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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
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.
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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,
Picinich &
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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
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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 Som
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