Exhibit 2.1
Execution
Copy
MERGER
AGREEMENT
This AGREEMENT AND PLAN OF MERGER
(this “Agreement”) is made and entered into as of March
2, 2007, by and among Shea Development Corp., a Nevada corporation
(“Parent”) and its wholly owned subsidiary, Shea
Development Acquisition Corp., a Nevada corporation (“Merger
Sub”), Information Intellect Inc., a Georgia corporation (the
“Company”) and all holders of the outstanding capital
stock of the Company, listed on Schedule 1 hereto. Holders of
capital stock are collectively referred to herein as the
“Company Shareholders,” and individually as a
“Company Shareholder.” Capitalized terms used and
not otherwise defined herein have the meanings set forth in Article
10.
RECITALS
A.
The respective Boards of Directors of Parent, Merger Sub and the
Company have approved the combination of the businesses of Merger
Sub and the Company pursuant to this Agreement.
B.
In furtherance of such combination, the respective boards of
directors of Parent, Merger Sub and the Company have approved the
merger of Merger Sub with and into the Company with the Company
being the surviving Corporation (the “Merger”) pursuant
to the terms of this Agreement and in accordance with applicable
law.
C.
The respective shareholders of Merger Sub and the Company have, by
the legally required vote, approved and adopted the
Merger.
D.
In connection with the Merger, the parties desire to set forth
certain representations, warranties and covenants made by each to
the other or others as an inducement to the consummation of the
Merger, upon the terms and subject to the conditions contained
herein.
NOW, THEREFORE, in consideration of
the covenants, promises, representations and warranties set forth
herein, and for other good and valuable consideration, intending to
be legally bound hereby the parties agree as follows:
ARTICLE 1
THE MERGER
1.1
Merger. At the
Effective Time as defined below, in accordance with this Agreement
and the applicable law, Merger Sub will be merged with and into the
Company, the separate existence of Merger Sub will cease and the
Company will continue as the surviving Corporation and a wholly
owned subsidiary of Parent. The
Company, as the surviving
Corporation after the Merger, is sometimes referred to herein as
the “Surviving Corporation.”
1.2
Closing. The
closing of the Merger (the “Closing”) will take place
at the offices of Dunnington, Bartholow & Miller,
LLP located at 477 Madison Avenue, New York, NY 10022 or at
such other place as Parent and the Company mutually agree, at 10
a.m. local time on the second Business Day after the day on which
the last of the closing conditions set forth in Article 6 below has
been satisfied or waived, or such other date as Parent and the
Company mutually agree upon in writing (the “Closing
Date”). At the Closing: (a) the parties hereto
will cause the Merger to be consummated by filing with the
Secretary of State of the State of Georgia and the State of Nevada
a certificate of merger and any required related documents, in such
form or forms as are required by, and executed in accordance with,
applicable law (the date and time of such filing being the
“Effective Time” and the date upon which the Effective
Time occurs, being the “Effective Date”); (b) Parent
will deliver the merger consideration to the Company Shareholders
in accordance with Section 1.4; and (c) there will also be
delivered to the Company and Parent the certificates and other
documents and instruments to be delivered pursuant to Article 5
below.
1.3 Effect of the
Merger. At the
Effective Time, the effect of the Merger will be as provided in
this Agreement and under applicable law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective
Time all the property, rights, privileges, powers and franchise of
Merger Sub and the Company will vest in the Surviving Corporation,
and all debts, liabilities and duties of Merger Sub and the Company
will become the debts, liabilities and duties of the Surviving
Corporation. As of the Effective Time, the Surviving Corporation
will be a wholly owned subsidiary of Parent.
1.4 Effect on Capital
Stock. At the
Effective Time, by virtue of the Merger and without any further
action on the part of Parent, Merger Sub, the Company or Company
Shareholders:
(a)
Conversion of Securities.
(i)
The shares of Company’s Common Stock issued and outstanding
at the Effective Time, the “Company Common Shares”
(excluding any Dissenting Shares) will be converted into the right
to receive an aggregate of 18,900,000 shares of the Parent’s
Common Stock. The 18,900,000 shares of Parent’s Common
Stock to be delivered at the Effective Time will be unregistered,
restricted stock bearing a restrictive legend, and will be subject
to piggyback registration rights on a pari passu basis with
the registration rights being granted to the investors purchasing
shares of Parent’s Series A Preferred Stock, par value $0.001
per share on or about the date of this Agreement. All such
shares of Parent’s Common Stock are referred to collectively
herein as the “Parent’s Shares.” Subject to
Section 1.7, the Parent shall issue and deliver such
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number of the Parent’s Shares
to each Company Shareholder as set forth on Schedule 1.4(a)
attached hereto.
(b)
Capital Stock of Merger Sub . Each share of common stock of
Merger Sub issued and outstanding immediately prior to the
Effective Time will be cancelled as of the Effective
Time.
1.5 Additional
Consideration. Parent will offer employment to and will employ
the Senior Management Team, listed in Schedule 1.5A, as employees
of the Company, pursuant to the provisions of Employment Agreements
to be executed concurrently with the Closing. Parent will establish
an Incentive Stock Option Program that equates to fifteen percent
(15%) of the fully diluted outstanding shares of the Parent at the
time of closing of the Merger and related Equity financing,
including any shares reserved underlying warrants, options, and
other Equity Equivalents outstanding after the Merger and related
financing. The attached Schedule 1.5B outlines the allocation of
the Incentive Stock Option pool.
1.6 Charter Documents;
Directors and Officers. At and as of the Effective Time, (i) the
Articles of Incorporation and the Bylaws of the Company as in
effect immediately prior to the Effective Time, as amended, will be
the Articles of Incorporation and Bylaws of the Surviving
Corporation until thereafter amended as provided by applicable law,
(ii) the directors of Merger Sub immediately prior to the Effective
Time will be the initial directors of the Surviving Corporation,
until their successors are elected and qualified and (iii) the
officers of Merger Sub immediately prior to the Effective Time will
be the initial officers of the Surviving Corporation, until their
successors are elected and qualified.
1.7 Delivery of
Certificates. At
and after the Effective Time, Parent will make available, and each
Company Shareholder will be entitled to receive, as set forth on
Schedule 1.4(a), upon surrender to Parent or its representatives of
any certificates evidencing Company Common Shares (the
“Certificates”) for cancellation and a letter of
transmittal or assignment separate from the certificate in
customary form (which will specify that delivery will be effected,
and risk of loss and title to the Certificates will pass, only upon
delivery of the Certificates to Parent or its designated
representative and will be in such form and have such other
provisions as Parent will reasonably specify) (the
“Transmittal Letter”), the aggregate Merger
consideration into which such shares have been converted in the
Merger, and upon such surrender of each Certificate and delivery by
Parent of the aggregate Merger consideration in exchange therefor,
such Certificates will forthwith be cancelled. Until so
surrendered, each Certificate will be deemed for all corporate
purposes to evidence only the right to receive upon such surrender
the aggregate Merger consideration into which such shares
represented thereby will have been converted.
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1.8 Stock Transfer
Books. At the
Effective Time, the stock transfer books of the Company will be
closed, and there will be no further registration or transfers of
capital stock thereafter on the records of the Company.
1.9 No Further Ownership
Rights. The Merger
consideration delivered upon the surrender for exchange of capital
stock in accordance with the terms hereof will be deemed to have
been issued in full satisfaction of all rights pertaining to such
shares, and there will be no further registration of transfers of
such shares which were outstanding immediately prior to the
Effective Time on the records of the Surviving Corporation. If,
after the Effective Time, the Certificates are presented to the
Surviving Corporation for any reason, they will be cancelled and
exchanged as provided in this Article 1.
1.10 Lost, Stolen or
Destroyed Certificates. In the event any Certificates are lost, stolen
or destroyed, Parent will issue in exchange for such lost, stolen
or destroyed Certificates, upon the making of an affidavit of that
fact by the holder thereof, the applicable Merger consideration;
provided, however, that Parent may, in its sole discretion and as a
condition precedent to the issuance thereof, require the owner of
such lost, stolen or destroyed Certificates to deliver an indemnity
or bond in such sum as it may reasonably direct as indemnity
against any claim that may be made against Parent with respect to
the Certificates alleged to have been lost, stolen or
destroyed.
1.11 Tax
Consequences. It is
intended by the parties hereto that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code. The parties hereto hereby adopt this Agreement as a
“plan of reorganization” within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the U.S. Treasury
Regulations.
1.12 Taking of Necessary
Action; Further Action. Each of Parent, Merger Sub and the Company will
take all such reasonable lawful action as may be necessary or
appropriate in order to effect the Merger in accordance with this
Agreement as promptly as practicable. If, at any time after the
Effective Time, any such further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all
the property, rights, privileges, power and franchises of the
Company and Merger Sub, the officers and directors of the Company
and Merger Sub immediately prior to the Effective Time are fully
authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary
action.
1.13 Dissenting
Shares.
(a)
Notwithstanding any other provisions of this Agreement to the
contrary, any shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time held by a Company
Shareholder (if any) who has the right to demand payment for and an
appraisal of such shares in accordance with applicable
law
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(“Dissenting Shares”)
will not be converted into a right to receive the Merger
consideration (but will have the rights set forth in applicable
law) unless such holder fails to perfect or otherwise loses such
holder’s right to such payment or appraisal, if
any.
(b)
Notwithstanding any other provision of this Agreement, if any
holder of Dissenting Shares withdraws or loses (through failure to
perfect or otherwise) such holder’s appraisal rights under
applicable law, after the Effective Time, such holder’s
shares will automatically be converted into and represent only the
right to receive the applicable Merger consideration in accordance
with the terms of this Agreement, upon surrender of the Certificate
representing such shares.
(c)
The Company will give Parent (i) prompt notice of any written
demand for appraisal received by the Company pursuant to applicable
law, and (ii) the opportunity to participate in all negotiations
and proceedings with respect to such demands. The Company will not,
except with the prior written consent of Parent, which will not be
unreasonably withheld or delayed, make any payment with respect to
any such demands or offer to settle or settle any such
demands.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
THE
COMPANY AND CERTAIN COMPANY
SHAREHOLDERS
The Company and each of the Certain
Company Shareholders listed in Schedule 2 hereby represent and
warrant, jointly and severally, to Parent subject to such
exceptions as are disclosed in the Schedule attached hereto, as
follows:
2.1 Organization and
Qualification. The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Georgia, and has full
corporate power and authority to conduct its business as now
conducted and as proposed to be conducted and to own, use, license
and lease its Assets and Properties. The Company does have
Subsidiaries as listed in Schedule 2.1. The Company is duly
qualified, licensed or admitted to do business and is in good
standing in each jurisdiction in which the ownership, use,
licensing or leasing of its Assets and Properties, or the conduct
or nature of its business, makes such qualification, licensing or
admission necessary, except for such jurisdictions in which the
failure to be so qualified would not have a material adverse effect
on the Company. Schedule 2.1 sets forth each jurisdiction
where the Company is so qualified, licensed or admitted to do
business and separately lists each other jurisdiction in which the
Company owns, uses, licenses or leases its Assets and Properties,
or conducts business or has employees or engages independent
contractors.
2.2 Authority Relative to
this Agreement. The
Company has full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The
execution and
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delivery by the Company of this
Agreement and the consummation by the Company of the transactions
contemplated hereby, and the performance by the Company of its
obligations hereunder, have been duly and validly authorized by all
necessary action by the Board of Directors of the Company, and no
other action on the part of the Board of Directors of the Company
is required to authorize the execution, delivery and performance of
this Agreement and the consummation by the Company of the
transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery hereof by
Parent and Merger Sub, constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with its respective terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar Laws
relating to the enforcement of creditors’ rights generally
and by general principles of equity.
2.3 Capital
Stock. The
authorized capital stock of the Company consists of sixteen million
one hundred thirty three thousand three hundred thirty six
(16,133,336) shares of capital stock consisting of: (i) thirteen
million (13,000,000) shares designated as “Common
Stock”, $0.001 par value per share and (ii) three
million one hundred thirty three thousand three hundred and thirty
six (3,133,336) shares designated as “Preferred Stock”,
$0.001 par value per share (collectively referred to herein as the
“Company Shares”) of which ten million three hundred
fifty-one thousand five hundred and sixty (10,351,560) shares
of “Common Stock” are issued and outstanding as
of the date hereof. There are no shares of Preferred Stock
issued and outstanding as of the date hereof. There are no
outstanding Company Warrants, Company Options, or Equity
Equivalents except for Company Options disclosed in Schedule 2.3
which will be outstanding at the time of closing. All of the issued
and outstanding Company Shares are validly issued, fully paid and
nonassessable, and have been issued in compliance with all
applicable federal, state and foreign securities Laws. No
Company Shares are held as treasury stock. Schedule 1 lists the
name and state of residence of each holder of Company Shares
provided to the Company by such holder and the number of Company
Shares held by each such holder. No Company Shares are
reserved for issuance and except as disclosed in Schedule 2.3 there
are no other options, warrants, calls, rights, commitments or
agreements of any character (whether created by statute, the
Articles of Incorporation or Bylaws of the Company, or any
agreement or otherwise) to which the Company is a party or by which
it is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of capital stock of the Company
or obligating the Company to grant, extend, accelerate the vesting
of, change the price or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. Except as
set forth in Schedule 2.3A, the Company is not a party or subject
to any agreement or understanding, and there is no agreement,
arrangement or understanding between or among any Persons which
affects, restricts or relates to voting, giving of written
consents, dividend rights or
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transferability of shares with
respect to the Company Shares, including without limitation any
voting trust agreement or proxy.
2.4 No
Conflicts. Except
as set forth in Schedule 2.4 the execution and delivery by the
Company of this Agreement does not affect the performance by the
Company of its obligations under this Agreement, and the
consummation by the Company of the transactions contemplated hereby
do not and will not:
(a)
conflict with or result in a violation or breach of any terms,
conditions or provisions of the Articles of Incorporation or
Bylaws, as amended, or equivalent documents of the
Company;
(b)
conflict with or result in a violation or breach of any Law or
Order applicable to the Company or by which any of its Assets and
Properties is bound or affected; or
(c)
(i) conflict with or result in a violation or breach of, (ii)
constitute a default (or an event that, with or without notice or
lapse of time or both, would constitute a default) under, (iii)
require the Company to obtain any consent, approval or action of,
make any filing with or give any notice to any Person as a result
or under the terms of, (iv) result in or give to any Person any
right of termination, cancellation, acceleration or modification in
or with respect to, (v) result in or give to any Person any
additional rights or entitlement to increased, additional,
accelerated or guaranteed payments or performance under, (vi)
result in the creation or imposition of (or the obligation to
create or impose) any Lien upon the Company or any of its Assets
and Properties under or (vii) result in the loss of a material
benefit under, any of the terms, conditions or provisions of any
Contract or License to which the Company is a party or by which the
Company or its Assets and Properties is bound or
affected.
2.5 Books and Records;
Organizational Documents. The minute books, including the share
registers, and other similar records of the Company have been
provided or made available to Parent or its counsel prior to the
execution of this Agreement, are complete and correct in all
material respects and have been maintained in accordance with sound
business practices. Such minute books contain a true and complete
record of all material actions taken at all meetings and by all
written consents in lieu of meetings of the directors, shareholders
and committees of the Board of Directors of the Company through the
date hereof. The Company has delivered a true, correct and complete
copy of the Articles of Incorporation and Bylaws or other charter
documents, as applicable, of the Company as amended to date, to
Parent. The Company is not in violation of any provisions of
its articles or equivalent documents.
2.6 Company Financial
Statements. Company
Financials have been delivered to the Parent. The Company
Financials delivered to Parent are correct and complete in all
material respects. The Company Financials present fairly and
accurately the financial condition and operating results of the
Company as of the dates and during the periods indicated therein,
subject, in the case of any interim financial statements, to normal
year-
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end adjustments, which adjustments
will not be material in amount or significance and except that any
Interim Financial Statements may not contain footnotes.
Except as set forth in Schedule 2.6, since the Financial Statement
Date, there has been no change in any accounting policies,
principles, methods or practices, including any change with respect
to reserves (whether for bad debts, contingent liabilities or
otherwise), of the Company.
2.7 Absence of
Changes. Since the
Company Financial Statement Date, there has not been any material
adverse change in the Business or Condition of the Company or any
occurrence or event, which, individually or in the aggregate could
be reasonably expected to have any material adverse change in the
Business or Condition of the Company. In addition, without limiting
the foregoing, except as expressly contemplated hereby, there has
not occurred since the Company Financial Statement Date:
(a)
the entering into of any Contract, commitment or transaction or the
incurrence of any Liabilities outside of the ordinary course of
business consistent with past practice;
(b)
the entering into of any Contract in connection with any
transaction involving a Business Combination other than those
related to this contemplated Merger transaction;
(c)
the alteration, or entering into of any Contract or other
commitment to alter, its interest in any Corporation, association,
joint venture, partnership or business entity in which the Company
directly or indirectly holds any interest on the date
hereof;
(d)
the entering into of any strategic alliance, joint development or
joint marketing Contract other than joint marketing or development
efforts in the ordinary course of business consistent with past
practice;
(e)
any amendment or other modification (or agreement to do so), except
in the ordinary course of business consistent with past practice,
or violation of the terms of, any of the Contracts set forth or
described herein;
(f)
the entering into of any transaction with any officer, director,
shareholder, Affiliate or Associate of the Company, other than
pursuant to any Contract in effect on the Company Financial
Statement Date and disclosed to Parent pursuant to the
Schedules;
(g)
the entering into or amendment of any Contract pursuant to which
any other Person is granted manufacturing, marketing, distribution,
licensing or similar rights of any type or scope with respect to
any products of the Company or Company Intellectual Property other
than as contemplated by the Contracts or Licenses of the Company
disclosed herein or otherwise in the ordinary course of business
consistent with past practice;
(h)
the commencement of any Action or Proceeding (other than any
investigation of which the Company is not aware);
(i)
except as set forth in Schedule 2.7(i), the declaration,
setting aside or payment of any dividends on or making of any other
distributions (whether in cash, stock or property) in respect of
any Company Shares, or any split, combination or
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reclassification of any Company
Shares or issuance or authorization of the issuance of any other
securities in respect of, in lieu of or in substitution for Company
Shares, or the repurchase, redemption or other acquisition,
directly or indirectly, of any shares of Company Shares by the
Company except for repurchases of Company Shares upon termination
of employment;
(j)
except as set forth in Schedule 2.7(j), the issuance, grant,
delivery, sale or authorization of or proposal to issue, grant,
deliver or sell, or purchase or proposal to purchase, any Company
Shares or modification or amendment of the rights of any holder of
any outstanding Company Shares, nor have there been any agreements,
arrangements, plans or understandings with respect to any such
modification or amendment;
(k)
except as set forth in Schedule 2.7(k), any amendments to the
Company’s Articles of Incorporation or By-Laws;
(l)
any transfer (by way of a License or otherwise) to any Person of
rights to any Company Intellectual Property other than
non-exclusive transfers to the Company’s customers,
distributors or other licensees in the ordinary course of business
consistent with past practice;
(m)
any disposition or sale of, waiver of rights to, license or lease
of, or incurrence of any Lien on, any Assets and Properties (other
than Company Intellectual Property) of the Company, other than
dispositions of inventory, or licenses of products to Persons in
the ordinary course of business of the Company consistent with past
practice;
(n)
any purchase or lease of any Assets and Properties of any Person or
the making of any capital expenditures, lease commitments or other
capital commitments by the Company other than acquisitions of
inventory, leasing of office space, or licenses of products, in the
ordinary course of business of the Company, consistent with past
practice and in an amount not in excess of one hundred thousand
dollars ($100,000) unless otherwise approved by Parent;
(o)
the making of any capital expenditures or commitments by the
Company for additions to property, plant or equipment of the
Company constituting capital assets individually or in the
aggregate in an amount exceeding twenty-five thousand dollars
($25,000);
(p)
except as set forth in Schedule 2.7(p) the write-off or write-down
or making of any determination to write off or write-down, or
revalue, any -
of the Assets and Properties
of the Company, or change in any reserves or liabilities associated
therewith;
(q)
except as set forth in Schedule 2.7(q), the payment, discharge or
satisfaction of any claim or Liability, other than the payment,
discharge or satisfaction in the ordinary course of business of
Liabilities reflected or reserved against in the Company Financial
Statements or incurred in the ordinary course of business since the
Financial Statement Date;
(r)
except as set forth in Schedule 2.7(r), the failure to pay or
otherwise satisfy material Liabilities of the Company or its
Subsidiaries when due;
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(s)
the incurrence of any Indebtedness or guarantee of any such
Indebtedness or issuance or sale of any debt securities of the
Company or guarantee of any debt securities of others, except as
otherwise incurred in the normal course of business;
(t)
the grant of any severance or termination pay to any director,
officer employee or consultant, except payments made as required by
Law or pursuant to written Contracts outstanding on the date
hereof,
(u)
set forth in Schedule 2.7(u), a salary, rate of commissions, rate
of consulting fees or any other compensation of any current
officer, director, shareholder, employee, independent contractor or
consultant of the Company;
(v)
except as set forth in Schedule 2.7(v), the payment of any
consideration of any nature whatsoever (other than, in the normal
course of business, salary, commissions or consulting fees and
customary benefits and out of pocket expenses paid to any current
or former officer, director, shareholder, employee or consultant of
the Company) to any current or former officer, director,
shareholder, employee, independent contractor or consultant of the
Company;
(w)
the establishment or modification of (i) targets, goals, pools or
similar provisions under any employment Contract or other employee
compensation arrangement or independent contractor Contract or
other compensation arrangement or (ii) salary ranges, increased
guidelines or similar provisions in respect of any employment
Contract or other employee compensation arrangement or independent
contractor Contract or other compensation arrangement, except for
those made in the ordinary course of business;
(x)
the adoption, entering into, amendment, modification or termination
(partial or complete) of any Plan;
(y)
the payment of any discretionary or stay bonus;
(z)
any action which would be reasonably likely to interfere with
Parent’s ability to account for or complete the transactions
contemplated hereby;
(aa)
the making or changing of any election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, the entering
into of any tax allocation agreement, tax sharing agreement, tax
indemnity agreement or closing agreement, settlement or compromise
of any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes with any Taxing Authority
or otherwise;
(bb)
Except as set forth in Schedule 2.7(bb), the making of any change
in the accounting policies, principles, methods, practices or
procedures of the Company (including without limitation for bad
debts, contingent liabilities or otherwise, respecting
capitalization or expense of research and development expenditures,
depreciation or amortization rates or timing of recognition of
income and expense);
(cc)
other than in the ordinary course of business, the making of any
representation or proposal to, or engagement in substantive
discussions with, any of the holders (or their representatives) of
any Indebtedness, or to or with any party which has issued a letter
of credit which benefits the Company;
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(dd)
the commencement or termination of, or change in, any line of
business;
(ee)
the cancellation, amendment or failure to renew any insurance
policy other than in the ordinary course of business consistent
with past practice, or failure to use commercially reasonable
efforts to give all notices and present all claims under all such
policies in a timely fashion;
(ff)
any amendment, failure to renew, or failure to use commercially
reasonable efforts to maintain, its existing Approvals or failure
to observe any Law or Order applicable to the conduct of the
business of the Company or the Assets and Properties of the
Company;
(gg)
any failure to pay or otherwise satisfy any obligations to procure,
maintain, renew, extend or enforce any Company Intellectual
Property, including, but not limited to, submission of required
documents or fees during the prosecution of patent, trademark or
other applications for Registered Intellectual Property
rights;
(hh)
any physical damage, destruction or other casualty loss (whether or
not covered by insurance) affecting any of the real or personal
property or equipment of the Company individually or in the
aggregate in an amount exceeding fifteen thousand dollars
($15,000);
(ii)
the repurchase, cancellation or modification of the terms of any
Company Common Stock, or other financial instrument that derives
the majority of its value from its convertibility into Company
Common Stock, other than transactions entered into in the ordinary
course of business and pursuant to contractual provisions in effect
at the date of this Agreement; or
(jj)
any entering into any agreement to do any of the
foregoing.
2.8 No Undisclosed
Liabilities. Except
as set forth in Schedule 2.8, the Company has no obligations or
liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided
for in the Company Financials and (ii) those set forth in this
Agreement.
2.9 Restrictions on
Business Activities. Except as set forth in Schedule 2.9, there is no
agreement, judgment, injunction, order or decree binding upon the
Company, or any of its assets or properties which has had or could
reasonably be expected to have the effect of prohibiting or
impairing any current or future business practice of the Company,
any acquisition of property by the Company or the conduct of
business by the Company as currently conducted or as proposed to be
conducted by the Company.
2.10 Taxes.
(a)
The Company has properly filed and paid any taxes due through the
tax year ending December 31, 2005. The Company expects to
file and pay taxes due, if any, on its operations for the tax year
ending December 31, 2006, by the due date of March 15, 2007, or the
extension thereof. The Company has prepared and
maintained
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adequate records so as to facilitate
the prompt filing of Tax Returns when they become due.
(b)
The Company has not incurred any material liability for Taxes other
than as reflected on the Company Financials. The unpaid Taxes
of the Company (i) did not, as of the most recent fiscal month end,
exceed by any material amount the reserve for liability for Income
Tax (other than the reserve for deferred taxes established to
reflect timing differences between book and tax income) set forth
on the face of the Company’s most recent balance sheet and
(ii) will not exceed by any material amount that reserve as
adjusted for operations and transactions through the Closing
Date.
(c)
The Company
is not a party to any agreement extending the time within which to
file any Tax Return. No claim has ever been made by a Taxing
Authority of any jurisdiction in which the Company does not file
Tax Returns that it is or may be subject to taxation by that
jurisdiction.
(d)
The Company or its agent and Co-employer Administaff has collected
or withheld all amounts required to be collected or withheld by it
on account of Taxes or otherwise, and has remitted the same to the
appropriate governmental authority in the manner and within the
time required under any applicable legislation or, if it is not yet
due, has set it aside in appropriate accounts for payment when
due.
(e)
The Company does not have knowledge of any actions by any Taxing
Authority in connection with assessing additional Taxes against and
in respect of the Company for any past period. There is no
dispute or claim concerning any Tax liability of the Company (i)
threatened, claimed or raised by any Taxing Authority and (ii) of
which the Company is aware. There are no Liens for Taxes upon the
Assets and Properties of the Company other than liens for Taxes not
yet due.
(f)
There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns
required to be filed by, or which include or are treated as
including, the Company with respect to any Tax assessment or
deficiency affecting the Company.
(g)
The Company has not received any written ruling related to Taxes or
entered into any agreement with a Taxing Authority relating to
Taxes.
(h)
The Company has no liability for the Taxes of any Person other than
the Company or (i) as a transferee or successor, or (ii) by
Contract or (iii) otherwise.
(i)
The Company (i) has not agreed to make and is not required to make
any adjustment under Section 481 or 263A of the Code or any
comparable provision under state laws by reason of a change in
accounting method or as a result of transactions or events prior to
the date hereof and (ii) is not a “consenting
corporation” within the meaning of Section 341(f)(1) of the
Code.
(j)
The Company is not a party to or bound by any obligations under any
tax sharing, tax allocation, tax indemnity or similar agreement or
arrangement.
(k)
The Company is not involved in, subject to, or a party to any joint
venture, partnership, Contract or other arrangement that is treated
as a partnership for federal, state, local or foreign Income Tax
purposes.
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(l)
The Company was not included and is not includible in the Tax
Return of any parent corporation other than such a return of which
the Company is the common parent corporation.
(m)
The Company has not:
(i)
acquired or had the use of any property from a person with whom it
was not dealing at arm’s length other than at fair market
value; or
(ii)
disposed of anything to a person with whom it was not dealing at
arm’s length for proceeds less than the market value
thereof.
(n)
The Company is not nor has it ever been a United States real
property holding corporation within the meaning of Section
897(c)(1)(A)(ii) of the Code.
(o)
The Company is not a personal holding company.
(p)
The Company is in full compliance with all terms and conditions of
any Tax exemptions or other Tax-sharing agreement or Order of a
foreign government and the consummation of the transactions
contemplated hereby will not have any adverse effect on the
continued validity and effectiveness of any such Tax exemptions or
other Tax-sharing agreement or Order.
2.11 Legal
Proceedings.
(a)
Except as set forth in the Schedules:
(i)
there are no Actions or Proceedings brought or, to the knowledge of
the Company, pending or threatened against the Company or its
Assets and Properties;
(ii)
except as set forth in Schedule 2.11(a)(ii), there are no facts or
circumstances known to the Company that could reasonably be
expected to give rise to any Action or Proceeding against, relating
to or affecting the Company; and
(iii)
the Company has not received notice, and does not otherwise have
knowledge of any Orders outstanding against the Company.
(b)
Prior to the execution of this Agreement, the Company has delivered
to Parent upon Parent’s written request, all responses of
counsel for the Company to auditor’s requests for information
(together with any updates provided by such counsel) regarding
Actions or Proceedings pending or, to the knowledge of the Company,
threatened against, relating to or affecting the Company. The
Schedules sets forth all Actions or Proceedings against or by the
Company or relating to or affecting any of its Assets and
Properties since the date of incorporation of the Company to the
date hereof.
2.12 Compliance With Laws
and Orders. The
Company has not violated, and is not currently in violation or
default under, any Law or Order applicable to the Company or any of
its Assets and Properties.
2.13 Benefit
Plans. The Company
has Plans as provided to the Company and its employees by
Administaff relating to the co-employment Professional Employer
Organization (“PEO”) agreement between the Company and
Administaff.
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2.14 Title to
Property. The
Company has good and marketable title to all of its properties,
interests in properties and assets, real and personal, reflected in
the Company Financials or acquired after the Financial Statement
Date (except properties, interests in properties and assets sold or
otherwise disposed of since the Financial Statement Date in the
ordinary course of business), or with respect to leased properties
and assets, valid leasehold interests in, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or
character, except (i) the lien of current taxes not yet due and
payable, (ii) such imperfections of title, liens and easements as
do not and will not materially detract from or interfere with the
use of the properties subject thereto or affected thereby, or
otherwise materially impair business operations involving such
properties, (iii) liens securing debt which is reflected on the
Company Financials and (iv) Liens listed on Schedule 2.14. The
property and equipment of the Company that are used in the
operations of its business are in good operating condition and
subject to normal wear and tear. All properties used in the
operations of the Company are reflected in the Company Financials.
The Company owns no real property.
2.15 Intellectual
Property.
(a)
The Company owns, or is licensed or otherwise possesses legally
enforceable rights to use, all Intellectual Property that is used
or currently proposed to be used in the business of the Company as
currently conducted or as proposed to be conducted by the Company.
Except as set forth in Schedule 2.15(a), the Company has not (i)
licensed any Company Intellectual Property in source code form to
any third party or (ii) entered into any exclusive agreements
relating to any Company Intellectual Property with any third
party.
(b)
Schedule 2.15(b) lists (i) all patents and patent applications and
all registered trademarks, trade names and service marks,
registered copyrights, domain names, and maskworks, included in the
Company Intellectual Property, including the jurisdictions in which
each such Intellectual Property right has been issued or registered
or in which any application for such issuance and registration has
been filed, (ii) all licenses, sublicenses and other agreements as
to which the Company is a party and pursuant to which any other
person or entity is authorized to use any Intellectual Property,
and (iii) all licenses, sublicenses and other agreements as to
which the Company is a party and pursuant to which the Company is
authorized to use any third-party Intellectual Property
(“Third Party Intellectual Property Rights”) which are
incorporated in, are, or form a part of any Company product or
which are otherwise used (or currently proposed to be used) by the
Company in the business of the Company as currently conducted or as
proposed to be conducted by the Company, other than off-the-shelf
software programs licensed under standard Shrink Wrap License
Agreements.
(c)
No Person or entity (including employees and former employees of
the Company) is, to the best knowledge of the Company, infringing,
misappropriating or otherwise making any unauthorized use or
disclosure of any Intellectual Property rights of the Company or
any Intellectual Property right of any third party to the extent
licensed by or through the Company. The Company has not entered
into any agreement to
14
indemnify any other person or entity
against any charge of infringement of any Company Intellectual
Property, except as set forth in the Schedule 2.15(c).
(d)
The Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other
agreement relating to the Company Intellectual Property or Third
Party Intellectual Property Rights.
(e)
All patents, registered trademarks, domain names, service marks and
copyrights held by the Company are, to the best knowledge of the
Company, valid and subsisting, and the manufacturing, marketing,
licensing or sale of its products, to the best knowledge of the
Company, does not infringe any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third
party. The Company (i) has not been sued in any suit, action or
proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade
secret or other proprietary right of any third party; and (ii) has
not brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement
involving Intellectual Property against any third party.
(f)
The Company has secured valid written assignments and waiver of any
moral rights from consultants and employees who contributed to the
creation or development of Intellectual Property of the rights to
such contributions that the Company does not already own by
operation of law.
(g)
The Company has taken reasonably necessary and appropriate steps to
protect and preserve the confidentiality of all Company
Intellectual Property not otherwise protected by patents, patent
applications or copyright (“Confidential
Information”). All use, disclosure or appropriation of
Confidential Information by the Company by or to a third party has
been pursuant to the terms of a written agreement between the
Company and such third party.
2.16
Contracts.
(a)
Schedule 2.16(a) contains a true and complete list of each of the
Contracts (true and complete copies or, if none, reasonably
complete and accurate written descriptions of which, together with
all amendments and supplements thereto and all continuing waivers
of any material terms thereof, have been made available to Parent
prior to the execution of this Agreement) of the Company. The
Schedules contains a true and complete list of each Contract of the
Company not terminable by the Company upon 30 days (or less) notice
by the Company without penalty or obligation to make payments based
on such termination.
(b)
Each Contract required to be disclosed in the Schedule, unless
otherwise stated in therein, is in full force and effect and
constitutes a legal, valid and binding agreement, enforceable in
accordance with its terms, and, to the best knowledge of the
Company, no party to such Contract is, nor has received notice that
it is, in violation or breach of or default under any such Contract
(or with notice or lapse of time or both, would be in violation or
breach of or default under any such Contract).
15
(c)
The Company is not a party to or bound by any Contract that (i)
automatically terminates or allows termination by the other party
thereto upon consummation of the transactions contemplated by this
Agreement or (ii) contains any covenant or other provision which
limits the ability of the Company to compete with any Person in any
line of business or in any area or territory.
2.17
Insurance. The
Company’s current insurance policies, if any, are listed on
Schedule 2.17.
2.18 Affiliate
Transactions.
(a)
Except as disclosed in Schedule 2.18(a), (i) there are no Contracts
or Liabilities between the Company, on the one hand, and (1) any
current or former officer, director, shareholder, or to the
knowledge of the Company, any Affiliate or Associate of the Company
or (2) any Person who, to the knowledge of the Company, is an
Associate of any such officer, director, shareholder or Affiliate,
on the other hand, (ii) the Company does not provide or cause to be
provided any assets, services or facilities to any such current or
former officer, director, shareholder, Affiliate or Associate,
(iii) no current or former officer, director, shareholder,
Affiliate or Associate provides or causes to be provided any
assets, services or facilities to the Company and (iv) the Company
does not beneficially own, directly or indirectly, any Investment
Assets of any such current or former officer, director,
shareholder, Affiliate or Associate.
(b)
Each of the Contracts and Liabilities listed in Schedules 2.18(a)
was entered into or incurred, as the case may be, on terms no less
favorable to the Company (in the reasonable judgment of the
Company) than if such Contract or Liability was entered into or
negotiated on an arm’s- length basis on competitive terms.
Any Contract to which the Company is a party and in which any
director of the Company has a financial interest in such Contract
was approved in accordance with applicable law.
2.19 Employees; Labor
Relations.
(a)
The Company has a contract with Administaff whereby Administaff
provides PEO services to the Company and through Administaff the
Company is in compliance in all material respects with all
currently applicable laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment
practices, and is not engaged in any material respect in any unfair
labor practice. The Company through its PEO relationship with
Administaff has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries, and other
payments to employees and consultants; and is not liable for any
arrears of wages or any Taxes or any penalty for failure to comply
with any of the foregoing. The Company is not liable for any
payment to any trust or other fund or to any governmental or
administrative authority, with respect to employment insurance,
social security, workers compensation, health or other benefits or
obligations for employees (other than routine payments to be made
in the normal course of business and consistent with past
practice). There are no
16
pending claims against the Company
under any workers compensation plan or policy or for long term
disability. There are no controversies pending or, to the
knowledge of the Company, threatened, between the Company and any
of its employees, which controversies have or could reasonably be
expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any agency, court or tribunal,
foreign or domestic. The Company is not a party to any
collective bargaining agreement or other labor unions contract nor
does the Company know of any activities or proceedings of any labor
union to organize any such employees. To the best of the
Company’s knowledge, no employees of the Company are in
violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any restrictive covenant
to a former employer relating to the right of any such employee to
be employed by the Company because of the nature of the business
conducted or proposed to be conducted by the Company or to the use
of trade secrets or proprietary information of others. No
employees of the Company have given notice to the Company, nor is
the Company otherwise aware, that any such employee intends to
terminate his or her employment with the Company.
(b)
Except as set forth in Schedule 2.19(b), all employees of the
Company are terminable by the Company upon reasonable notice in
accordance with applicable Law. Schedule 2.19(b) sets forth,
individually and by category, the name of each officer, employee
and consultant, together with such person’s position or
function, annual base salary or wage and any incentive, severance
or bonus arrangements with respect to such person. The completion
of the transactions contemplated by this Agreement will not result
in any payment or increased payment becoming due from the Company
to any officer, director, or employee of, or consultant to, the
Company. The Company is not a party to any agreement for the
provision of labor from any outside agency that would result in
treatment of such providers of labor as an employee of the Company.
There have been no claims by employees of such outside
agencies, if any, with regard to employees assigned to work for the
Company, and no claims by any governmental agency with regard to
such employees.
(c)
Since the date of incorporation of the Company, there have been no
federal or state claims based on employment equity, sex, sexual or
other harassment, age, disability, race or other discrimination or
common law claims, including claims of wrongful dismissal,
severance pay, payment in lieu of notice or bad faith termination,
by any employees of the Company or by any of the employees
performing work for the Company but provided by an outside
employment agency, and there are no facts or circumstances known to
the Company that could reasonably be expected to give rise to such
complaint or claim.
(d)
The Company has written employment policies and/or employee
handbooks or manuals as provided by Administaff under the PEO
agreement with the Company. To the knowledge of the Company, no
officer, employee or consultant of the Company is obligated under
any Contract or other agreement or subject to any Order or Law that
would interfere with the Company’s business as currently
conducted.
17
2.20 Environmental
Matters. The
Company does not now own, and has never owned, any physical
premises.
2.21 Substantial Customers
and Suppliers. Schedule 2.21 lists the 15 largest customers of
the Company, collectively, on the basis of revenues collected or
accrued for the most recent complete fiscal year. Schedule
2.21 also lists the 15 largest suppliers of the Company on the
basis of cost of goods or services purchased for the most recent
fiscal year ended. To the knowledge of the Company, no such
customer or supplier is threatened with bankruptcy or
insolvency.
2.22 Accounts
Receivable. Except
as set forth in Schedule 2.22 the accounts and notes receivable of
the Company reflected on the Company Financials, and all accounts
and notes receivable arising subsequent to the Financial Statement
Date, (a) arose from bona fide sales transactions in the ordinary
course of business, consistent with past practice, and are payable
on ordinary trade terms, (b) are legal, valid and binding
obligations of the respective debtors enforceable in accordance
with their respective terms, (c) are not subject to any valid
set-off or counterclaim and (d) do not represent obligations for
goods sold on consignment, on approval or on a sale-or-return basis
or subject to any other repurchase or return
arrangement.
2.23
Inventory. The
Company maintains inventory, as listed in Schedule 2.23, to ensure
the timely delivery of products sold to end customers. This
inventory is maintained in storage facilities in and around Ft.
Worth, Texas. The Company also maintains small quantities of
immaterial office supplies inventory in its offices in Marietta,
Georgia and in Ft. Worth, Texas.
2.24 Other Negotiations;
Brokers; Third Party Expenses. Except as set forth in Schedule 2.24, neither
the Company nor, to the knowledge of the Company, any of its
Affiliates (nor any investment banker, financial advisor, attorney,
accountant or other Person retained by or acting for or on behalf
of the Company or any such Affiliate) (i) has entered into any
Contract that conflicts with any of the transactions contemplated
by this Agreement or (ii) has entered into any Contract or had any
discussions with any Person regarding any transaction involving the
Company which could result in the Company’s being subject to
any claim for liability to said Person as a result of entering into
this Agreement or consummating the transactions contemplated
hereby. Without limiting the foregoing, except as set forth
in Schedule 2.24, no finder, broker, agent, financial advisor, or
other intermediary has acted on behalf of the Company in connection
with the Merger or the negotiation or consummation of this
Agreement or any of the transactions contemplated hereby.
Schedule 2.24 estimates as provided by the Parent and Merger Sub,
sets forth the principal terms and conditions of any Contract with
respect to, and a reasonable estimate of, all Third Party Expenses
expected to be incurred by the Company in connection with the
negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
18
2.25 Warranty
Obligations. Schedule 2.25 sets forth (a) a list of all forms
of written warranties, guarantees and written warranty policies of
the Company in respect of any of the Company’s products and
services, which are currently in effect (the “Warranty
Obligations”), and the duration of each such Warranty
Obligation, (b) each of the Warranty Obligations which is subject
to any dispute or, to the knowledge of the Company, threatened
dispute and (c) the experience of the Company since its
incorporation with respect to warranties, guarantees and warranty
policies of or relating to the Company’s products and
services. True and correct copies of the Warranty Obligations
have been delivered to Parent prior to the execution of this
Agreement. There have not been any material deviations from the
Warranty Obligations, and salespersons, employees and agents of the
Company are not authorized to undertake obligations to any customer
or other Person in excess of such Warranty Obligations. The
balance sheet included in the Company Financials reflects adequate
reserves for Warranty Obligations. All products manufactured,
designed, licensed, leased, rented or sold by the Company (i) are
and were free from material defects in construction and design and
(ii) satisfy any and all Contract or other specifications related
thereto to the extent stated in writing in such Contracts or
specifications, in each case, in all material respects, in each
case other than as a result of software “bugs” that are
remediable in the ordinary course without material cost to the
Company.
2.26 Foreign Corrupt
Practices Act. Neither the Company, nor to the knowledge of the
Company, any agent, employee or other Person associated with or
acting on behalf of the Company has, directly or indirectly, used
any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political
activity, made any unlawful payment to any government official or
employee or to any political party or campaign from corporate
funds, violated any provision of the Foreign Corrupt Practices Act
of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other similar unlawful payment.
2.27 Financial
Projections. Any
and all financial projections discussed in presentations to
investors, bankers and Parent, if any, made by the Company with
respect to the Company’s business were prepared for internal
use only. The Company makes no representation or warranty of any
kind whatsoever regarding the accuracy of any such projections or
as to whether any such projections will be achieved, except that
the Company represents and warrants that any such projections were
prepared in good faith and were based on assumptions believed by it
to be reasonable at the time.
2.28 Approvals.
(a)
No Approvals of Governmental or Regulatory Authorities relating to
the business conducted by the Company are required to be given to
or obtained by the Company from any and all Governmental or
Regulatory Authorities in connection with the consummation of the
transactions contemplated by this Agreement.
19
(b)
Except as set forth in Schedule 2.28(b), no non-Governmental or
Regulatory Authority Approvals are required to be given to or
obtained by the Company from any third parties in connection with
the consummation of the transactions contemplated by this
Agreement.
(c)
The Company has obtained all Approvals from Governmental or
Regulatory Authorities necessary to conduct the business conducted
by the Company in the manner as it is currently being conducted and
since the date of incorporation of the Company, there has been no
written notice received by the Company of any violation or
non-compliance with any such Approvals. All Approvals from
Governmental or Regulatory Authorities necessary to conduct the
business conducted by the Company as it is currently being
conducted are set forth in Schedule 2.28(c).
2.29 Leases in
Effect. The
Company has real property leases or subleases as set forth in
Schedule 2.29.
2.30
Disclosure. No
representation or warranty contained in this Agreement or any
related Schedule or in any certificate, list or other writing
furnished to Parent pursuant to any provision of this Agreement
(including the Company Financials and the notes thereto) contains
any untrue statement of a material fact or omits a material fact
necessary in order to make the statements herein or therein, in the
light of the circumstances under which they were made, not
misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Parent and Merger Sub hereby
represent and warrant to the Company and the Company Shareholders,
subject to such exceptions as disclosed with respect to specific
sections of this Article 3, as follows:
3.1 Organization, Standing
and Power. Parent
and Merger Sub are each Corporations duly organized, validly
existing and in good standing under the laws of Nevada. Parent and
Merger Sub each have the corporate power to own their properties
and to carry on their business as now being conducted and as
proposed to be conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the ownership,
use, licensing or leasing of its Assets and Properties, or the
conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for such failures to be so
duly qualified, licensed or admitted and in good standing that
could not reasonably be expected to have a material adverse effect
on the Business or Condition of Parent or Merger Sub. Neither
Parent nor Merger Sub is in violation of any of the provisions of
its Articles of Incorporation or Bylaws.
3.2 Capital Structure of
Parent and Merger Sub. The authorized capital stock of Parent consists
of 800,000,000 shares of Parent Common Stock and 20,000,000
shares
20
of Parent Preferred Stock, all
$0.001 par value per share. 10,000,000 shares of Parent
Preferred Stock are designated Series A Preferred Stock. All
outstanding shares of Parent Common Stock have been duly
authorized, validly issued, fully paid and are nonassessable and
free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof.
The Shares of Parent Common Stock to be issued pursuant to the
transactions contemplated herein will be duly authorized, validly
issued, fully paid, and non-assessable.&
