ASSET PURCHASE AGREEMENT
BY AND AMONG
SURGE COMPONENTS, INC.,
GDIS ACQUISITION CORP.,
a wholly-owned Delaware subsidiary of Surge Components, Inc.,
as Buyer,
and
GLOBAL DATATEL, INC.,
as Seller
December 8, 1999
EXHIBITS TO THE ASSET PURCHASE AGREEMENT
AMONG SURGE COMPONENTS, INC.,
GDIS ACQUISITION CORP. AND GLOBAL DATATEL, INC.
Exhibit No. Description
----------- -----------
3(b) Form of Escrow Agreement
3(d)(1) Form of Employment Agreement
3(d)(2) Form of Amendment to Levy and Xxxxxx Employment Agreements
13(i) Form of Affiliate Agreement
14(f) Form of the Seller's Legal Opinion
14(s) Form of Non-Competition Agreement
16(c) Form of the Buyer's Legal Opinion
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SCHEDULES TO THE ASSET PURCHASE AGREEMENT
AMONG SURGE COMPONENTS, INC.,
GDIS ACQUISITION CORP. AND GLOBAL DATATEL, INC.
Schedule No. Description
------------ -----------
1 Assets of Seller
3(d)(i) Employment Agreements
3(h) Use of Proceeds
4(b) The Excluded Assets
5(a) Assumed Liabilities
7(a) Exceptions to Title
7(d) Seller Subsidiaries
7(e) SEC Documents
7(i) Legal Proceedings; Claims
7(j) Trade Names and Trademarks, etc.
7(k) Patents, etc.
7(l) Material Agreements, Contracts, Commitments,
Obligations and Understandings
7(m) Violations or Restrictions
7(n) Court Orders and Decrees
7(p) Governmental Licenses, Permits, Etc.
7(q) Environmental Claims
7(r) Employee Benefit Plans
7(u) The Seller's Undisclosed Liabilities and Conditions
7(v) Compliance with Laws
7(x) Changes Outside of Ordinary Course
7(z) Non-Cancelable Labor Contracts
7(aa) Customer Lists
7(cc) Insurance
7(dd) Right's of Third Parties
8(e) Surge Subsidiaries
8(g) Surge Taxes
8(i) Surge Conflicts
13(i) Affiliate Agreements
14(s) Non-Competition Agreements
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the "Agreement") dated as of December 8, 1999
by and among Surge Components, Inc., a New York corporation ("Surge"), GDIS
Acquisition Corp., a Delaware subsidiary of Surge (the "Buyer") and Global
Datatel, Inc., a Nevada corporation (the "Seller").
W I T N E S S E T H:
WHEREAS, the Buyer is a wholly-owned subsidiary of Surge;
WHEREAS, Surge, the Buyer and the Seller have previously entered into a
Merger Agreement and Plan of Organization, dated as of October 8, 1999 (the
"Merger Agreement"), which the parties desire to terminate and replace with this
Agreement, leaving the loan documents executed pursuant to the Merger Agreement
in full force and effect;
WHEREAS, the Seller has been engaged in providing to large system Latin
American integration projects, and through xXxxx.xxx, a wholly-owned subsidiary,
is a Latin American ISP multilingual portal (the "Business"), which Business
shall cease as currently organized and be reconstituted as a new business of the
Buyer; and
WHEREAS, the Seller wishes to sell and the Buyer wishes to purchase all
of the tangible and intangible assets associated with the Business (the
"Assets"), and certain liabilities incurred by the Seller in the ordinary course
of its Business (the "Assumed Liabilities" as defined below).
NOW, THEREFORE, in consideration of the foregoing and the terms,
conditions, representations, warranties and mutual covenants appearing in this
Agreement, the parties hereto hereby agree as follows:
Section 1. Sale and Purchase of Assets.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing (as hereinafter defined) effective as of the Effective
Date (as hereinafter defined), the Seller shall sell, assign, transfer and
deliver to the Buyer, and the Buyer shall purchase, acquire, accept and take
possession of all of the Seller's right, title and interest in and to all of the
Assets and Assumed Liabilities of the Seller (the "Acquisition") described in
the Schedules attached to this Agreement, except for the Excluded Assets
described in Section 4 below.
(b) The Buyer shall not assume, accept or undertake nor be responsible
for any obligations, commitments, duties, debts, or liabilities of any kind or
nature whatsoever, other than the Assumed Liabilities as defined below in
Section 5, whether or not relating in any way to the operation of the Business
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whether known or unknown, absolute, accrued, contingent or otherwise, or whether
due or to become due, arising out of events, transactions, or facts occurring on
or prior to the Effective Date.
Section 2. Purchase Price. In full consideration for the sale,
transfer, conveyance, assignment and delivery of the Assets by the Seller to the
Buyer and in reliance upon the representations and warranties made herein by the
Seller and for other consideration set forth herein, the Buyer hereby agrees to
pay to the Seller at the Closing (as hereinafter defined) a purchase price (the
"Purchase Price") of 239,000 shares of Surge's Series A Redeemable Convertible
Preferred Stock, $.001 par value ("Surge Class A Preferred Stock"). The common
share exchange ratio shall be one hundred (100) shares of Seller's common stock
for one (1) share of Surge Class A Preferred Stock. Following approval of
Surge's stockholders, as described in Section 3(e) below, each share of Surge
Class A Preferred Stock will automatically be converted into and shall vote on
an as converted basis for 100 shares of Surge's Class B Common Stock.
Surge's existing Common Stock, $.001 par value, shall be redesignated
as "Class A Common Stock". The Class A Common Stock shall have the same rights
and preferences and otherwise be the same as the existing Common Stock, except
that the holders of each two shares of Class A Common Stock issued and
outstanding after the Effective Date, subject to the terms and conditions of
this Agreement, shall have the right to receive and become exchangeable for, one
share of Class B Common Stock following the Effective Date. Other than the
exchange ratio between the Class A and Class B Common Stock, the two classes
shall be treated on a pari passu basis and have the same rights and preferences
of each other, with each having one vote per share and sharing proportionately
to their respective number of shares in dividends declared by Surge and in the
assets of Surge upon liquidation or dissolution. It is expected that Surge's
stockholders will approve a forward stock split as part of the recapitalization
on the Effective Date. For purposes of this Agreement, all share and per share
amounts on or after the Effective Date give pro forma effect to such proposed
stock split. The Class B Common Stock when issued in exchange for the Surge
Class A Preferred Stock shall be a tracking stock, intended to be separately
listed on NASDAQ. The Surge Class A Preferred Stock and when issued, the Class B
Common Stock shall represent only the assets of the Seller which are being
purchased by the Buyer and the Business and financial condition of the Buyer
after the Closing Date.
Section 3. Description of Components of Purchase Price, Terms of the
Acquisition and Securities of Surge, Buyer and Seller.
(a) Payment of Purchase Price to the Seller at Closing.
Upon the completion by the parties of their respective closing
conditions under this Agreement (unless waived in writing by the parties
hereto), the Buyer shall pay to the Seller the Purchase Price, payable in stock
as described below, in exchange for delivery of the Assets at the Closing.
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(b) Purchase Price and other Securities to be Held in Escrow.
At the Closing, Buyer shall deposit all 239,000 shares of Surge Class A
Preferred Stock with the Escrow Agent in accordance with the form of Escrow
Agreement attached as Exhibit 3(b). All of the shares held by the Escrow Agent,
and any interest or dividends thereon, are referred to herein as the "Escrow
Shares." The Escrow Shares shall be made available to Seller upon the completion
of the Post-Closing audit and due diligence conditions defined as Post-Closing
Compliance in Section 6(b) below. Upon shareholder approval, the Class B Common
Stock shall have the same voting rights as the Class A Common Stock
(c) [Intentionally left blank]
(d) Employment Agreements; Non-Competition Agreements.
In addition to the purchase and sale of the Assets as described above,
prior to the Effective Date, each of the persons listed on Schedule 3(d)(i)
shall have executed and delivered Employment Agreements with the Buyer in the
form annexed hereto as Exhibit 3(d)(1); and Xxx Xxxx and Xxxxxx Xxxxxx each
shall enter into an amendment to their Employment Agreements with Surge in the
form annexed hereto as Exhibit 3(d)(2) and in accordance with the letter
agreements dated October 8, 1999 executed by Messrs. Levy and Xxxxxx with Surge
and the Seller.
(e) Effective Date of the Sale.
The parties hereto agree that the Closing of the Acquisition shall be
conditioned upon Surge and the Seller subsequently obtaining the required vote
of their Shareholders at special meetings of shareholders (the "Special
Meetings"), which shall be deemed the "Effective Date." The parties to this
Agreement hereby agree to file with the Securities and Exchange Commission (the
"SEC"), a joint proxy statement/prospectus to Seller's and Surge's shareholders
as soon as possible following the Closing and use their best efforts to have it
declared effective by the SEC promptly and thereafter hold the Special Meeting
as soon as legally permitted to do so.
(f) Treatment of Outstanding Surge Securities.
(i) At the Effective Date, each two issued and outstanding shares
of Surge Common Stock, designated as Class A Common Stock shall be convertible
by the holders, at their sole discretion, into one share of Class B Common
Stock.
(ii) At the Effective Date, each unexercised Class A Common Stock
Warrant (the "Class A Warrants") of Surge, exercisable at $5.00 per share,
callable when the Class A
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Common Stock trades at or above $7.00 per share and expiring on July 31, 2003
issued and outstanding at the Effective Date, subject to the terms and
conditions of this Agreement, shall be exercisable at $5.00 per warrant for one
share of Class B Common Stock and shall be callable if Class B Common Stock
trades at or above $7.00 per share.
(iii) each option to purchase shares of Surge Common Stock (the
"Company Options") issued pursuant to Surge's 1995 Employee Stock Option Plan,
as amended (the "Company Plan"), but exclusive of the 5,300,000 options granted
in December 1998 in connection with the terminated merger with Orbit Network
Inc. (the "Orbit Options"), all of which issued and outstanding Company Options
are set forth on Schedule 3(f)(ii) hereto shall, at the Effective Date, except
the Orbit Options as set forth below, maintain the same terms and conditions and
in addition each two options shall be exercisable for one share of Class B
Common Stock.
(iv) The above-mentioned 5,300,000 Orbit Options shall become fully
vested and exercisable at the Effective Date, conditioned upon shareholder
approval, to acquire an aggregate of 5,300,000 registered shares of Class B
Common Stock at $2.00 per option. All shares of Class B Common Stock issuable
upon exercise of the Orbit Options shall be registered with the SEC on a Form
S-8 Registration Statement at or before the Effective Date. As soon as
practicable following the Effective Date, but in no event later than three (3)
days following the Effective Date, Surge shall deliver to holders of Orbit
Options, amended option agreements representing the right to acquire shares of
Class B Common Stock and otherwise on the same terms and conditions as contained
in the outstanding Orbit Options. Surge shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of Class B
Common Stock for delivery upon exercise of the Orbit Options in accordance with
this Section 3(f).
(g) Treatment of Seller Securities
(i) each 100 issued and outstanding shares of Common Stock, $.001
par value, of Seller ("Seller's Common Stock") shall be converted into the right
to receive one share of Surge Class A Preferred Stock, $.001 par value. Each
stock certificate of Seller evidencing ownership of any such shares of Seller's
Common Stock shall continue to evidence ownership of such shares of Common
Stock;
(ii) no fraction of a share of Surge Class A Preferred Stock (or
underlying Class B Common Stock) will be issued, but in lieu thereof, each
holder of shares of Seller's Common Stock who would otherwise be entitled to a
fraction of a share of Surge Class A Preferred Stock (after aggregating all
fractional shares of Surge Class A Preferred Stock to be received by such
holder) shall be entitled to receive from Surge an amount of cash, without
interest (rounded to the nearest whole cent), equal to the product of (i) such
fraction, multiplied by, (ii) the average closing bid price of a share of Surge
Common Stock for the five (5) consecutive trading days ending on the trading day
immediately prior to the Effective Date, as reported on Nasdaq or any exchange
on which the Surge Common Stock may then be traded. A fractional interest shall
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not entitle the owner thereof to vote such interest or to any other rights as a
security holder with respect to such interest; and
(iii) Seller has outstanding employee stock options to purchase
2,000,000 shares of Seller's Common Stock which are held by employees of Seller
and its subsidiaries. These options are non-transferable other than to other
employees of Seller and its subsidiaries and may not otherwise be assigned or
hypothecated. These 2,000,000 Seller options shall be converted on the same 100
for 1 ratio set forth in subsection (1) above, into options to acquire Surge
Class A Preferred Stock. All other options, warrants or other rights
(collectively "Rights") to purchase Seller's Common Stock outstanding on the
date hereof shall be terminated as of the Effective Date. Surge shall assume no
obligations of the Seller arising with respect to the Rights not exercised prior
to the Effective Date other than the 2,000,000 employee options described above.
(h) Bridge Loan, Re-Payment of Loan and Future Cash Realized.
(i) (A) The Seller has received a loan ("Bridge Loan") from Surge
in the amount of $1,000,000 and evidenced by a subordinated convertible
promissory note (the "Note") dated as of October 8, 1999. The Note is payable on
June 1, 2000, however, pursuant to a letter dated December 1, 1999, Surge
terminated the October 8, 1999 Merger Agreement and demanded repayment of the
Note by January 1, 2000.
(B) The Bridge Loan is secured by a pledge (the "Pledge") by
the Seller's President of the Seller's Common Stock pursuant to a Pledge
Agreement dated as of October 8, 1999.
(C) The Bridge Loan is also secured by a Security Agreement
from the Seller to Surge dated as of December 3, 1999, and evidenced by the
filing of UCC-1 financing statements.
(ii) Immediately following the execution of this Agreement, Surge
will attempt to raise up to $5 million (the "Private Placement") based on the
proposed acquisition of Seller. It is hereby agreed by Seller and Surge that the
minimum proceeds of such offering shall be $1 million. As soon as $1 million in
cleared funds is raised, Surge shall be entitled to remove such funds from
escrow in satisfaction of the Bridge Loan. The balance of the net proceeds,
after payment of offering expenses, will be used in accordance with the attached
Schedule 3(h). The Private Placement will also provide that as long as the
Private Placement has not been terminated by Surge as of January 1, 2000 and
Surge has not yet been repaid the $1 million Bridge Loan, it will not seek to
enforce the rights and remedies and seek repayment of the Bridge Loan.
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(iii) In the event that the Bridge Loan has not been repaid and
Surge is not otherwise seeking to enforce its rights and remedies, Surge shall
be entitled to proceeds from the exercise of up to 3,479,600 outstanding Class A
Warrants exercisable at $5.00 per share, as follows:
Surge will receive up to the first one million ($1,000,000)
dollars (or such proportionately lesser amount if a portion of Bridge Loan has
been repaid) plus accrued interest of any proceeds realized and thereafter Surge
shall receive, on a pro rata basis with the Buyer, 28% of any net proceeds
received, with the Buyer retaining 72% of any net proceeds received.
Surge shall have no obligations to fund the operations of
Buyer or make any loans to Buyer other than the above-described payment of
proceeds from Class A Warrant exercises. Surge will, however, cooperate with and
assist the Board of Directors of Buyer in their efforts to seek financing for
Buyer.
(iv) In the event that this Agreement is terminated or the
Acquisition is not completed for any reason as set forth in Section 20 herein,
or the Bridge Loan has not been repaid by January 1, 2000, the Bridge Loan shall
be repaid by the Seller in accordance with terms and conditions of the Note. In
the event that the Note is not repaid in accordance with its terms, Surge shall
have all rights and remedies of a secured creditor under the Uniform Commercial
Code and shall be entitled to such other rights and remedies set forth in the
Pledge Agreement, the Security Agreement and Registration Rights Agreement.
(i) Surrender of Certificates.
(i) Exchange Agent. Prior to the Effective Date, Surge shall
designate a bank or trust company reasonably acceptable to the Seller to act as
exchange agent (the "Exchange Agent") in the exchange (the "Exchange"). Surge
and Seller shall jointly pay all charges and expenses of Exchange Agent. The
Exchange Agent will be entrusted with exchanging the Seller's Common Stock for
Surge's Class A Preferred Stock and Class B Common Stock.
(ii) Surge to Provide Class B Common Stock. Upon the execution of
this Agreement and the necessary filing(s) with the Secretary of State of New
York, Surge shall deposit into an escrow account with the Exchange Agent for the
benefit of the Seller's shareholders the aggregate number of shares of Surge
Class A Preferred Stock (together with any dividends or distributions with
respect thereto and cash to be paid pursuant to subsection g(iii) with respect
to any fraction of a share of Surge Class A Preferred Stock) issuable pursuant
to subsection 2 above in exchange for the shares of Seller's Common Stock. Upon
the Effective Date and the conversion of the Class A Preferred Stock for Class B
Common Stock, the Exchange Agent shall, pursuant to irrevocable instructions,
deliver the aggregate number of shares of Class B Common Stock contemplated to
be issued pursuant hereto out of such escrow account. The escrow account shall
not be used for any other purpose.
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(iii) Exchange Procedures. Promptly after the Effective Date, the
Exchange Agent shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Date represented outstanding shares of Seller's Common Stock which,
pursuant to the Exchange, were exchanged for Surge Class A Preferred Stock
issued by Surge, pursuant to subsection 3(g), a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Surge may
reasonably specify), and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Surge Class
A Preferred Stock. Upon surrender of a Certificate to the Exchange Agent or to
such other agent or agents as may be appointed by Surge, together with such
letter of transmittal, duly completed and validly executed in accordance with
the instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Class B Common Stock, plus cash in lieu of fractional shares of Class
B Common Stock, in accordance with subsection g(iii) above and the Certificate
so surrendered shall forthwith be owned in the name of Surge. The Exchange Agent
shall not be entitled to vote or exercise any rights of ownership with respect
to the Class B Common Stock held by it from time to time hereunder, except that
it shall receive and hold all dividends or other distributions paid or
distributed with respect thereto for the account of persons entitled thereto.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Date, represented shares of Seller's Common Stock will be deemed from and after
the Effective Date, for all corporate purposes, to represent solely (i)
ownership of the number of full shares of Class B Common Stock into which such
Seller's securities shall have been so exchanged, and (ii) the right to receive
an amount in cash in lieu of the issuance of any fractional shares in accordance
with subsection g(iii) above.
(j) Distributions With Respect to Unexchanged Shares.
No dividends or other distributions declared or made after the
Effective Date with respect to Class B Common Stock with a record date after the
Effective Date will be paid to the holder of any unsurrendered Certificate with
respect to the shares of Class B Common Stock represented thereby until the
holder of record of such Seller's Common Stock Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Class B Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Date theretofore paid
with respect to such whole shares of Class B Common Stock.
(k) No Liability.
Notwithstanding anything to the contrary in this Section 3(k), none of
the Exchange Agent, Surge or any party hereto shall be liable to a holder of
Seller's securities or Surge securities for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
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(l) No Further Ownership Rights in Class B Common Stock.
All shares of Class B Common Stock issued in exchange for shares of
Seller's Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Seller's Common Stock,
and there shall be no further registration of transfers on the records of Surge
of shares of Seller's Common Stock which were outstanding immediately prior to
the Effective Date. If, after the Effective Date, Certificates are presented to
the Seller for any reason, they shall be transferred to Surge.
(m) Lost, Stolen or Destroyed Certificates.
In the event any certificates evidencing shares of Seller's Common
Stock shall have been lost, stolen or destroyed, Seller shall issue in exchange
for such lost, stolen or destroyed certificates, upon receiving notice from the
holder thereof at least five (5) days before the Effective Date and upon the
making of an affidavit in such form as is acceptable to the Seller and the
Exchange Agent of that fact by such holder, new shares of Seller's Common Stock;
provided, however, the Seller, as a condition precedent to the issuance thereof,
shall require the owner of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made with respect to the certificates alleged to have been
lost, stolen or destroyed. Subsequent to the issuance of new shares of Seller's
Common Stock, such shares shall be surrendered to the Exchange Agent in
accordance with subsection (i)(iii).
(n) Taking of Necessary Action; Further Action.
If, at any time after the Effective Date, any such further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Buyer with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Seller, the officers and directors of
the Seller and the Buyer are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
(o) Surge Board of Directors.
The directors of Surge immediately prior to the Effective Date shall be
the directors of Surge following the Effective Date, each to hold office for a
term of three (3) years and otherwise in accordance with the Certificate of
Incorporation and Bylaws of Surge. In addition, during such three (3) year
period the Seller shall have the right to appoint one member of the Board of
Directors of Surge. The officers of Surge and the Seller immediately prior to
the Effective Date shall remain the respective officers of the companies, each
to hold office for a term of three (3) years and in accordance with the Bylaws
of Surge and the Seller, respectively.
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(p) Dissenting Shares
(i) Notwithstanding any provision of this Agreement to the
contrary, any shares of Seller's Common Stock held by a holder who has demanded
and perfected appraisal or dissenters' rights for such shares in accordance with
Nevada Law and who, as of the Effective Date, has not effectively withdrawn or
lost such appraisal or dissenters' rights ("Dissenting Shares"), shall not be
exchanged for Class B Common Stock pursuant to subsection (g)(i), but the holder
thereof shall only be entitled to such rights as are granted by Nevada Law.
(ii) Notwithstanding the provisions of subsection (i) above, if any
holder of shares of Seller's Common Stock who demands appraisal of such shares
under Nevada Law shall effectively withdraw or lose (through failure to perfect
or otherwise) the right to appraisal, then, as of the later of the Effective
Date and the occurrence of such event, such holder's shares shall be exchanged
for Class B Common Stock and cash in lieu of fractional shares as provided in
subsection (g)(iii), without interest thereon, upon surrender of the certificate
representing such shares pursuant to subsection (i)(iii).
(iii) The Seller shall give Surge (i) prompt notice of any written
demands for appraisal of any shares of the Seller's Common Stock, withdrawals of
such demands, and any other instruments served pursuant to Nevada Law and
received by the Seller, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under Nevada
Law. The Seller and Buyer shall not, except with the prior written consent of
Surge voluntarily make any payment with respect to any demands for appraisal of
capital stock of the Seller or offer to settle or settle any such demands.
Section 4. Excluded Assets.
Notwithstanding anything to the contrary contained in Section 1 hereof,
Seller is not selling and Buyer is not purchasing any of the following, all of
which shall be retained by the Seller (collectively, the "Excluded Assets").
(a) Seller's minute books, tax returns and other corporate documents
and employment records;
(b) any of the assets listed in Schedule 4(b) attached hereto.
(c) Surge and Buyer shall allow Seller and its representatives and
professional advisers access to all business records of the Business that relate
to conduct of the Business prior to Closing. Such access shall be related to a
bona fide business interest of the Seller, and shall be conducted during normal
business hours following forty-eight (48) hour advance notice of the need to
review such records. Seller may also make and retain copies of any such business
records it determines appropriate either before or after the Effective Date.
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Section 5. Assumed Liabilities. At the Effective Date, Buyer shall
assume and thereafter pay when due and discharge, defend, indemnify and hold
Seller harmless (in accordance with Section 9 of this Agreement) with respect to
accounts payable not more than ninety (90) days old, and certain other
obligations incurred in the ordinary course of business, which will be accrued
as of the Effective Date and set forth on Schedule 5(a) attached hereto (the
"Assumed Liabilities"). It is understood and agreed by the parties hereto that
the Assets will be sold, conveyed, transferred and assigned to the Buyer at the
Closing free and clear of all liens, charges and encumbrances whatsoever,
excepting only the Assumed Liabilities, statutory liens, Surge's security
interest and any prior security interest concerning the Assets. It is further
understood and agreed by the parties hereto that except for the Assumed
Liabilities in Schedule 5(a), the Buyer does not assume, accept or undertake any
obligations, commitments, duties, debts or liabilities of any kind whatsoever
(the "Obligations"), or otherwise (including, without limitation, any corporate
sales of other business of Seller).
Section 6. Closing.
(a) The closing of the Acquisition provided for in Section 1 of this
Agreement (the "Closing") shall take place at the offices of Snow Xxxxxx Xxxxxx
P.C. at 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, simultaneous with the
execution of this Agreement. The day on which the Closing occurs is sometimes
hereinafter referred to as the "Closing Date."
(b) Notwithstanding the Closing described in subsection 6(a) above,
until such time as each of the conditions set forth in Sections 7(g), 13(c),
14(i) and 14(p) are satisfied and all Schedules and Exhibits to this Agreement
are prepared and agreed to (collectively referred to herein as "Post-Closing
Compliance"), this Agreement may be terminated by either the Seller or Surge
without any penalty.
Section 7. Representations and Warranties of the Seller. The Seller
warrants and represents to the Buyer and Surge as follows:
(a) Title.
Except as set forth in Schedule 7(a) of this Agreement, the Seller
owns, and at the Closing shall have, good, valid, insurable and marketable title
to the Assets and full right to transfer title to the Assets free and clear of
all liens, mortgages, charges, liabilities, claims, security interests or
encumbrances of every type whatsoever, except the Assumed Liabilities, statutory
liens and liabilities created by Buyer.
Except as set forth in Schedule 7(a) of this Agreement, the sale,
conveyance, transfer and delivery of the Assets by the Seller to the Buyer
pursuant to this Agreement will transfer full legal and equitable right, title
and interest in the Assets to the Buyer, free and clear of all liens, mortgages,
charges, claims, liabilities, security interests and encumbrances of any nature
whatsoever, except the Assumed Liabilities, statutory liens and liabilities
created by Buyer.
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(b) Capacity; Organization; Existence.
The Seller has full capacity to enter into and perform under this
Agreement, and all other agreements to be entered into in connection with the
transactions contemplated hereby (the "Other Agreements") and to consummate such
transactions; and no other consent or joinder of any other persons or
corporations is required exclusive of the Seller's shareholders as set forth in
Section 13(c) below. This Agreement has been, and each of the Other Agreements
executed by the Seller hereunder will at the Closing, be duly authorized,
executed and delivered by the Seller. This Agreement constitutes, and each of
the Other Agreements executed by the Seller will constitute, the legal, valid
and binding obligations of the Seller enforceable in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights generally or by general equitable principles. The Seller is duly
organized and validly existing under the laws of the State of Nevada. The Seller
has full corporate power and authority to conduct its business as it is now
being conducted and is duly qualified to do business in each jurisdiction where
the nature of the property owned or leased, or the nature of the business
conducted by the Seller requires such qualification. The Seller has all
necessary licenses and authority to operate its business as now being conducted.
(c) Seller Capital Structure.
The authorized stock of Seller consists of 50,000,000 shares of
Seller's Common Stock, and 1,000,000 shares of Preferred Stock, $.001 par value.
As of the date of this Agreement, 23,450,000 shares of Seller's Common Stock
have been issued and are outstanding, and no shares of Preferred Stock have been
issued. Seller has reserved (i) no shares of Seller's Common Stock for issuance
pursuant to Seller's 1998 Employee Stock Option Plan, of which as of December 1,
1999 options to purchase 2,000,000 shares were outstanding, all of which shall
be canceled no later than the Effective Date, and no shares remained available
for future grants. As of the date hereof, no shares of Seller's Common Stock are
issuable upon the exercise of outstanding warrants. Other than as set forth in
this Section 7(c), there are no options, warrants, calls, rights, commitments or
agreements of any character to which the Seller is a party or by which it is
bound, obligating Seller to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Seller or obligating the Seller to grant, extend or enter
into any such option, warrant, call, right, commitment or agreement. The
Seller's Common Stock, issued and outstanding is duly authorized, validly
issued, fully paid and non-assessable.
(d) Subsidiaries.
Except as set forth on Schedule 7(d) hereto, the Seller does not have
and has never had any subsidiaries or affiliated companies and does not
otherwise own and has never otherwise owned any shares of capital stock or any
interest in, or control, directly or indirectly, any other corporation,
partnership, association, joint venture or other business entity.
11
(e) SEC Documents; Seller Financial Statements.
(i) Except as set forth on Schedule 7(e), Seller has filed with the
SEC all forms, statements, reports and documents (including all exhibits,
amendments and supplements thereto) required to be filed by it under each of the
Securities Act of 1933, as amended (the "Act") and the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and the respective rules and
regulations thereunder, all of which complied in all material respects with all
applicable requirements of the appropriate act and rules and regulations
thereunder, except as noted in the comment letter from the Staff of the SEC
dated November 26, 1999 (the "SEC Comment Letter"). In any event, Seller has
represented to Buyer that immediately following the execution of this Agreement,
Seller will withdraw its Form 10 Registration Statement from the SEC and
de-register its securities under the Exchange Act. Seller has furnished or made
available or will make available to Surge true and correct copies of all forms,
statements, reports and documents filed by Seller with the SEC since January 1,
1999, including, without limitation, Seller's General Form For Registration of
Securities on Form 10 filed on July 26, 1999, including the audited financial
statements for the years ended December 31, 1997 and 1998, plus the unaudited
financial statements for the period ended September 30, 1999 (all of the
foregoing being collectively referred to as the "Seller SEC Documents"). As of
their respective filing dates, the Seller SEC Documents complied in all material
respects with the requirements of the Act and the Exchange Act, and the
applicable rules and regulations of the SEC thereunder, as the case may be,
except as noted in the SEC Comment Letter, and none of the Seller SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading.
Since September 30, 1999, Seller has not suffered any Material
Adverse Effect (as defined in Section 14(j) below) with respect to its business
(financial or otherwise), and Seller has conducted its business only in the
ordinary course and there has not been any declaration, setting aside or payment
of any dividend or other distribution with respect to Seller's Common Stock or
any repurchase, redemption or other acquisition by Seller of any other
securities of Seller. Except as set forth on Schedule 7(e)(i) attached hereto,
the financial statements of Seller, including the notes thereto, included in the
Seller SEC Documents (the "Seller Financial Statements") comply as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by SEC rules
for such form) and present fairly the consolidated financial position of Seller
at the dates thereof and of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal, recurring audit
adjustments which will not be material in amount or significance) and, except as
required to be filed pursuant to subsection (f)(i) below, do not include or omit
to state any fact which renders the Seller Financial Statements hereunder
misleading. There has been no change in Seller accounting policies except as
described in the notes to the Seller Financial Statements.
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(ii) Except as and to the extent shown or provided for in the
Seller Financial Statements or notes and schedules thereto or as disclosed in
any of the Schedules to this Agreement or such current liabilities as may have
been incurred since September 30, 1999 in the ordinary course of business, to
the extent quantified and reflected as a liability on the Seller's books and
records, the Seller and its subsidiaries as at the date hereof have no
liabilities or obligations (whether known or unknown, accrued, absolute,
contingent or otherwise ) which might be or become a charge against the assets
or liabilities of the Seller except as specifically provided pursuant to the
terms of the agreement or understanding to which such liability or obligation
relates; as of September 30, 1999, there was no asset used by the Seller in its
operations that has not been reflected in the Seller Financial Statements, and
except as set forth in the Seller Financial Statements, no assets have been
acquired by the Seller since such date except in the ordinary course of
business.
(iii) Except as disclosed in the Seller Financial Statements, there
has been no decrease in stockholders' equity as compared with the amount shown
for such stockholders' equity as at September 30, 1999 and no material adverse
changes in the financial position of the Seller and its Subsidiaries, taken as a
whole, since September 30, 1999.
(f) Updated Seller Financial Statements.
(i) As soon as practicable following the date of this Agreement,
but no later than seven (7) days prior to the filing of Surge's proxy statement
with the SEC for the special meeting to approve the Acquisition, Seller shall
cause to be delivered to Surge, Seller's unaudited consolidated balance sheet as
of the last day (the "Balance Sheet Date") of a month within 45 days of the
delivery of such financial statements (e.g. October 31, 1999 until December 15,
1999) and the related unaudited statements of operations and cash flows for the
period commencing January 1, 1999 and ending on the Balance Sheet Date as well
as any and all audited and unaudited financial statements not previously filed
with the SEC which are required to be filed in accordance with GAAP and the
SEC's rules and regulations (collectively, the "Updated Seller Financials"). At
such time as Updated Seller Financials are delivered, Seller will represent and
warrant to the Buyer and Surge that Updated Seller Financials are correct in all
material respects and have been prepared in accordance with GAAP applied on a
basis consistent throughout the periods indicated and consistent with each
other. Updated Seller Financials will present fairly the financial condition and
operating results of Seller as of the dates and during the periods indicated
therein.
(ii) The Updated Seller Financial Statements shall be subject to
review by Surge and its accountants and consultants. The Updated Seller
Financial Statements delivered prior to the Closing shall be accompanied by the
Seller's auditors review statement. The Seller shall be responsible for the fees
and expenses of the auditors for their services in connection with the Updated
Seller Financial Statements. Surge shall be responsible for the fees of its own
accountants in reviewing, but not preparing, the Updated Seller Financial
Statements. Surge and/or its designees shall be permitted to participate in the
13
review process, to observe all aspects of the review and to collaborate with the
auditors in the preparation of the Updated Seller Financial Statements.
(iii) Following delivery of the Updated Seller Financial Statements
to Surge, Surge shall be authorized to provide its designees with an opportunity
to review the auditors work papers related to the financial statements and to
discuss the same with the auditors' representatives. Surge shall have fifteen
(15) days to review the Updated Seller Financial Statements and to give notice
to the Seller of any disagreement regarding such statements (an "Objection
Notice"). Absent such objection Notice, the Updated Seller Financial Statements
as delivered shall be final and binding on the parties hereto.
(iv) If Surge files an Objection Notice in a timely manner and the
parties are able to resolve such objections, the Updated Financial Statements
(including any adjustments), as the case may be, as modified to resolve such
objections, shall be binding on the parties hereto. If they are unable to reach
agreement as to all differences within fifteen (15) days after the Seller's
receipt of the Objection Notice, then the unresolved differences shall be
resolved as provided in Section 24(m) hereof.
(g) Electronic Bulletin Board Listing.
Seller's capital stock has traded on NASD's Over-the-Counter Electronic
Bulletin Board, with a listing application pending with the AMEX and as soon as
practicable following the execution of this Agreement will make applications to
be de-listed for trading on the OTCBB, withdraw any pending application with
AMEX, and withdraw its Exchange Act registration from the SEC.
(h) Year 2000 Compliance.
The Seller shall demonstrate to Surge's satisfaction that it has taken
reasonable steps to ensure that the Seller's primary computing system and
software (i) will operate without substantial errors relating to date data,
including any error relating to, or the product of, date data which represents
or references different centuries or more than one century; (ii) will be capable
of correctly processing, providing, receiving, and displaying accurate date
data, and exchanging accurate date data with all products with which it is
currently exchanging date data; (iii) will not abnormally end, corrupt data, or
produce incorrect or invalid results as a result of date data, including date
data which represents or references different centuries or more than one century
or as a result of multi-century date calculations, sequencing, or comparisons;
(iv) will be capable of date data century recognition and calculations which
accommodate same century and multi-century formulas and date values and date
data interface values that reflect the century; (v) will correctly recognize
leap years, including the year 2000, and will handle all dates in leap years
appropriately; and (vi) will properly interpret, as to century, all date data
currently stored or accessible to it.
14
(i) Legal Proceedings; Claims.
Except as set forth in Schedule 7(i) of this Agreement, the Seller is
not a party to any pending litigation, arbitration or administrative proceeding
or investigation, with respect to or relating to the Assets or the Business and,
to the Seller's best knowledge and belief, no litigation, arbitration or
administrative proceeding or investigation that would have a material adverse
effect on the Assets or the Business is threatened. Except as set forth in
Schedule 7(i) of this Agreement, there are no warranties or other claims
relating to any products sold by the Seller.
(j) Trade Names and Trademarks, etc.
With respect to the Business, the Seller owns or has the right to use
the trade names, and trademarks set forth on Schedule 7(j). The Seller has not
granted, and will not grant prior to the Closing, licenses or other rights to
use such trade names and trademarks. Except as disclosed in Schedule 7(j), no
other trade names or trademarks are owned or used by the Seller in relation to
the Business. To the Seller's best knowledge and belief, the operation of the
Business does not infringe on the trade names, trademarks or any other
intellectual property rights of any third party. No claim has been made that
there is any such infringement. To the Seller's best knowledge and belief, no
trade name or trademarks of any person infringes the trade names or trademarks
which relate to the Business.
(k) Patents, etc.
The Seller owns the inventions, letters patent, applications for
letters patent and patent license rights, inventions, processes, designs,
formulas, trade secrets, know-how and other industrial property rights
(collectively "Patents") necessary for the conduct of the Business, specified as
belonging to it in Schedule 7(k). The Patents have been duly issued and have not
been canceled, abandoned or otherwise terminated. The Seller is not in default
under any of the licenses or agreements.
(l) Description of Material Contracts.
Schedule 7(l) contains a complete and correct list as of the date
hereof of all agreements, contracts and commitments, obligations and
understandings which are not set forth in any other Schedule delivered
hereunder, of the following types, written or oral (the "Material Agreements")
which relate to the Business and to which the Seller is a party or by which it
or any of its properties are bound, as of the date hereof:
(i) mortgages, indentures, security agreements and other agreements
and instruments relating to the borrowing of money or extension of credit; (ii)
employment and consulting agreements with annual compensation in excess of
$40,000; (iii) collective bargaining agreements; (iv) bonus and incentive,
profit-sharing, compensation, stock purchase and stock option, pension,
retirement, deferred compensation, hospitalization and other life, health or
disability insurance, holiday, sick leave, severance, vacation, tuition
reimbursement, personal loan and product purchase discount, policy manuals, or
15
other plans, agreements, trusts, funds or arrangements for the benefit of
employees (whether or not legally binding); (v) sales agency, manufacturer's
representative or distributorship agreements; (vi) agreements, orders or
commitments for the purchase by the Seller of materials, supplies or finished
products exceeding $10,000 in the aggregate from any one person; (vii)
agreements, orders or commitments for the sale of products or services exceeding
$25,000; (viii) agreements or commitments for capital expenditures in excess of
$10,000 for any single project (it being warranted that the commitment for all
undisclosed contracts for such agreements or commitments does not exceed $10,000
in the aggregate); (ix) agreements relating to research; (x) agreements relating
to the payment of royalties, license or similar fees; (xi) brokerage or finder's
agreements; (xii) joint venture agreements; and (xiii) other agreements,
contracts and commitments that individually or in the aggregate for any one
party involve any expenditure by the Seller of more than $10,000. All of the
Material Agreements constitute valid and legally binding obligations of the
parties thereto, enforceable in accordance with their respective terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights generally or by general
equitable principles, are in full force and effect and, except as otherwise
specified in Schedule 7(l), are validly assignable to the Buyer without the
consent of any party so that, after the assignment thereof to the Buyer pursuant
hereto, the Buyer will be entitled to the full benefits thereof. There is not
under any Material Agreement any existing default, or event which, after notice
or lapse of time, or both, would constitute a default or result in a right to
accelerate or loss of rights under any Material Agreement. The Seller has not
received any notice of termination of any Material Agreement. True and complete
copies of all of the Material Agreements have been delivered to the Buyer.
No agreement, contract, commitment, obligation or undertaking
listed on Schedule 7(l) to which the Seller is a party or by which any of its
properties are bound, except as specifically set forth in Schedule 7(l),
contains any provision which materially adversely affects or in the future may
(so far as the Seller can now foresee) materially adversely affect the Assets.
(m) Default; Violations or Restrictions.
The Seller is not in default under, nor has any event occurred which,
with the lapse of time or action by a third party, could result in a default
under any outstanding note, indenture, mortgage, contract or agreement to which
it is bound, relating to the Assets. Except as disclosed in Schedule 7(m), the
execution, delivery and performance of this Agreement and of any agreement to be
executed and delivered by the Seller pursuant hereto, and the consummation of
any of the transactions contemplated hereby or thereby will not (or with the
giving of notice or the lapse of time or both would) violate any provision of or
result in the breach of, modification of, acceleration of the maturity of
obligations under, or constitute a default, or give rise to any right of
termination, cancellation or acceleration or otherwise be in conflict with or
result in a loss of contractual benefits to the Seller, as such relates to the
Assets, under any law, order, writ, injunction, decree, statute, rule or
regulation of any court, governmental agency or arbitration tribunal or any of
the terms, conditions or provisions of any contract, lease, note, bond,
mortgage, deed of trust, indenture, license, security agreement, agreement or
other instrument or obligation by which the Seller is a party or by which it may
be bound, or require any consent, approval or notice under the laws of any such
16
document or instrument; or result in the creation or imposition of any lien,
claim, restriction, charge or encumbrance upon the Assets.
(n) Court Orders and Decrees.
Except as set forth on Schedule 7(n), the officers of the Seller have
not received written or oral notice that there is outstanding, pending, or
threatened any order, writ, injunction or decree of any court, governmental
agency or arbitration tribunal against or affecting the Assets.
(o) Approvals and Authorizations.
The Seller has obtained all necessary consents, approvals or
authorizations in connection with the transactions contemplated hereby that are
required by law or otherwise in order to make this Agreement binding upon the
Seller, except for shareholder approval provided for in Section 13(c) below and
those consents, approvals or authorizations which individually or in the
aggregate would not have a materially adverse effect on the Assets or the
Business.
(p) Governmental Licenses.
Schedule 7(p) attached hereto contains a correct and complete list of
all governmental and administrative consents, permits, appointments, approvals,
licenses, certificates and franchises which are required in connection with the
Seller's execution, delivery or performance of this Agreement, all of which have
been obtained and are in full force and effect. The Seller has not received any
notice of any violation with respect to any such consent, permit, license or
other regulatory order that remain unabated. Except as set forth on Schedule
7(p), the Seller is in compliance with all Laws and Environmental Laws material
to the Business, their properties or operation as presently conducted.
(q) Hazardous Material and Nuisance.
Except as disclosed on Schedule 7(q) attached hereto, there are no
known claims or potential claims which may exist against the Seller relating to
the Business and/or the Assets, for, with respect to, or as direct or indirect
result of, the presence on or under, or the escape, seepage, leakage, spillage,
discharge, or emission discharging, from the real property of the Seller of any
"Hazardous Material," including, without limitation, any losses, liabilities,
damages, injuries, costs, expenses, reasonable fees of counsel or claims
asserted or arising under the Comprehensive Environmental Response, Compensation
and Liabilities Act ("CERCLA"), any so-called "Super Fund" or "Super Lien" law
or any other applicable federal, state or local statute, law, ordinance, code,
rule, regulation, order or decree now or at any time hereafter in effect,
regulating, relating to or imposing liability or standards of conduct concerning
any Hazardous Material.
17
(r) Employee Benefit Plans.
Except as disclosed on Schedule 7(r) attached hereto, there is not now
nor, since the Seller has owned the Business, has there ever been any "Employee
Benefit Plan" (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), or any other profit sharing,
deferred compensation, bonus, stock option, stock purchase, pension or other
compensation plan, or any other plan or arrangement to benefit employees
maintained or contributed to by the Seller or any person, firm or corporation
(an "Affiliate") which are members of a Acontrolled group of corporations"
(within the meaning of Section 414(b) of the Code, except that 50% will be
substituted for 80% in Section 1563(a) of the Code) with the Seller and in which
any of the employees of the Seller or any Affiliate participates or is eligible
to participate. No funding deficiency exists or has existed with respect to any
Employee Benefit Plan covering any present or former employee of the Seller or
any Affiliate which may cause or result in a lien upon any of the Assets.
(s) Absence of Certain Business Practices.
Neither the Seller, nor to its best knowledge and belief, any of its
officers, employees or agents acting on its behalf, nor any other person acting
on its behalf, has, directly or indirectly, within the past three (3) years
given or agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the Business (or assist the Seller in connection with any actual or
proposed transaction) that (i) might subject the Seller to any damage or penalty
in any civil, criminal or governmental litigation or proceeding, or (ii) if not
given in the past would have had an adverse effect on the assets, business or
operation of the Business and if not continued in the future, would adversely
affect the Assets, the Business or its operations or prospects.
(t) Brokers.
The Seller has not entered into and will not enter into any agreement,
arrangement or understanding with any person or firm which will result in an
obligation of the Buyer or Surge to pay any finder's fee, brokerage commission,
or similar payment in connection with the transactions contemplated by this
Agreement.
(u) Absence of Undisclosed Liabilities and Conditions.
Except as and to the extent reflected or reserved against on the face
of the Financial Statements, or as set forth on Schedule 7(u) attached hereto,
as of the Closing Date, the Business had no debts, liabilities or obligations
(whether due or to become due, absolute, accrued, contingent or otherwise) of
any nature whatsoever, including, without limitation, any foreign or domestic
tax liabilities or deferred tax liabilities incurred in respect of or measured
by the Business' income, or its period prior to the Closing or any other debts,
liabilities or obligations relating to or arising out of any act, transaction,
circumstance or state of facts which occurred or existed on or before the
Closing Date, whether or not then known, due or payable. The Financial
Statements do not include any assets or liabilities of any entity other than the
Seller nor any expense of any entity other than the Seller. The Seller has no
18
knowledge of any currently existing facts that materially adversely affect or
are likely in the future to materially adversely affect the Assets.
(v) Compliance With Laws.
Except as disclosed on Schedule 7(v), the operations and activities of
the Business concerning the Assets have previously and continue to comply in all
respects with all applicable Federal, state and local laws, statutes, codes,
ordinances, rules, regulations, permits, judgments, orders, writs, awards,
decrees or injunctions (collectively, the "Laws"), as in effect on or before the
date of this Agreement, including, without limitation, all Laws relating to seed
labeling and all rules and regulations of the Occupational Safety and Health
Administration. Neither the ownership nor use of the Assets nor the conduct of
the Business as presently conducted conflicts with the rights of any other
person, firm or corporation or violates, or with or without the giving of notice
or the passage of time, or both, will violate, conflict with or result in a
default, right to accelerate or loss of rights under, any terms or provisions of
the Seller's Certificate of Incorporation or Bylaws as presently in effect, or
any lien, encumbrance, mortgage, deed of trust, lease, license, agreement,
understanding (hereinafter collectively referred to as "Liens"), or Laws to
which the Seller is a party or by which it or the Assets may be bound or
affected. The Seller has not received any notice or communication from any third
party asserting a failure to comply with any Laws, except for the SEC Comment
Letter, nor has the Seller received any notice that any authority or third party
intends to seek enforcement against it to compel compliance with any such Laws.
(w) Taxes.
As of the Closing Date, all taxes, including, without limitation,
income, property, sales, use, franchise, added value, employees' income
withholding and social security taxes, imposed by any governmental entity
whatsoever, which are due or payable by the Seller in connection with the
Business, and all interest and penalties thereon, have been paid in full, all
tax returns required to be filed in connection therewith have been timely filed
and all deposits required by law to be made by the Seller with respect to
employee's withholding taxes have been duly made. The Seller has not been
delinquent in the payment of any tax, assessment or governmental charge or
deposit and has no tax deficiency or claim outstanding, proposed or assessed
against it. Except for amounts accrued, but not payable as of the Effective
Date, (i) the Seller is not liable for the payment of any taxes relating to the
Assets or the operation of the Business, and (ii) the Buyer shall have no
liability for any taxes related to the ownership or operation of the Assets or
the Business prior to the Effective Date or in connection with the sale of the
Assets in this transaction. The Seller does not know of any tax deficiency or
claim outstanding, proposed, or assessed against it with respect to any taxes,
including, without limitation, income, property, sales, use, franchise,
valued-added, employees' income withholding, and social security taxes imposed
by the United States or by an foreign country or by any state, municipality,
subdivision, or instrumentality of the United States or of any foreign country,
or by any other taxing authority that could have a material effect on the Buyer,
the Assets, or the Business, or result in the imposition of a tax lien upon any
of the Assets.
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(x) Absence of Changes or Events.
Without limiting the foregoing, since the Balance Sheet Date and
through the Closing Date, there has been no material adverse change in the
Business. Except as set forth in Schedule 7(x) attached hereto, since the
Balance Sheet Date, the Seller has conducted its business only in the ordinary
course and has not:
(i) Incurred any obligation or liability, except current
liabilities for trade or business obligations incurred in the ordinary course of
business and consistent with its prior practice, none of which liabilities
materially and adversely affects the Assets or the Business;
(ii) Mortgaged, pledged or subjected to lien, charge, security
interest or any other encumbrance or restriction on any of the Assets;
(iii) Except for the sale of Inventory, in the ordinary course of
business, sold, transferred, leased to others or otherwise disposed of any of
the Assets;
(iv) Received any notice of termination of any agreement or
suffered any damage, destruction or loss which has had or, with the passage of
time, could have a materially adverse effect on the Assets or the Business;
(v) Made any change in its pricing, advertising or personnel
practices inconsistent with its prior practice and prudent business practices
prevailing in the industry;
(vi) Suffered any change, event or condition which, has had or may
have a materially adverse effect on the Assets, the Business or the operations
or prospects thereof;
(vii) Entered into any transaction, contract or commitment other
than in the ordinary course of business which had a material adverse effect on
the Assets or the Business; or
(viii) Instituted, settled or agreed to settle any litigation,
action or proceeding before any court or governmental body relating to the
Seller, the Assets or the Business.
(y) Accounts Receivable; Inventory.
(i) The Accounts Receivable of the Seller are valid subsisting
claims for the aggregate amounts thereof reflected in the Seller Financial
Statements net of the reserves or allowances for doubtful receiv iness, (b) has
been fully paid for unless otherwise reflected in the Financial Statements, (c)
is marketable or adequate provision for obsolescence has been provided, and (d)
the Seller knows no reason that would make such Inventory, taken as a whole, not
marketable.
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(ii) The Inventory of the Seller (a) has been purchased in the
ordinary course of business, (b) has been fully paid for unless otherwise
reflected in the Financial Statements, (c) is marketable or adequate provision
for obsolescence has been provided, and (d) the Seller knows no reason that
would make such Inventory, taken as a whole, nor marketable.
(z) Labor Relations.
The Seller, in connection with the Business, is not (i) a party to any
collective bargaining agreement relating to any of its employees and its
employees have not recognized, are not required to recognize, and have not
received a demand for recognition by, any collective bargaining representative,
(ii) a party to any contract with and has no liability to any of its employees,
agents, consultants, officers, sales representatives, distributors or dealers
that is not cancelable by the Seller without penalty on not more than thirty
(30) days' notice, except as set forth on Schedule 7(z) attached hereto, (iii)
subject to any strike or work stoppage in effect or threatened against the
Business nor has any strike or work stoppage been authorized by any order, writ,
injunction or decree of any court or federal, state, municipal or other
governmental agency or instrumentality.
(aa) Customer Lists.
All agreements, arrangements or commitments with or respecting any
customer of the Seller to which the Seller is a party or is bound are described
on Schedule (aa) previously delivered to the Seller, except for those not
involving a consideration of at least $10,000 per annum.
(bb) Books and Records.
The books and records of the Seller are, in all material respects,
complete and correct and have been maintained in accordance with standard
business practice.
(cc) Insurance.
Schedule 7(cc) contains a correct and complete description of all
policies of insurance by or on behalf of the Seller in which the Seller is named
21
as an insured party, beneficiary or loss payable payee. The Seller has at all
times prior to the date hereof maintained and will at all times prior to the
Closing Date maintain such insurance coverage. There is no default notice of
cancellation or non-renewal with respect to any material provision contained in
any such policy. Schedule 7(cc) contains a correct and complete description of
all outstanding insurance claims in excess of $5,000 made by or against the
Seller for damage to or loss of property or income which have been referred to
insurers or which the Seller believes to be covered by commercial insurance
within the five years preceding the Effective Date.
(dd) Rights of Third Parties.
Other than as disclosed in Schedule 7(dd), or specifically provided for
in this Agreement, the Seller has not entered into any leases, licenses,
easements or other agreements, recorded or unrecorded, granting rights to third
parties in any real or personal property of the Seller, and no person or other
corporation has any right to possession, use or occupancy of any of the property
of the Seller.
(ee) Relationships with Vendors and Customers.
The Seller has no knowledge of any present conditions or state of facts
or circumstances which would materially adversely affect the Business after the
Closing Date. The Seller's relationships with its customers, clients and vendors
are satisfactory, and the Seller has no knowledge of any facts or circumstances
which might materially alter, negate, impair or in any way materially adversely
affect the continuity of any such relationships. The Seller has no knowledge of
any material outstanding claims of any of its customers or clients presently
outstanding, pending or threatened against them. The Seller has no knowledge of
any present condition or state of facts or circumstances which would prevent the
Business from being carried on by the Buyer after the Closing Date in
essentially the same manner as it is presently being carried on.
(ff) Accuracy.
No representation, warranty, covenant or statement by the Seller in
this Agreement, the Schedules attached hereto and the certificates or other
documents furnished or to be furnished to the Buyer pursuant hereto, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact required to be stated herein or therein or necessary to
make the statements contained herein or therein, in light of the circumstances
under which they were made, not false or materially misleading.
Section 8. Representations and Warranties of the Buyer and Surge. Each
of the Buyer and Surge, jointly and severally, warrants and represents to the
Seller as follows:
(a) Authority.
Subject only to the requisite approval of (a) the amendment of the
Certificate of Incorporation changing the name of Surge, (b) the amendment of
Surge's Certificate of Incorporation authorizing the requisite number of shares
of Surge Class A and Class B Common Stock and Surge Class A Preferred Stock, (c)
the issuance of the requisite number of shares of Class B Common Stock and Surge
Class A Preferred Stock, (d) the election of directors and officers of Surge and
Buyer immediately prior to the Effective Date and for a minimum term of three
(3) years, (e) the Acquisition, and (f) this Agreement by Surge's stockholders
(and by Seller's stockholders with respect to the election of its officers and
directors, and approval of the Acquisition and this Agreement, and any filings
to be made in Nevada or Delaware), Surge and Buyer have all requisite corporate
22
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Surge and Buyer, subject only to the approval of
the Acquisition and this Agreement by Surge's stockholders. Each of Surge's and
Buyer's Board of Directors has unanimously approved, subject to Post-Closing
Compliance, the Acquisition and this Agreement. This Agreement has been duly
executed and delivered by Surge and the Buyer and constitutes the valid and
binding obligations of Surge and the Buyer, enforceable in accordance with its
terms except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, and (b) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
(b) Organization.
(i) The Buyer is a corporation to be formed under the laws of the
State of Delaware, and will be duly organized, validly existing and in good
standing and will have corporate power and authority to carry on its business as
will be conducted as supplemented by the Business, and to own, lease or operate
the properties and assets now used by it in connection therewith and the Assets.
(ii) Surge is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York, and Surge has corporate
power and authority to carry on its business as now conducted and to own, lease
or operate the properties and assets now used by it in connection therewith.
Surge is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its
properties make such qualification necessary. All of the outstanding Surge
Common Stock and Class A Warrants (collectively "Surge Securities") are validly
issued, fully paid and nonassessable.
(c) Consents and Approvals.
No governmental license. permit or authorization, and no registration
or filing with any court, governmental authority or regulatory agency, is
required in connection with the Buyer's and Surge's execution, delivery or
performance of this Agreement.
The buyer and Surge each shall execute, deliver and perform its obligations
under this Agreement and no consent or other approval or any other party is
required to be obtained by the Buyer or Surge in connection with the
transactions contemplated hereby.
23
(d) Surge and Buyer Capital Structures.
(i) The authorized securities of Surge consists of 25,000,000
shares of Surge Common Stock, $.001 par value and 1,000,000 shares of Preferred
Stock, $.001 par value. As of November 26, 1999, 4,858,920 shares of Surge
Common Stock have been issued and are outstanding, 5,733,000 shares of Surge
Common Stock are issuable upon exercise of outstanding Employee Stock Options,
including 5,300,000 Orbit Options described in Section 3(f)(iii) above, and
3,479,600 shares of Surge Common Stock are issuable upon exercise of outstanding
Class A Warrants described in Section 3(f)(ii) above. No shares of Surge Common
Stock are subject to outstanding convertible debt securities. All outstanding
shares of Surge Common Stock are duly authorized, validly issued, fully paid and
non-assessable and are not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of Surge or any agreement to which Surge
is a party or by which it is bound. Other than as set forth on Schedule 8(d),
there are no options, warrants, calls, rights, commitments or agreements of any
character to which Surge is a party or by which it is bound, obligating Surge to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of Surge or
obligating Surge to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement.
(ii) The authorized stock of Buyer shall consist of 1,000
Shares of Common Stock, par value $.001 per share. As of the Effective Date, 100
shares of Buyer's Common Stock shall be issued and outstanding and will all be
owned by Surge. As of the date hereof, no Shares of Buyer Common Stock are
issuable upon exercise of Warrants or Options. There are no options, convertible
securities, warrants, calls, rights, commitments or agreements of any character
to which the Buyer is a party or by which it is bound, obligating the Buyer to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of the Buyer or
obligating the Buyer to grant, extend or enter into any such option, convertible
security, warrant, call, right, commitment or agreement.
(e) Subsidiaries.
Except as set forth on Schedule 8(e) hereto, Surge does not have and
has never had any subsidiaries or affiliated companies and does not otherwise
own and has never otherwise owned any shares of capital stock or any interest
in, or control, directly or indirectly, any other corporation, partnership,
association, joint venture or other business entity.
(f) SEC Documents; Surge Financial Statements.
Surge has filed with the SEC all forms, statements, reports and
documents (including all exhibits, amendments and supplements thereto) required
to be filed by it under each of the Act and the Exchange Act, and the respective
rules and regulations thereunder, all of which complied in all material respects
with all applicable requirements of the appropriate act and rules and
regulations thereunder. Surge has furnished or made available or will make
available to the Seller true and correct copies of all forms, statements,
reports and documents filed by Surge with the SEC since November 1, 1997,
24
including, without limitation, Surge's Annual Report on Form 10-KSB for the
years ended November 30, 1997 and 1998, and quarterly periods since that time
(all of the foregoing being collectively referred to as the "Surge SEC
Documents"). As of their respective filing dates, Surge SEC Documents complied
in all material respects with the requirements of the Act and the Exchange Act,
and the applicable rules and regulations of the SEC thereunder, as the case may
be, and none of the SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading. Since August 31, 1999, Surge has not
suffered any Material Adverse Effect (as defined in Section 14(j) below) with
respect to its business (financial or otherwise), and Surge has conducted its
business only in the ordinary course and there has not been any declaration,
setting aside or payment of any dividend or other distribution with respect to
Surge Common Stock or any repurchase, redemption or other acquisition by Surge
of any Surge Common Stock. The financial statements of Surge, including the
notes thereto, included in Surge SEC Documents (the "Surge Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, were prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and consistent with each other (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by SEC
rules) and present fairly the consolidated financial position of Surge at the
dates thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments which will not be material in amount or significance). There has
been no change in Surge's accounting policies, except as described in the notes
to Surge's Financial Statements and do not include or omit to state any fact
which renders Surge's Financial Statements hereunder misleading.
(g) Taxes.
All federal, state and other returns and reports required to be filed
by Surge have been duly filed by Surge and except as set forth on Schedule 8(g)
hereto, all taxes and other assessments and levies (including all interest and
penalties) including, without limitation, income, franchise, real estate, sales,
gross receipts, use and services taxes, and employment and employee withholding
taxes, owed by Surge have been paid in full by Surge. Except as set forth on
Schedule 8(g), all such taxes and other assessments and levies which Surge is
required by law to withhold, collect or deposit have been duly withheld and
collected and deposited with the proper governmental authorities or segregated
and set aside for such payment, and if so segregated and set aside, shall be so
paid by Surge as required by law.
(h) Litigation.
Except as set forth on in the Surge SEC Documents, or as otherwise
disclosed to the Seller, there is no material action, suit or proceeding of any
nature pending or to the best of Surge's knowledge threatened against Surge, its
properties or any of its officers or directors, in their respective capacities
as such.
25
(i) No Conflict; Required Filings and Consents.
(i) Except as set forth on Schedule 8(i) hereto, the execution and
delivery of this Agreement by Surge does not, and the performance of this
Agreement by Surge and the consummation by Surge of the transactions
contemplated hereby will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of Surge, (ii) conflict with or violate any federal,
foreign, state or provincial law, rule, regulation, order, judgment or decree
(collectively, "Laws") applicable to Surge or any of its subsidiaries or by
which its or any of their respective properties are bound or affected, or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair Surge's or any of
its subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of terminati such conflicts, violations,
breaches, defaults or other occurrences that do not have a Material Adverse
Effect, as defined in Section 14(j) below.
(ii) The execution and delivery of this Agreement by Surge does
not, and the performance of this Agreement by Surge will not, require any
consent, approval, authorization or permit of, or filing with notification to,
any domestic or foreign governmental or regulatory authority except (i) for the
applicable requirements, if any, of the Act, the Exchange Act, state securities
laws ("Blue Sky Laws"), the legal requirements of any foreign jurisdiction
requiring notification in connection with the Acquisition and the transactions
contemplated hereby and the filing and recordation of appropriate documents as
required by Delaware Law and the Laws of the States of New York and Nevada, and
(ii) where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, either (A) would not prevent
or materially delay consummation of the Acquisition or otherwise prevent or
materially delay Surge from performing its obligations under this Agreement, or
(B) do not have a Material Adverse Effect.
(j) Legal Proceedings.
Neither Surge nor the Buyer is a party to or affected by any pending
litigation, arbitration or any governmental proceeding or investigation
(exclusive of the SEC's Formal Order of Investigation of Seller) that would in
any manner affect its entering into this Agreement or performing the
transactions contemplated hereby or that might result in any material and
adverse change in the financial condition, business or properties of the Buyer
or Surge and to the best of their respective knowledge no such litigation,
arbitration, proceeding or investigation is threatened.
26
(k) Accuracy.
No representation, warranty, covenant or statement by the Buyer or
Surge in this Agreement, any Exhibit attached hereto, the Schedules and the
certificates or other documents furnished or to be furnished to the Seller
pursuant hereto (including the Schedules, if any, provided for in this Section 8
and Exhibits thereto), contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not false or
materially misleading.
(l) Binding Obligation.
This Agreement, and any other agreement required to be delivered by the
Buyer or Surge pursuant to this Agreement, has been duly executed and delivered
by the Buyer and Surge and constitutes the legal, valid and binding obligation
of the Buyer and Surge, enforceable against the Buyer and Surge in accordance
with its terms, except to the extent that such enforceability may be limited by
general principles of equity or bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors' rights generally. All action of the
Board of Directors of the Buyer and Surge and all other corporate action
necessary to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly taken.
(m) Brokers; Finders.
No agent, broker, investment banker, person or firm acting on behalf of
the Buyer or Surge or any firm or corporation affiliated with the Buyer or Surge
or under their authority is or will be entitled to any brokers' or finders' fee
or any other commission or similar fee directly or indirectly from the Seller or
any person or entity affiliated with the Seller in connection with any of the
transactions contemplated hereby.
Section 9. Survival of Representations and Warranties; Indemnification.
(a) Survival of Representations and Warranties.
All representations and warranties made by the Seller or the Buyer and
Surge in this Agreement, including, without limitation, all representations and
warranties made in any Exhibit or Schedule hereto or certificate delivered
hereunder, shall survive the Closing until and through the first anniversary of
the Effective Date (the "Survival Date") provided, however, that all
representations and warranties made by the Seller in Sections 7(e),(f), 7(l),
7(q), 7(r) and 7(w) hereof shall survive the Effective Date until and through
one (1) year after the expiration of the applicable statute of limitations (the
"Extended Survival Date").
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(b) Indemnification by Seller.
The Seller hereby agrees to indemnify, defend and hold harmless the
Buyer and Surge from and against all liabilities, losses, costs or damages
whatsoever (including expenses and reasonable fees of legal counsel)
(collectively, "Damages"), arising out of or from or are based upon (i) the
inaccuracy in any material respect of any representation or warranty contained
in Section 7 made by the Seller; (ii) the non-performance by the Seller in any
material respect of any covenant, agreement or obligation to be performed by the
Seller under this Agreement; (iii) the non-compliance of the provisions of any
applicable bulk transfer laws in connection with the sale of the Assets to the
Buyer; (iv) any liability relating to the Business prior to the Closing Date;
(v) any legal proceedings, including, but not limited to, any litigation brought
by the U.S. Securities and Exchange Commission and/or any criminal agency; (vi)
any potential environmental claim; (vii) any liability relating to the Seller's
Employee Benefit Plans, set forth on Schedule 7(k), prior to the Closing Date;
and (viii) any liability relating to the Seller's termination of employees of
the Business.
(c) Indemnification by Buyer and Surge.
The Buyer and Surge hereby agree to indemnify, defend and hold harmless
the Seller from and against all Damages arising out of or from or that are based
upon (i) the inaccuracy in any material respect of any representation or
warranty contained in Section 8 made by the Buyer and Surge; (ii) the
non-performance by the Buyer and Surge in any material respect of any covenant,
agreement or obligation to be performed by the Buyer and Surge under this
Agreement; and (iii) any liabilities arising out of the operations of the
Business by Buyer and Surge after the Closing Date.
(d) Defense of Claims.
Whenever any claim shall arise for indemnification hereunder, the party
entitled to indemnification hereunder (the "Indemnitee") shall notify the
indemnifying party (the "Indemnitor") in writing within 30 days after the
Indemnitee has actual knowledge of the facts constituting the basis for such
claim (the "Notice of Claim"). The Notice of Claim shall specify all facts known
to the Indemnitee giving rise to such indemnification claim and the amount or an
estimate of the amount of the liability arising therefrom.
If the facts giving rise to any such indemnification shall involve any
actual, threatened or possible claim or demand by any person against the
Indemnitee, the Indemnitor shall be entitled (without prejudice to the right of
the Indemnitee to participate at its expense through co-counsel of its own
choosing) to contest or defend such claim at its expense and through counsel of
its own choosing if the Indemnitor gives written notice of its intention to do
so to the Indemnitee within 10 days after receipt of the Notice of Claim;
provided that Indemnitor diligently prosecutes or defends such claim.
The Indemnitee shall not settle any claim which would give rise to
liability on the part of the Indemnitor under the indemnity contained in this
Section without the written consent of the Indemnitor, which consent shall not
28
unreasonably be withheld. If a firm offer is made to settle a claim or
litigation defended by the Indemnitee and the Indemnitor refuses to accept such
offer within 20 days after receipt of written notice from the Indemnitee of the
terms of such offer, then, in such event, the Indemnitee shall continue to
contest or defend such claim and shall be indemnified pursuant to the terms
hereof. provided, however, that in the event the Indemnitor refuses to accept
such offer to settle a claim as described above and the Indemnitee continues to
contest or defend such claim, the indemnification provided for herein shall be
deemed to include the value of management's time spent in connection with the
defense of such claim. If a firm offer is made to settle a claim or litigation
and the Indemnitor notifies the Indemnitee in writing that the Indemnitor
desires to accept and agree to such settlement, but the Indemnitee elects not to
accept or agree to it, the Indemnitee may continue to contest or defend such
claim or litigation and, in such event, the total maximum liability of the
Indemnitor to indemnify or otherwise reimburse the Indemnitee hereunder with
respect to such claim or litigation shall be limited to and shall not exceed the
amount of such settlement offer, plus reasonable out-of-pocket costs and
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnitor desires to accept such settlement.
Notwithstanding any provision of this Agreement to the contrary, no
claim for indemnification pursuant to this Section 9 by the Indemnitee shall be
asserted or claimed except to the extent of damages exceeding, in the aggregate,
the sum of $50,000.
Section 10. Covenants of the Seller. The Seller hereby covenants and
agrees:
(a) Further Assurances.
The Seller hereby agrees that from time to time at the reasonable
request of the Buyer or Surge, and without further consideration, to execute and
deliver such additional instruments and to take such other action as the Buyer
or Surge may reasonably require to convey, assign, transfer and deliver the
Assets and otherwise to carry out the terms of this Agreement.
(b) Access to Information; Confidentiality.
(i) Subsequent to the date hereof and prior to the Effective Date,
the Seller will continue to give to the Buyer, Surge, their counsel,
accountants, and other representatives, full and free access to all properties,
books, contracts, commitments and records of the Seller relating to the Assets
so that the Buyer and Surge may have full opportunity to make such investigation
as they shall desire. No information or knowledge obtained either independently
or as a result of any such investigation of the Seller shall diminish or
otherwise affect the representations and warranties of the Seller; provided that
Buyer and Surge covenant and agree to notify Seller of any misrepresentation or
breach of warranty of which either becomes aware as a result of any such
investigation.
(ii) From and after the date of this Agreement until the Effective
Date or the termination of this Agreement, the Seller and its representatives
will maintain the confidentiality of all documents and information of a
29
confidential nature disclosed to Seller in the course of its negotiations and
the Buyer's and Surge's due diligence review and will in no event use any such
confidential information for any purpose other than for the evaluation of the
transactions contemplated herein and in the event of termination of this
Agreement will destroy all copies of documentation that Surge or Buyer may have
delivered to Seller and will not use any confidential information from the Buyer
or Surge for its own benefit.
(c) Closing Documents.
The Seller shall execute and deliver all instruments and documents
required under Section 14 as a condition subsequent to the Closing hereof and
take all action required to carry out the terms of this Agreement and to
consummate the transactions contemplated hereby.
(d) Conduct of Business.
From the date of this Agreement to the Effective Date, except as
expressly disclosed in the Schedules to this Agreement, the Seller shall conduct
its operations as engaged in at the date of this Agreement according to its
ordinary course of business, shall maintain its records and books of account in
a manner that fairly and currently reflects its financial condition and results
of operations and shall not engage in any transactions other than as
contemplated by this Agreement.
Section 11. Covenants of the Buyer and Surge. The Buyer and Surge
hereby covenant and warrant as follows:
(a) Due Diligence.
Seller and Surge undertake to complete due diligence as soon as
practicable following the date of this Agreement, but no later than January 31,
2000, unless otherwise mutually agreed to. Following delivery of due diligence
documents to the other party, the receiving party shall be afforded the
opportunity to review such documents and discuss the same with the disclosing
party's appropriate representatives. The receiving party shall have fifteen (15)
days to review documents received and to give notice to the disclosing party if
the response is inadequate. Absent such objecting notice the disclosures shall
be deemed to be acceptable to the receiving party.
(b) Noninterference.
The Buyer and Surge shall not take or omit to take any action that (i)
if taken or omitted on or before the date of this Agreement, would make untrue
any of the representations and warranties contained in Section 8 of this
Agreement, or (ii) would interfere with the Buyer's or Surge's ability to
perform or would prevent performance of any of its obligations under this
Agreement or any of the other agreements or instruments provided for herein.
30
(c) Closing Documents.
The Buyer and Surge shall execute and deliver all instruments and
documents required under Section 17 as a condition subsequent to the Closing
hereof and take all action required to carry out the terms of this Agreement and
to consummate the transactions contemplated hereby.
(d) Confidentiality.
From and after the date of this Agreement until the Effective Date or
the termination of this Agreement, the Buyer and Surge and their respective
employees and representatives will maintain the confidentiality of all documents
and information of a confidential nature disclosed to either of them in the
course of their negotiations and the Buyer's and Surge's due diligence review of
Seller and will in no event use any such confidential information for any
purpose other than for the evaluation of the transactions contemplated herein
and in the event of termination of this Agreement will destroy all copies of
documentation which Seller may have delivered to Surge or Buyer and will not use
any confidential information from the Seller for their own benefit.
(e) Name Change.
Surge shall execute and file with the Secretary of State of the State
of New York within 3 days following the Effective Date, a Certificate of
Amendment of the Certificate of Incorporation changing its name; Surge shall
deliver a copy of the filing receipt in connection with such name change to
Seller and Seller's counsel.
(f) Employees.
All Employees of the Seller employed in connection with the Business
shall be terminated effective as of the Closing Date. The Seller shall pay all
such employees all compensation earned by them through the Effective Date on or
before five (5) business days after the Effective Date. The Buyer shall use its
best efforts to hire all of the Seller's employees subject to each such employee
complying with customary Surge employee practices.
Section 12. Conduct of Business Pending The Acquisition
(a) Conduct of Business by Surge, Seller and Buyer Pending the
Acquisition.
Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Effective Date or earlier termination of this Agreement,
unless the parties shall otherwise agree in writing, Surge, the Seller and the
Buyer shall each :
(i) conduct its business in the ordinary and usual course of
business and consistent with past practice;
31
(ii) not (i) amend or propose to amend its Certificate of
Incorporation or Bylaws, (ii) split, combine or reclassify its outstanding
capital stock or declare, set aside or pay any dividend or distribution payable
in cash, stock, property or otherwise, (iii) spin-off any assets or businesses,
(iv) engage in any transaction for the purpose of effecting a recapitalization
of any party or subsidiary, or (v) engage in any transaction or series of
related transactions which has a similar effect to any of the foregoing;
(iii) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional shares of, or any options, warrants
or rights of any kind to acquire any shares of Surge's capital stock of any
class or any debt or equity securities convertible into or exchangeable for such
capital stock or amend or modify the terms and conditions of any of the
foregoing, except that in the ordinary course of its business and consistent
with its past practices, Surge may issue shares upon exercise of outstanding
options or warrants and will notify Seller of any such exercise or conversion
promptly;
(iv) not (i) incur or become contingently liable with respect to
any indebtedness for borrowed money, except in the ordinary course of business,
(ii) redeem, purchase, acquire or offer to purchase or acquire any shares of its
capital stock, other than as required by the governing terms of such securities,
(iii) take or fail to take any action which action or failure to take action
would cause Surge or its shareholders (except to the extent that any
shareholders receive cash in lieu of fractional shares) to recognize gain or
loss for federal income tax purposes as a result of the consummation of the
Acquisition, (iv) make any acquisition of any assets (except in the ordinary
course of business) or businesses, (v) sell any assets (except in the ordinary
course of business) or businesses, or (vi) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(v) use all reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of its present officers
and key employees, and preserve the goodwill and business relationships with
suppliers, distributors, customers, and others having business relationships
with Surge or the Seller and not engage in any action, directly or indirectly,
with the intent to impact adversely the transactions contemplated by this
Agreement;
(vi) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors or officers;
(vii) not increase the rate of remuneration payable to any of its
directors or officers, except in the customary and usual course of business and
consistent with past practices, or agree to do so;
(viii) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except in the
32
ordinary and usual course of business, consistent with past practices or as
required to comply with changes in applicable law;
(ix) file with the SEC all forms, statements, reports and documents
(including all exhibits, amendments and supplements thereto) required to be
filed by it pursuant to the Exchange Act; and
(x) maintain with financially responsible insurance companies
insurance on its tangible assets and its businesses in such amounts and against
such risks and losses as are consistent with past practice.
(b) Certain Actions.
Except with respect to this Agreement and the transactions contemplated
hereby, Surge, Seller and the Buyer shall not, directly or indirectly, solicit
any Acquisition Proposal. "Acquisition Proposal" shall mean any tender offer or
exchange offer or any proposal for a merger, acquisition of all of the stock or
assets of, or other business combination involving the acquisition of, such
party or any of its subsidiaries, or the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, such party or any of its
subsidiaries. Surge, Seller and the Buyer shall not, directly or indirectly,
furnish to any third party any non-public information that it is not legally
obligated to furnish, negotiate with respect to, or enter into any agreement
with respect to, any Acquisition Proposal, but may communicate information about
such an Acquisition Proposal to its stockholders if and to the extent that it is
required to do so in order to comply with its legal obligations. Surge, Seller
and the Buyer, as applicable, shall promptly advise the other parties hereto
following the receipt of any Acquisition Proposal and the details thereof, and
advise such other parties hereto of any developments with respect to such
Acquisition Proposal promptly upon the occurrence thereof. Surge, Seller and the
Buyer shall (a) immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any person or entity conducted
heretofore with respect to any of the foregoing, and (b) direct and use its
reasonable efforts to cause all of its investment bankers, financial advisors,
attorneys, accountants, consultants or other representatives not to engage in
any of the foregoing.
Section 13 - Additional Agreements
(a) Issuance of Surge Securities, Registration.
(i) The Surge Class A Preferred Stock and Surge Class B Common
Stock (including all shares issuable upon conversion of the Surge Class A
Preferred Stock and Class A Warrants) to be issued pursuant to this Agreement
and the Acquisition will be registered on an S-4 (or such successor form)
registration statement on or before the Effective Date.
(ii) The Orbit Options described in Section 3(f)(iv), including all
shares issuable upon exercise of all of such options will be registered at the
33
same time as well as the Employee Option Pool described in Section 13(o) below
on an S-8 (or such successor form) registration statement, immediately following
the Effective Date.
(b) Nasdaq Compliance.
Surge shall use its best efforts to obtain a written ruling from The
Nasdaq Stock Market, Inc. ("Nasdaq") that Marketplace Rule 4330(f) will not
apply to the Acquisition. In the event that such rule does apply, the Seller
shall comply with all applicable requirements for initial inclusion of the Class
B Common Stock on the NASDAQ Small Cap Market or AMEX as a condition to
Post-Closing Compliance.
(c) Stockholders' Meetings.
Subject to applicable law, each of Surge and the Seller, through their
respective Boards of Directors, shall, in accordance with applicable law and
subject to the fiduciary duties of their respective Boards of Directors under
applicable law as determined by such directors in good faith after consultation
with and based upon the advice of outside counsel: (a) jointly prepare a joint
Proxy Statement/Prospectus for use in connection with obtaining the requisite
stockholder approvals and the issuance of the Surge Securities pursuant to the
Acquisition; (b) duly call, give notice of, convene and hold a special meeting
(the "Special Meeting") of its respective stockholders as soon as practicable
for the purpose (in the case of Seller), of approving as required by Nevada
Business Corporation Law, the Acquisition, this Agreement and the transactions
contemplated hereby (the "Seller Shareholder Approval") or in the case of Surge,
of approving as required by the New York Law the Acquisition, this Agreement
(including the transactions contemplated hereby), the Certificate of Amendment
to the Certificate of Incorporation and the authorization and issuance of Class
B Common Stock in connection with the Acquisition (the "Surge Stockholder
Approval" and together with Seller Shareholder Approval, the "Stockholder
Approvals"); and (c) include in the Proxy Statement/Prospectus for use in
connection with the Special Meeting of each of Surge and the Seller the
recommendation of their respective Boards of Directors that stockholders vote in
favor of Surge Stockholder Approval or the Seller Stockholder Approval, as the
case may be. Surge and the Seller will use commercially reasonable efforts to
cause the Special Meetings to occur as soon as practicable after the date
hereof.
(d) Access to Surge/Seller Information.
Subject to any applicable contractual confidentiality obligations
(which Surge and the Seller shall use their best efforts to cause to be waived),
Company and Seller shall afford each other and their respective accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Date to (a) all of their
respective properties, books, contracts, agreements and records, and (b) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of Company and the Seller, as
applicable, as may be reasonably requested.
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(e) Confidentiality.
Each of the parties hereto hereby agrees to maintain the
confidentiality of the information obtained in any investigation pursuant to
Section 13(d), or pursuant to the negotiation of this Agreement, in accordance
with the provisions of the Confidentiality Agreement between Surge and the
Seller dated as of September 23, 1999.
(f) Public Disclosure.
No disclosure (whether or not in response to an inquiry) of the
existence or nature of this Agreement shall be made by any party hereto unless
approved in writing by duly authorized officers of both Surge and the Seller
prior to release, provided that such approval shall not be unreasonably withheld
and subject in any event to Surge's and Seller's obligations to comply with
applicable securities laws and NASDAQ or such other stock market regulations as
applicable, in order to satisfy the listing and disclosure requirements of all
such exchanges or markets where Surge's securities are listed.
(g) Reasonable Efforts/Consents.
Subject to the terms and conditions provided in this Agreement, each of
the parties hereto shall use its reasonable efforts to take promptly, or cause
to be taken, all actions, and to do promptly, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement.
(h) Notification of Certain Matters.
Seller shall give prompt notice to Surge, and Surge shall give prompt
notice to the Seller, of (a) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which is likely to cause any representation or
warranty of the Seller, Surge or the Buyer, respectively, contained in this
Agreement to be untrue or inaccurate in any material respect at or prior to the
Effective Date except as contemplated by this Agreement (including the schedules
of the Seller hereto), and (b) any failure of the Seller, Surge or the Buyer, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 13(h) shall not limit or
otherwise affect any remedies available to the party receiving such notice.
(i) Affiliate Agreement.
Schedule 13(i) hereto sets forth those persons who, in the Seller's
reasonable judgment, are "affiliates" of the Seller within the meaning of Rule
35
145 (each such person an "Affiliate") promulgated under the Act ("Rule 145").
The Seller shall provide Surge such information and documents as Surge shall
reasonably request for purposes of reviewing such list. The Seller has delivered
or shall cause to be delivered to Surge prior to the Closing Date from the
Seller's Affiliates an executed affiliate agreement substantially in the form
attached hereto as Exhibit 13(i) (the "Affiliate Agreement"). Surge shall be
entitled to place appropriate legends on the certificates evidencing any Surge
Class A Preferred Stock and Class B Common Stock to be received by Affiliates of
the Seller pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for Surge Securities consistent
with the terms of such Affiliate Agreement.
(j) Blue Sky Laws.
Surge shall take such steps as may be necessary to comply with the
securities and Blue Sky Laws of all jurisdictions which are applicable to the
issuance of the Surge Securities pursuant hereto. The Seller shall use its best
efforts to assist Surge as may be necessary to comply with the securities and
Blue Sky Laws of all jurisdictions which are applicable in connection with the
issuance of Surge Securities pursuant hereto.
(k) Corrections to the Proxy Statement/Prospectus.
Prior to the date of the Stockholder Approvals, each of Surge, the
Seller and the Buyer shall correct promptly any information provided by it to be
used specifically in the Proxy Statement/Prospectus or relating to it and
incorporated by reference into the Proxy Statement/Prospectus that shall have
become false or misleading in any material respect and shall take all steps
necessary to make any requisite filings and have declared effective or cleared
any amendment or supplement to the Proxy Statement/Prospectus so as to correct
the same and to cause the Proxy Statement/Prospectus as so corrected to be
disseminated to the stockholders of the Seller and Surge, in each case to the
extent required by applicable law.
(l) Shareholder Rights Protection Plan.
At or prior to the Effective Date, Surge shall amend its Shareholder
Protection Rights Plan, as provided therein, to exclude the Acquisition.
(m) Indemnification and Insurance.
(i) Surge and the Seller agree that all rights to indemnification
existing in favor of the present or former directors, officers and employees of
the Seller (as such) or any of its subsidiaries or present or former directors
of the Seller or any of its subsidiaries serving or who served at the Seller's
or any of its subsidiaries' request as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, as provided in the Seller's Certificate of Incorporation or
Bylaws, or the Certificate of Incorporation or Bylaws (or similar governing
documents) of any of the Seller's subsidiaries and any indemnification
agreements as in effect as of the date hereof with respect to matters occurring
at or prior to the Effective Date shall survive the Acquisition and shall
36
continue in full force and effect and without modification (other than
modifications which would enlarge the indemnification rights) for a period of
not less than the statute of limitations applicable to such matters, and Surge
shall comply fully with its obligations hereunder and thereunder.
(ii) The officers and directors of Surge and the Buyer after the
Effective Date shall amend the Seller's liability insurance to have Surge assume
the payment of all premiums for such insurance and to include the officers and
directors of Seller set forth on Schedule 13(m) hereto. Notwithstanding the
foregoing, Seller shall have obtained directors' and officers' liability
insurance, reasonably satisfactory to Surge, to cover all claims made for
matters which arise before the Effective Date.
(iii) In the event Surge or the Buyer or any of their respective
successors or assigns (i) consolidates with or merges into any other entity and
is not the continuing or surviving corporation or entity of such consolidation
or merger, or (ii) transfers all or substantially all of its properties and
assets to any person or entity, proper provisions shall be made so that the
successors and assigns of Surge or the Buyer, as appropriate, assume the
obligations set forth in this Section 13(m).
(n) Change in Name.
Simultaneously with the Acquisition, Surge shall amend its Certificate
of Incorporation to change its name to one mutually acceptable to Seller and
Surge. Prior to such name change, Surge shall take such actions and execute,
deliver and file such documents as are necessary to effect the name change,
including, but not limited to, obtaining approval from Surge's Board of
Directors and stockholders, filing a certificate of amendment to Surge's
Certificate of Incorporation with the Secretary of State of the State of New
York, obtaining a new trading symbol and making the requisite filings with
and/or obtaining the requisite approvals from the SEC and the Nasdaq Stock
Market or AMEX.
(o) Employee Option Pool.
Subject to Surge Stockholder Approval, Surge shall establish after the
Acquisition an employee option pool representing not more than twenty percent
(20%) of Surge's outstanding Class A Common Stock, which shall be managed by the
Compensation Committee of Surge which shall grant all Stock Options to Surge
Employees. The Surge Common Stock underlying the options issued under said stock
option plan shall be registered for resale as soon as possible following the
Effective Date on a Form S-8 Registration Statement filed with the SEC.
Section 14. Conditions Precedent to the Buyer's and Surge's
Obligations. The obligations of the Buyer and Surge under this Agreement are
subject to the following conditions (any of which may be waived in writing in
whole or in part by the Buyer or Surge) both at the Closing and Effective Dates:
37
(a) Representations and Warranties True.
There shall not have been any breach of the representations,
warranties, covenants and agreements of the Seller contained in this Agreement
or the Schedules hereto and all such representations and warranties shall be
true at all times, except to the extent that any such representation or warranty
is expressly stated to be true as of time other than the Closing and Effective
Date.
(b) Agreements and Covenants.
The Seller shall have performed and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to be
performed or complied with by it. All documents and instruments required in
connection with this Agreement shall be reasonably satisfactory in form and
substance to the Buyer and Surge.
(c) Officer's Certificate.
The Buyer shall have received certificates signed by the Seller,
certifying that the conditions specified in subsections (a) and (b) above have
been fulfilled.
(d) No Material Adverse Change.
The Buyer shall have received certificates signed by the Seller,
certifying that there has been no material adverse change in the Assets since
the Balance Sheet Date.
(e) Consents.
The Seller shall have obtained and delivered to the Buyer any required
consents or approvals of any other third parties whose consent is required to
the transactions contemplated hereunder.
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(f) Legal Opinion.
The Buyer shall have received a written opinion of counsel for the
Seller dated as of the Closing Date and Effective Date in the form of Exhibit
14(f) hereto.
(g) Xxxx of Sale.
The Buyer shall have received a xxxx of sale or bills of sale and
documentation and such other good and sufficient instruments of transfer and
conveyance as, in the reasonable opinion of counsel to the Buyer, shall be
effective to vest in the Buyer good and valid title to the Assets, as herein
provided.
(h) Fairness Opinion.
Surge shall have received from a recognized investment banking or
valuation firm reasonably acceptable to Seller an opinion to the effect that the
Acquisition is appropriate for Surge and its public shareholders from a
financial point of view, and such opinion shall not have been withdrawn or
modified in any material adverse respect as of the Effective Date. Surge shall
not be obligated to incur any expense in obtaining such fairness opinion until
the repayment of the Bridge Loan described in Section 3(h) above and the
delivery of Updated Seller Financials described in Section 7(f) above.
(i) Nasdaq Compliance.
Surge and Seller will have to comply with Nasdaq Marketplace Rule
4330(f), and Surge will have to comply with all applicable requirements for
initial inclusion of the post-merger Surge Class A Common Stock and Class B
Common Stock under the Nasdaq Marketplace Rules (or on the AMEX, if applicable).
To the extent that operation of the Nasdaq Marketplace Rules (or AMEX listing
rules, if applicable) preclude meeting any particular requirements until the
Acquisition is consummated, the Seller shall demonstrate to Surge's satisfaction
that the post-Acquisition Surge and the Surge Class A Common Stock and Class B
Common Stock will meet all such applicable requirements.
(j) Representations and Warranties.
The representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects on and as of the
date made and the Closing Date, except for changes contemplated by this
39
Agreement (including the schedules of the Seller) and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same force
and effect as if made on and as of the Closing Date and Effective Date, except,
in all such cases, for such breaches, inaccuracies or omissions of such
representations and warranties which have neither had nor reasonably would be
expected to have a Material Adverse Effect on the Seller; and Surge and the
Buyer shall have received a certificate to such effect signed on behalf of the
Seller by the President of the Seller. "Material Adverse Effect" on a party
shall mean an event, change or occurrence which, individually or together with
any other event, change or occurrence, has a material adverse impact on (i) the
financial position, business, or results of operations of such party and its
subsidiaries, taken as a whole, or (ii) the ability of such party to perform its
obligations under this Agreement or to consummate the Acquisition or the other
transactions contemplated by this Agreement, provided that "Material Adverse
Effect" shall not be deemed to include the impact of (1) changes in laws of
general applicability or interpretations thereof by courts or governmental
authorities, (2) changes in GAAP, (3) actions and omissions of a party (or any
of its subsidiaries) taken with the prior written consent of the other party in
contemplation of the transactions contemplated hereby, and (4) the direct
effects of compliance with this Agreement on the operating performance of the
parties, including expenses incurred by the parties in consummating the
transactions contemplated by this Agreement;
(k) Agreements and Covenants.
The Seller shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date and Effective Date, and
Surge and the Buyer shall have received a certificate to such effect signed by
the President of the Seller;
(l) Comfort Letters.
Surge shall have received "comfort" letters from Xxxxxxx Lago &
Company, independent public accountants for the Seller (or such other
independent accounting firm reasonably acceptable to Surge), dated the effective
date of the Proxy Statement/Prospectus and the Effective Date (or such other
date reasonably acceptable to Surge) with respect to certain financial
statements and other financial information included in the Proxy
Statement/Prospectus in customary form;
(m) Updated Financial Statements.
Surge shall have received from the Seller Updated Seller Financial
Statements described in Section 7(f) above, in form and substance satisfactory
to Surge;
(n) Affiliate Agreements.
Each of the parties identified by the Seller as being one of its
Affiliates shall have delivered an executed Affiliate Agreement in substantially
the form of Exhibit 13(i) which shall be in full force and effect;
40
(o) Employment Agreements.
Each of the persons listed on Schedule 3(d)(i) hereto shall have
executed and delivered to Surge employment agreements in substantially the form
of Exhibit 3(d)(1) attached hereto or Surge shall have assumed the existing
employment agreements of all executive officers of Seller;
(p) Due Diligence.
Surge shall have concluded its due diligence of the Seller with
results, in the sole discretion of the Board of Directors of Surge, satisfactory
to it; and
(q) Additional Certificates.
Seller shall have furnished to Surge such additional certificates,
opinions and other documents as Surge may have reasonably requested as to any of
the conditions set forth in this Section 14(q).
(r) Certificates, etc.
The Buyer shall have received originals or certified copies, reasonably
satisfactory in form and substance to the Buyer, of all such corporate documents
of the Seller as the Buyer shall reasonably require, including without
limitation the following:
(i) the Certificate of Incorporation of the Seller and all
amendments thereto and restatements thereof certified as of a recent date by the
Secretary of State of the State of Nevada;
(ii) the By-laws of the Seller and all amendments thereto and
restatements thereof certified as of the Closing Date by an officer of the
Seller;
(iii) certificate of existence of the Secretary of State of the
State of Nevada, certifying as of a recent date that the Seller exists under the
laws of its state of incorporation;
(iv) The Buyer shall have received certified resolutions of the
Seller's Board of Directors authorizing the execution and delivery of this
Agreement, the transactions contemplated by this Agreement and of the
performance of the obligations of the Seller under this Agreement and such other
instruments and agreements, and evidencing the authority of each person
executing this Agreement and such other instruments and agreements on behalf of
each of them to do so, certified as of a recent date by each Secretary or
another officer of the Seller and Surge, as the Seller and Surge may reasonably
request; and
(v) The Buyer shall have received a Certificate of Incumbency
identifying the officers and directors of the Seller immediately before the
Closing Date and the Effective Date.
(s) Non-Competition Agreements.
The Buyer shall have received from each of the persons no longer
employed by the Seller and listed on Schedule 14(s), a Non-Competition Agreement
in the form of Exhibit 14(s) attached hereto. Such Agreement shall be reasonably
satisfactory in form and substance to counsel for the Buyer.
41
(t) Other Documents.
The Buyer shall have received all documents required to be delivered to
the Buyer under any other provision of this Agreement.
(u) Escrow Agreement.
Delivery to Surge of the Escrow Agreement anticipated by Section 3(b),
executed by all parties thereto.
Section 15. Condition of Assets.
Except as otherwise provided herein, the Fixed Assets will be sold Aas
is, where is and with all faults."
Section 16. Risk of Loss; Damage to or Destruction of Assets.
Seller assumes all risks and liability for damage or injury occurring
to the Assets by fire, storm, accident, or other casualty until the Effective
Date has been consummated. If the Assets sustain major or material damage during
the period from and after the date hereof and prior to the Effective Date caused
by fire or other casualty, either Seller or Buyer may respectively elect to
terminate this Agreement by written notice to the other within fifteen (15) days
after notice of such event, or at Effective Date, whichever is earlier. If
neither Seller nor Buyer so elects pursuant to this Section 16 to terminate its
obligations under this Agreement, the Effective Date will take place as provided
herein without abatement of the Purchase Price and Seller will have no
obligation of repair or replacement.
Section 17. Conditions Precedent to the Seller's Obligations.
The obligations of the Seller to consummate the Acquisition and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing Date and Effective Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Seller:
(a) Representations and Warranties True.
The representations and warranties of Surge and the Buyer contained in
this Agreement shall be true and correct in all material respects on and as of
the date made, the Closing Date and Effective Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date and Effective Date.
(b) Agreements and Covenants.
Surge and the Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by them on or prior to the Closing Date and Effective
Date, and the Seller shall have received a certificate to such effect signed by
the Chief Executive Officer or President of each of Surge and the Buyer;
42
(c) Compliance Certificates.
The Seller shall have received certificates dated the Closing Date and
the Effective Date and signed by the Buyer and Surge, certifying that the
conditions specified in subsections (a) and (b) above have been fulfilled.
(d) Legal Opinion.
The Seller shall have received a legal opinion from Snow Xxxxxx Xxxxxx
P.C., counsel to Surge and the Buyer, in substantially the form attached hereto
as Exhibit 17(d);
(e) Comfort Letters.
The Seller shall have received "comfort" letters from Xxxxxxxx &
Xxxxxxxxxxxx, independent public accountants for Surge, dated the effective date
of the Proxy Statement/Prospectus and the Effective Date (or such other date
reasonably acceptable to the Seller) with respect to certain financial
statements and other financial information included in the Proxy
Statement/Prospectus in customary form;
(f) No Material Adverse Change.
Since December 1, 1998, no event shall have occurred that would
constitute a Material Adverse Effect to Surge;
(g) Nasdaq SmallCap Listing.
Surge's capital stock shall be listed for trading on the Nasdaq
SmallCap Market or AMEX and the Class B Common Stock to be issued in connection
with the Acquisition shall have been authorized for listing on the Nasdaq
SmallCap Market or AMEX upon official notice of issuance.
(h) Employment Agreements.
Surge shall have executed and delivered to Xxx Xxxx and Xxxxxx Xxxxxx
amended employment agreements substantially in the form of Exhibit 3(d)(2)
attached hereto and in accordance with the provisions of a letter agreement
dated October 8, 1999, and Surge shall have assumed any existing employment
agreements to which the Seller is a party;
(i) Due Diligence.
The Seller shall have conducted its due diligence of Surge and the
Buyer with results, in the sole discretion of the Board of Directors of the
Seller, satisfactory to it;
43
(j) Additional Certificates.
Surge and the Buyer shall have furnished to the Seller such additional
certificates, opinions and other documents as the Seller may have reasonably
requested as to any of the conditions set forth in this Section 17(j).
(k) Payment of Purchase Price.
At the Closing, the Seller shall have received the Purchase Price as
set forth in Section 2 hereof.
(l) Board Resolutions.
The Seller shall have received copies of the minutes and resolutions of
the Board of Directors of the Buyer and Surge showing the authorization and
approval by such Boards of the execution and delivery by the Buyer and Surge to
the Seller of this Agreement and the agreements and instruments provided for
herein and of the performance of the obligations of the Buyer and Surge under
this Agreement and such other instruments and agreements, and evidencing the
authority of each person executing this Agreement and such other instruments and
agreements on behalf of each of them to do so, certified as of a recent date by
each Secretary or another officer of the Buyer and Surge, as the Seller may
reasonably request.
(m) Certificate of Incumbency.
The Seller shall have received a certificate of incumbency identifying
the officers and directors of the Buyer and Surge immediately before the Closing
Date and the Effective Date.
(n) Other Documents.
The Seller shall have received all documents required to be delivered
to the Seller under any other provision of this Agreement.
(o) Escrow Agreement.
Delivery to Seller of the Escrow Agreement anticipated by Section 3(b),
executed by all parties thereto.
(p) Fairness Opinion.
Seller shall have received from a recognized investment banking or
valuation firm reasonably acceptable to Surge an opinion to the effect that the
Acquisition is appropriate for Seller and its public shareholders from a
financial point of view, and such opinion shall not have been withdrawn or
modified in any material adverse respect as of the Effective Date.
44
Section 18. Conditions Precedent to Obligations of Both Seller and
Buyer.
The obligations of both the Seller and the Buyer to complete this
transaction shall be subject to the fulfillment at or prior to the Effective
Date of the following conditions:
(a) No Injunctions.
No action or proceeding shall have been instituted or threatened by any
public authority or private person prior to the Effective Date before any court
or administrative body to restrain, enjoin or otherwise prevent the consummation
of this transaction or to recover any damages or obtain other relief as a result
of this transaction.
(b) Consents.
Any consent to the transaction considered by the Seller, Surge or the
Buyer to be necessary or advisable under any agreement or contract, the
withholding of which might have, in the judgment of the Seller, Surge or the
Buyer, a material adverse effect on the financial condition of the Business,
shall have been obtained.
Section 19. Status of Schedules and Exhibits as of Signature Date.
(a) The parties each acknowledge and agree that as of the date this
Agreement is executed and delivered, none of the Schedules or Exhibits to this
Agreement have been prepared, delivered, reviewed, or approved by the parties or
their respective counsel. In addition to and without in any way limiting, any
other express and implied condition precedent to the obligations of any of the
parties under this Agreement, the obligations of each of the parties under this
Agreement are hereby made subject to and contingent upon the following:
(i) The preparation, delivery, and approval by the parties of all
of the Schedules described in this Agreement;
(ii) The preparation, delivery, and approval by the parties of all
of the Exhibits to this Agreement; and
(iii) All other express and implied conditions precedent to the
obligations of the parties under this Agreement shall have been satisfied or
waived at or prior to the Effective Date.
(b) In addition, notwithstanding any other term, condition, covenant,
or provision of this Agreement or of any Other Agreement, the parties have not
made, and shall not be deemed to have made by their execution and delivery of
this Agreement, any representation or warranty with respect to any:
45
(i) Schedule described in this Agreement;
(ii) Exhibit to this Agreement;
(iii) Document or state of facts pertaining to any Schedule or
Exhibit to this Agreement; or
(iv) The intended contents to any document or state of facts
pertaining to any Schedule or Exhibit to this Agreement.
Any representations or warranties with respect to those matters or
items shall be made (unless waived or amended) only as of the Effective Date,
and only with respect to the Schedules and Exhibits attached to this Agreement
as of the Effective Date.
Section 20. Termination, Amendment and Waiver
(a) Termination. This Agreement may be terminated and the Acquisition
abandoned at any time prior to the Effective Date, whether before or after the
Stockholder Approvals are obtained:
(i) by mutual consent of the Seller and Surge;
(ii) by Surge or the Seller if (i) the Effective Date has not
occurred by March 31, 2000 (provided that the right to terminate this Agreement
under this clause 20(a)(ii) shall not be available to any party whose willful
failure to fulfill any obligation hereunder has been the cause of, or resulted
in, the failure of the Effective Date to occur on or before such date); (ii)
there shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the Acquisition; (iii) there shall be any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Acquisition by any governmental entity that would make consummation of the
Acquisition illegal; or (iv) if any of the conditions precedent to the Effective
Date set forth in this Agreement have not been met and have not been waived in
writing by the party whose consent is required.
(iii) by Surge or the Seller if there shall be any action taken, or
any statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Acquisition, by any governmental entity, which would: (i)
prohibit Surge's or the Seller's ownership or operation of any portion of the
business of the Seller or Surge; or (ii) compel Surge or the Seller to dispose
of or hold separate, as a result of the Acquisition, any material portion of the
business or assets of the Seller or Surge;
(iv) by Surge if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Seller and as a result of such breach the conditions set forth in Section 14(a)
or Section 14(b), as the case may be, would not then be satisfied; provided,
however, that if such breach is curable by the Seller within ten (10) days after
the giving of written notice by Surge of such breach through the exercise of the
Seller's reasonable best efforts, then for so long as the Seller continues to
46
exercise such reasonable best efforts Surge may not terminate this Agreement
under this Section 20(a)(iv) unless such breach is not cured within ten (10)
days (but no cure period shall be required for a breach which by its nature
cannot be cured);
(v) by the Seller if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Surge or the Buyer and as a result of such breach the conditions set
forth in Section 17(a) or Section 17(b), as the case may be, would not then be
satisfied; provided, however, that if such breach is curable by Surge or the
Buyer within ten (10) days after the giving of written notice by the Seller of
such breach through the exercise of Surge's or the Buyer's reasonable best
efforts, then for so long as Surge or the Buyer continues to exercise such
reasonable best efforts the Seller may not terminate this Agreement under this
Section 20(a)(v) unless such breach is not cured within ten (10) days (but no
cure period shall be required for a breach which by its nature cannot be cured);
(vi) by Surge if the Seller fails to recommend to its shareholders
through its Board of Directors the approval of the transactions contemplated by
this Agreement, or withdraws such recommendations, or if the required approvals
of the shareholders of the Seller contemplated by this Agreement shall not have
been obtained by reason of the failure to obtain the required vote upon a vote
taken at a meeting of shareholders duly convened therefor or at any adjournment
thereof,
(vii) by the Seller if Surge fails to recommend to its stockholders
through its Board of Directors the approval of the transactions contemplated by
this Agreement, or withdraws such recommendation, or if the required approvals
of the stockholders of the Surge contemplated by this Agreement shall not have
been obtained by reason of the failure to obtain the required vote upon a vote
taken at a meeting of stockholders duly convened therefor or at any adjournment
thereof, or
(viii) by Surge or the Seller upon execution prior to the Effective
Date of a definitive agreement in connection with an Acquisition Proposal as
contemplated in Section 12(b).
Where action is taken to terminate this Agreement pursuant to this
Section 20(a), it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
(b) Automatic Termination.
Anything to the contrary notwithstanding, this Agreement will be
automatically terminated if Surge does not receive the appropriate approval (as
required by New York law) of its stockholders for any or all of the following:
47
To amend its Certificate of Incorporation to change Surge's name to a
name mutually acceptable to Seller;
To authorize the registered number of shares of Class A Common Stock,
Class B Common Stock and Class A Preferred Stock;
To issue the requisite number of shares of Class B Common Stock;
The Acquisition; and/or
This Agreement.
(c) Effect of Termination.
In the event of termination of this Agreement as provided in Section
20(a), this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Surge, the Buyer or the Seller, or their
respective officers, directors or stockholders, provided that each party shall
remain liable for any breaches of this Agreement prior to its termination; and
provided further that, the provisions of this Section 20(c) and Sections 13(e),
13(f), 13(m), 23 and 24 of this Agreement shall remain in full force and effect
and survive any termination of this Agreement.
(d) Amendment.
Except as is otherwise required by applicable law, this Agreement may
be amended by the parties hereto at any time only by execution of an instrument
in writing signed on behalf of each of the parties hereto.
(e) Extension, Waiver.
At any time prior to the Effective Date, Surge and the Buyer, on the
one hand, and the Seller, on the other, may, to the extent legally allowed, (a)
extend the time for the performance of any of the obligations of the other party
hereto, (b) waive any inaccuracies in the representations and warranties made to
such party contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party at any time or
times to require performance of any provision hereof shall in no manner affect
the right of such party at a later time to enforce the same or any other
provision of this Agreement. No waiver of any condition or of the breach of any
term in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of such condition or breach or a
waiver of any other condition or of the breach of any other term of this
Agreement.
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Section 21. Bulk Sale Act. The Seller and the Buyer agree to waive
compliance with all applicable State Bulk Sales Acts and the rules and
regulations promulgated thereunder. However, the Seller shall indemnify and hold
harmless the Buyer for any losses or expenses incurred by the Buyer as a result
of such waiver of compliance with such Bulk Sales Acts.
Section 22. Orderly Transfer. The Seller shall, and hereby agrees to,
cooperate with the Buyer and Surge in all reasonable ways, at no direct or
indirect cost to the Seller, in effecting any orderly transfer to the Buyer of
the Assets to be acquired by the Buyer hereunder.
Section 23. Expenses. Each party hereto shall pay its own expenses and
fees incidental to the preparation of this Agreement, the carrying out of the
provisions of this Agreement and the consummation of the transactions
contemplated hereby, except as hereinafter described. Notwithstanding the
foregoing, the costs of the fairness opinions for both Seller and Surge and the
Joint Proxy Statement/Prospectus shall be divided in half between the Seller and
Surge.
Section 24. General Provisions
(a) Notices.
All notices and other communications hereunder shall be in writing,
shall be effective when received, and shall in any event be deemed to have been
received (a) when delivered, if delivered personally or by commercial delivery
service, (b) five (5) business days after deposit with U.S. Mail, if mailed by
registered or certified mail (return receipt requested), (c) one (1) business
day after the business day of deposit with Federal Express or similar nationally
recognized overnight courier for next day delivery (or, two (2) business days
after such deposit if deposited for second business day delivery), if delivered
by such means, or (d) one (1) business day after delivery by facsimile
transmission with copy by U.S. Mail, if sent via facsimile plus mail copy (with
acknowledgment of complete transmission), to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
if to the Seller, to:
Global Datatel, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxxx, XX 00000
Attention: Xxxxxxx Xxxxx, President
Telephone: (000) 000-0000
Facsimile No.: (000) 000-0000
49
with a copy to:
Sonnenblick Parker & Selvers, P.C.
0000 Xxxxx 0
Xxxxx Xxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
if to Surge or the Buyer, to:
Surge Components, Inc.
0000 Xxxxx Xxxxxx
Xxxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxx Xxxx, President
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Snow Xxxxxx Xxxxxx P.C.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) Interpretation.
The words "include," "includes" and "including" when used herein shall
be deemed in each case to be followed by the words "without limitation." The
word "agreement" when used herein shall be deemed in each case to mean any
contract, commitment or other agreement, whether oral or written, that is
legally binding. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the business
of" an entity, such reference shall be deemed to include the business of all
direct and indirect subsidiaries of such entity. Reference to the subsidiaries
of an entity shall be deemed to include all direct and indirect subsidiaries of
such entity.
(c) Counterparts.
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
50
when one or more counterparts have been signed by each of the parties and
delivered to the other party, it being understood that all parties need not sign
the same counterpart.
(d) Entire Agreement.
This Agreement, the Schedules and Exhibits hereto, and the documents
and instruments and other agreements among the parties hereto referenced herein:
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, including but not limited to, the Merger Agreement and Plan or
Reorganization dated as of October 8, 1999, and (b) are not intended to confer
upon any other person any rights or remedies hereunder.
(e) Severability.
In the event that any provision of this Agreement or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
(f) Other Remedies.
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
(g) Specific Performance.
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
(h) Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof, provided that
51
issues involving the corporate governance of any of the parties hereto shall be
governed by their respective jurisdictions of incorporation. Each of the parties
hereto agrees that process may be served upon them in any manner authorized by
the laws of the State of New York, and that such process may be served outside
the state of New York, for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction and
such process.
(i) Rules of Construction.
The parties hereto agree that they have been represented by counsel
during the negotiation and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
(j) Assignment.
No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the
other parties hereto. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(k) Absence of Third Party Beneficiary Rights.
No provisions of this Agreement are intended, nor shall be interpreted,
to provide or create any third party beneficiary rights or any other rights of
any kind in any client, customer, affiliate, partner of any party hereto or any
other person or entity unless specifically provided otherwise herein.
(l) Mediation and Arbitration.
If any dispute, controversy or claim arises in connection with the
performance or breach of this Agreement between the parties, a party hereto may,
upon written notice to the other parties, request facilitated negotiations. Such
negotiations shall be assisted by a neutral facilitator acceptable to all
parties and shall require the best efforts of the parties to discuss with each
other in good faith their respective positions and, respecting their different
interests, to finally resolve such dispute.
A party may disclose any facts to the other parties or to the
facilitator which such party believes, in good faith, to be necessary to resolve
the dispute. All such disclosures shall be deemed in furtherance of settlement
efforts and thus confidential. Except as agreed to by all parties, the
facilitator shall keep confidential all information disclosed during the
negotiations. The facilitator shall not act as a witness for either party in any
subsequent arbitration between the parties. Such facilitated negotiations shall
conclude within sixty days from receipt of the written notice, unless extended
by mutual consent of the parties. The costs incurred by each party in such
52
negotiations shall be borne by it. Any fees or expenses of the facilitator shall
be borne equally by all parties.
If any dispute, controversy or claim arises in connection with the
performance or breach of this Agreement which cannot be resolved by facilitated
negotiations, then such dispute, controversy or claim shall be settled by
arbitration in accordance with the laws of the State of New York and then
current Commercial Arbitration Rules of the American Arbitration Association,
except that no pre-hearing discovery will be permitted unless specifically
authorized by the arbitration panel. The confidentiality provisions applicable
to facilitated negotiations shall also apply to arbitration.
The award issued by the arbitration panel may be confirmed in a
judgment by any federal or state court of competent jurisdiction. All reasonable
costs of both parties, as determined by the arbitration panel, including (i) the
fees and expenses of the American Arbitration Association and of the arbitration
panel, and (ii) the costs, including reasonable attorneys' fees, incurred to
confirm the award in court, shall be borne entirely by the non-prevailing party
(to be designated by the arbitration panel in the award) and may not be
allocated between the parties by the arbitration panel.
(m) Disclosure.
Disclosure on one schedule, attachment or document provided pursuant to
any paragraph or subparagraph of this Agreement shall be deemed disclosure under
any other applicable paragraph or subparagraph of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Acquisition
Agreement and Plan of Reorganization to be signed by their duly authorized
respective officers, all as of the date first written above.
SELLER:
GLOBAL DATATEL, INC.
By: /s/ Xxxxxxx Xxxxx
----------------------------------------
Xxxxxxx Xxxxx, President
SURGE COMPONENTS, INC.
By: /s/ Xxx Xxxx
----------------------------------------
Xxx Xxxx, President
BUYER:
GDIS ACQUISITION CORP.
By: /s/ Xxx Xxxx
----------------------------------------
Xxx Xxxx, President
54
