AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER entered into as of June 15, 2004 among SECURE
SYSTEM, INC., a New Jersey corporation ("Secure"), SOMERSET INTERNATIONAL GROUP,
INC., a Delaware corporation ("Somerset"), and SECSYS ACQUISITION CORP., a New
Jersey corporation ("Acquisition").
WHEREAS, the respective Boards of Directors of Secure, Somerset and
Acquisition desire that Secure should be acquired by Somerset pursuant to the
merger of Acquisition, which is a wholly-owned subsidiary of Somerset, with and
into Secure.
NOW, THEREFORE, it is agreed:
ARTICLE I: THE MERGER
1.1 Closing.
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The closing of the Merger (the "Closing") will take place at the offices of
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, Esqs., counsel to Somerset, at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇, within one (1) business day following the satisfaction or waiver
of the conditions precedent set forth in Article V or at such other date as
Secure and Somerset shall agree (the "Closing Date").
1.2 Merger; Effective Time.
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The Effective Time shall occur upon the filing with the Secretary of State
of the State of New Jersey of a Certificate of Merger (the "Certificate of
Merger") executed in accordance with the applicable provisions of the New Jersey
Business Corporation Law (the "BCL"), or at such later time as may be agreed to
by Somerset and Secure and specified in the Certificate of Merger (the
"Effective Time"). The date on which the Effective Time occurs is referred to as
the "Effective Date." Provided that this Agreement has not been terminated
pursuant to Article VI, the parties will cause the Certificate of Merger to be
filed as soon as practicable after the Closing.
1.3 Surviving Corporation.
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a. Secure and Acquisition shall, pursuant to the provisions of the BCL, be
merged with and into a single corporation, to wit, Secure, which shall be the
surviving corporation from and after the effective time of the merger, and which
is sometimes hereinafter referred to as the "Surviving Corporation", and which
shall continue to exist as said surviving corporation under its present name
pursuant to the provisions of the BCL. The separate existence of Acquisition
shall cease at the Effective Time in accordance with the provisions of the BCL.
b. At the Effective Time, each share of the 3,428,576 shares of capital
stock of Acquisition outstanding immediately prior to the Effective Time shall
be converted into one
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share of the common stock of the Surviving Entity and the shares of common stock
of the Surviving Entity so issued in such conversion shall constitute the only
outstanding shares of capital stock of the Surviving Entity and the Surviving
Entity shall be a wholly owned subsidiary of Somerset.
c. The Certificate of Incorporation of Secure shall continue to be the
Certificate of Incorporation of said Surviving Corporation. The present by-laws
of Secure will be the by-laws of the Surviving Corporation and will continue in
full force and effect from and after the effective date of the merger.
d. The directors in office of Secure at the effective time of the merger
shall be the members of the first Board of Directors of the Surviving
Corporation, all of whom shall hold their directorships until the election and
qualification of their respective successors or until their tenure is otherwise
terminated in accordance with the by-laws of the surviving corporation.
e. The officers in office of Secure at the effective time of the merger
shall be the first officers of the Surviving Corporation, all of whom shall hold
their offices until the election of their respective successors or until their
tenure is otherwise terminated in accordance with the by-laws of the surviving
corporation.
1.4 Exchange of Shares, Profit Participation, and Working Capital
Adjustment.
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a. Creation of Preferred Shares. Prior to the Effective Time, Somerset
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shall approve by way of resolution, and shall file as required by law, a
Certificate of Designations creating 3,000,004 shares of Series A Redeemable
Convertible Preferred Stock (the "Preferred Shares"). From those shares
2,747,404 will be used to satisfy Somerset's obligations under Section 1.4(b)
hereof and 252,600 will be used to satisfy Somerset's obligations under Section
1.7 hereof. The form of Certificate of Designations of the Preferred Stock is
annexed hereto as Appendix A.
b. Conversion of Secure Shares. At the Effective Time each of the
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3,956,742 shares of common stock of Secure that were issued and outstanding
immediately prior to the Effective Time, (hereinafter collectively referred to
as the "Secure Shares"), and specifically excluding any shares to be issued for
conversion of the Acquisition Shares pursuant to Section 1.3, shall be converted
into and represent the right to receive in exchange therefore 0.69436 Preferred
Shares. Any fractional share less than 0.5 that results from the conversion will
be eliminated; all other fractional shares will be rounded to the next integer.
c. Profit Participation. In addition to the conversion of Secure Shares
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to Preferred Shares as set forth above, the Secure shareholders entitled to
receive Preferred Shares shall also receive a Profit Participation Certificate
(the "Certificate") in the form annexed hereto as Appendix C. The "Participation
Percentage" that will be recited on the face of the Certificate will equal the
number of Preferred Shares issued to the holder in exchange for his/her Secure
Shares divided by the total number of Preferred Shares exchanged for Secure
Shares. The percentage shall be rounded to three decimal places.
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d. Working Capital Adjustment. In addition to the conversion of the
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Secure Shares and the Profit Participation as set forth above, the Secure
Shareholders shall, on the "Working Capital Distribution Date" (defined below)
after the Effective Date, be entitled to receive compensation based upon
Secure's working capital immediately prior to the Effective Time.
(i) Each Secure Shareholder's individual participation percentage in
the Working Capital Adjustment (defined below) shall be equal to
the Secure Shareholder's Profit Participation Percentage (as
defined in the shareholder's Profit Participation Certificate).
(ii) Payment of the entire Working Capital Adjustment shall be made to
the Chief Financial Officer of Secure, who shall be obligated to
distribute the correct participation percentage to each Secure
Shareholder. Somerset's obligations under this paragraph shall be
deemed satisfied after payment of the Working Capital Adjustment
to the Chief Financial Officer of Secure. Somerset shall not be
liable for failure of the Chief Financial Officer of Secure to
correctly distribute the Working Capital Adjustment among the
Secure Shareholders.
(iii) "Working Capital Adjustment" shall mean the total amount of Net
Working Capital on hand as June 30, 2004.
(iv) "Net Working Capital" shall mean the difference between current
assets and current liabilities.
(v) "Working Capital Distribution Date" shall mean the date that is
120 days after the Effective Date, provided that if such date
falls on a Saturday, Sunday or legal holiday, said date shall be
extended to the next business day.
e. Pledge Agreement. The obligations of Somerset which shall accrue
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pursuant to the Preferred Stock shall be secured by a pledge of certain capital
stock of Secure on the terms set forth in the form of Stock Pledge and Escrow
Agreement annexed hereto as Appendix B (the "Stock Pledge Agreement"); and
f. With the exception of Surviving Entity shares resulting from the
conversion of Acquisition Stock as set forth in Section 1.3, all Secure Shares
owned by the shareholders of Secure as of the Effective Date shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the
Preferred Stock and Certificate upon the surrender of such certificate in
accordance with Section 1.5 and the right to receive the Working Capital
Adjustment pursuant to Section 1.4(d).
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1.5. Exchange of Certificates. Somerset's corporate counsel, ▇▇▇▇▇▇▇▇ &
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▇▇▇▇▇▇▇, Esqs., shall act as the exchange agent (the "Exchange Agent") for the
purpose of exchanging Secure Shares for the Preferred Stock and Certificates. At
or prior to the Closing, Somerset shall deliver to the Exchange Agent
certificates for the Preferred Stock and Profit Participation Certificates
issued in such names and quantities as are indicated on the stock records of
Secure immediately prior to the Closing. At the Closing or thereafter, the
shareholders of Secure shall be required to surrender to the Exchange Agent the
certificates for all of their Secure Shares (or affidavits attesting to the loss
of certificates). Each Secure Shareholder shall be entitled upon such surrender
to receive in exchange therefor a certificate representing such number of shares
of Preferred Stock, and a Profit Participation Certificate reciting the
appropriate Participation Percentage, all as calculated pursuant to Section 1.4
of this Agreement.
1.6. Closing Of Transfer Books. On the Effective Date, the stock transfer
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book of Secure shall be deemed to be closed and no transfer of Secure Shares
shall thereafter be recorded thereon.
1.7 Other Equity Interests. On the Effective Date, Somerset shall issue
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12,600 Preferred Shares in exchange for the outstanding options for Secure stock
recited on Schedule 2.2 hereto and will issue 240,000 Preferred Shares pursuant
to the agreement with Woodland Group recited in Schedule 2.11 hereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SECURE
Except as set forth in the schedules to this Agreement, disclosure in any
one of which shall apply to any and all representations and warranties made in
this Agreement, Secure hereby represents and warrants to Somerset, as of the
date of this Agreement and as of the Effective Time, as follows:
2.1 Organization, Standing And Power. Secure is a corporation duly
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incorporated, validly existing and in good standing under the laws of the State
of New Jersey. Secure has corporate power and authority to conduct its business
as presently conducted by it and to enter into and perform this Agreement and to
carry out the transactions contemplated by this Agreement. Secure is duly
qualified to do business as a foreign corporation doing business in each state
in which it owns or leases real property and where the failure to be so
qualified and in good standing would have a material adverse effect on Secure or
its business. Secure does not have an ownership interest in any corporation,
partnership (general or limited), limited liability company or other entity,
whether foreign or domestic (collectively such ownership interests including
capital stock).
2.2 Capitalization. There are 70,000,000 shares of capital stock of Secure
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authorized, consisting of 63,000,000 shares of common stock, no par value per
share, and 7,000,000 shares of preferred stock. As of the date of this
Agreement, there are 3,956,742 Secure Shares issued and outstanding and no
shares of preferred stock issued and outstanding. Except as disclosed on
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Schedule 2.2 hereto, no Secure Shares have been reserved for issuance to any
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person, and there are no outstanding rights, warrants, options or agreements for
the purchase of Secure Shares. All outstanding Secure Shares are validly issued,
fully paid, non-assessable, not subject to pre-emptive rights and have been
issued in compliance with all state and federal securities laws or other
applicable laws.
2.3 Financial Statements.
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(i) Secure has made available to Somerset copies of its audited financial
statements for the year ended December 31, 2003 and its unaudited financial
statements for the three months ended March 31, 2004 (collectively, "Secure
Financial Statements"). The Secure Financial Statements were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto). Such financial
statements fairly present the financial position of Secure as at the dates
thereof and the results of its operations and its cash flows for the periods
then ended.
(ii) To the knowledge of Secure, except as disclosed in the Secure
Financial Statements or on Schedule 2.3 hereof, there has been no material
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change in the financial condition, operations or business of Secure since March
31, 2004.
(iii) Except as otherwise disclosed in the Secure Financial Statements,
Secure does not have any material liabilities.
2.4 Intellectual Property And Intangible Assets. To the knowledge of
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Secure, Secure has full legal right, title and interest in and to all of the
intellectual property utilized in the operation of its business. No rights of
any other person are violated by the use by Secure of the intellectual property.
Except as set forth on Schedule 2.4, none of the intellectual property has ever
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been declared invalid or unenforceable, or is the subject of any pending or, to
the knowledge of Secure, threatened action for opposition, cancellation,
declaration, infringement, or invalidity, unenforceability or misappropriation
or like claim, action or proceeding.
2.5 Litigation. There is no action, suit, investigation, audit or
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proceeding pending against, or to the best knowledge of Secure threatened
against or affecting, Secure or any of its assets or properties before any court
or arbitrator or any governmental body, agency or official.
2.6 Interested Party Transactions. Except as disclosed in the Secure
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Financial Statements, Secure is not indebted to any officer or director of
Secure (except for compensation and reimbursement of expenses incurred in the
ordinary course of business), and no such person is indebted to Secure.
2.7 Compliance With Applicable Laws. To the knowledge of Secure, the
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business of Secure has not been, and is not being, conducted in violation of any
law, except for possible violations which individually or in the aggregate have
not had and are not reasonably likely to have a material adverse effect on
Secure. To the knowledge of Secure, no investigation or
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review by any governmental entity with respect to Secure is pending nor has any
governmental entity indicated an intention to conduct the same, except for
investigations or reviews which individually or in the aggregate would not have,
nor be reasonably likely to have, a material adverse effect on Secure.
2.8 No Undisclosed Liabilities. Except as set forth in the Secure
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Financial Statements, there are no liabilities or debts of Secure of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability or debt.
2.9 Tax Returns And Payment. Secure has duly and timely filed all tax
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returns required to be filed by it and has duly and timely paid all taxes shown
thereon to be due, except as reflected in the Secure Financial Statements and
except for taxes being contested in good faith. Except as disclosed in the
Secure Financial Statements, there is no material claim for taxes that is a Lien
against the property of Secure other than liens for taxes not yet due and
payable, none of which taxes is material. Secure has not received written
notification of any audit of any tax return of Secure being conducted or pending
by a tax authority where an adverse determination could have a material adverse
effect on Secure, no extension or waiver of the statute of limitations on the
assessment of any taxes has been granted by Secure which is currently in effect,
and Secure is not a party to any agreement, contract or arrangement with any tax
authority or otherwise, which may result in the payment of any material amount
in excess of the amount reflected on the Secure Financial Statements.
2.10 Title And Related Matters. Secure has good and marketable title to all
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of its properties, inventory, interests in properties, and assets, real and
personal, which are reflected in the most recent balance sheet in the Secure
Financial Statements or acquired after that date (except properties, interests
in properties, and assets sold or otherwise disposed of since such date in the
ordinary course of business). Secure owns, free and clear of any liens, any and
all of its assets, except that Valley National Bank has a security interest in
all of Secure's assets, which security interest shall be released and discharged
on the Closing Date.
2.11 Finders. Secure has not incurred any liability to any broker, finder
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or agent for fees or commissions in connection with this Agreement and the
transactions contemplated hereby, except that Secure is party to an agreement
dated September 11, 2003 with The Woodland Group, Inc. pursuant to which a
commission will be due if the transactions contemplated by this Agreement are
concluded. The material terms of Secure's agreement with The Woodland Group,
including disclosure of all amounts paid, or to be paid, in cash or in kind, are
set forth on Schedule 2.11.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOMERSET
Except as set forth in the schedules to this Agreement, disclosure in any
one of which shall apply to any and all representations and warranties made in
this Agreement, and except as otherwise disclosed in writing to Secure, Somerset
hereby represents and warrants to Secure, as of the date of this Agreement and
as of the Effective Time (except as otherwise indicated), as follows:
3.1 Organization, Standing And Power. Somerset is a corporation duly
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incorporated, validly existing and in good standing under the laws of the State
of Delaware. It has full corporate power and authority to conduct its business
as presently conducted by it and to enter into and perform this Agreement and to
carry out the transactions contemplated by this Agreement.
3.2 SEC Filings. The Report on Form 10-QSB filed by Somerset with respect
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to the period ended March 31, 2004 was true and accurate, and complied in all
respects with the applicable Rules of the Securities and Exchange Commission.
3.3 Merger with Somerset-NJ. Somerset is party to an Agreement and Plan of
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Merger with Somerset International Group, Inc., a New Jersey corporation
("Somerset-NJ"). A true copy of the Agreement and Plan of Merger has been
delivered to Secure. The said Agreement remains in full force and effect. As
used herein, "Completion of the Somerset Merger" means the effectuation of the
merger of Somerset-NJ with Somerset.
3.4 Capitalization. There are 300,000,000 shares of Somerset capital stock
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authorized, consisting of 200,000,000 shares of common stock, $0.001 par value
per share (the "Somerset Shares"), and 100,000,000 shares of preferred stock. As
of the date of this Agreement, there were 1,036,116 issued and outstanding
Somerset Shares and no issued and outstanding shares of preferred stock. Upon
Completion of the Somerset Merger and closing of the offering described in the
PPM (defined below), there will be 5,300,000 issued and outstanding Somerset
Shares and no issued and outstanding shares of preferred stock. Except as set
forth in Schedule 3.4, no Somerset Shares have been reserved for issuance to any
person, and there are no outstanding rights, warrants, options or agreements for
the purchase of Somerset Shares or Somerset preferred stock. The Somerset Shares
have been issued in compliance with all applicable laws.
3.5 Private Placement Memorandum. Somerset has made available to Secure a
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copy of the Private Placement Memorandum of Somerset dated March 1, 2004 as
amended June 1, 2004 (the "PPM"). The statements made in the PPM were true and
complete when made, and remain true and complete as if made on the date of this
Agreement and at the Effective Time, except as set forth on Schedule 3.5.
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3.6 Financial Statements.
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a. The financial statements of Somerset contained in the most recent
filings with the SEC ("Somerset Financial Statements") were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto). Such financial
statements fairly present the financial position of Somerset as at the dates
thereof and the results of its operations and its cash flows for the periods
then ended.
b. To the knowledge of Somerset, except as disclosed in the Somerset
Financial Statements, there has been no material adverse change in the financial
condition, operations or business of Somerset since March 31, 2004.
c. Except as otherwise disclosed in the Somerset Financial Statements,
Somerset does not have any material liabilities.
3.7 Litigation. There is no action, suit, investigation, audit or
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proceeding pending against or, to the knowledge of Somerset, threatened, against
or affecting Somerset or any of its material assets or properties before any
court or arbitrator or any governmental body, agency or official.
3.8 Compliance With Applicable Laws. To the knowledge of Somerset, the
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business of Somerset has not been, and is not being, conducted in violation of
any Applicable Law, except for possible violations which individually or in the
aggregate have not had and are not reasonably likely to have a material adverse
effect on Somerset. To the knowledge of Somerset, no investigation or review by
any governmental entity with respect to Somerset is pending or threatened, nor
has any governmental entity indicated an intention to conduct the same, except
for investigations or reviews which individually or in the aggregate would not
have, nor be reasonably likely to have, a material adverse effect on Somerset.
3.9 Tax Returns And Payment. Somerset has duly and timely filed all tax
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returns required to be filed by it and has duly and timely paid all taxes shown
thereon to be due, except as reflected in the Somerset Financial Statements and
except for taxes being contested in good faith. Except as disclosed in the
Somerset Financial Statements, there is no material claim for taxes that is a
lien against the property of Somerset other than liens for taxes not yet due and
payable, none of which taxes is material. Somerset has not received written
notification of any audit of any tax return of Somerset being conducted or
pending by a tax authority where an adverse determination could have a material
adverse effect on Somerset, no extension or waiver of the statute of limitations
on the assessment of any taxes has been granted by Somerset which is currently
in effect, and Somerset is not a party to any agreement, contract or arrangement
with any tax authority or otherwise, which may result in the payment of any
material amount in excess of the amount reflected on the Somerset Financial
Statements.
3.10 No Undisclosed Liabilities - Somerset. Except as set forth in its
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Quarterly Report on Form 10-QSB for the period ended March 31, 2004 or on
Schedule 3.10, there are no liabilities or debts of Somerset of any kind
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whatsoever, whether accrued, contingent, absolute,
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determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability or debt.
3.11 Acquisition. Acquisition is a shell corporation organized for the
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purpose of completing the transactions contemplated by this Agreement.
Acquisition has no assets or liabilities, and has never engaged in any business
activity. There are 3,500,000 shares of Acquisition capital stock authorized, of
which 3,428,576 were issued as of the Effective Date. Somerset is the only
shareholder of Acquisition.
ARTICLE IV
CERTAIN COVENANTS AND AGREEMENTS
4.1 Covenants Of Secure. Secure covenants and agrees that, during the
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period from the date of this Agreement until the Closing Date, Secure shall
conduct its business as presently operated and solely in the ordinary course,
and, without the written consent of Somerset:
a. shall not amend its Certificate of Incorporation or Bylaws;
b. shall not pay or agree to pay to any employee, officer or director
compensation that is in excess of the current compensation level of such
employee, officer or director other than salary increases or payments made in
the ordinary course of business;
c. shall not merge or consolidate with any other entity or acquire or agree
to acquire any other entity;
d. shall not sell, transfer, or otherwise dispose of any material assets
required for the operations of Secure's business except in the ordinary course
of business consistent with past practices;
e. shall not create, incur, assume, or guarantee any material indebtedness
for money borrowed except in the ordinary course of business, or create or
suffer to exist any mortgage, lien or other encumbrance on any of its material
assets, except those in existence on the date hereof;
f. shall not make any material capital expenditure or series of capital
expenditures except in the ordinary course of business;
g. shall not declare or pay any dividends on or make any distribution of
any kind with respect to the Secure Shares;
h. shall notify Somerset promptly in the event of any material loss or
damage to any of Secure's material assets;
i. shall pay premiums in respect of all present insurance coverage of the
types and in the amounts as are in effect as of the date of this Agreement;
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j. shall seek to preserve the present material employees, reputation and
business organization of Secure and Secure's relationship with its significant
clients and others having business dealings with it;
k. shall not issue any additional shares of Secure capital stock or take
any action affecting the capitalization of Secure or the Secure Shares; and
l. shall not enter into any material contract or commitment other than in
the ordinary course of business.
4.2 Covenants of Somerset. Somerset covenants and agrees that, during the
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period from the date of this Agreement until the Closing Date, without the
written consent of Secure, Somerset:
a. shall not amend its Certificate of Incorporation or Bylaws;
b. shall not declare or pay any dividends on or make any distribution of
any kind with respect to the shares of capital stock of Somerset;
4.3 Covenants of The Parties.
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a. Announcement. Neither Somerset nor Secure shall issue any press
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release or otherwise make any public statement with respect to this Agreement or
the transactions contemplated hereby without the prior consent of the other
party (which consent shall not be unreasonably withheld), except as may be
required by applicable law or securities regulation. Notwithstanding anything in
this Section 4.03 to the contrary, the parties will, to the extent practicable,
consult with each other before issuing, and provide each other the opportunity
to review and comment upon, any such press release or other public statements
with respect to this Agreement and the transactions contemplated hereby whether
or not required by applicable law.
b. Access to Information.
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(i) Inspection by Secure. Somerset will make available for inspection
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by Secure, during normal business hours and in a manner so as not to interfere
with normal business operations, all of Somerset's records (including tax
records), books of account, premises, contracts and all other documents in
Somerset's possession or control that are reasonably requested by Secure to
inspect and examine the business and affairs of Somerset. For this purpose,
books and records or Somerset-NJ will be deemed to be in Somerset's control.
Somerset will cause its managerial employees and regular independent accountants
to be available upon reasonable advance notice to answer questions of Secure
concerning the business and affairs of Somerset or Somerset-NJ. Secure will
treat and hold as confidential any information they receive from Somerset in the
course of the reviews contemplated by this Section 4.3b. No examination by
Secure will, however, constitute a waiver or relinquishment by Secure of its
rights to rely on Somerset's covenants, representations and warranties made
herein or pursuant hereto.
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(ii) Inspection by Somerset. Secure will make available for inspection
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by Somerset, during normal business hours and in a manner so as not to interfere
with normal business operations, all of Secure's records (including tax
records), books of account, premises, contracts and all other documents in
Secure's possession or control that are reasonably requested by Somerset to
inspect and examine the business and affairs of Secure. Secure will cause its
managerial employees and regular independent accountants to be available upon
reasonable advance notice to answer questions of Somerset concerning the
business and affairs of Secure. Somerset will treat and hold as confidential any
information they receive from Secure in the course of the reviews contemplated
by this Section 4.3(b). No examination by Somerset will, however, constitute a
waiver or relinquishment by Somerset of its rights to rely on Secure's
covenants, representations and warranties made herein or pursuant hereto.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions Precedent To The Parties' Obligations. The obligations of
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the parties as provided herein shall be subject to each of the following
conditions precedent, unless waived in writing by both Somerset and Secure:
a. Shareholder Approval. Secure shall have obtained the requisite
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approval by its shareholders of this Agreement and the transactions contemplated
hereby.
b. Dissenting Shareholders. Secure shall not have received written
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dissents pursuant to N.J.S.A. 14A:11-2 from shareholders representing more than
ten (10%) percent of the Secure shares.
c. Completion of the Somerset Merger. The Completion of the Somerset
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Merger shall have occurred.
▇. ▇▇▇▇▇▇ Note Amendment. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have executed an amendment
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to his Note in the form annexed hereto as Exhibit 1.
e. Absence of Certain Litigation. No action or proceeding shall be
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threatened or pending before any governmental entity or authority which, in the
reasonable opinion of counsel for the parties, is likely to result in a
restraint, prohibition or the obtaining of damages or other relief in connection
with this agreement or the consummation of the Merger.
5.2 Conditions Precedent to the Obligations of Somerset. The obligations
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of Somerset on the Closing Date as provided herein shall be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions
precedent, unless waived in writing by Somerset:
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a. Representations and Warranties. Somerset shall have received a
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certification signed by the Chief Executive Officer and the Chief Financial
Officer of Secure attesting that the representations and warranties by Secure in
Article II herein are true and accurate in all material respects on and as of
the Closing Date with the same force and effect as though such representations
and warranties had been made at and as of the Closing Date.
b. Performance. Secure shall have performed and complied in all material
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respects with all agreements to be performed or complied with by it pursuant to
this Agreement at or prior to the Closing.
c. Certificate of Good Standing. Secure shall have delivered to Somerset
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a certificate as to the good standing of Secure certified by the Secretary of
State of the State of New Jersey on or within five (5) business days prior to
the Closing Date.
d. Due Diligence. Somerset shall have completed to its own satisfaction
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due diligence in relation to Secure.
e. Employment Agreements. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
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shall have entered into employment agreements with Secure on terms approved by
Somerset.
5.3 Conditions Precedent To The Obligations Of Secure. The obligations of
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Secure on the Closing Date as provided herein shall be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions
precedent, unless waived in writing by Secure:
a. Representations And Warranties. Secure shall have received a
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certification signed by the Chief Executive Officer and the Chief Financial
Officer of Somerset attesting that the representations and warranties by
Somerset in Article III herein are true and accurate in all material respects on
and as of the Closing Date with the same force and effect as though such
representations and warranties had been made at and as of the Closing Date.
b. Performance. Somerset shall have performed and complied in all
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material respects with all agreements to be performed or complied with by it
pursuant to this Agreement prior to or at the Closing.
c. Certificate of Designations. Somerset shall have filed with the
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Secretary of State of the State of Delaware a Certificate of Designations of the
Series A Redeemable Convertible Preferred Stock in the form annexed hereto as
Appendix A,
d. Certificate of Good Standing. Each of Somerset and Acquisition
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shall have delivered to Secure a certificate as to the good standing of
certified by the Secretary of State of the State of Delaware or the Secretary of
State of New Jersey, as applicable, on or within five (5) business days prior to
the Closing Date.
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e. Due Diligence. Secure shall have completed to its own
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satisfaction due diligence in relation to Somerset.
f. Public Status of Somerset. As at the Effective Time of the
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Merger, (i) Somerset shall be a fully compliant reporting public company under
the Exchange Act, and shall be current in all of its reports required to be
filed under the Exchange Act, and (ii) shall not have been threatened or subject
to ineligibility from the OTC Bulletin Board, and (iii) Somerset shall, within
five (5) business days thereafter, cause to be filed with NASD Regulation, Inc.
a Form 211 and Form 211 Addendum to initiate quotations of the Somerset shares
in the OTC Bulletin Board Service.
g. Escrow of Funds. Somerset shall have delivered to the Exchange
---------------
Agent to be held by it in escrow the sum of Five Hundred Thousand Dollars
($500,000) (the "Escrowed Funds"). The parties hereby instruct the Exchange
Agent that immediately after the Effective Time it shall disburse the Escrowed
Funds as follows: (i) $50,000 to Sovereign Bank in satisfaction of Secure debt,
(ii) $17,500 to Valley Bank in satisfaction of Secure debt, (iii) $150,000 to
▇▇▇▇▇▇▇ ▇▇▇▇▇▇; (iv) $25,000 to Woodland Group per Schedule 2.11 hereto, and (v)
the balance to Secure as working capital. The Exchange Agent shall cooperate
with the Chief Financial Officer of Secure to assure that the Escrowed Funds are
properly disbursed and that Secure receives credit for the payments made.
h. Escrow of Certificates. Somerset shall have executed and
----------------------
delivered to the Exchange Agent the Preferred Stock certificates and Profit
Participation Certificates required by Section 1.5 of this Agreement.
i. Implementation of Stock Pledge Agreement. Somerset shall have
----------------------------------------
executed the Stock Pledge Agreement described in Section 1.4(e) hereof, and
shall have delivered the executed Stock Pledge Agreement to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
Somerset shall also have delivered to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ certificates for
3,000,004 of the 3,428,576 outstanding shares of capital stock of the Surviving
Corporation, to be held by him pursuant to the terms of the Stock Pledge
Agreement.
ARTICLE VI
TERMINATION
6.1 Termination. This Agreement may be terminated and the Merger may be
-----------
abandoned at any time prior to the Effective Time by:
a. The mutual written consent of the Boards of Directors of the parties;
b. Either party if any governmental entity or court of competent
jurisdiction shall have issued an order, decree or ruling or taken any other
action (which order, decree, ruling or other action the parties shall use their
commercially reasonable best efforts to lift), which
13
restrains, enjoins or otherwise prohibits the Merger or the issuance of the
Preferred Stock pursuant to the Merger and such order, decree, ruling or other
action shall have become final and non-appealable;
c. Somerset, if Secure shall have breached in any material respect any of
its representations, warranties, covenants or other agreements contained in this
Agreement, and the breach cannot be or has not been cured within thirty (30)
calendar days after the giving of written notice by Somerset to Secure;
d. Secure, if Somerset shall have breached in any material respect any of
its representations, warranties, covenants or other agreements contained in this
Agreement, and the breach cannot be or has not been cured within thirty (30)
calendar days after the giving of written notice by Secure to Somerset; or
e. Without any action on the part of the Parties if required by
applicable law or if the Merger shall not be consummated by July 31, 2004.
6.2 Effect of Termination. If this Agreement is terminated as provided in
---------------------
Section 6.1, written notice of such termination shall be given by the
terminating party to the other party specifying the provision of this Agreement
pursuant to which such termination is made, this Agreement shall become null and
void and there shall be no liability on the part of Somerset or Secure, provided
that nothing in this Agreement shall relieve any party from any liability or
obligation with respect to any willful breach of this Agreement and provided
further that termination shall not affect accrued rights or liabilities of any
party at the time of such termination.
ARTICLE VII
CONFIDENTIALITY
Somerset, on the one hand, and Secure, on the other hand, will keep
confidential all information and documents obtained from the other, including
but not limited to any information or documents provided pursuant to Article IV
hereof, which are designated by such party as confidential (except for any
information disclosed to the public pursuant to a press release authorized by
the parties) and in the event the Closing does not occur or this Agreement is
terminated for any reason, will promptly return such documents and all copies of
such documents and all notes and other evidence thereof, including material
stored on a computer, and will not use such information for its own advantage,
except to the extent that (i) the information must be disclosed by law, (ii) the
information becomes publicly available by reason other than disclosure by the
party subject to the confidentiality obligation, (iii) the information is
independently developed without use of or reference to the other party's
confidential information, (iv) the information is obtained from another source
not obligated to keep such information confidential, (v) the information is
already publicly known or known to the receiving party when disclosed as
demonstrated by written documentation in the possession of such party at such
time, or (vi) in connection with any arbitration proceeding hereunder.
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ARTICLE VIII
INDEMNIFICATION OF EXCHANGE AGENT
8.1 Somerset and Secure (for the purposes of this Section 8.1, the
"Indemnitors"), jointly and severally, agree to indemnify the Exchange Agent and
its partners, employees and agents (collectively, the "Indemnitees") against,
and hold them harmless of and from, any and all loss, liability, cost, damage
and expense, including without limitation, reasonable counsel fees, which the
Indemnitees may suffer or incur by reason of any action, claim or proceeding
brought against the Indemnitees arising out of or relating in any way to the
Exchange Agent's service in such capacity, unless such action, claim or
proceeding is the result of the willful misconduct or gross negligence of the
Indemnitees.
8.2 If the indemnification provided for in Section 8.1 is applicable, but
for any reason is held to be unavailable, the Indemnitors shall jointly and
severally contribute such amounts as are just and equitable to pay, or to
reimburse the Indemnitees for, the aggregate of any and all losses, liabilities,
costs, damages and expenses, including counsel fees, actually incurred by the
Indemnitees as a result of or in connection with, and any amount paid in
settlement of, any action, claim or proceeding arising out of or relating in any
way to any actions or omissions of the Indemnitors.
ARTICLE IX
REGISTRATION RIGHTS
9.1 Definitions. For purposes of this Article 9:
-----------
a. The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document.
b. The term "Deferred Shares" means the shares of Somerset common stock
underlying the conversion privileges of the Preferred Shares and any other
shares of Somerset common stock issued in respect of such shares (because of
stock splits, stock dividends, reclassifications, recapitalizations, similar
events).
c. The term "SEC" means the Securities and Exchange Commission.
9.2 Registration Statement Filing Deadline.
--------------------------------------
a. No later than 180 days after the Effective Date, Somerset shall prepare
and file with the SEC a registration statement with respect to the Deferred
Shares and Somerset shall use its best efforts to cause such registration
statement to become effective;
b. Somerset shall also prepare and file with the SEC such amendments and
supplements to such registration
15
statement as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement;
9.3 Piggyback Registration Rights. If at any time that is less than 180
-----------------------------
days following the Effective Date, Somerset proposes to register (including for
this purpose a registration effected by Somerset for stockholders other than the
holders of the Preferred Shares) any of its common stock under the Securities
Act, and if Somerset has not already filed a registration statement covering the
Deferred Shares, Somerset shall include in any such registration statement all
of the Deferred Shares.
9.4 Prospectus. Promptly after the effective date of any registration
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statement filed pursuant to this Article IX or any amendment to any such
registration statement, Somerset will deliver to each holder of the Preferred
Shares a copy of the prospectus included in the registration statement.
ARTICLE X
MISCELLANEOUS
10.1 Applicable Law; Arbitration.
---------------------------
a. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of New Jersey, without giving effect to the principles of conflicts of
laws thereof, as applied to agreements entered into and to be performed in such
state.
b. Arbitration. Any controversy or claim among the parties arising out of
-----------
or relation to this Agreement or arising in connection with any breach hereof,
shall be settled by binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA"), as such
rules may be modified by this Section 10.1(b). In connection with the foregoing,
each of the parties hereby waives the right to a trial by jury of any suit,
action or other proceeding in connection with this Agreement or any breach
hereof. Any award rendered in any arbitration hereunder or in connection
herewith shall be final and binding on the parties and judgment upon such award
shall be rendered in any court of competent jurisdiction. Any arbitration shall
be held in Jersey City, New Jersey. A single arbitrator selected jointly by the
parties hereunder shall conduct all arbitrations. If the parties are unable to
agree on a single arbitrator within thirty (30) days after a demand for
arbitration is made in writing by one party upon the other, Somerset shall
select one arbitrator and Secure shall select one arbitrator and the two
arbitrators so selected shall select a third neutral arbitrator who shall have
familiarity with merger and acquisitions transactions and experience in dispute
resolution. The arbitrators shall render a reasoned written opinion together
with their decision and shall award costs and reasonable attorneys' fees to the
prevailing party in the arbitration. Notwithstanding the preceding sentence, in
no event shall the arbitrators be entitled to award punitive damages (or any
award in the nature of punitive damages) in any such arbitration.
16
10.2 Notices. All notices and other communications under this Agreement
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shall be in writing and shall be deemed to have been duly given or made as
follows:
a. If sent by reputable overnight air courier (such as Federal Express),
one business day after being sent;
b. If sent by facsimile transmission, with a copy shipped on the same day
in the manner provided in clause (a) above, when transmitted and receipt is
confirmed by the fax machine; or
c. If otherwise actually personally delivered, when delivered.
All notices and other communications under this Agreement shall be sent or
delivered as follows:
If to Secure, to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
c/o Secure System, Inc.
▇▇ ▇▇▇▇▇▇'▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice):
▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Somerset, to:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Somerset International Group, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
17
with a copy to (which shall not constitute notice):
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Exchange Agent, to ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, as above.
Each Party may change its address by written notice in accordance with this
Section.
10.3 Entire Agreement. This Agreement (including the documents and
----------------
instruments referred to in this Agreement) contains the entire understanding of
the parties with respect to the subject matter contained in this Agreement, and
supersedes and cancels all prior agreements, negotiations, correspondence,
undertakings and communications of the parties, oral or written, respecting such
subject matter.
IN WITNESS WHEREOF, the parties have made this Agreement as of the date set
forth on the first page.
SOMERSET INTERNATIONAL SECURE SYSTEM, INC. GROUP, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------- -------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer Title: Chief Executive Officer
SYSSEC ACQUISITION CORP.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President