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EXHIBIT 4
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED, DISPOSED OF OR
OFFERED FOR SALE, IN WHOLE OR IN PART, IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING THIS NOTE AND/OR THE COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF, OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO GLOBAL DATATEL, INC. THAT AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
GLOBAL DATATEL, INC.
Principal Sum: $6,250,000
Holder: Surge Components, Inc.
Issuance Date: March 14, 2000
GLOBAL DATATEL, INC., a Nevada corporation (the "Corporation"), for value
received hereby promises to pay the principal sum set forth above (the
"Principal Sum") to the order of the above-referenced holder (the "Holder") on
or before July 31, 2000 (the "Maturity Date") subject to acceleration and
mandatory prepayment, as provided herein. Each payment by the Company pursuant
to this Note shall be made without set-off or counterclaim and shall be made in
lawful currency of the United States of America and in immediately available
funds. This note (the "Note") replaces and supersedes in its entirety a prior
note, dated October 8, 1999, in the principal amount of $1,000,000, which was
then replaced by a Note in the Amount of $4,100,000, which has accrued interest
until the date hereof, said interest remaining outstanding and continuing to
accrue herewith. In addition to said interest accrued to date, this note shall
accrue interest at the rate of ten percent (10%) per annum from and after the
date hereof for the full amount of the Principal Sum. Accrued and unpaid
interest shall be payable on the Maturity Date; after the Maturity Date until
paid in full; upon any prepayment on the amount prepaid; or on conversion (each,
an "interest payment date"). All computations of interest hereunder shall be
made based on the actual number of days elapsed in a year of 360 days (including
the first day, but excluding the last day, during which any such Principal Sum
is outstanding). This Note is subject to certain covenants of the Corporation as
indicated in Section 4 hereof.
1. Issuance. This Note is being issued pursuant to the terms of an Asset
Purchase Agreement, dated December 8, 1999 (the "Purchase Agreement"), which
replaced and superseded a prior Merger Agreement and Plan of Reorganization by
and among the Corporation, Global Datatel Acquisition Corporation and the Holder
(the "Merger Agreement").
2. Prepayment. This Note may be prepaid in whole at any time or in part from
time to time. All payments by the Corporation hereunder shall be applied first
to pay any interest which is due, but unpaid, then to reduce the Principal Sum.
The Corporation (i) waives presentment, demand, dishonor, notice of dishonor,
protest or notice of any kind in connection with this Note and (ii) agrees to
pay to the holder hereof, on demand, all costs and expenses (including
reasonable legal fees and expenses) incurred in connection with the enforcement
and collection of this Note.
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3. Security Agreement; Pledge and Personal Guarantees. Pursuant to a Security
Agreement, dated December 1, 1999, between the Corporation and the Holder, the
obligations of the Corporation under this Note are secured by all of the assets
of the Corporation, although subordinated in right of payment to bank and other
financial institution indebtedness. The obligations of the Corporation are also
secured pursuant to a Pledge Agreement, dated October 8, 1999, with respect to
certain shares of Common Stock of the Corporation.
4. Negative Covenants of Corporation The Corporation covenants and agrees that,
so long as this Note shall be outstanding, it will perform the obligations set
forth in this Section 4:
(i) Liquidation, Dissolution. The Corporation will not
liquidate or dissolve, consolidate with, or merge into or with, any other
corporation or other entity, except that any wholly-owned subsidiary may merge
with another wholly-owned subsidiary or with the Corporation (so long as the
Corporation is the surviving entity and no Event of Default shall occur as a
result thereof);
(ii) Sales of Assets. The Corporation will not sell, transfer,
lease or otherwise dispose of, or grant options, warrants or other rights with
respect to, all or a substantial part of its properties or assets to any person
or entity, provided that this clause (ii) shall not restrict the transactions
contemplated by the Purchase Agreement or any disposition made in the ordinary
course of business and consisting of
(1) capital goods which are obsolete or have no
remaining useful life; or
(2) finished goods inventories.
(iii) Redemptions. The Corporation will not redeem or
repurchase any outstanding equity securities of the Corporation, except for
rescission offers as necessary or appropriate to address possible violations of
applicable securities laws;
(iv) Indebtedness. The Corporation will not create, incur,
assume or suffer to exist, contingently or otherwise, any indebtedness which is
not expressly subordinated in right of payment to the Notes, except as may be
required in the future set forth in (v) below;
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(v) Negative Pledge. The Corporation will not create, incur,
assume or suffer to exist any mortgage, pledge, hypothecation, assignment,
security interest, encumbrance, lien (statutory or other), preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any conditional sale or other title retention agreement
and any financing lease) (each, a "Lien") upon any of its property, securities,
revenues or assets, whether now owned or hereafter acquired, except:
(1) Liens granted to secure indebtedness to Senior
Lenders (as defined in Section 11 below) incurred to finance the
acquisition (whether by purchase or capitalized lease) of tangible
assets, but only on the assets acquired with the proceeds of such
indebtedness;
(2) Liens for taxes, assessments or other
governmental charges or levies not at the time delinquent or thereafter
payable without penalty or being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(3) Liens of carriers, warehousemen, mechanics,
materialmen and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(4) Liens (other than Liens arising under the
Employee Retirement Income Security Act of 1974, as amended, or Section
412(n) of the Internal Revenue Code of 1986, as amended) incurred in
the ordinary course of business in connection with workers'
compensation, unemployment insurance or other forms of governmental
insurance or benefits, or to secure performance of tenders, statutory
obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds; and
(5) judgment Liens to the extent not covered by
insurance which do not exceed $100,000 and are in existence less than
30 days after the entry thereof or with respect to which execution has
been stayed;
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(vi) Investments. The Corporation will not purchase, own,
invest in or otherwise acquire, directly or indirectly, any stock or other
securities or make or permit to exist any investment or capital contribution or
acquire any interest whatsoever in any other person or entity or permit to exist
any loans or advances for such purposes except for existing investments and
investments in direct obligations of the United States of America or any agency
thereof, obligations guaranteed by the United States of America and certificates
of deposit or other obligations of any bank or trust company organized under the
laws of the United States or any state thereof and having capital and surplus of
at least $500,000,000; provided, however, that nothing contained in this clause
(vi) shall preclude the Company from making acquisitions for the purpose of
expanding its business.
(vii) Transactions with Affiliates. The Corporation will not
enter into any transaction, including, without limitation, the purchase, sale,
lease or exchange of property, real or personal, or the rendering of any
service, with any person or entity affiliated with the Corporation, except in
the ordinary course of and pursuant to the reasonable requirements of its
business and upon fair and reasonable terms not less favorable than would be
obtained in a comparable arms-length transaction with any other person or entity
not affiliated with the Corporation;
(viii) Dividends. The Company will not declare or pay any cash
dividends or distributions on its outstanding capital stock.
5. Cancellation; Conversion.
(a) On the completion of the acquisition (as set forth in the Purchase
Agreement), between the Corporation and the Holder the outstanding principal
balance of this Note and all accrued and unpaid interest shall automatically be
forgiven by the Holder and this Note shall be canceled.
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(b) The Holder, at its sole discretion, may convert this Note into
common stock, $.001 par value ("Common Stock") of the Corporation in whole or in
part, at the conversion price set forth in Section 7 below, only if the
acquisition of the Corporation by the Holder is not approved by shareholders of
both companies or is not consummated for any other reason by July 31, 2000.
(c) Simultaneously with the issuance of this Note, the Corporation
shall reserve for issuance upon conversion of this Note the total number shares
of Common Stock issuable upon conversion of this Note. The Initial Conversion
Price shall be determined as set forth in Section 6 below, and may be adjusted
from time to time in accordance with Section 6 below (the "Conversion Shares").
The Conversion Shares shall be subject to the terms and conditions of a
Registration Rights agreement between the Corporation and the Holder of even
date herewith.
(d) If any capital reorganization or reclassification of the Common
Stock, stock split, reverse stock split, stock dividends, distribution on its
outstanding shares of Common Stock, stock combination, or consolidation or
merger of the Corporation with or into another corporation, or distribution of
the proceeds of any sale or conveyance of all or substantially all of its assets
to another corporation (a "Capital Event") shall be effected, then, as a
condition precedent of such Capital Event, the following provision shall be
made: the Holder of the Note shall, from and after the date of such Capital
Event sale have the right to receive upon conversion (in lieu of the shares of
Common Stock of the Corporation immediately theretofore issuable upon the
exercise of conversion rights), such shares of stock, securities or assets as
would have been issued or payable with respect to or in exchange for the number
of shares of Common Stock immediately theretofore issuable upon conversion of
the Note (regardless of whether the Note was actually convertible at such time).
In any such case, appropriate provision shall be made with respect to the rights
and interests of the Holders to the end that such conversion rights ' including,
without limitation, provisions for appropriate adjustments) shall thereafter be
applicable, as nearly as may be practicable in relation to any shares of stock,
securities or assets thereafter deliverable upon the conversion of the Note.
(e) The Corporation covenants to call a meeting of stockholders to be
held on or before July 31, 2000 to, among other things, approve the completion
of the acquisition. The Board of Directors of the Corporation will recommend
that the stockholders of the Corporation vote in favor of such approval. The
date on which such approval is obtained is referred to herein as the
"Stockholder Approval Date."
6. Conversion Price. If this Note is converted by the Holder into shares of
Common Stock of the Corporation the conversion price shall be an amount equal to
ninety percent (90%) of the average closing price for the twenty trading days
prior to the Corporation's receipt of notice of conversion. If no such trading
price quotations are available, the Conversion Price shall be $1.00 of principal
and interest per share. The Initial Conversion Price for purposes of the
reservation of Section 5(c) above shall be $1.00 of principal and interest per
share of Common Stock converted into.
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7. Issuance of Note and Conversion Shares. The Corporation represents, warrants
and covenants that the Corporation has full corporate power and authority to
execute and deliver this Note; the execution, delivery and performance by the
Corporation of this Note has been duly and validly authorized and approved by
the Corporation's Board of Directors; this Note has been duly and validly
executed and delivered by the Corporation and constitutes the legal, valid and
binding obligation of the Corporation enforceable against the Corporation in
accordance with its terms, except as such obligations and their enforceability
may be limited by applicable bankruptcy and other such similar laws affecting
the enforcement of creditors' rights generally; and all the Conversion Shares
will be duly and validly issued, fully paid and non-assessable, and not issued
in violation of the preemptive rights of any stockholder; the execution,
delivery and performance of the Note does not violate, conflict with or result
in a breach or default under (after the giving of notice or the passage of time
or both), or permit the termination of, any contract, right, other obligation or
restriction relating to or which affects the Conversion Shares or the
Corporation or any of its subsidiaries to which the Corporation or any of its
Subsidiaries is a party or by which either of them or their assets or business
may be bound or subject, or results in the creation of any lien upon the
Conversion Shares or upon any of the assets of the Corporation or its
subsidiaries pursuant to the terms of any contract.
8. Events of Default and Acceleration of the Note.
(a) An "event of default" with respect to this Note shall exist if any
of the following shall occur:
(i) The Corporation shall breach or fail to comply with any
provision of this Note and such breach or failure shall continue for five (5)
business days after written notice thereof to the Corporation by the Holder of
the Notes or its assignees.
(ii) A receiver, liquidator or trustee of the Corporation or
of a substantial part of its properties shall be appointed by court order and
such order shall remain in effect for more than fifteen (15) days; or the
Corporation shall be adjudicated bankrupt or insolvent; or a substantial part of
the property of the Corporation shall be sequestered by court order and such
order shall remain in effect for more than fifteen (15) days; or a petition to
reorganize the Corporation under any bankruptcy, reorganization or insolvency
law shall be filed against the Corporation and shall not be dismissed within
forty-five (45) days after such filing.
(iii) The Corporation shall file a petition in voluntary
bankruptcy or request reorganization under any provision of any bankruptcy,
reorganization or insolvency law, or shall consent to the filing of any petition
against it under any such law.
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(iv) The Corporation shall make an assignment for the benefit
of its Creditors, or consent to the appointment of a receiver, trustee or
liquidator of the Corporation, or of all or any substantial part of its
properties.
(b) If an event of default referred to in clause (i) above shall occur,
the Holder may, in addition to such Holder's other remedies, by written notice
to the Corporation, declare the principal amount of this Note, together with all
interest accrued and unpaid thereon, to be due and payable immediately. Upon any
such declaration, such amount shall become immediately due and payable and the
Holder shall have all such rights and remedies provided for under the terms of
this Note. If an event of default referred to in clauses (ii), (iii) or (iv)
shall occur, the principal amount of this Note, together with all interest
accrued thereon, shall become immediately due and payable and the Holder shall
have all such rights and remedies, if any, provided for under the terms of this
Note.
9. Interest Rate Limitation. It is the intent of Holder and the Corporation in
this execution of this Note, that the loan evidenced hereby be exempt from the
restrictions of applicable state usury laws. In the event that for any reason,
it should be determined that any such usury law is applicable to this Note, the
Holder and the Corporation stipulate and agree that none of the terms and
provisions contained herein shall ever be construed to create a contract for the
use, forbearance or detention of money requiring payment of interest at a rate
in excess of the maximum interest rate permitted to be charged by the laws of
such state. In such event, if the Corporation shall collect monies which are
deemed to constitute interest which would otherwise increase the effective
interest rate on this Note to a rate in excess of the maximum rate permitted to
be charged by applicable state law, all such sums shall, at the option of
Holder, be credited to the payment of the sums due hereunder or returned to the
Corporation.
10. Mandatory Prepayment. The Holder shall have the right to call this Note if
the Acquisition is not approved by its shareholders or if the acquisition of
Global is not consummated for any reason prior to July 31, 2000. This mandatory
prepayment provision shall require a 30 day prior written notice by the Holder
to the Corporation. Upon such notice, the outstanding principal and all interest
accrued and unpaid shall be due and payable upon the 31st day following the
Corporation's receipt of the written notice.
11. Subordination. The Holder hereby subordinates the payment of all present and
future indebtedness under or on account of this Note to the payment of any and
all other debts, obligations and liabilities of the Corporation of any nature
whatsoever to all banks, any other financial institutions and International
Business Machines, Inc. ("IBM") (collectively, "Senior Lenders"), whether
absolute or contingent, due or to become due, now existing, hereafter arising,
or otherwise. Upon any distribution of any assets of the Corporation, whether by
reason of sale, reorganization, liquidation, dissolution, arrangement,
bankruptcy, receivership, assignment for the benefit of creditors, foreclosure
or otherwise, all such other Senior Lenders shall be entitled to receive payment
in full of the indebtedness to them prior to the payment of all or any part of
the indebtedness hereunder to the Holder. In addition, the Holder hereby agrees
to not accept any payments under the Note while there exists an event of default
under any indebtedness to a Senior Lender.
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12. Miscellaneous.
(a) All notices and other communications required or permitted to be
given hereunder shall be in writing and shall be given (and shall be deemed to
have been duly given upon receipt) by delivery in person, by telegram, by
facsimile, recognized overnight mail carrier, telex or other standard form of
telecommunications, or by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows: (a) if to the Holder, to such address
as such Holder shall furnish to the Corporation in accordance with this Section,
or (b) if to the Corporation, to it at its headquarters office, or to such other
address as the Corporation shall furnish to the Holder in accordance with this
Section.
(b) The provisions of this Note may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Corporation and the Holder of the Note.
No failure or delay on the part of the Holder in exercising
any power or right under this Note shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No notice
to or demand on the Corporation, in any case, shall entitle it to any notice or
demand in similar or other circumstances. No waiver or approval by the Holder
shall, except as may be otherwise stated in such waiver or approval, be
applicable to subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter to be granted
hereunder.
(c) If any provision of this Note shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereof, but this Note shall be construed as if such invalid
or unenforceable provision had never been contained herein. To the extent that
the Corporation makes a payment or payments to the Holder, and such payment or
payments or any part thereof are subsequently for any reason invalidated, set
aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such recovery, the obligation or part thereof originally
intended to be satisfied, and all rights and remedies therefor, shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
(d) The Corporation may consider that the person in whose name this
Note shall be registered as the absolute owner thereof for all purposes
whatsoever (whether or not this Note shall be overdue) unless the Corporation is
given specific notice to the contrary. In case of transfer of this Note, the
transferee agrees to notify the Corporation of such transfer and of its address,
and to submit appropriate evidence regarding such transfer so that this Note may
be registered in the name of the transferee. This Note is transferable only on
the books of the Corporation by the holder hereof, in person or by attorney, on
the surrender hereof, duly endorsed. Communications sent to any registered owner
shall be effective as against all holders or transferees of the Note not
registered at the time of sending the communication.
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(e) THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS AND
INSTRUMENTS EXECUTED AND TO BE PERFORMED ENTIRELY IN SUCH STATE. THE PARTIES
HERETO HEREBY WAIVE TRIAL BY JURY AND CONSENT TO THE CHOICE OF VENUE OF THE
SUPREME COURT OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY OR THE FEDERAL
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK TO HEAR ANY DISPUTE IN
CONNECTION WITH THIS NOTE.
(f) THE HOLDER AND THE CORPORATION HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN
CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE HOLDER OR THE CORPORATION, THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER'S PURCHASING THIS NOTE.
(g) Upon the occurrence of an uncured event of default, the Holder of
this Note shall be entitled to recover its legal and other costs of collecting
on this Note, and such costs shall be deemed added to the principal amount of
this Note.
(h) In addition to all other remedies to which the Holder may be
entitled hereunder, Holder shall also be entitled to decrees of specific
performance without posting bond or other security.
IN WITNESS WHEREOF, the Corporation has caused this Note to be duly
executed in its name by its duly authorized officer on the date set forth below
Dated: as of March 14, 2000
GLOBAL DATATEL, INC.
By: /s/ Richard Baker
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Richard Baker, Chief Executive Officer
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