Exhibit 10.20
This Agreement, dated as of March 6, 2001 ("this Agreement"), is by and
among Surge Components, Inc., a New York corporation ("Parent"), MailEncrypt,
Inc., a Delaware corporation and a wholly-owned subsidiary of Parent ("Surviving
Corporation"), Xxxxx Xxxx ("Bird"), Xxxx X. Xxxxxxx ("Xxxxxxx"), Xxxxx Xxxxxx
("Xxxxxx"), Xxxxxxx Xxxxxxx ("Xxxxxxx") and Xxxxxx Xxxxxx ("Xxxxxx").
WITNESSETH
WHEREAS, Parent, Surviving Corporation (then known as Mail
Acquisition Corp.), XxxxXxxxxxx.xxx, Inc., a California corporation
(the "Merged Company"), and each of Bird, Epstein, Harano, Xxxxxxx and
Taulli (each, a "Shareholder") did enter into a Merger Agreement and
Plan of Reorganization, dated as of November 13, 2000 (the "Merger
Agreement"); and
WHEREAS, the merger (the "Merger") of the Merged Company with
and into the Surviving Corporation, as contemplated by the Merger
Agreement, has been consummated; and
WHEREAS, pursuant to paragraph 9.1(a) of the Merger Agreement,
the Shareholders were granted the right, but not the obligation (the
"Unwinding Right"), to purchase and receive from Parent all of the
outstanding shares of the Surviving Corporation upon the occurrence of
events and for the consideration specified in the Merger Agreement; and
WHEREAS, the Shareholders own of record and beneficially all
of the shares of the Voting Redeemable Convertible Series B Preferred
Stock, par value $.001 per share (the "Parent Preferred Stock"), of
Parent issued to the Shareholders pursuant to the Merger Agreement; and
WHEREAS, the Certificate of Amendment of the Certificate of
Incorporation of Parent, fixing the number, designation, relative
rights, preferences and limitations of the Series B Preferred Stock and
filed with the Secretary of State of the State of New York on November
15, 2000 (the "Certificate of Amendment"), provides for the redemption
(the "Redemption Provision") of the outstanding shares of Parent
Preferred Stock upon the occurrence of events specified in the
Certificate of Amendment; and
WHEREAS, Section 3 of each of the two convertible promissory
notes (the "Notes") of the Merged Company, as assumed by MailEncrypt as
a result of the Merger, each of the Notes being payable to Parent, the
first being dated as of February 16, 2000 and in the principal amount
of $750,000.00 and the second being dated as of September 7, 2000 and
in the principal amount of $125,000.00, provide for the automatic
conversion (the "Automatic Conversion") into shares of the common
stock, par value $.001 per share (the "MailEncrypt Common Stock"), of
the Merged Company (now shares of the common stock, par value $.001 per
share (the "Surviving Corporation Common Stock"), of the Surviving
Corporation as a result of the Merger) of the outstanding principal
amount and all accrued and unpaid interest due under each of the Notes
upon the occurrence of events specified in the Notes; and
WHEREAS, Parent has determined to at least temporarily, not
proceed with Parent's proposed merger (the "Recapitalization") with and
into Superus Holdings, Inc., a Delaware corporation and wholly-owned
subsidiary of Parent ("Superus"), pursuant to the Agreement and Plan of
Merger, dated as of November 29, 2000, between Parent and Superus; and
WHEREAS, Parent, Surviving Corporation and the Shareholders
each desire to modify and amend the terms of the Unwinding Right,
Redemption Provision and Automatic Conversion, as provided in this
Agreement, and to give effect to the fact that the Recapitalization is
not to occur in the foreseeable future, if ever.
NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties as set forth herein, and other good and valuable
consideration, the receipt and adequacy is hereby acknowledge, the parties agree
as follows:
Section 1. Use of Terms.
Unless otherwise defined in this Agreement, capitalized terms
shall have the meanings assigned to such terms in the Merger Agreement.
Section 2. Modification of Rights and Obligations Under the Merger Agreement.
The rights and obligations of Parent and each of the
Shareholders granted and assumed under Section 9.1 of the Merger Agreement are
hereby amended and modified in their entirety to be those rights and obligations
as set forth in Section 3 of this Agreement and the terms and provisions of said
Section 9.1 of the Merger Agreement are hereby made null and void and of no
force nor effect.
Section 3. Right of the Shareholders to Purchase the Surviving Corporation.
(a) Notwithstanding the terms of the Merger Agreement, in the
event that either:
(i) As a result of the voting of the shareholders (the
"Parent Shareholders") of Parent at a meeting (the "Parent Board
Election Meeting") of Parent Shareholders, to be held on or before May
31, 2001, the Board of Directors of Parent immediately following the
Parent Board Election Meeting does not initially include Xxxx X.
Xxxxxxx and at least two "independent directors" within the meaning of
such term under the Nasdaq Marketplace Rules, or such other three
members as are mutually agreed to by Parent and those Shareholders
owning of record and beneficially a majority of the Parent Preferred
Stock issued as the Merger Consideration pursuant to the Merger
Agreement (Xx. Xxxxxxx and such two independent directors, or such
other members, the "Designated Nominees"); or
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(ii) Parent shall not have filed with the Securities and
Exchange Commission (the "SEC"), on or prior to March 31, 2001, a
preliminary proxy statement (the "Parent Board Election Proxy
Statement") with respect to the solicitation by the Board of Directors
of Parent (the "Parent Board") of proxies from the holders of Parent
Common Stock for the election at the Parent Board Election Meeting of
Surge directors, including the election of the Designated Nominees; or
(iii) Parent shall not have complied, on or before May 15,
2001, with all comments of the staff of Securities and Exchange
Commission (the "SEC"), with respect to the Parent Board Election Proxy
Statement and have not caused to be mailed to the Parent Shareholders,
on or before June 4, 2001, the definitive Parent Board Election Proxy
Statement; or
(iv) Parent shall not have filed with the SEC, on or prior
to March 31, 2001, a preliminary proxy statement (the "Conversion
Shareholder Approval Proxy Statement") with respect to the solicitation
by Parent Board of proxies from the holders of Parent Common Stock for
their shareholder approval (the "Conversion Shareholder Approval") of
the conversion into shares of Parent Common Stock of the shares of the
Parent Preferred Stock issued as Merger Consideration pursuant to the
Merger Agreement; or
(v) Parent shall not have complied, on or before May 15,
2001, with all comments by the SEC staff with respect to the Conversion
Shareholder Approval Proxy Statement and have not caused to be mailed
to the Parent Shareholders, on or before June 4, 2001, the definitive
Conversion Shareholder Approval Proxy Statement; or
(vi) The Conversion Shareholder Approval shall not have
been obtained in accordance with New York Law and Nasdaq Marketplace
Rules on or before July 1, 2001; or
(vii) Parent shall not have filed with the SEC, on or
before March 31, 2001, a registration statement (the "Conversion Shares
Registration Statement") under the Securities Act of 1933, as amended
(the "Act"), registering for resale by each of the Shareholders all of
the Parent Common Stock issuable upon conversion of the Parent
Preferred Stock issued to the Shareholder as Merger Consideration under
the Merger Agreement; or
(viii) The Conversion Shares Registration Statement shall
not have been declared effective by the SEC on or before July 1, 2001;
(ix) Parent, at any time prior to May 31, 2001, shall have
ceased to fund the Surviving Corporation's operations at least at 80%
of the average funding level at which Surviving Corporation has been
funded by Parent over the three months preceding the date of this
Agreement.
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then, in such an event, upon the affirmative vote or written consent made on or
before August 15, 2001 (with written notice (the "Unwind Notice") of such vote
or written consent being given to Parent on or before August 16, 2001) by the
Shareholders owning of record and beneficially at least sixty percent (60%) of
the shares of the Parent Preferred Stock issued as the Merger Consideration
pursuant to the Merger Agreement (or by the Shareholders owning of record and
beneficially at least sixty percent (60%) of the shares of the Parent Common
Stock issued upon conversion of the Parent Preferred Stock issued as Merger
Consideration under the Merger Agreement), no later than two weeks following the
giving of the Unwind Notice, Parent shall sell, assign and transfer to the
owners of record of the Parent Preferred Stock issued as the Merger
Consideration pursuant to the Merger Agreement (or owners of record of the
Parent Common Stock issued upon conversion of such Parent Preferred Stock), and
such owners shall purchase and receive from Parent, all of the outstanding
shares of the Surviving Corporation, free and clear of all liens and
encumbrances, for the total consideration of the valid transfer and assignment
of all of the shares of the Parent Preferred Stock issued as the Merger
Consideration pursuant to the Merger Agreement (or shares of the Parent Common
Stock issued upon conversion of such Parent Preferred Stock), free and clear of
all liens and encumbrances (the "Unwind Transaction"). For the avoidance of
doubt, the Unwind Notice may be given upon the first to occur of any of the
matters set forth in clauses (i) through (viii), inclusive, paragraph 3(a) of
this Agreement, and the occurrence of any one of such matters shall be
sufficient basis for the giving of an Unwind Notice and the consummation of the
Unwind Transaction.
(b) At the effective time of the consummation of the Unwind
Transaction, $875,000 in funds previously loaned or advanced by Parent to the
Merged Company and/or Surviving Corporation, whether prior to, on or after the
date of the Merger Agreement (collectively, the "Company Loans"), shall become
due and payable and Parent's obligation to sell, assign and transfer to the
Shareholders the outstanding shares of the Surviving Corporation in the Unwind
Transaction shall be contingent upon repayment in full of the Company's Loans,
whether by payment in cash or by conversion into securities of the Surviving
Corporation in accordance with the terms of the Notes and/or any other
promissory note(s) evidencing the Company Loans. All funds loaned or advanced by
Parent to the Merged Company and/or Surviving Corporation in excess of the
principal amount of the Company Loans (collectively, the "Additional Loans"),
shall be secured by the shares of capital stock and substantially all of the
assets of Surviving Corporation and shall be due and payable upon the later to
occur of (i) the date of the Shareholder Conversion Approval or (ii) six months
following consummation of the Unwind Transaction.
(c) Notwithstanding anything contained to the contrary in this
Agreement or in the Merger Agreement, (i) Parent shall use its best efforts to
(A) file, as promptly as possible, the preliminary and definitive Parent Board
Election Proxy Statement and Conversion Shareholder Approval Proxy Statement
(which respective preliminary and definitive versions may be combined into one
preliminary filing and one definitive filing with the SEC), (B) obtain, as
promptly as possible, at the Parent Board Election Meeting the election as
directors of Surge of the Designated Nominees and (C) obtain, as promptly as
possible, the approval by the Parent Shareholders of the Conversion Shareholder
Approval, (ii) the Shareholders shall promptly provide Parent with such
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information and documents as Parent may reasonably request in order to prepare
and file the Conversion Shares Registration Statement, (iii) each of the
Shareholders and Parent shall, in good faith, negotiate and enter into an
agreement with respect to undertakings, indemnifications and contributions as
are customarily entered into in connection with the registration of securities
for sale by a selling security holder, (iv) Parent shall use its best efforts to
file, as promptly as possible, the Conversion Shares Registration Statement to
cause the Conversion Shares Registration Statement to be declared effective by
the SEC, (v) Parent shall use its best efforts to cause the Conversion Shares
Registration Statement to remain effective through November 16, 2002 and (vi)
each of the Shareholders shall, at the Parent Board Election Meeting, vote all
voting securities of Parent owned of record or beneficially by the Shareholder
for the election as Surge directors of each of the Designated Nominees.
(d) Notwithstanding anything to the contrary contained in the
Certificate of Amendment, Parent shall not exercise Parent's right to redeem the
Parent Preferred Stock pursuant to the Redemption Provisions unless (i) the
Conversion Shareholder Approval shall have not been obtained on or before
July 31, 2001 and (ii) the Shareholders have not given, on or before August 15,
2001, an Unwind Notice and, in good faith, tendered to Parent, within two weeks
of the giving of such Unwind Notice, all of the shares of the Parent Preferred
Stock issued as Merger Consideration pursuant to the Merger Agreement, free and
clear of all liens and encumbrances.
(e) Notwithstanding anything contained in the Notes to the
contrary, the maturity dates of the Notes shall be extended to the earlier of
the (i) date of the consummation of the Unwind Transaction or (ii) date
immediately following the date of the Conversion Shareholder Approval; provided,
however, that with respect to the note(s) executed in connection with the
Additional Loans, the maturity date shall be extended as set forth in
Section 3(b) of this Agreement.
Section 4. General Provisions.
(a) Except as specifically provided in this Agreement, the terms
and conditions of the Merger Agreement, Certificate of Amendment and each of the
Notes shall remain in full force and effect.
(b) All requests, demands, notices and other communications
required or otherwise given under this Agreement shall be sufficiently given if
(a) delivered by hand against written receipt therefor, (b) forwarded by
overnight courier requiring acknowledgment of receipt or (c) mailed by postage
prepaid, registered or certified mail, return receipt requested addressed, as
follows:
if to the Shareholders, to: c/o MailEncrypt, Inc.
00000 Xxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
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with a copy to: Xxxxx Xxxx LLP
000 Xxxxxxxx - Xxxxx 000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
if to Parent or the Surviving
Corporation, to: Surge Components, Inc.
0000 Xxxxx Xxxxxx
Xxxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxx Xxxx, President
Facsimile: (000) 000-0000
with a copy to: Snow Xxxxxx Xxxxxx P.C.
000 Xxxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxx, Esq.
Facsimile: (000) 000-0000
or, in the case of any of the parties hereto, at such other address as such
party shall have furnished in writing, in accordance with this paragraph 4(b),
to the other parties hereto. Each such request, demand, notice or other
communication shall be deemed given (i) on the date of delivery by hand, (ii) on
the first business day following the date of delivery to an overnight courier or
(iii) three business days following mailing by registered or certified mail.
(c) The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
(e) This Agreement, and the documents and instruments and other
agreements among the parties hereto referenced in this Agreement, (i) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, and (ii) are not
intended to confer upon any other person any rights or remedies under this
Agreement.
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(f) In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
(g) Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
(h) The parties hereto agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
(i) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof,
provided that issues involving the corporate governance of any of the parties
hereto shall be governed by their respective jurisdictions of incorporation.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of New York, and that such process
may be served outside the state of New York, for such persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction and such process.
(j) The parties hereto agree that they have been represented by
counsel during the negotiation and execution of this Agreement and, therefore,
waive the application of any law, regulation, holding or rule of construction
providing that ambiguities in an agreement or other document will be construed
against the party drafting such agreement or document.
(k) No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties hereto. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
(l) No provisions of this Agreement are intended, nor shall be
interpreted, to provide or create any third party beneficiary rights or any
other rights of any kind in any client, customer, affiliate, partner of any
party hereto or any other person or entity unless specifically provided
otherwise herein.
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(m) If any dispute, controversy or claim arises in connection with
the performance or breach of this Agreement between the parties, a party hereto
may, upon written notice to the other parties, request facilitated negotiations.
Such negotiations shall be assisted by a neutral facilitator acceptable to all
parties and shall require the best efforts of the parties to discuss with each
other in good faith their respective positions and, respecting their different
interests, to finally resolve such dispute.
A party may disclose any facts to the other parties or to the
facilitator which such party believes, in good faith, to be necessary to resolve
the dispute. All such disclosures shall be deemed in furtherance of settlement
efforts and thus confidential. Except as agreed to by all parties, the
facilitator shall keep confidential all information disclosed during the
negotiations. The facilitator shall not act as a witness for either party in any
subsequent arbitration between the parties. Such facilitated negotiations shall
conclude within sixty days from receipt of the written notice, unless extended
by mutual consent of the parties. The costs incurred by each party in such
negotiations shall be borne by it. Any fees or expenses of the facilitator shall
be borne equally by all parties.
If any dispute, controversy or claim arises in connection with the
performance or breach of this Agreement which cannot be resolved by facilitated
negotiations, then such dispute, controversy or claim shall be settled by
arbitration in accordance with the laws of the State of New York and the then
current Commercial Arbitration Rules of the American Arbitration Association,
except that no pre-hearing discovery will be permitted unless specifically
authorized by the arbitration panel. The confidentiality provisions applicable
to facilitated negotiations shall also apply to arbitration.
The award issued by the arbitration panel may be confirmed in a
judgment by any federal or state court of competent jurisdiction. All reasonable
costs of both parties, as determined by the arbitration panel, including (i) the
fees and expenses of the American Arbitration Association and of the arbitration
panel, and (ii) the costs, including reasonable attorneys' fees, incurred to
confirm the award in court, shall be borne entirely by the non-prevailing party
(to be designated by the arbitration panel in the award) and may not be
allocated between the parties by the arbitration panel.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
SURGE COMPONENTS, INC. MAILENCRYPT, INC.
By: /s/ Xxx Xxxx By: /s/ Xxxxxxx Xxxxxxx
-------------------------------- --------------------------------
Xxx Xxxx, President Xxxxxxx Xxxxxxx, President
SHAREHOLDERS:
/s/ Xxxxx Xxxx /s/ Xxxx X. Xxxxxxx
----------------------------------- -----------------------------------
Xxxxx Xxxx Xxxx X. Xxxxxxx
/s/ Xxxxx Xxxxxx /s/ Xxxxxxx Xxxxxxx
----------------------------------- -----------------------------------
Xxxxx Xxxxxx Xxxxxxx Xxxxxxx
/s/ Xxxxxx Xxxxxx
-----------------------------------
Xxxxxx Xxxxxx
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