<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 8, 1999
SURGE COMPONENTS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
New York 0-14188 11-2602030
- ------------------------------- ------------------------ ---------------------------
(State or Other Jurisdiction of (Commission File Number) IRS Employer Identification
Incorporation) Number)
</TABLE>
1016 Grand Boulevard, Deer Park, New York 11729
----------------------------------------------------------------------------
(Address of principal executive offices)(Zip Code)
(516) 595-1818
----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events
On October 8, 1999, Surge Components, Inc. (the "Registrant") executed
a Merger Agreement and Plan of Reorganization (the "Merger Agreement") by and
among the Registrant, Global Datatel, Inc., a Nevada corporation ("Global") and
Global Datatel Acquisition Corporation, a Delaware corporation ("Merger Sub"),
and a wholly-owned subsidiary of Global. Pursuant to the terms of the Merger
Agreement, the Registrant will merge (the "Merger"), with Global by virtue of
the acquisition of the Registrant's securities by Global and a merger of the
Registrant with and into Merger Sub. The shareholders of the Registrant will be
asked to approve the Merger in an upcoming special meeting of Shareholders
called for such purpose. A copy of the Merger Agreement is included as an
exhibit to this Report.
Global is a leader in Latin America in medium to large system
integration projects. Global is a First Tier IBM Business Partner, Microsoft
Solution provider, Lotus Premier Team Provider and a distributor for JBA
International E.R.P. Company. Global also distributes hardware for Compaq, Dell,
Hewlett-Packard and Cisco Systems. eHOLA.com, a wholly owned subsidiary of
Global, is a Latin American Internet Service Provider multilingual portal.
The specific terms of the Merger Agreement provide that upon approval
of the Merger by the Registrant's shareholders, at the Effective Time (as
defined in the Merger Agreement) of the Merger, the Registrant's common stock,
$.001 par value per share (the "Registrant's Common Stock") issued and
outstanding at the Effective Time shall become exchangeable for common stock,
$.001 par value per share, of Global (the "Global Common Stock") at a rate of
one share of Global Common Stock for every two shares of Registrant's Common
Stock. Each unexercised Class A Common Stock Warrant of the Registrant (the
"Class A Warrants") outstanding at the Effective Time, shall be converted on a
one for one basis to receive a warrant to purchase an equal number of shares of
Global Common Stock, exercisable at $5.00, callable at $7.00, expiring on
July 31, 2003 and in all respects identical in form and substance to the
currently outstanding Class A Warrants. At the Effective Time Global has agreed
to assume all options issued under the Registrant's 1995 Employee Stock Option
Plan, as amended, and in connection therewith, issue options on the same terms
and conditions as were applicable under such assumed Registrant options, to
purchase a number of shares of Global Common Stock on a one for two basis, and
giving effect to a corresponding doubling of such exercise price. In addition,
5,300,000 options issued and outstanding to certain officers and directors of
the Registrant in connection with the previously terminated Orbit Networks
merger, will be exchanged for options to acquire an aggregate of 600,000 shares
of Global Common Stock at $2.00 per share, and 1,100,000 shares of Global
Common Stock at $5.00 per share.
Simultaneously, upon entering into the Merger Agreement, Global issued
a Convertible Promissory Note (the "Note") to the Registrant reflecting a
$1,000,000 loan (the "Loan") made to Global. The Note is convertible into shares
of Global Common Stock at the rate of 90% of the fair market value of Global
Common Stock and secured by a pledge of shares of Global Common Stock owned by
an executive officer of Global. Copies of both the Note and the Pledge Agreement
are also included as exhibits to this Report. It is contemplated that pursuant
to the Merger Agreement, and at the Effective Time, the Loan underlying such
Note will be discharged.
<PAGE>
Item 7 Financial Statements.
Financial Statements for this report and relating to Global will be
filed upon completion of the transaction.
(c) Exhibits:
Exhibit
Number Description
3.1 Merger Agreement and Plan of Reorganization, dated October 8, 1999, by
and among Global Datatel, Inc., Global Datatel Acquisition Corporation
and Surge Components, Inc.
99.1 Subordinated Convertible Promissory Note in the Principal Amount of
$1,000,000.00 issued by Global Datatel, Inc.
99.2 Pledge Agreement, dated October 8, 1999, by and among Richard Baker,
Global Datatel, Inc., and Surge Components, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SURGE COMPONENTS, INC.
Registrant
Dated: October 21, 1999 By: /s/ Ira Levy
----------------------------------
Ira Levy, President and
Chief Executive Officer
<PAGE>
EXHIBITS INDEX
Exhibit
Number Description
3.1 Merger Agreement and Plan of Reorganization, dated October 8, 1999, by
and among Global Datatel, Inc., Global Datatel Acquisition Corporation
and Surge Components, Inc.
99.1 Subordinated Convertible Promissory Note in the Principal Amount of
$1,000,000.00 issued by Global Datatel, Inc.
99.2 Pledge Agreement, dated October 8, 1999, by and among Richard Baker,
Global Datatel, Inc., and Surge Components, Inc.
<PAGE>
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
<PAGE>
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 Becker Krauss P.C.
6.2(h) Form of Employment Agreement
6.3(c) Form of Opinion of Sonnenblick Parker & Selvers, P.C.
-i-
<PAGE>
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
<PAGE>
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.
<PAGE>
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 Becker
Krauss P.C., 605 Third Avenue, New York, New York 10158-0125, 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.
<PAGE>
(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 David Siegel, who shall be Chairman; and one representative
of the Parent, initially Rene Serrato.
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: Richard Baker, President,
CEO and Chairman of the Board of Directors; Antonio Serrato, Vice
President; Ira Levy, Vice President; Steven J. Lubman, Secretary; and
Gerald D'Ambrosio as Treasurer.
<PAGE>
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.
<PAGE>
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
<PAGE>
(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;
<PAGE>
(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.
<PAGE>
(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).
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 Hart-Scott Rodino 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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
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;
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
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, Parker
& Selvers, P.C. and Snow Becker Krauss 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.
<PAGE>
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
Becker Krauss, 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
Seligson & Giannattasio, 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;
<PAGE>
(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;
<PAGE>
(c) Legal Opinion. The Company shall have received a legal opinion from
Sonnenblick, Parker & 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 Infante, 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.
<PAGE>
(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;
<PAGE>
(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,
<PAGE>
(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.
<PAGE>
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.
3333 Congress Avenue, Suite 404
Delray Beach, FL 33445
Attention: Richard Baker, President
Telephone: (561) 276-8260
<PAGE>
Facsimile No.: (561) 276-7960
with a copy to:
Sonnenblick Parker & Selvers, P.C.
4400 Route 9
South Freehold, NJ 07728
Attention: Gerald Silvers, Esq.
Telephone: (732) 431-1234
Facsimile: (732) 431-3994
if to the Company, to:
Surge Components, Inc.
1016 Grand Avenue
Deer Park, New York 11729-0125
Attention: Ira Levy, President
Telephone No.: (516) 595-1818
Facsimile No.: (516) 242-6932
with a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158
Attention: Elliot Lutzker, Esq.
Telephone No.: (212) 455-0322
Facsimile No.: (212) 949-7052
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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/ Ira Levy
------------------------------
Ira Levy
President
GLOBAL DATATEL, INC.
By: /s/ Richard Baker
------------------------------
Richard Baker
President
GLOBAL DATATEL ACQUISITION
CORPORATION
By: /s/ Richard Baker
------------------------------
Richard Baker
President
<PAGE>
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED, DISPOSED OF OR
OFFERED FOR SALE, IN WHOLE OR IN PART, IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING THIS NOTE AND/OR THE COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF, OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO GLOBAL DATATEL, INC. THAT AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
GLOBAL DATATEL, INC.
Principal Sum: $1,000,000
Holder: Surge Components, Inc.
GLOBAL DATATEL, INC., a Nevada corporation (the "Corporation"), for value
received hereby promises to pay the principal sum set forth above (the
"Principal Sum") to the order of the above-referenced holder (the "Holder") on
or before June 1, 2000 (the "Maturity Date") subject to acceleration and
mandatory prepayment, as provided herein. Each payment by the Company pursuant
to this Note shall be made without set-off or counterclaim and shall be made in
lawful currency of the United States of America and in immediately available
funds. This note (the "Note") shall accrue interest at the rate of ten percent
(10%) per annum from and after the date hereof. Accrued and unpaid interest
shall be payable on the Maturity Date; after the Maturity Date until paid in
full; upon any prepayment on the amount prepaid; or on conversion (each, an
"interest payment date"). All computations of interest hereunder shall be made
based on the actual number of days elapsed in a year of 360 days (including the
first day, but excluding the last day, during which any such Principal Sum is
outstanding). This note is subject to certain covenants of the Corporation as
indicated in Section 3 hereof.
1. Issuance. This Note is being issued pursuant to the terms of a Merger
Agreement and Plan of Reorganization by and among the Corporation, Global
Datatel Acquisition Corporation and the Holder (the "Merger Agreement").
2. Prepayment. This Note may be prepaid in whole at any time or in part from
time to time. All payments by the Corporation hereunder shall be applied first
to pay any interest which is due, but unpaid, then to reduce the Principal Sum.
The Corporation (i) waives presentment, demand, dishonor, notice of dishonor,
protest or notice of any kind in connection with this Note and (ii) agrees to
pay to the holder hereof, on demand, all costs and expenses (including
reasonable legal fees and expenses) incurred in connection with the enforcement
and collection of this Note.
<PAGE>
3. Pledge and Personal Guarantees. The obligations of the Corporation are also
secured pursuant to a pledge of even date herewith of shares of Common Stock of
the Corporation.
4. Negative Covenants of Corporation The Corporation covenants and agrees that,
so long as this Note shall be outstanding, it will perform the obligations set
forth in this Section 4:
(i) Liquidation, Dissolution. The Corporation will not
liquidate or dissolve, consolidate with, or merge into or with, any other
corporation or other entity, except that any wholly-owned subsidiary may merge
with another wholly-owned subsidiary or with the Corporation (so long as the
Corporation is the surviving entity and no Event of Default shall occur as a
result thereof);
(ii) Sales of Assets. The Corporation will not sell, transfer,
lease or otherwise dispose of, or grant options, warrants or other rights with
respect to, all or a substantial part of its properties or assets to any person
or entity, provided that this clause (ii) shall not restrict any disposition
made in the ordinary course of business and consisting of
(1) capital goods which are obsolete or have no
remaining useful life; or
(2) finished goods inventories.
(iii) Redemptions. The Corporation will not redeem or
repurchase any outstanding equity securities of the Corporation, except for
rescission offers as necessary or appropriate to address possible violations of
applicable securities laws;
(iv) Indebtedness. The Corporation will not create, incur,
assume or suffer to exist, contingently or otherwise, any indebtedness which is
not expressly subordinated in right of payment to the Notes, except as may be
required in the future set forth in (v) below;
(v) Negative Pledge. The Corporation will not create, incur,
assume or suffer to exist any mortgage, pledge, hypothecation, assignment,
security interest, encumbrance, lien (statutory or other), preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any conditional sale or other title retention agreement
and any financing lease) (each, a "Lien") upon any of its property, securities,
revenues or assets, whether now owned or hereafter acquired, except:
(1) Liens granted to secure indebtedness to Senior
Lenders (as defined in Section 10 below) incurred to finance the
acquisition (whether by purchase or capitalized lease) of tangible
assets, but only on the assets acquired with the proceeds of such
indebtedness;
<PAGE>
(2) Liens for taxes, assessments or other
governmental charges or levies not at the time delinquent or thereafter
payable without penalty or being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(3) Liens of carriers, warehousemen, mechanics,
materialmen and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(4) Liens (other than Liens arising under the
Employee Retirement Income Security Act of 1974, as amended, or Section
412(n) of the Internal Revenue Code of 1986, as amended) incurred in
the ordinary course of business in connection with workers'
compensation, unemployment insurance or other forms of governmental
insurance or benefits, or to secure performance of tenders, statutory
obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds; and
(5) judgment Liens to the extent not covered by
insurance which do not exceed $100,000 and are in existence less than
30 days after the entry thereof or with respect to which execution has
been stayed;
(vi) Investments. The Corporation will not purchase, own,
invest in or otherwise acquire, directly or indirectly, any stock or other
securities or make or permit to exist any investment or capital contribution or
acquire any interest whatsoever in any other person or entity or permit to exist
any loans or advances for such purposes except for existing investments as
described in the Company's Form 10-SB and investments in direct obligations of
the United States of America or any agency thereof, obligations guaranteed by
the United States of America and certificates of deposit or other obligations of
any bank or trust company organized under the laws of the United States or any
state thereof and having capital and surplus of at least $500,000,000; provided,
however, that nothing contained in this clause (v) shall preclude the Company
from making acquisitions for the purpose of expanding its business.
(vii) Transactions with Affiliates. The Corporation will not
enter into any transaction, including, without limitation, the purchase, sale,
lease or exchange of property, real or personal, or the rendering of any
service, with any person or entity affiliated with the Corporation, except in
the ordinary course of and pursuant to the reasonable requirements of its
business and upon fair and reasonable terms not less favorable than would be
obtained in a comparable arms-length transaction with any other person or entity
not affiliated with the Corporation;
(viii) Dividends. The Company will not declare or pay any cash
dividends or distributions on its outstanding capital stock.
5. Cancellation; Conversion.
<PAGE>
[PG NUMBER]
(a) On the completion of the Merger (as defined under the Merger
Agreement), between the Corporation and the Holder the outstanding principal
balance of this Note and all accrued and unpaid interest shall automatically be
forgiven by the Holder and this Note shall be canceled.
(b) The Holder, at its sole discretion, may convert this Note into
common stock, $.001 par value ("Common Stock") of the Corporation, at the
conversion price set forth in Section 5 below, only if the merger between the
Corporation and the Holder is not approved by shareholders of both companies or
is not consummated for any other reason by February 28, 2000.
(c) Simultaneously with the issuance of this Note, the Corporation
shall reserve for issuance upon conversion of this Note the total number shares
of Common Stock issuable upon conversion of this Note. The Initial Conversion
Price shall be determined as set forth in Section 5 below, and may be adjusted
from time to time in accordance with Section 5 below (the "Conversion Shares").
The Conversion Shares shall be subject to the terms and conditions of a
Registration Rights agreement between the Corporation and the Holder of even
date herewith.
(d) If any capital reorganization or reclassification of the Common
Stock, stock split, reverse stock split, stock dividends, distribution on its
outstanding shares of Common Stock, stock combination, or consolidation or
merger of the Corporation with or into another corporation, or distribution of
the proceeds of any sale or conveyance of all or substantially all of its assets
to another corporation (a "Capital Event") shall be effected, then, as a
condition precedent of such Capital Event, the following provision shall be
made: the Holder of the Note shall, from and after the date of such Capital
Event sale have the right to receive upon conversion (in lieu of the shares of
Common Stock of the Corporation immediately theretofore issuable upon the
exercise of conversion rights), such shares of stock, securities or assets as
would have been issued or payable with respect to or in exchange for the number
of shares of Common Stock immediately theretofore issuable upon conversion of
the Note (regardless of whether the Note was actually convertible at such time).
In any such case, appropriate provision shall be made with respect to the rights
and interests of the Holders to the end that such conversion rights ' including,
without limitation, provisions for appropriate adjustments) shall thereafter be
applicable, as nearly as may be practicable in relation to any shares of stock,
securities or assets thereafter deliverable upon the conversion of the Note.
(e) The Corporation covenants to call a meeting of stockholders to be
held on or before February 28, 2000 to, among other things, approve the
completion of the Merger. The Board of Directors of the Corporation will
recommend that the stockholders of the Corporation vote in favor of such
approval. The date on which such approval is obtained is referred to herein as
the "Stockholder Approval Date."
<PAGE>
6. Conversion Price. If this Note is converted by the Holder into shares of
Common Stock of the Corporation the conversion price shall be an amount equal to
ninety percent (90%) of the average closing price for the twenty trading days
prior to the Corporation's receipt of notice of conversion. The Initial
Conversion Price for purposes of Section 4(c) above shall be equal to 90% of the
average Closing Price of the Common Stock for the immediate twenty (20) days
prior to the date of issuance of this Note.
7. Issuance of Note and Conversion Shares. The Corporation represents, warrants
and covenants that the Corporation has full corporate power and authority to
execute and deliver this Note; the execution, delivery and performance by the
Corporation of this Note has been duly and validly authorized and approved by
the Corporation's Board of Directors; this Note has been duly and validly
executed and delivered by the Corporation and constitutes the legal, valid and
binding obligation of the Corporation enforceable against the Corporation in
accordance with its terms, except as such obligations and their enforceability
may be limited by applicable bankruptcy and other such similar laws affecting
the enforcement of creditors' rights generally; and all the Conversion Shares
will be duly and validly issued, fully paid and non-assessable, and not issued
in violation of the preemptive rights of any stockholder; the execution,
delivery and performance of the Note does not violate, conflict with or result
in a breach or default under (after the giving of notice or the passage of time
or both), or permit the termination of, any contract, right, other obligation or
restriction relating to or which affects the Conversion Shares or the
Corporation or any of its subsidiaries to which the Corporation or any of its
Subsidiaries is a party or by which either of them or their assets or business
may be bound or subject, or results in the creation of any lien upon the
Conversion Shares or upon any of the assets of the Corporation or its
subsidiaries pursuant to the terms of any contract.
8. Events of Default and Acceleration of the Note.
(a) An "event of default" with respect to this Note shall exist if any
of the following shall occur:
(i) The Corporation shall breach or fail to comply with any
provision of this Note and such breach or failure shall continue for five (5)
business days after written notice thereof to the Corporation by the Holder of
the Notes or its assignees.
(ii) A receiver, liquidator or trustee of the Corporation or
of a substantial part of its properties shall be appointed by court order and
such order shall remain in effect for more than fifteen (15) days; or the
Corporation shall be adjudicated bankrupt or insolvent; or a substantial part of
the property of the Corporation shall be sequestered by court order and such
order shall remain in effect for more than fifteen (15) days; or a petition to
reorganize the Corporation under any bankruptcy, reorganization or insolvency
law shall be filed against the Corporation and shall not be dismissed within
forty-five (45) days after such filing.
(iii) The Corporation shall file a petition in voluntary
bankruptcy or request reorganization under any provision of any bankruptcy,
reorganization or insolvency law, or shall consent to the filing of any petition
against it under any such law.
<PAGE>
(iv) The Corporation shall make an assignment for the benefit
of its Creditors, or consent to the appointment of a receiver, trustee or
liquidator of the Corporation, or of all or any substantial part of its
properties.
(b) If an event of default referred to in clause (i) above shall occur,
the Holder may, in addition to such Holder's other remedies, by written notice
to the Corporation, declare the principal amount of this Note, together with all
interest accrued and unpaid thereon, to be due and payable immediately. Upon any
such declaration, such amount shall become immediately due and payable and the
Holder shall have all such rights and remedies provided for under the terms of
this Note. If an event of default referred to in clauses (ii), (iii) or (iv)
shall occur, the principal amount of this Note, together with all interest
accrued thereon, shall become immediately due and payable and the Holder shall
have all such rights and remedies, if any, provided for under the terms of this
Note.
9. Interest Rate Limitation. It is the intent of Holder and the Corporation in
this execution of this Note, that the loan evidenced hereby be exempt from the
restrictions of applicable state usury laws. In the event that for any reason,
it should be determined that any such usury law is applicable to this Note, the
Holder and the Corporation stipulate and agree that none of the terms and
provisions contained herein shall ever be construed to create a contract for the
use, forbearance or detention of money requiring payment of interest at a rate
in excess of the maximum interest rate permitted to be charged by the laws of
such state. In such event, if the Corporation shall collect monies which are
deemed to constitute interest which would otherwise increase the effective
interest rate on this Note to a rate in excess of the maximum rate permitted to
be charged by applicable state law, all such sums shall, at the option of
Holder, be credited to the payment of the sums due hereunder or returned to the
Corporation.
10. Mandatory Prepayment. The Holder shall have the right to call this Note if
the Merger is not approved by its shareholders or if the Merger is not
consummated for any reason prior to February 28, 2000. This mandatory prepayment
provision shall require a 30 day prior written notice by the Holder to the
Corporation. Upon such notice, the outstanding principal and all interest
accrued and unpaid shall be due and payable upon the 31st day following the
Corporation's receipt of the written notice.
<PAGE>
11. Subordination. The Holder hereby subordinates the payment of all present and
future indebtedness under or on account of this Note to the payment of any and
all other debts, obligations and liabilities of the Corporation of any nature
whatsoever to all banks any other financial institutions and International
Business Machines, Inc. ("IBM") (collectively, "Senior Lenders"), whether
absolute or contingent, due or to become due, now existing, hereafter arising,
or otherwise. Upon any distribution of any assets of the Corporation, whether by
reason of sale, reorganization, liquidation, dissolution, arrangement,
bankruptcy, receivership, assignment for the benefit of creditors, foreclosure
or otherwise, all such other Senior Lenders shall be entitled to receive payment
in full of the indebtedness to them prior to the payment of all or any part of
the indebtedness hereunder to the Holder. In addition, the Holder hereby agrees
to not accept any payments under the Note while there exists an event of default
under any indebtedness to a Senior Lender.
12. Miscellaneous.
(a) All notices and other communications required or permitted to be
given hereunder shall be in writing and shall be given (and shall be deemed to
have been duly given upon receipt) by delivery in person, by telegram, by
facsimile, recognized overnight mail carrier, telex or other standard form of
telecommunications, or by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows: (a) if to the Holder, to such address
as such Holder shall furnish to the Corporation in accordance with this Section,
or (b) if to the Corporation, to it at its headquarters office, or to such other
address as the Corporation shall furnish to the Holder in accordance with this
Section.
(b) The provisions of this Note may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Corporation and the Holder of the Note.
No failure or delay on the part of the Holder in exercising
any power or right under this Note shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No notice
to or demand on the Corporation, in any case, shall entitle it to any notice or
demand in similar or other circumstances. No waiver or approval by the Holder
shall, except as may be otherwise stated in such waiver or approval, be
applicable to subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter to be granted
hereunder.
(c) If any provision of this Note shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereof, but this Note shall be construed as if such invalid
or unenforceable provision had never been contained herein. To the extent that
the Corporation makes a payment or payments to the Holder, and such payment or
payments or any part thereof are subsequently for any reason invalidated, set
aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such recovery, the obligation or part thereof originally
intended to be satisfied, and all rights and remedies therefor, shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
<PAGE>
(d) The Corporation may consider that the person in whose name this
Note shall be registered as the absolute owner thereof for all purposes
whatsoever (whether or not this Note shall be overdue) unless the Corporation is
given specific notice to the contrary. In case of transfer of this Note, the
transferee agrees to notify the Corporation of such transfer and of its address,
and to submit appropriate evidence regarding such transfer so that this Note may
be registered in the name of the transferee. This Note is transferable only on
the books of the Corporation by the holder hereof, in person or by attorney, on
the surrender hereof, duly endorsed. Communications sent to any registered owner
shall be effective as against all holders or transferees of the Note not
registered at the time of sending the communication.
(e) THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS AND
INSTRUMENTS EXECUTED AND TO BE PERFORMED ENTIRELY IN SUCH STATE. THE PARTIES
HERETO HEREBY WAIVE TRIAL BY JURY AND CONSENT TO THE CHOICE OF VENUE OF THE
SUPREME COURT OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY OR THE FEDERAL
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK TO HEAR ANY DISPUTE IN
CONNECTION WITH THIS NOTE.
(f) THE HOLDER AND THE CORPORATION HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN
CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE HOLDER OR THE CORPORATION, THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER'S PURCHASING THIS NOTE.
(g) Upon the occurrence of an uncured event of default, the Holder of
this Note shall be entitled to recover its legal and other costs of collecting
on this Note, and such costs shall be deemed added to the principal amount of
this Note.
(h) In addition to all other remedies to which the Holder may be
entitled hereunder, Holder shall also be entitled to decrees of specific
performance without posting bond or other security.
IN WITNESS WHEREOF, the Corporation has caused this Note to be duly
executed in its name by its duly authorized officer on the date set forth below
Dated: as of October __, 1999
GLOBAL DATATEL, INC.
By: /s/ Richard Baker
--------------------------------------------------
Richard Baker, Chief Executive Officer
<PAGE>
PLEDGE AGREEMENT
This Pledge Agreement (as amended, supplemented, or otherwise modified
from time to time, this "Pledge Agreement"), dated as of October 8, 1999, is
made by and among RICHARD BAKER, with an address at c/o Global Datatel, Inc.,
3333 Congress Avenue, Suite 404, Delray Beach, Florida 33445 (the "Pledgor"),
GLOBAL DATATEL, INC., a Nevada corporation, with an address at , 3333 Congress
Avenue, Suite 404, Delray Beach, Florida 33445 ("Global"), and SURGE COMPONENTS,
INC., a New York corporation, with an address at 10116 Grand Boulevard, Deer
Park, New York 11729 ("Surge").
W I T N E S S E T H:
WHEREAS, Surge has loaned One Million ($1,000,000) Dollars to Global as
of this date and may hereafter make additional loans (the "Loans" and any
promissory notes evidencing said loans are the "Notes");
WHEREAS, as a condition to the making of the Loans, the Pledgor is
required, among other things, to execute and deliver this Pledge Agreement;
WHEREAS, it is in the best interests of the Pledgor to execute this
Pledge Agreement inasmuch as the Pledgor will derive substantial direct and
indirect benefits from the Loans made from time to time to Global by Surge; and
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce Surge to make loans to Global
pursuant to the Loans, the Pledgor and Surge agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Terms. The following terms when used in this Pledge
Agreement, including its preamble and recitals, shall have the following
meanings (such definitions to be equally applicable to the singular and plural
forms thereof):
"Collateral" is defined in Section 2.1.
"Distributions" means all dividends and distributions with respect to any
Pledged Shares whether in cash, securities, property, rights to purchase
securities or properties, or otherwise.
"Event of Default" means an Event of Default as defined in the Notes and any
default by Global in the payment or performance of any of the Secured
Obligations which continues unremedied for any applicable cure period after
written notice thereof, when required, from Surge to Global and/or Pledgor.
<PAGE>
"Material Adverse Effect" means a material adverse change in the business,
operations, assets, financial condition, income or prospects of the Pledgor or
Global.
"Pledge Agreement" is defined in the preamble.
"Pledged Property" means all Pledged Shares, all other securities, all
assignments of any amounts due or to become due with respect thereto, and all
other property or instruments which may from time to time hereafter be delivered
by the Pledgor or Global to Surge for the purpose of pledge under this Pledge
Agreement, and all proceeds of any of the foregoing.
"Pledged Shares" means the 300,000 shares of capital stock of Pledgor delivered
to Surge and any additional shares of Pledgor Common Stock issued in exchange
for or in respect of such 300,000 shares of Common Stock.
"Pledgor" is defined in the preamble.
"Secured Obligations" is defined in Section 2.2.
1.2. Definitions. Unless otherwise defined herein or the context
otherwise requires, terms used in this Pledge Agreement, including its preamble
and recitals, have the meanings provided in the Notes.
1.3 U.C.C. Definitions. Unless otherwise defined herein or in the Notes
or the context otherwise requires, terms for which meanings are provided in the
U.C.C. are used in this Pledge Agreement, including its preamble and recitals,
with such meanings.
ARTICLE II
PLEDGE
2.1 Grant of Security Interest. The Pledgor hereby pledges,
hypothecates, assigns, charges, delivers and transfers to Surge and hereby
grants to Surge, a continuing security interest in, all of the following
property (collectively, the "Collateral"):
(a) the Pledged Shares;
(b) all other Pledged Shares issued from time to time;
(c) all other Pledged Property, whether now or hereafter delivered to
Surge in connection with this Pledge Agreement;
(d) all Distributions and other payments and rights with respect to any
Pledged Shares of Pledged Property; and
<PAGE>
(e) all proceeds of any of the foregoing.
2.2 Security for Pledgor's Obligations. This Pledge Agreement secures
the payment and performance in full of all of the obligations of Global (the
"Secured Obligations") under the Loans and the Notes.
2.3 Delivery of Pledged Property. All certificates or instruments
representing or evidencing any Collateral, including all Pledged Shares shall be
delivered to and held by or on behalf of Surge pursuant hereto, shall be in
suitable form for transfer by delivery and shall be accompanied by all necessary
instruments of transfer or assignment, duly executed in blank.
2.4 Distributions on Pledged Shares. It is intended that all
Distributions with respect to any Pledged Property shall be held by Surge and
shall be part of the Collateral. If Pledgor or Global shall at any time receive
or come into possession or control of any such Distributions, it shall forthwith
deliver the same to Surge.
2.5 Continuing Security Interest; Releases of Collateral.
(a) This Pledge Agreement shall create a continuing security interest
in the Collateral and shall be binding upon the Pledgor and its successors,
transferees and assigns, and inure, together with the rights and remedies of
Surge hereunder, to the benefit of Surge, its successors and assigns.
(b) Surge will release from this Pledge Agreement the Collateral (or so
much thereof as remains in pledge hereunder) upon the earlier to occur of the
completion of the merger between Global, Surge and Global Datatel Acquisition
Corporation (the "Merger"), or the payment in full and discharge of all of
Global's obligations with respect to the Loans and the Notes (the "Termination
Date").
(c) Upon the release of Collateral from this Pledge Agreement, Surge
will, at the Pledgor's sole expense, deliver to the Pledgor the certificates and
instruments representing or evidencing the Collateral to be so released, and
will execute and deliver to the Pledgor such documents as the Pledgor shall
reasonable request to evidence such Collateral.
2.6. Waiver, etc. The Pledgor hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Secured
Obligations and this Pledge Agreement and any requirement that Surge protect,
secure, perfect or insure any lien, or any property subject thereto, or exhaust
any right or take any action against any Obligor or any other Person (including
any guarantor) or entity or any collateral securing the Obligations of any
Obligor, as the case may be.
2.7 Security Interest Absolute. All rights of Surge and the liens (the
"Liens") granted to Surge hereunder, and all obligations of the Pledgor
hereunder, shall not be affected by:
<PAGE>
(a) the failure of Surge
(i) to assert any claim or demand or to enforce any right or
remedy against the Pledgor, any other Obligor or any other Person under the
provisions of the Notes or otherwise, or
(ii) to exercise any right or remedy against any guarantor of,
or collateral securing, any Secured Obligations of the Pledgor or any other
Obligor,
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations or any other extension,
compromise or renewal of any Obligation of Global or any other Obligor,
(c) any amendment to, rescission, waiver or other modification of, or
any consent to departure from, any of the terms of the Notes,
(d) any other circumstances which might otherwise constitute a defense
available to, or a legal or equitable discharge of, the Pledgor, Global, any
other Obligor, any surety or any guarantor.
2.8 Postponement of Subrogation, etc. The Pledgor will not exercise any
rights which it may acquire by reason of any payment made hereunder, whether by
way of subrogation, reimbursement or otherwise, until the Termination Date. Any
amount paid to the Pledgor on account of any payment made hereunder prior to the
Termination Date shall be held in trust for the benefit of Surge and shall
immediately be paid to Surge, and credited and applied against the Secured
Obligations, whether matured or unmatured, in accordance with the terms of the
Pledgor Notes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Warranties, etc. Global and the Pledgor hereby represent and
warrant, jointly and severally, to Surge as at the date of each pledge and
delivery hereunder (including each pledge and delivery of Pledged Shares) by the
Pledgor to Surge of any Collateral, as set forth in this Article.
3.2. Non-Contravention, etc. The execution, delivery and performance by
the Pledgor of this Pledge Agreement is within the Pledgor's powers, has been
duly authorized and agreed to by Pledgor, and does not contravene (i) any
material contract binding on or affecting Pledgor, (ii) any court decree or
order binding on or affecting the Pledgor or (iii) any law or governmental
regulation binding on or affecting the Pledgor; or
<PAGE>
3.3 Ownership, No Liens, etc. The Pledgor is the legal and beneficial
owner of, and has good and valid title to (and has full right and authority to
pledge and assign) the Collateral, free and clear of all liens or claims other
than the Lien granted pursuant hereto.
3.4 As to Pledged Shares. All of the Pledged Shares are duly authorized
and validly issued, fully paid and non-assessable. All Pledged Shares are
certificated, and have been delivered to Surge with stock powers, accompanied by
undated instruments of transfer duly executed in blank, and Surge has "control"
(as defined in the U.C.C.) of such Pledged Shares.
3.5 Authorization, Approval, etc. No authorization or, approval or
other action by, and no notice to or filing with, any governmental authority,
regulatory body or other Person (other than those that have been, or on the
Effective Date will be, duly obtained or made and which are, or on the Effective
Date will be, in full force and effect) is required either
(a) for the pledge by the Pledgor of any Collateral pursuant to this
Pledge Agreement or for the execution, delivery and performance of this Pledge
Agreement by the Pledgor, or
(b) for the exercise by Surge of the voting or other rights provided
for in this Pledge Agreement, or, except with respect to any Pledged Shares as
may be required in connection with a disposition of such Pledged Shares by laws
affecting the offering and sale of securities generally, the remedies in respect
of the Collateral pursuant to this Pledge Agreement.
3.6 Compliance with Laws. Global is in compliance with the requirements
of all applicable laws (including the provisions of the Fair Labor Standards
Act), rules, regulations and orders of every Governmental Authority, the
non-compliance with which could have a Material Adverse Effect or adversely
affect the value of the Collateral.
ARTICLE IV
COVENANTS
4.1 Protect Collateral; Further Assurances, etc. The Pledgor will not
sell, assign, transfer, pledge hypothecate or encumber in any other manner the
Collateral (except in favor of Surge hereunder). The Pledgor will warrant and
defend the right and title herein granted unto Surge in and to the Collateral
(and all right, title and interest represented by the Collateral) against the
claims and demands of all Persons whomsoever. The Pledgor agrees that at any
time, and from time to time, at the expense of the Pledgor, the Pledgor will
promptly execute and deliver all further instruments, and take all further
action, that may be necessary or desirable, or that Surge may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Surge to exercise and enforce its
rights and remedies hereunder with respect to any Collateral.
<PAGE>
4.2 Stock Powers, etc. The Pledgor agrees that all Pledged Shares
delivered by the Pledgor pursuant to this Pledge Agreement will be accompanied
by duly executed, undated stock powers or other equivalent instruments of
transfer reasonably acceptable to Surge. The Pledgor will, from time to time
upon the reasonable request of Surge, promptly deliver to Surge such stock
powers, instruments and similar documents, reasonably satisfactory in form and
substance to Surge, with respect to the Collateral as Surge may reasonably
request and will, from time to time upon the request of Surge after the
occurrence of any Event of Default, promptly cause the Pledgor to transfer any
Pledged Shares or other capital stock constituting Collateral into the name of
any nominee designated by Surge.
4.3 Continuous Pledge. Subject to Section 2.1, the Pledgor will, at all
times, keep pledged to Surge pursuant hereto all Pledged Shares, all
Distributions with respect thereto, and all other Collateral and other capital
stock, instruments, proceeds and rights from time to time received by or
distributable to the Pledgor in respect of the Pledged Property. Any
Distributions on Pledged Shares consisting of capital stock will be
certificated.
4.4 Voting Rights; etc. The Pledgor agrees:
(a) if any Event of Default shall have occurred and be continuing and
Surge shall have notified the Pledgor of Surge's intention to exercise its
voting power under this Section:
(i) Surge may exercise (to the exclusion of the Pledgor) the
voting power and all other incidental rights of ownership with respect to any
Pledged Shares or other capital stock constituting Collateral and the Pledgor
hereby grants Surge an irrevocable proxy, exercisable under such circumstances,
to vote the Pledged Shares and such other Collateral; and
(ii) Promptly to deliver to Surge such additional proxies and
other documents as may be necessary to allow Surge to exercise such voting
power.
All Distributions and proceeds which may at any time and from time to time be
held by the Pledgor but which the Pledgor is then obligated to deliver to Surge,
shall, until delivery to Surge, be held by the Pledgor separate and apart from
its other property in trust for Surge. Surge agrees that unless an Event of
Default shall have occurred and be continuing and Surge shall have given the
notice referred to in this Section, the Pledgor shall have the exclusive power
to exercise all voting and other consensual rights with respect to any capital
stock (including any of the Pledged Shares) constituting Collateral and Surge
shall, upon the written request of the Pledgor, promptly deliver such proxies
and other documents, if any, as shall be reasonably requested by the Pledgor
which are necessary to allow the Pledgor to exercise such powers with respect to
any such capital stock (including any of the Pledged Shares) constituting
Collateral; provided, however, that no vote shall be cast, or consent, waiver or
ratification given, or action taken by the Pledgor that would materially impair
the value of any Collateral or be inconsistent with or violate any provision of
the Pledgor Notes.
4.5 Maintenance of Existence; Compliance with Laws, etc. Global will
<PAGE>
(a) preserve and maintain its legal existence; and
(b) comply in all material respects with all applicable laws, rules,
regulations and orders, including the payment (before the same become
delinquent) of all Taxes, assessments and governmental charges imposed upon
Global or upon its property except to the extent being diligently contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP have been set aside on the books of Global.
4.6 Maintenance of Properties. Global will maintain, preserve, protect
and keep its respective properties in good repair, working order the condition
(ordinary wear and tear excepted), and make necessary repairs, renewals and
replacements so that the business carried on by Global may be property conducted
at all times, unless Global determines in good faith that the continued
maintenance of such property is no longer economically desirable.
4.7 Insurance. Global will:
(a) maintain insurance on its property with financially sound and
reputable insurance companies against loss and damage in at least the amounts
(and with only those deductibles customarily maintained, and against such risks
as are typically insured against in the same general area, by Persons of
comparable size engaged in the same or similar business as Global, and
(b) all worker's compensation, employer's liability insurance or
similar insurance as may be required under the laws of any state or jurisdiction
in which it may be engaged in business.
ARTICLE V
POWERS OF SURGE AS PLEDGEE
5.1 Surge Attorney-in-Fact. The Pledgor hereby irrevocably appoints
Surge as the Pledgor's attorney-in-fact, with full authority and in the name,
place and stead of the Pledgor or in its own name, from time to time in Surge's
discretion, to take, upon the occurrence and during the continuance of any Event
of Default, any action and to execute any instrument which Surge may deem
necessary or advisable to accomplish the purposes of this Pledge Agreement,
including:
(a) to ask, demand, collect, sue for, recover, compromise and receive
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above; and
<PAGE>
(c) to file any claims or take any action or institute any proceedings
which Surge may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of Surge with respect to any of
the Collateral.
The Pledgor and Global hereby acknowledge, consent and agree that the power of
attorney granted pursuant to this Section is irrevocable and coupled with an
interest.
5.2 Surge May Perform. If the Pledgor fails to perform any agreement
contained herein, Surge may itself perform, or cause performance of, such
agreement, and the expenses of Surge incurred in connection therewith shall be
payable by the Pledgor pursuant to Section 6.5.
5.3 Surge Has No Duty. The powers conferred on Surge hereunder are
solely to protect its interest in the Collateral and shall not impose any duty
on it to exercise any such powers. Except for reasonable care of any Collateral
in its possession and the accounting for moneys actually received by it
hereunder, Surge shall have no duty as to any Collateral or responsibility for:
(a) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Pledged
Property, whether or not Surge has or is deemed to have knowledge of such
matters, or
(b) taking any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Collateral.
5.4 Reasonable Care. Surge is required to exercise reasonable care in
the custody and preservation of any of the Collateral in its possession;
provided, however, Surge shall be deemed to have exercised reasonable care in
the custody and preservation of any of the Collateral if it takes such action
for that purpose as the Pledgor reasonably requests in writing from time to
time, but failure of Surge to comply with any such request at any time shall not
in itself be deemed a failure to exercise reasonable care. If an Event of
Default has occurred and is continuing, Surge shall not be required to comply
with any request of the Pledgor with respect to the matters described in this
Section.
ARTICLE VI
REMEDIES
6.1 Certain Remedies. If any Event of Default shall have occurred and
be continuing:
<PAGE>
(a) Surge may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the U.C.C. (whether
or not the U.C.C. applies to the affected Collateral) and also may, without
notice except as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at Surge's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as Surge may
deem commercially reasonable. The Pledgor agrees that at least ten days' prior
notice to the Pledgor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
Surge shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Surge may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefore, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned.
(b) Surge may
(i) transfer all or any part of the Collateral into the name
of Surge or its nominee, with or without disclosing that such Collateral is
subject to the Lien and security interest hereunder,
(ii) notify the parties obligated on any of the Collateral to
make payment to Surge of any amount due or to become due thereunder,
(iii) enforce collection of any of the Collateral by suit or
otherwise, and surrender, release or exchange all or any part thereof, or
compromise or extend or renew for any period (whether or not longer than the
original period) any obligations of any nature of any party with respect
thereto,
(iv) endorse any checks, drafts or other writings in the
Pledgor's name to allow collection of the Collateral,
(v) take control of any proceeds of the Collateral and
(vi) execute (in the name, place and stead of the Pledgor)
endorsements, assignments, stock powers and other instruments of conveyance or
transfer with respect to all or any of the Collateral.
<PAGE>
6.2. Compliance with Restrictions. The Pledgor agrees that in any sale
of any of the Collateral whenever an Event of Default shall have occurred and be
continuing, Surge is hereby authorized to comply with any limitation or
restriction in connection with such sale as it may be advised by counsel is
necessary in order to avoid any violation of applicable law (including
compliance with such procedures as may restrict the number of prospective
bidders and purchasers, require that such prospective bidders and purchasers
have certain qualifications and restrict such prospective bidders and purchasers
to persons who will represent and agree that they are purchasing for their own
account for investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchaser by any Governmental Authority, and the Pledgor further agrees that
such compliance shall not result in such sale being considered or deemed not to
have been made in a commercially reasonable manner, nor shall Surge be liable
nor accountable to the Pledgor for any discount allowed by reason of the fact
that such Collateral is sold in compliance with any such limitation or
restriction.
6.3 Application of Proceeds. All cash proceeds received by Surge in
respect of any sale of, collection from or other realization upon, all or any
part of the Collateral may, in the discretion of Surge, be held by Surge as
additional collateral security for, or then or at any time thereafter be applied
(after payment of any amounts payable to Surge pursuant to Section 6.4 below) in
whole or in part by Surge against, all or any part of the Secured Obligations in
such order as Surge shall elect. Any surplus of such cash or other proceeds held
by Surge and remaining after the Fixed Assets Termination Date, shall be
promptly paid over to the Pledgor or to whomsoever may be lawfully entitled to
receive such surplus.
6.4 Indemnity and Expenses. The Pledgor hereby indemnifies and holds
harmless Surge from and against any and all claims, losses and liabilities
arising out of or resulting from this Pledge Agreement (including enforcement of
this Pledge Agreement), except claims, losses or liabilities resulting from
Surge's gross negligence or willful misconduct, and will upon demand pay to
Surge the amount of any and all reasonable expenses, including the reasonable
fees and disbursements of its counsel and of any experts and agents, which Surge
may incur, in each case, in connection with:
(a) the administration of this Pledge Agreement;
(b) the custody, preservation, use or operation of, or the sale of,
collection from or other realization upon, any of the Collateral;
(c) the exercise or enforcement of any of the rights of Surge
hereunder; or
(d) the failure by the Pledgor to perform or observe any of the
provisions hereof.
(e)
(f)
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Credit Document. This Pledge Agreement is a Credit Document
executed pursuant to the Notes and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions thereof.
7.2 Amendments, etc. No amendment to or waiver of any provision of this
Pledge Agreement nor consent to any departure by the Pledgor here from shall in
any event be effective unless the same shall be in writing and signed by Surge
and the Pledgor, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it is given.
<PAGE>
[PG NUMBER]
7.3 Protection of Collateral. Surge may from time to time, at its
option, and at the expense of the Pledgor, perform any act which the Pledgor
agrees hereunder to perform and which the Pledgor shall fail to perform after
being requested in writing so to perform (it being understood that no such
request need be given after the occurrence and during the continuance of an
Event of Default) and Surge may from time to time take any other action which
Surge reasonably deems necessary for the maintenance, preservation or protection
of any of the Collateral or of its security interest therein.
7.4 Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and addressed, delivered or
transmitted, if to the Pledgor, at the address or facsimile number of the
Pledgor provided above, and, if to Surge, at the address or facsimile number
provided above, or as to any such party at such other address or facsimile
number as shall be designated by such party in a written notice to each other
party complying as to delivery with the terms of this Section. Any notice,
(a)(i) if mailed and properly addressed with postage prepaid or (ii) if properly
addressed and sent by pre-paid courier service, shall be deemed given when such
notice has been received or (b) if transmitted by facsimile, shall be deemed
given when transmitted (and telephonic confirmation of receipt thereof has been
received).
7.5 Headings. The various headings of this Pledge Agreement are
inserted for convenience only, and shall not affect the meaning or
interpretation of this Pledge Agreement or any provisions hereof.
7.6 Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such provision and
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Pledge
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction.
7.7 Governing Law. THIS PLEDGE AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK,
EXCLUDING THE LAW OF CONFLICTS.
7.8 Counterparts. This Pledge Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
(whether such counterpart is originally executed or an electronic copy of an
original) and all of which shall constitute together but one and the same
agreement. This Pledge Agreement shall become effective and binding upon the
Pledgor when a counterpart hereof executed on behalf of the Pledgor shall have
been received by Surge.
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.
<PAGE>
SURGE COMPONENTS, INC.
By: /s/ Ira Levy
------------------------------
Ira Levy
President
GLOBAL DATATEL, INC.,
Pledgor
By: /s/ Richard Baker
------------------------------
Richard Baker
President
/s/ Richard Baker
------------------------------
Richard Baker
Pledgor
