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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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) March 2, 1999
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SURGE COMPONENTS, INC.
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(Exact name of Registrant as specified in its charter)
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New York 0-14188 11-2602030
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(State or Other Jurisdiction (Commission File IRS Employer
of Incorporation) Number) Identification Number)
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1016 Grand Boulevard, Deer Park, New York 11729
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(Address of principal executive offices)(Zip Code)
(516) 595-1818
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(Registrant's telephone number, including area code)
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Item 5. Other Events
On March 2, 1999, Surge Components, Inc., a New York
corporation (the "Registrant"), entered into a Merger Agreement and Plan of
Reorganization with Surge Acquisition Corporation and Orbit Network,
Inc.("Orbit"). See Exhibit A attached hereto, a copy of the Merger Agreement and
Plan of Reorganization (exhibits thereto not included) and Exhibit B a press
release dated December 29,1998.
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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: March 16, 1999 By: /s/ Ira Levy
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Ira Levy, President and Chief
Executive Officer
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EXHIBIT A
MERGER AGREEMENT AND PLAN OF
REORGANIZATION
BY AND AMONG
SURGE COMPONENTS, INC.,
SURGE ACQUISITION CORPORATION
AND
ORBIT NETWORK, INC.
Dated as of March 2, 1999
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TABLE OF CONTENTS
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Page
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ARTICLE 1 THE MERGER......................................................................................1
1.1 The Merger...............................................................................................1
1.2 Effective Time...........................................................................................2
1.3 Effect of the Merger.....................................................................................2
1.4 Certificate of Incorporation; Bylaws.....................................................................2
1.5 Directors and Officers...................................................................................2
1.6 Conversion of Shares.....................................................................................3
1.7 Dissenting Shares........................................................................................5
1.8 Surrender of Certificates................................................................................5
1.9 No Further Ownership Rights in Company Common Stock......................................................7
1.10 Lost, Stolen or Destroyed Certificates...................................................................7
1.12 Tax and Accounting Consequences..........................................................................7
1.13 Taking of Necessary Action; Further Action...............................................................7
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................7
2.1 Organization, Standing and Power.........................................................................7
2.2 Authority................................................................................................8
2.3 Company Capital Structure................................................................................8
2.4 Subsidiaries.............................................................................................8
2.5 Company Financial Statements.............................................................................9
2.6 Taxes....................................................................................................9
2.7 Litigation...............................................................................................9
2.8 No Conflict; Required Filings and Consents...............................................................9
2.9 Year 2000 Compliance....................................................................................10
2.10 Brokers'and Finders'Fees................................................................................10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........................................11
3.1 Organization, Standing and Power........................................................................11
3.2 Authority...............................................................................................11
3.3 Parent Capital Structure................................................................................11
3.4 SEC Documents; Parent Financial Statements..............................................................12
3.5 Nasdaq SmallCap Listing.................................................................................13
3.6 No Conflict; Required Filings and Consents..............................................................13
3.7 Brokers'and Finders'Fees................................................................................13
ARTICLE 4 CONDUCT OF BUSINESS PENDING THE MERGER.........................................................14
4.1 Conduct of Business by the Company Pending the Merger...................................................14
4.2 Conduct of Business by Parent and Merger Sub Pending the Merger.........................................15
4.3 Certain Actions.........................................................................................16
ARTICLE 5 ADDITIONAL AGREEMENTS..........................................................................17
5.1 Issuance of Parent Common Stock; Registration...........................................................17
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5.2 Nasdaq Compliance.......................................................................................17
5.3 Stockholders'Meetings...................................................................................17
5.4 Access to Company Information...........................................................................18
5.5 Confidentiality.........................................................................................18
5.6 Expenses................................................................................................18
5.7 Public Disclosure.......................................................................................18
5.8 Consents................................................................................................19
5.9 Reasonable Efforts......................................................................................19
5.10 Notification of Certain Matters.........................................................................19
5.11 Pooling Accounting......................................................................................19
5.12 Affiliate Agreement.....................................................................................19
5.13 Blue Sky Laws...........................................................................................20
5.14 Corrections to the Proxy Statement/Prospectus...........................................................20
5.15 Shareholder Rights Protection Plan......................................................................20
5.16 Indemnification and Insurance...........................................................................20
5.17 Change in Name..........................................................................................21
5.18 Employee Option Pool....................................................................................21
ARTICLE 6 CONDITIONS TO THE MERGER.......................................................................21
6.1 Conditions to Obligations of Each Party to Effect the Merger............................................21
6.2 Additional Conditions to the Obligations of Parent and Merger Sub.......................................22
6.3 Additional Conditions to Obligations of the Company.....................................................24
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER..............................................................25
7.1 Termination.............................................................................................25
7.2 Automatic Termination...................................................................................27
7.3 Effect of Termination...................................................................................27
7.4 Amendment...............................................................................................28
7.5 Extension; Waiver.......................................................................................28
ARTICLE 8 GENERAL PROVISIONS.............................................................................28
8.1 Non-Survival of Representations and Warranties..........................................................28
8.2 Notices.................................................................................................28
8.3 Interpretation..........................................................................................29
8.4 Counterparts............................................................................................30
8.5 Entire Agreement........................................................................................30
8.6 Severability............................................................................................30
8.7 Other Remedies..........................................................................................30
8.8 Specific Performance....................................................................................30
8.9 Governing Law...........................................................................................31
8.10 Rules of Construction...................................................................................31
8.11 Assignment..............................................................................................31
8.12 Absence of Third Party Beneficiary Rights...............................................................31
8.13 Mediation and Arbitration...............................................................................31
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INDEX OF EXHIBITS
Exhibit Description
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Exhibit A Form of Administrative Services Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Affiliate Agreement
Exhibit D Form of Legal Opinion of Counsel to the Company
Exhibit E Form of Employment Agreements
Exhibit F Form of Legal Opinion of Counsel to Parent and Merger Sub
INDEX OF SCHEDULES
Schedule Description
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Schedule 1.6(c) Company Options
Schedule 1.6(d) Other Rights
Schedule 2.4 Subsidiaries
Schedule 2.6 Taxes
Schedule 2.7 Litigation
Schedule 2.8 No Conflict; Required Filings and Consents
Schedule 3.6 No Conflict; Required Filings and Consents
Schedule 4.1(h) Company Employee Benefits
Schedule 4.2(h) Parent Employee Benefits
Schedule 5.12 Company Affiliates
Schedule 5.16 Indemnification and Insurance
Schedule 6.2(h) Employment Agreements
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MERGER AGREEMENT AND PLAN OF REORGANIZATION
This MERGER AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), is
made and entered into as of March 2, 1999, by and among Surge Components, Inc.,
a New York corporation ("Parent"), Surge Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and Orbit
Network, Inc., a Delaware 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 shall acquire from the stockholders of the Company all of
the issued and outstanding shares of capital stock of the Company in exchange
for shares of common stock of Parent.
C. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and which qualifies for accounting treatment as a
pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations and warranties set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby, the parties agree as
follows:
ARTICLE 1
THE MERGER
1.1 The Merger.
At the Effective Time (as defined in Section 1.2), and subject to and
upon the terms and conditions of this Agreement and the applicable provisions of
the Delaware General Corporation Law ("Delaware Law"), Merger Sub shall be
merged with and into the Company, the separate corporate existence of Merger Sub
shall cease and the Company shall continue as the surviving corporation and as a
wholly-owned subsidiary of Parent. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation". Following the Merger, the Surviving Corporation shall be operated
as a separate and distinct entity and, in connection therewith, Parent and
Surviving Corporation shall enter into an Administrative Services Agreement with
respect to the operations of Surviving Corporation, the form of which is
attached hereto as Exhibit A.
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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 (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 April 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. 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 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 Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by law and such Bylaws.
1.5 Directors and Officers.
(a) Surviving Corporation. The director(s) of the Surviving Corporation
immediately after the Effective Time shall be F. William Guerin and three (3)
nominees in his sole discretion and Ira Levy and one (1) nominee in his sole
discretion, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, each to hold office in accordance with the Bylaws of
the Surviving Corporation.
(b) Parent.
(i) Directors. 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 the following
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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: Frank Bush; F. William Guerin; Ira
Levy; Steven J. Lubman; David Siegel; and Mark Siegel. 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: F. William
Guerin, Chairman; David Siegel; and one (1) nominee of F. William
Guerin, who shall be a non-employee of Parent and Surviving
Corporation.
(ii) 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 an officer of 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: Ira Levy, Chairman; F.
William Guerin, President; Steven J. Lubman, Vice President; Frank
Bush, Chief Financial Officer; and Seth D. Heyman, Secretary.
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 share of Common Stock, $.001 par value, of the Company
("Company Common Stock") (excluding any shares of Company Common Stock to be
canceled pursuant to Section 1.6(b) or any shares of Company Common Stock held
by stockholders who perfect their statutory dissenters' rights as provided in
Section 1.7) 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, that number of
shares of Common Stock, $.001 par value, of Parent ("Parent Common Stock")
derived by dividing thirty million by the number of outstanding shares of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (the "Exchange Ratio"); provided, however, that if, prior to the Effective
Time, Parent should split, reclassify or combine Parent Common Stock, or pay or
grant to all stockholders of Parent a stock dividend or other stock distribution
in Parent Common Stock or rights to acquire Parent Common Stock, or otherwise
change Parent Common Stock into any other securities, then the Exchange Ratio
will be appropriately adjusted to reflect such split, reclassification,
combination, stock dividend or other distribution or change; provided, further,
that in the event the aggregate number of shares of Parent Common Stock issuable
pursuant to the terms of this Section 1.6(a) (the "Aggregate Parent Shares")
constitute less than seventy-six percent (76%) of the shares of Parent Common
Stock on a fully-diluted basis that are issued and outstanding immediately prior
to the Effective Time, then in such event, the Exchange Ratio will also be
appropriately adjusted until the Aggregate Parent Shares shall constitute at
least seventy-six percent (76%) of the shares of Parent Common Stock on a
fully-diluted basis that are issued and outstanding immediately prior to the
Effective Time;
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(b) each share of Company Common Stock, if any, owned by Parent or any
subsidiary of Parent or the Company immediately prior to the Effective Time
shall be canceled and shall cease to exist from and after the Effective Time and
no consideration shall be issued in exchange therefor;
(c) each option to purchase shares of Company Common Stock ("Company
Options") issued pursuant to the Orbit Network 1996 Stock Option Plan (the
"Company Plan"), all of which issued and outstanding Company Options are set
forth on Schedule 1.6(c) hereto shall, at the Effective Time, 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, that number of
shares of Parent Common Stock (rounded to the nearest whole share) equal to (i)
the number of shares of Company Common Stock subject to such Company Option,
multiplied by (ii) the Exchange Ratio. The option exercise price for each share
of Parent Common Stock issuable pursuant to an assumed Company Option shall be
an amount equal to (i) the option exercise price underlying such assumed Company
Option, divided by (ii) the Exchange Ratio (rounded to the nearest whole cent).
As soon as practicable following the Effective Time, but in no event later than
fifteen (15) days following the Effective Time, Parent shall deliver to holders
of Company Options appropriate option agreements representing the right to
acquire shares of Parent Common Stock on the same terms and conditions as
contained in the outstanding Company Options, subject to the foregoing
adjustments in the two (2) preceding sentences. Certain directors, officers and
employees of the Company may be granted stock options, in the Company's sole
discretion, under the Company Plan, which awards are contemplated on Schedule
4.2(i) hereto and which for purposes hereof shall be deemed to be included, to
the extent granted, in the Company Options. All of such awards will be issued
prior to the Effective Time pursuant to the Company's stock option agreements
utilized under the Company Plan. 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
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(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 Nasdaq SmallCap
Market. 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.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Common Stock held by a holder who has demanded and
perfected appraisal or dissenters' rights for such shares in accordance with
Delaware 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 Common Stock pursuant to Section 1.6, but the holder
thereof shall only be entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection 1.7(a), if any holder
of shares of Company Common Stock who demands appraisal of such shares under
Delaware 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 Common Stock and fractional shares
as provided in Section 1.6, without interest thereon, upon surrender of the
certificate representing such shares pursuant to Section 1.8.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Common Stock, withdrawals of such
demands, and any other instruments served pursuant to Delaware Law and received
by the Company, and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under Delaware Law. The
Company 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.
1.8 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent shall designate
a bank or trust company reasonably acceptable to the Company to act as exchange
agent (the "Exchange Agent") in the Merger. Parent shall pay all charges and
expenses of Exchange Agent.
(b) Parent to Provide Common Stock. As of the Effective Time, Parent
shall deposit in an escrow account with the Exchange Agent for the benefit of
the Company's stockholders 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
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share of Parent Common Stock) issuable pursuant to Section 1.6 in exchange for
the outstanding shares of Company Common Stock. The Exchange Agent shall,
pursuant to irrevocable instructions, deliver the Aggregate Parent Shares
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 Common Stock which,
pursuant to the Merger, were exchanged for Parent Common Stock 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 Common Stock. 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 Common Stock,
plus cash in lieu of fractional shares in accordance with Section 1.6(f) and the
Certificate so surrendered shall forthwith be canceled. The Exchange Agent shall
not be entitled to vote or exercise any rights of ownership with respect to the
Parent Common Stock held by it from time to time hereunder, except that it shall
receive and hold all dividends or other distributions paid or distributed with
respect thereto for the account of persons entitled thereto. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock 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 Common Stock into which such shares of
Company Common Stock shall have been so exchanged, and (ii) the right to receive
an amount in cash in lieu of the issuance of any fractional shares in accordance
with Section 1.6(f).
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such 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 1.8, the Exchange Agent, the Surviving Corporation or any party hereto
shall not be liable to a holder of shares of Parent Common Stock or Company
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
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1.9 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.
1.10 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 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 1.8.
1.11 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.
1.12 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 Delaware. The Company has the
corporate power to own its properties and to carry on its business as now being
conducted. The Company has delivered a true and correct copy of its Certificate
of Incorporation and Bylaws, each as amended to date, to Parent.
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2.2 Authority.
Subject only to the requisite approval of the Merger and this Agreement
by the Company's stockholders, 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 stockholders. The
Company's Board of Directors has unanimously approved, subject to the completion
of appropriate due diligence, the Merger and this Agreement. This Agreement has
been duly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company, enforceable in accordance with its terms
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, and (b) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
2.3 Company Capital Structure.
The authorized stock of the Company consists of 50,000,000 shares of
Company Common Stock, $.001 par value, and 10,000,000 shares of Preferred Stock,
$.001 par value. As of the date of this Agreement, 27,680,091 shares of Company
Common Stock have been issued and are outstanding, no shares of Preferred Stock
have been issued, 3,110,900 shares of Company Common Stock are subject to
outstanding options, 2,574,460 shares of Company Common Stock are subject to
outstanding warrants and 1,000,000 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 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 in this Section 2.3 and
on Schedule 1.6(d) hereto with respect to certain convertible debt securities
that may be converted into Company Common Stock upon a "qualified funding"
event, 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.
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2.5 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
audited balance sheet as of December 31, 1997 and December 31, 1998,
respectively, and the related audited statements of operations and cash flows
for the twelve-month periods then ended (collectively, the "Company
Financials"). At such time as the 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
generally accepted accounting principles ("GAAP") applied on a basis consistent
throughout the periods indicated and consistent with each other. The Company
Financials will present fairly the financial condition and operating results of
the Company as of the date and during the period indicated therein.
2.6 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 2.6 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 2.6, 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.
2.7 Litigation.
Except as set forth on Schedule 2.7 hereto, there is no 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.
2.8 No Conflict; Required Filings and Consents.
(a) Except as set forth on Schedule 2.8 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
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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 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.
2.9 Year 2000 Compliance.
The Company has taken reasonable steps to ensure that the Company's
primary computing system and software (i) will operate without substantial
errors relating to date data, including any error relating to, or the product
of, date data which represents or references different centuries or more than
one century; (ii) will be capable of correctly processing, providing, receiving,
and displaying accurate date data, and exchanging accurate date data with all
products with which it is currently exchanging date data; (iii) will not
abnormally end, corrupt data, or produce incorrect or invalid results as a
result of date data, including date data which represents or references
different centuries or more than one century or as a result of multi-century
date calculations, sequencing, or comparisons; (iv) will be capable of date data
century recognition and calculations which accommodate same century and
multi-century formulas and date values and date data interface values that
reflect the century; (v) will correctly recognize leap years, including the year
2000, and will handle all dates in leap years appropriately; and (vi) will
properly interpret, as to century, all date data currently stored or accessible
to it.
2.10 Brokers' and Finders' Fees.
Except for its obligation to Marquis Capital LLC and Equilink LLC, the
Company's brokers and financial advisors, the Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub 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 New York. 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.
3.2 Authority.
Subject only to the requisite approval of (a) the amendment of the
Certificate of Incorporation changing the name of Parent, (b) the amendment of
Parent's Certificate of Incorporation authorizing the requisite number of shares
of Parent Common Stock, (c) the issuance of the requisite number of shares of
Parent Common Stock, (d) the election of Frank Bush; F. William Guerin; Ira
Levy; Steven J. Lubman; David Siegel; and Mark Siegel as directors of Parent for
a term of three (3) years, (e) the Merger, and (f) this Agreement by Parent's
stockholders, 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 Parent'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 Capital Structure.
(a) The authorized stock of Parent consists of 25,000,000 shares of
Parent Common Stock, and 1,000,000 shares of Preferred Stock, $.001 par value.
As of the date of this Agreement, 4,858,958 shares of Parent Common Stock have
been issued and are outstanding, and no shares of Preferred Stock have been
issued. Parent has reserved 850,000 shares of Parent Common Stock for issuance
pursuant to Parent's 1995 Employee Stock Option Plan, of which as of the date
hereof options for 17,000 have been issued and exercised, options for 345,000
shares were outstanding and 488,000 shares remained available for future grant.
In addition, options to purchase 5,300,000 shares of Parent Common Stock have
been granted that are exercisable upon the sooner of the approval by the
stockholders of Parent of the Merger and of these options or five (5) years. As
of the date hereof, 3,425,000 shares of Parent Common Stock are issuable upon
the exercise
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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.
3.4 SEC Documents; Parent Financial Statements.
Parent 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. 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, 1995, including, without limitation, Parent's
Annual Report on Form 10-KSB for the year ended November 30, 1997, its Proxy
Statement for its 1998 Annual Meeting of Stockholders, and its Quarterly Reports
on Form 10-QSB for the quarters ended February 28, 1998, May 31, 1998, and
August 30, 1998 (all of the foregoing being collectively referred to as the "SEC
Documents"). As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the Act and the Exchange Act, and
the applicable rules and regulations of the SEC thereunder, as the case may be,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which they
were made, not misleading. Since August 30, 1998, Parent has not suffered any
material adverse effect 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 Parent Common Stock. The financial
statements of Parent, including the notes thereto, included in the 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 Form 10-QSB or Form 10-KSB
of the SEC) 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). There has
been no change in Parent accounting policies except as described in the notes to
the Parent Financial Statements.
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3.5 Nasdaq SmallCap Listing.
Parent's capital stock is, and at the Effective Time will be, listed
for trading on the Nasdaq SmallCap Market.
3.6 No Conflict; Required Filings and Consents.
(a) Except as set forth on Schedule 3.6 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.
(b) 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 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 and 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 Parent or Merger Sub from performing its obligations under
this Agreement, or (B) do not have a Material Adverse Effect.
3.7 Brokers' and Finders' Fees.
Neither Parent nor Merger Sub has incurred, nor will Parent or 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.
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ARTICLE 4
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by the Company 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 Parent shall otherwise agree in writing, the Company shall:
(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 the Company,
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 or conversion of outstanding convertible debt;
(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 stockholders (except to the extent that any
stockholders 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, except such strategic acquisitions that are approved by
the Company's Board of Directors, (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 and not engage in any action, directly or indirectly, with the
intent to impact adversely the transactions contemplated by this Agreement;
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(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, officers or key employees;
(g) not increase the rate of remuneration payable to any of its
directors, officers, employees or other representatives, 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 as
required to comply with changes in applicable law and except as contemplated on
Schedule 4.1(h) hereto; and
(i) maintain with financially responsible insurance companies insurance
on its tangible assets and its business in such amounts and against such risks
and losses as are consistent with past practice.
Notwithstanding anything to the contrary contained in this Agreement,
the Company shall not be prohibited from issuing 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 or
exchangeable for such capital stock for the purpose of raising working capital
or retiring any debt obligations of the Company.
4.2 Conduct of Business by Parent and Merger Sub Pending the
Merger.
Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Effective Date or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing, each of Parent and Merger
Sub shall:
(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 Parent or
Merger Sub, as applicable, 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 Parent's or Merger Sub'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, Parent may issue shares upon exercise of
outstanding options or warrants;
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(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 stockholders (except to the extent that any
stockholders 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 Parent or Merger Sub 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, officers or key employees;
(g) not increase the rate of remuneration payable to any of its
directors, officers, employees or other representatives, 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 as
required to comply with changes in applicable law and except as contemplated on
Schedule 4.2(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.
4.3 Certain Actions.
Except with respect to this Agreement and the transactions contemplated
hereby, the Company, Parent and Merger Sub shall not, directly or indirectly,
solicit any Acquisition Proposal. "Acquisition Proposal" shall mean any tender
offer or exchange offer or any proposal for a merger, acquisition of all of the
stock or assets of, or other business combination involving the acquisition of,
such party or any of its subsidiaries, or the acquisition of a substantial
equity interest in, or a substantial portion of the assets of, such party or any
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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.
Except as contemplated in the Registration Rights Agreement attached
hereto as Exhibit B (the "Registration Rights Agreement"), the Parent Common
Stock to be issued pursuant to the Merger will not be registered under the Act
in reliance upon exemptions from registration provided by Rule 506 and/or
Section 4(2) under the Act. The certificates for shares of Parent Common Stock
to be issued pursuant to the Merger shall bear appropriate legends to identify
such shares as being "restricted securities" within the meaning of Rule
144(a)(3) under the Act and to comply with applicable Blue Sky Laws.
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.
5.3 Stockholders' Meetings.
Subject to applicable law, each of the Company and Parent, through its
respective Board of Directors, shall, in accordance with applicable law and
subject to the fiduciary duties of their respective Board of Directors under
applicable law as determined by such directors in good faith after consultation
with and based upon the advice of outside counsel: (a) jointly prepare a joint
proxy statement/prospectus (the "Proxy Statement/Prospectus") for use in
connection with obtaining the requisite stockholder approvals and the issuance
of the Parent Common Stock 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 Delaware Law the Merger, this Agreement and the
transactions contemplated hereby (the "Company Stockholder Approval") or (in the
case of Parent) of approving as required by the New York Business Corporation
Law the Merger, this Agreement (including the transactions contemplated hereby)
and the authorization and issuance of Parent Company Stock in connection with
the Merger (the "Parent Stockholder Approval" and together with the Company
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Stockholder 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 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 December 1, 1998.
5.6 Expenses.
Whether or not the Merger is consummated, all fees and expenses
incurred in connection with the Merger including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be the obligation of the respective party incurring
such fees and expenses, except that it is understood and agreed that Parent
shall bear up to $75,000 of the expenses of the Company in connection with this
Agreement and its obligations to be performed under this Agreement; provided,
however, that Parent shall not be liable for $75,000 of the expenses of the
Company in the event the Closing does not occur as a result of a default by the
Company under the terms of this Agreement.
5.7 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 Parent's obligation to comply with applicable
securities laws and Nasdaq stock market regulations.
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5.8 Consents.
The Company shall use its reasonable efforts to obtain the consents,
waivers and approvals under any of its contractual agreements as may be required
in connection with the Merger so as to preserve all rights of, and benefits to,
the Company thereunder.
5.9 Reasonable Efforts.
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.
5.10 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 and 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 or Parent, 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 5.10 shall not limit or otherwise affect any remedies available to
the party receiving such notice.
5.11 Pooling Accounting.
Each of the Parent and the Company 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. Each of Parent and the Company 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.
5.12 Affiliate Agreement.
Schedule 5.12 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
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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 C (the "Affiliate Agreement"). Parent shall
be entitled to place appropriate legends on the certificates evidencing any
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, consistent with the terms of such
Affiliate Agreement.
5.13 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 Common Stock 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 Common Stock pursuant hereto.
5.14 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.
5.15 Shareholder Rights Protection Plan.
The Parent shall terminate the Parent's Shareholder Rights Protection
Plan, as provided therein.
5.16 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.
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(b) The officers and directors of Parent and the Surviving Corporation
after the Effective Time shall be entitled to the officers' and directors'
liability insurance set forth on Schedule 5.16 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 5.16.
5.17 Change in Name.
Simultaneously with the Merger, Parent shall amend its Certificate of
Incorporation to change its name to "Orbit Network, 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 New
York, obtaining the trading symbol "ORBT", and making the requisite filings with
and/or obtaining the requisite approvals from the SEC and the Nasdaq Stock
Market.
5.18 Employee Option Pool.
Parent shall establish after the Merger an employee option pool
representing at least 5,000,000 shares of Parent's outstanding Parent Common
Stock which shall be managed by the Compensation Committee of the Board of
Directors of Parent.
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;
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(c) Tax Opinions. Parent and the Company shall each have received
substantially identical written opinions from their counsel, Snow Becker Krauss
P.C. and Powell, Goldstein, Frazer & Murphy LLP, 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 B shall have been executed by Parent substantially in
the form as attached hereto;
(f) Parent Fairness Opinion. Parent 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
Parent and its stockholders 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 shall either (1) have received from
Nasdaq a written ruling that the Merger will not result in the Parent having to
comply with Nasdaq Marketplace Rule 4330(f), or (2) the Parent shall have
complied with all applicable requirements for initial inclusion of the
post-merger Parent Common Stock under the Nasdaq Marketplace Rules. To the
extent that operation of the Nasdaq Marketplace Rules preclude meeting any
particular requirements until the Merger is consummated, Parent shall
demonstrate to the Company's satisfaction that the post-Merger Parent and the
Parent Common Stock will meet all such applicable requirements.
6.2 Additional Conditions to the Obligations of Parent and Merger
Sub.
The obligations of Parent and Merger Sub to consummate the Merger and
the transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects on and as of the date made and the Closing Date, except for
changes contemplated by this Agreement (including the schedules of the Company)
and except for those representations and warranties which address matters only
as of a particular date (which shall remain true and correct as of such date),
with the same force and effect as if made on and as of the Closing Date, except,
in all such cases, for such breaches, inaccuracies or omissions of such
representations and warranties which have neither had nor reasonably would
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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
Powell, Goldstein, Frazer & Murphy LLP, legal counsel to the Company, in
substantially the form attached hereto as Exhibit D;
(d) Opinion of Accountants. Parent shall have received a letter from
Seligson & Giannattasio, LLP independent public accountants for Parent, as to
the appropriateness of pooling of interests accounting for the Merger under
GAAP, if consummated in accordance with this Agreement;
(e) Comfort Letters. Parent shall have received "comfort" letters from
Perotti and Carrade P.C., independent public accountants for the Company, dated
the date of the Proxy Statement/Prospectus, the effective date of the Proxy
Statement/Prospectus and the Closing Date (or such other date reasonably
acceptable to Parent) with respect to certain financial statements and other
financial information included in the Proxy Statement/Prospectus in customary
form;
(f) Affiliate Agreements. Each of the parties identified by the Company
as being one of its Affiliates shall have delivered an executed Affiliate
Agreement which shall be in full force and effect;
(g) Material Adverse Change. Since December 31, 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
6.2(h) hereto shall have executed and delivered to Parent employment agreements
in substantially the form of Exhibit E attached hereto;
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(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;
(j) Employee Withholding Taxes. The Company shall have reached an
agreement with the IRS that by its terms will avoid action by the IRS which
would result in a Material Adverse Effect on the Company's business and shall
have escrowed funds sufficient to satisfy the outstanding amounts owed to the
IRS with respect to such employee withholding taxes; and
(k) 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
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 of each of Parent and Merger Sub;
(c) Legal Opinion. The Company shall have received a legal opinion from
Snow Becker Krauss P.C., counsel to Parent and Merger Sub, in substantially the
form attached hereto as Exhibit F;
(d) Opinion of Accountants. The Company shall have received a letter
from Perotti and Carrade P.C., independent public accountants for the Company,
as to the appropriateness of pooling of interests accounting for the Merger
under GAAP, if consummated in accordance with this Agreement;
(e) Comfort Letters. The Company shall have received "comfort" letters
from Seligson & Giannattasio, LLP, independent public accountants for Parent,
dated the date of the Proxy Statement/Prospectus, the effective date of
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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 August 30, 1998, 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 and the Parent Common Stock to be issued
in connection with the Merger shall have been authorized for listing on the
Nasdaq SmallCap Market 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 E attached hereto, Parent shall have
assumed any existing employment agreements to which the Company is a party and
each of Ira Levy's and Steven J. Lubman's existing employment agreements with
Parent shall have been terminated and Messrs. Levy and Lubman shall have each
entered into employment agreements with Parent substantially in the form of
Exhibit E attached hereto;
(i) Shareholder Rights Protection Plan. Parent shall have terminated
the Shareholder Rights Protection Plan as provided therein;
(j) 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;
(k) Administrative Services Agreement. The Administrative Services
Agreement attached hereto as Exhibit A shall have been executed by Parent
substantially in the form as attached hereto; and
(l) 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.
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;
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(b) by Parent or the Company if: (i) the Effective Time has not
occurred by June 30, 1999 (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; or (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;
(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 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 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 stockholders
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 stockholders 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 stockholders duly convened therefor or at any adjournment
thereof;
(g) by the Company if Parent fails to recommend to its stockholders
through its Board of Directors the approval of the transactions contemplated by
this Agreement, or withdraws such recommendation, or if the
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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 New York law) of its stockholders for any or all of the following:
(a) To amend its Certificate of Incorporation to change Parent's name
to "Orbit Network, Inc." or a derivative thereof;
(b) To amend its Certificate of Incorporation to authorize the
requisite number of shares of Parent Common Stock envisioned hereunder;
(c) To issue the requisite number of shares of Parent Common Stock;
(d) The election of Frank Bush; F. William Guerin; Ira Levy; Steven J.
Lubman; David Siegel; and Mark Siegel to the Board of Directors of Parent for a
term of three (3) years;
(e) The Merger; and/or
(f) 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 and
5.6 and Article 8 of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
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7.4 Amendment.
Except as is otherwise required by applicable law, this Agreement may
be amended by the parties hereto at any time only by execution of an instrument
in writing signed on behalf of each of the parties hereto.
7.5 Extension; Waiver.
At any time prior to the Effective Time, Parent and Merger Sub, on the
one hand, and the Company, on the other, may, to the extent legally allowed, (a)
extend the time for the performance of any of the obligations of the other party
hereto, (b) waive any inaccuracies in the representations and warranties made to
such party contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party at any time or
times to require performance of any provision hereof shall in no manner affect
the right of such party at a later time to enforce the same or any other
provision of this Agreement. No waiver of any condition or of the breach of any
term in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of such condition or breach or a
waiver of any other condition or of the breach of any other term of this
Agreement.
ARTICLE 8
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties.
The representations and warranties set forth in Article 2 and Article 3
shall not survive 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):
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if to Parent or Merger Sub, 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) 595-1283
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
if to the Company, to:
Orbit Network, Inc.
505A San Marin Drive
Suite 300
Novato, California 94945
Attention: F. William Guerin, President
Telephone No.: (415) 883-1100, ext. 400
Facsimile No.: (415) 883-1102
with a copy to:
Powell, Goldstein, Frazer & Murphy LLP
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1740
Attention: Scott D. Smith, Esq.
Telephone No.: (404) 572-6875
Facsimile No.: (404) 572-6999
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
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direct and indirect subsidiaries of such entity. Reference to the subsidiaries
of an entity shall be deemed to include all direct and indirect subsidiaries of
such entity.
8.4 Counterparts.
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other party, it being understood that all parties need not sign
the same counterpart.
8.5 Entire Agreement.
This Agreement, the schedules and Exhibits hereto, and the documents
and instruments and other agreements among the parties hereto referenced herein:
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; and (b) are not intended to confer upon any other person any rights or
remedies hereunder.
8.6 Severability.
In the event that any provision of this Agreement or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
8.7 Other Remedies.
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
8.8 Specific Performance.
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
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8.9 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof; provided that
issues involving the corporate governance of any of the parties hereto shall be
governed by their respective jurisdictions of incorporation. Each of the parties
hereto agrees that process may be served upon them in any manner authorized by
the laws of the State of New York 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.
(a) 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.
(b) 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.
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(c) 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.
(d) 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.
(e) 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.
[Remainder of Page Intentionally Left Blank]
32
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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
ORBIT NETWORK, INC.
By: /s/ F. William Guerin
-----------------------------
F. William Guerin
President
SURGE ACQUISITION CORPORATION
By: /s/ Ira Levy
-----------------------------
Ira Levy
President
D08465.0000
33
<PAGE>
Glossary of Defined Terms
The following terms, when used in this Merger Agreement and Plan of
Reorganization, have the meanings ascribed to them in the corresponding sections
of this Merger Agreement and Plan of Reorganization listed below.
"Act" - Section 2.8(b)
"Acquisition Proposal" - Section 4.3
"Affiliate" - Section 5.12
"Affiliate Agreement" - Section 5.12
"Aggregate Parent Shares" - Section 1.6(a)
"Agreement" - Preamble
"Blue Sky Laws" - Section 2.8(b)
"Certificate of Merger" - Section 1.2
"Certificates" - Section 1.8
"Closing" - Section 1.2
"Closing Date" - Section 1.2
"Code" - Recitals D
"Company" - Preamble
"Company Common Stock" - Section 1.6(a)
"Company Financials" - Section 2.5
"Company Stockholder Approval" - Section 5.3
"Delaware Law" - Section 1.1
"Dissenting Shares" - Section 1.7(a)
"Effective Time" - Section 1.2
"Exchange Act" - Section 2.8(b)
"Exchange Agent" - Section 1.8(a)
"Exchange Ratio" - Section 1.6(a)
"GAAP" - Section 2.5
"HSR Act" - Section 2.8(b)
"Laws" - Section 2.8(a)
"Material Adverse Effect" - Section 6.2(a)
"Merger" - Recitals A
"Merger Sub" - Preamble
"Merger Sub Common Stock" - Section 1.6(e)
"Nasdaq" - Section 5.2
"Other Rights" - Section 1.6(d)
"Parent" - Preamble
"Parent Common Stock" - Section 1.6(a)
"Parent Financial Statements" - Section 3.4
"Parent Stockholder Approval" - Section 5.3
"Proxy Statement/Prospectus" - Section 5.3
"Registration Rights Agreement - Section 5.1
"Rule 145" - Section 5.12
"SEC" - Section 3.4
"SEC Documents" - Section 3.4
"Special Meeting" - Section 5.3
"Stockholder Approvals" - Section 5.3
34
<PAGE>
"Surviving Corporation" - Section 1.1
"Surviving Corporation Common Stock" - Section 1.6(e)
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35
<PAGE>
EXHIBIT B
Tuesday December 29, 1998
Company Press Release
Surge Components, Inc. Signs Letter of Intent to Acquire
Orbit Network Inc., an e-commerce Internet and travel
technology company.
Deer Park, NY, December 29, 1998/PR Newswire/--Surge Components, Inc.,(NASDAQ:
SRGE-news) today announced that the Company has signed a letter of intent to
acquire Orbit Network Inc. Orbit provides leisure and international travel
suppliers and resellers the ability to market and distribute their products
electronically to consumers, corporations and travel agents worldwide through
one distribution vendor. Orbit is the only e-commerce company that provides
proprietary connections to not just the Internet (World Wide Web), but also
America Online, Inc. (AOL), and all the major airline reservation systems-
AMADEUS, Galileo International, SABRE, and WORLDSPAN.
A selection of Orbit's global clients include: Eurostar UK Ltd., Air Jamaica,
Anheiser Busch Theme Parks, Palace Resorts, Rocky Mountains Railtours, Orlando
Convention & Visitor Bureau, Las Vegas Convention & Visitor Bureau and Monaco
Ministry of Tourism. Orbit operates its own branded World Wide Web Sites
(www.orbitnetwork.com and www.travelfile.com), one of the first travel services
on America Online, Inc. (AOL) (AOL keyword: travelfile), and sites for key
travel marketing partners such as the American Society of Travel Agents (ASTA)
(www.astanet.com) and the Caribbean Tourism Organization (CTO)
(www.caribtourism.com). Orbit currently generates annual gross revenues in
excess of $2.3 million and is projecting over $12 million in revenue for 1999.
Under the letter of intent, the shareholders of Orbit would exchange their
shares of Orbit for 25 million shares (76% of the then outstanding shares) of
Common Stock of Surge, and Orbit would be merged into Surge or a wholly owned
subsidiary.
The merger is dependent upon, among other thing, the completion of appropriate
due diligence, the receipt of a fairness opinion from an independent investment
banker, approval of the Surge shareholders and the completion of definitive
merger documents.
The acquisition supports Surge's strategy to enter the rapidly growing
e-commerce industry. "We believe this is an opportunity that will give Surge
access to e-commerce and maximize shareholder value," said Ira Levy, President
and CEO of Surge. "There is significant growth opportunity in the less automated
leisure and international travel niches, with other e-commerce vendors primarily
focused on booking air, hotel, and car, remarked F. William Guerin, President of
Orbit Network Inc." With leisure travel accounting for about
<PAGE>
50% of the annual $3.6 trillion dollars in worldwide travel spending, there is
considerable market opportunity and potential for substantial long term growth.
Robert DePalo, a senior partner at Equilink, LLC of New York, acted as
investment banker to the parties for the transaction.
This press release contains forward looking statements regarding the Company's
business strategy and future plans of operation. Forward looking statements
involve known and unknown risks and uncertainties. These and other important
factors, including those mentioned in various filings with the Securities and
Exchange Commission made periodically by the Company ( available to the public
at www.sec.gov), may cause the actual results and performance to differ
materially from the future results expressed in or implied by such forward
looking statements. The forward looking statements contained in this press
release speak only as of the date hereof and the Company disclaims any
obligation to provide public updates, revisions or amendments to any forward
looking statements made herein to reflect changes in the Company's expectations
or future events.
