EXHIBIT 10.4
------------
RIGHTS AGREEMENT
THIS RIGHTS AGREEMENT (this "Agreement") is made this 16th day of
October 2001, between XXXXXXXXXXXXXXX.XXX, a Nevada corporation (the "Company"),
and XXXX CAPITAL GROWTH FUND II, L.P., a Delaware limited partnership (the
"Purchaser").
R E C I T A L S:
WHEREAS, the Company and the Purchaser have entered into that certain
Securities Purchase Agreement (the "Purchase Agreement") of even date herewith
whereby the Purchaser shall purchase from the Company a subordinated secured
convertible note (the "Note"); and
WHEREAS, in connection with the Purchaser's execution of the Purchase
Agreement and its purchase of the Note, the Company agrees to grant a profits
interest (the "Right") to the Purchaser upon the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreement set forth herein, the parties hereto hereby agree as follows:
1. Definitions.
1.1 Affiliate -- means, at any time, a Person (other than the
Purchaser):
(a) that directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under
common Control with, the Company;
(b) that beneficially owns or holds five percent (5%) or
more of any class of the Common Stock;
(c) five percent (5%) or more of the voting stock (or in
the case of a Person that is not a corporation, five percent
(5%) or more of the equity interest) of which is beneficially
owned or held by the Company or a subsidiary; or
(d) that is an officer or director (or a member of the
immediate family of an officer or director) of the Company or
any subsidiary, at such time.
1.2 Control -- means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
1.3 Common Stock -- shall mean the Common Stock, $.001 par value,
of the Company.
Market Price -- shall mean, with respect to any Security, on any
date, the closing bid price per unit of such Security on the principal
securities exchange or trading market where such Security is listed or traded
or, if the foregoing does not apply, the closing bid price of such Security in
the over-the-counter market on the electronic bulletin board for such Security
or, if no trading price is
Page 1
reported for such Security, then the bid price of any market makers for such
Security as reported in the "Pink Sheets" by National Quotation Bureau, Inc.
1.5 Fair Market Value - (x) of any Security of a Person other than
the Company shall mean, on any date, the Market Price of such Security;
provided, if on any such date the price of such Security is not quoted by any
--------
organization referred to in the definition of Market Price, an amount which is
determined in good faith by the Board of Directors of the Company or if the
Purchaser objects to such determination, by the Valuation Agent (the "Determined
Value") and (y) for any other asset or right of indebtedness, the Determined
Value. Such Valuation Agent's determination of the Fair Market Value (if used)
shall be binding upon the Company and its stockholders. Notwithstanding the
foregoing, in the event a Security of a Person other than the Company (a)
comprises any or all of the consideration for a Liquidation Event described in
Sections 1.6(a) or (b), whether the amount of such consideration is expressed as
a fixed amount of Securities or as an exchange ratio (b) is exchanged pursuant
to an acquisition instrument and (c) the acquisition instrument sets forth a
stated price for such Security, whether individually or in the aggregate, then
the Fair Market Value for such Security will be such stated value.
1.6 Liquidation Event -- shall mean any of the following
occurrences (whether in one or a series of integrated transactions):
(a) a sale of all or substantially all of the assets
of the Company;
(b) other than a transaction involving the Company's
issuance of Common Stock for which the Company's shareholders do not
participate in pro rata (a "Company Issuance"), any merger,
consolidation, tender offer, shareholder stock sale of the Company or
any other transaction, which would result in the voting securities of
the Company outstanding immediately prior thereto to no longer
representing more than seventy percent (70%) of the combined voting
power of the voting securities of the Company or the surviving entity
outstanding immediately after such transaction; provided, however, that
-----------------
a merger or consolidation effected to implement a redomestication or
recapitalization of the Company (or similar transaction) shall not
constitute a Liquidation Event;
(c) a Company Issuance which results in one or more
Persons acting together acquiring thirty percent (30%) or more of the
combined voting power of the voting securities of the Company;
(d) a liquidation or dissolution of the Company; or
(e) (A) the Company shall commence any case,
proceeding or other action under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for
it or for all or any substantial part of its assets, or the Company
shall make a general assignment for the benefit of its creditors; or
(B) there shall be commenced against the Company any case, proceeding
or other action of a nature referred to in clause (A) above which
results in the entry of an order for relief or any such adjudication or
appointment or remains undismissed, undischarged or unbonded for a
period of sixty days; or (C) there shall be commenced against the
Company any case, proceeding or other action seeking issuance of a
Page 2
warrant of attachment, execution, distraint or similar process against
all or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within sixty days from
the entry thereof; or (D) the Company shall take any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (A), (B), or (C)
above.
1.7 Net Proceeds -- means, with respect to any Liquidation Event,
the total Fair Market Value of all Property received as proceeds by the
stockholders of the Company and/or the Company, as applicable, minus reasonable
out of pocket transaction costs and expenses (other than any taxes of any kind
payable with respect to the transaction) incurred by the Company in connection
therewith. For purposes of a Liquidation Event which is described in Section
1.6(e) above, the term "Net Proceeds" shall be deemed to be less than
$10,000,000. For purposes of a Liquidation Event which is described in Section
1.6(c) above where the Net Proceeds are paid to the Company for a new stock
issuance and the stockholders of the Company do not receive any consideration,
the Net Proceeds shall be calculated as the "pre-money" valuation of the Company
utilized in such stock issuance.
1.8 Person -- means an individual, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or any agency or political subdivision thereof) or other
entity of any kind
1.9 Property -- means any amount of cash or any interest in any
land or property or asset, whether real, personal or mixed, and whether tangible
or intangible.
1.10 Right -- means and includes any warrant, option or other
right, to acquire Common Stock and including, without limitation, any right
which, pursuant to the provisions of any Security, is convertible or
exchangeable into Common Stock.
1.11 Security -- shall have the meaning specified in section 2(l)
of the Securities Act of 1933, as amended
1.12 Valuation Agent -- means an investment banking firm or
appraisal firm (which firm shall own no Securities of, and shall not be an
Affiliate, subsidiary or a related Person of, the Company) of recognized
national standing retained by the Company acceptable to the Purchaser.
2. Right. Contemporaneously with a Liquidation Event, the Company shall
deliver to the Purchaser out of the Net Proceeds therefrom the Right in cash,
Property and/or Securities (to the same extent the stockholders of the Company
and/or the Company receives cash, Property and/or Securities as all or as part
of the Net Proceeds), as determined by the following formula:
a. if the Net Proceeds are less than or equal to
$10,000,000, the Right shall be equal to $4,500,000;
b. if the Net Proceeds are greater than or equal to
$60,000,000, but less than $145,000,000, the Right shall be equal to
$1,000,000;
c. if the Net Proceeds are greater than or equal to
$145,000,000, the Right shall be zero; or
Page 3
d. if the Net Proceeds are greater than $10,000,000
and less than $60,000,000, the Right to be received shall be calculated
on a pro rata basis between $4,500,000 and $1,000,000. By way of
illustration only, if the Net Proceeds are $20,000,000, the Right shall
be equal to $3,800,000.
3. Right of First Refusal. In the event that both (a) the Purchaser
receives a bona fide offer from a third party (the "Offeror") to assign to the
Offeror all of the Purchaser's right, title and interest in this Agreement (the
"Purchaser's Interest") and (b) the Offeror will not, at the consummation of the
proposed transfer, also hold all of the Purchaser's right, title and interest in
the Note, then the Purchaser hereby agrees to give written notice of such offer
(the "Offer Notice") to the Secretary of the Company setting forth the name of
the Offeror, the consideration to be paid for the assignment and transfer of the
Purchaser's Interest, and such other terms and conditions of the proposed
transfer that the Purchaser deems, in good faith, to be material. On receipt of
the Offer Notice, the Company will have the exclusive right and option
exercisable by providing written notice of acceptance (the "Acceptance Notice")
at any time during a period of fifteen (15) calendar days from the date of its
receipt of the Offer Notice, to purchase the Purchaser's Interest upon the same
terms and conditions as proposed by the Offeror. If all or any portion of the
proposed consideration for the Purchaser's Interest is other than cash, the
Company may elect to pay the Purchaser the Fair Market Value of such
consideration in cash. If the Company does not provide an Acceptance Notice
within the time limit proscribed or if the Company provides written notice that
it is declining the Offer Notice, then the Purchaser may transfer the
Purchaser's Interest to the Offeror pursuant to the terms of the offer, after
which the Offeror will be deemed to be the "Purchaser" under the terms of this
Agreement and will hold the Purchaser's Interest subject to all of the terms and
conditions hereof. In the event that the Offeror fails to complete the purchase
of the Purchaser's Interest within seventy (70) days after the Offer Notice, any
subsequent offers for the Purchaser's Interest must be made pursuant to the
terms of this Agreement.
4. Miscellaneous.
4.1 Notices. All notices, demands and other communications to
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page hereof, (ii)
if given by mail, four days after such communication is deposited in the mail
with first class postage prepaid, addressed as aforesaid or (iii) if given by
any other means, when delivered at the address specified in or pursuant to this
Section.
4.2 No Waivers; Amendments.
(a) No failure or delay on the part of any party in
exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
(b) Any provision of this Agreement may be amended,
supplemented or waived if, but only if, such amendment, supplement or
waiver is in writing and is signed by the Company and the Purchaser, or
the Purchaser's permitted successors or assigns.
Page 4
4.3 Successors and Assigns. This Agreement shall be binding
upon the Company and upon the Purchaser and their respective successors and
assigns; provided that the Company shall not assign or otherwise transfer its
--------
rights or obligations under this Agreement to any other Person without the prior
written consent of the Purchaser. Subject to Section 3 above, this Agreement and
all rights and obligations hereunder shall be freely assignable by the
Purchaser.
4.4 Texas Law; Submission to Jurisdiction; Waiver of Jury
Trial; Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE CHOICE
OF LAW PRINCIPLES OF SUCH STATE. EACH PARTY HERETO HEREBY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS AND OF ANY TEXAS STATE COURT SITTING IN DALLAS FOR PURPOSES OF
ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
4.5 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated unless a failure
of consideration would result thereby.
4.6 Counterparts. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
(Signature Page Follows)
Page 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers, as of the date first
above written.
XXXXXXXXXXXXXXX.XXX
By:
-------------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chief Executive Officer
Address: 0000 Xxx Xxxxx Xxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn: Chief Executive Officer
XXXX CAPITAL GROWTH FUND II, L.P.
By: XXXX CAPITAL GROWTH, L.P.
its general partner
By: XXXX CAPITAL
MANAGEMENT, L.L.C., its
general partner
By:
-------------------------------
Name: J.R. Holland, Jr.
Title: President
Address: 4000 Thanksgiving Tower
0000 Xxx Xxxxxx
Xxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn.: Xxxxxx X. Xxxxxx, Esq.
Page 6
