Exhibit 10.4
MM COMPANIES, INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "Agreement") is made and entered
into as of August 15, 2005, by and among MM Companies, Inc., a Delaware
corporation (the "Company"), and Xxxxxx Xxxxxxx Ventures LLC, a Delaware
limited liability company of which the Company is a member ("GFV"), on the
one hand, and Xxxxxx Xxxxxxx ("GF") and Xxxxxx Xxxxxxx Productions, Inc., a
Nevada corporation ("GFPI", and together with GF, "Xxxxxxx"), on the other
hand.
RECITALS
WHEREAS, concurrently with, and as a condition to, the execution and
delivery of this Agreement, Xxxxxxx, on the one hand, and GFV, on the other
hand, are entering into an assignment agreement, in substantially the form
attached hereto as Exhibit A (such agreement, the "Assignment Agreement"); and
WHEREAS, concurrently with the execution and delivery of this
Agreement, Xxxxxxx and GFV are entering into a subscription agreement, in
substantially the form attached hereto as Exhibit B (the "Subscription
Agreement"), pursuant to which GFV is issuing to Xxxxxxx Membership Interests
in GFV having the rights set forth in the Operating Agreement, which is being
executed and delivered concurrently with the execution and delivery of this
Agreement (the Membership Interests issued pursuant to the Subscription
Agreement, the "Xxxxxxx Interests");
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. As used herein, the following terms will have the
following meanings:
Action: Has the meaning set forth in Section 3(e)(ii).
Agreement: Has the meaning set forth in the preamble.
Annual Report: Has the meaning set forth in Section 3(f).
Assignment Agreement: Has the meaning set forth in the recitals.
Board: Has the meaning set forth in Section 5(a).
Board of Directors: Has the meaning set forth in Section 5(a).
Business Day: Any weekday other than a weekday on which banks in
New York, New York are authorized or required to be closed.
Capitalization: As of any date, the amount equal to the sum of
(x) the average, over the preceding five (5) trading days, of the result
obtained by multiplying (i) the number of shares of Common Stock issued and
outstanding as of such trading day by (ii) the higher of the daily closing
sale price or bid price on such trading day of the Common Stock (as reported
on the principal securities exchange or quotation system on which the Common
Stock is then listed or admitted for trading) and (y) the fair market value
of all outstanding equity securities of the Company, if any, other than
Common Stock, as determined in good faith by the Board of Directors.
Certificate of Designations: The Certificate of Designations,
Preferences and Relative, Participating, Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and Restrictions Thereof of
Series A Preferred Stock of the Company.
Common Stock: Has the meaning set forth in Section 3(b).
Company: Has the meaning set forth in the preamble.
Controlled Entity: An entity (x) of which the Company or GFV is
the managing member, sole general partner or sole director, or (y) which
provides Xxxxxxx with the same management rights provided to Xxxxxxx pursuant
to Section 3 of the Operating Agreement.
Current Report: Has the meaning set forth in Section 3(f).
Director Designee(s): Has the meaning set forth in Section 5(a).
8-K Filing: Has the meaning set forth in Section 8(m).
Exchange Act: Has the meaning set forth in Section 3(f).
Exchange Date: Has the meaning set forth in Section 2(b).
Exchange Price: $1.196745, subject to adjustment pursuant to
Section 2(f).
Exchange Rate: As of any date, the number of shares of Common
Stock issuable upon the exchange of Membership Interests having an LLC
Percentage equal to one percent (1%), determined by dividing (a) the Invested
Amount by (b) the Exchange Price then in effect.
Xxxxxxx: Has the meaning set forth in the preamble.
Xxxxxxx Assets: Collectively, the Indicia Rights and the Marks
(as each such term is defined in the Assignment Agreement).
Xxxxxxx Interests: Has the meaning set forth in the recitals.
Xxxxxxx Observer: Has the meaning set forth in Section 5(e).
Xxxxxxx Securities. The shares of Common Stock owned by Xxxxxxx
and the Membership Interests owned by Xxxxxxx.
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Xxxxxxx Shares: At any time, the sum of (i) the number of shares
of Common Stock owned by Xxxxxxx and (ii) the number of shares of Common
Stock for which the Membership Interests owned by Xxxxxxx are exchangeable.
Fully Diluted Company Shares: The sum of (i) the number of
shares of Common Stock outstanding as of the date hereof and (ii) the number
of shares of Common Stock into which or for which all presently outstanding
securities of the Company convertible into or exercisable or exchangeable for
Common Stock may be converted, exercised or exchanged as of the date hereof.
GF: Has the meaning set forth in the preamble.
GFPI: Has the meaning set forth in the preamble.
GFV: Has the meaning set forth in the preamble.
Holder: Has the meaning set forth in Section 2(a).
Invested Amount: $143,589.73 per each one percent (1%) of LLC
Percentage, with the aggregate Invested Amount of GF and GFPI initially being
$2,153,846.
LLC Percentage: With respect to each Member (including the
Company, in its capacity as managing member), the "Company Percentage" (as
such term is defined in the Operating Agreement) of such Member in GFV with
respect to the Non-Traditional Businesses.
Material Adverse Change/Effect: Has the meaning set forth in
Section 3(e)(i).
Member: Each Person whose name is set forth on Schedule A to the
Operating Agreement as a member of GFV, as such Schedule may be amended from
time to time pursuant to the terms of the Operating Agreement.
Membership Interest: The ownership interest of any Member in GFV.
New Securities: Has the meaning set forth in Section 6(b).
Non-Traditional Businesses: Has the meaning set forth in the
Assignment Agreement.
Operating Agreement: That certain amended and restated limited
liability company agreement of GFV, dated as of the date hereof.
Opposing Proposal: Has the meaning set forth in Section 7(a).
Permitted Indebtedness: Trade debt, inventory or receivables
financing, or other commercial indebtedness incurred by the Company, or
indebtedness owed to GFV or any entity of which the Company or GFV owns at
least eighty percent (80%) of the outstanding equity interests.
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Permitted Transferee: (a) With respect to any natural person,
such natural person's spouse, any lineal ancestor or descendant of such
person or spouse, the spouses of such lineal ancestors or descendants, trusts
for the benefit of any of the foregoing, a corporation all of the outstanding
capital stock of which is at all times solely owned by, a limited liability
company all of the members of which are at all times solely, or a partnership
all of the partners of which are at all times solely, such natural person
and/or any Permitted Transferee and, in the event of the death of such
natural person, such natural person's estate; and (b) with respect to any
Person other than a natural person, any Affiliate of such Person; provided
that, in the case of each of clauses (a) and (b) above, each such transferee
will be a "Permitted Transferee" for purposes of this Agreement only if such
transferee shall have executed and delivered to the Company an instrument
pursuant to which the transferee will have agreed to be bound by all of the
terms of this Agreement applicable to the transferor.
Person: An individual, trust, estate, partnership, joint
venture, association, company, corporation or other entity.
Pro Rata Portion: Has the meaning set forth in Section 6(a).
Quarterly Report: Has the meaning set forth in Section 3(f).
SEC: Has the meaning set forth in Section 3(e)(iii).
SEC Documents: Has the meaning set forth in Section 3(f).
Securities Act: The Securities Act of 1933, as amended.
Series A Preferred Stock: The Series A Preferred Stock of the
Company, par value $0.01 per share.
Subscription Agreement: Has the meaning set forth in the
recitals.
2. EXCHANGE.
(a) Each of GF and GFPI (each, in such capacity, a "Holder") shall
have the right, at such Holder's option, to exchange all or any portion of its
Membership Interests into shares of Common Stock at any time, or from time to
time, on or after the date that is six (6) months after the date hereof, at
the Exchange Rate calculated as of the close of business on the Exchange Date
(as defined in Section 1(b) below).
(b) The right of exchange attaching to the Membership Interests may
be exercised by the Holder thereof by delivering a duly signed and completed
Exchange Notice to the Company, at its principal office. The "Exchange Date"
will be the date on which the duly signed and completed Exchange Notice is so
delivered. As promptly as practicable on or after the Exchange Date, but in no
event later than seven (7) Business Days from the Exchange Date, the Company
shall issue and deliver to the Holder at the Holder's request, either a
certificate or certificates or electronic shares through "DWAC" for the number
of full shares of Common Stock issuable upon such exchange, together with
payment in cash, determined as provided below, in lieu of any fraction of a
share. Such certificate or certificates shall be delivered by the
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Company to the appropriate Holder by mailing certificates evidencing the
additional shares to the Holders at their respective addresses set forth in
the register of Holders maintained by GFV. All shares of Common Stock issuable
upon exchange of the Membership Interests shall be fully paid and
nonassessable.
(c) The Company shall not issue a fractional share of Common Stock
upon exchange of Membership Interests. Instead the Company shall deliver a
check for an amount equal to the applicable fraction of a share multiplied by
the Exchange Price per share as of the close of business on the Exchange Date,
rounded to the nearest cent.
(d) A Holder delivering a Exchange Notice will not be required to pay
any taxes or duties in respect of the issue or delivery of Common Stock on
exchange but will be required to pay any tax or duty that may be payable in
respect of any transfer involved in the issue or delivery of the shares of
Common Stock in a name other than that of the Holder of the Membership
Interests, to the extent (if any) otherwise permitted. Certificates
representing shares of Common Stock will not be issued or delivered unless all
taxes and duties, if any, payable by the Holder have been paid.
(e) The Company has reserved and shall continue to reserve out of its
authorized but unissued Common Stock or its Common Stock held in treasury
enough shares of Common Stock to permit the exchange of all of the Membership
Interests for shares of Common Stock assuming that such exchange took place at
the Exchange Price then in effect and such shares shall be fully paid and
nonassessable and free of preemptive or similar rights. The Company shall take
all commercially reasonable steps to comply with all securities laws
regulating the offer and delivery of shares of Common Stock upon the exchange
of Membership Interests therefor; provided, however, that the Company shall
not be required to file a registration statement with respect to such
securities, except as provided in the Registration Rights Agreement.
(f) The Exchange Price shall be subject to adjustment as follows:
(i) In case the Company shall (A) pay a dividend (or make a
distribution) on any class of its capital stock in shares of its Common Stock,
(B) subdivide its outstanding shares of Common Stock into a greater number of
shares or (C) combine its outstanding shares of Common Stock into a smaller
number of shares, the Exchange Price in effect immediately prior thereto shall
be adjusted (as provided below) so that Holders of Membership Interests
thereafter surrendered for exchange shall be entitled to receive the number of
shares of Common Stock which such Holder would have owned or have been
entitled to receive immediately following such action had such Membership
Interests been exchanged for shares of Common Stock immediately prior to such
time. The Exchange Price as adjusted shall be determined by multiplying the
Exchange Price at which the Membership Interests were theretofore exchangeable
by a fraction of which the denominator shall be the number of shares of Common
Stock outstanding immediately following such action and of which the numerator
shall be the number of shares of Common Stock outstanding immediately prior
thereto. Such adjustment shall be made whenever any event listed above shall
occur and shall become effective retroactively immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision or combination.
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(ii) In case the Company shall pay a dividend to all holders of
its Common Stock (including any dividend paid in connection with a
consolidation or merger in which the Company is the continuing Company) of any
shares of capital stock of the Company or its Subsidiaries (other than Common
Stock) or evidences of its indebtedness or assets or property (other than cash
and excluding dividends or distributions in connection with the liquidation,
dissolution or winding up of the Company) or rights or warrants to subscribe
for or purchase any of its capital stock or those of its Subsidiaries or
capital stock convertible or exchangeable for Common Stock, then in each such
case adequate provision shall be made so that each Holder shall have the right
to receive the amount and kind of assets, evidences of indebtedness, property
or securities such Holder would have received had such Holder exchanged all of
such Holder's Membership Interests for shares of Common Stock immediately
prior to the record date for such dividend. Such adjustment shall be made
whenever any such payment is made, and shall become effective retroactively
immediately after the record date for the determination of stockholders
entitled to receive the payment.
(iii) No adjustment in the Exchange Price shall be required
unless the adjustment would require an increase or decrease of at least one
percent (1%) in the Exchange Price then in effect; provided, however, that any
adjustments that by reason of this Section 2(f)(iii) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 2(f) shall be made to the
nearest cent.
(iv) Whenever the Exchange Price is adjusted, as herein provided,
the Company shall promptly send to each Holder of record by first class mail,
postage pre-paid, a certificate of an officer of the Company setting forth the
Exchange Price after the adjustment and setting forth a brief statement of the
facts requiring such adjustment and a computation thereof. The certificate
shall be conclusive evidence of the correctness of the adjustment. The Company
shall promptly cause a notice of the adjusted Exchange Price to be mailed to
each registered Holder.
(v) In case of any reclassification of the Common Stock, any
consolidation of the Company with, or merger of the Company into, any other
entity, any merger of another entity into the Company (other than a merger
that does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company), any sale
or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which share exchange the Common Stock is
converted into other securities, cash or other property, then lawful provision
shall be made as part of the terms of such transaction whereby each Holder
shall have the right thereafter, during the period such Membership Interests
shall be exchangeable, to exchange its Membership Interests only for the kind
and amount of securities, cash and other property receivable upon the
reclassification, consolidation, merger, sale, transfer or share exchange of
the number of shares of Common Stock of the Company into which such Holder's
Membership Interests would have been exchangeable immediately prior to the
reclassification, consolidation, merger, sale, transfer or share exchange. The
Company or the Person formed by the consolidation or resulting from the merger
or which acquires such assets or which acquires the Company's shares, as the
case may be, shall make provisions in its certificate or articles of
incorporation
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or other constituent document to establish such rights and such rights shall
be clearly provided for in the definitive transaction documents relating to
such transaction. Such certificate or articles of incorporation or other
constituent document shall provide for adjustments, which, for events
subsequent to the effective date of the certificate or articles of
incorporation or other constituent document, shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 2. The
provisions of this Section 2(f)(v) shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby represents, warrants and agrees to and with Xxxxxxx as follows:
(a) Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has full corporate power and authority to conduct its business
as presently conducted.
(b) Capitalization. The authorized capital stock of the Company
consists of 25,000,000 shares of common stock of the Company, par value $0.01
per share ("Common Stock"), and 5,959,509 shares of preferred stock of the
Company, par value $0.01 per share.
(i) As of August 1, 2005, the outstanding capital stock of the
Company consisted of 3,289,006 shares of Common Stock. The shares of issued
and outstanding capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and have not been issued in
violation of any preemptive rights or rights of first refusal.
(ii) As of August 1, 2005, the Company had 53,392 shares of
Common Stock reserved for issuance upon exercise of outstanding options
(including all stock options outstanding on such date, whether or not
immediately exercisable, but not including previously issued stock
appreciation rights with respect to 370,000 shares of Common Stock subject to
settlement in cash or, if so agreed by the parties thereto, in shares of
Common Stock). As of August 1, 2005, there were no shares of Common Stock
reserved for issuance upon exercise of outstanding warrants.
(iii) As of August 1, 2005, the Company had 6,446,608 shares of
Common Stock available for future grant under the Company's stock option plan.
(iv) The Company has arranged to grant to Xxxxx Xxxxxx, Xxxxxxx
Xxxxxxxxx, Xxxxx Xxxxxxxxx and Xxxxxx Xxxxxxxx options to purchase an
aggregate of 200,000 shares of Common Stock.
(v) Except as described above and for the transactions
contemplated by this Agreement, the Company is not party to any contract,
arrangement or understanding with any Person with respect to any issuance,
sale, grant or other disposition of shares of Common Stock, or securities
convertible, exercisable or exchangeable for such shares.
(c) Authorization. The Xxxxxxx Shares, when issued pursuant to this
Agreement upon the exchange of the Xxxxxxx Interests, will be duly and validly
authorized, validly issued, fully paid and nonassessable.
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(d) Authority; Enforceability. The Company has all corporate right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy. The issuance and sale of the Xxxxxxx Shares contemplated hereby will
not give rise to any preemptive rights or rights of first refusal on behalf of
any person.
(e) No Conflict; Litigation; Governmental Consents.
(i) The execution and delivery by the Company of this Agreement
and the consummation of the transactions contemplated hereby (A) will not
result in the violation by the Company (x) of any law, statute, rule,
regulation, order, writ, injunction, judgment or decree of any court or
governmental authority to which the Company is a party or by which the Company
is bound or (y) of any provision of the Certificate of Incorporation or the
Bylaws, (B) will not conflict with, or result in a breach or violation of, any
of the terms or provisions of, or constitute (with due notice or lapse of time
or both) a default under, any lease, loan agreement, mortgage, security
agreement, trust indenture or other agreement or instrument to which the
Company is a party or by which it is bound or to which any of its properties
or assets is subject, and (C) will not result in the creation or imposition of
any lien upon any of the properties or assets of the Company, except for any
such matters that would not, either individually or in the aggregate, have a
material adverse effect on the condition (financial or otherwise), business,
liabilities, assets or results of operations of the Company (a "Material
Adverse Effect" or a "Material Adverse Change").
(ii) There is no action, suit, proceeding, claim, arbitration or
investigation (each, an "Action") pending to which the Company is a party that
is reasonably likely to prevent, enjoin, or materially alter or delay the
transactions contemplated by this Agreement.
(f) SEC Reports. The Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder. The Company has made available to Xxxxxxx prior to the date hereof
copies of its Annual Report on Form 10-K for the fiscal year ended December
31, 2004 (the "Annual Report"), its quarterly report on Form 10-QSB for the
fiscal quarter ended March 31, 2005 (the "Quarterly Report"), and any Current
Report on Form 8-K for events occurring since December 31, 2004 (the "Current
Reports", and collectively with the Annual Report and the Quarterly Report,
the "SEC Documents") filed by the Company with the SEC. Each of the SEC
Documents, as of the respective dates thereof (or, if amended or superseded by
a further filing prior to the date hereof, then on the date of such further
filing), did not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
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(g) Absence of Certain Changes or Events. Since March 31, 2005, there
has been no Material Adverse Change with respect to the Company.
(h) Cash and Cash Equivalents; Dividends. As of July 31, 2005, the
Company had $3,748,000 in cash and cash equivalents. Since December 31, 2004,
the Company has not declared any cash dividend or made any distribution of
cash to its stockholders.
(i) Name Change; Change of Trading Symbol. The Company shall use
commercially reasonable efforts to change, as soon as practicable after the
date hereof, (x) the name of the Company to Xxxxxx Xxxxxxx Enterprises, Inc.
and (y) the Company's trading symbol on the Over-the-Counter Bulletin Board to
"GFEI.OB".
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF XXXXXXX. Each of GF and
GFPI hereby represents, warrants and agrees to and with the Company as
follows:
(a) Authority. Each of them has the capacity, power and authority to
enter into this Agreement and the other agreements, instruments and documents
contemplated hereby and to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by each of them
and constitutes their legal, valid and binding obligation, enforceable against
each of them in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy.
(b) No Conflict; Litigation.
(i) The execution and delivery by each of GF and GFPI of this
Agreement and the consummation of the transactions contemplated hereby (A)
will not result in the violation by either GF or GFPI (x) of any law, statute,
rule, regulation, order, writ, injunction, judgment or decree of any court or
governmental authority to or by which either GF or GFPI is bound or (y) of any
provision of the Certificate of Incorporation or the Bylaws of GFPI, (B) will
not conflict with, or result in a breach or violation of, any of the terms or
provisions of, or constitute (with due notice or lapse of time or both) a
default under, any license, lease, loan agreement, mortgage, security
agreement, trust indenture or other agreement or instrument to which either GF
or GFPI is a party or by which it is bound or to which any of his or its
properties or assets is subject, and (C) will not result in the creation or
imposition of any lien upon any of the properties or assets of GF or GFPI.
(ii) There is no Action pending to which either GF or GFPI is a
party that is reasonably likely to prevent, enjoin, or materially alter or
delay the transactions contemplated by this Agreement.
(c) Accredited Investor Status. Each of GF and GFPI is an "accredited
investor" as that term is defined in Rule 501 under the Securities Act.
(d) Reliance Upon Xxxxxxx'x Representations. Each of GF and GFPI
understands that the issuance of Xxxxxxx
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Shares to them upon any exchange of Xxxxxxx Interests will not be registered
under the Securities Act on the ground that such issuance and sale will be
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and that the Company's reliance on such exemption is based on
Xxxxxxx'x representations set forth herein.
(e) Restricted Securities. Each of GF and GFPI understands that the
Xxxxxxx Shares have not been registered under the Securities Act and will not
sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any of
the Xxxxxxx Shares except (i) pursuant to an effective registration statement
under the Securities Act, (ii) if he or it provides a reasonably acceptable
legal opinion to the Company, to the effect that a sale, assignment or
transfer of the Xxxxxxx Shares may be made without registration under the
Securities Act, and the transferee agrees to be bound by the terms and
conditions of this Agreement, or (iii) if he or it provides the Company with
reasonable assurances (in the form of seller and broker representation
letters) that the Xxxxxxx Shares can be sold pursuant to Rule 144 promulgated
under the Securities Act ("Rule 144").
(f) Legend. Each of GF and GFPI hereby agrees that, unless there is
an effective registration statement covering sale and distribution of the
Xxxxxxx Shares, the certificates representing the Xxxxxxx Shares shall bear a
legend to substantially the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR WITH ANY STATE SECURITIES
COMMISSION, AND MAY NOT BE TRANSFERRED DISPOSED OF BY THE
HOLDER IN THE ABSENCE OF A REGISTRATION STATEMENT WHICH IS
EFFECTIVE UNDER THE SECURITIES ACT AND APPLICABLE STATE
LAWS AND RULES, UNLESS, IMMEDIATELY PRIOR TO THE TIME SET
FOR TRANSFER, THE HOLDER PROVIDES A REASONABLY ACCEPTABLE
LEGAL OPINION TO THE COMPANY THAT SUCH TRANSFER MAY BE
EFFECTED WITHOUT VIOLATION OF THE SECURITIES ACT AND OTHER
APPLICABLE STATE LAWS AND RULES."
In addition, each of GF and GFPI agrees that the Company may
place stop transfer orders with its transfer agent with respect to such
certificates in order to implement the restrictions on transfer set forth in
this Agreement. The appropriate portion of the legend and the stop transfer
orders will be removed promptly upon delivery to the Company of such
satisfactory evidence as reasonably may be required by the Company that such
legend or stop orders are not required to ensure compliance with the
Securities Act.
(g) Restrictions on Short Sales. Each of GF and GFPI represents,
warrants and covenants that neither GF nor GFPI nor any Affiliate of either
which (x) has knowledge of the transactions contemplated hereby, (y) has or
shares discretion relating to any of their investments or trading or
information concerning any of their investments, including in respect of the
Xxxxxxx Shares, or (z) is subject to review or input by either of them
concerning such
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Affiliate's investments or trading, has engaged in or will engage in, directly
or indirectly, (i) any "short sales" (as such term is defined in Rule 3b-3
promulgated under the Exchange Act) of the Common Stock, including, without
limitation, the maintaining of any short position with respect to,
establishing or maintaining a "put equivalent position" (within the meaning of
Rule 16a-1(h) under the Exchange Act) with respect to, entering into any swap,
derivative transaction or other arrangement (whether any such transaction is
to be settled by delivery of Common Stock, other securities, cash or other
consideration) that transfers to another, in whole or in part, any economic
consequences or ownership, or otherwise dispose of, any of the Xxxxxxx Shares
by either of them or (ii) any hedging transaction which establishes a net
short position with respect to the Xxxxxxx Shares.
(h) Assignment Agreement Representations. All representations and
warranties of Xxxxxxx set forth in the Assignment Agreement are true and
correct and are incorporated by reference herein to the same extent as if set
forth fully herein. Notwithstanding anything in the previous sentence to the
contrary, except for the remedies specified in Paragraph 9 of that certain
services agreement, dated as of the date hereof, by and between the Company
and GFPI f/s/o GF, the indemnification provided for in Paragraph 8(c) of the
Assignment Agreement shall be the sole and exclusive remedy of the Company and
GFV for any loss, damage and expense, including attorneys' fees and costs,
arising out of any claims, demands, actions, suits or prosecutions that may be
instituted against the Company or GFV by reason of any claim of any material
breach or alleged breach by one or both of GF and GFPI of any of their
warranties, representations or agreements set forth in the Assignment
Agreement.
5. GOVERNANCE. Upon the execution and delivery by the parties hereto of
this Agreement, the Assignment Agreement, the Subscription Agreement and the
Operating Agreement:
(a) The Board of Directors of the Company (the "Board of Directors"
or the "Board") shall consist of six (6) directors. The individuals serving as
directors of the Company immediately prior to the consummation of the
transactions contemplated hereby shall be entitled to designate two (2)
individuals to serve on the Board of Directors (each, a "Director Designee",
and together, the "Director Designees"), and each of GF and GFPI will use
commercially reasonable best efforts to cause each such Director Designee to
be elected or appointed to the Board (including, without limitation, by
casting a vote in favor of the election or appointment of each such Director
Designee, but without any requirement that Xxxxxxx or GFP either (x) convert
his or its respective Membership Interest into Common Stock or (y) expend any
monies, whether on the solicitation of third parties or otherwise), to serve
until the next annual meeting of the stockholders of the Company and until
their successors have been duly elected and qualified or until their earlier
death, resignation or removal. In the event of the death, resignation or
removal of a Director Designee, the remaining Director Designee shall be
entitled to designate a substitute person to be appointed to the Board, which
person shall thereafter be a Director Designee.
(b) The two Director Designees and the two Directors elected by the
holders of the Series A Preferred Stock pursuant to Section 5(c) of the
Certificate of Designations (together, the "Preferred Directors") shall
jointly designate two (2) individuals to serve on the Board of Directors
(each, a "Mutual Designee", and together, the "Mutual Designees"), and each
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of the Company, GF and GFPI will use commercially reasonable best efforts to
cause each such Mutual Designee to be elected or appointed to the Board
(including, without limitation, by casting a vote in favor of the election or
appointment of each such Director Designee, but without any requirement that
Xxxxxxx or GFP either (x) convert his or its respective Membership Interest
into Common Stock or (y) expend any monies, whether on the solicitation of
third parties or otherwise), to serve until the next annual meeting of the
stockholders of the Company and until their successors have been duly elected
and qualified or until their earlier death, resignation or removal. In the
event of the death, resignation or removal of a Mutual Designee, the Director
Designees and the Preferred Directors shall designate a substitute person to
be appointed to the Board, which person shall thereafter be a Mutual Designee.
(c) Without first obtaining the affirmative vote or written consent
of at least five (5) members of the Board, the Company shall not:
(i) Effect any merger, consolidation, combination, or any other
comparable transaction of the Company with or into any other entity, or any
sale, transfer, encumbrance or other disposition of a significant (as such
term is defined in the context of "significant subsidiary" in Rule 1-01(w) of
Regulation S-X) portion of the assets of the Company;
(ii) Incur indebtedness (other than Permitted Indebtedness) that,
together with any other indebtedness of the Company (other than Permitted
Indebtedness), would cause the aggregate debt of the Company to exceed the
greatest of (x) $2,000,000, (y) 20% of the Capitalization of the Company or
(z) five times the greater of the annual net income of the Company or the
annual net income of GFV as reflected on the audited income statement of the
Company or GFV, as the case may be, for its most recently concluded fiscal
year;
(iii) Issue any additional shares of Common Stock (including
shares of Common Stock received by the Company upon exchange of Membership
Interests) (or any securities convertible into or exchangeable for shares of
Common Stock, whether in the form of stock options, warrants, convertible debt
or otherwise), other than the issuance of (x) up to 200,000 shares of Common
Stock to Xxxxxxx Xxxxxxxxx, Xxxxx Xxxxxxxxx and/or Xxxxxx Xxxxxxxx upon the
exercise of options to purchase Common Stock and (y) shares of Common Stock
upon the exercise of rights of the holders of securities convertible into or
exchangeable for shares of Common Stock that were outstanding on the date
hereof or were approved pursuant to this Section 5(c)(iii);
(iv) Enter into, materially amend, or vote not to extend the term
of any employment agreement or comparable arrangements in respect of (a) any
executive officer (as defined in Rule 3b-7 promulgated under the Exchange Act)
of the Company, (b) the heads of sales and marketing of the Company, or (c)
any person that is a member of the immediate family (as such term is defined
in Item 404 of Regulation S-K under the Securities Act) of Xxxxxxx Xxxxxxxx,
GF, or any director or executive officer of the Company (provided that the
terms of any extension shall remain within the discretion of the Board or the
Compensation Committee thereof); or
12
(v) Enter into any transaction that would be required to be
disclosed by the Company under Item 404 of Regulation S-K under the Securities
Act.
(d) The Company shall not enter into or materially amend any
contract, agreement or other arrangement relating to the use of the Xxxxxxx
Assets with an entity other than a Controlled Entity, unless the subject
matter of such contract, agreement, arrangement or amendment has been approved
by at least five (5) members of the Board pursuant to either an affirmative
vote or written consent.
(e) Xxxxxxx shall be entitled to designate a representative (the
"Xxxxxxx Observer") to attend all meetings of, and participate in discussions
of matters brought to, the Board, in a nonvoting observer capacity so long as
such Xxxxxxx Observer agrees in writing to be bound by all confidentiality and
other similar obligations of a member of the Board, and, in this respect, the
Company shall give the Xxxxxxx Observer, concurrently with the members of the
Board, copies of all notices, agendas, minutes, consents and other materials
that the Company provides to its directors; provided, however, that in no
event shall the failure to provide the notice described above invalidate in
any way any action taken at a meeting or taken by written consent of the
Board, and provided further that the Company may take reasonable steps to
ensure the preservation of any legal privilege applicable to the proceedings
of the Board.
6. STOCKHOLDER RIGHTS AND RESTRICTIONS.
(a) Right of First Offer. Subject to the terms and conditions
contained in this Section 6, the Company hereby grants to Xxxxxxx and
Xxxxxxx'x Permitted Transferees to whom he has transferred Xxxxxxx Securities
the right of first offer to purchase Xxxxxxx'x Pro Rata Portion of any New
Securities (as defined in Section 6(b)) which the Company may, from time to
time, propose to sell and issue. Xxxxxxx'x "Pro Rata Portion" for purposes of
this Section 6 is the ratio that (i) the sum of the number of shares of the
Common Stock then held by Xxxxxxx and the number of shares of the Common Stock
then issuable upon conversion of outstanding securities convertible into or
exercisable or exchangeable for Common Stock (including the Xxxxxxx Interests
and shares of preferred stock) then held by Xxxxxxx bears to (ii) the sum of
the total number of shares of the Common Stock then outstanding and the number
of shares of Common Stock then issuable upon conversion of all outstanding
securities convertible into or exercisable or exchangeable for Common Stock.
(b) Definition of New Securities. Except as set forth below, "New
Securities" shall mean any shares of capital stock of the Company, including
Common Stock and preferred stock, whether authorized or not, and rights,
options or warrants to purchase said shares of Common Stock or preferred
stock, and securities of any type whatsoever that are, or may become,
convertible or exercisable into said shares of Common Stock or preferred
stock. Notwithstanding the foregoing, "New Securities" does not include (i)
securities offered to the public generally pursuant to a registration
statement effective under the Securities Act; (ii) securities issued pursuant
to the acquisition of another business entity by the Company by merger,
purchase of all or substantially all of the assets or shares of such other
business entity or other similar transaction after which the Company or its
stockholders own not less than a majority of the voting power of the surviving
or successor business; (iii) any shares of Common Stock or options to purchase
Common Stock (including any shares of Common Stock issued
13
upon exercise of any such options) issued pursuant to any stock option,
incentive or similar plan of the Company or otherwise to any employee, officer
or director of, or consultant to, the Company; (iv) any shares of Common Stock
issued to any lender, customer or vendor of the Company, provided that any
such transaction or arrangement has been approved by the Board of Directors;
or (v) securities issued in connection with any stock split, stock dividend,
recapitalization or similar transaction by the Company.
(c) Notice of Right. In the event the Company proposes to undertake
an issuance of New Securities, it shall give Xxxxxxx written notice of its
intention, describing the type of New Securities and the price and general
terms upon which the Company proposes to issue the same. Xxxxxxx shall have
fifteen (15) days following his or its deemed receipt of any such notice to
agree to purchase some or all of the shares of such New Securities (up to the
amount referred to in Section 6(a)), for the price and upon the terms
specified in the notice, by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased.
(d) Exercise of Right. If Xxxxxxx exercises his or its right of first
offer hereunder, the closing of the purchase of the New Securities by Xxxxxxx
with respect to which such right has been exercised shall take place within
ninety (90) days after Xxxxxxx gives notice of such exercise, which period of
time shall be extended in order to comply with applicable laws and
regulations. Upon exercise of such right of first offer, the Company and
Xxxxxxx shall be legally obligated to consummate the purchase contemplated
thereby and shall use all reasonable efforts to secure any approvals required
in connection therewith.
7. WITHHOLDING. Except as otherwise required by law, the Company shall
not withhold any amounts for taxes or other liabilities with respect to any
exchange of Membership Interests by Xxxxxxx in accordance with the provisions
of Section 2. Xxxxxxx hereby agrees to reimburse the Company for all claims,
losses, liabilities, penalties and the like (including fees and expenses)
incurred by the Company arising out of or relating to the failure or alleged
failure of Company to satisfy any such taxes or liabilities.
8. MISCELLANEOUS.
(a) Successors and Assigns; Assignment. The terms and conditions of
this Agreement will inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by
either party without the prior written consent of the other party.
(b) Governing Law; Arbitration. This Agreement will be governed by
and construed and enforced under the internal laws of the State of New York,
without reference to principles of conflict of laws or choice of laws. Any
controversy or claim arising under, out of, or in relation to this Agreement
or any breach or alleged breach hereof, shall be determined and settled by
arbitration, pursuant to the rules then obtaining of the American Arbitration
Association (the "AAA"), and the procedures set forth herein. In the event of
an inconsistency between the rules of the AAA and the procedures set forth
herein, the procedures set forth herein shall control. The location of the
arbitration shall be in New York, New York. The arbitration
14
shall be conducted by a panel of three (3) neutral arbitrators who are
independent and disinterested with respect to the parties, the Agreement, and
the outcome of the arbitration. The parties shall first attempt to select
mutually the three (3) arbitrators. If no agreement can be reached by the
parties within thirty (30) days of the filing of the demand for arbitration,
then each party shall select one (1) arbitrator and the two (2) arbitrators
thus selected shall then select the third arbitrator. If any vacancy occurs in
the board of arbitrators appointed hereunder by reason of death, resignation,
refusal to act, physical incapacity or otherwise, a new arbitrator shall be
appointed in the same manner and by the same party or arbitrators, as
applicable, by whom the previous incumbent was appointed. The arbitrators
shall be instructed and directed to assume case management initiative and
control over the arbitration process (including, without limitation,
scheduling of events, prehearing discovery and activities, and the conduct of
the hearing), in order to complete the arbitration as expeditiously as is
reasonably practical for obtaining a just resolution of the dispute. Each
party shall bear its own expenses in connection with the arbitration, and
shall share equally in the payment of the arbitrators' fees as and when billed
by the arbitrators, unless the arbitrators rule otherwise. Such determination
by the two (2) of the three (3) arbitrators shall be final, binding and
conclusive upon the parties hereto and shall be rendered in such form that it
may be judicially confirmed under the laws of the State of New York. The
parties hereto expressly consent to the exclusive jurisdiction of the courts
in New York County to enforce any award of the arbitrators.
(c) Survival. The representations, warranties and agreements of the
Company and Xxxxxxx contained in Sections 3 and 4, respectively, of this
Agreement shall survive the consummation of the transactions contemplated
hereby.
(d) Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument. Signed facsimile copies
of this Agreement will legally bind the parties to the same extent as original
documents.
(e) Headings. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules will, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by reference. (f)
Notices. Any notices and other communications required or permitted under this
Agreement shall be in writing and shall be delivered (i) personally by hand or
by courier, (ii) mailed by United States first-class mail, postage prepaid or
(iii) sent by facsimile directed (x) if to Xxxxxxx, at Xxxxxxx'x address or
facsimile number set forth below, or at such address or facsimile number as
Xxxxxxx may designate by giving at least ten (10) days' advance written notice
to the Company or (y) if to the Company, to its address or facsimile number
set forth below, or at such other address or facsimile number as the Company
may designate by giving at least ten (10) days' advance written notice to
Xxxxxxx. All such notices and other communications shall be deemed given upon
(i) receipt or refusal of receipt, if delivered personally, (ii) three (3)
days after being placed in the mail, if mailed, or (iii) confirmation of
facsimile transfer, if faxed.
15
The address of Xxxxxxx for the purpose of this Section 8(f) is as
follows:
Xxxxxx Xxxxxxx
Xxxxxx Xxxxxxx Productions, Inc.
[ADDRESS]
Facsimile:
with a copy to:
Xxxxxxxxxxx & Xxxxxxxx Xxxxxxxxx Xxxxxx LLP
0000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
The address of the Company for the purpose of this Section 8(f) is as
follows:
MM Companies, Inc.
000 X. Xxxxxx-Xxxxx Blvd., 4th Floor
Xxxxxx-Xxxxx, Pennsylvania 18702
Attention: President
Facsimile:
with a copy to:
Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
(g) Amendments and Waivers. This Agreement may be amended and the
observance of any term of this Agreement may be waived only with the written
consent of the Company and Xxxxxxx. Any amendment effected in accordance with
this Section 8(g) will be binding upon the Company, Xxxxxxx and their
respective successors and assigns.
(h) Severability. If any provision of this Agreement is held to be
unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its
terms.
(i) Entire Agreement. This Agreement, together with the Assignment
Agreement, the Subscription Agreement, the Operating Agreement, and that
certain registration rights agreement, dated as of the date hereof, by and
among the Company and Xxxxxxx, and all exhibits and schedules hereto and
thereto, constitutes the entire agreement and understanding of the parties
with respect to the subject matter hereof and supersedes any and all prior
negotiations,
16
correspondence, agreements, understandings, duties or obligations between the
parties with respect to the subject matter hereof.
(j) Further Assurances. From and after the date of this Agreement,
upon the request of the Company or Xxxxxxx, the Company and Xxxxxxx will
execute and deliver such instruments, documents or other writings, and take
such other actions, as may be reasonably necessary or desirable to confirm and
carry out and to effectuate fully the intent and purposes of this Agreement.
(k) Negotiated Agreement. Each of the Company, GFV, GF and GFPI
acknowledges that he or it has been advised and represented by counsel in the
negotiation, execution and delivery of this Agreement and accordingly agrees
that if an ambiguity exists with respect to any provision of this Agreement,
such provision shall not be construed against any party because such party or
such party's representatives drafted such provision.
(l) Meaning of Include and Including. Whenever in this Agreement the
word "include" or "including" is used, it shall be deemed to mean "include,
without limitation" or "including, without limitation," as the case may be,
and the language following "include" or "including" shall not be deemed to set
forth an exhaustive list.
(m) Equitable Remedies. Notwithstanding the provisions of Section
8(b) hereof, in the event of (x) a breach of this Agreement or (y) a failure
of a party to perform any of its or his obligations under this Agreement, and,
in either case, money damages would not be adequate compensation for the
damages that the other party would suffer by reason of such breach or failure,
each party hereto agrees that, in addition to and without limiting any other
remedy or right such party may have, the non-breaching party will have the
right to an injunction, temporary restraining order or other equitable relief
in any court of competent jurisdiction enjoining any such breach and enforcing
specifically the terms and provisions hereof. In the event of any controversy
or claim arising out of or relating to any such breach or failure, each of the
parties hereto irrevocably (a) submits to the non-exclusive jurisdiction of
any New York state court sitting in the County of New York or any federal
court sitting in U.S. District Court for the Southern District of the State of
New York, (b) waives any objection which such party may have at any time to
the laying of venue of any action or proceeding brought in any such court and
(c) waives any claim that such action or proceeding has been brought in an
inconvenient forum.
[Remainder of Page Intentionally Left Blank]
17
IN WITNESS WHEREOF, the parties hereto have executed this Investor
Rights Agreement as of the date and year first above written.
MM COMPANIES, INC.
By:__________________________________
Name: Xxxxx Xxxxxxxxx
Title: President
XXXXXX XXXXXXX VENTURES LLC
By: MM Companies, its Managing Member
By:_________________________________
Name: Xxxxx Xxxxxxxxx
Title: President
XXXXXX XXXXXXX
____________________________________
Xxxxxx Xxxxxxx
XXXXXX XXXXXXX PRODUCTIONS, INC.
By:_________________________________
Name:
Title:
Exhibit A - Form of Assignment Agreement
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Exhibit B - Form of Subscription Agreement
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