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.
-------
The closing of
the Merger (the "Closing") will take place at the offices of
Picinich & McClure, Esqs., counsel to
Somerset, at 139 Harristown Road, Glen
Rock, NJ 07452, 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.
----------------------
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.
---------------------
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
1
<PAGE>
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.
-------------------------------------------------------------
a. Creation of Preferred
Shares. Prior to the Effective Time, Somerset
----------------------------
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
---------------------------
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
--------------------
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.
2
<PAGE>
d. Working Capital Adjustment.
In addition to the conversion of the
--------------------------
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
----------------
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).
3
<PAGE>
1.5. Exchange of
Certificates. Somerset's corporate counsel, Picinich &
------------------------
McClure, 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
-------------------------
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
----------------------
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
--------------------------------
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
--------------
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
4
<PAGE>
Schedule 2.2 hereto, no Secure Shares have
been reserved for issuance to any
------------
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.
--------------------
(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
------------
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
-------------------------------------------
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
------------
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
----------
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
-----------------------------
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
-------------------------------
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
5
<PAGE>
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
--------------------------
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
-----------------------
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
-------------------------
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
-------
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.
6
<PAGE>
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
--------------------------------
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
-----------
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
-----------------------
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
