MERGER AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
GLOBAL DATATEL, INC.
GLOBAL DATATEL ACQUISITION CORPORATION
AND
SURGE COMPONENTS, INC.
Dated as of October 8, 1999
EXHIBITS
Exhibit No. Description
1.1 Administrative Services Agreement
1.7(a)(A) Form of Promissory Note
1.7(a)(B) Form of Pledge
5.1 Form of Registration Rights Agreement
5.10 Form of Affiliate Agreement
6.2(c) Form of Opinion of Snow Xxxxxx Xxxxxx P.C.
6.2(h) Form of Employment Agreement
6.3(c) Form of Opinion of Sonnenblick Parker & Selvers, P.C.
-i-
SCHEDULES
Number Description
Schedule 1.6(c) Options Issued and Outstanding under the 1995 Employee
Stock Option Plan of Surge Components, Inc. ("Company")
Schedule 1.6(d) Outstanding Rights or Derivative Securities to Purchase
Company Common Stock
Schedule 2.4 Subsidiaries of Company
Schedule 2.7 Outstanding Taxes, Assessments and Levies of Company
Schedule 2.9 Conflicts, Required Filings and Consents of Company
Schedule 3.4 Subsidiaries of Global Datatel, Inc. ("Parent")
Schedule 3.7 Outstanding Taxes, Assessments and Levies of Parent
Schedule 3.8 Litigation and Proceedings Against Parent
Schedule 3.10 Conflicts, Required Filings and Consents of Parent
Schedule 4.1(h) Changes to Employee Benefits
Schedule 5.10 Affiliates of Company Subject to Affiliates Agreement
Schedule 5.14 Officers and Directors Added to Liability Insurance
Coverage
Schedule 6.2(h) Persons Subject to Employment Agreements
MERGER AGREEMENT AND PLAN OF REORGANIZATION
This MERGER AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made and entered into as of October 8, 1999, by and among Global Datatel, Inc.,
a Nevada corporation ("Parent"), Global Datatel Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and
Surge Components, Inc., a New York corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger and the transactions contemplated hereby upon the terms
and subject to the conditions set forth herein.
B. Pursuant to the Merger and subject to the terms and conditions of
this Agreement, Parent, through Merger Sub, shall acquire from the shareholders
of the Company all of the then issued and outstanding shares of capital stock
and derivative securities of the Company in exchange for shares of common stock
and derivative securities of Parent.
C. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and which qualifies for accounting treatment as a
pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations and warranties set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby, the parties agree as
follows:
ARTICLE 1 - THE MERGER
1.1 The Merger.
At the Effective Time (as defined in Section 1.2), and subject to and
upon the terms and conditions of this Agreement and the applicable provisions of
the Delaware General Corporation Law ("Delaware Law") and the New York Business
Corporation Law ("New York Law"), the Company shall be merged with and into the
Merger Sub, the separate corporate existence of the Company shall cease and the
Merger Sub shall continue as the surviving corporation and as a wholly-owned
subsidiary of Parent. The Merger Sub as the surviving Delaware corporation with
the operating business of the Company after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation ." Following the Merger, the Surviving
Corporation shall be operated in accordance with a business plan (the "Business
Plan") to be agreed upon among Parent, Merger Sub, and Surviving Corporation
prior to the Closing. In furtherance of the Business Plan, Parent and the
Surviving Corporation shall enter into an Administrative Services Agreement with
respect to the operations of the Surviving Corporation, the form of which is
attached hereto as Exhibit 1.1.
1.2 Effective Time.
Unless this Agreement is earlier terminated pursuant to Section 7. 1,
the closing of the Merger (the "Closing") will take place as promptly as
practicable, but no later than five (5) business days, following satisfaction or
waiver of the conditions set forth in Article 6, at the offices of Snow Xxxxxx
Xxxxxx P.C., 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000, unless another
place or time is agreed to by Parent and the Company. The date upon which the
Closing actually occurs is herein referred to as the "Closing Date". On the
Closing Date, the parties hereto shall cause the Merger to be consummated by
filing the Certificate of Merger (or like instrument) with the Secretary of
State of the State of Delaware (the "Certificate of Merger"), in accordance with
the relevant provisions of applicable law and such other Certificates or
documents as shall be necessary to file in the State of New York by Merger Sub
(the time of acceptance by the Secretary of State of the State of Delaware of
such filing being referred to herein as the "Effective Time"). The parties
currently intend that the Closing Date will occur on or prior to November 30,
1999.
1.3 Effect of the Merger
At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of Delaware Law and New York Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) The Certificate of Incorporation of the Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation.
(b) The Bylaws of the Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by law and such Bylaws.
1.5 Directors and Officers.
(a) Surviving Corporation . The director(s) of the Company immediately
prior to the Effective Time shall be the director(s) of the Surviving
Corporation, each to hold office for a term of three (3) years and otherwise in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation. In addition, during such three (3) year period the Parent shall
have the right to appoint one member of the Board of Directors of the Surviving
Corporation. The officers of the Company immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, each to hold office for a
term of three (3) years and in accordance with the Bylaws of the Surviving
Corporation.
(b) Parent
(1) Directors and Committees. Prior to the Effective Time, the
Board of Directors of Parent shall have taken all corporate action
necessary to cause the Board of Directors of Parent to consist of six
(6) persons effective as of the Effective Time, each to serve for a
term of three (3) years from the date thereof and until successor
directors have been duly elected and have taken office, four directors
shall be nominees of Parent and two directors shall be nominees of the
Surviving Corporation. In addition, prior to the Effective Time, the
Board of Directors of Parent shall have taken all corporate action
necessary to cause the Compensation Committee of the Board of Directors
of Parent to consist of the following persons effective as of the
Effective Time to serve for a term of three (3) years from the date
thereof and until successor directors have been duly elected and have
taken office: one representative of the Surviving Corporation,
initially Xxxxx Xxxxxx, who shall be Chairman; and one representative
of the Parent, initially Xxxx Xxxxxxx.
In the event of a deadlock between the members of the
Compensation Committee, the decision shall be decided by the full Board
of Directors. It is intended and understood that the Parent shall have
both Compensation and Audit Committees comprised of at least two or
more independent "outside directors" as such is defined in the Exchange
Act of 1934, as amended (the "Exchange Act") and/or listing
requirements of the NASDAQ or the Amex, and, in the event that any of
the above named persons do not serve (or are not considered as)
"outside directors", the alternate replacement for such director
nominated by Parent or the Surviving Corporation, as the case may be,
shall also qualify as independent and "outside" for purposes of the
Exchange Act or complying with such NASDAQ or exchange listing
requirements.
(2) Officers. Prior to the Effective Time, the Board of
Directors of Parent shall have taken all corporate action necessary to
cause each of the following persons to serve as officers of the Parent
in the office appearing next to such person's name effective as of the
Effective Time until the Board of Directors of Parent shall have
elected and appointed a replacement officer: Xxxxxxx Xxxxx, President,
CEO and Chairman of the Board of Directors; Xxxxxxx Xxxxxxx, Vice
President; Xxx Xxxx, Vice President; Xxxxxx X. Xxxxxx, Secretary; and
Xxxxxx X'Xxxxxxxx as Treasurer.
1.6 Conversion of Shares.
At the Effective Time, by virtue of the Merger and without any action
on the part of Parent, the Company, Merger Sub or any holder of any capital
stock of the Company:
(a) each two (2.00) shares of Common Stock, $.001 par value, of the
Company ("Company Common Stock") issued and outstanding at the Effective Time,
subject to the terms and conditions of this Agreement, shall be converted,
without any further action, into the right to receive, and become exchangeable
for, one (1.00) share (the "Exchange Ratio") of Common Stock, $.001 par value,
of Parent ("Parent Common Stock");
(b) each unexercised Class A Common Stock Warrant, exercisable at $5.00
per share, callable when the Common Stock trades at or above $7.00 per share and
expiring on July 31, 2003 of the Company (the "Class A Warrants") issued and
outstanding at the Effective Time, subject to the terms and conditions of this
Agreement, shall be converted without any further action, on a one-for-one
basis, into the right to receive and become exchangeable for, a warrant (the
"Parent Warrants") to purchase an equal number of shares of Parent Common Stock.
Each Parent Warrant shall maintain the same terms and conditions set forth by
the Company for the Class A Warrants will be exercisable at $5.00, callable at
$7.00 and expire on July 31, 2003;
(c) each option to purchase shares of Company Common Stock (the
"Company Options") issued pursuant to the Company'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 1.6(c) hereto shall, at the Effective Time,
except the Orbit Options as defined below, be assumed by Parent and shall
constitute an option to acquire, on the same terms and conditions as were
applicable under such assumed Company Option, a number of shares of Parent
Common Stock equal to the Exchange Ratio set forth in Section 1.6(a) above, and
giving a corresponding doubling of such options' exercise price.
The above-mentioned 5,300,000 Orbit Options shall be canceled at the
Effective Time in exchange for options ("Parent Options") to acquire an
aggregate of: (i) 600,000 registered shares of Parent Common Stock at $2.00 per
share exercisable in three equal one-third increments commencing 91 days, 181
days and 271 days after the Effective Time; and (ii) 1,100,000 registered shares
of Parent Common Stock at $5.00 per share exercisable in eight equal one-eighth
increments commencing on the 91st day following the Effective Time, and each 90
days thereafter an additional one-eighth, ending two years thereafter. All
shares of Parent Common Stock issuable upon exercise of the 1,700,000 Parent
Options shall be registered with the Securities and Exchange Commission at or
before the Effective Time, however, subject to the above-described quarterly
lock-up periods. In any event, the first quarterly period shall commence on the
first day, when legally permitted and each subsequent quarter shall commence 90
days thereafter.. In the event that any or all of such underlying shares of
Parent Common Stock are not registered on a timely basis, the exercise period(s)
of such Parent Options shall be extended on a day for day basis until they are
so registered. These 1,700,00 Parent Options plus the Company Options shall
hereinafter collectively be referred to as the "Company Options." As soon as
practicable following the Effective Time, but in no event later than three (3)
days following the Effective Time, Parent shall deliver to holders of Company
Options appropriate option agreements (the "Parent Options") representing the
right to acquire shares of Parent Common Stock as constitutes the economic
equivalent of the Company Common Stock such holders would have received prior to
the Effective Time upon the exercise of such Company Options, and otherwise on
the same terms and conditions as contained in the outstanding Company Options.
Parent shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock for delivery upon exercise of
the Company Options assumed in accordance with this Section 1.6(c).
(d) except for such Company Options set forth in Section 1.6(c) above
and except for such other rights to purchase or acquire Company Common Stock as
are listed on Schedule 1.6(d) hereto (the "Other Rights"), there are no other
options, warrants or rights to purchase Company Common Stock outstanding on the
date hereof. The Company shall use its best efforts to encourage the holders of
Other Rights to exercise such Other Rights prior to the Effective Time. Parent
shall assume the obligations of the Company arising with respect to the Other
Rights not exercised prior to the Effective Time and that survive the Merger
such that the holders of such Other Rights shall receive, if and when issued in
accordance with the terms of such Other Rights, such amount of Parent Common
Stock as constitutes the economic equivalent of the Company Common Stock such
holders would have received prior to the Effective Time upon the exercise of
such Other Rights converted into Parent Common Stock at the Exchange Ratio.
(e) each issued and outstanding share of Common Stock, $.001 par value,
of Merger Sub ("Merger Sub Common Stock") shall be converted into one share of
Common Stock, $.001 par value, of Surviving Corporation ("Surviving Corporation
Common Stock"). Each stock certificate of Merger Sub evidencing ownership of any
such shares of Merger Sub Common Stock shall continue to evidence ownership of
such shares of Surviving Corporation Common Stock and the Parent shall be the
sole stockholder of Merger Sub;
(f) no fraction of a share of Parent Common Stock, will be issued, but
in lieu thereof, each holder of shares of Company Common Stock who would
otherwise be entitled to a fraction of a share of Parent Common Stock (after
aggregating all fractional shares of Parent Common Stock to be received by such
holder) shall be entitled to receive from Parent 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 Parent
Common Stock for the five (5) consecutive trading days ending on the trading day
immediately prior to the Closing Date, as reported on the OTC Electronic
Bulletin Board or any exchange on which the Parent Common Stock may then be
traded. A fractional interest shall not entitle the owner thereof to vote such
interest or to any other rights as a security holder with respect to such
interest; and
(g) the Company Options, the Company Common Stock and the Class A
Warrants being exchanged pursuant to this Merger are sometimes collectively
referred to herein as the "Company Securities." The Parent Common Stock, the
Parent Warrants and the Parent Options to be issued in exchange for the Company
Securities pursuant to the Merger are sometimes collectively referred to herein
as the "Parent Securities."
1.7 Loan, Payment of Cash and Future Cash Realized Upon Exercise of
Class A Warrants.
(a) The Company had as of May 31, 1999, approximately $3,950,000 in
cash or cash equivalents on account, and up to an additional $17,398,000 may be
realized in the future assuming that each of the 3,479,600 Class A
Warrants/Parent Warrants (exercisable at $5.00) are exercised. The use of these
proceeds will be as follows:
(A) The Parent shall receive a pre-merger loan ("Pre-Merger
Loan") from the Company contemporaneous with the execution of this Agreement in
the amount of $1,000,000 to be evidenced by a subordinated convertible
promissory note (the "Note") of the Parent, in the form attached as Exhibit
1.7(a)(A) hereto and payable on June 1, 2000, or sooner if this Agreement is
terminated or if this Merger is not completed for any reason by February 28,
2000.
(B) The Pre-Merger Loan shall be secured by a pledge (the
"Pledge") by the Parent's President of the Parent's Common Stock in the forms
attached hereto as Exhibit 1.7(a)(B).
(C) The Surviving Corporation, independently from the Parent,
will retain no less than $1,600,000 of the aforesaid $3,950,000, or 40% of such
lesser amount than $3,950,000, plus any amounts in excess of $3,950,000 solely
for its own business operations at the discretion of the Surviving Corporation's
Board of Directors;
(D) Post-merger, the Parent will receive an additional
$2,000,000, or 35% of such lesser amount than $3,950,000, from the Surviving
Corporation and forgiveness and discharge of the Loan. Notwithstanding the
foregoing, in the event that the Parent shall receive gross proceeds of
$15,000,000 or more in any financing transaction pre-merger the $2,000,000
amount set forth in this subsection shall be reduced to $1,400,000;
(E) In the event that said Class A Warrants are exercised and
cash is realized thereby by either the Company pre-merger or the Parent
post-merger, said proceeds will be allocated as follows:
(1) The Surviving Corporation will receive up to the
first three million ($3,000,000) dollars of any proceeds
realized the exact amount to equal that set forth in
subparagraphs (A) and (D) above and thereafter shall receive
on a pro rata basis with the Parent 28% of any additional
proceeds received until it has received an aggregate maximum
of four million five hundred thousand ($4,500,000) dollars;
(2) After the payment of up to the first $3,000,000
of proceeds to the Surviving Corporation, the Parent will
receive 72% of any additional proceeds realized on a pro rata
basis with the Surviving Corporation until the Surviving
Corporation has received an aggregate maximum of $4,500,000
and then the Parent will retain all amounts in excess of
$4,500,000.
(b) In the event that this Agreement is terminated or the Merger is not
completed for any reason as set forth in Article 7 herein, the Pre-Merger Loan
shall be repaid by the Parent in accordance with terms and conditions of the
Note in the form attached hereto as Exhibit 1.7(a)(A). In the event that the
Note is not repaid in accordance with its terms, the Company 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 and Registration Rights Agreement in the forms attached hereto.
1.8 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Securities held by a holder who has demanded and perfected
appraisal or dissenters' rights for such shares in accordance with New York Law
and who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal or dissenters' rights ("Dissenting Shares"), shall not be exchanged
for Parent Securities pursuant to Section 1.6, but the holder thereof shall only
be entitled to such rights as are granted by New York Law.
(b) Notwithstanding the provisions of subsection 1.8(a), if any holder
of shares of Company Securities who demands appraisal of such shares under New
York Law shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be,
pursuant to the Merger, exchanged for Parent Securities and cash in lieu of
fractional shares as provided in Section 1.6, without interest thereon, upon
surrender of the certificate representing such shares pursuant to Section 1.9.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Securities, withdrawals of such
demands, and any other instruments served pursuant to New York Law and received
by the Company, and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under New York Law. The
Company and Surviving Corporation shall not, except with the prior written
consent of Parent, voluntarily make any payment with respect to any demands for
appraisal of capital stock of the Company or offer to settle or settle any such
demands.
1.9 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent shall designate
a bank or trust company reasonably acceptable to the Company to act as exchange
agent (the "Exchange Agent") in the Merger. Parent shall pay all charges and
expenses of Exchange Agent. The Exchange Agent will be entrusted with exchanging
the Company's Common Stock, the Company's Class A Warrants and the Company
Options with Parent Common Stock, Class A Warrants (or warrants which the Parent
will exchange for the Class A Warrants however they may be titled) and the
Company Options, respectively, as detailed below.
(b) Parent to Provide Parent Securities. As of the Effective Time,
Parent shall deposit into an escrow account with the Exchange Agent for the
benefit of the Company's shareholders the aggregate number of shares of Parent
Common Stock (together with any dividends or distributions with respect thereto
and cash to be paid pursuant to Section 1.6(f) with respect to any fraction of a
share of Parent Common Stock), Parent Warrants and Parent Options issuable
pursuant to Section 1.6 in exchange for the outstanding shares of Company Common
Stock, Class A Warrants and Company Options. The Exchange Agent shall, pursuant
to irrevocable instructions, deliver the aggregate number of Parent Securities
contemplated to be issued pursuant hereto out of such escrow account. The escrow
account shall not be used for any other purpose.
(c) Exchange Procedures. Promptly after the Effective Time, 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 Time represented outstanding shares of Company Securities, which,
pursuant to the Merger, were exchanged for Parent Securities, pursuant to
Section 1.6, (i) 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 Parent may reasonably specify), and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Securities. Upon
surrender of a Certificate to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, 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 Parent Securities, plus
cash in lieu of fractional shares of Parent Securities, in accordance with
Section 1.6(f) and the Certificate so surrendered shall forthwith be owned in
the name of Merger Sub. The Exchange Agent shall not be entitled to vote or
exercise any rights of ownership with respect to the Parent Securities 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 Time, represented shares of Company
Securities will be deemed from and after the Effective Time, for all corporate
purposes, to represent solely (i) ownership of the number of full shares of
Parent Securities into which such Company 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 Section 1.6(f).
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Company
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 Parent 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 Time theretofore paid with respect to such whole shares of
Parent Common Stock.
(e) No Liability. Notwithstanding anything to the contrary in this
Section 1.9, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of Parent Securities or Company Securities
for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(f) Exercise of Company Options or Class A Warrants. In the event that
any Class A Warrants or Company Options are tendered for exercise, with proper
payment, after the date on which the Exchange Agent has forwarded transmittal
instructions in accordance with this Section 1.9, the Company shall retain such
funds as it may be entitled to pursuant to Section 1.7(a)(E) above and remit the
remaining funds to the Escrow Agent with the exercised Option or Class A
Warrants so tendered, and the Parent shall deposit into the escrow such
additional Parent Common Stock for issuance in accordance therewith.
1.10 No Further Ownership Rights in Company Common Stock.
All shares of Parent Common Stock issued pursuant to the Merger in
exchange for shares of Company 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 Company Common
Stock, and there shall be no further registration of transfers on the records of
the Surviving Corporation of shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be transferred to Parent.
1.11 Lost, Stolen or Destroyed Certificates.
In the event any certificates evidencing shares of Company Common Stock
shall have been lost, stolen or destroyed, the Company 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 Time and upon the
making of an affidavit in such form as is acceptable to the Company and the
Exchange Agent of that fact by such holder, new shares of Company Common Stock;
provided, however, that Company, 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 Company
Common Stock, such shares shall be surrendered to the Exchange Agent in
accordance with Section 1.9.
1.12 Tax and Accounting Consequences.
It is intended by the parties hereto that the Merger shall (a)
constitute a reorganization within the meaning of Section 368 the Code, and (b)
qualify for accounting treatment as a pooling of interests, if possible, but if
not then as a purchase.
1.13 Taking of Necessary Action; Further Action.
If, at any time after the Effective Time, any such further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub, the officers and directors of the Company and Merger Sub are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub as
follows:
2.1 Organization, Standing and Power.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York. The Company has the
corporate power to own its properties and to carry on its business as now being
conducted. The Company has made available true and correct copy of its
Certificate of Incorporation and Bylaws, each as amended to date, to Parent.
2.2 Authority.
Subject only to the requisite approval of the Merger and this Agreement
by the Company's shareholders, the Company has all requisite corporate 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 the Company, subject only to
the approval of the Merger and this Agreement by the Company's shareholders. The
Company's Board of Directors has unanimously approved, subject to the completion
of appropriate due diligence, the Merger and this Agreement. This Agreement has
been duly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company, 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.
2.3 Company Capital Structure.
The authorized securities of the Company consists of 25,000,000 shares
of Company Common Stock, $.001 par value and no shares of Preferred Stock. As of
September 23, 1999, 4,858,920 shares of Company Common Stock have been issued
and are outstanding, 5,733,000 shares of Company Common Stock are issuable upon
exercise of outstanding Employee Stock Options including 5,300,000 Orbit Options
described in Section 1.6(c) above which shall be canceled at the Effective Time
and 3,479,600 shares of Company Common Stock are issuable upon exercise of
outstanding Class A Warrants. No shares of Company Common Stock are subject to
outstanding convertible debt securities. All outstanding shares of Company
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 the Company or any agreement to which the Company is
a party or by which it is bound. Other than as set forth on Schedule 2.3, there
are no options, warrants, calls, rights, commitments or agreements of any
character to which the Company is a party or by which it is bound, obligating
the Company to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of the Company or obligating the Company to grant, extend or enter into
any such option, warrant, call, right, commitment or agreement.
2.4 Subsidiaries.
Except as set forth on Schedule 2.4 hereto, the Company 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.
2.5 SEC Documents; Company Financial Statements.
The Company has filed with the Securities and Exchange Commission (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. The Company has
furnished or made available or will make available to the Parent true and
correct copies of all forms, statements, reports and documents filed by the
Company with the SEC since November 1, 1997, including, without limitation, the
Company'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 "Company SEC Documents"). As of their respective
filing dates, the Company 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 May 31, 1999, the Company has not suffered any Material
Adverse Effect (as defined in Section 6.2(a) below) with respect to its business
(financial or otherwise), and the Company 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 the Company Common Stock
or any repurchase, redemption or other acquisition by the Company of any the
Company Common Stock. The financial statements of the Company, including the
notes thereto, included in the Company SEC Documents (the "the Company 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 the Company 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 the Company's accounting policies, except as described in the
notes to the Company's Financial Statements and do not include or omit to state
any fact which renders the Company's Financial Statements hereunder misleading.
2.6 Updated Company Financial Statements.
As soon as practicable following the date of this Agreement, the
Company shall cause to be delivered to Parent and Merger Sub the Company's
unaudited balance sheet as of August 31, 1999, and the related unaudited
statements of operations and cash flows for the nine-month period then ended
(collectively, the "Updated Company Financials"). At such time as the Updated
Company Financials are delivered, the Company will represent and warrant to
Parent and Merger Sub that the Company 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. The
Updated Company Financials will present fairly the financial condition and
operating results of the Company as of the date and during the period indicated
therein.
2.7 Taxes.
All federal, state and other returns and reports required to be filed
by the Company have been duly filed by the Company and except as set forth on
Schedule 2.7 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 the Company have been paid in full by the
Company. Except as set forth on Schedule 2.7, all such taxes and other
assessments and levies which the Company 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 the Company as required by law.
2.8 Litigation.
Except as set forth on in the Company SEC Documents, or as otherwise
disclosed to the Parent, there is no material action, suit or proceeding of any
nature pending or to the best of the Company's knowledge threatened against the
Company, its properties or any of its officers or directors, in their respective
capacities as such.
2.9 No Conflict; Required Filings and Consents.
(a) Except as set forth on Schedule 2.9 hereto, the execution and
delivery of this Agreement by the Company does not, and the performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of the Company, (ii) conflict with or violate any
federal, foreign, state or provincial law, rule, regulation, order, judgment or
decree (collectively, "Laws") applicable to the Company 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 the Company'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
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien on any of the properties or assets of the Company or any of
its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective properties
are bound or affected, except in the case of clauses (ii) and (iii) for any such
conflicts, violations, breaches, defaults or other occurrences that do not have
a Material Adverse Effect, as defined in Section 6.2(a) below.
(b) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company 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 Securities Act of 1933, as amended (the
"Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
state securities laws ("Blue Sky Laws"), the pre-merger notification
requirements of the Xxxx-Xxxxx Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the legal requirements of any foreign jurisdiction
requiring notification in connection with the Merger and the transactions
contemplated hereby and the filing and recordation of appropriate merger or
other documents as required by Delaware Law and the Laws of the State of New
York, 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 Merger or otherwise
prevent or materially delay the Company from performing its obligations under
this Agreement, or (B) do not have a Material Adverse Effect.
2.10 Year 2000 Compliance.
The Company has taken reasonable steps to ensure that the Company'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.
ARTICLE 3 - REPRESENTATIONS AND
WARRANTIES OF PARENT AND MERGER SUB
Parent, Merger Sub and each subsidiary other than Merger Sub (the
"Subsidiaries") represent and warrant to the Company as follows:
3.1 Organization, Standing and Power.
Parent is a corporation duly organized, validly existing and in good
standing, or its equivalent, under the laws of the State of Nevada. Merger Sub
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of Parent and Merger Sub has the corporate
power to own its properties and to carry on its business as now being conducted.
Parent and Merger Sub have each made available true and correct copies of its
Certificates of Incorporation and By-Laws, each as amended, to date.
3.2 Authority.
Subject only to the requisite approval of (a) the amendment of the
Certificate of Incorporation changing the name of Parent, (b) the amendment of
Parent's Certificate of Incorporation authorizing the requisite number of shares
of Parent Common Stock, (c) the issuance of the requisite number of shares of
Parent Common Stock, (d) the election of directors and officers of Parent and
Surviving Corporation as outlined in Section 1.5 hereof, immediately prior to
the Effective Time and for a minimum term of three (3) years, (e) the Merger,
and (f) this Agreement by Parent's stockholders (and by Merger Sub stockholders
with respect to the election of its officers and directors, and approval of the
Merger and this Agreement, and any amendment of its Certificate of
Incorporation, or Bylaws or other filings to be made in Delaware and New York),
Parent and Merger Sub have all requisite corporate 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 Parent and Merger Sub, subject only to the
approval of the Merger and this Agreement by Merger Sub's stockholders. Each of
Parent's and Merger Sub's Board of Directors has unanimously approved, subject
to the completion of appropriate due diligence, the Merger and this Agreement.
This Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
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.
3.3 Parent and Merger Sub Capital Structure.
(a) The authorized stock of Parent consists of 50,000,000 shares of
Parent Common Stock, and 1,000,000 shares of Preferred Stock, $.001 par value.
As of the date of this Agreement, 22,493,627 shares of Parent Common Stock have
been issued and are outstanding, and no shares of Preferred Stock have been
issued. Parent has reserved (i) no shares of Parent Common Stock for issuance
pursuant to Parent's 1998 Employee Stock Option Plan, of which as of September
23, 1999 options to purchase 2,000,000 shares were outstanding and no shares
remained available for future grants. As of the date hereof, no shares of Parent
Common Stock are issuable upon the exercise of outstanding warrants. Other than
as set forth in this Section 3.3, there are no options, warrants, calls, rights,
commitments or agreements of any character to which Parent is a party or by
which it is bound, obligating Parent to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of Parent or obligating Parent to grant, extend or
enter into any such option, warrant, call, right, commitment or agreement.
(b) The Parent Common Stock, when issued in accordance with the terms
and provisions of this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable.
(c) The authorized stock of Merger Sub consists of 1,000 Shares of
Common Stock, par value $.001 per share. As of the date of this Agreement 100
shares of Merger Sub's Common Stock have been issued and are outstanding and are
all owned by Parent. As of the date hereof, no Shares of Merger Sub Common Stock
are issuable upon exercise of Warrants or Options. Other than as set forth in
this Section 3.3, there are no options, convertible securities, warrants, calls,
rights, commitments or agreements of any character to which the Merger Sub is a
party or by which it is bound, obligating the Merger Sub 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 Merger Sub or obligating the
Merger Sub to grant, extend or enter into any such option, convertible security,
warrant, call, right, commitment or agreement.
3.4 Subsidiaries.
Except as set forth on Schedule 3.4 hereto, the Parent 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.
3.5 SEC Documents; Parent Financial Statements.
(a) Parent 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. Parent has furnished or made available or will make
available to the Company true and correct copies of all forms, statements,
reports and documents filed by Parent with the SEC since January 1, 1999,
including, without limitation, Parent'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 period ended June 30, 1999 (all of the foregoing being
collectively referred to as the "Parent SEC Documents"). As of their respective
filing dates, the Parent 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 Parent
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 June 30, 1999, Parent has not suffered any Material
Adverse Effect (as defined in Section 6.2(a) below) with respect to its business
(financial or otherwise), and Parent 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 Parent Common Stock or any
repurchase, redemption or other acquisition by Parent of any other securities of
Parent. The financial statements of Parent, including the notes thereto,
included in the Parent SEC Documents (the "Parent 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
Parent 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 do
not include or omit to state any fact which renders the Parent Financial
Statements hereunder misleading. There has been no change in Parent accounting
policies except as described in the notes to the Parent Financial Statements.
(b) Except as and to the extent shown or provided for in the Parent
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 June 30, 1999 in the ordinary course of business, to the extent
quantified and reflected as a liability on the Parent's books and records, the
Parent 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 Parent except as specifically provided pursuant to the terms of the
agreement or understanding to which such liability or obligation relates; as of
June 30, 1999, there was no asset used by the Parent in its operations that has
not been reflected in the Parent Financial Statements, and except as set forth
in the Parent Financial Statements, no assets have been acquired by the Parent
since such date except in the ordinary course of business.
(c) Except as disclosed in the Parent Financial Statement, there has
been no decrease in stockholders' equity as compared with the amount shown for
such stockholders' equity as at June 30, 1999 and no material adverse changes in
the financial position of the Parent and its Subsidiaries, taken as a whole,
since June 30, 1999.
3.6 Updated Parent Financial Statements.
(a) As soon as practicable following the date of this Agreement, but no
later than seven (7) days prior to the filing of the Company's proxy statement
with the SEC for the special meeting to approve the Merger, Parent shall cause
to be delivered to the Company, Parent'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. August 31, 1999 until October 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. The
updated Parent financial statement described in the forgoing sentence shall be
updated again and delivered to the Company within five (5) days prior to Closing
(collectively, the "Updated Parent Financials"). At such time as Updated Parent
Financials are delivered, Parent will represent and warrant to Company that
Updated Parent 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 Parent Financials will
present fairly the financial condition and operating results of Parent as of the
dates and during the periods indicated therein.
(b) The Updated Parent Financial Statements shall be subject to review
by the Company and its accountants and consultants. The Updated Parent Financial
Statements delivered prior to the Closing shall be accompanied by the Parent's
auditors review statement. The Parent shall be responsible for the fees and
expenses of the auditors for their services in connection with the Updated
Parent Financial Statements. The Company shall be responsible for the fees of
its own accountants in reviewing the Updated Parent Financial Statements. The
Company and/or its designees shall be permitted to participate in the review
process, to observe all aspects of the review and to collaborate with the
auditors in the preparation of the Updated Parent Financial Statements.
(c) Following delivery of the Updated Parent Financial Statements to
the Company at Closing, the Company 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. The
Company shall have fifteen (15) days to review the Updated Parent Financial
Statements and to give notice to the Parent of any disagreement regarding such
statements (an "Objection Notice"). Absent such objection Notice, the Updated
Parent Financial Statements as delivered shall be final and binding on the
parties hereto.
(d) If the Company 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 Parent's
receipt of the Objection Notice, then the unresolved differences shall be
resolved as provided in Section 8.13 hereof.
3.7 Taxes.
All federal, state and other returns and reports required to be filed
by Parent have been duly filed by Parent and except as set forth on Schedule 3.7
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 Parent have been paid in full by Parent. Except as set forth on
Schedule 3.7, all such taxes and other assessments and levies which Parent 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 Parent as required by law.
3.8 Litigation .
Except as set forth on Schedule 3.8 hereto, there is no action, suit or
proceeding of any nature pending or to the best of Parent's knowledge threatened
against Parent, its properties or any of its officers or directors, in their
respective capacities as such.
3.9 Electronic Bulletin Board Listing.
Parent's capital stock is trading on NASD's Over-the-Counter Electronic
Bulletin Board, with a listing application pending with the AMEX and at the
Effective Time or as soon thereafter as is practical will make application to be
listed for trading on the Nasdaq SmallCap Market, Nasdaq National Market or the
AMEX.
3.10 No Conflict; Required Filings and Consents.
(a) Except as set forth on Schedule 3.10 hereto, the execution and
delivery of this Agreement by the Parent and Merger Sub does not, and the
performance of this Agreement by the Parent and Merger Sub and the consummation
by the Parent and Merger Sub of the transactions contemplated hereby will not,
(i) conflict with or violate the Certificate of Incorporation or Bylaws of the
Parent or Merger Sub, (ii) conflict with or violate any Laws applicable to the
Parent or any of its subsidiaries or by which they 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 the Parent'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 termination, amendment, acceleration or cancellation of, or result in
the creation of a lien on any of the properties or assets of the Parent or any
of its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Parent or any of its subsidiaries is a party or by which the Parent
or any of its subsidiaries or its or any of their respective properties are
bound or affected, except in the case of clauses (ii) and (iii) for any such
conflicts, violations, breaches, defaults or other occurrences that do not have
a Material Adverse Effect, as defined in Section 6.2 below.
(b) The execution and delivery of this Agreement and the Consummation
of the Merger contemplated thereby, by the Parent and Merger Sub do not, and the
performance of this Agreement by the Parent and Merger Sub 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 Securities Act, the Exchange Act, Blue
Sky Laws, the pre-merger notification requirements of the HSR Act, the legal
requirements of any foreign jurisdiction requiring notification in connection
with the Merger and the transactions contemplated hereby and the filing and
recordation of appropriate merger or other documents as required by the laws of
the states of Delaware, 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 Merger or otherwise prevent or materially delay the Parent
or Merger Sub from performing its obligations under this Agreement, or (B) do
not have a Material Adverse Effect (as defined below).
3.11 Year 2000 Compliance.
The Parent has taken reasonable steps to ensure that the Parent'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.
3.12 Brokers' and Finder' Fees.
Neither Parent nor Merger Sub has incurred, not will Parent of Merger
Sub incur, directly or indirectly, any liability for brokerage or finders' fees
or agent's commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
ARTICLE 4 - CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by the Company, Parent and Merger Sub Pending
the Merger.
Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Effective Time or earlier termination of this Agreement,
unless the parties shall otherwise agree in writing, the Company, the Parent and
the Merger Sub shall each :
(a) conduct its business in the ordinary and usual course of business
and consistent with past practice;
(b) 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;
(c) 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 the Company'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, the Company may issue shares upon exercise of
outstanding options or warrants and will notify Parent of any such exercise or
conversion promptly;
(d) 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 any action which would jeopardize the treatment of Parent's
acquisition of the Company as a "pooling of interests" for accounting purposes,
(iv) take or fail to take any action which action or failure to take action
would cause the Company 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
Merger, (v) make any acquisition of any assets (except in the ordinary course of
business) or businesses, (vi) sell any assets (except in the ordinary course of
business) or businesses, or (vii) enter into any contract, agreement, commitment
or arrangement with respect to any of the foregoing;
(e) 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 the Company or the Parent and not engage in any action, directly or
indirectly, with the intent to impact adversely the transactions contemplated by
this Agreement;
(f) 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;
(g) 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;
(h) 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
ordinary and usual course of business, consistent with past practices or as
required to comply with changes in applicable law and except as contemplated on
Schedule 4.1(h) hereto;
(i) 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
(j) 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.
4.2 Certain Actions.
Except with respect to this Agreement and the transactions contemplated
hereby, the Company, Parent and Merger Sub 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. The Company, Parent and Merger Sub 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. The Company, Parent and Merger Sub, 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. The Company, Parent and Merger Sub 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.
ARTICLE 5 - ADDITIONAL AGREEMENTS
5.1 Issuance of Parent Common Stock, Registration.
(a) The Parent Common Stock (including all shares issuable upon
exercise of the Parent Warrants) to be issued pursuant to the Merger will be
registered in an S-4 (or such successor form) registration statement except as
set forth in the registration rights agreement (the "Registration Rights
Agreement") attached hereto as Exhibit 5.1.
(b) The Company Options described in Section 1.6(C) and as set forth on
Schedule 1.6(c) attached hereto, including all shares issuable upon exercise of
all of such options) will be registered at the same time as well as the Employee
Option Pool described in Section 5.16 below in an S-8 (or such successor form)
registration statement, upon the determination of the Parent's Compensation
Committee.
5.2 Nasdaq Compliance.
Parent 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 Merger. In the event that such rule does not apply, the Parent
shall comply with all applicable requirements for initial inclusion on the
NASDAQ Small Cap Market or AMEX as a condition to Closing.
5.3 Stockholders' Meetings.
Subject to applicable law, each of the Company and Parent, through its
respective Board of Directors, shall, in accordance with applicable law and
subject to the fiduciary duties of their respective Board 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 (the "Proxy Statement/Prospectus") for use in
connection with obtaining the requisite stockholder approvals and the issuance
of the Parent Securities pursuant to the Merger; (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 the Company)
of approving as required by New York Law, the Merger, this Agreement and the
transactions contemplated hereby (the "Company Shareholder Approval") or (in the
case of Parent) of approving as required by the Nevada Business Corporation Law
the Merger, this Agreement (including the transactions contemplated hereby), the
Certificate of Amendment to the Certificate of Incorporation and the
authorization and issuance of Parent Company Stock in connection with the Merger
(the "Parent Stockholder Approval" and together with the Company Shareholder
Approval, the "Stockholder Approvals"); and (c) include in the Proxy
Statement/Prospectus for use in connection with the Special Meeting of each of
the Company and Parent the recommendation of their respective Board of Directors
that stockholders vote in favor of the Company Stockholder Approval or the
Parent Stockholder Approval, as the case may be. The Company and Parent will use
commercially reasonable efforts to cause the Special Meeting to occur as soon as
practicable after the date hereof.
5.4 Access to Parent/Company Information.
Subject to any applicable contractual confidentiality obligations
(which the Company and Parent shall use their best efforts to cause to be
waived), Company and Parent 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 Time 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 Parent, as applicable, as
may be reasonably requested.
5.5 Confidentiality.
Each of the parties hereto hereby agrees to maintain the
confidentiality of the information obtained in any investigation pursuant to
Section 5.4, or pursuant to the negotiation of this Agreement, in accordance
with the provisions of the Confidentiality Agreement between Parent and the
Company dated as of September 23, 1999.
5.6 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 Parent and the Company
prior to release, provided that such approval shall not be unreasonably withheld
and subject in any event to Company's and Parent'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 the Parent's securities are listed.
5.7 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.
5.8 Notification of Certain Matters.
The Company shall give prompt notice to Parent, and Parent shall give
prompt notice to the Company, 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 Company, Parent or Merger Sub, respectively,
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time except as contemplated by this Agreement
(including the schedules of the Company attached hereto), and (b) any failure of
the Company, Parent or Merger Sub, 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 5.8 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
5.9 Pooling Accounting.
Each of the Parent, the Company and the Merger Sub, shall use its
reasonable efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests subject to the standards,
rules and regulations set by the Financial Accounting Standards Board. Each of
the Parent, the Company and the Merger Sub, shall use its reasonable efforts to
cause its respective employees, directors, stockholders and affiliates not to
take any action that would adversely affect the ability of Parent to account for
the business combination to be effected by the Merger as a pooling of interests.
Neither Parent nor the Company shall take any action, including the acceleration
of vesting of any options, warrants, restricted stock or other rights to acquire
shares of the capital stock of the Company, which reasonably would be expected
to (i) interfere with Parent's ability to account for the Merger as a pooling of
interests, or (ii) jeopardize the tax-free nature of the reorganization
hereunder.
5.10 Affiliate Agreement.
Schedule 5.10 hereto sets forth those persons who, in the Company's
reasonable judgment, are "affiliates" of the Company within the meaning of Rule
145 (each such person an "Affiliate") promulgated under the Act ("Rule 145").
The Company shall provide Parent such information and documents as Parent shall
reasonably request for purposes of reviewing such list. The Company has
delivered or shall cause to be delivered to Parent prior to the Closing Date
from the Company's Affiliates an executed affiliate agreement substantially in
the form attached hereto as Exhibit 5.10 (the "Affiliate Agreement"). Parent
shall be entitled to place appropriate legends on the certificates evidencing
any Parent Securities (or Parent Common Stock underlying the Parent Warrants and
the Parent Common Stock) to be received by Affiliates of the Company pursuant to
the terms of this Agreement, and to issue appropriate stop transfer instructions
to the transfer agent for Parent Common Stock and Parent Securities consistent
with the terms of such Affiliate Agreement.
5.11 Blue Sky Laws.
Parent 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 Parent Securities pursuant hereto. The Company shall use its
best efforts to assist Parent 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 Parent Securities pursuant hereto.
5.12 Corrections to the Proxy Statement/Prospectus.
Prior to the date of the Stockholder Approvals, each of the Company,
Parent and Merger Sub 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 Company and Parent, in each case to the
extent required by applicable law.
5.13 Shareholder Rights Protection Plan.
At or prior to the Effective time the Company shall terminate its
Shareholder Protection Rights Plan, as provided therein.
5.14 Indemnification and Insurance.
(a) Parent and the Company agree that all rights to indemnification
existing in favor of the present or former directors, officers and employees of
the Company (as such) or any of its subsidiaries or present or former directors
of the Company or any of its subsidiaries serving or who served at the Company'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 Company's Certificate of Incorporation or
Bylaws, or the Certificate of Incorporation or Bylaws (or similar governing
documents) of any of the Company'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 Time shall survive the Merger and shall 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 the Surviving Corporation
shall comply fully with its obligations hereunder and thereunder.
(b) The officers and directors of Parent and the Surviving Corporation
after the Effective Time shall amend the Company's liability insurance to have
the Parent assume the payment of all premiums for such insurance and to include
the officers and directors of the Parent and Surviving Corporation set forth on
Schedule 5.14 hereto.
(c) In the event the Surviving Corporation or Parent 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 the Surviving Corporation or Parent, as
appropriate, assume the obligations set forth in this Section 5.14.
5.15 Change in Name.
Simultaneously with the Merger, Parent may amend its Certificate of
Incorporation to change its name to Global Networks, Inc. or a derivative
thereof. Prior to such name change, Parent 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 Parent's Board of
Directors and stockholders, filing a certificate of amendment to Parent's
Certificate of Incorporation with the Secretary of State of the State of Nevada,
obtaining the trading symbol "GTEL" and making the requisite filings with and/or
obtaining the requisite approvals from the SEC and the Nasdaq Stock Market or
AMEX.
5.16 Employee Option Pool.
Parent shall establish after the Merger an employee option pool
representing not more than twenty percent (20%) of Parent's outstanding Parent
Common Stock on a fully-diluted basis, which shall be managed by the
Compensation Committee of the Parent, described in Section 1.5(b)(1) above,
which shall grant all Parent Stock Options, in addition to the Company Options
described in Section 1.6(c) above. In connection therewith, Parent shall approve
a stock option plan suitable to the Company and reserve such number of shares of
Parent Common Stock for issuance thereunder and shall have the same approved by
its shareholders along with the Merger and this Agreement. The Parent Common
Stock underlying the options issued under said stock option plan shall be
registered for resale as soon as practical on Form S-8 with the SEC.
ARTICLE 6 - CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction at or prior to the Closing of
the following conditions:
(a) Stockholder Approval. The Stockholder Approvals shall have been
obtained;
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect;
(c) Tax Opinions. Parent and the Company shall each have received
substantially identical written opinions from their counsel, Sonnenblick, Xxxxxx
& Selvers, P.C. and Snow Xxxxxx Xxxxxx P.C., respectively, in form and substance
reasonably satisfactory to them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. The parties to
this Agreement agree to make and to use reasonable efforts to cause their
stockholders to make reasonable representations as requested by such counsel for
the purpose of rendering such opinions;
(d) Regulatory Approvals and Third Party Consents. All governmental and
third party consents, orders and approvals legally required for the consummation
of the Merger and the transactions contemplated hereby, including, without
limitation, approval by the SEC and any applicable state securities divisions,
shall have been obtained and be in effect at the Effective Time;
(e) Registration Rights Agreement. The Registration Rights Agreement
attached hereto as Exhibit 5.1 shall have been executed by Parent substantially
in the form as attached hereto;
(f) Company Fairness Opinion. The Company shall have received from a
nationally recognized investment banking or valuation firm reasonably acceptable
to the Company an opinion to the effect that the Merger is appropriate for the
Company 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 Time; and
(g) Nasdaq Compliance. Parent and Company will have to comply with
Nasdaq Marketplace Rule 4330(f), and the Parent will have to comply with all
applicable requirements for initial inclusion of the post-merger Parent 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 Merger is
consummated, Parent shall demonstrate to the Company's satisfaction that the
post-Merger Parent and the Parent Common Stock will meet all such applicable
requirements.
6.2 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger and
the transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and warranties
of the Company 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 Agreement (including the schedules of the Company)
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, 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 Company or Parent; and Parent
and Merger Sub shall have received a certificate to such effect signed on behalf
of the Company by the President of the Company. "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 Merger 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;
(b) Agreements and Covenants. The Company 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 Parent and Merger Sub shall have received a certificate to such effect
signed by the President of the Company;
(c) Legal Opinion. Parent shall have received a legal opinion from Snow
Xxxxxx Xxxxxx, P.C., legal counsel to the Company, in substantially the form
attached hereto as Exhibit 6.2(c);
(d) (intentionally left blank)
(e) Comfort Letters. Parent shall have received "comfort" letters from
Xxxxxxxx & Xxxxxxxxxxxx, independent public accountants for the Company, dated
the date of the Proxy Statement/Prospectus, the effective date of the Proxy
Statement/Prospectus and the Closing Date (or such other date reasonably
acceptable to Parent) with respect to certain financial statements and other
financial information included in the Proxy Statement/Prospectus in customary
form;
(f) Affiliate Agreements. Each of the parties identified by the Company
as being one of its Affiliates shall have delivered an executed Affiliate
Agreement which shall be in full force and effect;
(g) Material Adverse Change. Since December 1, 1998, no event shall
have occurred that would constitute a Material Adverse Effect to the Company;
(h) Employment Agreements. Each of the persons listed on Schedule
6.3(h) hereto shall have executed and delivered to Parent employment agreements
in substantially the form of Exhibit 6.2(h) attached hereto;
(i) Due Diligence. Parent shall have conducted its due diligence of
Company with results, in the sole discretion of the Board of Directors of
Parent, satisfactory to it; and
(j) Additional Certificates. The Company shall have furnished to Parent
such additional certificates, opinions and other documents as Parent may have
reasonably requested as to any of the conditions set forth in this Section 6.2.
6.3 Additional Conditions to Obligations of the Company.
The obligations of the Company to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub 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 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, 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 Parent; and the Company shall have received a certificate to such
effect signed on behalf of Parent and Merger Sub by the Chief Executive Officer
or President of each of Parent and Merger Sub;
(b) Agreements and Covenants. Parent and Merger Sub 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 the Company shall have received a certificate to such
effect signed by the Chief Executive Officer or President of each of Parent and
Merger Sub;
(c) Legal Opinion. The Company shall have received a legal opinion from
Sonnenblick, Xxxxxx & Selvers, P.C., counsel to Parent and Merger Sub, in
substantially the form attached hereto as Exhibit 6.3(c);
(d) (intentionally left blank)
(e) Comfort Letters. The Company shall have received "comfort" letters
from Xxxxxxx, Lago & Company, independent public accountants for Parent, dated
the date of the Proxy Statement/Prospectus, the effective date of the Proxy
Statement/Prospectus and the Closing Date (or such other date reasonably
acceptable to the Company) with respect to certain financial statements and
other financial information included in the Proxy Statement/Prospectus in
customary form;
(f) Material Adverse Change. Since January 1, 1999, no event shall have
occurred that would constitute a Material Adverse Effect to Parent;
(g) Nasdaq SmallCap Listing. Parent's capital stock shall be listed for
trading on the Nasdaq SmallCap Market or AMEX and the Parent Common Stock to be
issued in connection with the Merger shall have been authorized for listing on
the Nasdaq SmallCap Market or AMEX upon official notice of issuance.
(h) Employment Agreements. Parent shall have executed and delivered to
each of the persons listed on Schedule 6.2(h) hereto employment agreements
substantially in the form of Exhibit 6.2(h) attached hereto, and Parent shall
have assumed any existing employment agreements to which the Company is a party;
(i) Due Diligence. The Company shall have conducted its due diligence
of Parent and Merger Sub with results, in the sole discretion of the Board of
Directors of the Company, satisfactory to it;
(j) Administrative Services Agreement. The Administrative Services
Agreement attached hereto as Exhibit 1.1 shall have been executed by Parent and
Merger Sub substantially in the form as attached hereto; and
(k) Additional Certificates. Parent and Merger Sub shall have furnished
to the Company such additional certificates, opinions and other documents as the
Company may have reasonably requested as to any of the conditions set forth in
this Section 6.3.
6.4 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 Closing.
(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:
(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 Closing Date, and
only with respect to the Schedules and Exhibits attached to this Agreement as of
the Closing Date.
ARTICLE 7 - TERMINATION, AMENDMENT AND WAIVER
7.1 Termination.
This Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after the Stockholder Approvals
are obtained:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if (i) the Effective Time has not occurred
by February 28, 2000 (provided that the right to terminate this Agreement under
this clause 7. 1 (b)(i) 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 Time 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 Merger; (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any governmental entity that would make consummation of the Merger
illegal; or (iv) if any of the conditions precedent to Closing set forth in this
Agreement have not been met and have not been waived in writing by the party
whose consent is required.
(c) by Parent or the Company if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any governmental entity, which would: (i) prohibit
Parent's or the Company's ownership or operation of any portion of the business
of the Company or Parent; or (ii) compel Parent or the Company to dispose of or
hold separate, as a result of the Merger, any material portion of the business
or assets of the Company or Parent;
(d) by Parent 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
Company and as a result of such breach the conditions set forth in Section
6.2(a) or Section 6.2(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by the Company within ten (10)
days after the giving of written notice by Parent of such breach through the
exercise of the Company's reasonable best efforts, then for so long as the
Company continues to exercise such reasonable best efforts Parent may not
terminate this Agreement under this Section 7. 1 (d) 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);
(e) by the Company 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
Parent or Merger Sub and as a result of such breach the conditions set forth in
Section 6.3(a) or Section 6.3(b), as the case may be, would not then be
satisfied; provided, however, that if such breach is curable by Parent or Merger
Sub within ten (10) days after the giving of written notice by the Company of
such breach through the exercise of Parent's or Merger Sub's reasonable best
efforts, then for so long as Parent or Merger Sub continues to exercise such
reasonable best efforts the Company may not terminate this Agreement under this
Section 7. 1 (e) 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);
(f) by Parent if the Company 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 Company 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,
(g) by the Company if Parent 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 Parent 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
(h) by Parent or the Company upon execution prior to the Effective Time
of a definitive agreement in connection with an Acquisition Proposal as
contemplated in Section 4.3.
Where action is taken to terminate this Agreement pursuant to this
Section 7. 1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
7.2 Automatic Termination.
Anything to the contrary notwithstanding, this Agreement will be
automatically terminated if Parent does not receive the appropriate approval (as
required by Nevada law) of its stockholders for any or all of the following:
To amend its Certificate of Incorporation to change Parent's name to
"Global Networks, Inc." or a derivative thereof,
To issue the requisite number of shares of Parent Common Stock;
The Merger; and/or
This Agreement.
7.3 Effect of Termination.
In the event of termination of this Agreement as provided in Section 7.
1, this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Merger Sub or the Company, 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 7.3 and Sections 5.5, 5.6 and 5.17
and Article 8 of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
7.4 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.
7.5 Extension, Waiver.
At any time prior to the Effective Time, Parent and Merger Sub, on the
one hand, and the Company, 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.
ARTICLE 8 - GENERAL PROVISIONS
8.1 Survival of Representations and Warranties.
The representations and warranties set forth in Article 2 and Article 3
shall survive for a period of one year beyond the Effective Time. This Section
8.1 shall not limit any covenant or agreement of the parties hereto which by its
terms contemplates performance after the Effective Time.
8.2 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 Parent or Merger Sub, 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
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 the Company, 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
8.3 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.
8.4 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
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.
8.5 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-, and (b) are not intended to confer upon any other person any rights or
remedies hereunder.
8.6 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.
8.7 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.
8.8 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.
8.9 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
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.
8.10 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.
8.11 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.
8.12 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.
8.13 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
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 the 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.
8.14 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.
IN WITNESS WHEREOF, the parties hereto have caused this Merger
Agreement and Plan of Reorganization to be signed by their duly authorized
respective officers, all as of the date first written above.
SURGE COMPONENTS, INC.
By: /s/ Xxx Xxxx
------------------------------
Xxx Xxxx
President
GLOBAL DATATEL, INC.
By: /s/ Xxxxxxx Xxxxx
------------------------------
Xxxxxxx Xxxxx
President
GLOBAL DATATEL ACQUISITION
CORPORATION
By: /s/ Xxxxxxx Xxxxx
------------------------------
Xxxxxxx Xxxxx
President
