UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A
(RULE 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

 

Filed by the Registrant  þ

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

 

 

MERCATOR PARTNERS ACQUISITION CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

Common stock, par value $0.0001 per share
Class B common stock, par value $0.0001 per share

 

 

The filing fee of $6,278 is equal to $107.00 per million of the maximum aggregate transaction value of $58,664,500.

 

 

 

 

 

 

 

 

 

MERCATOR PARTNERS ACQUISITION CORP.
One Fountain Square, 11911 Freedom Drive, Suite 590
Reston, Virginia 20190
(703) 995-5534

 

To the Stockholders of Mercator Partners Acquisition Corp.:

 

You are cordially invited to attend a special meeting of the stockholders of Mercator Partners Acquisition Corp., relating to our proposed acquisitions of Global Internetworking, Inc., which we call GII, and European Telecommunications & Technology Limited, which we call ETT, and related matters. The meeting will be held at 10:00 a.m., Eastern Time, on October 13, 2006, at the offices of Greenberg Traurig, LLP, 1750 Tysons Boulevard, Suite 1200, McLean, Virginia 22102.

 

At this important meeting, you will be asked to consider and vote upon the following proposals:

 

 

The approval of the acquisition proposal is not conditioned on the approval of the other proposals listed above. However, the approval of the proposals to amend and restate our articles of incorporation and to elect the director-nominees are conditioned upon the approval of the acquisition proposal, and the proposal to adopt the Stock Plan is conditioned upon the approval of the acquisition proposal and the charter amendment proposal.

 

The affirmative vote of a majority of the shares of the Class B common stock issued in our initial public offering that are present in person or by proxy and entitled to vote at the meeting is required to approve the acquisitions of GII and ETT. The affirmative vote of a majority of the outstanding shares of our common stock and Class B common stock is required to approve the amendment and restatement of our amended and restated certificate of incorporation. The affirmative vote of a majority of the outstanding shares of our common stock and Class B common stock that are present in person or by proxy and entitled to vote at the meeting is required to approve adoption of the Stock Plan and the adjournment proposal. To be elected as a director a nominee must receive the affirmative vote of a plurality of the shares of our common stock and Class B common stock present in person or represented by proxy and entitled to vote at the special meeting.

 

Each stockholder that holds shares of the Class B common stock issued in our initial public offering or purchased following that offering in the open market has the right to vote against the acquisition proposal and, at the same time, demand that we convert that stockholder’s shares into cash equal to a pro rata portion, or approximately $5.32 per share as of September 1, 2006, of the trust account in which a substantial portion of the net proceeds of our initial public offering is deposited. If the acquisition is not completed, then your shares will not be converted to cash at this time, even if you so elected. However, if holders of 2,116,000 or more shares of Class B common stock issued in our initial public offering, an amount equal to 20% of the total number of shares of Class B common stock issued in the initial public offering, vote against the acquisition and demand conversion of their shares into a pro rata portion of the trust account, then we will not be able to consummate the acquisition. In addition, if holders of approximately 9% or more of our outstanding shares of Class B common stock exercise their conversion rights, we will have insufficient funds to pay the cash purchase price for the acquisition, and we would be unable to consummate the acquisition unless we are able to borrow funds or raise additional capital to finance the shortfall.

 

Our shares of Series A units, Series B units, common stock, Class B common stock, Class W warrants and Class Z warrants are listed on the Over-the-Counter Bulletin Board under the symbols MPAQU, MPABU, MPAQ, MPAQB, MPAQW and MPAQZ, respectively. The securities of GII and ETT are not listed or quoted on any national securities exchange, the Nasdaq Global Market, or the Over-the-Counter Bulletin Board. If the acquisition proposal is approved and the acquisitions of GII and ETT are consummated, the operations and assets of GII and ETT will become ours. In addition, if the charter amendment proposal is approved, our name will be changed to “Global Telecom & Technology, Inc.” upon the consummation of the acquisition.

 

After careful consideration of the terms and conditions of the proposed acquisitions of GII and ETT, our board of directors has determined that the acquisitions and the transactions contemplated thereby are fair to and in the best interests of Mercator and its stockholders. Our board of directors unanimously recommends that you vote or give instruction to vote “FOR” the acquisition proposal, “FOR” the charter amendment proposal, “FOR” the Stock Plan proposal, “FOR” the election of each of the nominees to our board of directors and “FOR” the adjournment proposal.

 

We are soliciting the enclosed proxy card on behalf of the board of directors, and we will pay all costs of preparing, assembling and mailing the proxy materials. In addition to mailing out proxy materials, our officers may solicit proxies by telephone or fax, without receiving any additional compensation for their services. We have requested brokers, banks and other fiduciaries to forward proxy materials to the beneficial owners of our stock.

 

Enclosed is a notice of special meeting and proxy statement containing detailed information concerning the acquisitions and the other proposals listed above. Whether or not you plan to attend the special meeting, we urge you to read this material carefully. In particular, you should carefully consider the discussion in the section entitled “Risk Factors” beginning on page 16 of the proxy statement.

 

 

MERCATOR PARTNERS ACQUISITION CORP.
One Fountain Square
11911 Freedom Drive, Suite 590
Reston, Virginia 20190
(703) 995-5534

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 13, 2006

 

TO THE STOCKHOLDERS OF MERCATOR PARTNERS ACQUISITION CORP:

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Mercator Partners Acquisition Corp., a Delaware corporation, will be held at 10:00 a.m., eastern time, on October 13, 2006, at the offices of Greenberg Traurig, LLP, 1750 Tysons Boulevard, Suite 1200, McLean, Virginia 22102, for the following purposes:

 

 

Our board of directors has fixed the close of business on September 20, 2006 as the date for which our stockholders are entitled to receive notice of, and to vote at, our special meeting and any adjournments or postponements thereof. Only the holders of record of our common stock and Class B common stock on that date are entitled to have their votes counted at our special meeting and any adjournments or postponements thereof.

 

We will not transact any other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement by our board of directors.

 

Your vote is important. Please sign, date and return your proxy card as soon as possible to make sure that your shares are represented at the special meeting. If you are a stockholder of record of our common stock or Class B common stock, you may also cast your vote in person at the special meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares.

 

Our board of directors unanimously recommends that you vote “FOR” the acquisition proposal, “FOR” the charter amendment proposal, “FOR” the Stock Plan proposal, “FOR” the election of each of the nominees to our board of directors and “FOR” the adjournment proposal.

 

By Order of the Board of Directors,

 

H. Brian Thompson

Chairman of the Board and

Chief Executive Officer

 

September 29, 2006

MERCATOR PARTNERS ACQUISITION CORP.

 

 

This proxy statement provides you with detailed information about the proposed Acquisition, the proposed amendment and restatement of our amended and restated certificate of incorporation, the proposed Stock Plan, the proposed nominees for election to our board of directors, the proposed adjournment proposal and the special meeting of stockholders. We encourage you to carefully read this entire document and the documents incorporated by reference. YOU SHOULD ALSO CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 16.

 

The acquisitions of ETT and GII cannot be completed unless at least a majority of the shares of the Class B common stock issued in our initial public offering, present in person or by proxy and entitled to vote at the special meeting as of September 20, 2006, approve the Acquisition. The affirmative vote of a majority of the outstanding shares of our common stock and Class B common stock is required to approve the amendment and restatement of our amended and restated certificate of incorporation. The affirmative vote of a majority of the outstanding shares of our common stock and Class B common stock that are present in person or by proxy and entitled to vote at the meeting is required to approve adoption of the Stock Plan and the adjournment proposal. To be elected as a director a nominee must receive the affirmative vote of a plurality of the shares of our common stock and Class B common stock present in person or represented by proxy and entitled to vote at the special meeting.

 

ANNEXES

 

IMPORTANT NOTES

 

In this proxy statement, we refer to Mercator Partners Acquisition Corp. as “Mercator,” “we,” “us” or “our.”

 

All references to “$” or “dollars” in this proxy statement refer to United States dollars, unless otherwise indicated. The following table sets forth the average exchange rate for one U.S. dollar expressed in British pounds sterling for each period indicated and the exchange rate at the end of such period based upon the interbank market rates for the applicable dates as reported by the website www.oanda.com.

 

 

On May 23, 2006, the last trading day prior to the announcement of Mercator’s proposed acquisitions of GII and ETT, the exchange rate for one U.S. dollar expressed in British pounds sterling based upon the interbank market rates for the applicable dates as reported by the website www.oanda.com was .53 British pounds.

 

What is being voted on?

 

There are five proposals on which you are being asked to vote.

 

 

 

 

 

Why are we proposing the Acquisition?

 

We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business, initially focusing on the communications industry. Both GII and ETT are virtual network operators, which are telecommunications providers that do not own the infrastructure upon which their services are provided. Instead, they procure network capacity from existing telecommunications carriers, and integrate and resell this capacity to their customers, including enterprise customers, government agencies and other telecommunications carriers. To date, GII has primarily addressed these issues as a service provider to carriers, while ETT primarily has concentrated on providing services to enterprise customers. We believe that these businesses are complementary, and that the acquisition of ETT and GII will provide you with an opportunity to participate in a company with significant growth potential. See page 36.

 

Why are we proposing to amend and restate our amended and restated certificate of incorporation?

 

We are proposing to change our name because management desires the name of the business to reflect its operations following the Acquisition. We are proposing to increase the number of authorized shares of our common stock so that we will have a greater number of shares available for a variety of corporate purposes, including financing potential future acquisitions, raising additional capital and compensating our officers, directors and employees. Article Sixth of our amended and restated certificate of incorporation is only applicable to us prior to our completion of a business combination. In the event that the Acquisition is approved at the special meeting, Article Sixth will no longer be applicable to us. Therefore, we are proposing to eliminate Article Sixth upon the completion of the Acquisition. The amendment and restatement of our amended and restated certificate of incorporation would be effective only upon the consummation of the Acquisition.

 

Why are we proposing to adopt the Stock Plan?

 

We are proposing the Stock Plan, which would be adopted only upon the consummation of the Acquisition, to:

 

 

 

What vote is required in order to approve the Acquisition Proposal?

 

The approval of the Acquisition Proposal will require the affirmative vote of a majority of the shares of our Class B common stock issued in our initial public offering that are present in person or by proxy and entitled to vote at the meeting. In addition, each stockholder who holds shares of our Class B common stock issued in our initial public offering or purchased following such offering in the open market has the right to vote against the Acquisition Proposal and, at the same time, demand that we convert that stockholder’s shares into cash equal to a pro rata portion of the trust account in which a substantial portion of the net proceeds of our initial public offering is deposited. These shares will be converted into cash only if the Acquisition is completed. Based on the amount of cash held in the trust account as of September 1, 2006, including interest accrued as of that date, you will be entitled to convert each share of Class B common stock that you hold into approximately $5.32. However, if the holders of 2,116,000 or more shares of Class B common stock issued in our initial public offering, an amount equal to 20% of the total number of shares of Class B common stock issued in the initial public offering, vote against the Acquisition Proposal and demand conversion of their shares into a pro rata portion of the trust account, then we will not be able to consummate the Acquisition. In addition, if holders of approximately 9% or more of our outstanding shares of Class B common stock, or approximately 952,000 or more shares, exercise their conversion rights, we will have insufficient funds to pay the cash purchase price for the Acquisition. In that event, we would be unable to consummate the acquisition unless we are able to borrow funds or raise additional capital to finance the shortfall. We are currently in discussions with potential lenders regarding a potential debt financing for that purpose. However, we cannot assure you that we will be able to complete such a financing on satisfactory terms, or at all. We would have no ability to extend our deadline of October 15, 2006 to consummate a business combination in order to obtain additional financing. Accordingly, if additional financing is required to complete the Acquisition and we are unable to obtain it by that date, we would not be able to consummate the Acquisition. See “What happens if the Acquisition is not consummated?” below. If we enter into a definitive agreement to obtain financing after the date of this proxy statement but prior to the special meeting, we will file a current report on Form 8-K with the Securities and Exchange Commission, describing the material terms of the financing.

 

What vote is required in order to approve the Charter Amendment Proposal?

 

The approval of the Charter Amendment Proposal will require the affirmative vote of a majority of the outstanding shares of our common stock and Class B common stock, voting as a single class.

 

What vote is required in order to approve the Stock Plan Proposal?

 

The approval of the Stock Plan Proposal will require the affirmative vote of a majority of the outstanding shares of our common stock and Class B common stock that are present in person or by proxy and entitled to vote at the meeting, voting as a single class.

 

What vote is required to elect the nominees to the board of directors?

 

To be elected, a nominee must receive the affirmative vote of a plurality of the shares of our common stock and Class B common stock present or represented by proxy and entitled to vote at the special meeting, voting as a single class.

 

What vote is required in order to approve the Adjournment Proposal?

 

The approval of the Adjournment Proposal will require the affirmative vote of a majority of the outstanding shares of our common stock and Class B common stock that are present in person or by proxy and entitled to vote at the meeting, voting as a single class.

What will I receive in the Acquisition?

 

Holders of our securities will continue to hold the securities of Mercator that they currently own, and will not receive any of the cash paid or securities issued in connection with the Acquisition. We are simply acquiring the outstanding securities of GII and ETT.

 

How are we paying for the Acquisition?

 

We will pay an aggregate of $14.0 million and $37.0 million in cash to the shareholders of GII and ETT, respectively. We will also issue to the GII shareholders 1.3 million shares of our common stock, $4.0 million in promissory notes with an interest rate of 6%, due on December 29, 2008, 1.45 million Class W Warrants and 1.45 million Class Z Warrants. Each of the Class W Warrants and Class Z Warrants entitles the holder to purchase one share of our common stock at a price of $5.00 per share. We will use the proceeds from the initial public offering which we completed last year to pay the cash portion of the purchase price for the Acquisition. If holders of approximately 9% or more of our outstanding shares of Class B common stock exercise their conversion rights (as described below), we will have insufficient funds available to pay the cash purchase price for the Acquisition. In that event, we would be unable to consummate the Acquisition unless we were able to borrow funds or raise additional capital to finance the shortfall. We are currently in discussions with potential lenders regarding a potential debt financing for that purpose. However, we cannot assure you that we will be able to complete such a financing on satisfactory terms, or at all. We would have no ability to extend our deadline of October 15, 2006 to consummate a business combination in order to obtain additional financing. Accordingly, if additional financing is required to complete the Acquisition and we are unable to obtain it by that date, we would not be able to consummate the Acquisition. See “What happens if the Acquisition is not consummated?” below. If we enter into a definitive agreement to obtain financing after the date of this proxy statement but prior to the special meeting, we will file a current report on Form 8-K with the Securities and Exchange Commission, describing the material terms of the financing.

 

Do I have conversion rights in connection with the Acquisition?

 

If you hold shares of Class B common stock issued in our initial public offering, then you have the right to vote against the Acquisition Proposal and demand that we convert your shares of Class B common stock into a pro rata portion of the trust account in which a substantial portion of the net proceeds of our initial public offering are held. These rights to vote against the Acquisition and demand conversion of the shares into a pro rata portion of the trust account are sometimes referred to in this proxy statement as conversion rights.

 

If I have conversion rights, how do I exercise them?

 

If you wish to exercise your conversion rights, you must vote against the Acquisition and, at the same time, demand that we convert your shares into cash. If, notwithstanding your vote, the Acquisition is completed, then you will be entitled to receive a pro rata share of the trust account in which a substantial portion of the net proceeds of our initial public offering are held, including any interest earned thereon through the date of the special meeting. Based on the amount of cash held in the trust account as of September 1, 2006, including interest accrued as of that date, you will be entitled to convert each share of Class B common stock that you hold into approximately $5.32. If you exercise your conversion rights, then you will be exchanging your shares of our Class B common stock for cash and will no longer own these shares of Class B common stock. You will only be entitled to receive cash for these shares of Class B common stock if you continue to hold these shares through the closing date of the Acquisition and then tender your stock certificate to us. If you convert your shares of Class B common stock, you will still have the right to exercise any Class W warrants and Class Z warrants you may hold. If the Acquisition is not completed, then your shares will not be converted to cash at this time, even if you so elected. See page 31.

 

Do I have dissenter or appraisal rights in connection with the proposals?

 

No appraisal rights are available under the Delaware General Corporation Law for our stockholders in connection with the Acquisition Proposal.

What happens to the funds deposited in the trust account after completion of the Acquisition?

 

Upon the consummation of the Acquisition, any funds remaining in the trust account after payment of amounts, if any, to Class B stockholders exercising their conversion rights, will no longer be subject to the trust account and will be used to fund the Acquisition, provide working capital and fund future acquisitions, if any.

 

Who will manage the company upon completion of the Acquisition?

 

Upon the completion of the Acquisition, we anticipate that H. Brian Thompson will continue to serve as chairman of our board of directors, and will become our executive chairman, Rhodric C. Hackman will continue to serve on our board of directors and David Ballarini will serve as our interim chief financial officer. We anticipate that D. Michael Keenan, the co-founder and chief executive officer of GII, will serve as our chief executive officer, and Christopher Britton, the founder and chief executive officer of ETT, will serve as our executive vice president and head of our Europe, Middle East and Asia operations. If all of our director-nominees are elected, our board of directors will consist of H. Brian Thompson, Rhodric C. Hackman, D. Michael Keenan, Morgan O’Brien, Alex Mendl, Didier Delepine, Howard Janzen and Sudhakar Shenoy.

 

What happens if the Acquisition is not consummated?

 

If the Acquisition is not consummated, we will be liquidated if we do not consummate a business combination by October 15, 2006. In any liquidation, the net proceeds of our initial public offering held in the trust account, plus any interest earned thereon, will be distributed pro rata to the holders of our Class B common stock, subject to potential claims of creditors and any taxes paid or payable by us. There will be no distributions from the trust fund with respect to our common stock or outstanding warrants. In any liquidation, any remaining net assets, after distribution of the trust fund to the Class B stockholders, will be distributed to holders of common stock. We do not anticipate that any assets would remain for distribution to common stockholders in any liquidation.

 

When do you expect the Acquisition to be completed?

 

It is currently anticipated that the Acquisition will be completed promptly following our special meeting of stockholders on October 13, 2006.

 

If I am not going to attend the special meeting of stockholders in person, should I return my proxy card instead?

 

Yes. After carefully reading and considering the information contained in this proxy statement, please complete and sign your proxy card. Then return the enclosed proxy card in the return envelope provided herewith as soon as possible, so that your shares may be represented at our special meeting.

 

What will happen if I abstain from voting or fail to vote?

 

An abstention will have the same effect as a vote against the Acquisition Proposal, and a failure to vote will have no effect on the outcome of the Acquisition Proposal, but neither will have the effect of converting your shares into a pro rata portion of the trust account in which a substantial portion of the net proceeds of our initial public offering are held. An abstention or failure to vote will have the same effect as a vote against the Charter Amendment Proposal. An abstention will have the same effect as a vote against the Stock Plan Proposal, the Nomination Proposal and the Adjournment Proposal, and a failure to vote will have no effect on the outcome of those proposals.

 

What do I do if I want to change my vote?

 

If you wish to change your vote, please send a later-dated, signed proxy card prior to the date of the special meeting or attend the special meeting and vote in person. You also may revoke your proxy by sending a notice of revocation to our corporate secretary, Rhodric C. Hackman, at the address of our corporate headquarters prior to the special meeting.

If my shares are held in “street name” by my broker, will my broker vote my shares for me?

 

No. Your broker cannot vote your shares unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker.

 

Do I need to turn in my old certificates?

 

No. If you hold your securities in Mercator in certificate form, as opposed to holding them through your broker, you do not need to exchange them for certificates issued in the name of Global Telecom & Technology, Inc., which will be our new name if the Charter Amendment Proposal is approved and the Acquisition is completed. Your current certificates will represent your rights in the renamed company. You may exchange them by contacting our transfer agent, American Stock Transfer & Trust Company, and following their requirements for reissuance. If you elect to exercise your conversion rights, you will need to deliver your old certificates to us.

 

Will Mercator’s securities still be traded on the Over-the-Counter Bulletin Board after the Acquisition is completed?

 

Yes. We intend to apply to have our common stock and warrants approved for listing on The Nasdaq Global Market as soon as practicable. However, we cannot assure you that we will satisfy the listing requirements of The Nasdaq Global Market.

 

Who can help answer my questions?

 

If you have questions about the Acquisition, you may write or call Rhodric C. Hackman, Mercator Partners Acquisition Corp., One Fountain Square, 11911 Freedom Drive, Suite 590, Reston, Virginia 20190, (703) 995-5534.

 

SUMMARY

 

Mercator Partners Acquisition Corporation

 

Industry of the Companies Proposed to be Acquired

 

Global Internetworking, Inc.

	•	data transport and connectivity;
	•	access aggregation and hubbing;
	•	managed network services; and
	•	professional services.

 

European Telecommunications & Technology Limited

	•	managed Internet Protocol and Internet services;
	•	dedicated connectivity services; and
	•	facilities management and other services.

 

The GII Acquisition

	•	$14,000,000 in cash (less approximately $987,000 which will be paid to GII option holders in cancellation of their options);

	•	1,300,000 shares of common stock of Mercator;
	•	$4,000,000 in promissory notes with an interest rate of 6%, due on December 29, 2008;
	•	1,450,000 Class W Warrants (each of which entitle the holder thereof to purchase one share of Common Stock of Mercator at a price of $5.00 per share); and
	•	1,450,000 Class Z Warrants (each of which entitle the holder thereof to purchase one share of Common Stock of Mercator at a price of $5.00 per share).

 

The ETT Acquisition

 

Approval of ETT Shareholders

 

Special Meeting of Our Stockholders

 

Voting Power; Record Date

 

Vote Required to Approve the Acquisition Proposal

 

Vote Required to Approve the Charter Amendment Proposal

 

Vote Required To Approve the Stock Plan Proposal

 

Vote Required for the Nomination Proposal

 

Vote Required to Approve the Adjournment Proposal

 

Conversion Rights

 

Appraisal or Dissenters Rights

 

Proxies

 

Stock Ownership

	•	Pentagram Partners, L.P. beneficially owned 113,800 shares of our common stock, representing approximately 9.9% of our common stock outstanding;
	•	Sapling, LLC and Fir Tree Recovery Master Fund, L.P. together beneficially owned 796,400 shares of our Class B common stock, representing approximately 7.5% of our Class B common stock outstanding;
	•	Amaranth LLC and its affiliates beneficially owned 662,700 shares of our Class B common stock, representing approximately 6.3% of our Class B common stock outstanding; and
	•	David M. Knott and Dorset Management Company together owned 545,000 shares of our Class B common stock, representing approximately 5.2% of our Class B common stock outstanding.

 

Our Board of Directors’ Recommendation

 

Interests of Our Directors and Officers in the Acquisition

 

Additional Interests of Directors and Officers of GII in the Acquisition

 

Additional Interests of Directors and Officers of ETT in the Acquisition

 

Conditions to the Completion of the GII Acquisition

	•	no governmental entity shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which has the effect of making the acquisition illegal or otherwise prohibiting consummation of the acquisition, substantially on the terms contemplated by the stock purchase agreement;
	•	the Mercator stockholders shall have approved the change of the name of Mercator to a name selected by GII and Mercator and an increase in the number of authorized shares of Common Stock of Mercator;
	•	the Mercator stockholders shall have approved the transactions contemplated by the stock purchase agreement and holders of 20% or more of the shares of Class B common stock of Mercator issued in Mercator’s initial public offering and outstanding immediately before the closing shall not have exercised their rights to convert their shares into a pro rata share of the trust fund; and
	•	approvals from any governmental entity necessary for the consummation of the acquisition shall have been obtained and any waiting period applicable to the consummation of the acquisition shall have expired or been terminated.

	•	the representations and warranties of GII must be true and correct in all material respects, as of the date of completion of the acquisition;
	•	GII and its shareholders must have performed in all material respects all obligations that are to be performed by it under the stock purchase agreement;
	•	no action, suit or proceeding shall exist that is reasonably likely to prevent the acquisition or cause rescission of the acquisition following closing;
	•	GII shall have obtained all consents, waivers, permits and approvals required in connection with the consummation of the acquisition if failure to obtain the same would be reasonably expected to cause a material adverse effect;

	•	there must not have occurred since the date of the stock purchase agreement any material adverse effect on GII;
	•	Mercator shall have received an opinion of counsel from Rees, Broome & Diaz, P.C., counsel to GII;
	•	D. Michael Keenan and Todd J. Vecchio shall have entered into mutually acceptable employment agreements with Mercator;
	•	the former GII shareholders shall have entered into mutually acceptable lock-up agreements with Mercator;
	•	Mercator shall have received copies of resolutions and actions taken by GII’s board of directors and shareholders in connection with the approval of the stock purchase agreement and the transactions contemplated thereunder and other documents or certificates reasonably required by Mercator; and
	•	there shall be outstanding no options, warrants or other derivative securities entitling the holders thereof to acquire shares of GII or other securities of GII.

	•	Mercator’s representations and warranties must be true and correct in all material respects, as of the date of completion of the acquisition;
	•	Mercator must have performed in all material respects all obligations required to be performed by it under the stock purchase agreement;
	•	no action, suit or proceeding shall exist that is reasonably likely to prevent the acquisition or cause rescission of the acquisition following closing;
	•	Mercator shall have obtained all consents, waivers, permits and approvals required in connection with the consummation of the acquisition if failure to obtain the same would be reasonably expected to cause a material adverse effect;
	•	there must not have occurred, since the date of the stock purchase agreement, any material adverse effect on Mercator or ETT;
	•	Mercator shall be in compliance with the reporting requirements under the Exchange Act of 1934;
	•	GII and its shareholders shall have received an opinion of counsel from Greenberg Traurig, LLP, counsel to Mercator;
	•	GII shall have received copies of resolutions and actions taken by Mercator’s board of directors and stockholders in connection with the approval of the stock purchase agreement and the transactions contemplated thereunder and other documents or certificates reasonably required by GII;
	•	Mercator shall have delivered a press release regarding the stock purchase to GII, in a form reasonably acceptable to GII.
	•	Mercator shall have made appropriate arrangements with American Stock Transfer & Trust Company to have the trust fund dispersed immediately upon the closing;
	•	Mercator shall have entered into mutually acceptable employment agreements with D. Michael Keenan and Todd J. Vecchio;

	•	the transactions between Mercator and ETT shall have been consummated at or prior to the closing of the acquisition; and

	•	Mercator shall have entered into lock-up agreements with the former GII shareholders.

 

Conditions to the Completion of the ETT Acquisition

	•	Mercator shall have received valid acceptances for not less than 75% of the issued share capital of ETT, including acceptances from a majority of certain specified ETT investors;
	•	Mercator shall have obtained from its auditors and ETT’s auditors such documentation as would be required for presentation of ETT’s and Mercator’s financial statements on a consolidated basis in accordance with generally accepted accounting principles as required by applicable U.S. securities laws;
	•	the Mercator stockholders shall have approved the acquisition of ETT;
	•	ETT shall not have directly or through an affiliated company taken any specified actions which are not in the ordinary course of business;
	•	there shall be no adverse change or deterioration in the business, financial or trading position or profits of ETT or any other of its related companies and no contingent liability having arisen in ETT or any other of its related companies which in any such case is material in the context of ETT taken as a whole; and
	•	subsequent to the date of the offer, no litigation or arbitration proceedings, prosecution or other legal proceedings shall have been instituted, announced or threatened by or against or remaining outstanding against ETT or any other of its related companies which in any such case is material.

 

Termination of the GII stock purchase agreement

	•	by mutual written consent of Mercator and GII;
	•	by either Mercator or GII, if the closing has not occurred by October 15, 2006, on which date, if we have not yet completed a business combination, all outstanding shares of our Class B common stock would be automatically cancelled, and we would be required to distribute the proceeds of our trust fund to the Class  B stockholders and then dissolve and liquidate;
	•	by either Mercator or GII if a governmental entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the acquisition, which order, decree, ruling or other action is final and nonappealable;
	•	subject to a 30-day cure period, by Mercator if GII has breached any of its covenants or representations and warranties under the stock purchase agreement in any material respect;
	•	subject to a 30-day cure period, by GII if Mercator has breached any of its covenants or representations and warranties under the stock purchase agreement in any material respect; and
	•	by either Mercator or GII, if, at the Mercator special meeting (including any adjournments thereof), the stock purchase agreement and the transactions contemplated thereby are not approved and adopted by the affirmative vote of holders of a majority of the shares of Class B common stock issued in Mercator’s initial public offering that are present in person or by proxy and entitled to vote at the meeting, or the holders of 20% or more of the number of shares of Mercator’s Class B common stock issued in Mercator’s initial public offering and outstanding as of the record date exercise their rights to convert the shares of Mercator’s Class B common stock held by them into cash in accordance with Mercator’s certificate of incorporation. Pursuant to our amended and restated certificate of incorporation, we may not consummate the Acquisition if holders of 20% or more of the shares of Class B common stock issued in our initial public offering properly exercise their right to convert their shares into cash.

 

Regulatory Matters

 

SELECTED HISTORICAL FINANCIAL INFORMATION

GII HISTORICAL FINANCIAL INFORMATION

 

		Nine Months Ended
		June 30,								Year Ended September 30,
		2006				2005				2005				2004				2003				2002				2001
		(Unaudited)				(Unaudited)
Revenues		$	13,226,792			$	10,127,894			$	14,167,849			$	9,263,497			$	8,671,583			$	8,711,085			$	4,623,776
Income (loss) from operations			(432,697	)			(570,047	)			(701,303	)			(429,188	)			560,903				503,141				287,134
Net income (loss)			(492,119	)			(321,012	)			(444,964	)			(223,560	)			379,456				339,941				242,538
Net income (loss) per share, basic and diluted		$	(0.20	)		$	(0.13	)		$	(0.18	)		$	(0.09	)		$	0.15			$	0.14			$	0.10
Cash dividends per share		$	—			$	—			$	—			$	—			$	—			$	—			$	—

 

		As of June 30,				As of September 30,
		2006				2005				2004				2003				2002				2001
		(Unaudited)
Total assets		$	4,323,243			$	3,971,281			$	3,103,690			$	2,999,374			$	2,512,937			$	871,949
Total current liabilities			4,411,512				3,598,492				2,357,929				2,049,226				1,942,246				641,198
Long-term liabilities			121,726				90,665				19,175				—				—				—
Stockholders’ equity			(209,995	)			282,124				726,586				950,148				570,692				230,751

ETT HISTORICAL FINANCIAL INFORMATION

 

		Six Months Ended
		June 30,								Year Ended December 31,
		2006				2005				2005				2004				2003				2002				2001
		(Unaudited)				(Unaudited)																(Unaudited)				(Unaudited)
Revenues		$	16,437,846			$	18,184,841			$	34,711,639			$	35,075,501			$	26,328,311			$	19,698,614			$	11,973,141
Income (loss) from operations			(19,216	)			43,701				(234,805	)			(560,006	)			(2,874,761	)			(4,315,764	)			(7,701,605	)
Net income (loss)			535				83,239				(231,000	)			(490,198	)			(2,858,363	)			(4,210,986	)			(7,531,601	)
Net income (loss) per share, basic and diluted		$	—			$	—			$	—			$	—			$	(0.02	)		$	(0.03	)		$	(0.05	)
Cash dividends per share		$	—			$	—			$	—			$	—			$	—			$	—			$	—

 

		As of June 30,				As of December 31,
		2006				2005				2004				2003				2002				2001
		(Unaudited)												(Unaudited)				(Unaudited)				(Unaudited)
Total assets		$	10,644,325			$	11,276,787			$	14,294,212			$	8,854,789			$	11,049,984			$	5,999,655
Total current liabilities			13,930,815				14,006,156				15,872,666				11,055,199				11,098,262				9,311,734
Long-term liabilities			376,289				657,896				2,085,266				753,691				120,550				18,183
Stockholders’ equity (deficit)			(3,662,779	)			(3,387,265	)			(3,663,270	)			(2,954,101	)			907,867				(2,363,459	)

MERCATOR HISTORICAL FINANCIAL INFORMATION

 

										For the Period
						For the Period				from Inception
		Six Months				from Inception				(January 3, 2005)
		Ended				(January 3, 2005)				to December 31,
		June 30, 2006				to June 30, 2005				2005
		(Unaudited)				(Unaudited)
Revenues		$	—			$	—			$	—
Interest income			1,239,535				315,576				1,258,203
Gains on derivative liabilities			558,850				229,200				776,750
Net income (loss)			1,097,710				358,040				1,369,061
Net income (loss) per share		$	0.09			$	0.07			$	0.16
Cash dividends per share		$	—			$	—			$	—

 

		As of June 30,				As of December 31,
		2006				2005
		(Unaudited)
Total assets (including US Government Securities held in Trust Fund)		$	57,418,143			$	56,100,887
Derivative liabilities			5,948,850				6,507,700
Common stock subject to possible conversion			11,168,769				10,926,022
Stockholders’ equity			39,316,278				38,463,132

 

SELECTED UNAUDITED CONDENSED CONSOLIDATED

PRO FORMA FINANCIAL INFORMATION

		Six Months Ended				Year Ended
		June 30, 2006				December 31, 2005
		(Unaudited)
Revenues		$	24,964,865			$	48,879,488
Net loss			(796,213	)			(1,819,138	)
Net loss per share		$	(0.06	)		$	(0.14	)

 

		At June 30,
		2006
Total assets		$	86,949,134
Total current liabilities			24,807,285
Long-term liabilities			4,458,115
Long-term borrowings, net of current portion			4,284,015
Stockholders’ equity			57,683,734

 

The following table sets forth selected historical per share information of GII, ETT and Mercator and unaudited pro forma combined per share information after giving effect to the Acquisition, assuming that none of the holders of Mercator’s Class B common stock issued in our initial public offering exercise their right to convert their shares into cash. You should read this information in conjunction with the selected historical financial information included elsewhere in this proxy statement, and the historical financial statements of GII, ETT and Mercator and related notes that are included elsewhere in this proxy statement. The unaudited pro forma combined per share information is derived from, and should be read in conjunction with, the Unaudited Pro Forma Condensed Consolidated Financial Statements and related notes included elsewhere in this proxy statement. The historical per share information is derived from financial statements of ETT and Mercator as of and for the six months ended June 30, 2006, and for the year ended December 31, 2005 with respect to ETT and Mercator, and for the nine months ended June 30, 2006 and for the year ended September 30, 2005 with respect to GII.

 

The unaudited pro forma combined per share information does not purport to represent what the actual results of operations of GII, ETT and Mercator would have been had the companies been combined or to project the results of operations of the combined companies that may be achieved after the Acquisition.

 

 

 

 

 

 

PER SHARE MARKET PRICE INFORMATION

										Class B
										Common								Class W								Class Z
		Common Stock								Stock								Warrants								Warrants								Series A Units								Series B Units
		High				Low				High				Low				High				Low				High				Low				High				Low				High				Low
2005
Second Quarter		$	2.75			$	2.25			$	4.85			$	4.75			$	0.41			$	0.36			$	0.45			$	0.40			$	11.10			$	9.16			$	10.75			$	10.20
Third Quarter		$	3.00			$	2.50			$	5.00			$	4.76			$	0.38			$	0.35			$	0.52			$	0.40			$	9.70			$	9.00			$	10.60			$	10.15
Fourth Quarter		$	2.50			$	2.25			$	5.03			$	4.88			$	0.45			$	0.35			$	0.52			$	0.36			$	13.50			$	8.85			$	10.90			$	10.20
2006
First Quarter		$	3.30			$	2.45			$	5.28			$	5.01			$	0.54			$	0.36			$	0.66			$	0.39			$	13.10			$	9.25			$	11.60			$	10.55
Second Quarter		$	4.50			$	2.50			$	5.31			$	5.03			$	0.57			$	0.30			$	0.65			$	0.33			$	13.00			$	8.40			$	11.55			$	10.75

 

You should carefully consider the following risk factors, together with all of the other information included in this proxy statement, before you decide whether to vote or instruct your vote to be cast on the proposals described in this proxy statement. As our operations will be those of GII and ETT upon the completion of the Acquisition, a number of the following risk factors relate to the business and operations of GII and ETT and us as the successor to such businesses.

 

Risks Related to Our Business and Operations Following the Acquisition

 

GII and ETT have both generated losses over the past several fiscal years and may generate losses in the future.

 

Both GII and ETT have experienced net losses and operating losses for the past several fiscal years. GII incurred net losses of $207,847, $385,205 and $279,975 for the fiscal year ended September 30, 2004, the fiscal year ended September 30, 2005, and the nine months ended June 30, 2006, respectively. ETT incurred net losses of $490,198 and $231,000 for the years ended December 31, 2004 and 2005, respectively. For the six months ended June 30, 2006, ETT achieved a net profit of $535. Either or both companies may generate losses in the future. If we are not able to achieve or sustain profitability following the completion of the Acquisition, the market price of our securities may decline.

 

We might require additional capital to support business growth, and this capital might not be available on favorable terms, or at all.

 

The integration, operation or expansion of the businesses of GII and ETT may require substantial additional financial, operational and managerial resources. After paying the purchase price to complete the Acquisition, we may have insufficient cash remaining to fund our working capital or other capital requirements following the closing, and may be required to raise additional funds to continue or expand our operations. If we are required to obtain additional funding in the future, we may have to sell assets, seek debt financing or obtain additional equity capital. Additional capital may not be available to us, or may only be available on terms that adversely affect our existing stockholders or that restrict our operations. For example, if we raise additional funds through issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we secure could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we are unable to obtain additional capital when needed, this could slow our growth, negatively affect our ability to compete in our industry and adversely affect our financial condition.

 

We are acquiring two companies in this business combination. These companies do not have a history of working together. Our inability to integrate certain operations and management teams could materially affect the future success of the businesses.

 

The businesses of GII and ETT are comparable but separate. The future revenue and profits of the businesses will depend, in part, on the ability of the combined executive teams to integrate the GII and ETT operations, including but not limited to sales and marketing, and to deploy their business models in the countries in which the other company primarily operates. In addition, we expect to derive economies of scale from the operations of each company, which will also help to promote the future success of the combined businesses.

 

If we cannot establish an effective integration strategy or if we do not execute a formulated integration strategy, the revenue and profits of the businesses may suffer. The integration of the acquired businesses may not be successful for a number of reasons, including, but not limited to:

 

 

 

If we cannot successfully integrate these businesses and operations, we may experience material negative consequences to our business, financial condition or results of operations. Successful integration of these acquired businesses or operations will depend on our ability to manage these operations, realize opportunities for revenue growth presented by strengthened service offerings and expanded geographic market coverage and, to some degree, to eliminate redundant and excess costs. We may not be able to achieve the benefits that we hope to achieve as a result of the Acquisition.

 

GII and ETT depend on several large clients, and the loss of one or more of these clients, or a significant decrease in total revenues from any of these clients, would likely significantly reduce our revenue and income.

 

Historically, a substantial portion of GII’s and ETT’s revenues have come from a limited number of clients. For example, for the years ended December 31, 2005 and 2004, GII’s four largest customers accounted for approximately 35.9% and 49.1%, respectively, of its total revenues. Similarly, for the years ended December 31, 2005 and 2004, ETT’s four largest customers accounted for approximately 59.0% and 66.0%, respectively, of its total revenues. If GII or ETT loses one or more of its large clients, or if one or more of its large clients reduces the services they purchase from GII or ETT or otherwise renegotiate the terms on which they purchase services from GII or ETT, our revenues could decline and our results of operations would suffer.

 

If GII’s or ETT’s customers elect to terminate their agreements with us, our business, financial condition and results of operations will be adversely affected.

 

GII’s and ETT’s services are sold pursuant to agreements that generally have initial terms of between one and three years. Following the initial terms, these agreements generally automatically renew for successive month-to-month or annual periods, but can be terminated by the customer without cause with relatively little notice during a renewal period. In addition, certain government customers may have rights under federal law with respect to termination for convenience that can serve to minimize or eliminate altogether the liability payable by that customer in the event of early termination. GII’s or ETT’s customers’ may elect to terminate their agreements as a result of a number of factors, including their level of satisfaction with the services they are receiving, their ability to continue their operations due to budgetary or other concerns, and the availability and pricing of competing services. If customers elect to terminate their agreements with GII or ETT, our business, financial condition and results of operation may be adversely affected.

 

Competition in the industry in which GII and ETT do business is intense and growing, and our failure to compete successfully could make it difficult for us to add and retain customers or increase or maintain revenues.

 

The markets in which GII and ETT operate are rapidly evolving and highly competitive. GII and ETT currently or potentially compete with a variety of companies, including some of their transport suppliers, with respect to their products and services, including:

 

 

 

The industry in which GII and ETT operates is consolidating, which is increasing the size and scope of their competitors. Competitors could benefit from assets or businesses acquired from other carriers or from strategic alliances in the telecommunications industry. New entrants could enter the market with a business model similar to GII and ETT. GII’s and ETT’s target markets may support only a limited number of competitors. Operations in such markets with multiple competitive providers may be unprofitable for one or more of such providers. Prices in both the long-distance business and the data transmission business have declined significantly in recent years and may continue to decline.

 

Many potential competitors to GII and ETT have certain advantages over this business combination, including:

 

 

GII’s and ETT’s competitors may be able to use these advantages to:

 

 

If the business combination of GII and ETT is unable to compete successfully against its current and future competitors, GII’s and/or ETT’s gross margins could decline and they could lose market share, either of which could materially and adversely affect the combined business.

 

Because both GII’s and ETT’s business consists primarily of reselling telecommunications network capacity purchased from third parties, the failure of our suppliers and other service providers to provide us with services, or disputes with those suppliers and service providers, could affect our ability to provide quality services to our customers and have an adverse effect on our operations and financial condition.

 

The majority of GII’s and ETT’s respective businesses consist of integrating and reselling network capacity purchased from traditional telecommunications carriers. Accordingly, we will be largely dependent on third parties to supply us with services. Occasionally, GII and ETT each have experienced delays or other problems in receiving services from third party providers. Disputes also arise from time to time with suppliers with respect to billing or interpretation of contract terms. Any failure on the part of third parties to adequately supply us or to maintain the quality of their facilities and services in the future, or the termination of any significant contracts by a supplier, could cause customers to experience delays in service and lower levels of customer care, which could cause them to switch providers. Furthermore, disputes over billed amounts or interpretation of contract terms could lead to claims against either GII or ETT, some of which if resolved against GII or ETT could have an adverse impact on our results of operations and/or financial condition. Suppliers may also attempt to impose onerous terms as part of purchase

contract negotiations. For example, in its first few years of existence, certain suppliers required GII to agree to onerous terms such as the granting of a security lien with respect to GII’s accounts receivable and certain other collateral and clauses providing for the opportunity to match other suppliers’ offers. GII has since renegotiated such terms with the applicable suppliers. Although GII knows of no pending or threatened claims with respect to its past compliance with such terms, claims asserting any past noncompliance, if successful, could have a material adverse effect on the company’s operations and/or financial condition. Moreover, to the extent that key suppliers were to attempt to impose such provisions as part of future contract negotiations, such developments could have an adverse impact on the company’s operations. Finally, some of GII’s and ETT’s suppliers are potential competitors. We cannot guarantee that we will be able to obtain use of facilities or services in a timely manner or on terms acceptable and in quantities satisfactory to us.

 

Failure to satisfy term or volume commitments agreed to with suppliers could affect operating margins.

 

GII typically enters into contracts with suppliers that are matched with respect to term and volume with the sale of services to underlying customers. As of June 30, 2006, GII had entered into contracts with three suppliers pursuant to which it is subject to monthly minimum purchase commitments in exchange for improved pricing from the suppliers, and either GII or ETT may enter into additional contracts with similar commitments in the future. To date, since each contract’s inception, GII has had sufficient customer demand to satisfy its minimum purchase commitments with each of those suppliers, but we cannot assure you that in the future GII’s customer demand will meet or exceed such purchase levels with each vendor. If GII is unable to resell any of the network availability it has committed to purchase, its operating margins could be adversely affected.

 

In addition, in its fiscal year ended September 30, 2004, GII began purchasing capacity from time to time under five-year commitments from one of its vendors in order to secure more competitive pricing. These five-year purchase commitments are not, in all cases, matched with five-year supply agreements to customers. In these cases, if a customer were to disconnect its service before the five-year term ordered from the vendor expired, and if GII were unable to find another customer for the capacity, GII would be subject to an early termination liability, which could adversely impact its operating margin. As of June 30, 2006, the total potential early termination liability exposure to GII arising from this practice, if all such circuits were terminated as of that date by those underlying customers who are not committed for a corresponding five-year period, was less than $300,000.

 

The networks on which GII and ETT depend may fail, which would interrupt the network availability they provide and make it difficult to retain and attract customers.

 

GII’s and ETT’s customers depend on the ability of GII and ETT to provide uninterrupted network availability. The ability to provide this service depends on the networks of third party transport suppliers. The networks of transport suppliers may be interrupted as a result of various events, many of which they cannot control, including fire, human error, earthquakes and other natural disasters, disasters along communications rights-of-way, power loss, telecommunications failures, terrorism, sabotage, vandalism or the financial distress or other event adversely affecting a supplier, such as bankruptcy or liquidation.

 

We may be subject to legal claims and be liable for losses suffered by customers for our inability to provide service. GII and ETT generally provide outage credits to their customers if network disruptions occur. If the network failure rates of GII or ETT are higher than permitted under the applicable customer contracts, we may incur significant expenses related to network outage credits, which would reduce our revenues and gross margins. Customers may seek to terminate their contracts with GII or ETT, or our reputation could be harmed, if network availability is below industry standards.

 

System disruptions could cause delays or interruptions of GII’s and ETT’s services, which could cause us to lose customers or incur additional expenses.

 

GII’s and ETT’s success depends on their ability to provide reliable service. Although they have attempted to design their network services to minimize the possibility of service disruptions or other outages, in addition to risks associated with third party provider networks, their service may be disrupted by problems on their own systems, including events beyond their control such as terrorism, computer viruses or other infiltration by third parties that affect their central offices, corporate headquarters, network operations center or network equipment. Such events

could disrupt their service, damage their facilities and damage their reputation. In addition, customers may, under certain contracts, have the ability to terminate services in case of prolonged or severe service disruptions or other outages. Accordingly, service disruptions or other outages may cause GII or ETT to lose customers, among other things, and could harm their results of operations.

 

If the products or services that GII or ETT markets or sells do not maintain market acceptance, our results of operations will be adversely affected.

 

Certain segments of the communications industry are dependent on developing and marketing new products and services that respond to technological and competitive developments and changing customer needs. We cannot assure you that the products and services of GII or ETT will gain or obtain increased market acceptance. Any significant delay or failure in developing new or enhanced technology, including new product and service offerings, could result in a loss of actual or potential market share and a decrease in revenues.

 

If carrier and enterprise connectivity demand does not continue to expand, we may experience a shortfall in revenues or earnings or otherwise fail to meet public market expectations.

 

The growth of our business will be dependent, in part, upon the increased use of carrier and enterprise connectivity services and the ability of GII and ETT to capture a higher proportion of this market. Increased usage of enterprise connectivity services depends on numerous factors, including:

 

 

If the demand for carrier and enterprise connectivity services does not continue to grow, we may not be able to grow our business, achieve profitability or meet public market expectations.

 

GII’s and ETT’s long sales and service deployment cycles require them to incur substantial sales costs that may not result in related revenues.

 

GII’s and ETT’s businesses are characterized by long sales cycles, which are often in the range of 60 days or more, between the time a potential customer is contacted and a customer contract is signed. Furthermore, once a customer contract is signed, there is typically an extended period of between 30 and 120 days before the customer actually begins to use the services, which is when GII and ETT begin to realize revenues. As a result, GII and ETT may invest a significant amount of time and effort in attempting to secure a customer which may not result in any revenues. Even if GII or ETT enters into a contract, it will have incurred substantial sales-related expenses well before it recognizes any related revenues. If the expenses associated with sales increase, if GII or ETT are not successful in their sales efforts, or if they are unable to generate associated offsetting revenues in a timely manner, our operating results will be harmed.

 

Because much of ETT’s business is international, its financial results may be impacted by foreign exchange rate fluctuations.

 

ETT generates a substantial portion of its revenues from business conducted internationally. For example, in 2005 approximately 90% of ETT’s revenues arose from services that were billed and delivered outside of the United States, although more than 50% of ETT’s 2005 revenues arose from multinational companies with

headquarters in the United States. As such, ETT’s financial results are subject to fluctuations in the exchange rates between the currencies of the countries in which it operates.

 

Because much of ETT’s business is international, it may be subject to local foreign taxes, tariffs or other restrictions, which may reduce its profitability.

 

Revenues from ETT’s foreign subsidiaries, or other locations where ETT provides or procures services, may be subject to additional taxes in some foreign jurisdictions. Additionally, some foreign jurisdictions may subject ETT to additional withholding tax requirements or the imposition of tariffs, exchange controls or other restrictions on foreign earnings. Any such taxes, tariffs, controls and other restrictions imposed on ETT’s foreign operations may increase ETT’s costs of business in those jurisdictions, which in turn may reduce ETT’s profitability.

 

The ability to implement and maintain the GII and ETT databases and management information systems is a critical business requirement, and if we cannot obtain or maintain accurate data or maintain these systems, we might be unable to cost-effectively provide solutions to our customers.

 

To be successful, GII and ETT must increase and update information in their databases about network pricing, capacity and availability. Their ability to cost effectively provide network availability and access depends upon the information they collect from their transport suppliers regarding their networks. These suppliers are not obligated to provide this information and could decide to stop providing this information to GII and ETT at any time. Moreover, neither GII nor ETT can be certain that the information that these suppliers share with them is accurate. If we cannot continue to maintain and expand the existing databases, we may be unable to increase revenues or to facilitate the supply of services in a cost-effective manner.

 

In addition, we plan to review, integrate and augment GII’s and ETT’s management information systems to facilitate management of client order, client service, billing and financial applications. GII’s and ETT’s ability to manage their businesses could be materially adversely affected if we fail to successfully and promptly maintain and upgrade the existing management information systems.

 

If we are unable to protect our intellectual property rights, competitors may be able to use our technology or trademarks, which could weaken our competitive position.

 

Each of GII and ETT is the owner of certain proprietary programs, software and technology. However, neither company has any patented technology that would preclude competitors from replicating its business model; instead, each relies upon a combination of know-how, trade secret laws, contractual restrictions and copyright, trademark and service mark laws to establish and protect its intellectual property. Our success will depend in part on our ability to maintain or obtain (as applicable) and enforce intellectual property rights for those assets, both in the United States and in other countries. GII has registered some of its service marks in the United States, but has not applied for registration of any of its marks in any foreign countries. ETT has not applied for registration of any of its marks in any country, and relies exclusively on common law trademark rights in the countries in which it operates. We may file applications for patents, copyrights and trademarks as our management deems appropriate. We cannot assure you that these applications, if filed, will be approved, or that we will have the financial and other resources necessary to enforce our proprietary rights against infringement by others. Additionally, we cannot assure you that any patent, trademark or copyright obtained by us will not be challenged, invalidated or circumvented, and the laws of certain foreign countries may not protect intellectual property rights to the same extent as do the laws of the United States or the member states of the European Union. Finally, although we intend to undertake reasonable measures to protect the proprietary assets of the combined operations, we cannot guarantee that we will be successful in all cases in protecting the trade secret status of certain significant intellectual property assets. If these assets should be misappropriated, if our intellectual property rights are otherwise infringed, or if a competitor should independently develop similar intellectual property, this could harm our ability to attract new clients, retain existing customers and generate revenues.

Intellectual property and proprietary rights of others could prevent us from using necessary technology to provide our services or otherwise operate our business.

 

GII and ETT utilize data and processing capabilities available through commercially available third-party software tools and databases to assist in the efficient analysis of network engineering and pricing options. Where such technology is held under patent or other intellectual property rights by third parties, GII and ETT are required to negotiate license agreements in order to use that technology. In the future, we may not be able to negotiate such license agreements at acceptable prices or on acceptable terms. If an adequate substitute is not available on acceptable terms and at an acceptable price from another software licensor, we could be compelled to undertake additional efforts to obtain the relevant network and pricing data independently from other, disparate sources, which could involve significant time and expense and adversely affect our ability to deliver network services to customers in an efficient manner.

 

Furthermore, to the extent that we are subject to litigation regarding the ownership of our intellectual property, this litigation could:

 

 

Parties making claims of infringement may be able to obtain injunctive or other equitable relief that could effectively block our ability to provide our services and could cause us to pay substantial damages. In the event of a successful claim of infringement, we may need to obtain one or more licenses from third parties, which may not be available at a reasonable cost, if at all. The defense of any lawsuit could result in time-consuming and expensive litigation, regardless of the merits of such claims, and could also result in damages, license fees, royalty payments and restrictions on our ability to provide our services, any of which could harm our business.

 

If GII and ETT cannot successfully integrate and operate their network operations centers, we will be unable to provide monitoring, maintenance and restoration services to clients, which could adversely affect our operating results.

 

One of the primary business objectives for each of GII and ETT is to provide their clients with network monitoring, maintenance and restoration services 24 hours a day, seven days a week through a network operations center which each independently operates. While we currently plan to integrate these two network operations facilities, the ability to integrate and operate these network operations centers will depend on many factors, including the ability to train, manage and retain employees and integrate disparate operating systems. If we fail to successfully integrate and operate GII’s and ETT’s network operations centers, we may not be able to monitor network operations effectively or troubleshoot circuits in a cost-effective manner, which would cause us to incur greater expenses, lose clients and make it difficult to attract new clients.

 

The combined GII and ETT may incur operational and management inefficiencies if new businesses or technologies are acquired, and our results of operations could be impaired.

 

To further our strategy for the combined GII and ETT businesses, we may seek to acquire businesses and technologies that we believe will complement the existing businesses. Any such acquisitions would likely involve some or all of the following risks:

 

 

 

We may need to complete these transactions in order to remain competitive. We cannot be sure that we will be able to obtain any required financing or regulatory approvals for these transactions or that these transactions will occur.

 

GII’s and ETT’s efforts to develop new service offerings may not be successful, in which case our revenues may not grow as we anticipate, or may decline.

 

The market for telecommunications services is characterized by rapid change, as new technologies are developed and introduced, often making established technologies obsolete. For GII and ETT to remain competitive, they must continually update their service offerings to make new technologies available to their customers. To do so, GII and ETT may have to expend significant management and sales resources, which may increase their operating costs. The success of potential new service offerings by GII and ETT is uncertain and would depend on a number of factors, including the acceptance by end-user customers of the telecommunications technologies which would underlie these new service offerings, the compatibility of these technologies with existing customer information technology systems and processes, and the ability of the combined businesses to find third-party vendors that would be willing to incorporate their services with those of the combined businesses. If we are unsuccessful in developing and selling new service offerings, our revenues may not grow as we anticipate, or may decline.

 

If GII and ETT do not continue to train, manage and retain employees, clients may significantly reduce purchases of services.

 

GII and ETT employees are responsible for providing clients with technical and operational support, and for identifying and developing opportunities to provide additional services to existing clients. In order to perform these activities, GII and ETT employees must have expertise in areas such as telecommunications network technologies, network design, network implementation and network management, including the ability to integrate services offered by multiple telecommunications carriers. They must also accept and incorporate training on GII’s and ETT’s systems and databases developed to support their operations and business model. Employees with this level of expertise tend to be in high demand in the telecommunications industry, which may make it more difficult for us to attract and retain qualified employees. If we fail to train, manage and retain GII and ETT employees, we may be limited in our ability to gain more business from existing clients, and we may be unable to obtain or maintain current information regarding our clients’ and suppliers’ communications networks, which could limit their ability to provision future services.

 

The regulatory framework under which GII and ETT operate could require substantial time and resources for compliance, which could make it difficult and costly for us to operate the businesses.

 

In providing certain interstate and international telecommunications services, GII and ETT must comply, or cause their customers or carriers to comply, with applicable telecommunications laws and regulations prescribed by the Federal Communications Commission, or FCC, and applicable foreign regulatory authorities. In offering services on an intrastate basis, they are subject to state laws and to regulation by state public utility commissions. GII and ETT’s international services are also subject to regulation by foreign authorities and, in some markets, multinational authorities, such as the European Union.

 

The costs of compliance with these regulations, including legal, operational and administrative expenses, may be substantial. In addition, delays in receiving or failure to obtain required regulatory approvals or the enactment of new or adverse legislation, regulations or regulatory requirements may have a material adverse effect on GII’s or ETT’s financial condition, results of operation and cash flow.

 

If GII or ETT fails to obtain required authorizations from the FCC or other applicable authorities, or if they fail to comply, or are alleged to have failed to comply, with the rules of the FCC or other authorities, their right to offer

certain services could be challenged and/or fines or other penalties could be imposed on them. Any such challenges or fines could cause us to incur substantial legal and administrative expenses. Furthermore, GII and ETT are dependent in certain cases on the services other carriers provide and therefore on other carriers’ abilities to retain their respective licenses in the regions of the world in which they operate. They are also dependent in some circumstances on their customers’ abilities to obtain and retain the necessary licenses. The failure of a customer or carrier to obtain or retain any necessary license could have an adverse effect on GII’s or ETT’s ability to conduct operations.

 

Future changes in regulatory requirements or new interpretations of existing regulatory requirements may impair the ability of GII or ETT to provide services, or may reduce their profitability.

 

Many of the laws and regulations that apply to providers of telecommunications services such as GII and ETT are subject to frequent changes and different interpretations and may vary between jurisdictions. Changes to existing legislation or regulations in particular markets may limit the opportunities that are available to enter into markets, may increase the legal, administrative or operational costs of operating in those markets, or may constrain other activities, including our ability to complete subsequent acquisitions or purchase services or products, in ways that we cannot anticipate. Because GII and ETT purchase telecommunications services from other carriers, their costs and manner of doing business can also be adversely affected by changes in regulatory policies affecting these other carriers.

 

Required regulatory approvals may interfere with or delay this business combination and other potential future corporate transactions.

 

As regulated companies, GII and/or ETT are or may be required to obtain the approval of the FCC and certain state and foreign regulators before completing certain types of transactions such as changes in ownership (including this business combination), acquisitions of other regulated companies, sales of all or substantial parts of their businesses, issuances of stock and incurrence of debt obligations. The regulations and approval requirements imposed on these types of transactions differ between jurisdictions. In order to complete the Acquisition, we and GII have been required to seek approval from the FCC and certain state regulators for the transfer of control of GII. As of the date of this proxy statement, approval has been obtained from the FCC and all but one of the state agencies. The remaining agency, the Florida Public Service Commission, has proposed approving the transaction, but the effectiveness of that proposal is subject to a notice period that closed on September 27, 2006. To our knowledge, no protests were filed prior to the end of the notice period. Although we anticipate receiving approvals from the remaining state regulatory agency, we cannot assure you that such approval will be obtained prior to October 15, 2006, or at all. If the approval is not obtained by October 15, 2006, we will be unable to consummate the Acquisition and therefore forced to liquidate. In addition, if the approvals required to complete any future transactions cannot be obtained, or if substantial delays in obtaining such approvals are encountered, it may impair our ability to enter into other transactions on favorable terms (if at all). Such events could have a material adverse effect on the operating results of the combined business.

 

GII and ETT depend on key personnel to manage their businesses effectively in a rapidly changing market, and our ability to generate revenues will suffer if we are unable to retain key personnel and hire additional personnel.

 

The future success of the combined business will depend upon the continued services of GII’s and ETT’s executive officers and other key sales, marketing and support personnel. Neither company has “key person” life insurance policies covering any of their employees, other than a policy on the life of Christopher Britton currently maintained by ETT, nor are we certain if any such policies will be obtained or maintained in the future. In addition, we will depend in large part on the ability of the combined GII and ETT management teams, as well as H. Brian Thompson, who will become our executive chairman, to effectively execute future strategies. Because the members of these management teams have not worked together, they will need to integrate their officers into each other’s operations.

 

We may need to hire additional personnel in the future, and we believe the success of the combined business depends, in large part, upon our ability to attract and retain key employees. The loss of the services of any key

employees, the inability to attract or retain qualified personnel in the future, or delays in hiring required personnel could limit our ability to generate revenues and to operate our business.

 

Risks Associated with the Acquisition

 

If holders of 20% or more of shares of the Class B common stock issued in our initial public offering vote against the proposed Acquisition, we would be forced to liquidate.

 

Under the terms of our amended and restated certificate of incorporation, holders of shares of Class B common stock issued in our initial public offering have the right to vote against the Acquisition and to elect to convert their shares into cash. If holders of 20% or more of shares of Class B common stock issued in our initial public offering vote against the Acquisition and opt to convert their shares into cash, we would be required to liquidate. In that case, there would be no distribution with respect to shares of our common stock other than our Class B common stock and no distribution with respect to our outstanding warrants and, accordingly, the warrants would expire worthless. In any liquidation, the net proceeds of our initial public offering held in the trust account, plus any interest earned thereon, will be distributed pro rata to the holders of our Class B common stock, subject to potential claims of creditors and any taxes paid or payable by us. If we are forced to liquidate our assets, each share of Class B common stock would be entitled to receive approximately $5.32 as of September 1, 2006, including interest accrued as of that date, assuming the entire amount of the trust fund is available for distribution to Class B stockholders.

 

If holders of approximately 9% or more of the outstanding shares of our Class B common stock vote against the proposed Acquisition and convert their shares into cash, we may not have sufficient funds to consummate the Acquisition or we may not have sufficient working capital to operate our business.

 

Pursuant to the stock purchase agreement and the offer, we will be required to pay a total of approximately $51 million in cash upon the closing of the Acquisition to the current shareholders of GII and ETT. As of September 1, 2006, we had approximately $56.3 million in the trust fund established to hold a portion of the proceeds of our initial public offering. If holders of approximately 9% or more of our outstanding shares of Class B common stock, or approximately 952,000 or more shares, exercise their right to convert their shares, we will not have sufficient cash remaining to fund the purchase price for the Acquisition. In that event, we would be unable to consummate the Acquisition unless we were able to borrow or raise additional funds to finance the shortfall. We are currently in discussions with potential lenders regarding a potential debt financing for that purpose. However, we cannot assure you that we will be able to complete such a financing on satisfactory terms, or at all. We would have no ability to extend our deadline of October 15, 2006 to consummate a business combination in order to obtain additional financing. Accordingly, if additional financing is required to complete the Acquisition and we are unable to obtain it by that date, we would not be able to consummate the Acquisition. If we are unable to obtain additional financing to allow us to complete the Acquisition, we may be deemed to be in breach of our obligations under the GII and/or ETT acquisition agreements. Furthermore, if we are able to consummate the Acquisition, we may have insufficient cash to fund our working capital requirements following the closing.

 

If we are unable to complete the Acquisition and are forced to dissolve and liquidate, third parties may bring claims against us, and we have no obligation to bring claims against our executive officers to satisfy any obligations to third parties. As a result, the proceeds held in trust could be reduced and the per-share liquidation price received by Class B stockholders could be less than $5.32 per share.

 

If we are unable to complete the Acquisition by October 15, 2006 and are forced to dissolve and liquidate, third parties may bring claims against us. If we liquidate prior to the consummation of a business combination, three of our executive officers and directors will be personally liable to pay debts and obligations to vendors and other entities that are owed money by us for services rendered or products sold to us to the extent such creditors bring claims that would otherwise require payment from moneys in the trust account. There is no assurance, however, that these officers would be able to satisfy those obligations. If any of those officers were to assert that he is unable to satisfy those obligations, we would not be obligated to bring a claim against that officer. Although we generally had the vendors and service providers that we engaged and owe money to, and the prospective target businesses we had negotiated with, agree not to seek any recourse against trust fund assets and to limit their claims for payments to the amounts available to pay creditors exclusive of trust fund assets, there is no guarantee that they will not seek

recourse against the trust fund notwithstanding such agreements. Furthermore, there is no guarantee that a court will uphold the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims which could take priority over those of our public stockholders. Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you we will be able to return to our Class B stockholders at least $5.32 per share.

 

Under Delaware law, our dissolution requires the approval of the holders of a majority of our outstanding stock, without which we will not be able to dissolve and liquidate and distribute our assets to our public stockholders.

 

If we are forced to dissolve and liquidate, our dissolution would require the affirmative vote of stockholders owning a majority of our then outstanding common stock. Soliciting the vote of our stockholders would require the preparation of preliminary and definitive proxy statements, which would need to be filed with the Securities and Exchange Commission and could be subject to their review. This process could take a substantial amount of time ranging from 40 days to several months.

 

As a result, the distribution of our assets to the public stockholders could be subject to a considerable delay. Furthermore, we may need to postpone the stockholders meeting, resolicit our stockholders or amend our plan of dissolution and liquidation to obtain the required stockholder approval, all of which would further delay the distribution of our assets and result in increased costs. If we are not able to obtain approval from a majority of our stockholders, we would not be able to dissolve and liquidate. In the event we seek stockholder approval for a plan of dissolution and liquidation and do not obtain such approval, we would nonetheless continue to pursue stockholder approval for our dissolution. However, we cannot predict whether our stockholders would approve our dissolution in a timely manner or would ever approve our dissolution. As a result, we cannot provide our initial stockholders with assurances of a specific timeframe for the dissolution and distribution. If our stockholders do not approve a plan of dissolution and liquidation, we may be considered to be an investment company.

 

Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them.

 

If we are unable to complete the Acquisition and we are forced to dissolve and liquidate, under Sections 280 through 282 of the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. Pursuant to Section 280, if the corporation complies with certain procedures intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. If we are forced to dissolve and liquidate, we will seek to conclude this process as soon as possible and as a result do not intend to comply with those procedures. Accordingly, our stockholders could potentially be liable for any claims to the extent of distributions received by them in a dissolution and any liability of our stockholders may extend beyond the third anniversary of such dissolution.

 

Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions received by stockholders in our dissolution could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders in our dissolution.

Some of GII’s and ETT’s customer contracts or other agreements may contain change of control provisions that would be triggered by the Acquisition, which could lead to adverse results.

 

At least one of ETT’s customer contracts contains a change of control provision that would be triggered by the Acquisition, unless the applicable customer consents to the Acquisition or waives the provision. GII and ETT may be parties to additional material agreements that contain change of control provisions. We may elect to consummate the Acquisition without attempting to obtain formal consents from customers or others, or we may be unable to obtain them. A customer having a change of control consent right which does not provide consent may elect to terminate its customer contracts with us following the Acquisition, which could reduce our revenues and otherwise harm our operating results. In addition, the operation of these change of control provisions, if triggered, in GII’s or ETT’s other agreements could result in unanticipated expenses following the consummation of the Acquisition or otherwise adversely affect our operations.

 

If the Acquisition’s benefits do not meet the expectations of financial or industry analysts, the market price of our securities may decline.

 

The market price of our securities may decline as a result of the Acquisition if:

 

 

Risks Relating to Our Securities

 

We have not had operations, and neither GII or ETT has operated as a public company. Fulfilling our obligations incident to being a public company after completing the Acquisition will be expensive and time consuming.

 

Each of Mercator, as a company without operations, and GII and ETT, as private companies, have maintained relatively small finance and accounting staffs. None of Mercator, GII or ETT currently has an internal audit group. Although we have maintained disclosure controls and procedures and internal control over financial reporting as required under the Federal securities laws with respect to our very limited activities, we have not been required to maintain and establish such disclosure controls and procedures and internal control as will be required with respect to businesses such as GII and ETT with substantial operations. Under the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC, we will need to implement additional corporate governance practices and adhere to a variety of reporting requirements and complex accounting rules. Compliance with these obligations will require significant management time, place significant additional demands on our finance and accounting staff and on our financial, accounting and information systems, and increase our insurance, legal and financial compliance costs. We may also need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.

 

Because we do not currently intend to pay dividends on our common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.

 

We do not currently anticipate paying any dividends on shares of our common stock. Any determination to pay dividends in the future will be made by our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our common stock. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders purchased their shares.

 

Our outstanding warrants may have an adverse effect on the market price of our common stock.

 

In connection with our initial public offering, we issued warrants to purchase 16,330,000 shares of common stock. Our officers and directors and/or certain of their affiliates also hold warrants to purchase 4,950,000 shares of

common stock at $5.00 per share. We also issued an option to purchase 25,000 Series A units and/or 230,000 Series B units to the representative of the underwriters which, if exercised, will result in the issuance of an additional 710,000 warrants. If the Acquisition is completed, we will issue warrants to the shareholders of GII to purchase an additional 2,900,000 shares of common stock. The sale, or even the possibility of sale, of the shares underlying the warrants and options could have an adverse effect on the market price for our securities or on our ability to obtain future public financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.

 

We may experience volatility in earnings due to how we are required to account for our warrants and underwriters’ purchase option.

 

Under EITF No. 00-19, “ Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, ” or EITF No. 00-19, the fair value of the warrants issued as part of the units issued in our initial public offering, and of the option to purchase Series A units and/or Series B units granted to the underwriters of our initial public offering, must be reported as a liability. Both the warrant agreement and the unit purchase option provide for us to attempt to register the shares underlying the warrants and units and are silent as to the penalty to be incurred in the absence of our ability to deliver registered shares to the warrant holders or the option holders upon exercise. Under EITF No. 00-19, we are required to assume that this situation could give rise to us ultimately having to net cash settle the warrants or options, thereby necessitating the treatment of the warrants and purchase option as a liability. Further, EITF No. 00-19 requires us to record the warrant and purchase option liability at each reporting date at its then estimated fair value, with any changes being recorded through our statement of operations as other income/expense. The warrants and purchase option will continue to be reported as a liability until such time as they are exercised, expire or we are otherwise able to modify the applicable agreement to remove the provisions which require this treatment. As a result, we could experience volatility in our net income due to changes that occur in the value of the warrant and purchase option liability at each reporting date.

 

If our stockholders exercise their registration rights, it may have an adverse effect on the market price of our common stock.

 

Some of our existing stockholders are entitled to demand that we register the resale of their shares of our common stock and Class W and Class Z warrants and shares of common stock underlying their Class W and Class Z warrants at any time after we consummate the Acquisition. If these stockholders exercise their registration rights with respect to all of these shares and warrants, there will be an additional 4,950,100 shares of common stock and 4,950,000 warrants eligible for trading in the public market. In addition, the consideration to be issued to the shareholders of GII upon the closing of the Acquisition includes 1,300,000 shares of our common stock, 1,450,000 of our Class W Warrants, each of which entitles the holder to purchase one share of our common stock at $5.00 per share, and 1,450,000 of our Class Z Warrants, each of which entitles the holder to purchase one share of our common stock at $5.00 per share. These securities are initially not being registered, and their resale will be restricted. However, the GII shareholders will have certain registration rights, including the right to demand registration beginning three months after the closing of the Acquisition, and will be able to sell their shares in the public market if registration is effected. The presence of this additional number of shares of common stock and warrants eligible for trading in the public market may have an adverse effect on the market price of our common stock.

 

Our securities are quoted on the Over-the-Counter Bulletin Board, which may limit the liquidity and price of our securities more than if our securities were quoted or listed on the Nasdaq Global Market or a national exchange.

 

Our securities are quoted on the Over-the-Counter Bulletin Board, an NASD-sponsored and operated inter-dealer automated quotation system for equity securities not included in the Nasdaq Global Market. Quotation of our securities on the Over-the-Counter Bulletin Board will limit the liquidity and price of our securities more than if our securities were quoted or listed on the Nasdaq Global Market or a national exchange. Although we intend to apply for listing of our common stock on the Nasdaq Global Market, we cannot assure you that we will satisfy the applicable listing requirements.

 

We believe that some of the information in this proxy statement constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intend,” “plan” and “continue” or similar words. You should read statements that contain these words carefully because they:

 

 

We believe it is important to communicate our expectations to our stockholders. However, there may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors and cautionary language discussed in this proxy statement provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in our forward-looking statements, including among other things:

 

 

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement.

 

All forward-looking statements included herein attributable to us or any person acting on either party’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.

 

Before you grant your proxy or instruct how your vote should be cast or vote on the proposals described in this proxy statement, you should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement could have a material adverse effect on us.

 

We are furnishing this proxy statement to you as part of the solicitation of proxies by our board of directors for use at the special meeting in connection with the proposed Acquisition and related matters. This proxy statement provides you with the information you need to know to be able to vote or instruct your vote to be cast at the special meeting.

 

The special meeting will be held at 10:00 a.m., eastern time, on October 13, 2006, at the offices of Greenberg Traurig, LLP, 1750 Tysons Boulevard, Suite 1200, McLean, Virginia 22102, to vote on the Acquisition Proposal, the Charter Amendment Proposal, the Stock Plan Proposal, the Nomination Proposal and the Adjournment Proposal.

 

At the special meeting, the holders of our common stock are being asked to:

 

 

Our board of directors:

 

 

The record date for the special meeting is September 20, 2006. Record holders of our common stock at the close of business on the record date are entitled to vote or have their votes cast at the special meeting. On the record date, there were 1,150,100 shares of our common stock outstanding and 10,580,000 shares of our Class B common stock outstanding.

 

When voting on the Acquisition Proposal at the special meeting, you will have one vote for each share of our Class B common stock that you owned at the close of business on the record date. For other proposals at the special meeting, you will have one vote for each share of our common stock or our Class B common stock that you owned at the close of business on the record date.

 

Our issued and outstanding warrants do not have voting rights and record holders of our Class W and Class Z warrants will not be entitled to vote at the special meeting.

 

Each share of our Class B common stock that you owned at the close of business on the record date entitles you to one vote on the Acquisition Proposal. For other proposals, you will have one vote for each share of our common stock or our Class B common stock that you owned at the close of business on the record date. Your proxy card shows the number of shares of our common stock and Class B common shares that you own.

 

There are three ways to vote your shares of our common stock at the special meeting:

 

 

IF YOU DO NOT VOTE YOUR SHARES OF OUR COMMON STOCK OR CLASS B COMMON STOCK IN ANY OF THE WAYS DESCRIBED ABOVE, IT WILL HAVE (1) NO EFFECT ON THE ACQUISITION PROPOSAL, BUT WILL ALSO NOT HAVE THE EFFECT OF A DEMAND OF CONVERSION OF YOUR CLASS B COMMON SHARES INTO A PRO RATA SHARE OF THE TRUST ACCOUNT IN WHICH A SUBSTANTIAL PORTION OF THE PROCEEDS OF OUR INITIAL PUBLIC OFFERING ARE HELD, (2) THE SAME EFFECT AS A VOTE AGAINST THE APPROVAL OF THE CHARTER AMENDMENT PROPOSAL AND (3) NO EFFECT ON THE STOCK PLAN PROPOSAL, THE NOMINATION PROPOSAL AND THE ADJOURNMENT PROPOSAL.

 

If you have any questions about how to vote or direct a vote in respect of your shares of our common stock, you may call Rhodric C. Hackman at (703) 995-5534.

 

This special meeting has been called only to consider the approval of the Acquisition Proposal, the Charter Amendment Proposal, the Stock Plan Proposal, the Nomination Proposal and the Adjournment Proposal.

 

If you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:

 

 

The approval of the Acquisition and the transactions contemplated by the offer and the stock purchase agreement will require the affirmative vote of a majority of the shares of our Class B common stock that are present in person or by proxy and entitled to vote at the meeting.

 

The approval of the amendment to our amended and restated certificate of incorporation will require the affirmative vote of a majority of the outstanding shares of our common stock and Class B common stock, voting as a single class.

 

The approval of our Stock Plan and of the Adjournment Proposal will require the affirmative vote of a majority of the outstanding shares of our common stock and Class B common stock that are present in person or by proxy and entitled to vote at the meeting, voting as a single class.

 

To be elected as a member of our board of directors, a nominee must receive the affirmative vote of a plurality of the shares of our common stock and Class B common stock that are present in person or by proxy and entitled to vote at the meeting, voting as a single class.

 

If you abstain from voting, either in person or by proxy or by voting instruction, it will have the same effect as a vote “against” the Acquisition Proposal, the Charter Amendment Proposal, the Stock Plan Proposal and the Adjournment Proposal, but not as a demand of conversion of your Class B shares into a pro rata portion of the trust account. An abstention will have no effect on the Nomination Proposal.

 

If your broker holds your shares in its name and you do not give the broker voting instructions, your broker may not vote your shares. If you do not give your broker voting instructions and the broker does not vote your shares, this is referred to as a “broker non-vote.” Broker non-voting shall be treated as shares not entitled to vote at the special meeting, and, therefore, shall have no impact on the Acquisition Proposal, the Stock Plan Proposal, the Nomination Proposal or the Adjournment Proposal. However, a broker non-vote will have the same effect as a vote “against” the Charter Amendment Proposal.

 

To exercise your conversion rights as a Class B stockholder, you must affirmatively elect to convert your shares by checking the appropriate box, or directing your broker to check the appropriate box, on the proxy card and ensure that the proxy card is delivered prior to the special meeting.

 

Any stockholder holding shares of Class B common stock issued in our initial public offering who votes against the Acquisition Proposal may, at the same time, demand that we convert his shares into a pro rata portion of the trust account. If so demanded, we will convert these shares into a pro rata portion of funds held in a trust account, which consists of the $53,429,000 of net proceeds from the initial public offering deposited into the trust account, plus interest earned thereon, if the Acquisition is consummated. If the holders of 20% or more shares of Class B common stock issued in our initial public offering, or at least 2,116,000 shares, vote against the Acquisition and demand conversion of their shares into a pro rata portion of the trust account, we will not be able to consummate the Acquisition.

 

In addition, if holders of approximately 9% or more of our outstanding shares of Class B common stock, or approximately 952,000 or more shares, exercise their conversion rights, we will have insufficient funds to pay the cash purchase price for the Acquisition. In that event, we would be unable to consummate the acquisition unless we are able to borrow funds or raise additional capital to finance the shortfall. We are currently in discussions with potential lenders regarding a potential debt financing for that purpose. However, we cannot assure you that we will be able to complete such a financing on satisfactory terms, or at all. This additional limitation on our ability to consummate the Acquisition, based on holders of no more than approximately 9% of our outstanding shares of Class B common stock exercising their conversion rights, was not discussed in the prospectus from our initial public offering because it is not a limitation that is mandated by our certificate of incorporation or other organizational documents, as is the 20% conversion limit. Rather, this limitation is a result of the specific terms of the Acquisition,

which were not known at the time of our initial public offering. We do not believe that the disclosure in our initial public offering prospectus, which indicated that we would proceed with a business combination only if Class B stockholders owning less than 20% of the outstanding Class B shares exercise their conversion rights, obligated us to structure a business combination that would allow up to 19.99% conversion of the Class B shares.

 

We would have no ability to extend our deadline of October 15, 2006 to consummate a business combination in order to obtain additional financing. Accordingly, if additional financing is required to complete the Acquisition and we are unable to obtain it by that date, we would not be able to consummate the Acquisition. If we enter into a definitive agreement to obtain financing after the date of this proxy statement but prior to the special meeting, we will file a current report on Form 8-K with the Securities and Exchange Commission, describing the material terms of the financing.

 

Based on the amount of cash held in the trust account as of September 1, 2006, including interest accrued as of that date, you will be entitled to convert each share of Class B common stock that you hold into approximately $5.32. If the Acquisition is not consummated by October 15, 2005, pursuant to our amended and restated certificate of incorporation, we will be liquidated. In any liquidation, the net proceeds of our initial public offering held in the trust account, plus any interest earned thereon, will be distributed pro rata to the holders of our Class B common stock who purchased their shares in our initial public offering or thereafter, subject to potential claims by creditors.

 

If you exercise your conversion rights, then you will be exchanging your shares of our Class B common stock for cash and will no longer own these shares. You will only be entitled to receive cash for these shares of Class B common stock if you continue to hold these shares through the closing date of the Acquisition and then tender your stock certificate to us. The closing price of our Class B common stock on September 27, 2006, the most recent trading day practicable before the printing of this proxy statement, was $5.24. Prior to exercising conversion rights, our stockholders should verify the market price of our common stock as they may receive higher proceeds from the sale of their common stock in the public market than from exercising their conversion rights.

 

We are soliciting proxies on behalf of our board of directors. This solicitation is being made by mail but also may be made by telephone or in person. We and our respective directors and officers may also solicit proxies in person, by telephone or by other electronic means. These persons will not be paid for doing this.

 

We have not hired a firm to assist in the proxy solicitation process but may do so if we deem this assistance necessary. We will pay all fees and expenses related to the retention of any proxy solicitation firm.

 

We will ask banks, brokers and other institutions, nominees and fiduciaries to forward our proxy statement materials to their principals and to obtain their authority to execute proxies and voting instructions. We will reimburse them for their reasonable expenses.

 

At the close of business on the record date, our executive officers, directors and director-nominees beneficially owned and were entitled to vote, in the aggregate, 4,100 shares of our common stock and 4,000 shares of our Class B common stock, representing less than 1% of the then outstanding shares of common stock and Class B common stock. Those numbers do not include an aggregate of 4,924,000 shares of common stock issuable upon exercise of warrants held by our directors, director-nominees, executive officers and affiliated entities. As of September 20, 2006, these shares and warrants had a market value of approximately $964,660 million based on our common stock price of $1.50 per share, our Class B common stock price of $5.19 per share, our Class W warrant price of $0.23 per warrant and our Class Z warrant price of $0.24 per warrant.

 

Based solely upon information contained in public filings, as of September 20, 2006, the following stockholders beneficially owned greater than five percent of our issued and outstanding common stock or Class B common stock:

 

 

 

For more information on beneficial ownership of our common stock by executive officers, directors and 5% stockholders, see “Beneficial Ownership of Securities” on page 139.

 

Pursuant to the stock purchase agreement with GII, as amended, Mercator will acquire 100% of the issued and outstanding securities of GII. Pursuant to the offer to shareholders of ETT, Mercator will acquire the issued and outstanding securities of ETT held by any ETT shareholders who accept the offer.

 

The terms of the stock purchase agreement with GII and the offer with ETT are the result of arm’s-length negotiations between representatives of us, GII and ETT. The following is a brief discussion of the background of these negotiations, the Acquisition and related transactions.

 

We were incorporated in Delaware on January 3, 2005, as a blank check company formed to serve as a vehicle for the acquisition, through a merger, capital stock exchange, asset acquisition or other similar business combination with a then-unidentified operating business.

 

A registration statement for our initial public offering was declared effective on April 11, 2005. On April 15, 2005, we consummated an initial public offering of 575,000 Series A units and 5,290,000 Series B units. Each Series A unit consists of two shares of common stock, five Class W warrants and five Class Z warrants. Each Series B unit consists of two shares of common stock, one Class W warrant and one Class Z warrant.

 

The net proceeds from the sale of our units were approximately $55,050,876. Of this amount, $53,429,000 was deposited in trust and, in accordance with our amended and restated certificate of incorporation, will be released either upon the consummation of a business combination or upon our liquidation. The remaining $1,621,876 was held outside of the trust for our use to provide for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. As of May 31, 2006, approximately $55.6 million was held in deposit in the trust account.

 

During the period from April 2005 through March 2006, we evaluated a number of prospective businesses regarding potential business combinations at different levels. Given the background and affiliations of our officers and directors, this activity occurred on an ongoing basis. We attempted to source opportunities both proactively and reactively, and given the mandate to find a suitable business combination partner, did not limit ourselves to any one transaction structure (i.e. percentage of cash vs. percentage of stock issued to seller, straight merger, corporate spin-out or management buy-out). During this period, we entered into 21 separate nondisclosure agreements with potential acquisition candidates. Prior to GII and ETT, none of these evaluations led to a firm offer by us to pursue a business combination.

 

On January 11, 2006, our president, Rhodric C. Hackman, was contacted by Mr. John Freeman who suggested that the prospect of acquiring both GII and ETT would make an interesting business combination for us. Mr. Freeman, an investment banker from Brooks, Houghton & Company, Inc., represented GII. Mr. Freeman became aware of Mercator’s business purpose from his review of the prospectus from our initial public offering. There are no existing relationships or affiliations between Mr. Freeman, Brooks, Houghton & Company or any of its

other principals and us or any individuals associated with us. Brooks, Houghton & Company has served as investment banker to GII since June 2005 and, following an initial payment of $10,000, has been paid a monthly retainer of $7,500 per month. It will also be entitled to a fee in the amount of $580,000 at the closing of the Acquisition. Pursuant to the terms of the stock purchase agreement we entered into with the GII shareholders, we will pay this amount on behalf of GII at the closing.

 

GII and ETT had been involved in a proposed transaction with another party late in 2005 which did not materialize. In the process, the two companies, being in closely-related businesses, came to believe that the combination of GII and ETT may make good business sense. GII is headquartered in the United States with much of its business to date focused upon wholesale telecommunications carrier customers. ETT is headquartered in the United Kingdom and focuses on enterprise customers doing business primarily outside the United States. Mr. Hackman expressed an interest in learning more about the prospects of these two companies. Our management team began investigating the business sectors of GII and ETT using publicly available information. Based on the call, the parties decided to negotiate confidentiality agreements and exchange due diligence materials.

 

On January 24, 2006, Mr. Hackman and H. Brian Thompson, our chief executive officer, met at GII’s headquarters with Michael Keenan, GII’s chief executive officer, various members of the GII management team and Mr. Freeman. Christopher Britton, the chief executive officer of ETT, was connected by conference call to the meeting. Both the GII and ETT management teams made presentations on their respective companies. Additional information on both GII and ETT was provided to us. Our representatives discussed the structure of Mercator.

 

Between January 24, 2006 and February 9, 2006, our management team continued due diligence using publicly available information and information provided by GII and ETT.

 

Pursuant to our ongoing due diligence, on February 10, 2006, Mr. Hackman and David Ballarini, our chief financial officer, participated in a conference call with GII and ETT management and Mr. Freeman to discuss the business prospects of the combined companies.

 

On February 13, 2006 and February 15, 2006, Messrs. Hackman and Ballarini met at GII’s headquarters to continue due diligence discussions.

 

On February 19, 2006, a conference call was conducted between Messrs. Hackman, Ballarini and Lior Samuelson, our executive vice president, and Messrs. Keenan, Britton and Freeman to continue to discuss a potential business combination and to continue due diligence discussions. Between February 20 and February 28, 2006, various discussions occurred between us, GII and ETT on the potential terms and conditions of a business combination of the three entities.

 

On March 1, 2006, Mr. Hackman met at ETT headquarters with Mr. Britton, Dr. James Dodd, the ETT vice chairman, and Steven Sanderson, the ETT finance director. The parties discussed the business opportunity in the combination of ETT and GII as well as the potential structure of a transaction. The parties agreed to continue efforts to structure a business combination including us, GII and ETT.

 

During the period from March 2, 2006 through March 24, 2006, various discussions and negotiations were conducted among us, GII and ETT regarding the structure of a potential transaction. During this period, various draft term sheets and letters of intent of intent were exchanged between Mercator and GII.

 

On March 20, 2006, our board of directors met to discuss GII and ETT as well as other potential opportunities that Mercator was evaluating. The board decided that, based on the information available at that time, the GII and ETT opportunity would be the most attractive to our stockholders.

 

On March 22, 2006, we submitted a proposed letter of intent to ETT which included a purchase of all of the outstanding stock of ETT for cash. Between March 22 and March 26, 2006 various conference calls between Messrs. Hackman and Ballarini and Messrs. Britton and Sanderson ensued to negotiate the letter of intent. On March 27, 2006, a conference call was conducted among Messrs. Hackman and Ballarini, the senior management of ETT, various members of the ETT board of directors and Ira Greenspan, Avi Lipsker and Arthur Magee of HCFP/Brenner Securities LLC, our financial advisor. The purpose of the call was to discuss the letter of intent and process to closing a transaction with us. The parties agreed to meet face to face at ETT’s headquarters to continue discussions the following week.

On March 24, 2006 a meeting was held among Messrs. Ballarini and Samuelson, our legal counsel, GII’s legal counsel and Mr. Keenan, who participated by conference call. The purpose of the meeting was to finalize a letter of intent for Mercator to purchase GII. The meeting concluded without finalizing the letter of intent. Several more days of negotiations ensued.

 

On March 31, 2006, we signed a letter of intent to acquire 100% of the issued and outstanding capital stock of GII for a combination of cash, common stock and warrants in Mercator. The letter of intent contemplated a parallel transaction with ETT.

 

Messrs. Hackman and Samuelson met in London with ETT management and various board members on April 4 and 5, 2006. On April 5, 2006, ETT’s board of directors approved the terms of the offer and we signed a letter of intent to acquire 100% of the issued and outstanding share capital of ETT for cash. On April 5, 2006, we publicly announced that we had entered into letters of intent with two parties.

 

From April 5, 2006 to April 17, 2006, various telephone conferences were held among our management, GII and ETT’s management and their representatives regarding due diligence, the business of GII and ETT and the terms of the definitive purchase agreement and offer document for the proposed business combination.

 

From April 17, 2006 to April 19, 2006, Mr. Hackman, Mr. Keenan and various other members of GII management met with ETT management in London to continue due diligence and discuss the prospects for the potential combination of GII and ETT.

 

On April 24, 2006 and April 25, 2006, our management team met with Messrs. Keenan and Britton in Reston, Virginia to continue due diligence and to discuss the prospects for the potential combination of GII and ETT.

 

From April 5, 2006 to May 22, 2006, our board of directors met several times to discuss the operations of GII and ETT, the results of the due diligence reviews and the terms of the proposed definitive agreement.

 

From May 19, 2006 to May 22, 2006, Messrs. Hackman and Samuelson held discussions with GII and ETT management by telephone at various times to complete their due diligence review and negotiate the terms of a definitive purchase agreement and offer document. Substantial negotiations took place over the terms of the acquisition documents including, among other things, certain changes in the form of purchase price payable to the GII shareholders from that contemplated by the letter of intent.

 

On May 22, 2006, our board of directors met again to authorize the acquisitions of GII and ETT. Our counsel reviewed the terms of stock purchase agreement and related agreements, and answered questions directed by members of our board of directors. During the meeting, our board of directors also discussed the option of obtaining a fairness opinion for the proposed Acquisition. Our board of directors decided not to obtain such an opinion before signing the stock purchase agreement or the offer based on its belief that its directors had the skill and experience to properly evaluate the fairness of a proposed transaction. Our board of directors then unanimously approved the Acquisition and related transactions. While no one factor determined the final agreed upon consideration in the acquisition of either GII or ETT, our board of directors again reviewed various industry and financial data and metrics and valuation analysis compiled by us in order to determine that the consideration to be paid to the shareholders of GII and ETT was reasonable and that the Acquisition was in the best interests of our stockholders.

 

On May 23, 2006, the GII board of directors met again to authorize the Acquisition. The GII board of directors unanimously approved the stock purchase and related transactions.

 

On May 23, 2006, we entered into a stock purchase agreement and related documents with GII and its shareholders.

 

On May 24, 2006, ETT shareholders holding an aggregate of 67.1% of ETT’s outstanding capital stock signed irrevocable undertakings to accept the offer to acquire their ETT shares.

 

On May 24, 2006, we and GII and ETT publicly announced the stock purchase agreement and the offer, respectively, through a joint press release.

 

On June 13, 2006, we made the offer to ETT shareholders. We received irrevocable undertakings to accept the offer from ETT shareholders holding an aggregate of 166,870,716 Ordinary Shares, A Ordinary Shares and

Preferred Ordinary Shares of ETT, representing approximately 96% of the total issued share capital of ETT. As the 75% acceptance threshold specified in ETT’s articles of association was achieved, we have applied the relevant provisions of the articles of association to compulsorily acquire the remaining ETT shares held by shareholders from whom we did not receive acceptances. As a result, all ETT shareholders were deemed to have accepted the offer as of July 28, 2006, and no further approval of ETT’s shareholders is required.

 

On September 25, 2006, we entered into an amendment to the stock purchase agreement with GII and its shareholders in order to reflect that the shares of our common stock to be issued to the GII shareholders upon the closing of the Acquisition will not be registered under the Securities Act of 1933, as amended, and to grant the GII shareholders certain rights to have those shares of common stock registered after the closing.

 

In considering the recommendation of our board of directors to vote for the proposal to adopt the Acquisition, you should be aware that certain members of our board have agreements or arrangements that provide them with interests in the Acquisition that differ from, or are in addition to, those of our stockholders generally. In particular:

 

 

Our board of directors was aware of these agreements and arrangements during its deliberations on the merits of the Acquisition and in determining to recommend to our stockholders that they vote for the approval of the Acquisition Proposal.

 

Our board of directors has concluded that the acquisitions of ETT and GII are in the best interests of Mercator’s stockholders.

 

Our board of directors considered a wide variety of factors in connection with its evaluation of the Acquisition. In light of the complexity of those factors, the Mercator board did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its decision.

The analysis of the Mercator board of directors in reaching this conclusion is described in more detail below. In considering the Acquisition, the Mercator board gave considerable weight to the following positive factors:

 

ETT and GII’s successful records of growth and business development and potential for future growth and expansion

 

An important criterion to Mercator’s board of directors in identifying an acquisition target was that the company have established business operations, that it was generating current revenues and that it had strong potential to experience rapid additional growth. Mercator’s board of directors believes that ETT and GII have in place the infrastructure for strong business operations, a large and growing customer base, significant technological capabilities and strong reputations with their customers. ETT commenced business operations in 1998 and grew its business from no revenues to over $35 million for the year ended December 31, 2005. Similarly, GII commenced business operations in 1998 and grew its business from no revenues to over $14 million in revenues for the fiscal year ended September 30, 2005. This record of growth was impressive to Mercator’s board of directors. Mercator’s board of directors believes that the combination of ETT and GII has the potential to accelerate the growth of their businesses because:

 

 

In addition, based on its review of ETT and GII’s historical financial statements and their respective business models and relationships, our board of directors believes that ETT and GII’s services are sold at relatively stable gross margins. GII’s gross margins for the fiscal years ended September 30, 2003, 2004 and 2005 were 35.6%, 34.6% and 33.5%, respectively. ETT’s gross margins for the fiscal years ended December 31, 2003, 2004 and 2005 were 26.2%, 26.6% and 29.3%, respectively. Our board of directors further believes that ETT and GII have controllable variable costs and low, scalable fixed costs and capital requirements. Controllable variable costs include costs of revenue, which consists primarily of the costs of procuring services from suppliers for resale. These costs are typically controllable because they are generally incurred as needed in connection with the sale of services. Likewise, labor-related costs, which are a large component of ETT’s and GII’s selling, general and administrative costs, are in large part controllable. ETT’s cost of labor accounted for approximately 63.2% of ETT’s total operating expenses for the year ended December 31, 2005. GII’s employee compensation and benefit costs accounted for approximately 80% of GII’s selling, general and administrative costs for the fiscal year ended September 30, 2005. On the other hand, the companies’ respective fixed costs, such as their facilities leases, account for a relatively small portion of their total expenses. For example, GII’s rental expenses accounted for only 3% of its selling, general and administrative costs for the fiscal year ended September 30, 2005.

 

As VNOs, ETT and GII typically have low levels of capital expenditures in comparison to traditional telecommunications carriers that own their own network infrastructure. During 2005, ETT’s capital expenditures, which consist of expenditures for property and equipment, expressed as a percentage of revenues for that period was approximately 0.8%. During the same period, GII’s capital expenditures expressed as a percentage of revenues for that period was approximately 2.4%, and was approximately 0.1% for the nine months ended June 30, 2006. The percentage for 2005 was higher than typical for GII, as a result of expenses related to GII’s move to a new

headquarters facility during 2005. We believe that these levels of capital expenditures are significantly lower than is typical for traditional telecommunications carriers. For example, based on publicly-filed financial statements, the average capital expenditures of eight large carriers expressed as a percentage of their revenues for the twelve months ended June 30, 2006, including companies such as Verizon, BellSouth and CenturyTel, was approximately 15.4%. Because there is only one publicly traded VNO of which we are aware, we are unable to determine how ETT’s and GII’s respective levels of capital expenditures compare to those of other VNOs. These lower levels of capital expenditures compared to traditional carriers are offset to some extent by ETT’s and GII’s typically higher levels of cost of services than carriers which own their own infrastructure. For the six months ended June 30, 2006, ETT’s costs of revenue, expressed as a percentage of revenue for that period, was approximately 69.5%. For the nine months ended June 30, 2006, GII’s cost of telecommunications services provided, expressed as a percentage of revenue for that period, was approximately 71.7%. By comparison, based on publicly-filed financial statements, the average cost of services of the eight large carriers referred to above, expressed as a percentage of their revenues for the twelve months ended June 30, 2006, was approximately 35%.

 

Our board of directors believes that this cost structure should lead to improving profit and EBITDA margins as ETT and GII generate increased revenues. In particular, our board believes that as the companies’ revenues increase, their respective fixed costs will increase at a lower rate, due to their low capital requirements and ability to scale their capital and other expenditures, such as office and other property leases. In addition, labor costs are a significant component of the companies’ variable costs. GII and ETT believe that, in general, their labor costs increase at a lower rate than revenues, in large part as a result of increases in employees’, particularly sales personnel’s, productivity and efficiency as they gain experience working for the applicable company. Additionally, both ETT’s and GII’s contracts with their customers generally remain in effect for some period beyond their initial stated term, which when taken together with additional sales to those existing customers under the applicable master agreements, tends to result in relatively stable, longer term revenues with each customer — often lasting multiple years, and creating significant backlogs and some visibility of future revenues.

 

The Combination of ETT and GII represents an opportunity to invest in a growing, dynamic industry

 

Another important criterion to Mercator’s board of directors in identifying an acquisition target was that the target compete in an emerging or expanding industry with the potential for growth. Both GII and ETT are virtual network operators, which are facilities-free, technology-neutral telecommunications providers. VNOs leverage the infrastructure of multiple asset-based telecommunications carriers to create highly customized, cost-efficient solutions for large enterprise, government and carrier customers whose complex communication requirements typically transcend the capabilities of any single facilities-based provider. Mercator’s board of directors believes that the outsourced VNO service industry in which ETT and GII operate is a multi-billion dollar market and growing. Based on GII’s and ETT’s successes to date in acquiring customers, our board of directors believes that ETT and GII have the ability to continue to attract customers and to capitalize on the substantial market opportunity.

 

Our board of directors also believes that, if the Acquisition is successfully completed, there is the potential for an immediate increase in the combined company’s market value, based upon the recent public market value of Vanco plc, which the board believes to be the most comparable publicly traded company. Vanco’s recent market value corresponds to approximately 1.8 times its trailing twelve months revenues. Applying the same multiple to the combined revenues of GII and ETT for the twelve-month period ended June 30, 2006 would result in an implied value of approximately $87 million, which is approximately $24 million more than the purchase price to be paid by us to complete the Acquisition. Our board of directors also believes that companies that trade on the Nasdaq Global Market, as we intend to do following the Acquisition, generally trade, on average, at a higher multiple than comparable companies that trade on the FTSE, as Vanco does. We cannot assure you that our market value will correspond to the trailing twelve-month revenue multiple experienced by Vanco, or that we will experience an increase in market value as compared to Vanco if we are able to list our stock on the Nasdaq Global Market.

 

The experience of ETT and GII’s management

 

Another important criterion to Mercator’s board of directors in identifying acquisition targets was that the companies have seasoned management teams with specialized knowledge of the markets within which they operate and the ability to lead a company in a rapidly changing environment. In the time since the development of their

business plans, GII’s and ETT’s management teams have successfully implemented their business strategies in providing value-added VNO services to major enterprises and carriers. GII’s and ETT’s management teams have shown an ability to adjust their business plans to changing market factors and to develop additional business opportunities. Mercator’s board of directors believes that the combination of GII’s and ETT’s existing management, along with H. Brian Thompson, who has agreed to serve as our executive chairman following the closing of the Acquisition, will provide the combined company with strong leadership.

 

Equity ownership of the combined company’s management

 

It was also important to Mercator’s board of directors that management of the combined company have a significant equity interest in Mercator, to help ensure that they will be committed to growing Mercator and increasing stockholder value. GII’s shareholders, each of whom is expected to contribute to the management of Mercator following the closing, will receive an aggregate of 1,300,000 shares of our common stock, 1,450,000 of our Class W warrants and 1,450,000 of our Class Z warrants in the Acquisition. Furthermore, we expect that each of H. Brian Thompson, who has agreed to serve as our executive chairman following the Acquisition, D. Michael Keenan and Christopher Britton will receive significant equity incentive grants in connection with their employment with us.

 

The terms of the purchase agreements

 

Our board of directors believes that the terms of the offer document agreement and stock purchase agreement with ETT and GII, respectively, are customary and reasonable. It was important to Mercator’s board of directors that the purchase agreements include customary terms and conditions as it believed that such terms and conditions would allow for a more efficient closing process and lower transaction expenses.

 

Mercator’s board of directors believes that each of the above factors strongly supported its determination and recommendation to approve the Acquisition. The Mercator board of directors did, however, consider the following potentially negative factors, among others, in its deliberations concerning the Acquisition:

 

ETT and GII have sustained net losses since inception.   Despite their rapid growth in revenues, ETT and GII have generated accumulated deficits since their inception. Our board of directors believes that the projected revenue growth of the combined ETT and GII business plans, as projected by the companies’ respective management teams, and existing revenue streams improve the prospects for future profitability of the combined companies. As discussed above under the heading “ETT and GII’s successful records of growth and business development and potential for future growth and expansion,” our board of directors believes that the companies’ respective fixed costs, and to a lesser extent their labor costs, should increase at a lower rate than revenues, which should in turn improve prospects for profitability. Furthermore, our board of directors believes that through the operational integration of ETT and GII, duplicative administrative and operating functions can be consolidated to reduce costs and thereby improve the prospects for future profitability of the combined companies.

 

ETT’s revenue has declined.   Despite rapid growth in revenue from its inception in 1998 through 2004, ETT’s revenue declined slightly in 2005 from 2004 and by approximately 9.6% in the first six months of 2006 as compared with the first six months of 2005. Approximately 47% of the decrease in revenues between the first six months of 2005 and 2006 was attributable to a change in the applicable exchange rate between the two periods. The remainder of the decrease was primarily attributable to an insufficient amount of net new orders at the end of 2005. Our board of directors believes that this decline is due primarily to ETT’s investors’ decision in the first half of 2005 to sell ETT. ETT’s investors, venture capital funds which have been invested in the company since 1999, decided to sell the company in order to achieve liquidity and return funds to their own investors. The decision to sell ETT was followed by a protracted sales process that diverted management’s attention away from the overall business. Our board of directors believes that the revenue decline is not indicative of any flaw in the fundamentals surrounding, and the growth potential for, ETT’s business.

 

The size of ETT and GII compared to industry leaders.   Our board of directors considered the fact that, due to their relatively short histories of operations, ETT and GII are individually significantly smaller than industry leaders. Mercator’s board of directors believes that, due to their growth since inception, their

relationships with vendors and business customers, and the potential for improvements in capabilities and revenues that may result by combining the companies, ETT and GII have the potential to grow and to compete with industry leaders for market share.

 

GII’s and ETT’s reliance on a limited number of customers.   Historically, a substantial portion of GII’s and ETT’s revenues have come from a limited number of customers. For example, for the years ended December 31, 2005 and 2004, GII’s four largest customers accounted for approximately 35.9% and 49.1%, respectively, of its total revenues. Similarly, for the years ended December 31, 2005 and 2004, ETT’s four largest customers accounted for approximately 59.0% and 66.0%, respectively, of its total revenues. Our board of directors believes that GII and ETT have, to date, been successful in maintaining their key customer relationships, and also expects that the combined company’s reliance on a small number of customers will decrease over time.

 

The risk that the services provided by GII and ETT will not maintain market acceptance.   Our board of directors considered the fact that the market for services provided by VNOs is relatively new, and the corresponding risk that the products and services offered by GII and ETT may not gain or obtain increased market acceptance. Our board of directors believes, however, that the market for VNO services is likely to continue to grow for at least the next several years and that it represents an attractive market.

 

GII’s and ETT’s current liabilities exceed their respective total assets.   Historically, ETT’s current liabilities at any given point in time have generally exceeded its total assets. For example, as of June 30, 2006, ETT’s current liabilities were $13,930,815 and its total assets were $10,644,325. As of the same date, GII’s current liabilities of $4,411,512 and its total assets were $4,323,243, although it historically has had current liabilities less than total assets. Our board believes, however, that this working capital deficit does not reflect a fundamental weakness in the companies’ businesses, but rather reflects the nature of their business models, which involves the procurement, rather than purchasing, of the network capacity that they resell. The majority of their current liabilities consists of payables to suppliers of network capacity, the vast majority of which corresponds to amounts due to the companies under their customer agreements. In general, amounts due to the companies from customers are either prepaid or are paid within a shorter period of time than the companies’ payment of the corresponding payables to their suppliers. Prepaid amounts are reflected as liabilities in the companies’ financial statements, and are not booked as revenues until the service is provided to the customer, which often results in a working capital deficit. GII had unearned revenue of approximately $1.6 million and deferred revenue of approximately $336,000 at June 30, 2006, which represents approximately 12.2% and 2.5%, respectively, of GII’s revenues for the nine months ended on that date. ETT had total deferred revenue of approximately $1.9 million at June 30, 2006, which represents approximately 11.4 % of ETT’s revenues for the six months ended on that date. As a result of customer receivables being paid more rapidly than the corresponding payments to suppliers the companies can operate on an ongoing basis with negative working capital. Because there is only one publicly traded VNO of which we are aware, we are unable to determine if this business model is standard in the industry. We believe, however, that the companies will in general continue to experience working capital deficits following the consummation of the Acquisition.

 

The risk that its public stockholders would vote against the Acquisition and exercise their conversion rights.   Our board of directors considered the risk that the current public stockholders of Mercator would vote against the Acquisition and demand to convert their shares for cash upon consummation of the Acquisition, thereby depleting the amount of cash available to the combined company following the Acquisition, or requiring us to borrow funds or raise additional capital to complete the Acquisition or fund our operations after the closing.

 

After deliberation, our board of directors determined that these potentially negative factors were outweighed by the potential benefits of the acquisitions, including the opportunity for Mercator stockholders to share in ETT and GII’s future potential growth and anticipated profitability.

 

 

Three members of our board of directors, Rhodric C. Hackman, Lior Samuelson and David Ballarini, have extensive experience in evaluating and performing due diligence of acquisition targets and in valuing companies in the communications industry. These three directors are currently partners of an investment banking and financial advisory firm and perform business valuations on a regular basis. In arriving at its determination to approve the

stock purchase agreement with ETT and the offer for GII, the board of directors of Mercator relied on information (including financial information) relating to ETT and GII, the regulatory environment and the industry dynamics. In addition, Mercator retained the services of KPMG LLP and Matthews Carter and Boyce, P.C. to assist it in its due diligence review of ETT and GII. The directors of Mercator are familiar with the significant expenses that would be incurred to engage an investment bank or valuation firm to conduct a fairness opinion. Based upon the likely cost of a fairness opinion, Mercator’s existing cash resources and Mercator’s belief that its directors had the skill and experience to properly evaluate the fairness of a proposed transaction, Mercator determined that its assets should not be used to pay for a fairness opinion. There was no prior relationship between any of our directors or executive officers and any of the directors, executive officers or significant shareholders of GII or ETT.

 

In addition to the due diligence information, Mercator’s board of directors utilized information provided to it by ETT and GII as well as publicly available information on the industry and the companies’ competitors to analyze the reasonableness of the proposed valuations of ETT and GII and the combined entity. In May 2006, Mercator’s directors prepared an estimated enterprise valuation analysis of ETT and GII based upon Mercator’s proposed purchase prices for ETT and GII and the potential post-acquisition appreciation of the combined company’s value.

 

Mercator’s board of directors considered that the proposed equity valuation and the proposed purchase prices for ETT and GII were generally attractive to Mercator based on publicly available comparable trading valuations of ETT and GII’s competitors, publicly available comparable acquisitions involving companies similar to ETT and GII and discounted cash flow analyses of the combined companies. For purposes of the board’s analysis, the companies it considered to be comparable were Equinix Inc., Globix Corp., Internap Network Services Corp., iPass Inc., SAVVIS Inc., Terremark Worldwide Inc., NaviSite Inc. and Vanco plc. For the twelve months ended December 31, 2005, or January 31, 2006 in the case of NaviSite and Vanco, the reported revenues of these companies were $221.1 million, $110.8 million, $153.7 million, $169.4 million, $667.0 million, $57.0 million, $104.3 million and 146.6 million British pounds, respectively. During the same periods, their reported profits were $(42.6 million), $(30.8 million), $(5.0 million), $12.9 million, $(69.1 million), $(22.9 million), $(12.3 million) and 7.5 million British pounds, respectively. Although Vanco’s revenues and profits are substantially greater than that of ETT and GII, our board of director’s considered it to be comparable because it is currently the only publicly traded company of which the board of director’s is aware that is a “pure play” VNO, meaning that the only business in which it is engaged is that of operating as a VNO.

 

The analysis of trading valuations of ETT’s and GII’s competitors indicated that these companies are generally valued based on their revenue performance and as a mean, their enterprise values were approximately 3.7 times their trailing 12 month (also known as last 12 months), or TTM, revenues, with a median enterprise value of 2.3 times TTM revenues. ETT’s and GII’s primary competitor, in the view of Mercator’s board of directors, is Vanco plc (LSE: VAN.L) which, at the time of the analysis, had an enterprise value of approximately 2.2 times TTM revenues. Based on publicly traded competitors’ valuation metric of 2.3 times TTM revenues, ETT and GII in combination would have a potential enterprise valuation of approximately $121 million (2.3 times management’s estimate of actual and forecast revenue for the combined ETT and GII for the twelve-month period ending June 30, 2006 of $52.5 million). Based on Mercator’s analysis of ETT and GII, Mercator’s total acquisition value of approximately $63.1 million was approximately 48% below the implied potential future valuation based on competitors’ trading valuations.

 

Mercator’s management estimated the combined ETT and GII’s actual and forecast revenue as follows. Management assumed a closing date of June 30, 2006, and prepared its estimate for the twelve-month period ending on that date. For ETT, management combined the sum of actual revenue for the period from July 1, 2005 to December 31, 2005 (the latest period for which actual results were available), which totalled approximately $17.4 million, based on actual monthly results as provided by ETT, and ETT’s management’s forecast of ETT’s revenues for the first and second quarters of 2006 of approximately $18.1 million. This resulted in total estimated and projected revenue of ETT for the twelve-month period of approximately $35.5 million. For GII, management combined the sum of actual revenue for the period from July 1, 2005 to April 30, 2006 (the latest period for which actual results were available), which totalled approximately $14.1 million, based on actual monthly results provided by GII, and GII’s management’s forecast of GII’s revenues for May and June of 2006 of approximately $3.0 million. This resulted in total estimated and projected revenue of GII for the twelve-month period of approximately $17.1 million, and of the combined companies for the same period of approximately $52.5 million.

The analysis of publicly available comparable acquisitions indicated that these transactions were also generally valued based on the TTM revenues of the target companies and as a mean, the enterprise valuations of the acquisitions were approximately 1.4 times TTM revenues, with a median of 1.6 times TTM revenues. Based on publicly available comparable acquisitions valuation range of 1.4 to 1.6 times TTM revenues, ETT and GII in combination would have an enterprise valuation of approximately $74 million (1.4 times $52.5 million) to $84 million (1.6 times $52.5 million). Based on Mercator’s analysis of ETT and GII, the total acquisition value of the combined companies of approximately $63.1 million was approximately 15% to 25% below the implied valuation based on comparable acquisitions.

 

The discounted cash flow analysis analyzed the cash flows projected to be generated by operating ETT and GII together and growing the combined companies at a cumulative annual growth rate of 20% for five years and then selling the combined operations in a transaction netting the shareholders 9.0 times the terminal earnings before interest, taxes, depreciation and amortization, or EBITDA. Mercator determined that a 20% annual growth rate was a reasonable projection for organic growth for both companies based upon Vanco’s historic annual growth rates, which have typically been in the range of, and have sometimes exceeded, 20%, the combined companies’ historic annual growth rates, which exceeded 20% over the last five years, the companies’ estimates of 2006 growth in excess of 10% for ETT and 20% for GII, despite distractions resulting from the Acquisition, and management’s overall research regarding the industry and anticipated growth. Mercator determined that a 9.0 times EBITDA multiple was reasonable because the comparable companies that are profitable had been trading, on average, at a multiple of 26.4 times EBITDA. It also noted that the comparable companies that are not profitable, similar to ETT and GII, had been trading, on average, at a multiple of 31.4 times EBITDA. The cash flows were adjusted for estimated integration and transaction related costs, potential cost savings that would be realized by consolidating certain functions of the two companies, and additional costs to be incurred by the companies in order to operate a publicly listed company. The resulting cash flows were discounted back to a present value at a 13% discount rate reflecting the approximate weighted average cost of capital of public companies in ETT’s and GII’s industry. Based on this analysis, it was determined that ETT and GII would be valued in combination at approximately $98 million. This analysis assumed cost savings of $500,000 per year for each of 2008, 2009 and 2010 that management expects to realize by consolidating certain functions of the two companies. If these cost savings were not realized, the discounted cash flow analysis described above would result in a valuation of approximately $95.1 million. Based on Mercator’s analysis of ETT and GII, the total acquisition value of the combined companies of approximately $63.1 million was approximately 36% below the implied valuation based on the discounted cash flow analysis. Mercator’s analysis suggests that the purchase price to be paid for GII is approximately 1.6 times its estimated TTM revenues, and the purchase price to be paid for ETT is approximately 1.0 times its estimated TTM revenues. Mercator believes that the difference in multiples is justified in light of GII’s higher growth rate in recent periods as compared to ETT and GII’s software tools which facilitate the delivery of VNO services.

 

Mercator’s consultants, KPMG LLP and Matthews Carter and Boyce, P.C., conducted financial due diligence assessments of ETT and GII, respectively, and provided written reports of their findings to the board. The matters reviewed included revenue recognition, working papers from recent audits, general quality of financial reporting capabilities, working capital trends, and accounts receivable. Neither KPMG LLP nor Matthews Carter and Boyce, P.C. presented any conclusions or recommendations with respect to the valuation analyses summarized above.

 

The foregoing discussion of the information and factors considered by our board of directors is not meant to be exhaustive, but includes the material information and factors considered by our board of directors.

 

In concluding that the Acquisition is in the best interests of ETT and GII and its shareholders, and in approving the Acquisition agreements and the Acquisition, the ETT and GII directors considered and reviewed, including with their legal advisors, a number of factors including:

 

 

 

The ETT and GII directors did consider the following potentially negative factors, among other things, in their deliberations concerning the Acquisition:

 

 

The foregoing discussion of the factors considered by the ETT and GII directors is not meant to be exhaustive, but includes some of the more material factors considered by the ETT and GII directors in coming to their conclusions.

 

No appraisal rights are available under the Delaware General Corporation Law for our stockholders in connection with the Acquisition Proposal.

 

As the stockholders of Mercator are not receiving any consideration or exchanging any of their outstanding securities in connection with the Acquisition, and are simply being asked to vote on the matter, it is not expected that the stockholders will have any tax related issues as a result of voting on these matters. However, if you vote against the Acquisition Proposal and elect a cash conversion of your Class B common stock into your pro-rata portion of the trust account and as a result receive cash in exchange for your Class B common stock, there may be certain adverse tax consequences, such as realizing a loss on your investment in Mercator shares. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING YOUR PARTICULAR TAX CONSEQUENCES.

 

Consummation of the acquisition of GII is contingent upon the receipt of approval from the Federal Communications Commission, or FCC. GII received approval of the acquisition from the FCC in August 2006.

 

Consummation of the acquisition of GII is also contingent upon notification to and/or approval by various state public utility commissions in the states in which GII is authorized to provide regulated telecommunications services. State approval process differ from state to state. Like the FCC, however, states that must approve the Acquisition generally review it to determine whether the Acquisition is consistent with the public interest. GII filed notifications and/or requests for approval of the acquisition of GII with the applicable state public utility commissions in June 2006, and as of the date of this proxy statement has received the approval of all but one required state agency, the Florida Public Service Commission. That agency has proposed approving the transaction, but the effectiveness of that proposal is subject to a notice period that closed on September 27, 2006. To our knowledge, no protests were filed prior to the end of the notice period.

 

If the Acquisition Proposal is not approved by stockholders, we will not acquire GII and ETT. Pursuant to our amended and restated certificate of incorporation, we will be liquidated if we do not consummate a business combination by October 15, 2006.

 

Approval of the Acquisition Proposal will require the affirmative vote of a majority of the shares of Class B common stock issued in our initial public offering that are present in person or by proxy and entitled to vote at the meeting. In addition, each stockholder that holds shares of Class B common stock issued in our initial public offering or purchased following such offering in the open market has the right to vote against the Acquisition Proposal and, at the same time, demand that we convert such stockholder’s shares into cash equal to a pro rata portion of the trust account in which a substantial portion of the net proceeds of our initial public offering is deposited. These shares of Class B common stock will be converted into cash only if the Acquisition is completed and the stockholder requesting conversion holds such shares until the date the Acquisition is consummated. However, if holders of 2,116,000 or more shares of our Class B common stock issued in our initial public offering, an amount equal to 20% of the total number of shares issued in the initial public offering, vote against the Acquisition Proposal and demand conversion of their shares into a pro rata portion of the trust account, then we will not be able to consummate the Acquisition. In addition, if holders of approximately 9% or more of our outstanding shares of Class B common stock, or approximately 952,000 or more shares, exercise their conversion rights, we will have insufficient funds to pay the cash purchase price for the Acquisition. In that event, we would be unable to consummate the acquisition unless we are able to borrow funds or raise additional capital to finance the shortfall. An abstention will have the same effect as a vote against the Acquisition Proposal. A failure to vote or broker non-vote will have no effect on the outcome of the Acquisition Proposal.

 

For the reasons described above, among others, we believe that the Acquisition is attractively valued, and that our stock is currently trading at a marked discount to that of companies that are comparable to the combined company that would result from the Acquisition. We also note that our Class B common stock has recently been trading near or below the inherent cash value of a Class B share, which is the estimated amount of cash held in the trust fund that would be payable for each Class B share if we were to liquidate, subject to potential claims of creditors. Accordingly, after careful consideration, our board of directors has determined unanimously that the Acquisition Proposal is fair to and in the best interests of us and our stockholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE ACQUISITION PROPOSAL.

 

The following summary of the material provisions of the stock purchase agreement with GII, as amended, is qualified by reference to the complete text of the stock purchase agreement, as amended, a copy of which is attached as Annex A to this proxy statement. All stockholders are encouraged to read the stock purchase agreement, as amended, in its entirety for a more complete description of the terms and conditions of the acquisition of GII.

 

The stock purchase agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about us. Such information can be found elsewhere in this proxy statement and in the other public filings we make with the Securities and Exchange Commission, or SEC, which are available without charge at www.sec.gov.

 

The stock purchase agreement contains representations and warranties which we, GII and its shareholders have made to one another and are for the benefit of such parties only, and may not be relied upon by any other person. The assertions embodied in the representations and warranties contained in the stock purchase agreement are qualified by information in disclosure schedules to the stock purchase agreement. While we do not believe that the disclosure schedules contain information the securities laws require us to publicly disclose, the disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the

stock purchase agreement. Accordingly, you should not rely on the representations and warranties as characterizations of the actual state of facts, since the representations and warranties are subject in important part to the underlying disclosure schedules. The disclosure schedules contain nonpublic information. Information concerning the subject matter of the representations and warranties may have changed since the date of the stock purchase agreement, and subsequent information may or may not be fully reflected in our public disclosures. Information concerning the subject matter of the representations and warranties contained in the stock purchase agreement may have changed since the date of that agreement.

 

The Stock Purchase Agreement with GII

 

At the closing, Mercator will acquire from GII’s three shareholders all of the issued and outstanding capital stock of GII, which will continue its existence as an operating company and wholly-owned subsidiary of Mercator under the name Global Internetworking.

 

At the closing, the GII shareholders will receive, on a pro-rata basis, consideration with a total estimated value on the closing date of approximately $25.2 million, consisting of:

 

 

for all of the outstanding securities of GII.

 

966,666 of the Class W Warrants and 966,666 of the Class Z Warrants will be placed in escrow at the closing. The escrowed Class W Warrants and the Class Z Warrants will be released to the former GII shareholders when a majority of the Class W Warrants or Class Z Warrants that were issued and outstanding as of the date of the stock purchase agreement have been exercised, redeemed or otherwise converted into cash or equity securities, or earlier in the event that either D. Michael Keenan or Todd J. Vecchio, GII’s executive officers, is dismissed from employment by Mercator other than for “cause,” as defined in the employment agreements they will enter into with us in connection with the Acquisition, or if there is a merger, asset sale or similar transaction that results in a change of control of Mercator.

 

We estimate the value of the 1,300,000 shares of common stock to be issued to the GII shareholders to be $6,731,400, based upon the average closing price of Mercator’s Class B common stock of approximately $5.18 per share during the two days prior and two days subsequent to May 23, 2006, the date of the stock purchase agreement. We estimate the aggregate value of the 483,334 Class W Warrants and 483,334 Class Z Warrants to be delivered to the former shareholders of GII at the closing to be $467,287, based upon the average closing prices of Mercator’s Class W Warrants and Class Z Warrants of approximately $0.47 and $0.49, respectively, during the two days prior and two days subsequent to May 23, 2006. We estimate the aggregate value of the 966,666 Class W Warrants and 966,666 Class Z Warrants to be placed in escrow to be $934,573, based upon the same average closing prices. The value of the Class W Warrants and Class Z Warrants to be placed in escrow is not included in the total estimated consideration value of approximately $25.2 million, but will be included in the purchase price of GII, when and if, the contingency relating to their release is satisfied.

 

The purchase price payable to the GII shareholders is not subject to adjustment based on GII’s financial condition, financial performance or any other criteria.

 

Subject to the provisions of the stock purchase agreement, the closing of the stock purchase will take place no later than the second business day after all the conditions described below under “The Stock Purchase Agreement — Conditions to the Completion of the Acquisition” have been satisfied, unless Mercator and GII agree to another time.

 

The stock purchase agreement contains a number of representations and warranties that each of GII and Mercator has made to each other. These representations and warranties include and relate to: