
Treasury Regulation Section
1.6011-4(b)(1), or a transaction
substantially similar to a reportable
transaction.
(s) None
of the Company or any of its Subsidiaries has, or has ever had,
a
permanent establishment in any country
other than the United States, or has
engaged in a trade or business in any
country other than the United States that
subjected it to Tax in such country.
(t) The
Company is not subject to the Tax imposed under Section 1374(a)
of
the Code or under similar provisions of
state or local law on recognized
built-in gains arising from its Selection
effective December 31, 1997.
8
<PAGE>
(u) The
Company has not made and is not required to make any payment
that
would constitute an "excess parachute
payment" within the meaning of Section
280G of the Code.
(v) For
purposes of this Agreement:
(i) "Tax" means any applicable federal, state, local or foreign
income,
sales, use, transfer, recording, gross receipts, license,
payroll,
employment, excise, capital stock, franchise, withholding,
social
security,
disability, real or personal property, escheat, unclaimed
property,
value added or other tax or claim of any kind whatsoever,
including
any estimated payment thereof, or any interest, penalty or
addition
thereto, as required by applicable Law.
(ii) "Tax Return" means any report, return, declaration or
other
information required to be supplied to a Governmental Entity by
applicable
Law in
connection with Taxes, including estimated returns, tax shelter
disclosure
and reportable transactions regulations and reports of every
kind with
respect to Taxes, as required by applicable Law.
(iii) "Knowledge" means, when used with respect to a natural
person,
the actual
knowledge of such person. "Knowledge" means, when used with
respect to
an entity that is not a natural person, the actual knowledge of
the
executive officers of such entity. With respect to the Company,
its
executive
officers for purposes of this definition of Knowledge shall
mean
the
Company's current Chairman of the Board, Chief Executive
Officer,
Chief
Financial Officer, Executive Vice President - Sales and
Executive
Vice
President - Marketing.
Section
2.9. Title to Properties.
(a) The
Company does not own any real property. SCHEDULE 2.9(a) sets
forth
a complete and accurate list of all
individual items of property with a current
book value in excess of $100,000 that the
Company owns or leases (the "Personal
Property").
(b) The
Company has title to, or a valid leasehold interest in, the
Personal Property, in each case free and
clear of all mortgages, liens, pledges,
security interests, charges, and
encumbrances on title of any nature ("Liens"),
except for Liens for Taxes accrued but not
yet payable, purchase money security
interests and those mortgages, liens,
pledges, security interests, charges, and
encumbrances on title set forth on SCHEDULE
2.9(b) (collectively, "Permitted
Liens").
Section
2.10. Change of Control Agreements. Except as set forth on
SCHEDULE 2.10, or as otherwise contemplated
by this Agreement, neither the
execution and delivery of this Agreement
nor the consummation of the
transactions contemplated hereby will
result in, cause the accelerated vesting
or increase the amount of any payment or
benefit to any director, officer or
employee of the Company.
Section
2.11. Litigation. Except as set forth on SCHEDULE 2.11, (a)
there
are no claims, suits, actions, arbitration
or other material proceedings
("Litigation") pending or, to the Knowledge
of the Company, material Litigation
threatened against the Company, and (b)
there are no outstanding judgments,
orders, injunctions or awards against or
relating to the Company.
Section
2.12. Material Contracts. Schedule 2.12 sets forth a complete
and
accurate list of all executory contracts or
contractual arrangements to which
the Company is a party involving annual
payments by the Company after January 1,
2005 in excess of $100,000 ("Material
Contracts"), including: (i) agreements for
the purchase or sale of any assets, (ii)
agreements relating
9
<PAGE>
to indebtedness for borrowed money, (iii)
contracts or licenses with customers,
independent contractors, joint venture
partners, suppliers, software developers,
host providers, resellers or others,
including all sales and open purchase
orders, and (iv) leases of any real
property or Personal Property. Schedule 2.12
sets forth a complete and accurate list of
all executory contracts or
contractual arrangements (without reference
to the actual customer) to which the
Company is a party which resulted in
billings by the Company to any of the
Company's current customers in calendar
year 2004 in excess of $250,000
("Customer Contracts"). Except as disclosed
on Schedule 2.12, neither the
Company nor, to the Knowledge of the
Company, any other party thereto is in
default in any material respect under any
Material Contract or Customer
Contract, nor to the Knowledge of the
Company has any event occurred that could
result in any such default. The Company has
no "side agreement" or other
understanding that would give any person
the right to modify or amend any
Material Contract or Customer Contract. The
Company is not making any
representations or warranties with respect
to whether or not the consent of the
other party to any contract is required to
avoid any breach, default or
violation thereof in connection with the
transactions contemplated hereby.
Furthermore, Sub shall be fully responsible
and liable for the consequences that
result from the Purchase under any contract
to which the Company is a party.
Section
2.13. Employee Benefit Plans.
(a)
SCHEDULE 2.13(a) sets forth all plans, funds, programs, agreements
or
arrangements (whether written or oral)
pursuant to which the Company or any of
its Subsidiaries provides benefits or
remuneration (other than salaries and
wages) to its employees, former employees,
directors, independent contractors or
contingent or leased employees or the
dependents of any of them, including any
bonus, incentive compensation, stock
option, deferred compensation, severance or
other compensation plan or employment
agreement, any employee welfare plan or
any defined benefit, profit sharing or
savings or other employee pension benefit
plan (collectively, "Current Benefit
Plans").
(b) For
purposes of this Agreement, the term "Benefit Plan" includes
each
of the Current Benefit Plans and the Past
Benefit Plans; and the term "Past
Benefit Plan" means any plan, fund,
program, agreement or arrangement that would
be a Current Benefit Plan if it were now in
effect, and was at any earlier time
within the past six years sponsored or
maintained or required to be sponsored or
maintained by the Company or any of its
Subsidiaries or to which the Company or
any of its Subsidiaries has made, or had an
obligation to make, contributions
providing for employee benefits or for the
remuneration (other than salaries or
wages), direct or indirect, of their
employees, former employees, directors,
independent contractors, contingent or
leased employees, the spouses or the
dependents of any of them. To the extent
applicable, to the Knowledge of the
Company, the Current Benefit Plans now
comply, and the Past Benefit Plans did
comply when they were in effect, in all
material respects with the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA") and the Code. Any
Current Benefit Plan intended to be
qualified under Section 401(a) of the Code
has received a favorable determination
letter or is an approved prototype plan
with an opinion letter upon which the
Company or a Subsidiary is entitled to
rely, and continues to satisfy in all
material respects the requirements for
such qualification. Neither the Company nor
any affiliate of the Company that
would be considered a single employer with
the Company or any Subsidiary under
Section 414 of the Code has maintained or
contributed in the past six years to
any Benefit Plan that is or was then
covered by Title IV of ERISA or Section 412
of the Code that could reasonably be
expected to result in a material penalty to
the Company. Neither the Company, any of
its Subsidiaries nor any Benefit Plan
has incurred any material liability or
penalty under Section 4975 of the Code or
Section 502(i) of ERISA, or engaged in any
transaction that is reasonably likely
to result in any such liability or penalty.
To the Knowledge of the Company, the
Company has complied in all material
respects with the notice and continuation
requirements of Section 4980B of the Code
and
10
<PAGE>
the regulations thereunder ("COBRA"), and
with the applicable requirements of
the Health Insurance Portability and
Accountability Act of 1996. To the
Knowledge of the Company, except as
described in SCHEDULE 2.13(b), each Current
Benefit Plan has been maintained and
administered during the past six years in
material compliance with its terms and with
all applicable Law, including ERISA,
the Code and federal and state securities
Laws.
(c) There
is no pending or, to the Knowledge of the Company, threatened
Litigation involving any Benefit Plan
(excluding routine claims for benefits
incurred in the ordinary course of Benefit
Plan activities). All contributions
required to be made as of the date hereof
to the Benefit Plans have been made or
provided for.
(d) Except
as required under COBRA and similar state laws, and except as
set forth in SCHEDULE 2.13(d), the Company
has no plan or arrangement which
provides life insurance, medical or other
employee welfare benefits to any
employee or former employee upon retirement
or termination of employment, and
the Company has never represented or
contracted (whether in oral or written
form) to any employee or former employee
that such benefits would be provided.
(e) With
respect to any Current Benefit Plan (including without
limitation
the employee stock ownership plan component
of the Freedom Plan) that is
intended to be an employee stock ownership
plan (within the meaning of Section
4975(e)(7) of the Code and Section
407(d)(6) of ERISA) (the "ESOP"), the ESOP
has at all times been maintained and
administered in all material respects in
accordance with the applicable requirements
of Section 4975(e)(7), Section
409(h), (o), (n), and (p), and Section
664(g) of the Code, Section 407(d)(6) of
ERISA and all applicable federal and state
securities laws; any shares of
capital stock of the Company or any of its
Subsidiaries held by the ESOP are and
have at all times been in all material
respects qualifying employer securities
within the meaning of Section 4975(e)(8) of
the Code and Section 407(d)(5) of
the Code; any loans made to the ESOP or
guaranteed by a "disqualified person"
(within the meaning of Section 4975(e)(2)
of the Code or a "party in interest"
within the meaning of Section 3(14) of
ERISA) are and have at all times been
exempt in all material respects from the
application of Section 4975(a) and (b)
of the Code and Section 406 of ERISA; the
ESOP has at all times complied in all
material respects with the diversification
requirements of Section 401(a)(28)(B)
of the Code; and all valuations of
qualifying employer securities held by the
ESOP with respect to activities carried on
by the ESOP have been made by an
"independent appraiser" within the meaning
of Section 401(a)(28)(C) of the Code.
No ESOP participant is a "disqualified
person" within the meaning of Section
409(p) of the Code with respect to the 2005
plan year. Except as set forth in
SCHEDULE 2.13(e), no person who has had an
account under the ESOP in 2005 has
"synthetic equity shares" (within the
meaning of Section 409(p) of the Code),
including (i) any stock option, warrant,
restricted stock, deferred issuance
stock right, stock appreciation right
payable in stock of the Company or similar
interest or right that gives the holder the
right to acquire or receive stock of
the Company in the future; (ii) any right
to a future payment (payable in cash
or any other form other than stock of the
Company) from the Company that is
based on the value of the Company's stock;
(iii) any rights to acquire stock or
similar interests in any entity in which
the Company holds an interest and which
is a partnership, a trust, an eligible
entity that is disregarded as an entity
that is separate from its owner under
Treasury Regulation Section 301.7701-3 or
a "qualified subchapter S subsidiary" under
Section 1361(b)(3) of the Code (a
"related entity"); (iv) any rights to
acquire assets of the Company or a related
entity (other than the right to acquire
goods, services or property at fair
market value in the ordinary course of
business or fringe benefits excluded from
gross income under Section 132 of the
Code); or (v) any of the following with
respect to the Company or a related entity:
(A) any remuneration to which
Section 404(a)(5) of the Code applies, (B)
any remuneration for which a
deduction would be permitted under Section
404(a)(5) of the Code if separate
accounts were maintained; any right to
receive property to which Section 83 of
the Code applies (including a
11
<PAGE>
payment to a trust described in Section
402(b) of the Code or to an annuity
described in Section 403(c) of the Code) in
a future year for the performance of
services; (C) any transfer of property (to
which Section 83 of the Code applies)
in connection with the performance of
services to the extent that the property
is not substantially vested within the
meaning of Treasury Regulation Section
1.83-3(i) by the end of the plan year in
which transferred; (D) a split-dollar
life insurance arrangement under Treasury
Regulation Section 1.61-22(b) entered
into in connection with the performance of
services (other than one under which,
at all times, the only economic benefit
that will be provided under the
arrangement is current life insurance
protection as described in Treasury
Regulation Section 1.61-22(d)(3); and (E)
any other remuneration for services
under a plan, or method or arrangement,
deferring the receipt of compensation to
a date that is after the fifteenth (15th)
day of the third (3rd) calendar month
after the end of the entity's taxable year
in which the related services are
rendered.
(f) The
Company has furnished or made available to Buyer complete and
accurate copies of each Current Benefit
Plan and its related trust agreement as
in effect on the date hereof (if any),
complete and accurate documentation of
any loans made to a Current Benefit Plan
that is or includes an ESOP (including
loan agreements, pledge agreements and
notes), current summary plan description
(if such plan is required to have a summary
plan description under ERISA), the
annual reports under the Form 5500 series,
including all schedules thereto,
filed with the Department of Labor or the
Internal Revenue Service (if such plan
is required to file annual reports under
ERISA), with respect to each year for
which the statute of limitations has not
expired.
Section
2.14. Labor and Employment Matters.
(a) Except
as set forth on SCHEDULE 2.14, there are no agreements or
arrangements on behalf of any officer,
director or employee of the Company
providing for payment or other benefits to
such person or the establishment,
increase, acceleration, vesting or
enhancement of any benefit contingent upon
the execution of this Agreement, the
Closing or a transaction involving a change
of control of the Company, other than any
arrangements contemplated under this
Agreement.
(b) The
Company is not a party to any collective bargaining agreement
or
other arrangement with a labor union or
labor organization.
(c) The
Company has paid when due all material wages, bonuses,
commissions, benefits, taxes, penalties or
assessments owed to any officer,
director, employee, sales representative,
contractor, consultant or other agent.
There are no investigations, proceedings or
complain
