CONVERSION RIGHTS AGREEMENT
CONVERSION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of the 30th day
of June 2004, between XXXX XXXXXX, an individual residing in Houston, Texas
("XXXXXX"), and XXXX XXXXXXXX, an individual residing in Houston, Texas
("XXXXXXXX")(Xxxxxx and Xxxxxxxx being herein referred to collectively as the
"DOLPHIN SHAREHOLDERS"), and THE PROJECT GROUP, INC., a corporation organized
under the laws of the State of Nevada (the "COMPANY").
W I T N E S S E T H :
WHEREAS, pursuant to the Stock Purchase Agreement, dated June 30, 2004
(the "PURCHASE AGREEMENT"), between the Company and the Dolphin Shareholders,
the Company purchased from the Dolphin Shareholders 100% of the issued and
outstanding stock of Dolphin Knowledge, Inc. (the "PURCHASE TRANSACTION") in
exchange consideration consisting of cash and 6,600,000 shares of common stock
of the Company (the "STOCK CONSIDERATION SHARES");
WHEREAS, certain founding shareholders (the "FOUNDERS") of the Company
have a right to convert their existing shares of common stock into shares of
Series A Preferred Stock (the "SERIES A PREFERRED SHARES") of the Company with
the holders of Series A Preferred Shares having a right to convert the Series A
Preferred Shares into a fixed percentage of the outstanding common stock of the
Company over a specified period of time;
WHEREAS, as a condition of the Purchase Transaction, and as provided in
the Purchase Agreement, the Dolphin Shareholders are required to be granted
rights substantially identical to the rights of the Founders to convert their
shares of common stock into Series A Preferred Shares whereby the Dolphin
Shareholders will have a right to convert the Stock Consideration Shares into
shares of preferred stock, to be designated "Series C Preferred Stock" (the
"SERIES C PREFERRED SHARES"), which are, in turn, convertible into shares of
common stock of the Company representing, in the aggregate, nine percent (9%) of
the common stock of the Company following conversion; such right to convert into
Series C Preferred Shares to be exercisable only after a conversion by the
Founders of shares of common stock into Series A Preferred Shares; and
WHEREAS, it is a condition precedent to the Dolphin Shareholders'
willingness to consummate the transactions contemplated by the Purchase
Agreement shall have executed and delivered this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants, and agreements set forth herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby covenant and agree as follows:
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Section 1. Certain Defined Terms. Capitalized terms used and not otherwise
defined in the body hereof are used herein as defined in the Purchase Agreement.
Section 2. Series C Preferred Shares. On or before the date hereof, the
Company's Board of Directors shall have adopted a resolution designating the
terms, rights and preferences of the Series C Preferred Shares in the form
attached hereto as Exhibit A. As soon as practicable after the date hereof, but
not later than five (5) days after the date hereof, the Company shall make any
such filings, and take any such further actions, as may be required to create
and establish the Series C Preferred Shares in accordance with Nevada law.
Section 3. Right to Convert Stock Consideration Shares into Series C
Preferred Shares.
(a) Commencing on the date of the first conversion of shares of common
stock of the Founders into Series A Preferred Shares (the "CONVERSION TRIGGER
DATE") and ending ninety (90) days after receipt of a Founder's Conversion
Notice (as defined below)(the "CONVERSION TERM"), the Dolphin Shareholders will
have the right to convert the Stock Consideration Shares into an aggregate of
6,600 Series C Preferred Shares (a "Conversion"). In the event that less than
all of the Stock Consideration Shares are converted into Series C Preferred
Shares, the number of Series C Preferred Shares issuable upon such Conversion
shall be reduced pro rata.
(b) In order to facilitate the rights of the Dolphin Shareholders
hereunder, the Company shall provide prompt written notice (a "FOUNDER'S
CONVERSION NOTICE") to the Dolphin Shareholders of any conversion by a Founder
of shares of common stock into Series A Preferred Shares.
(c) In order to exercise the Conversion right granted hereunder, the
converting Dolphin Shareholder(s) shall give written notice (a "DOLPHIN
SHAREHOLDER CONVERSION NOTICE") to the Company of his intent to convert the
Stock Consideration Shares into Series C Preferred Shares. The Dolphin
Shareholder Conversion Notice shall specify the number of Stock Consideration
Shares to be converted and shall be accompanied by the stock certificate
evidencing the Stock Consideration Shares to be converted, duly endorsed or
accompanied by a duly endorsed stock power. Upon receipt of a proper Dolphin
Shareholder Conversion Notice, the Company shall promptly cause certificates
evidencing the Series C Preferred Shares issuable to be issued and delivered to
the converting Dolphin Shareholder. A converting Dolphin Shareholder shall be
deemed to be a rightful holder of the Series C Preferred Shares issuable upon
conversion, and the Stock Consideration Shares so converted shall be deemed
canceled, at such time as the Dolphin Shareholder shall have delivered a proper
Dolphin Shareholder Conversion Notice without respect to the date on which
certificates are issued and delivered evidencing the Series C Preferred Shares.
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(d) For purposes hereof, the Stock Consideration Shares shall be deemed to
consist of any combination of 6,600,000 shares of common stock of the Company
held by the Dolphin Shareholders, regardless of whether or not the shares in
question were the shares issued pursuant to the Purchase Transaction.
(e) Each Dolphin Shareholder may assign is rights hereunder, in part or in
whole, in connection with a sale of the Stock Consideration Shares provided that
(i) no such assignment will be effective unless and until the applicable Dolphin
Shareholder shall have notified the Company, in writing, of such assignment
identifying the assignee and the number of Stock Consideration Shares assigned
as to which the assigned right applies and acknowledging that the assigning
Dolphin Shareholder's rights hereunder will be diminished accordingly, and (ii)
such assignee agrees in writing to be bound by the terms of this Agreement.
Section 4. Miscellaneous. The terms and provisions set forth in Article IX
of the Purchase Agreement are incorporated in this Agreement by reference and
made a part hereof mutatis mutandis.
"COMPANY"
THE PROJECT GROUP, INC.
By:
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Name: Xxxx Xxxxxxxxxx
Title: Vice President
"DOLPHIN SHAREHOLDERS"
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Xxxx Xxxxxx
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Xxxx Xxxxxxxx
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