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Exhibit 4.02
RIGHTS AGREEMENT
THIS RIGHTS AGREEMENT ("Rights Agreement")is made and entered into
effective the 31st day of December, 1998, by and between JFJ ECOSYSTEMS, LLC,
a Missouri limited liability company ("JFJ"), and INDUSTRIAL ECOSYSTEMS,
INC., a Utah corporation ("IEI"), and IEI CANADA, INC., an Ontario corporation
("IEI Canada").
RECITALS
A. JFJ and IEI, through its wholly owned subsidiary, IEI Canada, are partners
in ROP North America, LLC, a joint venture formed in March 1998 to transform
organic waste into livestock feed (the "Joint Venture").
B. JFJ, IEI and IEI Canada have recently entered into a letter of intent,
dated December 14, 1998 (the "Letter of Intent") wherein JFJ, IEI and IEI
Canada propose a restructuring of the Joint Venture.
C. Pursuant to the terms and conditions of the Letter of Intent, JFJ, IEI
and IEI Canada desire to set forth the definitive terms for the grant of
certain rights contemplated by the Letter of Intent.
D. It is an express condition precedent to the consummation of the
transactions contemplated by the Letter of Intent that the JFJ, IEI and IEI
Canada enter into this Rights Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. Line of Credit. JFJ agrees to extend a $750,000 revolving line of credit
to IEI (the "Line of Credit"). The Line of Credit shall be evidenced by a
Credit Agreement, substantially in the form attached hereto as Exhibit A, and
incorporated herein by this reference. The Line of Credit will bear interest
at 6% per annum until December 31, 2000, at which time all funds advanced
under the line of credit shall be due and payable in full. The Line of Credit
shall be evidenced by a Master Promissory Note, substantially in the form
attached hereto as Exhibit A-1, and incorporated herein by this reference. In
connection with the Line of Credit, IEI will cause IEI Canada to pledge as
security, IEI Canada's 50% membership interest in the Joint Venture. The
pledge of IEI Canada's membership interest in the Joint Venture shall be
evidenced by a Pledge and Security Agreement, substantially in the form
attached hereto as Exhibit A-2, and incorporated herein by this reference. In
the event the Line of Credit is not timely repaid in full in accordance with
the terms of the Credit Agreement, the Master Promissory Note, IEI Canada's
membership interest in the Joint Venture shall be transferred to JFJ, in
accordance with the terms of the Pledge and Security Agreement.
2. IEI and IEI Canada's Right to Merge. IEI and IEI Canada shall have the
right on or prior to December 31, 2000, to merge the Joint Venture into IEI
Canada through a share exchange, wherein IEI would issue to JFJ shares of IEI
restricted common stock in exchange for JFJ's interest in the Joint Venture.
The following are conditions that must be fulfilled prior to IEI and IEI
Canada's exercise of its right to merge the Joint Venture into IEI Canada:
(a) Repayment to JFJ of the outstanding principal and accrued interest
on the Line of Credit;
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(b) Issuance of that number of shares of IEI restricted common stock
that represents one-half (1/2) of the issued and outstanding shares (all
classes) in IEI as of the Closing Date (as herein defined)having the effect of
making JFJ the owner of one-third (1/3) of the total issued and outstanding
shares of IEI's common stock on the Closing Date, but subject to dilution by
the issuance of IEI common stock offered and sold to third parties after the
Closing Date. The number of shares of IEI common stock issuable to JFJ has
been set at 16,958,187 shares based on the Shareholder Analysis Report dated
November 12, 1998, which report indicates that IEI has 33,534,514 shares of
common stock and 381,860 shares of Class A common stock issued and
outstanding. The final number of shares issuable to JFJ pursuant to the
rights granted hereunder shall be reconciled up or down to take into account
the number of shares actually issued and outstanding on the Closing Date based
on the number reflected in consolidated statement of shareholders' equity
contained in IEI's audited financial statements for the fiscal year ended
December 31, 1998;
(c) IEI shall grant to JFJ an option to purchase up to 2,190,500 shares
of IEI restricted common stock at an exercise price of twenty-two and one-half
cents ($0.225) per share. The exercise period of the option shall be for a
period of five (5) years from the date of the merger and the option shall be
granted substantially in accordance with the terms and conditions set forth in
form of option attached hereto as Exhibit B, and incorporated herein by this
reference. In the event neither IEI and IEI Canada nor JFJ exercise their
right to merge prior to December 31, 2000, the option to be granted pursuant
to this paragraph 2(c) shall terminate.
In the event either IEI and IEI Canada or JFJ exercise their right to
merge under the terms of this Rights Agreement, IEI shall grant to JFJ an
option to purchase that number of shares of IEI restricted common stock equal
to one-half (1/2) of all other options to purchase shares of IEI common stock
granted by IEI to third parties after the Closing Date and prior to the date
of merger (the "Additional Options"). The Additional Options shall be granted
to JFJ on the same terms and conditions as those options granted to third
parties. The right to JFJ for Additional Options is intended to preserve JFJ
from subsequent dilution through the granting of options to third parties and
shall be construed accordingly;
(d) IEI shall have completed and filed with the Securities and Exchange
Commission a Form 10-SB, General Form for Registration of Securities under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and any other periodic reports required to be filed under
Section 13 or 15(d) of the Exchange Act. (the "Periodic Reports"). The
Periodic Reports shall contain all such information required to be provided
therein, including but not limited to, audited and/or unaudited financial
information for the periods indicated. All financial information contained in
the periodic reports shall be prepared in accordance with generally accepted
accounting principals;
(e) The Board of Directors of IEI shall be duly authorized and elected
pursuant to a vote of the IEI shareholders at a special or annual meeting of
the IEI shareholders;
(f) After giving effect to the merger, the surviving entity, shall agree
to affirm and assume any unpaid Joint Venture obligations to Joint Venture
members or third parties, including, but not limited to (i) a promissory note
in the principal amount of $50,000, payable to IEI; (ii) a promissory note in
the principal amount of $50,000, payable to JFJ; and (iii) a promissory note
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in the principal amount of $100,000, payable to Xxxx X. Xxxxx & Co. These
promissory notes and the other obligations affirmed and assumed shall be paid
in accordance with their terms; and
(g) For purposes of this Agreement, the Credit Agreement, the Master
Promissory Note and the Pledge and Security Agreement, the Closing Date shall
be December 31, 1998.
3. JFJ's Right to Merge. JFJ shall have the right on or prior to December
31, 2000 to merge the Joint Venture into IEI Canada through a share exchange,
wherein IEI would issue to JFJ shares of IEI restricted common stock in
exchange for JFJ's interest in the Joint Venture. In consideration for JFJ
exercising its option to merge the Joint Venture into IEI Canada, JFJ shall
receive that number of shares of IEI restricted common stock that represents
one-half (1/2) of the issued and outstanding stock in IEI on the Closing Date.
The following are conditions that must be fulfilled prior to JFJ's
exercise of its right to merge the Joint Venture into IEI Canada:
(a) JFJ shall have received the option to purchase up to 2,190,500
shares of IEI restricted common stock at an exercise price of twenty-two and
one-half cents ($0.225) per share, as specified in paragraph 2(c) of this
Rights Agreement and set forth in Exhibit B;
(b) As further consideration, IEI shall grant to JFJ an option to
purchase that number of shares of IEI restricted common stock equal to one-
half (1/2) of all other options to purchase shares of IEI common stock granted
by IEI to third parties after the Closing Date and prior to the date of
merger. The method of exact determination of the number of shares and
Additional Options issued pursuant to JFJ's exercise of its right to merge is
the same method as provided above in paragraphs 2(b) and(c) of this Rights
Agreement.
(c) JFJ shall forgive the outstanding principal and accrued interest
borrowed by IEI under the Line of Credit (or assign its interest as the
Creditor in the Line of Credit to the Joint Venture prior to exercising its
right to merger if such assignment is more favorable to JFJ for tax
purposes).
(d) JFJ and Xxxx X. Xxxxx & Co. shall not be required to forgive the
$150,000 loans to the Joint Venture which notes shall be repaid by the merger
survivor in accordance with their terms; provided, however that JFJ shall
release its security interest in the Joint Venture assets if JFJ exercises its
right to merge. JFJ shall also cause Xxxx X. Xxxxx & Co. to release its
security interest in the Joint Venture assets in the event JFJ exercises its
right to merge.
(e) If IEI shareholder approval is required for the issuance of the IEI
shares of common stock to JFJ hereunder, and such approval is not obtained by
IEI, then IEI shall pay JFJ liquidated damages equal to the number of shares
of IEI common stock to which JFJ would have been entitled multiplied by the
average of the closing price for the IEI common stock for the five (5) trading
days immediately preceding the day JFJ exercises its right to merge.
4. Registration Rights.
4.1 Definitions. As used in this Rights Agreement, the following terms
shall have the meanings set forth below:
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(a) Commission shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
(b) Exchange Act shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(c) Registrable Securities shall mean shares of IEI restricted
common stock issued or issuable to JFJ pursuant to the exercise of the right
to merge set forth in paragraphs 2 or 3 of this Rights Agreement.
(d) The terms register, registered and registration shall refer to
a registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
(e) Registration Statement shall mean a registration statement
filed by the Company on Form S-4 of the Securities Act.
(f) Securities Act shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
The Company agrees to register or qualify the Common Stock for sale as
follows:
4.2 At such time as IEI or JFJ exercises its right to merge pursuant to
paragraphs 2 or 3 of this Rights Agreement, the Company shall use its best
efforts to file a Registration Statement under the Securities Act for the
public sale of the shares of IEI common stock issued in exchange for JFJ's
membership interest in the Joint Venture. Notwithstanding any provision to
the contrary contained herein, IEI shall not be required to register the offer
and sale of the common stock if IEI's counsel is of the opinion that
registration is not required in order to dispose of the common stock as
proposed.
4.3 JFJ (and its members) shall provide IEI with all information
relating to such sale and on which IEI shall be entitled to rely and to
include such information in any such registration statement. All sales
pursuant to any such registration statement shall be made in accordance with
the Securities Act and the Securities Exchange Act, and IEI shall not be
required to include any shares of common stock in any registration statement
until it has received written assurances satisfactory in the form and
substance to IEI from JFJ that such sales shall be so conducted.
4.4 All expenses incurred by IEI in complying with the registration
requirements hereof (except fees, discounts, commissions, or similar expenses
to be incurred in connection with the sale of the common stock) shall be borne
by IEI.
4.5 In connection with the filing of any registration statement under
this section, IEI covenants and agrees that it will take all necessary action
which may be required in qualifying or registering the common stock included
in the registration statement for the offer and sale under the securities or
blue sky laws of such states as may be reasonably requested by JFJ (and its
members); provided, that IEI shall not be obligated to qualify as a foreign
corporation to do business under the laws of such jurisdiction.
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5. IEI's Right of First Refusal on Joint Venture Borrowing. IEI and IEI
Canada, are hereby granted a right of first refusal to provide financing to
the Joint Venture through December 31, 2000. Before borrowing any money from a
third party or a related entity, the Joint Venture shall provide IEI and IEI
Canada with notice of a bona fide financing proposal specifying the terms and
security that will govern the borrowing, including the name of the proposed
lender. IEI and IEI Canada shall have the right to loan funds to the Joint
Venture on the terms proposed by providing the Joint Venture notice of
acceptance within ten (10) days of receipt of the funding proposal. The Joint
Venture shall be free to borrow on the proposed terms from the proposed lender
absent timely receipt by the Joint Venture of notice of acceptance from IEI.
6. Restriction on Joint Venture Activities. From and after the Closing Date
IEI Canada and JFJ agree each will (i) carry on the business of the Joint
Venture in substantially the same manner as it has heretofore; (ii) perform in
all material respects all of its obligations under material contracts, leases,
and instruments relating to or affecting its assets, properties, and business;
(iii) use its best efforts to maintain and preserve the business organization
of the Joint Venture intact, to retain its key employees, and to maintain its
relationships with its material suppliers and customers; (iv) duly and timely
file for all taxable periods ending after the Closing Date all federal, state,
county, and local tax returns required to be filed by or on behalf of the
Joint Venture and shall pay, or cause to pay, all taxes required to be shown
as due and payable on such returns, as well as all installments of tax due and
payable during the period commencing on the Closing Date and ending on the on
December 31, 2000; (v) fully comply with and perform in all material respects
all obligations and duties imposed on the Joint Venture by all federal and
state laws and all rules, regulations, and orders imposed by federal or state
governmental authorities; and (vi) not enter into or amend any material
contract, agreement, or other instrument of any of the types, except may be
entered into or amended in the ordinary course of business.
7. Access to Financial Statements. After the Closing Date, IEI, IEI Canada
and JFJ (the latter two parties on behalf of the Joint Venture) will afford to
the other party's officers and authorized representatives full access to the
financial books, and records of the other party in order that each party may
have full opportunity to make such reasonable investigation as it shall desire
to make of the affairs of IEI, IEI Canada or the Joint Venture and will
furnish the other party with such additional financial information as each
party shall from time to time reasonably request. All financial information
will be prepared in accordance with generally accepted accounting principles.
8. Conditions Precedent to Obligations of IEI and IEI Canada. The
obligations of IEI and IEI Canada under this Rights Agreement are subject to
the delivery by JFJ, at or before the Closing Date, of the following:
8.1 Manager's Certificate. IEI and IEI Canada shall have been furnished
with a certificate dated the Closing Date and signed by the manager of JFJ to
the effect that to the manager's best knowledge no litigation, proceeding,
investigation, or inquiry is pending or threatened against JFJ which might
result in an action to enjoin or prevent the consummation of the transaction
contemplated by this Rights Agreement. Furthermore, based JFJ's own documents
and information, the certificate shall represent, to the best knowledge of the
manager that:
(a) This Rights Agreement has been duly approved by JFJ's manager
and members and has been duly executed and delivered in the name and on behalf
of JFJ by its manager pursuant to, and in compliance with, authority granted
to the manager by JFJ's members;
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(b) All conditions precedent required by this Rights Agreement have
been met, satisfied, or performed by JFJ;
(c) JFJ shall have obtained a certificate of good standing from the
Secretary of State of Missouri, dated as of the date within ten (10) days
prior to the Closing Date, certifying that JFJ is in good standing as a
limited liability company in the State of Missouri.
(d) IEI and IEI Canada have received such further documents,
certificates, or instruments relating to the transactions contemplated hereby
as IEI and IEI Canada may reasonably request.
8.2 Opinion Letter. JFJ shall have furnished to IEI an opinion of
counsel satisfactory to IEI, dated the Closing Date, to the effect generally
that JFJ is duly organized, has power and authority to execute the definitive
agreements contemplated under the terms of the Letter of Intent and that such
agreements are binding and enforceable without its members approval.
9. Conditions Precedent to Obligations of JFJ. The obligations of JFJ under
this Rights Agreement are subject to the delivery by IEI and IEI Canada, at or
before the Closing Date, of the following:
9.1 Officer's Certificates. JFJ shall have been furnished with
certificates dated the Closing Date and signed by an officer of IEI and IEI
Canada to the effect that to the Officer's best knowledge no litigation,
proceeding, investigation, or inquiry is pending or threatened against IEI and
IEI Canada which might result in an action to enjoin or prevent the
consummation of the transaction contemplated by this Rights Agreement.
Furthermore, based IEI and IEI Canada's own documents and information, the
certificates shall represent, to the best knowledge of the officer that:
(a) This Rights Agreement has been duly approved by the board of
directors of IEI and IEI Canada and has been duly executed and delivered in
the name and on behalf of IEI and IEI Canada by its authorized representative
pursuant to, and in compliance with, authority granted to the representative
by IEI and IEI Canada's board of directors;
(b) All conditions precedent required by this Rights Agreement have
been met, satisfied, or performed by IEI and IEI Canada;
(c) IEI and IEI Canada shall have obtained certificates of good
standing from the Secretary of State of Utah and the Province of Ontario,
Canada, respectively, dated as of the date within ten (10) days prior to the
Closing Date, certifying that IEI is in good standing as a corporation in the
State of Utah, and that IEI Canada is in good standing as a corporation in the
Province of Ontario.
(d) JFJ has received such further documents, certificates, or
instruments relating to the transactions contemplated hereby as JFJ may
reasonably request.
9.2 Opinion Letter. IEI and IEI Canada shall have furnished to JFJ
opinions of counsel satisfactory to JFJ, dated the Closing Date, to the effect
generally that IEI and IEI Canada are duly organized, have power and authority
to execute the definitive agreements contemplated under the terms of the
Letter of Intent and that such agreements are binding and enforceable without
shareholder approval, but reserving an opinion whether issuance of the IEI
common stock to JFJ might require subsequent IEI shareholders' approval.
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10. Governing Law. The laws of the state of Missouri shall govern the
validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties.
11. Consent to Jurisdiction and Venue. In the event of any breach,
threatened breach or other dispute between the parties under this Rights
Agreement, the parties agree that the United States District Court for the
Western District of Missouri shall have the sole and exclusive jurisdiction
over any such proceeding. If such court lacks federal subject matter
jurisdiction, the Xxxxxxx County Circuit Court shall have sole and exclusive
jurisdiction. Any of these courts shall be proper venue for such proceedings
and the parties hereto waive any objection to such venue. The parties hereto
consent to and agree to submit to the jurisdiction of any of the courts
specified herein and agree to accept service of process to vest personal
jurisdiction over them in any of these courts.
12. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if personally delivered to it or, if
sent by facsimile transmission or other electronic communication confirmed by
registered or certified mail, postage prepaid, or if sent by prepaid telegram
addressed as follows:
If to: JFJ ECOSYSTEMS, LLC If to: INDUSTRIAL ECOSYSTEMS, INC.
Attn: Xxxx X. Xxxxx Attn: President
0000 Xxxx 00xx Xxxxxx 000 Xxxxxx Xxx, Xxxxx 00
Xxxxxx Xxxx, XX 00000 Xxxxxxxx, XX 00000
Fax No: (000) 000-0000 Fax No.: 000-000-0000
and: SEIGFREID, BINGHAM, LEVY, and: XXXXXX AND ASSOCIATES , INC.
XXXXXX & GEE
Attn: Xxxxx Xxxxxx, Esq. Attn: Xxxxxxx X. Xxxxxx, Esq.
000 Xxxx Xxxxxx, Xxxxx 0000 3090 East 0000 Xxxxx, Xxxxx 000
Xxxxxx Xxxx, XX 00000 Xxxx Xxxx Xxxx, XX 00000
Fax No: 000-000-0000 Fax No: 000-000-0000
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication
shall be deemed to have been given as of the date so delivered or sent by
facsimile transmission or other electronic communication, three days after the
date so mailed, or one day after the date so telegraphed or sent by overnight
delivery.
13. Further Action. The parties shall execute and deliver all documents or
instruments, provide all information, and take or forebear from all such
action as may be necessary or appropriate to achieve the purpose of this
Rights Agreement.
14. Binding Effect Upon Successors. This Rights Agreement shall be binding
upon, and inure to the benefit of, the parties and their respective heirs,
executors, administrators, successors, legal representatives, and assigns;
provided, that this provision shall not be construed as permitting assignment,
substitution, delegation, or other transfer of rights or obligations, except
strictly in accordance with the provisions of the other sections of this
Rights Agreement.
15. Severability. In the event that any condition, covenant, or other
provision herein contained is held to be invalid or void by any court of
competent jurisdiction, the same shall be deemed severable from the remainder
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of this Agreement and shall in no way affect any other covenant or condition
herein contained. If such condition, covenant, or other provision shall be
deemed invalid due to its scope or breadth, such provision shall be deemed
valid to the extent of the scope or breadth permitted by law.
16. Exhibits. All exhibits annexed to this Rights Agreement and any
documents to be delivered herewith are expressly made a part of this Rights
Agreement as fully as though completely set forth in it. All references to
this Rights Agreement, either in the Rights Agreement itself or in any of such
writings, shall be deemed to refer to and include this Rights Agreement itself
or in any of such exhibits or writings. Any breach of or default under any
provision of any of such writing shall, for all purposes, constitute a breach
or default under this Rights Agreement and all other such writings.
17. Attorneys' Fees. Should either party take any legal action to enforce
any of the terms or provisions of this Agreement, or any costs are incurred by
reason of breach or default in any of the covenants, representations,
warranties, terms, or conditions of this Agreement, the non-defaulting party
shall be entitled to recover any costs, including attorneys' fees incurred in
enforcing the obligations of the other party under the terms of this Agreement
or in collecting any judgment that may be entered.
18. Time of Essence. Time is of the essence in the performance of the
duties, covenants, or obligations of the parties under the terms of this
Agreement.
19. Facsimile Transmission. Facsimile transmission of any signed original
document, and retransmission of any signed facsimile transmission, shall be
the same as delivery of an original. At the request of any party hereto, the
parties will confirm facsimile transmitted signatures by signing an original
document.
20. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which taken together
shall be but a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Rights
Agreement as of the date first above written.
JFJ ECOSYSTEMS, LLC INDUSTRIAL ECOSYSTEMS, INC.
By /s/Xxxx X. Xxxxx, Manager By /s/Xxxxxx Xxxxx, President
IEI CANADA, INC.
By /s/Xxxxxx Xxxxx, President
