EXHIBIT 4
SHAREHOLDER RIGHTS AGREEMENT
SHAREHOLDER RIGHTS AGREEMENT (the "Agreement"), dated as of January 1, 2001
by and among Pinnacle Business Management, Inc., a Nevada corporation (the
"Corporation"), and Xxx and Xxxxxxx XxXxxxxx, individuals residing in the State
of Florida (collectively, the" Investors").
WHEREAS, the Investors, in connection with the transactions contemplated by
that certain Stock Purchase Agreement dated December 27, 2000 among the
Corporation, the Investors, and Xxxx Xxxxxx and Xxxxxxx Xxxx (the "Stock
Purchase Agreement") received shares of the Corporation's common stock; and
WHEREAS, the execution and delivery of this Agreement by the Corporation
has been made a condition precedent by the Investors to the closing of the
transactions contemplated by the Stock Purchase Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter set forth, the parties hereby agree as follows:
SECTION 1. Definitions. As used herein, the following terms not otherwise
-----------
defined herein shall have the following meanings:
(a) "Affiliate" of any person shall mean any general or limited
partner of any such person that is a partnership, or any person or entity that,
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such person.
(b) "Common Stock" shall mean the Common Stock of the Corporation.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(d) "GAAP" shall mean United States generally accepted accounting
principles.
(e) "Intellectual Property Rights" shall mean all patents,
trademarks, service marks, trade names, copyrights, inventions, trade secrets,
know-how, proprietary processes and formulae, applications for patents,
trademarks, service marks and copyrights, and other industrial and intellectual
property rights.
(f) "Pinnacle Companies" shall mean the Corporation and
Subsidiaries.
(g) "Preferred Stock" shall mean the Preferred Stock of the
Corporation.
(h) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(i) "Subsidiary" shall mean any corporation, association, trust,
partnership, limited liability company, limited liability partnership, joint
venture or other entity, a majority of the outstanding equity interest of which
is owned, directly or indirectly, by the Corporation.
SECTION 2. Management of the Corporation. The Corporation covenants with
-------------- ---------------
the Investors as follows:
2.1 Access to Records. The Corporation agrees to afford to the
-------------------
Investors and their respective employees, counsel and other authorized
representatives, upon reasonable prior request, free and full access, during
normal business hours, to all books, records and properties of the Pinnacle
Companies and to all officers of the Pinnacle Companies and those other
employees of the Pinnacle Companies having responsibility for financial or
accounting matters generally, for any reasonable purpose whatsoever.
2.2 Financial Reports. Subject to the limitations set forth in Section
------------------
2.6. the Corporation agrees to furnish each of the Investors with the following:
2.2.1 Quarterly and Monthly Reports. Within 45 days after 1/4 4th 90
-------------------------------
days after the end of each month and each fiscal quarter, an unaudited financial
report of the Corporation, which report shall be prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied (except
that the financial report may (i) be subject to normal year-end audit
adjustments and (ii) not contain all notes thereto which may be required in
accordance with GAAP) and shall be certified by either the Chief Executive
Officer or the Chief Financial Officer of the Corporation to have been so
prepared, and which shall include the following:
(a) an income statement for such month or quarter, together
with a cumulative income statement from the first day of the then-current fiscal
year to the last day of such month or quarter;
(b) a balance sheet as of the last day of such month or
quarter;
(c) a statement of cash flows for such month or quarter; and
(d) a comparison between the actual figures for such month or
quarter, the comparable figures (with respect to the foregoing clauses (a) and
(b) only) for the prior year (if any) and the comparable figures included in the
Budget (as defined below) for such month or quarter, with an explanation of any
material differences between them.
The financial report for each such month or quarter shall be accompanied by
a report by the Chief Executive Officer of the Corporation explaining business
developments and material problems occurring during the month or quarter.
2.2.2 Annual Reports. Within 90 days after the end of each fiscal
---------------
year of the Corporation, preliminary financial statements of the Corporation,
and within 120 days after the end of each fiscal year of the Corporation,
audited financial statements of the Corporation, which preliminary and audited
financial statements shall (a) consolidate the accounts of the Pinnacle
Companies, (b) include an income statement for such fiscal year, a balance sheet
as of the last day thereof, and statements of stockholders' equity and cash
flows for such fiscal year, and (c) each be prepared in accordance with
generally accepted accounting principles consistently applied. The audited
financial statements shall be certified by an independent certified public
accountants of recognized standing reasonably satisfactory to the Investors and
shall be accompanied by such accountants' annual management letter.
2.2.3 Other Reports and Information. Promptly upon becoming
--------------------------------
available, copies of all financial statements, reports, notices, press releases,
proxy statements and other documents sent by the Corporation to its stockholders
or released to the public and copies of all regular and periodic reports, if
any, filed by the Corporation with the U.S. Securities and Exchange Commission
or any securities exchange.
2.4 Quarterly Board Meetings. The Corporation agrees to hold a meeting
-------------------------
of its Board of Directors at least once every calendar quarter.
2.5 Observer Rights. The Corporation shall invite a representative of
----------------
the Investors, so long as (i) they own at least 5% five shares of Common Stock,
such minimum numbers of shares to be appropriately adjusted to take account of
any stock split, stock dividend, combination of shares or the like, or (ii) any
amounts are still owed under the Promissory Note, to attend all meetings of its
Board of Directors in a nonvoting observer capacity and, in this respect, shall
give such representative copies of all notices, minutes, consents and other
materials that it provides to its directors; provided, however, that such
representative shall agree to hold in confidence and trust all such information.
SECTION 3. Right of First Refusal.
-------------------------
3.1 The Corporation hereby grants to each Investor and any permitted
assignee of an Investor described in Section 3.9 (each, a "Right Holder") the
right of first refusal to purchase, pro rata, all (or any part) of any New
Securities (as defined in this Section 3.1) that the Corporation may, from time
to time, propose to sell or issue (the "Basic Amount"). Each such Right Holder's
pro rata share, for purposes of this right of first refusal, is the ratio of (i)
the number of shares of Common Stock then held of record by, or issuable on
conversion of the shares of Preferred Stock then held of record by, such Right
Holder to (ii) the total number of shares of the Common Stock issued and
outstanding at such time.
3.2 "New Securities" shall mean any equity securities of the
Corporation, whether now authorized or not, and rights, options, or warrants to
purchase said equity securities, and securities of any type whatsoever that are,
or may become, convertible into said equity securities; provided, that "New
Securities" does not include (i) securities issued pursuant to the acquisition
of another corporation by the Corporation by merger, purchase of substantially
all of the assets, or other reorganization whereby the Corporation acquires not
less than 51% of the voting power of such corporation; (ii) up to 5,000,000
shares of Common Stock issued or issuable to employees, consultants or directors
of the Corporation pursuant to a stock plan, stock option plan or other stock
bonus arrangement, which plan or arrangement, if approved after January 1, 2000,
is approved by the unanimous vote of the Board of Directors; (iv) up to ______
shares issued upon exercise of the any options or warrants to purchase Common
Stock that were outstanding as of December 31, 2000. The only options or
warrants currently outstanding are the Xxxxxxxx underwriting warrant.
3.3 The Corporation shall not issue, sell or exchange, agree to issue,
sell or exchange, or reserve or set aside for issuance, sale or exchange any New
Securities unless the Corporation shall deliver to each Right Holder a written
notice of any proposed or intended issuance, sale or exchange of New Securities
(the "Offer"), which Offer shall (i) identify and describe the New Securities,
(ii) describe the price and other terms upon which they are to be issued, sold
or exchanged, and the number or amount of the New Securities to be issued, sold
or exchanged, (iii) identify the persons or entities, if known, to which or with
which the New Securities are to be offered, issued, sold or exchanged and (iv)
offer to issue and sell to or exchange with such Right Holder (A) such Right
Holder's Basic Amount, and (B) any additional portion of the New Securities
required to be offered to Right Holders hereunder as such Right Holder shall
indicate it will purchase or acquire should the other Right Holders subscribe
for less than their Basic Amounts (the "Undersubscription Amount"). Each Right
Holder shall have the right, for a period of 30 days following delivery of the
Offer, to purchase or acquire, at a price and upon the other terms specified in
the Offer, the number or amount of New Securities described above. The Offer by
its terms shall remain open and irrevocable for such 30-day period.
3.4 To accept an Offer, in whole or in part, a Right Holder must
deliver a written notice to the Corporation prior to the end of the 30-day
period of the Offer, setting forth the portion of the Right Holder's Basic
Amount that such Right Holder elects to purchase and, if such Right Holder shall
elect to purchase all of its Basic Amount, the Undersubscription Amount (if any)
that such Right Holder elects to purchase (the "Notice of Acceptance"). If the
Basic Amounts subscribed for by all Right Holders are less than the Basic
Amounts to which all Right Holders are entitled, then each Right Holder who has
set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amount subscribed for, the
Undersubscription Amount it has subscribed for; provided, that should the
Undersubscription Amounts subscribed for exceed the difference between the Basic
Amounts to which all Right Holders are entitled and the Basic Amounts subscribed
for (the "Available Undersubscription Amount"), each Right Holder who has
subscribed for any Undersubscription Amount shall be entitled to purchase only
that portion of the Available Undersubscription Amount as the Undersubscription
Amount subscribed for by such Right Holder bears to the total Undersubscription
Amounts subscribed for by all Right Holders, subject to rounding by the Board of
Directors to the extent it reasonably deems necessary.
3.5 The Corporation shall have 90 days from the expiration of the
period set forth in Section 3.3 above to issue, sell or exchange all or any part
of such New Securities as to which a Notice of Acceptance has not been given by
the Right Holders (the "Refused Securities"), but only to the offerees or
purchasers (if identified) and only upon terms and conditions (including,
without limitation, unit prices and interest rates) which are described in the
Offer.
3.6 In the event the Corporation shall propose to sell less than all
the Refused Securities (any such sale to be in the manner and on the terms
specified in Section 3.5 above), then each Right Holder may, at its sole option
and in its sole discretion, reduce the number or amount of the New Securities
specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of the New Securities that the Right Holder elected to
purchase pursuant to Section 3.4 above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of New Securities the
Corporation actually proposes to issue, sell or exchange (including New
Securities to be issued or sold to Right Holders pursuant to Section 3.4 above
prior to such reduction) and (ii) the denominator of which shall be the amount
of all New Securities that the Corporation initially proposed to offer, sell or
exchange as described in the Offer. In the event that any Right Holder so elects
to reduce the number or amount of New Securities specified in its Notice of
Acceptance, the Corporation may not issue, sell or exchange more than the
reduced number or amount of the New Securities unless and until such securities
have again been offered to the Right Holders in accordance with Section 3.3
above.
3.7 Upon the closing of the issuance, sale or exchange of all or less
than all the Refused Securities, the Right Holders shall acquire from the
Corporation, and the Corporation shall issue to the Right Holders, the number or
amount of New Securities specified in the Notices of Acceptance, as reduced
pursuant to Section 3.6 above if the Right Holders have so elected, upon the
terms and conditions specified in the Offer. The purchase by the Right Holders
of any New Securities is subject in all cases to the preparation, execution and
delivery by the Corporation and the Right Holders of a purchase agreement
relating to such New Securities reasonably satisfactory in form and substance to
the Right Holders and their respective counsel.
3.8 Any New Securities not acquired by the Right Holders or other
persons in accordance with Section 3.5 above may not be issued, sold or
exchanged until they are again offered to the Right Holders under the procedures
specified in this Agreement. This right of first refusal may be assigned, in
whole or in part, to any Affiliate or family member of any Investor.
SECTION 4. Covenants. The Corporation covenants with the Investors as
---------
follows:
4.1 Keeping of Records and Books of Account. The Corporation shall
--------------------------------------------
keep, and cause each Pinnacle Company to keep, adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Corporation
and such Pinnacle Companies, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
4.2 Insurance. The Corporation shall do or cause to be done all things
---------
necessary to preserve and maintain in full force and effect fire, casualty and
comprehensive general liability and other liability insurance policies, with
extended coverage, on the properties, assets, business and personnel of the
Pinnacle Companies, in amounts deemed adequate by the Corporation, and in
accordance with the standards of the industry in which the Pinnacle Companies
operate.
4.3 Maintenance of Corporate Existence. etc. The Corporation will do or
---------------------------------------
cause to be done all reasonable things necessary to preserve and keep in full
force and effect the existence and all of the rights (charter and statutory) of
the Pinnacle Companies, subject in all cases to the exercise by the directors of
the Pinnacle Companies of their fiduciary obligations. The Corporation shall
comply in all material respects with the provisions of its Certificate of
Incorporation and By-Laws, and shall cause each of the Pinnacle Companies to
comply in all material respects with the provisions of their respective
charters, by-laws, memoranda of association, articles of association and other
constitutive documents.
4.4 Maintenance of Facilities. The Corporation will maintain and keep,
--------------------------
and cause each Pinnacle Company to maintain and keep, in good condition all
facilities owned or leased in the conduct of the business of such Company and
will make and cause each Pinnacle Company to make all necessary repairs,
renewals, replacements, betterments and improvements thereof, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, that nothing in this Section shall prevent any
Pinnacle Company from discontinuing the lease or maintenance of any such
facilities if such discontinuance is, in the good faith judgment of the
President or the Board of Directors of the Corporation, desirable in the conduct
of the business of such Pinnacle Company and would not have a material adverse
effect on such Pinnacle Company.
4.5 Payment of Taxes. The Corporation will pay or discharge or cause to
----------------
be paid or discharged, before the same shall become delinquent, (a) all material
taxes, assessments and governmental charges levied or imposed upon the Pinnacle
Companies or upon the income, profits or properties of the Pinnacle Companies;
and (b) all material liabilities of the Pinnacle Companies; provided, that the
Corporation shall not be required to pay or discharge or cause to be paid or
discharged any such tax assessment, liability, or charge, whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings if adequate reserves therefor have been established in accordance
with GAAP.
4.6 Compliance with Applicable Laws. The Corporation shall conduct its
--------------------------------
business, and shall cause each Pinnacle Company to conduct its business, in
compliance in all material respects with all laws and valid requirements of
governmental authorities applicable to the conduct of such business or to the
properties or assets of such company.
4.7 Employee Agreements. The Corporation shall cause each person who
--------------------
becomes a consultant or employee of any Pinnacle Company subsequent to the date
hereof, and who shall have or be proposed to have access to confidential or
proprietary information of such Pinnacle Company, upon the commencement of such
person s employment by such Pinnacle Company, to execute an agreement relating
to matters of non-disclosure of confidential and proprietary information and
assignment of patents, inventions and other Intellectual Property Rights in form
and substance satisfactory to the Board of Directors of the Corporation. The
Corporation shall use its best efforts to enforce, or to cause the Pinnacle
Companies to enforce, each such agreement, unless the Board of Directors shall
determine otherwise.
4.8 Notice of Litigation and Defaults. Promptly after the occurrence
------------------------------------
thereof, the Corporation shall notify each Investor of (a) the initiation of any
action, suit, proceeding, or governmental inquiry against any Pinnacle Company
involving a claim for more than $20,000 or for injunctive relief; (b) any
default by any Pinnacle Company under any agreement for borrowed money in excess
of $20,000 or any other material agreement of any kind. In each case such notice
shall be delivered together with a reasonably detailed description of the action
taken or proposed to be taken by any Pinnacle Company with respect thereto.
4.9 Securities Matters. The Corporation shall comply in all material
-------------------
respects with all filings required under the Securities Act, the Exchange Act,
and any applicable securities laws of any state or other jurisdiction.
4.10 Rule 144A. The Corporation shall, upon written request of any
----------
Investor, provide to such Investor and to any prospective qualified
institutional buyer (as defined in Rule 144A promulgated under the Securities
Act) designated by such Investor, such financial and other information as such
Investor may determine to be necessary to permit compliance with the
requirements of Rule 144A in connection with any resale of the Common Stock.
SECTION 5. Actions Subject to Approval of Investors. The Corporation
---------------------------------------------
covenants with the Investors that in addition to any other vote required by law
or the Corporation's Certificate of Incorporation or By-Laws, without the prior
approval of a the Investors, the Corporation shall not, and the Corporation
shall not permit any Pinnacle Company to: As long as the Promissory Note is
outstanding or is a 5% or greater
(a) increase the compensation of any executive officer of any
Company;
(b) grant or issue any stock, stock option or other equity
incentive to any officer or director of, or consultant or other service provider
to, any Company;
(c) create, incur, assume or suffer to exist any indebtedness for
borrowed money in excess of $100,000;
(d) make, or permit any Pinnacle Company to make, any loan or
advance to, or own any stock or other securities of, any other corporation,
partnership, or other entity unless it is wholly owned by the Corporation;
(e) enter into or be a party to any transaction with any director,
officer or employee of any Pinnacle Company, except for transactions made in the
ordinary course of business and pursuant to reasonable requirements of such
Pinnacle Company's business and upon fair and reasonable terms that are approved
by the unanimous vote of the Board of Directors; or
(f) directly or indirectly guarantee or otherwise in any way
become liable with respect to the obligations or liabilities of any person or
entity, except by endorsement of instruments or items of payment for deposit to
the general account of the Corporation.
SECTION 6. Notices. All notices, requests, consents and other
-------
communications hereunder ("Notices") to any party shall be contained in a
written instrument addressed to such party at the address set forth below or
such other address as may hereafter be designated in writing by the addressee to
the addressor listing all parties and shall be deemed given (a) when delivered
in person or duly sent by fax showing confirmation of receipt, (b) three days
after being sent by first class mail postage prepaid (other than in the case of
Notices to or from any non-U.S. resident) or (c) two days after being sent by
DHL, Federal Express or other recognized express international courier service:
(a) if to the Corporation, to:
Pinnacle Business Management, Inc.
2963 Gulf to Xxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxx, Xxxxxxx 00000
Attention: President
Fax: (000) 000-0000
(b) if to the Investors, to their address set forth on the signature
pages of the of this Agreement, with a copy to:
Xxxx Xxxxxxx
0000 Xxxxxxxxxx Xxxx
XxXxxxxx, XX 00000
Fax: (000) 000-0000
SECTION 7. Miscellaneous.
-------------
7.1 Entire Agreement: Effect on Old Agreements. This Agreement states
--------------------------------------------
the entire agreement of the parties concerning the subject matter hereof, and
supersedes all prior agreements, written or oral, between or among them
concerning such subject matter parties thereto, which shall hereafter have no
further force or effect.
7.2 Amendments: Waivers. This Agreement may be amended, and compliance
--------------------
with any provision of this Agreement may be omitted or waived, only by the
written agreement of the Corporation and each of the Investors.
7.3 Governing Law. This Agreement shall be governed by, and construed
--------------
and enforced in accordance with, the substantive laws of the Commonwealth of
Pennsylvania, without regard to its principles of conflicts of laws.
7.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each such counterpart shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement. Any such counterpart may contain one or more signature pages.
IN WITNESS WHEREOF, the parties have executed this Agreement as a contract
under seal as of the date first written above.
PINNACLE BUSINESS MANAGEMENT, INC.
By:
-----------------------------
Title: President
/s/ Xxxxxxx X. XxXxxxxx
--------------------------------
Xxxxxxx X. XxXxxxxx
/s/ Xxx XxXxxxxx
--------------------------------
Xxx XxXxxxxx
