As filed with the Securities and Exchange Commission on November 13, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
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THE SECURITIES ACT OF 1933
THE NETPLEX GROUP, INC.
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(Exact name of Registrant as specified in its charter)
New York 7372 11-2824578
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
8260 Greensboro Drive, 5th Floor
McLean, Virginia 22102
(703) 356-3001
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(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Gene Zaino
President & Chief Executive Officer
The Netplex Group, Inc.
8260 Greensboro Drive, 5th Floor
McLean, Virginia 22102
(703) 356-3001
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(Name, address, including zip code, and telephone number,
including area code, of agent of service)
Copies to:
Steven Wolosky, Esq.
Kenneth Schlesinger, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. /_/
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /_/
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The Prospectus contained within this Registration Statement also relates to
securities which were registered pursuant to Form S-3 Registration Statement
(Registration No. 333-16423)
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of Each Class Amount To Be Proposed Maximum Proposed Amount of
of Securities Registered Offering Price Maximum Registration Fee
To Be Registered Per Security Aggregate
Offering Price(1)
<S> <C> <C> <C> <C>
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Common Stock, $.001 par value 956,000 $0.938(1) $896,728 $271.74
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Common Stock , $.001 par value, issuable upon the 1,286,880(9) 1.5625(9) $1,000,000 $303.03
Conversion of Class B preferred shares issued or
to be issued in connection with an acquisition
consummated in October 1998
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Common Stock , $.001 par value, issuable upon the 2,450,000(7) $0.938(1) $2,298,100 $696.39
Conversion of Class C preferred shares issued in
connection with a Private Placement consummated in
September 1998
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Common Stock, $.001 par value, issuable upon the 2,500,000(2) $1.3938(3) $3,484,500 $1,055.91(4)
exercise of Prepaid Common Stock Purchase Warrants
issued in connection with a private placement
consummated in September 1998 (the "September
1998 Private Placements") (the "September 1998 Prepaid
Warrants")(2)
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Warrant for up to 550,000 shares of Common Stock one --- --- ---
issued to Waterside Capital Corporation in connection
with the issuance of the Class C Preferred Shares
(the "Waterside Warrant")(8)
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Common Stock, $.001 par value, issuable upon 691,667(5) $1.3789(10) $953,740 $289.01
exercise of certain outstanding warrants (the
"Private Placement Warrants") issued in connection
with the September 1998 Private Placements(5)
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Common Stock, $.001 par value, issuable upon 250,000 $1.59(6) $397,500 $120.45
exercise of certain outstanding warrants (the "FBW
Warrants")
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Total 8,134,547 $9,030,568 $2,736.53
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee based
upon the average of the high and low price of the Company's common stock,
$.001 par value (the "Common Stock"), on the Nasdaq Stock Market on
November 11, 1998.
(2) For purposes of estimating the number of shares of the Common Stock to be
included in this Registration Statement, the Company calculated 200% of the
number of shares of Common Stock issuable upon exercise of or otherwise
pursuant to 1,700 Prepaid Common Stock Purchase Warrants based upon the
terms set forth in the Prepaid Warrants in accordance with Rule 416 of the
Securities Act of 1933, as amended (the "Securities Act"). Pursuant to Rule
416, the number of shares to be registered hereunder is subject to
adjustment and could be greater or less than such estimated amount
depending upon factors that cannot be predicted by the Company at this
time, including, among others, stock splits, stock dividends and similar
transactions, the effect of anti-dilution provisions contained in the
Prepaid Warrants and by reason of changes in the exercise price of the
Prepaid Warrants in accordance with the terms thereof. Based upon the
foregoing, this estimate is not intended to constitute a prediction as to
the number of shares of Common Stock into which the Prepaid Warrants will
be exercised.
(3) The exercise price of the Prepaid Warrants during the first year is 125% of
the fixed exercise price of $1.3938. The exercise price of the Prepaid
Warrants after the first year is the lower of $1.3938 or 80% of the average
of the three (3) lowest closing bid prices for the Company's Common Stock
during the twenty (20) consecutive trading day period ending on the trading
day immediately prior to exercise.
(4) In accordance with Rule 457(g), the registration fee for these shares is
calculated based upon a price which represents the highest of (i) the price
at which the Prepaid Warrants may be exercised; (ii) the offering price of
securities of the same class included in the Registration Statement; or
(iii) the price of securities of the same class, as determined pursuant to
Rule 457(c).
(5) Pursuant to Rule 416, additional securities are being registered as may be
required for issuance pursuant to the provisions of the Privat Placement
Warrants issued to Waterside Capital Corporation.
(6) Pursuant to Rule 457(g), the registration fee for the Common Stock
underlying such warrant is calculated on the basis of the exercise price of
the FBW Warrants.
<PAGE>
(7) For purposes of estimating the number of shares of the Common Stock to be
included in this Registration Statement, the Company used the negotiated
number of shares of Common Stock issuable upon conversion of the Class C
Preferred in accordance with Rule 416 of the Securities Act of 1933, as
amended (the "Securities Act"). Pursuant to Rule 416, the number of shares
to be registered hereunder is subject to adjustment and could be greater or
less than such estimated amount depending upon factors that cannot be
predicted by the Company at this time, including, among others, stock
splits, stock dividends and similar transactions, the effect of
anti-dilution provisions contained in the Certificate of Designation for
the Preferred Stock and by reason of changes in the exercise price of the
Prepaid Warrants in accordance with the terms thereof. Based upon the
foregoing, this estimate is not intended to constitute a prediction as to
the number of shares of Common Stock into which the Preferred Stock will be
exercised.
(8) The Common Stock underlying the Warrant issued to Waterside Capital
Corporation is included in the Common Stock to be issued if the Private
Placement Warrants are exercised.
(9) Includes 643,440 shares of Common Stock issuable upon the conversion of
643,440 shares of Class B Preferred Stock which was issued as part of the
acquisition, and an additional 643,440 shares of Common Stock issuable upon
the conversion of an additional 643,440 shares of Class B Preferred Stock
which may be issued in the future, contingent upon the acquisition
achieving certain performance criteria over the nine quarters beginning
October 1, 1998. The offering price was a calculated value used to
determine the number of Class B preferred shares to be issued in the
acquisition.
(10) The offering price is the average exercise price of the Waterside Warrant
and the incentive warrants issued in connection with the September 1998
Prepaid Warrants (together referred to as the "Private Placement
Warrants").
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a) may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. 1
SUBJECT TO COMPLETION, DATED NOVEMBER 13, 1998
PRELIMINARY PROSPECTUS
8,134,547 Shares of Common Stock
THE NETPLEX GROUP, INC.
Common Stock ($.001 par value) and 1 Warrant
This Prospectus relates to the offer and resale of an
aggregate of 8,134,547 shares (the "Shares") of the Common Stock of The Netplex
Group, Inc., a New York Corporation (the "Company"), issued in transactions
consummated from June 1998 through October 1998, as follows: (I) 901,000 shares
of Common Stock (the "Acquisition and Related Financing Private Placement
Shares") issued by the Company to certain of the selling shareholders in
connection with a merger consummated in June 1998 or a private placement
consummated in August 1998; (ii) 1,286,880 shares of Common Stock (the "Class B
Preferred Shares")issuable upon conversion of the Class B Preferred Stock issued
in October 1998 in connection with a merger; (iii) 2,450,000 shares of Common
Stock (the "Class C Preferred Shares") issuable upon the conversion of Class C
Preferred stock, issued in a September 1998 Private Placement;(iv) 2,500,000
shares of Common Stock (the September 1998 Prepaid Warrant Shares") issuable
upon the exercise of outstanding prepaid common stock purchase warrants, issued
in connection with a September 1998 Private Placement ( the September 1998
Private Placement issuances of the Class C Preferred Stock and September 1998
Prepaid Warrants are collectively referred to as "the September 1998 Private
Placements"); (v) 691,667 shares of Common Stock issuable upon exercise of
warrants (the "September 1998 Private Placement Warrants")issued to the
placement agents in connection with the September 1998 Private Placements; (vi)
250,000 shares of Common Stock issuable upon exercise of Common Stock purchase
warrants issued to Ferris Baker and Watts ("FBW")and/or affiliates or designees
of such entity, (the "FBW Warrants") issued in June 1998 in connection with
certain consulting services provided to the Company by FBW; and (vii) 55,000
shares of Common Stock issued for consulting services provided in connection
with a acquisition in October 1998. This Prospectus also relates to the offer
and resale of a Warrant for up to 550,000 shares of Common Stock issued to
Waterside Capital Corporation in September 1998 (the "Waterside Warrant"). The
Class B Preferred Stock and the Class C Preferred Stock are collectively
referred to as the "Convertible Preferred Stock".
The Shares of Common Stock offered hereby include the resale
of such presently indeterminate number of shares of Common Stock, as may become
issuable upon exercise or conversion of the September 1998 Prepaid Warrant, the
Class C Preferred Shares or the September 1998 Private Placement Warrants. The
number of shares of Common Stock indicated to be issuable in connection with
such transactions and offered for resale hereby is an estimate based upon the
exercise or conversion terms set forth in the options and warrants or the
Certificate of Designation with respect to the Convertible Preferred Stock and
is subject to adjustment pursuant to Rule 416 of the Securities Act of 1933, as
amended (the "Securities Act"), and could be materially greater or less than
such estimated amount depending upon factors that cannot be predicted by the
Company at this time, including, among others, stock splits, stock dividends and
similar transactions and the effect of anti-dilution provisions. In addition,
with respect to the September 1998 Prepaid Warrants, the number of shares
issuable upon the exercise of such Prepaid Warrants will be dependent on changes
in the exercise price of the September 1998 Prepaid Warrants in accordance with
the terms thereof. If, however, all of the Prepaid Warrants currently
outstanding were exercised, based on the current bid price of the Company's
Common Stock on the Nasdaq SmallCap Market ("NASDAQ") and the terms of Prepaid
Warrants, the Company would be obligated to issue a total of 975,750 shares of
the Common Stock. This calculation as to the number of shares of Common Stock
into which the Prepaid Warrants will be exercised is not intended to constitute
a prediction as to the future market price of the Common Stock or the actual
number of shares of Common Stock to be issued. See "Risk Factors".
The Shares of Common Stock covered under the Registration
Statement of which this Prospectus is a part may be offered for sale from time
to time by or for the account of such Selling Stockholders in the open market on
the Nasdaq SmallCap Market in privately
<PAGE>
negotiated transactions, in an underwritten offering or in a combination of such
methods, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, or at negotiated prices. The Shares are intended
to be sold through one or more broker-dealers or directly to purchasers. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commission from the Selling Stockholders and/or the purchasers of the Shares for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both (which compensation as to a particular broker-dealer may be in excess of
customary commissions). The Selling Shareholders and any broker-dealers acting
in connection with the sale of the Shares hereunder may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, and any
commissions received by them and any profit realized by them on the resale of
the Shares as principals may be deemed underwriting compensation under the
Securities Act. See "Selling Shareholders" and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale
of the Shares or the Waterside Warrant by the Selling Stockholders or upon the
exercise of the Prepaid Warrants or the conversion of the Convertible Preferred
Stock. The Company will receive the proceeds from the exercise of the September
1998 Private Placement Warrants and the FBW warrants, the net proceeds of which
will amount to $1,153,750 if all such options or warrants are exercised, after
deducting the estimated expenses of this Offering. The Company will bear all
expenses of this Offering other than discounts, concessions or commissions on
the resale of the Shares.
The Company's Common Stock is publicly traded on NASDAQ under
the symbol ("NTPL") and on the Boston Stock Exchange under the symbol ("NPL").
On November 11, 1998, the closing sales price for the Common Stock on NASDAQ was
$0.938.
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AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK AND SHOULD ONLY BE MADE BY INVESTORS WHO CAN
AFFORD THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" ON PAGES 8 THROUGH 11 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is November 13, 1998
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") are incorporated in this Prospectus by reference:
(a) Our Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997.
(b) Our Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1998, and June 30, 1998.
(c) The description of the Company's Common Stock contained
in the Company's Registration Statement on Form 8-A filed with
the Commission on March 8, 1993.
(d) Our Current Reports on Form 8-K filed on February 17,
1998, Form 8-K filed on March 20, 1998, Form 8-K filed on April
15, 1998, Form 8-KA filed on July 2, 1998, and Form 8-K filed on
November 2, 1998.
All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of this Offering of the Shares of Common Stock
offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated herein by reference (other
than exhibits to such documents which are not specifically incorporated by
reference in such documents). Written requests for such copies should be
directed to Mr. Walton Bell, Chief Financial Officer, 8260 Greensboro Drive, 5th
Floor, McLean, Virginia 22102, telephone number (703) 356-3001.
The Company intends to furnish its shareholders with annual
reports containing financial statements audited and reported upon by its
independent accounting firm, quarterly reports containing unaudited interim
financial information and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.
This Prospectus includes references to trademarks of entities
other than the Company which have reserved all rights with respect to their
respective trademarks.
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<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES
THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY
REFERENCE. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS
ENTIRETY.
THE COMPANY
The Netplex Group, Inc., a New York corporation (the
"Company"), headquartered in McLean, Virginia, is an information technology
company that provides the people, technology, and processes to build, manage and
protect business information systems. Its address is 8260 Greensboro Drive, 5th
Floor, McLean, Virginia 22102 and its telephone number is (703) 356-3001. Its
Worldwide Web site address is www.netplexgroup.com.
The Company was incorporated in 1986. From 1986 to June 1996,
the Company, under the name CompLink, Ltd., developed and marketed a
communications software product. On June 7, 1996, the Company (formerly known as
CompLink, Ltd. or "Complink") acquired and merged with The Netplex Group, Inc.
("Netplex Virginia") and America's Work Exchange, Inc. ("AWE") by issuing
approximately 3,245,000 shares of Common Stock. The merger agreement also
provided for CompLink to issue 1,691,000 options to purchase its Common Stock in
exchange for the 1,691,000 outstanding options to purchase the Common Stock of
Netplex Virginia. The mergers were accounted for under the purchase method of
accounting as a reverse merger, since the shareholders of the acquirees, who had
common control, received the larger percentage of the voting rights of the
combined entity. The mergers resulted in a recapitalization of the Company, so
that the resulting capitalization after the mergers were that of CompLink's,
giving effect to the new share issuance and the elimination of CompLink's
accumulated deficit. The acquisition of the assets and liabilities of CompLink
was accounted for at book value, which approximated fair value.
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<PAGE>
The Offering
Securities Offered by the Company.... None.
Securities Offered for resale
by the Selling Shareholders.......... 956,000 Common Shares; 1,286,880 Class B
Preferred shares, 2,450,000 Class C
Preferred Shares; 2,500,000 September
1998 Prepaid Warrant Shares; 691,667
September 1998 Private Placement
Warrants; 250,000 FBW Warrant Shares, and
the Waterside Warrant.
Common Stock Outstanding............. 10,201,735(1) shares of Common Stock
before the exercise or conversion, as the
case may be, of the Class B Preferred
Shares, the Class C Preferred Shares, the
September 1998 Prepaid Warrants, the
September 1998 Private Placement
Warrants, and the FBW Warrant.
NASDAQ SmallCap Market Symbol........ Common Stock: NTPL
Boston Stock Exchange Symbol......... Common Stock: NPL
USE OF PROCEEDS
The Company will not receive any proceeds from the resale of
the Common Stock offered by the Selling Shareholders hereby or the exercise of
the Prepaid Warrants or the conversion of the Convertible Preferred Stock. The
Company will receive the proceeds from the exercise of each of the September
1998 Private Placement Warrants and the FBW Warrants. The net proceeds of which
will amount to $1,153,125 if all such securities are exercised, after deducting
the estimated expenses of this offering. The Company intends to apply any net
proceeds from such exercises for the development of additional core competency
practice units, geographic expansion, marketing and working capital and other
general corporate purposes.
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1/ Unless otherwise indicated, the references to Common Stock
outstanding do not give effect to (i) 150,000 shares of Common Stock issuable
upon exercise of the warrants at $3.00 per share; (ii) 987,573 shares of Common
Stock issuable upon conversion of the Class A Preferred Stock; (iii) 1,575,000
shares of Common Stock issuable upon exercise of the 1996 Warrants; (iv) 87,500
shares of Common Stock issuable upon conversion of the Purchase Option Preferred
Stock; (v) 87,500 shares of Common Stock issuable upon exercise of the 1996
Purchase Option Warrants (vi) 3,000,000 shares of the Common Stock issuable upon
exercise of stock options which may be granted under the Company's 1992
Incentive and Non-Qualified Stock Option Plan (the "1992 Plan"), of which
options to purchase 2,661,400 shares of Common Stock at exercise prices ranging
from $0.97 to $1.75 per share have been granted; (vii) 300,000 shares of Common
Stock issuable upon exercise of stock options which may be issued under the
Company's 1995 Directors' Stock Option Plan (the "Directors' Plan"), of which
options to purchase 75,000 shares of Common Stock at exercise prices ranging
from $2.50 per share to $3.56 per share have been granted; (viii) 800,000 shares
of Common Stock issuable upon exercise of stock options which may be granted
under the 1995 Consultant's Stock Option Plan (the "Consultant's Plan"), of
which options to purchase 355,000 shares of Common Stock at exercise prices
ranging from $1.3125 per share to $3.00 per share have been granted; (ix)
170,000 shares of Common Stock issuable upon exercise of the Options at an
exercise price of $4.00 per share; (x) 150,000 shares of Common Stock issuable
upon the exercise of warrants at an exercise price of $2.50 per share, (xi)
75,000 shares of Common Stock issuable upon the exercise of warrants at an
exercise price of $3.50 per share; (xii) 130,435 shares of Common Stock issuable
upon the exercise of warrants at an average exercise price of $1.65; (xiii)
150,000 shares of Common Stock issuable upon the exercise of the warrants at an
exercise price of $1.50 per share; (xiv) 4,000,000 shares of Common Stock
issuable upon the exercise of the Prepaid Warrants issued in April 1998; (xv)
117,000 shares of Common Stock issuable upon the exercise of the warrants at an
exercise price of $1.47 per share; (xvi)1,286,880 shares of Common Stock
issuable upon the conversion of the Class B Preferred Stock; (xvii)2,450,000
shares of Common Stock issuable upon the conversion of the Class C Preferred
Stock; (xviii) 2,500,000 shares of Common Stock issuable upon the
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<PAGE>
conversion of the Prepaid Common Stock Purchase Warrants issued in September
1998; (xix) 691,667 shares of Common Stock issuable upon conversion of the
September 1998 Private Placement Warrants; and (xx)250,000 shares of Common
Stock issuable upon conversion of the FBW Warrants.
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<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS
WELL AS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
Operating Losses. The Company had a net loss of $2,873,603 for
the year ended December 31, 1997 and $788,873 for the six months ended June 30,
1998. The Company anticipates that losses, on a consolidated basis, will
continue until such time, if ever, that it can generate sufficient revenues from
the sales of its products and services to cover operating costs. There can be no
assurance that the Company's operations, on a consolidated basis, will become
profitable or that the Company, on a consolidated basis, will ever be able to
generate cash flows sufficient to meet its operating costs and sustain its
operations.
Limited Working Capital; Possible Need for Additional
Financing; Uncertainty of Capital Funding. As of June 30, 1998, the Company had
working capital of $349,035 After giving effect to the September 1998 Private
Placements, Management believes that its existing resources will be adequate for
the Company's cash needs through 1999. Beyond such period, the Company may need
to raise substantial additional capital to fund its operations. There can be no
assurance that additional financing will be available on acceptable terms or
available at all. If additional funds are raised by issuing equity securities,
further dilution to shareholders could result. If adequate funds are not
available, the Company may be required to delay, curtail, reduce the scope of or
eliminate (i) the expansion of, or some of, its operations and/or (ii) its
marketing and sales efforts which could materially adversely affect the
financial and business operations of the Company.
Potential Fluctuations in Quarterly Results. Variations in the
Company's revenues and operating results could occur from time to time as a
result of a number of factors, such as the number and dollar value of client
engagements commenced and completed during a quarter, the number of working days
in a quarter and employee hiring and utilization rates. The timing of revenues
is difficult to forecast because the Company's sales cycle is relatively long in
the case of new clients and may depend on factors such as the size and scope of
assignments and general economic conditions. Because a high percentage of the
Company's expenses are relatively fixed, a variation in the timing of the
initiation or the completion of client assignments, particularly at or near the
end of any quarter, can cause significant variations in operating results from
quarter to quarter and could result in reported losses for that quarter. The
Company's engagements generally are terminable at will and at the discretion of
the client. An unanticipated termination of a major project could require the
Company to maintain or terminate under-utilized employees, resulting in a higher
than expected number of unassigned persons or higher severance expenses. While
professional staff must be adjusted to reflect active projects, the Company must
maintain a sufficient number of senior professionals to oversee existing client
projects and participate with its sales force in securing new client
assignments. Because some of the Company's engagements are performed on a
fixed-price basis, the Company also bears the risk of cost overruns and
inflation. The Company's operating results may also vary depending on factors
such as new product introductions by the Company and others, and market
acceptance of new and enhanced versions of the Company's products.
Dependence Upon Key Personnel. The Company's future success
will depend in large part on the continued services of Gene Zaino, the Company's
President and Chief Executive Officer, and of the Company's technical,
marketing, sales and management personnel, as well as on its ability to continue
to attract, motivate and retain highly qualified employees. The Company has a
$1,000,000 key man insurance policy on the life of Mr. Zaino. The Company's
employees may voluntarily terminate their employment at any time. Competition
for such employees is intense, and the process of locating technical, marketing,
sales and management personnel with the combination of skills and attributes
required to execute the Company's strategy is often lengthy. The Company
believes that it will need to hire additional technical personnel in order to
enhance existing products and to develop new products and to hire new sales
personnel in order to sell their products. If the Company is unable to hire
additional technical personnel, the development of new products and enhancements
will likely be delayed. If the Company is unable to hire additional sales
personnel, the sale of existing and new products will likely be adversely
impacted. The inability to attract new personnel could have a material adverse
effect upon the Company's results of operations and research and development
efforts. In particular, the Company's success will depend in large part upon its
ability to attract and retain qualified project managers. While to date the
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<PAGE>
Company has had no difficulty in attracting and retaining qualified employees,
qualified project managers are in particularly great demand and are likely to
remain a limited resource for the foreseeable future and, accordingly, there can
be no assurance that the Company will be able to retain and attract qualified
project management.
Competition. The Company provides information technology
services. The information technology services market comprises a large number of
participants, is subject to rapid changes, and is highly competitive. The market
includes participants from a variety of market segments, including systems
consulting and integration firms, contract programming companies, the
professional service groups of computer equipment companies such as
Hewlett-Packard Company, IBM, Unisys Corporation and Digital Equipment
Corporation, facilities management and MIS outsourcing companies, "Big Five"
accounting firms, and general management consulting firms. The Company's
competitors in this area also include companies such as Andersen Consulting, The
Registry, Cambridge Technologies, Inc., Technology Solutions Corporation, SHL
Systemhouse, Inc., Innovative Information Systems, Inc., Cap Gemini America,
Business System Group, Computer Sciences Corporation, Electronic Data Systems
Corporation and Keane, Inc. Many participants in the information technology
services market have significantly greater financial, technical and marketing
resources and greater name recognition than the Company and generate greater
systems consulting and integration revenues than does the Company. In addition,
the information technology services market is highly fragmented and served by
numerous firms, many of which serve only their respective local markets. The
Company believes that the principal competitive factors in the information
technology services industry include responsiveness to client needs, speed of
project implementation, quality of service, price, project management capability
and technical expertise. The Company believes that its ability to compete also
depends in part on a number of competitive factors outside its control,
including the ability of its competitors to hire, retain and motivate senior
project managers, the Company's products and services, the price at which others
offer comparable services, and the extent of their competitors' responsiveness
to customer needs.
Legal Uncertainties. There are many legal uncertainties
concerning technical services firms, including the extent of such a company's
liability for violations of employment and discrimination laws. Such liability
can include violations of employment and discrimination laws committed by
consultants the Company provides to its customers. Accordingly, the Company may
be subject to liability for violations of these or other laws even if it does
not participate in the commission of such violations. The Company believes it is
in compliance in all material respects with all applicable rules, regulations
and licensing requirements.
Project Risks. Occasionally, the Company is required to
guarantee to its customers that the integrated system on which it is consulting
will operate properly when completed. Rapid changes in technology or other
unforeseen developments can make any such guarantee difficult to meet and can
expose the Company to loss of the costs incurred by it and revenue anticipated
to be derived, in connection with any such project.
Outstanding Options and Warrants. There are currently
outstanding options and warrants to purchase 8,018,218 shares (not including the
Prepaid Warrants and the Private Placement Warrants) in the aggregate at
exercise prices ranging between $.97 to $4.00 per share. In addition, there are
currently 987,583 shares of Convertible Class A Preferred Stock outstanding;
643,440 shares of Convertible Class B Preferred Shares oustanding; and 1,500,000
shares of Convertible Class C Preferred Stock. The exercise of such options and
warrants or the conversion of the Convertible Preferred Stock will have a
dilutive effect on the ownership interests of the Company's existing
shareholders. In addition, the exercise price of the outstanding warrants and
options issued by the Company or the conversion of Convertible Preferred Stock
and the sale of the underlying shares of Common Stock (or even the potential of
such exercise or sale) may have a depressive effect on the market price of the
Company's securities depending on the timing of such sales, and may have a
dilutive effect on the book value per share of Common Stock. Moreover, the terms
upon which the Company will be able to obtain additional equity capital may be
adversely affected because the holders of the outstanding warrants and options
and Convertible Preferred Stock can be expected to exercise or convert them, to
the extent they are able to, at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to the
Company than those provided in the warrants and options. In addition, depending
upon market conditions at the time of exercise of the Prepaid Warrants, the
number of shares of Common Stock issuable upon such exercise could increase
significantly in the event of a decrease in the trading price of the Common
Stock. Purchasers of Common
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<PAGE>
Stock could therefore experience significant dilution upon exercise of the
Prepaid Warrants.
Issuance of Indeterminate Amount of Shares Upon the Exercise
of Prepaid Warrants. The number of shares of Common Stock issuable upon the
exercise of the Prepaid Warrants is determined during the first year by taking
125% of the Fixed Exercise Price of $1.3938, and after the first year by taking
the lower of $1.3938 or 80% of the average of the bid price of the Common Stock
immediately prior to exercise. Accordingly, the number of shares of Common Stock
issuable upon the exercise of the Prepaid Warrant could fluctuate.
Failure or Inability to Register Shares; Failure to Obtain
Shareholder Approval. If the Company fails or is unable to timely register any
of the shares of Common Stock issuable upon exercise of the Prepaid Warrants
and/or the Incentive Warrants, or if the Company fails to maintain its listing
on the NASDAQ SmallCap Market or if the Company fails to obtain shareholder
approval of certain of the transactions contemplated by the 1998 Private
Placements, the Company will incur penalties and costs pursuant to the terms of
the Prepaid Warrants and that certain registration rights agreement among the
Company and the purchasers of the Prepaid Warrants, which may have a material
and adverse effect on the Company's financial condition and results of
operations.
Common Stock Eligible for Future Sale. Future sales of shares
of Common Stock by existing shareholders under Rule 144 of the Act or through
the exercise of outstanding registration rights or the issuance of shares of
Common Stock upon the exercise of options or warrants or the conversion of the
Convertible Preferred Stock could materially adversely affect the market price
of the Common Stock and could materially impair the Company's future ability to
raise capital through an offering of equity securities. A substantial number of
shares of Common Stock are available for sale under Rule 144 in the public
market or will become available for sale in the near future and no predictions
can be made as to the effect, if any, that market sales of such shares or the
availability of such shares for future sale will have on the market price of the
Common Stock prevailing from time to time.
No Dividends. The Company has paid no dividends on its
outstanding Common Stock and anticipates that income, if any, received from
operations will be devoted to the Company's future operations. In addition,
dividends on Common Stock are subject to the preferences for dividends on the
Convertible Class A Preferred Stock and on the Convertible Class C Preferred
Stock. Accordingly, the Company does not anticipate the payment of cash
dividends on its Common Stock in the foreseeable future. Any future dividends
will depend upon earnings, if any, of the Company, its financial requirements,
and other factors.
Year 2000 Compliance. In 1997, the Company initiated a
complete risk evaluation and assessment study to determine the preparedness
level of the Company, customers, vendors, and other service providers for the
Year 2000 and the subsequent impact on the Company. The review will be completed
in 1998 and based upon the results of the review, ongoing Year 2000-impact
analysis and risk assessment will continue as management deems appropriate. The
Company expects to incur internal staff costs as well as consulting and other
expenses related to the risk evaluation and assessment project. Although cost
estimates for the project are not yet available, management does not anticipate
that the remaining costs associated with assuring that its internal systems will
be Year 2000 compliant will be material to its business, operations or financial
condition. In the Company's worst case scenario, since its business is primarily
a service business, it could, if required, conduct its business indefinitely in
paper versus electronic data systems mode contingent upon the continued
operation of public telephone, postal, and transportation systems.
Although the Company does not believe that it will incur any material costs or
experience material disruptions in its business associated with preparing its
internal systems for the year 2000, there can be no assurances that the Company
will not experience serious unanticipated negative consequences and/or material
costs caused by undetected errors or defects in the technology used in its
internal systems, which are composed of third party software, third party
hardware that contains embedded software and the Company's own software
products.
A significant amount of the demand the Company has experienced in recent years
for technical consulting may be generated by customers in the process of
replacing and upgrading systems and applications in order to accommodate the
change in date to the year 2000. Once such customers have completed their
preparations, the information
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<PAGE>
technology industry and the Company may experience a significant deceleration
from the strong annual growth rates recently experienced in the marketplace.
NASDAQ Listing. The Company's common stock currently is quoted or traded on
NASDAQ and The Boston Stock Exchange, respectively. The Company is currently in
compliance with NASDAQ's listing requirements. However, there can be no
assurance that the Company will continue to meet the applicable requirements for
continued listing. The failure to continue to meet the NASDAQ's requirements may
result in the Common Stock no longer being eligible for quotation on NASDAQ and
trading, if any, of the Common Stock would thereafter be conducted in the
non-NASDAQ over-the-counter market As a result of such delisting of the Common
Stock from NASDAQ, it may be more difficult for investors to dispose of, or to
obtain accurate quotations as to the market value of, the Common Stock.
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<PAGE>
USE OF PROCEEDS
EXERCISE OF THE PRIVATE PLACEMENT WARRANTS AND THE FBW WARRANTS.
Assuming that all of the Private Placement Warrants and the
FBW Warrants are exercised, the net proceeds to the Company upon the exercise of
such warrants and options is estimated to be approximately $1,153,125. The
Company intends to apply any net proceeds from such exercises for the
development of additional core competency practice units, geographic expansion,
marketing and working capital and other general corporate purposes.
CONVERSION OF PREFERRED STOCK AND EXERCISE OF THE PREPAID WARRANTS
The Company will not receive any proceeds from the sale of the
Warrant issued to Waterside Capital Corporation, the conversion of the
Convertible Preferred Stock or the exercise of the Prepaid Warrants.
OFFERING BY SELLING SHAREHOLDERS
The Company will not receive any of the proceeds from the sale
of any of the Shares.
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<PAGE>
SELLING SHAREHOLDERS
The following table sets forth (i) the number of shares of
Common Stock owned by each Selling Shareholder at November 12, 1998; (ii) the
number of shares being offered for resale hereby by each Selling Shareholder;
and (iii) the number and percentage of shares of Common Stock to be held by each
Selling Shareholder after the completion of this Offering. Except as otherwise
indicated in the footnotes to such table, none of such Selling Shareholders has
been an officer, director or employee of the Company for the past three years.
The Shares being offered hereby are being registered to permit public secondary
trading, and the Selling Shareholders may offer all or part of the Shares for
resale from time to time. However, such Selling Shareholders are under no
obligation to sell all or any portion of such Shares nor are such Selling
Shareholders obligated to sell any Shares immediately under this Prospectus.
All information with respect to share ownership has been
furnished by the Selling Shareholders. Because the Selling Shareholders may sell
all or part of their Shares no estimates can be given as to the number of Shares
that will be held by any Selling Shareholders upon termination of any offering
made hereby. See "PLAN OF DISTRIBUTION."
In connection with the Prepaid Warrant Shares and the
September 1998 Private Placement Warrant Shares, the Company granted such
Selling Shareholders certain registration rights pursuant to which the Company
agreed to keep the Registration Statement, of which this Prospectus is a part,
effective until the date that all of such Shares have been sold pursuant to the
Registration Statement. The Company has agreed to indemnify such Selling
Shareholders and each of their officers, directors, employees, partners, legal
counsel and accountants, and each underwriter, if any, and each person who
controls any such underwriter, against certain expenses, claims, losses, damages
and liabilities (or action in respect thereof). The Company has agreed to pay
its expenses of registering the Shares under the Securities Act, including
registration and filing fees, blue sky expenses, printing expenses, accounting
fees, administrative expenses and its own counsel fees.
Pursuant to Rule 416 under the Securities Act, Selling
Shareholders may also offer and sell Shares issued with respect to the Prepaid
Warrants and/or the other warrants, options and Convertible Preferred Stock as a
result of (i) stock splits, stock dividends or similar transactions and (ii) the
effect of anti-dilution provisions contained in the underlying documents. In
addition, in the case of the Shares underlying the Prepaid Warrants, there maybe
changes in the number of shares offered hereby due to changes in the exercise
price of the Prepaid Warrants in accordance with the terms thereof. This is not
intended to constitute a prediction as to the number of Shares into which the
Prepaid Warrants will be exercised. Moreover, in the case of the Shares
underlying the Prepaid Warrants, the number of Shares owned and offered for sale
hereby represents an estimate of the number of shares of Common Stock issuable
upon conversion of or otherwise with respect to the Prepaid Warrants, based on
200% of the number of shares of Common Stock issuable at an exercise price of
$1.3938 in accordance with Rule 416 and the terms of the Prepaid Warrants.
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<PAGE>
<TABLE>
<CAPTION>
Name Number of Shares of Common Shares to be Shares Beneficially Owned
- ------------------ Stock Beneficially Owned Sold in After Offering
Prior to Offering(1) Offering(2) -------------------------
-------------------------- -----------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Leon Atkin 50,000 * 50,000 0 0
James Daleen 10,000 * 10,000 0 0
Paul Edelman 20,000 * 20,000 0 0
George Gellert 265,000(3) 2.5 125,000 140,000 1.4
Neil Glassberg 20,000 * 20,000 0 0
Natalie Gonnen 50,000 * 50,000 0 0
Cyra Kerven 10,000 * 10,000 0 0
Todd Koffman 30,000 * 30,000 0 0
Louis Rosenwein 285,000(4) 2.8 125,000 160,000 1.6
Harold Stangler 6,000 * 6,000 0 0
Stuart Wachnin 22,500(5) * 5,000 17,500 0
J. Craig Jones 152,922 1.5 152,922 0 0
Stephen S. Turner 218,390 2.1 218,390 0 0
David C. Turner 18,042 * 18,042 0 0
Steven S. McBryde 19.073 * 19,073 0 0
Timothy Shelton 19,073 * 19,073 0 0
William K. Bell 22,500 * 22,500 0 0
The viaLink Company 1,286,880 5.9 1,286,880 0 0
Waterside Capital Corporation 3,000,000(6) 22.7 3,000,000 0 0
Goldman Sachs Performance Partners, LP 1,432,394(8) 12.3(9) 1,432,394 0 0
Goldman Sachs Performance Partners (Offshore), LP 1,162,523(8) 10.2(9) 1,162,523 0 0
Claudio Guazzoni 30,025 * 30,025 0 0
David McCarthy (7) 51,993 * 30,025 21,968 *
Samuel L. Milbank 21,350 * 21,350 0 0
Augie LaTorre 8,000 * 8,000 0 0
The Zanett Securities Corporation (10) 51,350 * 12,350 39,000 *
Ferris, Baker and Watts, Inc. 150,000 1.4 150,000 0 0
Richard Prinz 40,000 * 40,000 0 0
Steven Shea 25,000 * 25,000 0 0
John Hagan 20,000 * 20,000 0 0
Peter Malekian 10,000 * 10,000 0 0
Charles Place 3,000 * 3,000 0 0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name Number of Shares of Common Shares to be Shares Beneficially Owned
- ------------------ Stock Beneficially Owned Sold in After Offering
Prior to Offering(1) Offering(2) -------------------------
-------------------------- -----------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Mark Rust 2,000 * 2,000 0 0
</TABLE>
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of the Company's Common Stock subject to options,
warrants and convertible preferred stock currently exercisable or
convertible, or exercisable or convertible within sixty (60) days, are
deemed outstanding for computing the percentage of the person holding such
options or warrants but are not deemed outstanding for computing the
percentage of any other person.
(2) Assumes that each of the Selling Shareholders sells a pro-rata portion of
the shares of Common Stock offered hereby during the effective period of
the Registration Statement. The actual number of shares of Common Stock
offered hereby is subject to change and could be materially greater or less
than the estimated amount indicated, depending upon a number of factors,
including with respect to all Selling Shareholders whether the number of
shares of the Common Stock outstanding have been adjusted to account for
any stock dividend, stock split and similar transactions or adjustment and,
in addition, with respect to the holders of Prepaid Warrants, if converted
during the first year, 125% of $1.3938 and thereafter the lower of(i) 80%
of the average of the three lowest closing bid prices of the Common Stock
for the twenty trading days prior to the date of exercise and (ii) $1.3938,
and whether any of the Prepaid Warrants have been redeemed.
(3) Consists of 125,000 Common Shares and 140,000 shares purchased in a private
placement in March 1998.
(4) Consists of 125,000 Common Shares and 160,000 shares purchased in a private
placement in March 1998.
(5) Consists of 5,000 Common Shares and 17,500 shares purchased in a private
placement in March 1998.
(6) Consists of 2,450,000 shares reserved for the conversion of the Class C
preferred shares and 550,000 shares reserved for conversion of the Private
Placement Warrants.
(7) Consists of 14,025 Private Placement Warrant shares, 21,968 Prepaid Warrant
Shares and 16,000 shares.
(8) Assumes that such Selling Shareholder will convert its Prepaid Warrants
into Common Stock at a price of $1.3938 per share and eliminates any
fractional shares. Pursuant to the terms of each Prepaid Warrant, the
Selling Shareholders may convert each Prepaid Warrant into such number of
shares of Common Stock as is determined by dividing $1,000 by 125% of
$1.3938 during the first year, or thereafter by the lesser of (i) 80% of
the three (3) lowest closing bid prices for the Common Stock on the Nasdaq
SmallCap Market for the twenty trading days prior to the date of exercise
or (ii) $1.3938.
(9) Except under certain circumstances, none of the Selling Shareholders is
entitled to exercise the Prepaid Warrants to the extent that such exercise
would cause the Selling Stockholder to beneficially own more than 4.99% of
the total outstanding Common Stock of the Company. Therefore, the number of
shares set forth herein and which a Selling Stockholder may sell pursuant
to this Prospectus may exceed the number of shares such Selling Stockholder
may beneficially own as determined pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended.
(10) Consists of 9,350 Private Placement Warrant shares, 3,000 shares, and
39,000 Incentive Warrant shares.
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<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereby are being offered for the account of the
Selling Shareholders or by pledgees, donees or transferees of, or successors in
interest to, the Selling Shareholders, directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may act
solely as agents or may acquire Shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices, which may be changed. The
distribution of the Shares may be effected in one or more of the following
methods: (i) ordinary brokers transactions, which may include long or short
sales, (ii) transactions involving cross or block trades or otherwise on NASDAQ,
(iii) purchases by brokers, dealers or underwriters as principal and resale by
such purchasers for their own accounts pursuant to this Prospectus, (iv) "at the
market" to or through market makers or into an existing market for the Common
Stock, (v) in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through agents,
(vi) through transactions in options, swaps or other derivatives (whether
exchange listed or otherwise), or (vii) any combination of the foregoing, or by
any other legally available means. In addition, the Selling Shareholders or
their successors in interest may enter into hedging transactions with
broker-dealers who may engage in short sales of shares of Common Stock in the
course of hedging the positions they assume with the Selling Shareholders. The
Selling Shareholders or their successors in interest may also enter into option
or other transactions with broker-dealers that require that delivery by such
broker-dealers of the Shares, which Shares may be resold thereafter pursuant to
this Prospectus.
Brokers, dealers, underwriters or agents participating in the
distribution of the Shares may receive compensation in the form of discounts,
concessions or commission from the Selling Shareholders and/or the purchasers of
Shares for whom such broker-dealers may act as agent or to whom they may sell as
principal, or both (which compensation as to a particular broker-dealer may be
in excess of customary commissions). The Selling Shareholders and any
broker-dealers acting in connection with the sale of the Shares hereunder may be
deemed to be underwriters within the meaning of Section 2(11) of the Securities
Act, and any commissions received by them and any profit realized by them on the
resale of Shares as principals may be deemed underwriting compensation under the
Securities Act. Neither the Company nor any Selling Stockholder can presently
estimate the amount of such compensation. The Company knows of no existing
arrangements between any Selling stockholder and any other stockholder, dealer,
underwriter or agent relating to the sale or distribution of the Shares.
Each Selling Shareholder and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchasers and sales of securities by, Selling Shareholders and
other persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions subject to specified exceptions or
exemptions. All of the foregoing may affect the marketability of the securities
offered hereby.
Any securities covered by this Prospectus that qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under that Rule rather
than pursuant to this Prospectus.
There can be no assurance that the Selling Shareholder will sell
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<PAGE>
any or all of the shares of Common Stock offered by them hereunder or otherwise.
LEGAL MATTERS
The legality of the shares of Common Stock reoffered hereby
has been passed upon for the Company by Olshan Grundman Frome & Rosenzweig LLP,
New York, New York. Certain members of such firm hold options to purchase Common
Stock of the Company.
EXPERTS
The consolidated financial statements of The Netplex Group, Inc.
and subsidiaries as of December 31, 1997 and 1996, and for each of the years in
the three year period ended December 31, 1997, have been incorporated herein by
reference in the registration statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Amended and Restated Certificate of Incorporation of the
Company provides that the Company shall indemnify to the fullest extent
permitted by New York law any person whom it may indemnify thereunder, including
directors, officers, employees and agents of the Company. Such indemnification
(other than as ordered by a court) shall be made by the Company only upon a
determination that indemnification is proper in the circumstances because the
individual met the applicable standard of conduct. Advances for such
indemnification may be made pending such determination. In addition, the Amended
and Restated Certificate of Incorporation provides for the elimination, to the
extent permitted by New York law, of personal liability of directors to the
Company and its shareholders for monetary damages for breach of fiduciary duty
as directors.
Section 721 through 726 inclusive of the New York Business
Corporation Law (the "New York BCL") also contain provisions relating to the
indemnification of officers and directors. The New York BCL provides that a
corporation may (but is not required to) indemnify a director or officer against
judgments, fines, amounts paid in settlement and reasonable expenses of
litigation (other than in an action brought by the corporation against such
person or by shareholders against such person on behalf of the corporation),
even if the director or officer is not successful on the merits, if he acted in
good faith and for a purpose he reasonably believed to be in (or not opposed to)
the best interests of the corporation (and, criminal actions or proceedings, had
no reason to believe his conduct was unlawful). In addition, a corporation may
(but is not required to) indemnify a director or officer against amounts paid in
settlement and reasonable expenses of an action brought against him by the
corporation or by shareholders on behalf of the corporation, even if he is not
successful on the merits, if he acted in good faith and for a purpose he
reasonably believed to be in (or not opposed to) the best interests of the
corporation. However, no indemnification is permitted in an action by the
corporation, or shareholders on behalf of the corporation, in connection with
the settlement or other disposition of a threatened or pending action or in
connection with any claim, issue or matter as to which a director or officer is
adjudged to be liable to the corporation, unless a court determines that, in
view of all of the circumstances, he is entitled to indemnity for such portion
of the settlement amount and expenses as the court deems proper. In addition,
the New York BCL provides that a director or officer shall be indemnified if
such person is successful in the litigation on the merits or otherwise.
Permitted indemnification as described above may only be made if
it is
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<PAGE>
authorized by the Board of Directors, in each specific case, based upon a
determination that the applicable standard of conduct has been met or that
indemnification is proper under New York BCL Section 721. Such authorization is
made by the Board of Directors, either acting as a quorum of disinterested
directors or based upon an opinion by independent legal counsel or the
shareholders that indemnification is proper because the applicable standard of
conduct has been met. Upon application of the person seeking indemnification, a
court may also award indemnification upon a determination that the standards
outlined above have been met. A corporation's board of directors may also
authorize the advancement of litigation expenses to a director or officer upon
receipt of an undertaking by him to repay such expenses, if it is ultimately
determined that he is not entitled to be indemnified for them.
The Company has also agreed to indemnify each director and
executive officer pursuant to an Indemnification Agreement with each such
director and executive officer from and against any and all expenses, losses,
claims, damages and liability incurred by such director or executive officer for
or as a result of action taken or not taken while such director or executive
officer was acting in his capacity as a director, officer, employee or agent of
the Company.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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<PAGE>
No dealer, salesman or any other person is authorized to give any information or
to make any representations in connection with this offering not contained in
this Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or solicitation of any offer to buy any
security other than the Securities offered by this Prospectus or an offer by any
person in any jurisdiction where such an offer or solicitation is not authorized
or is unlawful. The delivery of this Prospectus shall not, under any
circumstances, create any implication that information herein is correct as of
any time subsequent to its date.
TABLE OF CONTENTS
Page
Incorporation of Certain Documents
By Reference........................................................... 3
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 11
Selling Shareholders..................................................... 12
Plan of Distribution..................................................... 15
Legal Matters............................................................ 16
Experts.................................................................. 16
Indemnification for Securities Act Liabilities........................... 16
8,134,547 Shares of Common Stock
THE NETPLEX GROUP, INC.
PROSPECTUS
November __, 1998
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<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses in connection with the issuance and distribution
of the securities being registered, all of which, will be paid by the
Registrant, are as follows:
SEC Registration Fee.................... $ 2,736.53
Accounting Fees and Expenses............ 10,000.00
Legal Fees and Expenses................. 15,000.00
Blue Sky Fees and Expenses.............. 10,000.00
Miscellaneous Expenses.................. 12,263.47
------------
Total................................... $50,000.00
==========
Item 15. Indemnification of Directors and Officers.
Except as hereinafter set forth, there is no statute, charter
provision, by-law, contract or other arrangement under which any controlling
person, director or officer of the Company is insured or indemnified in any
manner against liability which he may incur in his capacity as such.
The Company's authority to indemnify its directors and
officers is governed by the provisions of Article 7 of the New York Business
Corporation Law (the "BCL").
Section 722 of the BCL provides that a corporation may
indemnify directors and officers as well as other employees and individuals
against judgments, fines, amounts paid in settlement, and reasonable expenses,
including attorneys' fees, in connection with actions or proceedings, whether
civil or criminal (other than an action by or in the right of the corporation--a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except indemnification only
extends to amounts paid in settlement and reasonable expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
actions, and the statute does not apply in respect of a threatened action, or a
pending action that is settled or otherwise disposed of, and requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. Section 721 of the BCL
provides that Article 7 of the BCL is not exclusive of other indemnification
that may be granted by a corporation's certificate of incorporation,
disinterested director vote, shareholder vote, agreement or otherwise.
A more specific description of the relevant law is provided
below.
ss.721 Nonexclusivity of Statutory Provisions for
Indemnification of Directors and Officers -- The indemnification and advancement
of expenses granted pursuant to, or provided by, this article shall not be
deemed exclusive of any other rights to which a director or officer seeking
indemnification or advancement of expenses may be entitled, whether contained in
the certificate of incorporation or the by-laws or, when authorized by such
certificate of incorporation or by-laws, (i) a resolution of shareholders, (ii)
a resolution of directors, or (iii) an agreement providing for such
indemnification, provided that no indemnification may be made to or on behalf of
any director or officer if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled. Nothing
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<PAGE>
contained in this article shall affect any rights to indemnification to which
corporate personnel other than directors and officers may be entitled by
contract or otherwise under law.
ss.722 Authorization for Indemnification of Directors and
Officers--(a) A corporation may indemnify any person, made, or threatened to be
made, a party to an action or proceeding other than one by or in the right of
the corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or
proceeding by judgment, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not in itself create a presumption that any
such director or officer did not act, in good faith, for a purpose which he
reasonably believed to be in, or, in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise, not opposed to, the best interests of the corporation or that
he had reasonable cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened
to be made, a party to an action by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he, his testator or
intestate, is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer or any other
corporation of any type or kind, domestic or foreign, of any partnership, joint
venture, trust, employee benefit plan or other enterprise, against amounts paid
in settlement and reasonable expenses, including attorneys' fees, actually and
necessarily incurred by him in connection with the defense or settlement of such
action, or in connection with an appeal therein if such director or officer
acted, in good faith, for a purpose which he reasonably believed to be in, or,
in the case of service for any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise, not opposed to, the
best interests of the corporation, except that no indemnification under this
paragraph shall be made in respect of (1) a threatened action, or a pending
action which is settled or otherwise disposed of, or (2) any claim issue or
matter as to which such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
was brought, or, if no action was brought, any court of competent jurisdiction,
determines upon application that, in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such portion of
the settlement amount and expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be
deemed to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the corporation also imposes duties
on, or otherwise involves services by, such person to the plan or participants
or beneficiaries of the plan; excise taxes assessed on a person with respect to
an employee benefit plan pursuant to applicable law shall be considered fines;
and action taken or omitted by a person with respect to an employee benefit plan
in the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
ss.723 Payment of Indemnification Other Than By Court
Award--(a) A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in section 722
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<PAGE>
shall be entitled to indemnification as authorized in such section.
(b) Except as provided in paragraph (a), any indemnification
under section 722 or otherwise permitted by section 721, unless ordered by a
court under section 724 (Indemnification of directors and officers by a court),
shall be made by the corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors
who are not parties to such action or proceeding upon a finding
that the director or officer has met the standard of conduct set
forth in section 722 or established pursuant to section 721, as
the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or,
even if obtainable, a quorum of disinterested directors so
directs;
(A) By the board upon the opinion in writing of
independent legal counsel that indemnification is proper in
the circumstances because the applicable standard of conduct
set forth in such sections has been met by such director or
officer, or
(B) By the shareholders upon a finding that the
director or officer has met the applicable standard of
conduct set forth in such sections.
(C) Expenses incurred in defending a civil or criminal
action or proceeding may be paid by the corporation in
advance of the &al disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount as, and to the
extent, required by paragraph (a) of section 725.
ss.724 Indemnification of Directors and Officers by a
Court--(a) Notwithstanding the failure of a corporation to provide
indemnification, and despite any contrary resolution of the board or of the
shareholders in the specific case under section 723 (Payment of indemnification
other than by court award), indemnification shall be awarded by a court to the
extent authorized under section 722 (Authorization for indemnification of
directors and officers), and paragraph (a) of section 723.
Application therefor may be made, in every case, either:
(1) In the civil action or proceeding in which the expenses
were incurred or other amounts were paid, or
(2) To the supreme court in a separate proceeding, in which
case the application shall set forth the disposition of any
previous application made to any court for the same or similar
relief and also reasonable cause for the failure to make
application for such relief in action or proceeding in which the
expenses were incurred or other amounts were paid.
(b) The application shall be made in such manner and form as
may be required by the applicable rules of court or, in the absence thereof, by
direction of a court to which it is made. Such application shall be upon notice
to the corporation. The court may also direct that notice be given at the
expense of the corporation to the shareholders and such other persons as it may
designate in such manner as it may require.
(c) Where indemnification is sought by judicial action, the
court may allow a person such reasonable expenses, including attorneys' fees,
during the pendency of the litigation as are necessary in connection with his
defense therein, if the court shall find that the defendant has by his pleadings
or during the course of the litigation raised genuine issues of fact or law.
II-3
<PAGE>
ss.725 Other Provisions Affecting Indemnification of Directors
and Officers--(a) All expenses incurred in defending a civil or criminal action
or proceeding which are advanced by the corporation under paragraph (c) of
section 723 (Payment of indemnification other than by court award) or allowed by
a court under paragraph (c) of section 724 (Indemnification of directors and
officers by a court) shall be repaid in case the person receiving such
advancement or allowance is ultimately found, under the-procedure set forth in
this article, not to be entitled to indemnification or, where indemnification is
granted, to the extent the expenses so advanced by the corporation or allowed by
the court exceed the indemnification to which he is entitled:
(b) No indemnification, advancement or allowance shall be made
under this article in any circumstance where it appears:
(1) That the indemnification would be inconsistent with the
law of the jurisdiction of incorporation of a foreign corporation
which prohibits or otherwise limits such indemnification;
(2) That the indemnification would be inconsistent with a
provision of the certificate of incorporation, a by-law, a
resolution of the board or of the shareholders, an agreement or
other proper corporate action, in effect at the time of the
accrual of the alleged cause of action asserted in the threatened
or pending action or proceeding in which the expenses were
incurred or other amounts were paid, which prohibits or otherwise
limits indemnification; or
(3) If there has been a settlement approved by the court,
that the indemnification would be inconsistent with any condition
with respect to indemnification expressly imposed by the court in
approving the settlement.
(c) If any expenses or other amounts are paid by way of
indemnification, otherwise than by court order or action by the shareholders,
the corporation shall, not later than the next annual meeting of shareholders
unless such meeting is held within three months from the date of such payment,
and in any event, within fifteen months from the date of such payment, mail to
its shareholders of record at the time entitled to vote for the election of
directors a statement specifying the persons paid, the amounts paid, and the
nature and status at the time of such payment of the litigation or threatened
litigation.
(d) If any action with respect to indemnification of directors
and officers is taken by way of amendment of the by-laws, resolution of
directors, or by agreement, then the corporation shall, not later than the next
annual meeting of shareholders, unless such meeting is held within three months
from the date of such action, and, in any event, within fifteen months from the
date of such action, mail to its shareholders of record at the time entitled to
vote for the election of directors a statement specifying the action taken.
(e) Any notification required to be made pursuant to the
foregoing paragraph (c) or (d) of this section by any domestic mutual insurer
shall be satisfied by compliance with the corresponding provisions of section
one thousand two hundred sixteen of the insurance law.
(f) The provisions of this article relating to indemnification
of directors and officers and insurance therefor shall apply to domestic
corporations and foreign corporations doing business in this state, except as
provided in section 1320 (Exemption from certain provisions).
ss.726 Insurance for Indemnification of Directors and
Officers--(a) Subject to paragraph (b), a corporation shall have power to
purchase and maintain insurance:
(1) To indemnify the corporation for any obligation which it
incurs as a result of the
II-4
<PAGE>
indemnification of directors and officers under the provisions of
this article, and
(2) To indemnify directors and officers in instances in
which they may be indemnified by the corporation under the
provisions of this article, and
(3) To indemnify directors and officers in instances in
which they may not otherwise be indemnified by the corporation
under the provisions of this article provided the contract of
insurance covering such directors and officers provides, in a
manner acceptable to the superintendent of insurance, for a
retention amount and for co-insurance.
(b) No insurance under paragraph (a) may provide for any
payment, other than cost of defense, to or on behalf of any director or officer.
(1) if a judgment or other final adjudication adverse to the
insured director or officer establishes that his acts of active
and deliberate dishonesty were material to the cause of action so
adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled,
or
(2) in relation to any risk the insurance of which is
prohibited under the insurance law of this state.
(c) Insurance under any or all subparagraphs of paragraph (a)
may be included in a single contract or supplement thereto. Retrospective rated
contracts are prohibited.
(d) The corporation shall, within the time and to the persons
provided in paragraph (c) of section .725 (Other provisions affecting
indemnification of directors or officers), mail a statement in respect of any
insurance it has purchased or renewed under this section, specifying the
insurance carrier, date of the contract, cost of the insurance, corporate
positions insured, and a statement explaining all sums, not previously reported
in a statement to shareholders, paid under any indemnification insurance
contract.
(e) This section is the public policy of this state to spread
the risk of corporate management, notwithstanding any other general or special
law of this state or of any other jurisdiction including the federal government.
The Company's Amended and Restated Certificate of
Incorporation provides that the personal liability of the directors of the
Company to the Company or its shareholders for damages for any breach of duty as
directors, is eliminated, provided that nothing shall limit the liability of any
Director if a judgment or other final adjudication adverse to him establishes
that his acts or omissions were in bad faith or involved international
misconduct.
The Company has also entered into indemnification agreements
with each of its officers and directors.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to
this Registration Statement, the Company has agreed to indemnify the
Underwriters and the Underwriters have agreed to indemnify the Company and its
directors, officers and controlling persons against certain civil liabilities
that may be incurred in connection with this offering, including certain
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
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<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibit Number
*4(a) -- Certificate of Designations, Preferences and other
Rights and Qualifications of Class B Convertible
Preferred Stock.
*4(b) -- Certificate of Amendment of the Certificate of
Incorporation of The Netplex Group, Inc.
*4(c) -- Investor Rights Agreement dated September 30, 1998.
*4(d) -- Registration Rights Agreement (between Netplex and
Waterside Capital) dated September 30, 1998.
*4(e) -- Stock Purchase Warrant dated September 30, 1998.
*4(f) -- Placement Agency Agreement dated September 25, 1998.
*4(g) -- Incentive Stock Purchase Warrant.
*4(h) -- Prepaid Common Stock Purchase Warrant.
*4(i) Registration Rights Agreement (between Netplex and
the Initial Investors) dated September 25, 1998.
*4(j) Securities Purchase Agreement dated September 25, 1998.
**5 -- Opinion of Olshan Grundman Frome & Rosenzweig LLP
**23 -- Consent of KPMG Peat Marwick LLP.
**23(c) -- Consent of Olshan Grundman Frome & Rosenzweig LLP
(contained in their opinion included under Exhibit 5)
**24 -- Power of Attorney, included on Page II-9.
- ----------
* Filed herewith.
** To be filed by amendment.
Item 17. Undertakings.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
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<PAGE>
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such
information set forth in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) shall not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of this offering.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Exchange Act, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of McLean, State of Virginia, on the 13th day of
November, 1998.
THE NETPLEX GROUP, INC.
By: /s/ Gene Zaino
---------------------------
Gene Zaino, Chairman, President &
Chief Executive Officer
SIGNATORIES
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the date indicated. Each of the
undersigned officers and directors of The Netplex Group, Inc. hereby constitutes
and appoints Gene Zaino and Robert Skelton as true and lawful attorney-in-fact
and agent with full power of substitution and resubstitution, for him in his
name in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Report and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and to prepare any and all exhibits thereto,
and other documents in connection therewith, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite or necessary to be done to enable The Netplex
Group, Inc. to comply with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Gene Zaino Chairman, President and November 13, 1998
- -------------------------- Chief Executive Officer
Gene Zaino (Principal Executive Officer)
/s/ Walton E. Bell III Chief Financial Officer and November 13, 1998
- -------------------------- Treasurer (Principal
Walton E. Bell III Financial Officer)
/s/ Richard Goldstein Director November 13, 1998
- --------------------------
Richard Goldstein
/s/ Deborah Schondorf-Novick Director November 13, 1998
- --------------------------
Deborah Schondorf-Novick
/s/ Steven Hanau Director November 13, 1998
- --------------------------
Steven Hanau
/s/ Frank C. Laguttuta Vice President and Director November 13, 1998
- --------------------------
Frank C. Laguttuta
THE NETPLEX GROUP, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND OTHER RIGHTS AND QUALIFICATIONS OF
CLASS B PREFERRED STOCK
---------------------------
Pursuant to Section 502 of the
New York Business Corporation Law
--------------------------
THE NETPLEX GROUP, INC., a corporation organized and existing under the
laws of the State of New York (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That, pursuant to authority conferred upon the Board of
Directors of the Corporation (the "Board") by the Certificate of Incorporation
of said Corporation, as amended, restated and corrected from time to time and
pursuant to the provisions of Section 502 of the New York Business Corporation
Law, said Board duly determined that [ ] shares of Preferred Stock, $.01 par
value per share, shall be designated "Class B Preferred Stock", and to that end
the Board adopted a resolution providing for the designation, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations and restrictions, of the Class B Preferred Stock, which resolution
is as follows:
RESOLVED that the Board, pursuant to the authority vested
in it by the provisions of the Certificate of Incorporation of the
Corporation as amended, hereby creates a series of Preferred Stock
of the corporation, par value $.01 per share, to be designated as
"Class B Preferred Stock" and to consist of an aggregate of [ ]
shares. The Class B Preferred Stock shall have such designations,
preferences and relative, participating, optional or other rights,
and the qualifications, limitations and restrictions as follows:
1. Designations and Amount. [ ] shares of the Preferred Stock
of the Corporation, par value $.01 per shares, shall constitute a series of
Preferred Stock designated as "Class B Convertible Preferred Stock" (the "Class
B Preferred Stock").
<PAGE>
2. Rank. The Class B Preferred Stock shall rank senior to the
Common Stock, par value $.001 per share ("Common Stock") of the Corporation and
shall rank junior to the Class A Preferred Stock ("Senior Securities") with
respect to dividend rights or rights on liquidation, winding up on dissolution
of the Corporation.
3. Voting Rights. The holders of Class B Preferred Stock shall
not be entitled to vote on any matter except as required by law.
4. Conversion of Class B Preferred Stock.
(a) The holders of Class B Preferred Stock shall have the
right, at such holders' option, at any time or from time to time, to convert
each share of Class B Preferred Stock into one share of Common Stock (the
"Conversion Rate"), subject to adjustment as hereinafter provided.
(b) Before any holder of Class B Preferred Stock shall be
entitled to convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Class B Preferred Stock, and
shall give written notice to the Corporation at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Class B Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Class B Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
(c) The corporation shall not be required to issue fractions
of shares of Common Stock upon conversion of the Preferred Stock. If any
fractions of a share would, but for this Section, be issuable upon any
conversion of Preferred Stock, in lieu of such fractional share the Company
shall pay to the holder, in cash, an amount equal to the same fraction of the
Closing Price per share of Common Stock.
(d) The Corporation shall reserve and shall at all times have
reserved out of its authorized but unissued shares of Common Stock sufficient
shares of Common Stock to permit the conversion of the then outstanding shares
of the Class B Preferred Stock pursuant to this Section 4. All shares of Common
Stock which may be issued upon conversion of shares of the Class B Preferred
Stock pursuant to this section 4 shall be validly issued, fully paid and
nonassessable. In order that the Corporation may issue shares of Common Stock
upon conversion of shares of the Class B Preferred Stock, the Corporation will
endeavor to comply with all applicable Federal and State securities laws and
will endeavor to list such shares of Common stock to be issued upon conversion
on any securities exchange on which Common Stock is listed.
<PAGE>
(e) The Conversion Rate in effect at any time for conversion
of Class B Preferred Stock into Common Stock pursuant to this Section 4 shall be
subject to adjustment from time to time as follows:
(i) In the event that the Corporation shall (1) pay a dividend
in shares of Common Stock to holders of Common Stock, (2) make a distribution in
shares of Common Stock to holders of Common Stock, (3) subdivide the outstanding
shares of Common Stock or (4) combine the outstanding shares of Common Stock
into a smaller number of shares of Common Stock, the Conversion Rate in effect
pursuant to this Section 4 immediately prior to such action shall be adjusted so
that the holder of any shares of Class B Preferred Stock thereafter surrendered
for conversion pursuant to this Section 4 shall be entitled to receive the
number of shares of Common Stock which he would have owned immediately following
such action had such shares of Class B Preferred Stock been converted
immediately prior thereto. Such adjustment shall be made whenever any event
listed above shall occur and shall become effective (A) immediately after the
record date in the case of a dividend or a distribution and (B) immediately
after the effective date in the case of a subdivision of combination.
(f) No adjustment in the Conversion Rate shall be required
until cumulative adjustments result in a concomitant change of 1% or more of the
Conversion Rate as in effect prior to the last adjustment of the Conversion
Rate; provided, however, that any adjustments which by reason of this Section
4(f) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this Section 4 shall be
made to the nearest cent or to the nearest one-hundredth of a share, as the case
may be. No adjustment to the conversion rate shall be made for cash dividends.
(g) In the event that, as a result of an adjustment made
pursuant to Section 4 (e), the holder of any share of the Class B Preferred
Stock thereafter surrendered for conversion shall become entitled to receive any
shares of capital stock of the Corporation other than shares of Common Stock,
thereafter the number of such other shares so receivable upon conversion of any
shares of the Class B Preferred Stock shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section 4.
(h) Whenever the Conversion Rate is adjusted pursuant to this
Section 4, the Corporation shall promptly mail first class to all holders of
record of shares of the Class B Preferred Stock a notice of the adjustment and
shall cause to be prepared a certificate signed by a principal financial officer
of the Corporation setting forth the adjusted Conversion Rate and a brief
statement of the facts requiring such adjustment and the computation thereof.
Such certificate shall forthwith be filed with each transfer agent for the
shares of the Class B Preferred Stock.
<PAGE>
(i) If any of the following shall occur: (i) any
reclassification or change of outstanding shares of Common Stock issuable upon
conversion of shares of the Class B Preferred Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), or (ii) any consolidation or
merger to which the Corporation is a party other than a merger in which the
Corporation is the continuing corporation and which does not result in any
reclassification of, or change (other than a change in name, or par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of Common Stock,
then in addition to all of the rights granted to the holders of the Class B
Preferred Stock as designated herein, the Corporation, or such successor or
purchasing corporation, as the same may be, shall as a condition precedent to
such reclassification, change, consolidation, merger, sale or conveyance,
provide in its certificate of incorporation or other charter document that each
share of the Class B Preferred Stock shall be convertible into the kind and
amount of shares of capital stock and other securities and property (including
cash) receivable upon such reclassification, change, consolidation, merger, sale
or conveyance by a holder of the number of shares of Common Stock deliverable
upon conversion of such shares of the Class B Preferred Stock immediately prior
to reclassification, change, consolidation, merger, sale or conveyance. Such
certificate of incorporation or other charter document shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4. If, in the case of any such
reclassification, change, consolidation, merger, sale or conveyance, the stock
or other securities and property (including cash) receivable thereupon by a
holder of Common Stock includes shares of capital stock or other securities and
property of a corporation other than the successor purchasing corporation, as
the case may be, in such reclassification, change, consolidation, merger, sale
or conveyance, then the certificate of incorporation or other charter document
of such other corporation shall contain such additional provisions to protect
the interests of the holders of shares of the Class B Preferred Stock as the
Board of Directors shall reasonably consider necessary by reason of the
foregoing. The provision of this Section 4 (i) shall similarly apply to
successive consolidations, mergers, sales or conveyances.
(j) In the event any shares of Class B Preferred Stock shall
be converted pursuant to Section 4 hereof, the shares so converted shall be
cancelled.
(k) The Corporation will not, by amendment of its Certificate
of Incorporation as amended, restated, or corrected from time to time or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Class B Preferred Stock against
impairment.
5. Rights on Liquidation, Dissolution or Winding Up, etc.
(a) In the event of any voluntary or involutnary liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to stockholders, whether from capital, surplus or
earnings, shall be distributed in the following order of priority:
<PAGE>
(i) The holders of Class B Preferred Stock shall be entitled
to receive, prior and in preference to any distribution to the holders of any
Junior Securities an amount equal to the greater of (A) ($3.50 per share) for
each share of Class B Preferred Stock then outstanding plus an amount equal to
all accrued but unpaid dividends on such share of Class B Preferred Stock as of
the date such payment is made to the holders of Class B Preferred Stock, or (B)
the amount the holders of Class B Preferred Stock would have received had the
holders of Class B Preferred Stock converted the Class B Preferred Stock into
Common Stock as provided in Section 4 immediately prior to the voluntary or
involuntary liquidation and, in addition, an amount equal to all accrued but
unpaid dividends on such shares of Class B Preferred Stock as of the date such
payment is made to the holders of Class B Preferred Stock.
(ii) (x) If there is a distribution pursuant to Section
5(a)(i)(A) or 5(a)(i)(B) hereof, the remaining assets of the Corporation
available for distribution, if any, to the stockholders of the Corporation shall
be distributed to the holders of issued and outstanding shares of Common Stock.
Such resolution was signed by the President and Secretary of
the Corporation.
IN WITNESS WHEREOF, we have executed this Certificate of
Designation this _____day of ____________1998.
THE NETPLEX GROUP, INC.
By:________________________________
Name: Gene Zaino
Title: President
By:________________________________
Name: Robert Skelton
Title: Secretary
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
THE NETPLEX GROUP, INC.
Under Section 805 of the Business Corporation Law
------------------------
It is hereby certified that:
FIRST: The name of the corporation is THE NETPLEX GROUP, INC., f/k/a
COMPLINK, LTD. (the "Corporation").
SECOND: The Certificate of Incorporation of the Corporation was filed
with the Department of State on August 1, 1986 under the name of COMPLINK, LTD.
An Amended Certificate of Incorporation was filed with the Department of State
on March 27, 1992. A Restated Certificate of Incorporation was filed with the
Department of State on March 9, 1993. An Amendment to the Certificate of
Incorporation was filed on June 12, 1996. An Amendment to the Certificate of
Incorporation was filed on September 19, 1996. A Certificate of Correction of
the Amendment of the Certificate of Incorporation was filed on October 16, 1996.
An Amendment to the Certificate of Incorporation was filed on August 7, 1998. An
Amendment to the Certificate of Incorporation was filed on September____, 1998.
THIRD: The Certificate of Incorporation of the Corporation is hereby
amended by the addition of Article FOURTH (D) stating the number, designation,
relative rights, preferences and limitations of the Corporation's Preferred
Stock as follows:
1. Designations and Amount. 1,500,000 shares of the Preferred Stock of
the Corporation, par value $.01 per shares, shall constitute a series of
Preferred Stock designated as "Class C Convertible Preferred Stock" (the "Class
C Preferred Stock").
2. Rank. The Class C Preferred Stock shall rank senior to the Common
Stock, par value $.001 per share ("Common Stock") of the Corporation ("Junior
Securities") and shall rank junior to the Class A and Class B Preferred Stock
("Senior Securities") with respect to dividend rights or rights on liquidation,
winding up or dissolution of the Corporation.
<PAGE>
3. Voting Rights. The holders of Class C Preferred Stock shall not be
entitled to vote on any matter except as required by law.
4. Dividends
(a) The holders of shares of Class C Preferred Stock shall be entitled
to receive, out of assets of the Corporation legally available for payment cash
dividends at the rate of 9.999% per annum (or $.0999 ) per share of Class C
Preferred Stock (the "Preferred Dividend"), payable quarterly in arrears on
March 31, June 30, September 30 and December 31, commencing December 31,
1998(each a "dividend payment date"); provided, however that, if on any such day
banks in the City of New York are authorized or required to close, a Preferred
Dividend otherwise payable on such day will be payable on the next day that
banks in the City of new York are not authorized or required to close. Such
Preferred Dividend shall be cumulative from the later of the date of initial
issuance of such shares of Class C Preferred Stock, or the most recent dividend
payment date on which dividends have been paid on the Class C Preferred Stock by
the Corporation. Such Preferred Dividend shall be payable, in arrears, to
holders of record as they appear on the stock books of the Corporation on such
record dates, not more than 60 days nor less than 10 days preceding the dividend
payment dates thereof, as shall be fixed by the Board. The amount of the
Preferred Dividend payable for the initial dividend period and for any period
shorter than a full quarterly dividend period shall be computed on the basis of
a 360-day year of twelve 30-day months.
(b) Notwithstanding the foregoing, the rate at which the Preferred
Dividend is payable shall increase to 15% per annum per share of Class C
Preferred Stock from and after the date that there are no shares of Class A
Preferred Stock issued and outstanding.
(c) The Corporation may not declare or pay any dividend or make any
distribution of assets on, or redeem, purchase or otherwise acquire the Common
Stock, unless all accrued and unpaid dividends on the Class C Preferred Stock
for all prior dividend periods have been or contemporaneously are declared and
paid and the full quarterly dividend on the Class A Preferred Stock for the
current dividend period has been or contemporaneously is declared and set apart
for payment.
5. Conversion of Class C Preferred Stock.
(a) After September 30, 2003, or upon a Change in Control, the holders
of Class C Preferred Stock shall have the right, at such holders' option, at any
time or from time to time, to convert each share of Class C Preferred Stock into
Common Stock (the "Conversion Rate"), subject to adjustment as hereinafter
provided, pursuant to the following formula.
2
<PAGE>
At any time after the earlier of (a) a Change of Control (as defined
below) or (b) that date which is five (5) years after the date of the issuance
of the first share of Class C Preferred Stock, the Investor shall have the right
to require the Company to convert up to all of the shares of Class C Preferred
Stock into shares of Common Stock in an amount calculated as follows: Number of
shares of Common Stock = ($1,500,000 plus accrued or unpaid dividends) ) (20-day
average of closing prices on Nasdaq SmallCap Market (or closing sales price if
Company is then on Nasdaq NMS) over the 20 trading day period preceding the
notice of conversion times .25). Following such notice, the Company shall within
five (5) business days convert all of such outstanding shares of Class C
Preferred Stock held by the Investor by delivering to the Investor a stock
certificate in the appropriate amount. A "Change of Control" shall be deemed to
occur on (x) the date upon which Gene F. Zaino shall cease to be employed by the
Company on a full-time basis, (y) the date Gene F. Zaino shall cease to be a
director of the Company, or (z) any consolidation, merger, reorganization or
other similar transaction with or into any other corporation or other entity or
person, or any other corporate reorganization, in which the shareholders of the
Company immediately prior to such consolidation, merger or reorganization, or
any transaction or series of related transactions do not hold shares possessing
a majority of votes in the election of directors immediately after such
consolidation, merger or reorganization, or any transaction or series of
transactions.
(b) Before any holder of Class C Preferred Stock shall be entitled to
convert the same into shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Class C Preferred Stock, and shall
give written notice to the Corporation at its principal corporate office, of the
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Class C Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Class C Preferred Stock to be converted,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date.
(c) The Corporation shall not be required to issue fractions of shares
of Common Stock upon conversion of the Preferred Stock. If any fractions of a
share would, but for this Section, be issuable upon any conversion of Preferred
Stock, in lieu of such fractional share the Company shall pay to the holder, in
cash, an amount equal to the same fraction of the Closing Price per share of
Common Stock.
3
<PAGE>
(d) The Corporation shall reserve and shall at all times have reserved
out of its authorized but unissued shares of Common Stock sufficient shares of
Common Stock to permit the conversion of the then outstanding shares of the
Class C Preferred Stock pursuant to this Section 5. All shares of Common Stock
which may be issued upon conversion of shares of the Class C Preferred Stock
pursuant to this section 5 shall be validly issued, fully paid and
nonassessable. In order that the Corporation may issue shares of Common Stock
upon conversion of shares of the Class C Preferred Stock, the Corporation will
endeavor to comply with all applicable Federal and State securities laws and
will endeavor to list such shares of Common stock to be issued upon conversion
on any securities exchange on which Common Stock is listed, and endeavor to
maintain such listing for such period of time as either the Class C Preferred
Stock or Common Stock underlying such Class C Preferred Stock remains
outstanding.
(e) The Conversion Rate in effect at any time for conversion of Class C
Preferred Stock into Common Stock pursuant to this Section 5 shall be subject to
adjustment from time to time as follows:
(i) In the event that the Corporation shall (1) pay a dividend in
shares of Common Stock to holders of Common Stock, (2) make a distribution in
shares of Common Stock to holders of Common Stock, (3) subdivide the outstanding
shares of Common Stock or (4) combine the outstanding shares of Common Stock
into a smaller number of shares of Common Stock, the Conversion Rate in effect
pursuant to this Section 5 immediately prior to such action shall be adjusted so
that the holder of any shares of Class C Preferred Stock thereafter surrendered
for conversion pursuant to this Section 5 shall be entitled to receive the
number of shares of Common Stock which he would have owned immediately following
such action had such shares of Class C Preferred Stock been converted
immediately prior thereto. Such adjustment shall be made whenever any event
listed above shall occur and shall become effective (A) immediately after the
record date in the case of a dividend or a distribution and (B) immediately
after the effective date in the case of a subdivision of combination.
(ii) In case the Corporation shall distribute to all holders of Common
Stock shares of any class of capital stock other than Common Stock, evidences of
indebtedness or other assets (other than cash dividends out of current or
retained earnings), or shall distribute to substantially all holders of Common
Stock rights or warrants to subscribe for securities, then in each such case the
Conversion Rate shall be adjusted so that the same shall equal the number
determined by multiplying the number of shares of Common Stock into which such
share of the Class C Preferred Stock was convertible immediately prior to the
date of such distribution by a fraction of which the numerator shall be the
current market price (determined as provided in Section 5(e)(iii)) of Common
Stock on the record date mentioned below, and of which the denominator shall be
such current market price of Common Stock, less the then fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
evidence of such fair market value) of the portion of the assets so distributed
or of such subscription rights or warrants applicable to one share of Common
Stock. Such adjustment shall become effective immediately after the record date
for the determination of the holders of Common Stock entitled to receive such
distribution.
4
<PAGE>
(iii) For purposes of calculating any adjustment of the Conversion Rate
pursuant to this Section 5, the current market price per share of Common Stock
on any date shall be deemed to be the average of the daily closing prices for
thirty consecutive trading days ending the last trading day before the day in
question. The closing price for each day shall be the last reported sale price
regular way or, in cash no such reported sale takes place on such date, the
average of the reported closing bid and asked prices regular way, on the
principal national securities exchanges on which Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, the closing sale price of Common Stock, or in case no
reported sale takes place, the average of the closing bid and asked prices, on
the Nasdaq Small Cap Market ("NASDAQ"), the OTC Electronic Bulletin Board (the
"Bulletin Board") or any comparable system, or if Common Stock is not quoted on
NASDAQ, the Bulletin Board or any comparable system, the closing sale price or,
in cash no reported sale takes place, the average of the closing bid and asked
prices, as furnished by any two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose. If Common Stock is not quoted on NASDAQ, the Bulletin Board or any
comparable system, the Board of Directors shall in good faith determine the
current market price on such basis as it considers appropriate.
(f) No adjustment in the Conversion Rate shall be required until
cumulative adjustments result in a concomitant change of 1% or more of the
Conversion Rate as in effect prior to the last adjustment of the Conversion
Rate; provided, however, that any adjustments which by reason of this Section
5(f) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this Section 5 shall be
made to the nearest cent or to the nearest one-hundredth of a share, as the case
may be. No adjustment to the conversion rate shall be made for cash dividends.
(g) In the event that, as a result of an adjustment made pursuant to
Section 5(e), the holder of any share of the Class C Preferred Stock thereafter
surrendered for conversion shall become entitled to receive any shares of
capital stock of the Corporation other than shares of Common Stock, thereafter
the number of such other shares so receivable upon conversion of any shares of
the Class C Preferred Stock shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in this Section 5.
(h) Whenever the Conversion Rate is adjusted pursuant to this Section
5, the Corporation shall promptly mail first class to all holders of record of
shares of the Class C Preferred Stock a notice of the adjustment and shall cause
to be prepared a certificate signed by a principal financial officer of the
Corporation setting forth the adjusted Conversion Rate and a brief statement of
the facts requiring such adjustment and the computation thereof. Such
certificate shall forthwith be filed with each transfer agent for the shares of
the Class C Preferred Stock.
5
<PAGE>
(i) If any of the following occur: (i) any reclassification or change
of outstanding shares of Common Stock issuable upon conversion of shares of the
Class C Preferred Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), or (ii) any consolidation or merger to which the Corporation is
a party other than a merger in which the Corporation is the continuing
corporation and which does not result in any reclassification of, or change
(other than a change in name, or par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination) in, outstanding shares of Common Stock, then in addition to all of
the rights granted to the holders of the Class C Preferred Stock as designated
herein, the Corporation, or such successor or purchasing corporation, as the
same may be, shall as a condition precedent to such reclassification, change,
consolidation, merger, sale or conveyance, provide in its certificate of
incorporation or other charter document that each share of the Class C Preferred
Stock shall be convertible into the kind and amount of shares of capital stock
and other securities and property (including cash) receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock deliverable upon conversion of such
shares of the Class C Preferred Stock immediately prior to reclassification,
change, consolidation, merger, sale or conveyance. Such certificate of
incorporation or other charter document shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 5. If, in the case of any such reclassification, change,
consolidation, merger, sale or conveyance, the stock or other securities and
property (including cash) receivable thereupon by a holder of Common Stock
includes shares of capital stock or other securities and property of a
corporation other than the successor purchasing corporation, as the case may be,
in such reclassification, change, consolidation, merger, sale or conveyance,
then the certificate of incorporation or other charter document of such other
corporation shall contain such additional provisions to protect the interests of
the holders of shares of the Class C Preferred Stock as the Board of Directors
shall reasonably consider necessary by reason of the foregoing. The provision of
this Section 5 (i) shall similarly apply to successive consolidations, mergers,
sales or conveyances.
(j) In the event any shares of Class C Preferred Stock shall be
converted pursuant to Section 5 hereof, the shares so converted shall be
cancelled.
(k) The Corporation will not, by amendment of its Certificate of
Incorporation as amended, restated, or corrected from time to time or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 5 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Class C Preferred Stock against
impairment.
6. Company Redemption Right
At any time up to that date which is five (5) years after the date of
the issuance of the first share of the Class C Preferred Stock, the Company
shall have the right to redeem or repurchase up to all of the Class C Preferred
Stock by giving written notice thereof to the Company. Following any such
notice, the Company shall redeem or repurchase all of such outstanding shares of
Class C Preferred Stock by paying to the then current holder an amount equal to
$1,500,000 plus any accrued or unpaid dividends.
7. Rights on Liquidation, Dissolution or Winding Up, etc.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to stockholders, whether from capital, surplus or
earnings, shall be distributed in the following order of priority:
6
<PAGE>
(i) The holders of Class C Preferred Stock shall be entitled to
receive, prior and in preference to any distribution to the holders of any
Junior Securities an amount equal to the greater of (A) ($3.99 per share) for
each share of Class C Preferred Stock then outstanding plus an amount equal to
all accrued but unpaid dividends on such share of Class C Preferred Stock as of
the date such payment is made to the holders of Class C Preferred Stock, or (B)
the amount the holders of Class C Preferred Stock would have received had the
holders of Class C Preferred Stock converted the Class C Preferred Stock into
Common Stock as provided in Section 5 immediately prior to the voluntary or
involuntary liquidation and, in addition, an amount equal to all accrued but
unpaid dividends on such shares of Class C Preferred Stock as of the date such
payment is made to the holders of Class C Preferred Stock.
(ii) If there is a distribution pursuant to Section 6(a)(i)(A) or
6(a)(i)(B) hereof, the remaining assets of the Corporation available for
distribution, if any, to the stockholders of the Corporation shall be
distributed to the holders of issued and outstanding shares of Common Stock.
FOURTH: The foregoing amendments to the Certificate of Incorporation
herein certified have been duly adopted by the Board of Directors in accordance
with the provisions of Section 502 of the New York Business Corporation Law.
Such resolution was signed by the President and Secretary of the
Corporation.
7
<PAGE>
SIGNATURE PAGE FOLLOWS
8
<PAGE>
IN WITNESS WHEREOF, we have subscribed this document on September 28,
1998 and do hereby affirm, under penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
THE NETPLEX GROUP, INC.
By:________________________________
Gene F. Zaino
President
By:________________________________
Robert M. Skelton
Secretary
9
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") made as of this 30th
day of September, 1998, by and among THE NETPLEX GROUP, INC., a New York
corporation (the "Company"), GENE F. ZAINO (the "Stockholder"), and WATERSIDE
CAPITAL CORPORATION, a Virginia corporation (collectively, with its successors
and assigns, the "Investor"). (The Company, the Stockholder and the Investor are
each a "Party" and collectively, the "Parties".)
R E C I T A L S:
A. The Company has authorized Forty Million (40,000,000) shares of
common stock (the "Common Stock");
B. The Company has also authorized Six Million (6,000,000) Shares of
Preferred Stock, of which One Million Five Hundred Thousand (1,500,000) shares
have been designated Class C Preferred Stock with such terms as have been set
forth in the Corporation's Certificate of Incorporation, as amended ("Articles
of Incorporation");
C. Contemporaneously with the execution and delivery of this Agreement,
the Investor is acquiring from the Company, (1) One Million Five Hundred
Thousand (1,500,000) shares of Class C Preferred Stock (the "Preferred Shares")
pursuant to a Class C Preferred Stock Purchase Agreement dated as of the date
hereof, by and among the Investor and the Company and the Stockholder (the
"Stock Purchase Agreement") and (2) a stock purchase warrant (the "Warrant") to
purchase shares of Common Stock (the "Warrant Stock").
D. The Stockholder is the record and beneficial owner of 1,938,350
shares (including vested and unvested stock options) of Common Stock, which
represents 19.0% of the issued and outstanding shares of Common Stock on the
date of this Agreement; and
E. One of the conditions to the investment by the Investor is the
execution and delivery of this Agreement by the Company and the Stockholder.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Company, the Stockholder and the Investor
agree as follows:
ARTICLE 1
DEFINITIONS
Appraisal Procedure. The term "Appraisal Procedure" as used herein
means a procedure whereby two (2) independent appraisers, one (1) chosen by the
Company and one by the Investor, shall mutually agree upon the determinations
then the subject of appraisal. Each party shall deliver a notice to the other
appointing its appraiser within fifteen (15) days after the Appraisal Procedure
is invoked. If within thirty (30) days after appointment of the two (2)
appraisers they are unable to
<PAGE>
agree upon the amount in question, a third independent appraiser shall be chosen
within ten (10) days thereafter by the mutual consent of such first two (2)
appraisers or, if such first two (2) appraisers fail to agree upon the
appointment of a third appraiser, such appointment shall be made by the American
Arbitration Association, or any organization successor thereto, from a panel of
arbitrators having experience in the appraisal of the subject matter to be
appraised. The decision of the third appraiser so appointed and chosen shall be
given within thirty (30) days after the selection of such third appraiser. If
three (3) appraisers shall be appointed and the determination of one (1)
appraiser is disparate from the middle determination by more than twice the
amount by which the other determination is disparate from the middle
determination, then the determination of such appraiser shall be excluded, the
remaining two (2) determinations shall be averaged and such average shall be
binding and conclusive on the Company and the Investor; otherwise, the average
of all three (3) determinations shall be binding and conclusive on the Company
and the Investor. The costs of conducting any Appraisal Procedure shall be borne
by the Company. Notwithstanding the foregoing, if shares of the Company's Common
Stock are trading on the Nasdaq SmallCap Market, Nasdaq NMS, AMEX, or the NYSE,
rather than invoke the Appraisal Procedure to value Common Stock, the Common
Stock will be valued by reference to the average of the closing prices over the
20 trading days prior to the valuation date.
Founder Shares. The term "Founder Shares" as used herein shall mean and
include all shares of Common Stock or securities convertible into Common Stock
of the Company owned by the Stockholders, whether presently held or hereafter
acquired.
ARTICLE 2
BOARD OF DIRECTORS
Section 2.1 Election of Board; Designation of Chairman. At its next
meeting of its Board of Directors, the Company shall appoint the individual
designated by the Investor to the Board of Directors (the "Investor Director").
In addition, so long as the Preferred Shares are outstanding, the Board of
Directors shall nominate one individual designated by the Investor (whose
identity is reasonably acceptable to the Company) and two (2) Directors, who
shall not be officers of the Corporation (each an "Outside Director") for
election as a board member at any shareholder meeting called for the purpose of
electing directors. The Board will not nominate more nominees at any such
election than there are board seats up for election at such meeting. the
Stockholder shall vote as a shareholder at any such shareholder meeting for the
Investor's nominee. In the event the Investor's designee/nominee is not elected
by the Company's shareholders at any such meeting, the Investor shall have the
right to appoint an individual (whose identity is reasonably acceptable to the
Company) to receive notice of, attend and observe all meetings of the Board of
Directors. Any vacancy in the office of a director may be filled in accordance
with the Articles of Incorporation and the Bylaws of the Company and applicable
law. Any director that is not an employee of the Corporation shall be entitled
to receive those fees and benefits, including the issuance of stock options, as
are afforded the other non-employee members of the Board of Directors, plus out
of pocket expenses.
2
<PAGE>
Section 2.2 Removal of Investor Designee. Any Investor Director may be
removed during his or her term of office, without cause, by and only by the
written consent of the Investor.
Section 2.3 Insurance. The Company shall maintain directors' and
officers' liability insurance coverage consistent with its current coverage.
ARTICLE 3
CO-SALE IN SALES BY THE STOCKHOLDER
Section 3.1 Co-Sale Right. If at any time the Stockholder desires to
sell or transfer all or any part of the Founder Shares owned by him in a
privately negotiated transaction to any person (the "Purchaser") other than to
the Investor in accordance with Section 3.1, the Stockholder shall promptly give
written notice (the "Notice") to the Investor at least thirty (30) days prior to
the closing of such sale or transfer. The Notice shall describe in reasonable
detail the proposed sale or transfer including, without limitation, the nature
of such sale or transfer, the number of Founder Shares to be sold or
transferred, the consideration to be paid, and the name and address of each
prospective Purchaser or transferee. The Investor shall then have the right to
participate in the Stockholder's sale of Founder Shares by selling its Warrant
Stock at the same price per share and upon the same terms and conditions as
stated in the Notice. To the extent the Investor exercises such right of
participation with respect to its Warrant Stock in accordance with the terms and
conditions set forth below, the number of Founder Shares which the Stockholder
may sell pursuant to such purchase offer shall be correspondingly reduced. For
purposes of this Agreement, the term "privately-negotiated transaction" shall
not refer to any sale of shares pursuant to an underwritten public offering or
pursuant to Rule 144 as promulgated by the Securities and Exchange Commission.
The right of participation of the Investor shall be subject to the following
terms and conditions.
3.1.1 The Investor may sell all or any part of that number of shares
of Warrant Stock equal to the product obtained by multiplying (A) the aggregate
number of Founder Shares to be sold or transferred, by (B) a fraction, the
numerator of which is the number of shares of Warrant Stock then subject to
exercise by the Investor, and the denominator of which is the total number of
shares of Warrant Stock then subject to exercise by the Investor plus the number
of shares of Common Stock held by the Stockholder.
3.1.2 The Investor may effect its participation in the sale by
delivering to the Stockholder for transfer to the Purchaser one or more
certificates, properly endorsed for transfer, which represents the number of
shares of Warrant Stock which the Investor elects to sell pursuant to this
Section 3.2, and the Stockholder shall concurrently therewith remit to the
Investor that portion of the sale proceeds to which the Investor is entitled by
reason of participating in such sale. To the extent that any prospective
Purchaser prohibits such assignment or otherwise refuses to purchase shares or
other securities from the Investor, the Stockholder shall not sell to such
prospective Purchaser any Founder Shares unless and until, simultaneously with
such sale, the Stockholder shall purchase such shares or other securities from
the Investor to effect the purposes of this Agreement in accordance with and
subject to the same terms and conditions that the prospective Purchaser would
have been obligated to purchase the shares from the Investor.
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<PAGE>
Section 3.2 Lapse of Restrictions. Any Founder Shares sold by the
Stockholder to any third party pursuant to this Section 3.2 shall no longer be
subject to the restrictions or benefits imposed by this Agreement and any
Warrant Stock sold by the Investor pursuant to this Section 3.2 shall no longer
be entitled to the benefits or restrictions conferred by this Agreement or the
Series B Preferred Stock Purchase Agreement.
Section 3.3 No Waiver. The exercise or non-exercise of the rights of
the Investor hereunder to participate in one or more sales made by the
Stockholder shall not adversely affect its rights to participate in subsequent
sales.
As used in this Section 3.2, the term "Stockholder" is deemed to
include any transferees of the Stockholder, except for a transferee that has
acquired Founder Shares as expressly permitted herein.
ARTICLE 4
SPECIAL RIGHTS
Section 4.1 Rights General. In addition to such rights as are forth in
the Articles of Incorporation, the Investor shall have the rights set forth in
this Article 4.
Section 4.2 Conversion of Class C Preferred Stock. At any time after
the earlier of (a) a Change of Control (as defined below) or (b) that date which
is five (5) years after the date of the issuance of the first share of Class C
Preferred Stock, the Investor shall have the right to require the Company to
convert up to all of the shares of Class C Preferred Stock into shares of Common
Stock in an amount calculated as follows: Number of shares of Common Stock =
($1,500,000 plus accrued or unpaid dividends) / [20-day average of closing
prices on Nasdaq SmallCap Market (or closing sales price if Company is then on
Nasdaq NMS) on the 20 trading day period preceding the notice of conversion
times 0.25]. Following such notice, the Company shall within five (5) business
days convert all of such outstanding shares of Class C Preferred Stock held by
the Investor by delivering to the Investor a stock certificate in the
appropriate amount. A "Change of Control" shall be deemed to occur on (x) the
date upon which Gene F. Zaino shall cease to be employed by the Company on a
full-time basis, (y) the date Gene F. Zaino shall cease to be a director of the
Company, or (z) any consolidation, merger, reorganization or other similar
transaction with or into any other corporation or other entity or person, or any
other corporate reorganization, in which the shareholders of the Company
immediately prior to such consolidation, merger or reorganization, or any
transaction or series of related transactions do not hold shares possessing a
majority of votes in the election of directors immediately after such
consolidation, merger or reorganization, or any transaction or series of
transactions.
Section 4.3 Company Redemption Right. At any time up to that date which
is five (5) years after the date of the issuance of the first share of the Class
C Preferred Stock, the Company shall have the right to redeem or repurchase up
to all of the Class C Preferred Stock by giving written notice thereof to the
Company. Following any such notice, the Company shall redeem or repurchase
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all of such outstanding shares of Class C Preferred Stock by paying to the then
current holder an amount equal to $1,500,000 plus any accrued or unpaid
dividends.
ARTICLE 5
DIVIDENDS
The Company shall pay dividends on the Preferred Shares, out of any
funds legally available therefor, as provided in the Articles of Incorporation
of the Company, as amended.
ARTICLE 6
TERMINATION
This Agreement, and the respective rights and obligations of the
parties hereto, shall terminate upon the sale by the Investor to the Company of
all of its Preferred Shares and Warrant Stock.
ARTICLE 7
LEGEND
Any certificates representing shares of capital stock subject to this
Agreement shall bear on their face the following legend prominently displayed:
THE SHARES REPRESENTED BY THIS CERTIFICATE, AND THE TRANSFER
THEREOF, ARE SUBJECT TO THE PROVISIONS OF THAT CERTAIN INVESTOR
RIGHTS AGREEMENT, DATED AS OF SEPTEMBER 30, 1998, AMONG THE
CORPORATION AND WATERSIDE CAPITAL CORPORATION, A COPY OF WHICH
IS ON FILE AND MAY BE EXAMINED AT, THE PRINCIPAL OFFICE OF THE
CORPORATION.
All such shares hereafter issued to the any Company stockholder shall bear the
same endorsement.
ARTICLE 8
MISCELLANEOUS
Section 8.1 No Future Issuances. The Stockholder and the Company
acknowledge and agree that no additional shares of Preferred Stock will be
issued without the approval of the holders of a majority of the Class C
Preferred Stock.
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Section 8.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when delivered by
hand or mailed via a nationally recognized overnight delivery service, by first
class mail registered or certified mail (air mail if to or from outside the
United States), postage prepaid, facsimile transmission that is acknowledged as
received by the recipient, if to the Stockholders, at the Company's address, if
to the Investor, at 300 East Main Street, Suite 1380, Norfolk Virginia 23510, if
to the Company, at 8260 Greensboro Drive, Fifth Floor, McLean, Virginia 22102 or
to such other address as the addressee shall have furnished to the other parties
hereto in the manner prescribed by this Section 8.1.
Section 8.3 Specific Performance. The rights of the parties under this
Agreement are unique and, accordingly, the parties shall have the right, in
addition to such other remedies as may be available to any of them at law or in
equity, to enforce their rights hereunder by actions for specific performance in
addition to any other legal or equitable remedies they might have to the extent
permitted by law.
Section 8.4 Entire Agreement. This Agreement, the Class C Preferred
Stock Purchase Agreement, the Stock Purchase Warrant and the Registration Rights
Agreement, and the documents contemplated thereby, constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between them or any of them
as to such subject matter.
Section 8.5 Waivers and Further Agreements. Any of the provisions of
this Agreement may be waived by an instrument in writing with the consent of the
party or parties whose rights are being waived.
Section 8.6 Amendments. This Agreement may be amended by and shall be
effective upon the receipt of the written consent of the Investor and the
Stockholder.
Section 8.7 Assignment. Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, legal representatives, successors and permitted
transferees, except as may be expressly provided otherwise herein.
Section 8.8 Severability. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
Section 8.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8.10 Section Headings. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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Section 8.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive laws of the Commonwealth of
Virginia.
Section 8.12 Jurisdiction and Venue. The Company consents to the
jurisdiction of the Circuit Court of the City of Norfolk, Virginia, for the
purpose of any suit, action or other proceeding arising out of any of its
obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in such court.
IN WITNESS WHEREOF, the undersigned have executed this Stockholders
Agreement as of the day and year first above written.
COMPANY:
THE NETPLEX GROUP, INC., a New York corporation
By:___________________________________ (SEAL)
Gene F. Zaino, President
STOCKHOLDER:
-----------------------------------------------
Gene F. Zaino
INVESTOR:
WATERSIDE CAPITAL CORPORATION
By:___________________________________ (SEAL)
Gerald T. McDonald
Secretary/Treasurer
REGISTRATION RIGHTS AGREEMENT
Agreement made as of this 30th day of September, 1998 between THE
NETPLEX GROUP, INC., a New York corporation (the "Company") and WATERSIDE
CAPITAL CORPORATION, a Virginia corporation (the "Investor").
R E C I T A L S:
A. The Company and the Investor desire to enter into this Registration
Rights Agreement to provide for registration rights with respect to that certain
stock purchase warrant dated September 30, 1998 (the "Warrant") and the common
stock of the Company purchasable by Investor under the Warrant.
1. CERTAIN DEFINITIONS.
Section 1. As used in this Agreement, the following terms shall have
the following meanings:
1.1. Commission means the Securities and Exchange Commission,
or any other federal agency at the time administering the Securities Act and the
Exchange Act.
1.2. Common Stock means (i) the Company's Common Stock, $.001
par value, as authorized on the date of this Agreement, (ii) any other capital
stock of any class or classes (however designated) of the Company, authorized on
or after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies or in the absence of any
provision to the contrary in the Company's Articles of Incorporation, be
entitled to vote for the election of a majority of directors of the Company
(even though the right so to vote has been suspended by the happening of such a
contingency or provision), and (iii) any other securities into which or for
which any of the securities described in (i) or (ii) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
1.3. Exchange Act means the Securities Exchange Act of 1934, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
1.4. Holders has the meaning set forth in Section 2.1.
1.5. Person means an individual, corporation, partnership,
limited liability company, joint venture, trust or unincorporated organization
or a government or any agency or political subdivision thereof.
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1.6. Preferred Shares means the shares of the Company's
Preferred Stock (as defined in the Purchase Agreement) purchased by the Investor
pursuant to the Purchase Agreement.
1.7. Purchase Agreement means the Series A Preferred Stock
Purchase Agreement dated the date hereof among the Company, the Investor and the
principal shareholder of the Company.
1.8. Registrable Securities means (i) this Warrant (and any
replacement warrant), (ii) any shares of Common Stock issued on exercise of this
Warrant and (iii) any shares of Common Stock issued upon conversion of the
Preferred Shares owned by the Investor or its permitted successors and assigns.
1.9. Securities Act means the Securities Act of 1933, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
2. REGISTRATION RIGHTS.
Section 2.1. Piggyback Registration. If at any time or times after the
date hereof, the Company shall determine to register any of its Common Stock or
securities convertible into or exchangeable for Common Stock under the
Securities Act whether in connection with a public offering of securities by the
Company (a "primary offering"), a public offering thereof by stockholders (a
"secondary offering"), or both (but not in connection with a registration
effected solely to implement an employee benefit plan or a transaction to which
Rule 145 or any other similar rule of the Commission under the Securities Act is
applicable), the Company will promptly give written notice thereof to the
holders of Registrable Securities (the "Holders") then outstanding, and will use
its best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Holders may request in a writing delivered to
the Company within 15 days after the notice given by the Company; provided,
however that in the case of the registration of Common Stock by the Company in
connection with an underwritten public offering, the Company shall not be
required to register Registrable Securities of the Holders in excess of the
amount, if any, of Registrable Securities which the principal underwriter of an
underwritten offering shall reasonably and in good faith agree can be included
without jeopardizing the success of the offering by the Company, and provided,
further, that if any Registrable Securities are not included for this reason,
the Company will permit the Holders of Registrable Securities who have requested
participation and all other holders of securities of the Company having a right
to include securities in such registration who have requested participation in
the offering to participate in the offering proportionately in accordance with
the number of shares of Registrable Securities (in the case of the Investor) or
shares of Common Stock subject to such registration right (in the case of such
other holders) owned or obtainable by them, except that the Company shall first
exclude from such registration, in the following order, all shares of Common
Stock sought to be included therein by (i) any holder thereof not having any
such contractual, incidental registration rights (which the Holders acknowledge
may from time to time be granted by the Board of Directors of the Company to
directors and officers of the Company) and (ii) any holder thereof having
contractual, incidental registration rights subordinate and junior to the rights
of the Holders of Registrable Securities. Without in any way limiting the types
of registrations to which this Section 2.1 shall apply, in the event that the
Company shall effect a "shelf registration" under Rule 415 under the Securities
Act, or any other similar rule or regulation, the Company shall take all
necessary action, including, without limitation, the filing of post-effective
amendments, to permit the Investor to include its Registrable Securities in such
registration in
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accordance with the terms of this Section 2.1. In connection with any offering
under this Section 2.1 involving an underwriting, the Company shall not be
required to include any Registrable Securities in such underwriting unless the
Holders thereof accept the terms of the underwriting as agreed on between the
Company, the Holders and the underwriter selected by the Company. The Company
shall have the right to postpone or withdraw any registration effective pursuant
to the Section 2.1 without obligation to any Holder.
Section 2.2. Form S-3. If the Company becomes eligible to use Form S-3
under the Securities Act (or any successor form), the Company shall use its
reasonable efforts to continue to qualify at all times for registration on Form
S-3. If and when the Company becomes entitled to use Form S-3, the Holders of an
aggregate of not less than 50% of Registrable Securities shall have the right to
request and have effected not more than one registration per year (and not more
than two registrations in total) of shares of Registrable Securities on Form S-3
for a public offering of shares of Registrable Securities. Such requests shall
be in writing and shall state the number of shares of Registrable Securities to
be disposed of and the intended method of disposition of such shares by such
Holder or Holders. The Company shall not be required to cause a registration
statement requested pursuant to this Section 2.3 to become effective before 90
days following the effective date of a registration statement initiated by the
Company, if the request for registration has been received by the Company
subsequent to the giving of written notice by the Company, made in good faith to
the Holders of Registrable Securities to the effect that the Company is
commencing to prepare a Company-initiated registration statement (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Commission under
the Securities Act is applicable), provided, however, that the Company shall use
its best efforts to achieve such effectiveness promptly following such 90-day
period if the request pursuant to this Section 2.3 has been made before the
expiration of such 90-day period. The Company shall give notice to all Holders
of Registrable Securities of the receipt of a request for registration pursuant
to this Section 2.3 and shall provide a reasonable opportunity for such Holders
to participate in the registration. Subject to the foregoing, the Company will
use its best efforts to effect promptly the registration of all Registrable
Securities on Form S-3 to the extent requested by the Holder or Holders thereof
for purposes of disposition. Notwithstanding the foregoing, the Company shall
not be required to effect a registration under this Section 2.3 if, in the
unqualified opinion of counsel for the Company, which counsel and opinion shall
be reasonably acceptable to the Holders of Registrable Securities, such Holders
may then sell all Registrable Securities proposed to be sold in the manner
proposed to be sold without registration under the Act.
Section 2.3. Registration Expenses. In the event of a registration
described in Sections 2.1, 2.2 and 2.3, all reasonable expenses of registration
and offering of the Company and the Holders participating in the offering
including, without limitation, printing expenses, fees and disbursements of
counsel and independent public accountants, fees and expenses (including counsel
fees of not more than one counsel selected by the selling Holders to represent
the selling Holders) incurred in connection with complying with state securities
or "blue sky" laws, fees of the National Association of Securities Dealers, Inc.
or any stock exchange and fees of transfer agents and registrars, shall be borne
by the Company, except that the Holders shall bear (i) underwriting commissions
and discounts attributable to their Registrable Securities being registered,
(ii) selling commissions and
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(iii) the fees and expenses of a selling Holders' own counsel (other than the
counsel selected to represent all selling Holders).
Section 2.4. Further Obligations of the Company. Whenever under the
preceding sections of this Agreement the Company is required to register
Registrable Securities, it shall also do the following:
2.4.1 Use its best efforts to diligently prepare for
filing with the Commission a registration statement and such amendments and
supplements to such registration statement and the related prospectus as
necessary to keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the sale of securities covered
by such registration statement for the period necessary to complete the proposed
public offering,
2.4.2 Furnish to each selling Holder such copies of each
preliminary and final prospectus and such other documents as such holder may
reasonably request to facilitate the public offering of his Registrable
Securities;
2.4.3 Enter into any underwriting agreement with
provisions reasonably required by the proposed underwriter for the selling
Holders, if any,
2.4.4 Use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or "blue-sky" laws of such jurisdictions as any selling Holder of
Registrable Securities may reasonably request, provided that the Company shall
not be required to register in any states which shall require it to qualify to
do business or subject itself to general service of process as a condition of
such registration;
2.4.5 Notify the selling Holders (i) when a registration
statement has become effective and when any post-effective amendments and
supplements thereto become effective, (ii) of any requests by the Commission or
any state securities authority for amendments and supplements to a registration
statement and prospectus or for additional information after the registration
statement has become effective, (iii) of the issuance by the Commission or any
state securities authority of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceedings for that purpose,
(iv) if, between the effective date of a registration statement and the closing
of any sale of Registrable Securities covered thereby, the Company receives any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose, and (v) of the happening of any event during the
period the registration statement is effective which makes any statement made in
such registration statement or the related prospectus untrue in any material
respect or which requires the making of any changes in such registration
statement or prospectus in order to make the statements therein not misleading;
2.4.6 Make reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of a registration statement;
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2.4.7 Cooperate with the selling Holders to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be sold pursuant to such registration statement and not bearing
any restrictive legends and registered in such names as the selling Holders may
reasonably request at least 5 days before the closing of any sale of Registrable
Securities;
2.4.8 On the occurrence of any event contemplated by
Section 2.5.5(v) above, use reasonable efforts to prepare a supplement or
post-effective amendment to a registration statement or the related prospectus
or any document incorporated therein by reference or file any other required
documents so that, as thereafter delivered to the purchasers of the Registrable
Securities, such prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
Company shall notify the selling Holders to suspend use of the prospectus as
soon as reasonably practicable and the selling Holders shall suspend use of the
prospectus until the Company has amended or supplemented the prospectus to
correct such mistake or omission. At such time as such public disclosure is
otherwise made or the Company determines in good faith that such disclosure is
not necessary the Company shall promptly to notify the selling Holders of such
determination, amend or supplement the prospectus if necessary to correct any
untrue statement or omission therein and furnish the selling Holders such
numbers of copies of the prospectus as so amended or supplemented as the selling
Holders may reasonably request; and
2.4.9 Use best efforts to cause the Registrable
Securities to be listed on any stock exchange or quotation system on which the
Common Stock has been listed.
Section 2.5 Company's Right to Delay Registration. If at the time of
any request to register Registrable Securities under Sections 2.1, 2.2 or 2.3,
the Company is engaged or has fixed plans to engage within 90 days of the time
of the request in a registered public offering as to which the Holders of
Registrable Securities may include Registrable Securities pursuant to Sections
2.1, 2.2 or 2.3, or is engaged in any other activity which, in the good faith
determination of the Company's Board of Directors, would be adversely effected
by the requested registration to the material detriment of the Company, then the
Company may, at its option, direct that such requests be delayed for a period
not in excess of four (4) months from the effective date of such offering or the
date of commencement of such other material activity, as the case may be or, if
earlier, such time as any such material detriment would not occur.
3. INDEMNIFICATION. Incident to any registration referred to in this
Agreement, and subject to applicable law, the Company will indemnify each
underwriter, each Holder of Registrable Securities so registered, and each
person controlling any of them within the meaning of the Securities Act or the
Exchange Act against all claims, losses, damages and liabilities, including
legal and other expenses reasonably incurred in investigating or defending
against the same, arising out of any untrue statement of a material fact
contained in any prospectus or other document (including any related
registration statement) or any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or arising out of any violation by the Company of the Securities
Act, any state securities or "blue-sky" laws or any rule or regulation
thereunder in connection with such registration provided, however, that the
Company will not be liable in any case to the extent that any such claim, loss,
damage or liability may have been caused by an untrue statement or omission
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based on information furnished in writing to the Company by such Holder
expressly for use therein. In the event of any registration of any of the
Registrable Securities under the Securities Act pursuant to this Agreement, each
seller of Registrable Securities, jointly and severally, will indemnify and hold
harmless the Company, each of its directors and officers and each underwriter
(if any) and each person, if any, who controls the Company or any such
underwriter within the meaning of the Securities Act or the Exchange Act against
any claim, losses, damages and liabilities, including legal and other expenses
reasonably incurred in investigating or defending it against the same, arising
out of any untrue statement of a material fact contained in any prospectus or
other document (including any related registration statement) or any omission to
state therein a material fact required to be stated therein or necessary to make
the statement therein not misleading, if the statement or omission was made in
reliance on and in conformity with information furnished in writing to the
Company by or on behalf of such selling Holder, specifically for use in
connection with the preparation of such registration statement, prospectus
amendment of supplement; provided, however, that the obligations of such selling
Holders hereunder shall be limited to an amount equal to the proceeds to each
Holder of Registrable Securities sold as contemplated herein.
4. RULE 144 REQUIREMENTS. When the Company becomes subject to the periodic
reporting requirements of the Exchange Act, the Company shall use its best
efforts to take all action as may be required as a condition to the availability
of Rule 144 under the Securities Act (or any successor exemptive rule afterwards
in effect). In connection therewith, the Company shall furnish to any Holder of
Registrable Securities, on request, a written statement executed by the Company
as to the steps it has taken to comply with the current public information
requirements of Rule 144.
5. TRANSFER OF REGISTRATION RIGHTS. The registration rights of the Holders
under this Agreement may be transferred to any transferee of any Preferred Share
or any Registrable Security who (i) is a Holder of Registrable Securities, (ii)
is an affiliate, as that term is defined in regulations promulgated by the
Commission under the Exchange Act, of a Holder of Registrable Securities
(including a partner of such Holder) or (iii) acquires Registrable Securities,
the Warrant or Preferred Shares. Each such transferee shall be deemed to be a
"Holder" for purposes of this Agreement; provided that no transfer of
registration rights by a Holder under this Section 5 shall create any additional
rights in the transferee beyond those rights granted to Holders in this
Agreement.
6. GRANTING OF REGISTRATION RIGHTS. The Company shall not, without the
prior written consent of the holders of at least a majority in interest of the
Registrable Securities, grant any rights to any Persons to register any shares
of capital stock or other securities of the Company if such rights could
reasonably be expected to be superior to or be on parity with, the rights of the
holders of Registrable Securities granted pursuant to this Agreement.
7. MISCELLANEOUS.
Section 7.1. No Waiver; Cumulative Remedies. No failure or delay on the
part of any party to this Agreement 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 hereunder.
These remedies are cumulative and not exclusive of any remedies provided by law.
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Section 7.2. Amendments and Waivers. Except as provided below,
amendments to this Agreement shall require and shall be effective on receipt of
the written consent of: (i) the Company and (ii) the holders of at least a
majority in interest of the Registrable Securities. Except as provided below,
compliance with any covenant or provision in this Agreement may be waived on
written consent by the party or parties whose rights are being waived; provided,
that, if the rights of holders of Registrable Securities are being waived, only
with the written consent of the holders of at least a majority in interest of
the Registrable Securities. Notwithstanding the foregoing, no waivers or
amendments shall be effective to reduce the percentage in interest of the
Registrable Securities the consent of the holders of which is required under
this Section. Any waiver or amendments may be given subject to satisfaction of
conditions stated therein and any waiver or amendments shall be effective only
in the specific instance and for the specific purpose for which given.
Section 7.3. Addresses for Notices. All notices, requests demands and
other communications required by this Agreement shall be in writing (including
telegraphic communication) and mailed, telegraphed or delivered to each
applicable party at the address set forth in the Purchase Agreement or at such
other address any party may inform the party in writing in compliance with this
Section.
All such notices, requests, demands and other communications shall,
when mailed (which mailing must be accomplished by first class mail, postage
prepaid, electronic facsimile transmission, express overnight courier service,
or registered mail, return receipt requested) or telegraphed, and shall be
considered to be delivered two (2) days after dispatch.
Section 7.4. Binding Effect; Assignment. This Agreement shall bind and
inure to the benefit of the parties and their respective heirs, successors and
assigns, except that the Company shall not have the right to delegate its
obligations hereunder or to assign its rights hereunder or any interest herein
without the prior written consent of the holders of at least a majority in
interest of the Registrable Securities.
Section 7.5. Prior Agreements. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof, including without limitation
the Original Registration Rights Agreement.
Section 7.6. Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of a provision
contained in this Agreement, for any reason, is invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement,
but this Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of a provision, had never been contained
herein, and such provisions or part reformed so that it would be valid, legal
and enforceable to the maximum extent possible.
Section 7.7. Jurisdiction and Venue. The Company consents to the
jurisdiction of the Circuit Court of the City of Norfolk, Virginia, for the
purpose of any suit, action or other proceeding arising out
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of any of its obligations arising under this Agreement or with respect to the
transactions contemplated hereby, and expressly waives any and all objections it
may have as to venue in such court.
Section 7.8. Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 7.9. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 7.10. Further Assurances. From and after the date of this
Agreement, on the request of any party, the other parties shall execute and
deliver such instruments documents and other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement.
IN WITNESS, the undersigned have executed this Registration Rights
Agreement as the day and year first above written.
THE NETPLEX GROUP, INC.
By_________________________
Gene F. Zaino, President
WATERSIDE CAPITAL CORPORATION
By__________________________
Name________________________
Title_________________________
STOCK PURCHASE WARRANT
This Warrant is issued this 30th day of September, 1998, by THE NETPLEX
GROUP, INC., a New York corporation (the "Company"), to WATERSIDE CAPITAL
CORPORATION, a Virginia corporation ("WSCC"), or its registered assignee,
(together with WSCC the "Holder" or "Holders").
AGREEMENT:
1. Issuance of Warrant; Term.
1.1 For and in consideration of WSCC purchasing from the Company
1,500,000 shares of its Class C Preferred Stock, par value $.01 per share (the
"Preferred Stock"), pursuant to the terms of a Class C Preferred Stock Purchase
Agreement of even date (the "Agreement"), and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the
Company grants to Holder the right to purchase 150,000 shares (the "Base
Amount") of the Company's common stock (the "Common Stock"); provided that, in
the event that any shares of Preferred Stock are outstanding on the following
dates, the number of shares of Common Stock subject to this Warrant will
increase 100,000 shares on each of March 30, 2000, September 30, 2001, March 30,
2003 and September 30, 2004. Such increase (but not the Base Amount) will be in
an amount less than 100,000 on any such date if any Preferred Stock has at such
date been redeemed by the Company. In such event, the increase on any of the
foregoing dates shall be equal to 100,000 shares multiplied by a fraction, the
numerator of which is the dollar amount of Preferred Stock previously redeemed
by the Company at the time of such adjustment date and the denominator of which
is $1,500,000 plus any accrued but unpaid dividends. In no event will the Base
Amount be reduced pursuant to the foregoing sentence. The shares of Common Stock
issuable upon exercise of this Warrant as adjusted above are referred to as the
"Shares."
1.2 This Warrant will exercisable at any time and from time to time
from the date hereof until September 30, 2008.
2. Exercise Price. The exercise price (the "Exercise Price") per share
for which all or any of the Shares may be purchased under this Warrant will be
$1.375 per Share.
3. Exercise. This Warrant may be exercised by the Holder (but only on
the following conditions) as to all or any increment or increments of 100
Shares (or the balance of the Shares if less than such number), on delivery of
written notice of intent to exercise to the Company at the following address:
8260 Greensboro Drive, Fifth Floor, McLean, Virginia 22102 or such other address
as the Company designates in a written notice to the Holder, together with this
Warrant and payment to the Company of the aggregate Exercise Price of the Shares
so purchased. The Exercise Price will be payable, at the option of the Holder,
(i) by certified or bank check, (ii) by the surrender of a portion of this
Warrant having a fair market value equal to the aggregate Exercise Price. On
exercise of this Warrant, the Company will as promptly as practicable, and in
any event within 15 days thereafter, execute and deliver to the Holder a
certificate or certificates for the total number of whole Shares for which this
Warrant is being exercised in such names and denominations as are requested by
such Holder. If this Warrant is exercised with respect to less than all of the
Shares, the
<PAGE>
Holder is entitled to receive a new Warrant covering the number of Shares in
respect of which this Warrant has not been exercised (less any portion of this
Warrant surrendered under clause (ii) of the second sentence of this Section 3),
and such new Warrant will in all other respects be identical to this Warrant.
The Company will pay when due any and all state and federal issue taxes payable
in respect of the issuance of this Warrant or the issuance of any Shares on
exercise of this Warrant.
4. Covenants and Conditions. The above provisions are subject to the
following:
4.1 Neither this Warrant nor the Shares have been registered under
the Securities Act or any state securities laws ("Blue Sky Laws"). This Warrant
has been acquired for investment purposes and not with a view to distribution or
resale and may not be pledged, hypothecated, sold, made subject to a security
interest or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and applicable Blue Sky Law
or (ii) an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to the Company and its counsel, that registration is not required
under the Securities Act or under any applicable Blue Sky Laws (the Company
acknowledges that Clark & Stant is acceptable counsel). Transfer of the shares
issued on the exercise of this Warrant will be restricted in the same manner and
to the same extent as the Warrant and the certificates representing such Shares
will bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND
MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER
THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH
SECURITIES ACTS OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER.
The Holders and the Company will execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any shares of Common Stock issued
on exercise hereof with applicable federal and state securities laws.
4.2 All Shares issued on exercise of this Warrant will, on issuance and
payment therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive rights, if
any, with respect thereto or to the issuance thereof. The Company will at all,
times reserve and keep available for issuance on the exercise of this Warrant
such number of authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of this Warrant.
<PAGE>
4.3 The Company will not sell any shares of the Company's capital stock
at a price below the Fair Market Value of such shares (as defined in Section 8),
without the prior written consent of the Holder. If the Company sells shares of
the Company's capital stock in violation of this Section 4.3, the number of
shares issuable on exercise of this Warrant will be equal to the product
obtained by multiplying the number of shares issuable under this Warrant before
such sale by the quotient obtained by dividing (i) the Fair Market Value of the
Shares issued in violation of this Section 4.3 by (ii) the price at which such
Shares were sold.
5. Transfer of Warrant. Subject to the provisions of Section 4, this
Warrant may be transferred by the Holder on presentation of this Warrant to the
Company with written instructions for such transfer. On such presentation for
transfer, the Company will promptly execute and deliver a new Warrant or
Warrants in the form hereof in the name of the assignee or assignees and in the
denominations specified in such instructions. The Company will pay all expenses
incurred by it in connection with the preparation, issuance and delivery of
Warrants under this Section.
6. Warrant Holder Not Shareholder; Rights, Rights Offering; Preemptive
Rights; Preference Rights. Except as otherwise provided, this Warrant does not
confer on the Holder, as such, any right whatsoever as a shareholder of the
Company. Notwithstanding the foregoing, if the Company offers to all of the
Company's shareholders the right to purchase any securities of the Company,
then, for such purpose, all shares of Common Stock that are subject to this
Warrant shall be deemed to be outstanding and owned by the Holder and the Holder
shall be entitled to participate in such rights offering. The Company will not
grant any preemptive rights with respect to any of its capital stock without the
prior written consent of the Holder. The Company will not issue any securities
which entitle the holder thereof to obtain any preference over holders of Common
Stock on the dissolution, liquidation, winding-up, sale, merger, or
reorganization of the Company without the prior written consent of the Holder.
7. Adjustment on Changes in Stock.
7.1 If all or any portion of this Warrant is exercised after any stock
split, stock dividend, recapitalization, combination of shares of the Company or
other similar event, occurring after the date hereof, then the Holder exercising
this Warrant will receive, for the aggregate price paid on such exercise, the
aggregate number and class of shares that the Holder would have received if this
Warrant had been exercised immediately before such stock split, stock dividend,
recapitalization, combination of shares or other similar event. If any
adjustment under this Section 7.1 would create a fractional share of Common
Stock or a right to acquire a fractional Share such fractional Share be
disregarded and the number of Shares subject to this Warrant will be the next
higher number of shares, rounding all fractions upward. Whenever there is an
adjustment under this Section 7.1, the Company will forthwith notify the Holder
of such adjustment, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated.
7.2 If all or any portion of this Warrant is exercised after any
merger, consolidation, exchange of shares, separation, reorganization or
liquidation of the Company or other
<PAGE>
similar event, occurring after the date hereof and, as a result of, shares of
Common Stock are changed into the same or a different number of shares of the
same or another class or classes of securities of the Company or another entity,
then the Holder exercising this Warrant will receive, for the aggregate price
paid on such exercise, the aggregate number and class of shares that the Holder
would have received if this Warrant had been exercised immediately before such
merger, consolidation, exchange of shares, separation, reorganization or
liquidation or other similar event. If any adjustment under this Section 7.2
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share will be disregarded and
the number of shares subject to this Warrant will be the next higher number of
shares, rounding all fractions upward. Whenever there is an adjustment pursuant
to this Section 7.2, the Company will forthwith notify the Holder of such
adjustment, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated.
8. Fair Market Value.
The Fair Market Value of the Shares will be determined as follows:
8.1 The Company and the Holder will each appoint an independent,
experienced appraiser who is a member of a recognized professional association
of business appraisers. The two appraisers will determine the value of the
shares of Common Stock that would be issued on the exercise of the Warrant,
without taking into consideration that such shares would constitute a minority
interest, and would lack liquidity but assuming that the sale would be between a
willing buyer and a willing seller, both of whom have full knowledge of the
financial and other affairs of the Company, and neither of whom is under any
compulsion to sell or to buy.
8.2 If the highest of the two appraisals is not more than 10% more than
the lowest of the appraisals, the Fair Market Value will be the average of the
two appraisals. If the highest of the two appraisals is 10% or more than the
lowest of the two appraisals, then a third appraiser shall be appointed by the
two appraisers, and if they cannot agree on a third appraiser, the American
Arbitration Association will appoint the third appraiser. The third appraiser,
regardless who appoints him or her, must have the substantially same
qualifications as the first two appraisers.
8.3 The Fair Market Value after the appointment of the third appraiser
will be the mean of the three appraisals.
8.4 The fees and expenses of the appraisers will be paid by the
Company.
Notwithstanding the foregoing, if shares of the Company's Common Stock
are trading on the Nasdaq SmallCap Market, Nasdaq NMS, AMEX, or the NYSE, the
Fair Market Value of the Shares will be calculated by reference to the average
of the closing prices over the 20 trading days prior to the valuation date.
9. Governing Law. This warrant will be governed by the laws of the
Commonwealth of Virginia.
<PAGE>
10. Severability. If any provision(s) of this Warrant or the
application thereof to any person or circumstances is invalid or unenforceable
to any extent, the remainder of this Warrant and the application of such
provisions to other persons or circumstances, will not be affected and will be
enforced to the greatest extent permitted by law.
11. Counterparts. This Warrant may be executed in any number of
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed will be deemed to be an original and all of which
taken together will constitute one and the same Warrant.
12. Jurisdiction and Venue. The Company consents to the jurisdiction of
the Circuit Court of the City of Norfolk, Virginia, for the purpose of any suit,
action or other proceeding arising out of any of its obligations arising under
this Agreement or with respect to the transactions contemplated hereby, and
expressly waives any and all objections it may have as to venue in such court.
IN WITNESS, the parties have set their hands as of the date first above
written.
THE NETPLEX GROUP, INC., a New York corporation
By__________________________________
Gene F. Zaino, President
WATERSIDE CAPITAL CORPORATION, a Virginia corporation
By__________________________________
Its___________________________________
Placement Agency Agreement
September 25, 1998
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, New York 10017
Gentlemen:
This agreement ("Agreement") will confirm that The Netplex
Group, Inc., a New York corporation (the "Company"), has retained The Zanett
Securities Corporation ("Zanett" or the "Placement Agent") to assist the
Company, during the thirty (30) day period commencing on the date hereof (the
"Term"), on a "best-efforts" basis, in connection with the placement of up to
1,700 units (the "Units") at a price of $1,000 per Unit, each Unit consisting of
(i) a prepaid common stock purchase warrant (the "Prepaid Warrants") which
entitles the holder thereof to acquire up to $1,000 of the Company's common
stock, par value $.001 per share (the "Common Stock"), on the terms and subject
to the conditions contained in such Prepaid Warrants (or an aggregate of up to
$1,700,000 of Common Stock based on the sale of 1,700 Units), and (ii)
additional warrants (the "Incentive Warrants") to acquire fifty-five and
fifty-six hundredths (55.56) shares of Common Stock. The shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Prepaid Warrants and the
Incentive Warrants are referred to herein as the "Warrant Shares." The Prepaid
Warrants, the Incentive Warrants and the Warrant Shares are collectively
referred to herein as the "Securities." The Company agrees that, during the
Term, all conversations, negotiations, documents and other materials exchanged
between the Company and the Placement Agent shall not be disclosed or released
to any third party without the prior written consent of Zanett. The Company
acknowledges that certain of the aforementioned Securities may be purchased by
affiliates of Zanett.
The Units are being offered to "accredited investors" in
accordance with Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). Each prospective investor ("Investor")
subscribing to purchase the Units will be required to deliver, among other
things, a Securities Purchase Agreement between the Company and the Investor
(the "Securities Purchase Agreement") in form and substance reasonably
satisfactory to Zanett and the Company, representing and warranting, among other
things, that such Investor is an "accredited investor" as such term is defined
in Regulation D. Contemporaneous with the execution and delivery of the
Securities Purchase Agreement, the Investors shall execute and deliver a
Registration Rights Agreement (the "Registration Rights Agreement") in form and
substance reasonably satisfactory to Zanett and the Company pursuant to which
the Company will agree to provide the Investors certain registration rights
under the Securities Act with respect to the Securities.
<PAGE>
The Securities Purchase Agreement, the Prepaid Warrants, the
Incentive Warrants and the Registration Rights Agreement are referred to herein
collectively as the "Offering Documents." The offering of Units described in the
Offering Documents is referred to herein as the "Offering."
1. Appointment of Placement Agent. Zanett is hereby appointed
Placement Agent of the Company for the purposes of assisting the Company in
finding qualified Investors to participate in the Offering. On the basis of the
representations and warranties and subject to the terms and conditions contained
herein, Zanett hereby accepts such agency and agrees to assist the Company in
finding qualified Investors to participate in the Offering. Zanett's agency
hereunder is not terminable by the Company except upon termination of the
Offering. Upon termination of the Offering, all subscriptions received, if any,
shall be returned to Investors.
2. Closing; Placement Fee and Warrant; Expenses.
(a) Closing. Upon satisfaction of the conditions to closing
contained in the Securities Purchase Agreement, the closing (the "Closing") of
the purchase and sale of the Units shall take place at the offices of Klehr,
Harrison, Harvey, Branzburg & Ellers, LLP or such other mutually agreed place,
at such time and date (the "Closing Date") as may be agreed upon between the
Placement Agent, the Investors and the Company.
(b) Procedures at Closing. Counsel for the Placement Agent
shall act as escrow agent for the Closing (the "Escrow Agent"). At each Closing:
(i) The Company shall deliver to the Escrow Agent, on
behalf of the Placement Agent and the Investors, an opinion of the Company's
outside legal counsel, dated as of the applicable Closing Date, in such form as
may be reasonably acceptable to the Placement Agent and its counsel.
(ii) The Company shall deliver to the Escrow Agent
certificates from the Company, signed by the President or a Vice President
thereof, certifying that attached thereto is a true and correct copy of
resolutions adopted by the Company's Board of Directors authorizing (A) the
execution, delivery and performance of this Agreement, the Securities Purchase
Agreement, the Registration Rights Agreement, the Prepaid Warrants, the
Incentive Warrants and other documentation related to the Offering and (B) the
reservation for issuance and issuance of the Warrant Shares, and certifying that
such resolutions have not been modified, rescinded or amended and are in full
force and effect.
(iii) The Company shall deliver to the Escrow Agent a
certificate of good standing of the Company, dated as of a recent date, from the
Secretary of State of the State of New York.
(iv) Each Investor shall deliver to the Escrow Agent
two executed copies of the Securities Purchase Agreement and Registration Rights
Agreement signed by such Investor,
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<PAGE>
and the Company shall deliver to the Escrow Agent with respect to each Investor
two executed copies of its acceptance of the Securities Purchase Agreement and
Registration Rights Agreement executed by such Investor.
(v) Each Investor shall have delivered by wire transfer
to an escrow account designated by the Escrow Agent an amount equal to the
aggregate purchase price of the Units(s) being purchased by such Investor at
such Closing.
(vi) The Company shall have delivered to the Escrow
Agent the duly executed Prepaid Warrants and Incentive Warrants being purchased
by the Investors in such denominations as the Investors shall request.
(vii) The Company and the Placement Agent shall
instruct the Escrow Agent to pay to the Company the purchase price (the
"Purchase Price") for the Units subscribed for at such Closing, less the
Placement Agent Fee (as defined below), out of the funds on deposit in the
escrow account received from Investors whose Securities Purchase Agreements have
been accepted.
(c) Placement Fee; Expenses. The Company covenants and
agrees to pay to the Placement Agent at each Closing a fee (the "Placement Agent
Fee") equal to 9.78% of the aggregate gross proceeds received by the Company
from the sale of the Units at such Closing. Such Placement Agent Fee shall be
delivered by the Escrow Agent to Zanett by wire transfer, in accordance with
Zanett's written wiring instructions, from the funds on deposit in the escrow
account simultaneously with payment for and delivery of the Units at such
Closing under the Securities Purchase Agreement as provided in paragraph 2(a)
above. In addition, the Placement Agent shall be entitled to receive from the
Company a non-accountable expense allowance (the "Expense Allowance") equal to
2.75% of the aggregate gross proceeds received by the Company from the sale of
the Units at the Closing. Such Expense Allowance shall be delivered in the same
manner as the Placement Agent Fee.
(d) Warrants. In addition to the Placement Agent Fee, at
each Closing under the Securities Purchase Agreement, the Company shall issue to
the Placement Agent warrants, in substantially the form attached hereto as
Exhibit A, to purchase twenty-seven and seventy-eight hundredths (27.78) shares
of the Company's Common Stock for each Unit purchased at such Closing (or an
aggregate of up to 46,891.25 shares of Common Stock based on the sale of
1,687.95 Units) (the "Placement Warrants"). The Placement Warrants shall be
exercisable for a period of five (5) years from the date of issuance at a price
per share equal to the average of the closing bid prices for the Common Stock
during the five (5) consecutive trading days ending on the trading day
immediately preceding the applicable Closing Date (the "Average Price"). The
shares of the Company's Common Stock issuable upon exercise of the Placement
Warrants shall hereinafter be referred to as the "Placement Warrant Shares." The
Company shall grant the Placement Agent certain registration rights under the
Securities Act with respect to the Placement Warrant Shares pursuant to the
Registration Rights Agreement.
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<PAGE>
(e) Expenses of Offering. The Company shall be responsible
for and shall bear all expenses directly and necessarily incurred by it in
connection with the Offering, including, but not limited to, the following:
filing fees, registrar and transfer agent fees, investigatory fees (including,
but not limited to travel, lodging and entertainment expenses), issuer's counsel
and accounting fees, blue sky fees and counsel, if any, and issue and transfer
taxes, if any. In the event the Closing under the Securities Purchase Agreement
does not occur during the Term, the Company shall reimburse the Placement Agent
for its reasonable out-of-pocket expenses incurred in connection with the
Offering (up to a maximum of $20,000).
(f) Non-Circumvention Period; Lockup Period.
(i) The Company agrees that, during the period
beginning on the date hereof and ending March 31, 2003 (the "Non-Circumvention
Period"), it will not, without the prior written consent of the Placement Agent,
negotiate or contract or have discussions concerning any such matters with any
Investor to obtain additional financing in any form.
(ii) The Company agrees that, during the period
beginning on the date hereof and ending March 31, 2001 (the "Lock-up Period"),
it will not, without the prior written consent of the Placement Agent, contract
with any other party to obtain additional financing in which any equity or
equity-linked securities are issued ("Future Offerings"). Notwithstanding the
foregoing, the Company shall be permitted during the Lock-up Period to contract
with any of the persons or entities identified on Schedule 1 attached hereto
(each an "Approved Person") regarding a Future Offering so long as it shall have
first delivered to the Placement Agent written notice of such proposed Future
Offering, including the terms and conditions thereof, and providing the
Placement Agent an option, which option must be exercised within ten (10)
business days following delivery of such notice, to act as the placement agent
for such Future Offering on terms, including fees, no less favorable to the
Company than those set forth in such notice and to place the securities being
offered by the Company in the Future Offering to the Investors or to such other
persons or entities as the Placement Agent shall determine; provided, however,
that the Company shall not be required to provide the Placement Agent with the
option to act as the placement agent for any such Future Offering to be
conducted with or through any Approved Person at any time on or after the first
date on which the closing bid price of the Common Stock for each of the thirty
(30) consecutive trading days ending on the trading day immediately preceding
such date equals or exceeds two hundred percent (200%) of the Average Price in
effect on the date of the Closing under the Securities Purchase Agreement (the
limitations referred to in this and the immediately preceding sentence are
hereinafter collectively referred to as the "Capital Raising Limitation"). The
Capital Raising Limitation shall not apply to any transaction involving
issuances of securities as consideration in a merger, consolidation or
acquisition of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or as
consideration for the acquisition of a business, product or license by the
Company. The Capital Raising Limitation shall also not apply to (i) the issuance
of securities pursuant to an underwritten public offering, (ii) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof, (iii) the grant
of additional options or
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<PAGE>
warrants, or the issuance of additional securities, under any Company stock
option, bonus plan or restricted stock plan for the benefit of the Company's
employees, consultants or directors, (iv) the issuance of securities in
connection with a financing with Waterside Capital on substantially the terms
set forth on that certain term sheet dated September 16, 1998 as distributed by
the Company to Zanett or (vi) issuance of securities if the purchase price for
such securities on a per share basis or the purchase price together with the
exercise or conversion price thereof is equal to or greater than the market
price of the Common Stock on the date of issuance of such securities.
3. Representations and Warranties and Covenants of the
Company.
(a) The Company represents and warrants to Zanett that
this Agreement has been duly authorized, executed and delivered by the Company
and, assuming the due execution by Zanett, constitutes a legal, valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
(b) The Company has delivered to Zanett true and
complete copies of all reports, schedules, forms, statements and other documents
filed by the Company on or after December 31, 1995 with the Securities and
Exchange Commission (the "SEC") pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to as the "SEC
Documents"). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 31, 1997, and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
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<PAGE>
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
(c) The Company recognizes and confirms that Zanett (i)
will use and rely primarily on the SEC Documents and on information available
from generally recognized public sources in performing the services contemplated
by this Agreement without having independently verified the same; (ii) is
authorized to assist the Company in the structuring of the Offering with any
prospective purchaser who is an "accredited investor" as defined in Regulation D
under the Securities Act and to provide copies of the SEC Documents and forms of
the Securities Purchase Agreement and other Offering Documents to prospective
purchasers of the Company's securities in connection with the performance of
Zanett's services hereunder; and (iii) does not assume responsibility for the
accuracy or completeness of the SEC Documents.
(d) In addition to the foregoing, the Company hereby
incorporates by reference all of the representations and warranties and
covenants to be set forth in the Securities Purchase Agreement and the other
Offering Documents with the same force and effect as if specifically set forth
herein.
(e) For so long as Zanett and/or its affiliates own any
Securities, (i) the Company shall provide Zanett, within three (3) business days
of the filing or preparation thereof, with such financial and other statements
including, without limitation, management letters and consolidated financial
statements as are provided to any other lenders to or security holders of the
Company; (ii) in the event any current officer, director, employee, consultant
or other agent ceases, subsequent to the date hereof, to have such relationship
with the Company and such cessation has, or is likely to have, a material
adverse effect on the Company, taken as a whole, the Company shall promptly
notify Zanett of such event, which notification shall comprehensively describe
such circumstances; (iii) the Company shall, on a regular basis, provide to
Zanett updates of any material litigation and/or governmental proceedings which
could reasonably be expected to have a material adverse effect on the business
of the Company; and (iv) the Company shall promptly provide to Zanett notice of
any material event of default under any agreement or other document with any
lender or holder of any security of the Company. Zanett shall hold in confidence
and shall not make any disclosure (except to an Investor) or use of any such
information disclosed to it pursuant to clauses (i) through (iv) above which the
Company determines in good faith to be confidential, and of which determination
Zanett is so notified, unless (a) the release of such information is ordered
pursuant to a subpoena or other order from a court or government body of
competent jurisdiction or (b) the information has been made generally available
to the public other than by disclosure in violation of this or any other
agreement. Anything contained herein to the contrary notwithstanding, Placement
Agent's obligations to proceed with the Offering is conditioned upon Placement
Agent's due diligence investigation of the Company and Zanett shall be fully
informed by the Company of any events which might have a material affect on the
financial condition of the Company. If, in Zanett's opinion, the condition of
the Company, financial or otherwise, and its prospects are affected in a
material and/or adverse manner and do not fulfill Zanett's expectations, Zanett
shall have the sole discretion to review and determine its continued interest in
the Offering.
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<PAGE>
(f) For so long as Zanett and/or its affiliates own any
Securities, the Company shall make available, during regular business hours, all
records and books of account of the Company for inspection by Zanett upon not
less than five (5) business days prior written notice from Zanett. The Company
shall permit Zanett, during regular business hours, to inspect its properties
upon not less than five (5) business days prior written notice from Zanett.
(g) The Company has the requisite corporate power and
authority to enter into and perform this Agreement and the Placement Warrants in
accordance with the terms hereof. The execution and delivery of this Agreement
and the Placement Warrants by the Company and the consummation by it of the
transactions contemplated hereby (including, without limitation, the reservation
for issuance and issuance of the Placement Warrant Shares issuable upon exercise
thereof) have been duly authorized by the Company's Board of Directors and no
further consent or authorization of the Company, its Board of Directors, or its
shareholders is required.
(h) The Placement Warrants and the Placement Warrant
Shares issuable upon the exercise thereof are duly authorized and, upon issuance
of the Placement Warrant Shares upon exercise of the Placement Warrants in
accordance with the terms thereof, the Placement Warrant Shares will be validly
issued, fully paid and non-assessable, and free from all taxes, liens and
charges with respect to the issue thereof and shall not be subject to preemptive
rights or other similar rights of the shareholders of the Company.
(i) The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (A) result in a violation of the Company's
Certificate of Incorporation or By-laws or (B) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected (except, with respect to clause (B), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a material
adverse effect on the operation, properties, prospects or financial condition of
the Company ("Material Adverse Effect")). The Company is not in violation of its
Certificate of Incorporation or By-laws and is not in default (and no event has
occurred which with notice or lapse of time of both would put the Company in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company is
a party, except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company is not
being conducted, and shall not be conducted, in violation of any law, ordinance
or regulation of any governmental entity, except for possible violations which
either singly or in the aggregate do not have a Material Adverse Effect. Except
as specifically contemplated by this Agreement and as required under the
Securities Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or
-7-
<PAGE>
order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement in accordance
with the terms hereof.
(j) The Company shall at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of Placement Warrant
Shares to provide for the full exercise of the outstanding Placement Warrants.
(k) The Company shall promptly secure the listing of
the Placement Warrant Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Placement
Warrant Shares from time to time issuable upon exercise of the Placement
Warrants.
4. Publicity. The Company shall not make any reference to
Zanett or to any of its affiliates in any release or other communication without
Zanett's prior written consent. Without Zanett's prior written consent, no
advice rendered by Zanett in connection with the services performed by Zanett
pursuant to this Agreement will be quoted by the Company, its affiliates or
representatives nor will any such advice be referred to in any report, document,
release or other communication, whether oral or written, prepared or issued or
transmitted by such person, except to the extent required by law (in which case
the appropriate party shall so advise Zanett in writing prior to such use and
shall consult with Zanett with respect to the form and timing of the
disclosure).
5. Indemnification and Contribution.
(a) To the extent permitted by law, the Company will
indemnify, hold harmless and defend Zanett and each of its directors, officers,
partners, members, employees, agents and each person who controls Zanett within
the meaning of the Securities Act or the Exchange Act, if any, (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any
transaction contemplated by this Agreement, the retention of Zanett as Placement
Agent under this Agreement, the performance of services by Zanett hereunder or
any involvement or alleged involvement of Zanett in the Offering or (ii) any
breach of any of the Company's representations, warranties or covenants
contained herein. The Company shall reimburse each of the Indemnified Persons,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 5(a) shall not (i) apply in instances where the Claims
were the result of Zanett's gross negligence or based on Zanett's wilful
misconduct, and (ii) apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld.
-8-
<PAGE>
(b) Promptly after receipt by an Indemnified Person under
this Section 5 of notice of the commencement of any action (including any
governmental action), such Indemnified Person shall, if a Claim in respect
thereof is made against the Company under this Section 5, deliver to the Company
a written notice of the commencement thereof, and the Company shall have the
right to participate in, and, to the extent the Company so desires, to assume
control of the defense thereof with counsel mutually satisfactory to the Company
and the Indemnified Person; provided, however, that an Indemnified Person shall
have the right to retain its own counsel (with the fees of such counsel not to
exceed $250 per hour), with the fees and expenses to be paid by the Company, if,
in the reasonable opinion of counsel retained by the Indemnified Person, the
representation by such counsel of the Indemnified Person and the Company would
be inappropriate due to actual or potential differing interests between such
Indemnified Person and any other party represented by the Company's counsel in
such proceeding. The Company shall pay for only one separate legal counsel for
the Indemnified Persons, and such legal counsel shall be selected by Placement
Agent. The failure to deliver written notice to the Company within a reasonable
time of the commencement of any such action shall not relieve the Company of any
liability to the Indemnified Person under this Section 5, except to the extent
that the Company is actually prejudiced in its ability to defend such action.
The indemnification required by this Section 5 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
(c) To the extent any indemnification by the Company of an
Indemnified Person is prohibited or limited by law or otherwise unavailable in
respect of any Claim, the Company agrees to make the maximum contribution with
respect to any amounts for which it would otherwise be liable under Section 5 to
the fullest extent permitted by law. In this regard, the Company shall
contribute to the amount paid or payable by such Indemnified Person as a result
of any such Claim (i) in such portion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Indemnified Person,
on the other, from the structuring and issuance of the securities in the
Offering or any other transaction in which Zanett rendered services hereunder or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and of the Indemnified Person, on the other, in
connection with untrue statements or omissions or other actions (or alleged
untrue statements, omissions or other actions) which resulted in such Claim as
well as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand, and the Indemnified Person, on the
other, shall be deemed to be in the same proportion as the total gross proceeds
received by the Company in the Offering or any other financing bears to such
Indemnified Person's compensation. The relative fault of the Company on the one
hand and of the Indemnified Person on the other shall be determined by reference
to, among other things, whether such untrue statements or omissions or other
actions (or alleged untrue statements, omissions or other actions) relate to
information supplied or action taken by the Company, on the one hand, or by the
Indemnified Person, on the other, and the relevant persons' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statements, omission or actions. The amount paid or payable by a party as
a result of the Claim shall be deemed to include any legal or
-9-
<PAGE>
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The Company and Zanett agree
that it would not be just and equitable if contribution pursuant to this Section
5 were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to above.
(d) The aforesaid indemnity and contribution agreements
shall apply to any related activities engaged in by any Indemnified Person prior
to this date and to any modification of Zanett's engagement hereunder, and shall
remain in full force and effect regardless of any investigation made by or on
behalf of Placement Agent or any of its agents, employees, officers, directors
or controlling persons and shall survive the issuance of any securities in any
transaction referred to hereunder (including the Offering) and any termination
of this Agreement or Placement Agent's engagement hereunder. The Company agrees
to promptly notify Zanett of the commencement of any litigation or proceeding
against it or any of its directors, officers, agents or employees in connection
with the transactions contemplated hereby.
(e) The Company also agrees that no Indemnified Person
shall have any liability (whether direct or indirect, in contract or tort or
otherwise) to the Company, its owners, creditors or security holders for or in
connection with advice or services rendered or to be rendered by Zanett pursuant
to this Agreement, the transactions contemplated hereby or any Indemnified
Person's actions or inactions in connection with any such advice, services or
transactions except for liabilities (and related expenses) of the Company that
are determined by a final judgment of a court of competent jurisdiction to have
resulted primarily from such Indemnified Party's gross negligence or wilful
misconduct in connection with any such advice, actions, inactions or services.
6. Survival of Certain Provisions. The representations,
warranties, covenants and provisions contained in Section 2(f), Section 3,
Section 4 and Section 5 hereof shall survive in full force and effect until that
date which is three (3) years from the date hereof (or such longer period as may
be specified in such provisions) regardless of (a) any completion or termination
of any financing contemplated by this Agreement (including the Offering), (b)
any termination of this Agreement, or (c) any investigation made by or on behalf
of Placement Agent or any affiliate of Placement Agent, and shall be binding
upon, and shall inure to the benefit of, any successors, assigns, heirs and
personal representatives of the Company, Zanett, the Indemnified Parties and any
holder of Placement Warrants.
7. Miscellaneous.
(a) All notices, requests, demands and other communications
which are required or may be given hereunder shall be in writing and shall be
deemed to have been duly given when delivered personally, receipt acknowledged
or five (5) days after being sent by registered or certified mail, return
receipt requested, postage prepaid. All notices shall be made to the parties at
the addresses designated above or at such other or different addresses which
party may subsequently provided with notice thereof, and, to their respective
legal counsel, as follows:
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<PAGE>
(i) If to Placement Agent, to
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
Attention: Claudio Guazzoni
-with a copy to -
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Attention: Barry J. Siegel, Esquire
(ii) If to the Company, to
The Netplex Group, Inc.
8260 Greensboro Drive, 5th Floor
McLean, VA 22102
Attention: Gene Zaino, President and CEO
-with a copy to -
Vedder, Price, Kaufman & Kammholz
805 Third Avenue
New York, NY 10622-2203
Telecopy: (212) 407-7799
Attn: Edward J. Walsh
(b) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
(c) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (without regard to its
conflict of laws provisions). The Company hereby agrees to submit to the
exclusive jurisdiction of an arbitration panel of the National Association of
Securities Dealers, Inc. located in the City of New York in the State of New
York in connection with any suit, action or proceeding related to this Agreement
or any of the matters contemplated hereby, irrevocably waives any defense of
lack of personal jurisdiction and irrevocably agrees that all claims in respect
of any suit, action or proceeding may be heard and determined in by
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<PAGE>
such panel. The Company irrevocably waives, to the fullest extent it may
effectively do so under applicable law any objection which it may now or
hereafter have to the laying of venue of any such suit, action or proceeding
brought before any such court and any claims that any such suit, action or
proceeding brought in any such arbitration panel has been brought in an
inconvenient forum. Each party agrees to pay or reimburse the other for all
reasonable costs and expenses incurred in connection with the enforcement of any
of its rights under this Agreement, including without limitation, all attorneys'
fees and expenses of its counsel.
(d) The section headings in this Agreement have been
inserted as a matter of convenience of reference and are not a part of this
Agreement.
(e) This Agreement may not be modified or amended except in
writing duly sworn by the parties hereto.
(f) If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
(g) Each party to this Agreement has participated in the
negotiation and drafting of this Agreement. As such, the language used herein
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
Please sign and return the original and one copy of this letter to
indicate your acceptance of the terms set forth herein whereupon this letter and
your acceptance shall constitute a binding agreement between you and the
Company.
Very truly yours,
The Netplex Group, Inc.
By:______________________________
Accepted and Agreed to this
25th day of September, 1998.
THE ZANETT SECURITIES CORPORATION
By:______________________________
Name: Claudio Guazzoni
Title: President
EXHIBIT B
to Securities
Purchase
Agreement
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER 28, 2003
(UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase __________ Shares of
Common Stock, par value $.001 per share
Date: September 28, 1998
THE NETPLEX GROUP, INC.
INCENTIVE STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _________________________,
or its registered assigns, is entitled to purchase from THE NETPLEX GROUP, INC.,
a corporation organized under the laws of the State of New York (the "Company"),
at any time or from time to time during the period specified in Section 2
hereof, _______________________ (__________) fully paid and nonassessable shares
of the Company's common stock, par value $.001 per share (the "Common Stock"),
at an exercise price per share (the "Exercise Price") equal to $1.3938. The
number of shares of Common Stock purchasable hereunder (the "Warrant Shares")
and the Exercise Price are subject to adjustment as provided in Section 4
hereof. The term "Incentive Warrants" means this Warrant and the other warrants
of the Company issued pursuant to, and identified as Incentive Warrants in, that
certain Securities Purchase Agreement, dated as of September 25, 1998, by and
among the Company and the other signatories thereto (the "Securities Purchase
Agreement").
<PAGE>
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER 28, 2003
(UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 46,750 Shares of
Common Stock, par value $.001 per share
Date: September 28, 1998
THE NETPLEX GROUP, INC.
INCENTIVE STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, THE ZANETT SECURITIES
CORPORATION, or its registered assigns, is entitled to purchase from THE NETPLEX
GROUP, INC., a corporation organized under the laws of the State of New York
(the "Company"), at any time or from time to time during the period specified in
Section 2 hereof, Forty Six Thousand Seven Hundred Fifty (46,750) fully paid and
nonassessable shares of the Company's common stock, par value $.001 per share
(the "Common Stock"), at an exercise price per share (the "Exercise Price")
equal to $1.3938. The number of shares of Common Stock purchasable hereunder
(the "Warrant Shares") and the Exercise Price are subject to adjustment as
provided in Section 4 hereof. The term "Incentive Warrants" means this Warrant
and the other warrants of the Company issued pursuant to, and identified as
Incentive Warrants in, that certain Securities Purchase Agreement, dated as of
September 25, 1998, by and among the Company and the other signatories thereto
(the "Securities Purchase Agreement").
<PAGE>
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER 28, 2003
(UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 52,394 Shares of
Common Stock, par value $.001 per share
Date: September 28, 1998
THE NETPLEX GROUP, INC.
INCENTIVE STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, GOLDMAN SACHS PERFORMANCE
PARTNERS, L.P., or its registered assigns, is entitled to purchase from THE
NETPLEX GROUP, INC., a corporation organized under the laws of the State of New
York (the "Company"), at any time or from time to time during the period
specified in Section 2 hereof, Fifty Two Thousand Three Hundred Ninety Four
(52,394) fully paid and nonassessable shares of the Company's common stock, par
value $.001 per share (the "Common Stock"), at an exercise price per share (the
"Exercise Price") equal to $1.3938. The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "Incentive Warrants"
means this Warrant and the other warrants of the Company issued pursuant to, and
identified as Incentive Warrants in, that certain Securities Purchase Agreement,
dated as of September 25, 1998, by and among the Company and the other
signatories thereto (the "Securities Purchase Agreement").
<PAGE>
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER 28, 2003
(UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 42,523 Shares of
Common Stock, par value $.001 per share
Date: September 28, 1998
THE NETPLEX GROUP, INC.
INCENTIVE STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, GOLDMAN SACHS PERFORMANCE
PARTNERS (OFFSHORE), L.P., or its registered assigns, is entitled to purchase
from THE NETPLEX GROUP, INC., a corporation organized under the laws of the
State of New York (the "Company"), at any time or from time to time during the
period specified in Section 2 hereof, Forty Two Thousand Five Hundred Twenty
Three (42,523) fully paid and nonassessable shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), at an exercise price per
share (the "Exercise Price") equal to $1.3938. The number of shares of Common
Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are
subject to adjustment as provided in Section 4 hereof. The term "Incentive
Warrants" means this Warrant and the other warrants of the Company issued
pursuant to, and identified as Incentive Warrants in, that certain Securities
Purchase Agreement, dated as of September 25, 1998, by and among the Company and
the other signatories thereto (the "Securities Purchase Agreement").
<PAGE>
This Warrant is subject to the following terms, provisions and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the holder is effectuating
a Cashless Exercise (as defined in Section 11(c) hereof) pursuant to Section
11(c) hereof, delivery to the Company of a written notice of an election to
effect a Cashless Exercise for the Warrant Shares specified in the Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or such holder's designee, as the record owner of such shares, as
of the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
payment shall have been made for such shares as set forth above or, if such date
is not a business date, on the next succeeding business date. Certificates for
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding three (3) business days, after this
Warrant shall have been so exercised (the "Delivery Period"). The certificates
so delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of such holder or such other name as
shall be designated by such holder. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder a
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the Exercise Agreement (including pursuant to a
Cashless Exercise), and the Company fails for any reason to deliver, on or prior
to the fourth business day following the expiration of the Delivery Period for
such exercise, the number of shares of Common Stock to which the holder is
entitled upon such exercise (an "Exercise Default"), then the Company shall pay
to the holder payments ("Exercise Default Payments") for an Exercise Default in
the amount of (a) (N/365), multiplied by (b) the amount by which the Market
Price (as defined in Section 4(l) hereof) on the date the Exercise Agreement
giving rise to the Exercise Default is transmitted in accordance with this
Section 1 (the "Exercise Default Date") exceeds the Exercise Price, multiplied
by (c) the number of shares of Common Stock the Company failed to so deliver in
such Exercise Default, multiplied by (d) .24, where N = the number of days from
the Exercise Default Date to the date that the Company effects the full exercise
of this Warrant which gave rise to the Exercise Default. The accrued Exercise
Default Payment for each calendar month shall be paid in cash or shall be
convertible into Common Stock, at the holder's option, as follows:
-2-
<PAGE>
(a) In the event holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth (5th) day of the month following
the month in which it has accrued; and
(b) In the event holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the lower
of the Exercise Price or the Market Price (as defined in Section 4(l)) (as in
effect at the time of conversion) at any time after the fifth (5th) day of the
month following the month in which it has accrued.
Nothing herein shall limit the holder's right to pursue
actual damages for the Company's failure to maintain a sufficient number of
authorized shares of Common Stock as required pursuant to the terms of Section
3(b) hereof or to otherwise issue shares of Common Stock upon exercise of this
Warrant in accordance with the terms hereof, and the holder shall have the right
to pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
2. Period of Exercise.
(a) This Warrant is immediately exercisable, at any time or from
time to time on or after the date of initial issuance of this Warrant (the
"Issue Date") and before 5:00 p.m., New York City time, on the fifth (5th)
anniversary of the Issue Date (the "Exercise Period"). The Exercise Period shall
automatically be extended by one (1) day for each day on which the Company does
not have a number of shares of Common Stock reserved for issuance upon exercise
hereof at least equal to the number of shares of Common Stock issuable upon
exercise hereof.
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise in full of this Warrant (without giving effect
to the limitations on exercise set forth in Section 7(g) hereof).
(c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or become listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each
-3-
<PAGE>
national securities exchange or automated quotation system, as the case may be,
and shall maintain such listing of, any other shares of capital stock of the
Company issuable upon the exercise of this Warrant if and so long as any shares
of the same class shall be listed on such national securities exchange or
automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the economic benefit inuring to the holder
hereof and the exercise privilege of the holder of this Warrant against dilution
or other impairment, consistent with the tenor and purpose of this Warrant.
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, and (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets.
(f) Blue Sky Laws. The Company shall, on or before the date of
issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or obtain
exemption for the Warrant Shares for, sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the holder of this Warrant prior to such date; provided, however, that the
Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction.
4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares issuable hereunder and for which this
Warrant is then exercisable pursuant to Section 2 hereof shall be subject to
adjustment from time to time as provided in this Section 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
or down to the nearest cent.
(a) Adjustment of Exercise Price. Except as otherwise provided in
Sections 4(c) and 4(e) hereof, if and whenever during the Exercise Period the
Company issues or sells, or in accordance with Section 4(b) hereof is deemed to
have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Market Price (as hereinafter
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defined) on the date of issuance (a "Dilutive Issuance"), then effective
immediately upon the Dilutive Issuance, the Exercise Price will be adjusted in
accordance with the following formula:
E' = E x O + P/M
-------
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price (as defined in Section
4(1)(ii));
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance; P = the
aggregate consideration, calculated as set forth in
Section 4(b) hereof, received by the Company upon
such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as defined in Section 4(l)(i)) immediately
after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("Convertible Securities") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "Options") and
the price per share for which Common Stock is issuable upon the exercise of such
Options is less than the Market Price in effect on the date of issuance of such
Options ("Below Market Options"), then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below Market Options
(assuming full exercise, conversion or exchange of Convertible Securities, if
applicable) will, as of the date of the issuance or grant of such Below Market
Options, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For purposes of the preceding sentence, the
"price per share for which Common Stock is issuable upon the exercise of such
Below Market Options" is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the issuance or
granting of all such Below Market Options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
all such Below Market Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Below Market Options, the minimum aggregate
amount of additional consideration payable upon the exercise, conversion or
exchange thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise of all such Below Market
Options (assuming full conversion of Convertible Securities, if applicable). No
further
<PAGE>
adjustment to the Exercise Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Below Market Options or upon the
exercise, conversion or exchange of Convertible Securities issuable upon
exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Market Price in effect on the date of issuance of such Convertible Securities,
then the maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible Securities will, as of
the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon such exercise, conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the "price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange" for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Market Price on the date
of issuance of such Convertible Security was 75% of the Market Price on such
date (the "Assumed Variable Market Price"). Further, if the Market Price at any
time or times thereafter is less than or equal to the Assumed Variable Market
Price last used for making any adjustment under this Section 4 with respect to
any Variable Rate Convertible Security, the Exercise Price in effect at such
time shall be readjusted to equal the Exercise Price which would have resulted
if the Assumed Variable Market Price at the time of issuance of the Variable
Rate Convertible Security had been 75% of the Market Price existing at the time
of the adjustment required by this sentence.
(iii) Change in Option Price or Conversion Rate. If there
is a change at any time in (i) the amount of additional consideration payable to
the Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
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Convertible Securities are convertible into or exchangeable for Common Stock (in
each such case, other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of such change will
be readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the Market Price thereof as of the date of receipt. In case any Common
Stock, Options or Convertible Securities are issued in connection with any
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair market value of
such portion of the net assets and business of the non-surviving corporation as
is attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair market value of any consideration other than cash or
securities will be determined in good faith by an investment banker or other
appropriate expert of national reputation selected by the Company and reasonably
acceptable to the holder hereof, with the costs of such appraisal to be borne by
the Company.
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the Issue
Date and set forth on Schedule 3(c) of the Securities Purchase Agreement in
accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such stock or options is
approved by a majority of the non-employee members of the Board of
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Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
any Prepaid Warrants (as such term is defined in the Securities Purchase
Agreement) or Incentive Warrants issued or issuable in accordance with the terms
of the Securities Purchase Agreement; or (iv) upon exercise of the Prepaid
Warrants and the Incentive Warrants.
(c) Subdivision or Combination of Common Stock. If the Company,
at any time during the Exercise Period, subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company, at
any time during the Exercise Period, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant and for which this
Warrant is or may become exercisable shall be adjusted by multiplying a number
equal to the Exercise Price in effect immediately prior to such adjustment by
the number of shares of Common Stock issuable or for which this Warrant is or
may become exercisable (as applicable) upon exercise of this Warrant immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
(e) Consolidation, Merger or Sale.
(i) In case of any consolidation of the Company with, or
merger of the Company into any other corporation, or in case of any sale or
conveyance of all or substantially all of the assets of the Company other than
in connection with a plan of complete liquidation of the Company at any time
during the Exercise Period, then as a condition of such consolidation, merger or
sale or conveyance, adequate provision will be made whereby the holder of this
Warrant will have the right to acquire and receive upon exercise of this Warrant
in lieu of the shares of Common Stock immediately theretofore acquirable upon
the exercise of this Warrant, such shares of stock, securities, cash or assets
as may be issued or payable with respect to or in exchange for the number of
shares of Common Stock immediately theretofore acquirable and receivable upon
exercise of this Warrant had such consolidation, merger or sale or conveyance
not taken place. In any such case, the Company will make appropriate provision
to insure that the provisions of this Section 4 hereof will thereafter be
applicable as nearly as may be in relation to any shares of stock or securities
thereafter deliverable upon the exercise of this Warrant. The Company will not
effect any consolidation, merger or sale or conveyance unless prior to the
consummation thereof, the successor corporation (if other than the Company)
assumes by written instrument the obligations under this Warrant and the
obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the holder
may be entitled to acquire. Notwithstanding
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<PAGE>
the foregoing, in the event of any such sale or conveyance, the holder of this
Warrant shall, at its option, have the right to receive, and, in the event of
any such merger, consolidation, sale or conveyance which involves the receipt of
cash consideration by the equity holders of the Company's capital stock or in
which the surviving or continuing entity is not a publicly traded corporation
whose common stock is listed for trading on the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap
Market, the holder of this Warrant shall be entitled to receive, in connection
with such transaction, cash consideration equal to the fair market value (as
determined by the holder of this Warrant) of this Warrant.
(ii) No adjustment shall be made to the Exercise Price
pursuant to the provisions of this Section 4 upon the issuance by the Company of
any securities as consideration in a merger, consolidation or acquisition of
assets, or in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or as consideration
for the acquisition of a business, product or license by the Company.
(f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, stock repurchase by way of
return of capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "Distribution"), at any time during the
Exercise Period, then the holder of this Warrant shall be entitled upon exercise
of this Warrant for the purchase of any or all of the shares of Common Stock
subject hereto, to receive the amount of such assets (or rights) which would
have been payable to the holder had such holder been the holder of such shares
of Common Stock on the record date for the determination of shareholders
entitled to such Distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
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<PAGE>
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(other than dividends or distributions payable in cash out of retained earnings
consistent with the Company's past practices with respect to declaring dividends
and making distributions) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable estimate thereof by the Company)
when the same shall take place. Such notice shall also specify the date on which
the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least seventy-five
(75) days prior to the record date or the date on which the Company's books are
closed in respect thereto. Failure to give any such notice or any defect therein
shall not affect the validity of the proceedings referred to in clauses (i),
(ii), (iii) and (iv) above.
(k) Certain Events. If, at any time during the Exercise Period,
any event occurs of the type contemplated by the adjustment provisions of this
Section 4 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Section 4(g) hereof, and the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of shares of Common Stock acquirable upon exercise of this Warrant so
that the rights of the holder shall be neither enhanced nor diminished by such
event.
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(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number
of shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in the case of any
adjustment required by Section 4(a) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the adjustment is
required, as of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of
the closing bid prices for the shares of Common Stock as reported on the Nasdaq
SmallCap Market by Bloomberg Financial Markets ("Bloomberg") for the five (5)
consecutive trading days immediately preceding such date, or (ii) if the Nasdaq
SmallCap Market is not the principal trading market for the shares of Common
Stock, the average of the last sale prices reported by Bloomberg on the
principal trading market for the Common Stock during the same period, or, if
there is no sale price for such period, the last bid price reported by Bloomberg
for such period, or (iii) if the foregoing do not apply, the last sale price of
such security in the over-the-counter market on the pink sheets or bulletin
board for such security as reported by Bloomberg, or if no sale price is so
reported for such security, the last bid price of such security as reported by
Bloomberg, or (iv) if market value cannot be calculated as of such date on any
of the foregoing bases, the Market Price shall be the average fair market value
as reasonably determined by an investment banking firm selected by the Company
and reasonably acceptable to a majority in interest of the holders of Incentive
Warrants, with the costs of the appraisal to be borne by the Company. The manner
of determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5.Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
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6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Section 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Sections 7(f) and (g) hereof and to the provisions
of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of that certain Registration Rights Agreement,
dated as of September 28, 1998, by and among the Company and the other
signatories thereto (the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 7(e) below, for new Warrants of
like tenor of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the holder hereof at the time of such
surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Section 7. The Company shall indemnify
and reimburse the holder of this
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Warrant for all costs and expenses (including legal fees) incurred by such
holder in connection with the enforcement of its rights hereunder.
(e) Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws (the cost of which shall be borne by the Company if
the Company's counsel renders such an opinion and up to $250 of such cost shall
be borne by the Company if the holder's counsel is requested to render such
opinion), (ii) that the holder or transferee execute and deliver to the Company
an investment letter in form and substance acceptable to the Company and (iii)
that the transferee be an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; provided that no such opinion, letter, or
status as an "accredited investor" shall be required in connection with a
transfer pursuant to Rule 144 under the Securities Act.
(g) Additional Restrictions on Exercise or Transfer. Notwithstanding
anything contained herein to the contrary, unless the holder hereof delivers a
waiver in accordance with the last sentence of this Section 7(g), this Warrant
shall not be exercisable by a holder hereof to the extent (but only to the
extent) that (a) the number of shares of Common Stock beneficially owned by such
holder and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unexercised portion of the
Incentive Warrants and the Prepaid Warrants or the unexercised or unconverted
portion of any other securities of the Company subject to a limitation on
conversion or exercise analogous to the limitation contained herein) and (b) the
number of shares of Common Stock issuable upon exercise of this Warrant (or
portion hereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by such holder and its
affiliates of more than 4.99% of the outstanding shares of Common Stock. To the
extent the above limitation applies, the determination of whether and to what
extent this Warrant shall be exercisable vis-a-vis other securities owned by
such holder shall be in the sole discretion of the holder and submission of this
Warrant for full or partial exercise shall be deemed to be the holder's
determination of whether and the extent to which this Warrant is exercisable, in
each case subject to such aggregate percentage limitation. No prior inability to
exercise the Warrant pursuant to this Section shall have any effect on the
applicability of the provisions of this Section with respect to any subsequent
determination of exerciseability. For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G
thereunder, except as otherwise provided in clause (a) hereof. Except as
provided in the immediately succeeding sentence, the restrictions contained in
this Section 7(g) may not be amended without the consent of the holder of this
Warrant and the holders of a majority of the Company's then outstanding Common
Stock. Notwithstanding the foregoing, the holder hereof may waive the
restrictions set forth in this Section 7(g) by written notice to the Company
upon not less than sixty- one (61) days prior notice (with such waiver taking
effect only upon the expiration of such sixty-one (61) day notice period).
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement, including the right to assign such rights to certain assignees, as
set forth therein.
9. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier, or by confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
THE NETPLEX GROUP, INC.
8260 Greensboro Drive
McLean, VA 22102
Telecopy: (703) 356-5105
Attn: Gene Zaino, President and CEO
with a copy simultaneously transmitted by like means to:
Vedder, Price, Kaufman & Kammholz
805 Third Avenue
New York, NY 10622-2203
Telecopy: (212) 407-7799
Attn: Edward J. Walsh, Jr.
If to the holder, at such address as such holder shall have provided in writing
to the Company, or at such other address as such holder furnishes by notice
given in accordance with this Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed
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<PAGE>
in the State of New York. The Company irrevocably consents to the jurisdiction
of the United States federal courts and state courts located in the City of New
York in the State of New York in any suit or proceeding based on or arising
under this Warrant and irrevocably agrees that all claims in respect of such
suit or proceeding may be determined in such courts. The Company irrevocably
waives any objection to the laying of venue and the defense of an inconvenient
forum to the maintenance of such suit or proceeding. The Company further agrees
that service of process upon the Company mailed by certified or registered mail
shall be deemed in every respect effective service of process upon the Company
in any such suit or proceeding. Nothing herein shall affect the holder's right
to serve process in any other manner permitted by law. The Company agrees that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised at any time after the first
anniversary of the Issue Date until the end of the Exercise Period, by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"Cashless Exercise"). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that number
of shares of Common Stock determined by multiplying the number of Warrant Shares
to which it would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price of a share of the
Common Stock on the date of exercise and the Exercise Price, and the denominator
of which shall be the then current Market Price per share of Common Stock.
(d) Business Day. For purposes of this Warrant, the term
"business day" means any day, other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law, regulation or executive order to close.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
THE NETPLEX GROUP, INC.
By: _______________________________
Name:_____________________________
Title:____________________________
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
To: THE NETPLEX GROUP, INC.
8260 Greensboro Drive
McLean, VA 22102
Telecopy: (703) 356-5105
Attn: Gene Zaino, President and CEO
The undersigned hereby irrevocably exercises the right to purchase
_____________ shares of the Common Stock of THE NETPLEX GROUP, INC., a
corporation organized under the laws of the State of New York (the "Company"),
evidenced by the attached Warrant, and herewith makes payment of the Exercise
Price with respect to such shares in full, all in accordance with the conditions
and provisions of said Warrant.
(i)ab The undersigned agrees not to offer, sell, transfer or
otherwise dispose of any Common Stock obtained on exercise of the Warrant,
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws, and agrees that the
following legend may be affixed to the stock certificate for the Common Stock
hereby subscribed for if resale of such Common Stock is not registered or if
Rule 144 is unavailable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE
OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
(ii) The undersigned requests that stock certificates for such
shares be issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:_________________ _____________________________________
Signature of Holder
-------------------------------------
Name of Holder (Print)
Address:
-------------------------------------
-------------------------------------
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints
_____________________________________ as agent and attorney-in-fact to transfer
said Warrant on the books of the within-named corporation, with full power of
substitution in the premises.
Dated: _____________________, ____
In the presence of
- ------------------
Name: ____________________________
Signature: _____________________
Title of Signing Officer or Agent (if any):
------------------------
Address: ________________________
------------------------
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
EXHIBIT A
to Securities
Purchase
Agreement
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
LAWS UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
PREPAID COMMON STOCK PURCHASE WARRANT
September 28, 1998 Right to Purchase $_________ of
Common Stock, par value $.001 per share
FOR VALUE RECEIVED, THE NETPLEX GROUP, INC., a corporation organized
under the laws of the State of New York (hereinafter called the "Corporation")
hereby promises to issue to _______________ or its registered assigns (the
"Holder"), at any time or from time to time upon its receipt of a Notice of
Exercise (as defined in Article I.C below), up to _________________________
Dollars ($________) (the "Prepaid Amount") of the Corporation's common stock,
par value $.001 per share (the "Common Stock"), in the manner provided in
Article II hereof. This Warrant is being issued by the Corporation along with
similar prepaid common stock purchase warrants (the "Other Prepaid Warrants"
and, together with this Warrant, the "Prepaid Warrants") pursuant to that
certain Securities Purchase Agreement, dated as of September 25, 1998, by and
among the Corporation, the Holder and the other parties named therein (the
"Securities Purchase Agreement").
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
LAWS UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
PREPAID COMMON STOCK PURCHASE WARRANT
September 28, 1998 Right to Purchase $938,400 of
Common Stock, par value $.001 per share
FOR VALUE RECEIVED, THE NETPLEX GROUP, INC., a corporation organized
under the laws of the State of New York (hereinafter called the "Corporation")
hereby promises to issue to Goldman Sachs Performance Partners, L.P., or its
registered assigns (the "Holder"), at any time or from time to time upon its
receipt of a Notice of Exercise (as defined in Article I.C below), up to Nine
Hundred Thirty Eight Thousand Four Hundred Dollars ($938,400) (the "Prepaid
Amount") of the Corporation's common stock, par value $.001 per share (the
"Common Stock"), in the manner provided in Article II hereof. This Warrant is
being issued by the Corporation along with similar prepaid common stock purchase
warrants (the "Other Prepaid Warrants" and, together with this Warrant, the
"Prepaid Warrants") pursuant to that certain Securities Purchase Agreement,
dated as of September 25, 1998, by and among the Corporation, the Holder and the
other parties named therein (the "Securities Purchase Agreement").
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
LAWS UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
PREPAID COMMON STOCK PURCHASE WARRANT
September 28, 1998 Right to Purchase $761,600 of
Common Stock, par value $.001 per share
FOR VALUE RECEIVED, THE NETPLEX GROUP, INC., a corporation organized
under the laws of the State of New York (hereinafter called the "Corporation")
hereby promises to issue to Goldman Sachs Performance Partners (Offshore), L.P.,
or its registered assigns (the "Holder"), at any time or from time to time upon
its receipt of a Notice of Exercise (as defined in Article I.C below), up to
Seven Hundred Sixty One Thousand Six Hundred Dollars ($761,600) (the "Prepaid
Amount") of the Corporation's common stock, par value $.001 per share (the
"Common Stock"), in the manner provided in Article II hereof. This Warrant is
being issued by the Corporation along with similar prepaid common stock purchase
warrants (the "Other Prepaid Warrants" and, together with this Warrant, the
"Prepaid Warrants") pursuant to that certain Securities Purchase Agreement,
dated as of September 25, 1998, by and among the Corporation, the Holder and the
other parties named therein (the "Securities Purchase Agreement").
<PAGE>
CERTAIN DEFINITIONS
For purposes hereof, the following terms shall have the following
meanings:
A. "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the aggregate Prepaid Amount represented by the then outstanding Prepaid
Warrants ("Majority Holders") if Bloomberg Financial Markets is not then
reporting closing bid prices of such security (collectively, "Bloomberg"), or if
the foregoing does not apply, the last reported sale price of such security in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each
case for such date or, if such date was not a trading date for such security, on
the next preceding date which was a trading date. If the Closing Bid Price
cannot be calculated for such security as of either of such dates on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Corporation and reasonably acceptable to the Majority Holders,
with the costs of such appraisal to be borne by the Corporation.
B. "Exercise Amount" means the portion of the Prepaid Amount of this
Warrant being exercised and any Exercise Default Payments payable with respect
thereto, each as specified in the notice of exercise in the form attached hereto
(the "Notice of Exercise").
C. "Exercise Date" means, for any Exercise (as defined below), the date
specified in the Notice of Exercise so long as the copy of the Notice of
Exercise is faxed (or delivered by other means resulting in notice) to the
Corporation at or before 11:59 p.m., New York City time, on the Exercise Date
indicated in the Notice of Exercise; provided, however, that if the Notice of
Exercise is not so faxed or otherwise delivered before such time, then the
Exercise Date shall be the date the holder faxes or otherwise delivers the
Notice of Exercise to the Corporation.
D. "Exercise Price" means (i) with respect to any Exercise Date on or
prior to the 365th day after the date of the Closing, 125% of the Fixed Exercise
Price and (ii) with respect to any Exercise Date after the 365th day after the
date of the Closing, the lower of the Fixed Exercise Price and the Variable
Exercise Price, each in effect as of such date and subject to adjustment as
provided herein but not less than the Floor Price, if in effect at the time of
exercise.
E. "Closing Date" means the date of the Closing under Securities
Purchase Agreement.
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<PAGE>
F. "Fixed Exercise Price" means $1.3938 (average of the Closing Bid
Prices for the Common Stock during the five (5) consecutive trading day period
ending on the trading day immediately preceding the date of issuance of this
Warrant (the "Issuance Date")), and shall be subject to adjustment as provided
herein.
G. "Variable Exercise Price" means, as of any date of determination,
the amount obtained by multiplying (i) .80 (the "Exercise Percentage") and (ii)
the average of the three (3) lowest Closing Bid Prices for the Common Stock
during the twenty (20) consecutive trading day period ending on the trading day
immediately preceding such date of determination (subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or similar
events during such twenty (20) trading day period), and shall be subject to
adjustment as provided herein.
H. "business day" and "trading day" means any day on which the New York
Stock Exchange is open for trading.
I. "Premium" means an amount equal to (.35) x (N/365) x the Prepaid
Amount.
J. "Floor Price" means $1.00 and shall be subject to adjustment as
provided herein, provided, however if (i) the Company does not have earnings per
share of $.01 or more for the calendar quarter ending December 31, 1998 or any
calendar quarter thereafter or (ii) if the Average Daily Volume Amount (as
defined below) is less than $100,000 beginning on April 1, 1999 or thereafter,
then the Exercise Price shall be calculated as if there is no applicable Floor
Price. "Average Daily Volume Amount" shall mean the average for the forty-five
trading days immediately preceding the date of determination of (i) the Closing
Bid Price of the Common Stock for a day, multiplied by (ii) the number of shares
of Common Stock traded on the principal market or exchange on which shares of
Common Stock are traded on such day as reported by The Wall Street Journal.
ARTICLE II
EXERCISE
A. Exercise by the Holder. (i) Subject to the limitations on exercise
contained in Paragraph C of this Article II, the Holder may, at any time and
from time to time, exercise all or any part of the outstanding Prepaid Amount of
this Warrant in accordance with the procedures set forth in Paragraph B of this
Article II for a number of fully paid and nonassessable shares of Common Stock
determined in accordance with the following formula if the Corporation timely
redeems the Premium thereon in cash in accordance with subparagraph (ii) below:
Exercise Amount
---------------
Exercise Price
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<PAGE>
or in accordance with the following formula if the Corporation does not timely
redeem the Premium thereon in accordance with subparagraph (ii) below and if the
applicable conversion occurs after the 365th day after the Issuance Date:
Exercise Amount + the Premium
-----------------------------
Exercise Price
(ii) (a) The Corporation shall have the right, in its sole
discretion, upon receipt of a Notice of Exercise, to redeem the Premium subject
to such conversion for a sum of cash equal to the amount of the Premium being so
redeemed. All cash redemption payments hereunder shall be paid in lawful money
of the United States of America at such address for the holder as appears on the
record books of the Corporation (or at such other address as such holder shall
hereafter give to the Corporation by written notice). In the event the
Corporation so elects to redeem the Premium in cash and fails to pay such holder
the applicable redemption amount to which such holder is entitled by depositing
a check in the U.S. Mail to such holder within four (4) business days of receipt
by the Corporation of a Notice of Exercise (in the case of a redemption in
connection with an Optional Conversion), the Corporation shall thereafter
forfeit its right to redeem such Premium in cash and such Premium shall
thereafter be converted into shares of Common Stock in accordance with Article
II.A(i).
(b) Each holder of Warrants shall have the right to require
the Corporation to provide advance notice to such holder stating whether the
Corporation will elect to redeem the Premium in cash pursuant to the
Corporation's redemption rights discussed in subparagraph (a) of this Article
II.A(ii). A holder may exercise such right from time to time by sending notice
(an "Election Notice") to the Corporation, by facsimile, requesting that the
Corporation disclose to such holder whether the Corporation would elect to
redeem the Premium for cash in lieu of issuing shares of Common Stock therefor
if such holder were to exercise its rights to receive shares of Common Stock
pursuant to this Article II.A. The Corporation shall, no later than the close of
business on the second business day following receipt of an Election Notice,
disclose to such holder whether the Corporation would elect to redeem the
Premium in connection with an exercise pursuant to a Notice of Exercise
delivered over the subsequent ten (10) business day period. If the Corporation
does not respond to such holder within such two business day period via
facsimile, the Corporation shall, with respect to any exercise pursuant to a
Notice of Exercise delivered within the subsequent ten (10) business day period,
forfeit its right to redeem such Premium in accordance with subparagraph (a) of
this Article II.A(ii) and shall be required to issue shares of Common Stock as
payment of Premium.
B. Mechanics of Exercise. In order to exercise this Warrant, Holder
shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of
Exercise to the Corporation and (y) surrender or cause to be surrendered this
Warrant along with a copy of the Notice of Exercise as soon as practicable
thereafter to the Corporation. Upon receipt by the Corporation of a facsimile
copy of a Notice of Exercise from Holder, the Corporation shall immediately
send, via facsimile, a confirmation to Holder stating that the Notice of
Exercise has been received, the date upon which
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<PAGE>
the Corporation expects to deliver the Common Stock issuable upon such exercise
and the name and telephone number of a contact person at the Corporation
regarding the exercise. The Corporation shall not be obligated to issue shares
of Common Stock upon an exercise hereof unless either this Warrant is delivered
to the Corporation as provided above, or Holder notifies the Corporation that
this Warrant has been lost, stolen or destroyed (subject to the requirements of
Article IX.G).
(i) Delivery of Common Stock Upon Exercise. The Corporation
shall, on or before the later of (a) the third (3rd) business day following the
Exercise Date and (b) the business day following the date of the Corporation's
receipt of this Warrant (or, if this Warrant is lost, stolen or destroyed, the
date on which indemnity pursuant to Article VIII.G is provided) (the "Delivery
Period"), issue and deliver to the Holder or its nominee (x) that number of
shares of Common Stock issuable upon exercise of the portion of this Warrant
being exercised and (y) a new Warrant in the form hereof representing the
balance of the Prepaid Amount hereof not being exercised, if any. If the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, and so long as the
certificates therefor are not required to bear a legend, the Corporation shall
cause its transfer agent to electronically transmit the Common Stock issuable
upon exercise to the Holder by crediting the account of Holder or its nominee
with DTC through its Deposit Withdrawal Agent Commission system ("DTC
Transfer"). If the aforementioned conditions to a DTC Transfer are not
satisfied, the Corporation shall deliver to Holder physical certificates
representing the Common Stock issuable upon such exercise. Further, Holder may
instruct the Corporation to deliver to Holder physical certificates representing
the Common Stock issuable upon such exercise in lieu of delivering such shares
by way of DTC Transfer.
(ii) Taxes. The Corporation shall pay any and all taxes
which may be imposed upon it with respect to the issuance and delivery of the
shares of Common Stock upon the exercise of this Warrant.
(iii) No Fractional Shares. If any exercise of this Warrant
would result in the issuance of a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise of this Warrant shall be the nearest whole number of
shares.
(iv) Exercise Disputes. In the case of any dispute with
respect to an exercise of this Warrant, the Corporation shall promptly issue
such number of shares of Common Stock as are not disputed in accordance with
subparagraph (i) above. The Corporation and the Holder shall seek to resolve any
such dispute in good faith. If such dispute involves the calculation of the
Exercise Price, the Corporation shall immediately submit the disputed
calculations to KPMG Peat Marwick or such other independent outside accountant
of national reputation selected by the Company via facsimile within two (2)
business days of receipt of the Notice of Exercise. The accountant, at the
Corporation's sole expense (except that if the Corporation's calculation is
correct, the Holder shall bear such expense), shall audit the calculations and
notify the Corporation and Holder of the results no later than two (2) business
days from the date it receives the disputed calculations. The
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<PAGE>
accountant's calculation shall be deemed conclusive, absent manifest error. The
Corporation shall then issue the appropriate number of shares of Common Stock in
accordance with subparagraph (i) above.
C. Limitations on Exercise. The exercise of this Warrant shall be
subject to the following limitations (each of which limitations shall be applied
independently):
(i) Cap Amount. Unless permitted by the applicable rules
and regulations of the principal securities market on which the Common Stock is
listed or traded, in no event shall the total number of shares of Common Stock
issued upon exercise of the Prepaid Warrants exceed the maximum number of shares
of Common Stock that the Corporation can so issue pursuant to Rules
4310(c)(25)(H) or 4460(i) of the National Association of Securities Dealers
("NASD") (or any successor rules) (the "Cap Amount") which, as of the Closing
Date, shall be 2,039,326 shares (19.99% of the total shares outstanding on the
Closing Date less the maximum number of shares issuable upon the exercise of all
Incentive Warrants (as such term is defined in the Securities Purchase
Agreement) issued and/or issuable pursuant to the Securities Purchase Agreement
and all warrants issued and/or issuable to The Zanett Securities Corporation in
connection with the transactions contemplated by the Securities Purchase
Agreement). The Cap Amount shall be allocated pro-rata to the holders of the
Prepaid Warrants as provided in Article IX.H. In the event the Corporation is
prohibited from issuing shares of Common Stock as a result of the operation of
this subparagraph (i), the Corporation shall comply with Article V.
(ii) No Five Percent Holders. In no event shall Holder be
entitled to receive shares of Common Stock upon an exercise of this Warrant to
the extent that the sum of (x) the number of shares of Common Stock beneficially
owned by Holder and its affiliates (exclusive of shares issuable upon exercise
of the unexercised portion of any Prepaid Warrants or the unexercised or
unconverted portion of any other securities of the Corporation (including,
without limitation, the Incentive Warrants (as defined in the Securities
Purchase Agreement) issued by the Corporation pursuant to the Securities
Purchase Agreement) subject to a limitation on conversion or exercise analogous
to the limitations contained herein) and (y) the number of shares of Common
Stock issuable upon the exercise of the portion of this Warrant with respect to
which the determination of this subparagraph is being made, would result in
beneficial ownership by Holder and its affiliates of more than 4.99% of the then
outstanding shares of Common Stock. For purposes of this subparagraph,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder,
except as otherwise provided in clause (x) above. The restriction contained in
this subparagraph (ii) shall not be altered, amended, deleted or changed in any
manner whatsoever unless the holders of a majority of the outstanding shares of
Common Stock and Holder shall approve such alteration, amendment, deletion or
change.
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<PAGE>
ARTICLE III
RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. On the Closing Date, the Corporation shall have
reserved 3,000,000 shares (200% of number of shares which would be issuable if
all Prepaid Warrants issued or issuable pursuant to the Securities Purchase
Agreement are exercised in their entirety on the Closing Date) of the authorized
but unissued shares of Common Stock for issuance upon the full exercise of all
Prepaid Warrants issued or issuable pursuant to the Securities Purchase
Agreement (the "Reserved Amount") and thereafter the number of authorized but
unissued shares of Common Stock so reserved shall not be decreased and shall at
all times be sufficient to provide for the full exercise of all Prepaid Warrants
issued or issuable pursuant to the Securities Purchase Agreement at the then
current Exercise Price. The Reserved Amount shall be allocated to the holders of
Prepaid Warrants as provided in Article IX.H.
B. Increases to Reserved Amount. If, at any time after the date hereof,
the Reserved Amount for any three (3) consecutive trading days (the last of such
three (3) trading days being the "Authorization Trigger Date") shall be less
than 135% of the number of shares of Common Stock issuable upon the full
exercise of all Prepaid Warrants issued or issuable pursuant to the Securities
Purchase Agreement, the Corporation shall immediately notify the holders of
Prepaid Warrants of such occurrence and shall take immediate action (including,
if necessary, seeking stockholder approval to authorize the issuance of
additional shares of Common Stock provided the Company shall not be obligated to
hold a meeting with respect to such stockholder approval prior to June 15, 1999)
to increase the Reserved Amount to 200% of the number of shares of Common Stock
then issuable upon the full exercise of all Prepaid Warrants issued or issuable
pursuant to the Securities Purchase Agreement. In the event the Corporation
fails to so increase the Reserved Amount within ninety (90) days after an
Authorization Trigger Date (or on or prior to June 15, 1999 if stockholder
approval is required), and thereafter Holder is unable to exercise all or any
portion of the outstanding Prepaid Amount of this Warrant because the
Corporation does not have a sufficient number of shares of Common Stock
authorized and reserved for issuance upon exercise hereof, Holder shall
thereafter have the option, exercisable at any time by delivery of a Default
Notice (as defined in Article VI.C) to the Corporation, to require the
Corporation to pay to Holder an amount in cash equal to the Default Amount (as
defined in Article VI.B). Upon payment by the Corporation of the Default Amount,
this Warrant shall be null and void. If the Corporation fails to deliver the
Default Amount to Holder within five (5) business days after its receipt of such
Default Notice, then Holder shall be entitled to the remedies provided in
Article VI.C.
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<PAGE>
ARTICLE IV
FAILURE TO SATISFY EXERCISES
A. Exercise Default Payments. If, at any time, (x) Holder submits a
Notice of Exercise and the Corporation fails for any reason (other than because
such issuance would exceed Holder's allocated portion of the Reserved Amount or
Cap Amount, for which failures Holder shall have the remedies set forth in
Articles III and V, respectively) to deliver, on or prior to the fourth business
day following the expiration of the Delivery Period for such exercise, such
number of freely tradeable shares of Common Stock to which Holder is entitled
upon such exercise, or (y) the Corporation provides notice to any holder of
Prepaid Warrants (together with all other holders of Prepaid Warrants and the
Holder referred to herein, the "Holders") at any time of its intention not to
issue freely tradeable shares of Common Stock upon the exercise by any Holder of
a Prepaid Warrant in accordance with the terms of the Prepaid Warrants (other
than because such issuance would exceed such Holder's allocated portion of the
Reserved Amount or Cap Amount) (each of (x) and (y) being an "Exercise
Default"), then the Corporation shall pay to Holder, in the case of an Exercise
Default described in clause (x) above, and to all Holders, in the case of a
Exercise Default described in clause (y) above, an amount equal to:
(.24) x (D/365) x (Exercise Default Amount)
where:
"D" means the number of days after the expiration of the Delivery
Period through and including the Default Cure Date;
"Exercise Default Amount" means the Prepaid Amount of all Warrants held
by Holder plus all accrued and unpaid Premium thereon; and
"Default Cure Date" means (i) with respect to an Exercise Default
described in clause (x) of its definition, the date the Corporation effects the
exercise of the portion of this Warrant submitted for exercise, and (ii) with
respect to an Exercise Default described in clause (y) of its definition, the
date the Corporation begins to issue freely tradeable shares of Common Stock in
satisfaction of all exercises of Prepaid Warrants in accordance with their terms
and (iii) with respect to either type of Exercise Default, the date on which the
Corporation pays to Holder the Default Amount (as defined in Article VI.B)
pursuant to Paragraph D of this Article IV.
The payments to which Holder shall be entitled pursuant to this
Paragraph A are referred to herein as "Exercise Default Payments." Holder may
elect to receive accrued Exercise Default Payments in cash or to convert all or
any portion of such accrued Exercise Default Payments, at any time, into Common
Stock at the lowest Exercise Price in effect during the period beginning on the
date of the Exercise Default through the Exercise Date for such exercise. In the
event Holder elects
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to receive any Exercise Default Payments in cash, it shall so notify the
Corporation in writing. Such payment shall be made in accordance with and be
subject to the provisions of Article IX.J. In the event Holder elects to convert
all or any portion of the Exercise Default Payments into Common Stock, Holder
shall indicate on a Notice of Exercise such portion of the Exercise Default
Payments which Holder elects to so convert and such exercise shall otherwise be
effected in accordance with the provisions of Article II.
B. Adjustment to Exercise Price. If Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to an exercise of
any portion of any of Holder's Prepaid Warrants for any reason (other than
because such issuance would exceed Holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures Holder shall have the remedies set
forth in Articles III and V, respectively), then the Fixed Exercise Price in
respect of all Prepaid Warrants held by Holder (including any Prepaid Warrants
or portions thereof submitted to the Corporation for exercise, but for which
shares of Common Stock have not been issued to Holder) shall thereafter be the
lesser of (i) the Fixed Exercise Price on the Exercise Date specified in the
Notice of Exercise which resulted in the Exercise Default and (ii) the lowest
Exercise Price in effect during the period beginning on, and including, such
Exercise Date through and including the day such shares of Common Stock are
delivered to the Holder. If there shall occur an Exercise Default of the type
described in clause (y) of Article IV.A., then the Fixed Exercise Price with
respect to any exercise thereafter shall be the lowest Exercise Price in effect
at any time during the period beginning on, and including, the date of the
occurrence of such Exercise Default through and including the Default Cure Date.
The Fixed Exercise Price shall thereafter be subject to further adjustment for
any events described in Article VII.
C. Buy-In Cure. Unless the Corporation has notified Holder in writing
prior to the delivery by Holder of a Notice of Exercise that the Corporation is
unable to honor exercises, if (i) (a) the Corporation fails for any reason to
deliver during the Delivery Period shares of Common Stock to Holder upon an
exercise of this Warrant or (b) there shall occur a Legend Removal Failure (as
defined in Article VI.A(iii) below) and (ii) thereafter, Holder purchases (in an
open market transaction or otherwise) shares of Common Stock to make delivery in
satisfaction of a sale by Holder of the unlegended shares of Common Stock (the
"Sold Shares") which Holder anticipated receiving upon such exercise (a
"Buy-In"), the Corporation shall pay Holder (in addition to any other remedies
available to Holder) the amount by which (x) Holder's total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (y) the net proceeds received by Holder from the sale
of the Sold Shares. For example, if Holder purchases unlegended shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock it sold for $10,000, the Corporation will be required to
pay Holder $1,000. Holder shall provide the Corporation written notification
indicating any amounts payable to Holder pursuant to this Paragraph C, together
with evidence supporting such calculation. The Corporation shall make any
payments required pursuant to this Paragraph C in accordance with and subject to
the provisions of Article VIII.J.
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D. Right to Require Payment of Default Amount. If the Corporation
fails, and such failure continues uncured for five (5) business days after the
Corporation has been notified thereof in writing by Holder, for any reason
(other than because such issuance would exceed Holder's allocable portion of the
Reserved Amount or Cap Amount, for which failures Holder shall have the remedies
set forth in Articles III and V, respectively) to issue shares of Common Stock
within ten (10) business days after the expiration of the Delivery Period with
respect to any exercise of this Warrant, then Holder may elect at any time prior
to the Default Cure Date for such Exercise Default, by delivery of a Default
Notice (as defined in Article VI.C.) to the Corporation, to require the
Corporation to pay to Holder an amount in cash equal to the Default Amount (as
defined in Article VI.B). Upon payment by the Corporation of the Default Amount,
this Warrant shall be null and void. If the Corporation fails to pay such
Default Amount within five (5) business days after its receipt of a Default
Notice, then Holder shall be entitled to the remedies provided in Article VI.C.
ARTICLE V
INABILITY TO EXERCISE DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time the then unissued portion of any
Holder's Cap Amount is less than 135% of the number of shares of Common Stock
then issuable upon the full exercise of all Prepaid Warrants owned by such
Holder (a "Trading Market Trigger Event"), the Corporation shall immediately
notify the Holders of Prepaid Warrants of such occurrence and shall take
immediate action (including, if necessary, seeking the approval of its
stockholders to authorize the issuance of the full number of shares of Common
Stock which would be issuable upon the full exercise of all Prepaid Warrants
issued or issuable pursuant to the Securities Purchase Agreement but for the Cap
Amount) to eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or any of
its securities on the Corporation's ability to issue shares of Common Stock in
excess of the Cap Amount. In the event the Corporation fails to eliminate all
such prohibitions within ninety (90) days after the Trading Market Trigger Event
and thereafter Holder is unable to exercise all or any portion of the
outstanding Prepaid Amount of this Warrant as a result of the operation of
Article II.C.(i), then Holder shall thereafter have the option, exercisable at
any time until such date that all such prohibitions are eliminated, by delivery
of a Default Notice (as defined in Article VI.C.) to the Corporation, to require
the Corporation to pay to Holder an amount in cash equal to the Default Amount
(as defined in Article VI.B). Upon payment by the Corporation of the Default
Amount, this Warrant shall be null and void. If the Corporation fails to deliver
the Default Amount within five (5) business days after its receipt of such
Default Notice, then such holder shall be entitled to the remedies provided in
Articles V.B and VI.C.
B. Remedies. If the Corporation fails to pay the Default Amount
pursuant to Article V.A. within five (5) business days after its receipt of such
Default Notice, Holder may elect either or both of the following additional
remedies:
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(i) to require, with the consent of the Majority Holders, the
Corporation to terminate the listing of its Common Stock on the Nasdaq SmallCap
Market (or any other stock exchange, interdealer quotation system or trading
market) and to cause its Common Stock to be eligible for trading on the
over-the-counter electronic bulletin board; or
(ii) to require the Corporation to issue shares of Common
Stock in accordance with Holder's Notice of Exercise at an Exercise Price equal
to the average of the Closing Bid Prices for the Common Stock during the five
(5) consecutive trading days ending on the trading day immediately preceding the
date of Holder's written notice to the Corporation of its election to receive
shares of Common Stock pursuant to this subparagraph (ii) (subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or similar
events during such five (5) trading day period).
ARTICLE VI
EVENTS OF DEFAULT
A. Events of Default. If any of the following events of default (each,
an "Event of Default") shall occur:
(i) the Common Stock (including any of the shares of Common
Stock issuable upon exercise of this Warrant) is suspended from trading on any
of, or is not listed (and authorized) for trading on at least one of, the New
York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or
the Nasdaq SmallCap Market for an aggregate of ten (10) trading days in any nine
(9) month period;
(ii) any Registration Statement required to be filed by the
Corporation pursuant to Sections 2(a) or 3(b) of that certain Registration
Rights Agreement by and among the Corporation and the other signatories thereto
entered into in connection with the Securities Purchase Agreement (the
"Registration Rights Agreement") has not been declared effective by the
ninetieth (90th) day following the date on which such Registration Statement is
required to be declared effective pursuant to the Registration Rights Agreement,
or any such Registration Statement, after being declared effective, cannot be
utilized by Holders for the resale of all of its Registrable Securities (as
defined in the Registration Rights Agreement) for an aggregate of more than
thirty (30) days;
(iii) the Corporation fails to remove any restrictive legend
on any certificate or any shares of Common Stock issued to Holder upon exercise
of any Prepaid Warrant owned by Holder as and when required by the Prepaid
Warrants, the Securities Purchase Agreement or the Registration Rights Agreement
(a "Legend Removal Failure"), and any such failure continues uncured for five
(5) business days after the Corporation has been notified thereof in writing by
the holder;
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(iv) the Corporation provides notice to any of the Holders of
Prepaid Warrants, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock to any of the Holders of Prepaid
Warrants upon exercise in accordance with the terms of the Prepaid Warrants
(other than due to the circumstances contemplated by Articles III or V for which
the Holders shall have the remedies set forth in such Articles);
(v) the Corporation shall:
(a) sell, convey or dispose of all or substantially all of
its assets;
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation, other than pursuant to a merger in which the Corporation is the
surviving or continuing entity and its authorized capital stock is unchanged and
other than pursuant to a merger in which the surviving or continuing entity (if
other than the Corporation) assumes the Corporation's obligations under the
Securities Purchase Agreement, the Prepaid Warrants, the Incentive Warrants and
the Registration Rights Agreement and is a publicly-traded corporation whose
common stock is listed for trading on the New York Stock Exchange, the American
Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market); or
(c) have fifty percent (50%) or more of the voting power
of its capital stock owned beneficially by one person, entity or "group" (as
such term is used under Section 13(d) of the Securities Exchange Act of 1934, as
amended);
(vi) the Corporation otherwise shall breach any material term
hereunder (other than as specifically provided in subparagraphs (i)-(v) of this
Paragraph A) or under the Securities Purchase Agreement or the Registration
Rights Agreement and such breach continues uncured for ten (10) business days
after the Corporation has been notified thereof in writing by the holder;
(vii) any representation or warranty of the Corporation made
herein or in any agreement, statement or certificate given in writing pursuant
hereto or in connection herewith (including, without limitation, the Securities
Purchase Agreement and the Registration Rights Agreement), shall be false or
misleading in any material respect when made and the breach of which would have
a Material Adverse Effect (as defined in the Securities Purchase Agreement);
(viii) the Corporation or any subsidiary of the Corporation
(other than Technology Development Systems, Inc.) shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed; or
(ix) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted
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by or against the Corporation or any subsidiary of the Corporation (other than
Technology Development Systems, Inc.);
then, upon the occurrence and during the continuation of any Event of Default
specified in subparagraphs (i)-(vii) of this Paragraph A, at the option of
Holder exercisable through the delivery of a Default Notice (as defined in
Paragraph C below), and upon the occurrence of an Event of Default specified in
subparagraphs (viii) or (ix) of this Paragraph A, the Corporation shall pay
Holder, in satisfaction of its obligation to issue shares of Common Stock upon
exercise of this Warrant, an amount equal to the Default Amount and such Default
Amount, together with all other ancillary amounts payable hereunder, shall
immediately become due and payable, all without demand, presentment or notice,
all of which hereby are expressly waived, together with all costs, including,
without limitation, legal fees and expenses of collection, and Holder shall be
entitled to exercise all other rights and remedies available at law or in
equity; provided, however, that if the Corporation pays the Default Amount to
Holder within five (5) business days after the Corporation's receipt of a
Default Notice from Holder delivered as a result of the occurrence of an Event
of Default specified in subparagraph (v)(b) of this Paragraph A, Holder shall
have no other rights or remedies, at law or in equity, with respect to such
Event of Default. For the avoidance of doubt, the occurrence of any event
described in clauses (i), (ii), (iv), (v), (vii), (viii) or (ix) above shall
immediately constitute an Event of Default and there shall be no cure period.
B. Definition of Default Amount. The "Default Amount" with respect to
this Warrant means an amount equal to the greater of:
(i) A X M
-----------------------
EP
and
(ii) The sum of (x) the product of (I) one hundred percent (100%)
divided by the Exercise Percentage, times (II) the outstanding Prepaid Amount
hereof on the date on which the Corporation receives the Default Notices plus
all accrued and unpaid Premium thereon through the date of payment of the
Default Amount, plus (y) all unpaid Exercise Default Payments owing (if any)
with respect thereto through the date of payment of the Default Amount.
where:
"A" means the outstanding Prepaid Amount of this Warrant on the date on
which the Corporation receives the Default Notice plus all unpaid Exercise
Default Payments owing (if any) and any accrued and unpaid Premium with respect
thereto through the date of payment of the Default Amount;
"EP" means the Exercise Price in effect on the date on which the
Corporation receives the Default Notice; and
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"M" means (i) with respect to all Events of Default other than an Event
of Default specified in Article VI.A(v) hereof, the highest Closing Bid Price of
the Corporation's Common Stock during the period beginning on the date on which
the Corporation receives the Default Notice and ending on the date immediately
preceding the date of payment of the Default Amount and (ii) with respect to an
Event of Default specified in Article VI.A(v) hereof, the greater of (a) the
amount determined pursuant to clause (i) of this definition or (b) the fair
market value, as of the date on which the Corporation receives the Default
Notice, of the consideration payable to the holder of a share of Common Stock
pursuant to the transaction which triggers the Event of Default. For purposes of
this definition, "fair market value" shall be determined by an investment
banking firm selected by the Corporation and reasonably acceptable to the
Majority Holders, with the costs of such appraisal to be borne by the
Corporation.
C. Failure to Pay Default Amount. If the Corporation fails to pay the
Default Amount within five (5) business days of its receipt of a notice
requiring such payment (a "Default Notice"), then the Holder (i) shall be
entitled to interest on the Default Amount at a per annum rate equal to the
lower of twenty-four percent (24%) and the highest interest rate permitted by
applicable law from the date on which the Corporation receives the Default
Notice until the date of payment of the Default Amount hereunder, and (ii) shall
have the right, at any time and from time to time, to require the Corporation,
upon written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article II) all or any portion of the Default Amount, plus
interest as aforesaid, into shares of Common Stock at the lowest Exercise Price
in effect during the period beginning on the date on which the Corporation
receives the Default Notice and ending on the Exercise Date with respect to the
conversion of such Default Amount. In the event the Corporation is not able to
pay all amounts due and payable with respect to all Prepaid Warrants subject to
Default Notices, the Corporation shall pay the Holders of such Prepaid Warrants
which are the subject of Default Notices such amounts pro rata, based on the
total amounts payable to each such Holder relative to the total amounts payable
to all such Holders.
ARTICLE VII
ADJUSTMENTS TO THE EXERCISE PRICE
The Exercise Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
Closing Date, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Exercise Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed Exercise Price shall be proportionately increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.
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B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the Closing Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Corporation
and other than a merger in which the Corporation is the surviving or continuing
entity and its authorized capital stock is unchanged), (iii) any sale or
transfer of all or substantially all of the assets of the Corporation or (iv)
any share exchange pursuant to which all of the outstanding shares of Common
Stock are converted into other securities or property (each of (i) - (iv) above
being a "Corporate Change"), then the Holders shall thereafter have the right to
receive upon exercise hereof, in lieu of the shares of Common Stock otherwise
issuable, such shares of stock, securities and/or other property as would have
been issued or payable in such Corporate Change with respect to or in exchange
for the number of shares of Common Stock which would have been issuable upon
exercise hereof (without giving effect to the limitations contained in Article
II.C.) had such Corporate Change not taken place, and in any such case,
appropriate provisions shall be made with respect to the rights and interests of
Holder to the end that the provisions hereof (including, without limitation,
provisions for adjustment of the Exercise Price and of the number of shares of
Common Stock issuable upon exercise of this Warrant) shall thereafter be
applicable, as nearly as may be practicable in relation to any shares of stock
or securities thereafter deliverable upon the exercise thereof. The Corporation
shall not effect any Corporate Change unless (i) Holder has received written
notice of such transaction at least seventy-five (75) days prior thereto, but in
no event later than twenty (20) days prior to the record date for the
determination of stockholders entitled to vote with respect thereto, and (ii)
the resulting successor or acquiring entity (if not the Corporation) assumes by
written instrument the obligations of the Corporation under this Warrant. The
above provisions shall apply regardless of whether or not there would have been
a sufficient number of shares of Common Stock authorized and available for
issuance upon exercise of the Prepaid Warrants outstanding as of the date of
such transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
C. Adjustment Due to Major Announcement. In the event the Corporation
at any time after the Closing Date (i) makes a public announcement that it
intends to consolidate or merge with any other entity (other than a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Corporation and other than a merger in which the
Corporation is the surviving or continuing entity and its capital stock is
unchanged) or to sell or transfer all or substantially all of the assets of the
Corporation or (ii) any person, group or entity (including the Corporation)
publicly announces a tender offer, exchange offer or another transaction to
purchase 50% or more of the Corporation's Common Stock or otherwise publicly
announces an intention to replace a majority of the Corporation's Board of
Directors by waging a proxy battle or otherwise (the date of the announcement
referred to in clause (i) or (ii) of this Paragraph C is hereinafter referred to
as the "Announcement Date"), then the Exercise Price shall, effective upon the
Announcement Date and continuing through the sixth (6th) trading day following
the earlier of the consummation of the proposed transaction or tender offer,
exchange offer or another transaction or the
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Abandonment Date (as defined below), be equal to the lower of (x) the Exercise
Price which would have been applicable for an exercise occurring on the
Announcement Date and (y) the Exercise Price determined in accordance with
Article I.E. on the Exercise Date set forth in the applicable Notice of
Exercise. From and after the sixth (6th) trading day following the Abandonment
Date, the Exercise Price shall be determined as set forth in Article I.E.
"Abandonment Date" means with respect to any proposed transaction or tender
offer, exchange offer or another transaction for which a public announcement as
contemplated by this Paragraph C has been made, the date upon which the
Corporation (in the case of clause (i) above) or the person, group or entity (in
the case of clause (ii) above) publicly announces the termination or abandonment
of the proposed transaction or tender offer, exchange offer or another
transaction which caused this Paragraph C to become operative.
D. Adjustment Due to Distribution. If, at any time after the Closing
Date, the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"Distribution"), then Holder shall be entitled, upon any exercise of this
Warrant after the date of record for determining stockholders entitled to such
Distribution, to receive the amount of such assets which would have been payable
to Holder with respect to the shares of Common Stock issuable upon such exercise
(without giving effect to the limitations contained in Article II.C.) had Holder
been the holder of such shares of Common Stock on the record date for the
determination of stockholders entitled to such Distribution.
E. Issuance of Other Securities With Variable Conversion Price. If, at
any time after the Closing Date, the Corporation shall issue any securities
which are convertible into or exchangeable for Common Stock ("Convertible
Securities") at a conversion or exchange rate based on a discount to the market
price of the Common Stock at the time of conversion or exercise, then the
Exercise Percentage in respect of any exercise of any portion of this Warrant
after such issuance shall be the greater of (i) the greatest discount applicable
to any such Convertible Securities and (ii) the Exercise Percentage then in
effect.
F. Purchase Rights. If, at any time after the Closing Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which Holder could have acquired if Holder had held the number
of shares of Common Stock acquirable upon complete exercise of this Warrant
(without giving effect to the limitations contained in Article II.C.)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Exercise Price pursuant to this Article VII, the
Corporation, at its expense, shall promptly
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compute such adjustment or readjustment and prepare and furnish to Holder a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of Holder, furnish to Holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the Exercise
Price at the time in effect and (iii) the number of shares of Common Stock and
the amount, if any, of other securities or property which at the time would be
received upon exercise of this Warrant.
ARTICLE VIII
REDEMPTION
A. The Corporation shall have the right, at any time and from time to
time and provided the Corporation is not in material violation of any of its
obligations under this Prepaid Warrant, the Securities Purchase Agreement or the
Registration Rights Agreement and so long as no Event of Default shall have
occurred and be continuing (and the Holder doesn't waive such violation or Event
of Default), to redeem (an "Optional Redemption") all or any portion of the then
outstanding Prepaid Amount, excluding any Prepaid Amount subject to a Notice of
Conversion delivered to the Corporation prior to the date of the Optional
Redemption Notice (as defined below)) for cash, at an amount per share equal to
the Optional Redemption Amount (as defined below), by delivering an Optional
Redemption Notice to the holders of Prepaid Warrants. Except as provided herein,
holders of Prepaid Warrants may not convert all or any part of the Prepaid
Amount selected for redemption hereunder into Common Stock at any time prior to
the Effective Date of Redemption. For purposes hereof, the "Optional Redemption
Amount" means:
(a) With respect to an Optional Redemption for which the Effective
Date of Redemption (as defined below) occurs on or before the three hundred
sixty-fifth (365th) day following the Issuance Date, an amount equal to the sum
of (x) the Prepaid Amount being redeemed, plus (y) the accrued Premium thereon
and all unpaid Default Payments owing (if any) with respect thereto through the
Effective Date of Redemption.
(b) With respect to an Optional Redemption for which the Effective
Date of Redemption occurs after the three hundred sixty-fifth (365th) day
following the Issuance Date:
V x M
-----------
EP
where:
"V" means the Prepaid Amount being redeemed plus the accrued Premium
thereon and all unpaid Default Payments owing (if any) with respect thereto
through the Effective Date of Redemption;
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"EP" means the Exercise Price in effect on the date of the Optional
Redemption Notice; and
"M" means the Closing Bid Price of the Corporation's Common Stock on
the date of the Optional Redemption Notice.
The Corporation may not deliver an Optional Redemption Notice to the
holders of Prepaid Warrants unless on or prior to the date of delivery of such
Optional Redemption Notice, the Corporation shall have deposited with an escrow
agent reasonably acceptable to holders of a majority of the then Prepaid
Warrants, as a trust fund, cash sufficient in amount to pay all amounts to which
the holders of Prepaid Warrants are entitled upon such redemption pursuant to
this Paragraph A, with irrevocable instructions and authority to such escrow
agent to complete the redemption thereof in accordance with this Paragraph A.
Any Optional Redemption Notice delivered in accordance with the immediately
preceding sentence shall be accompanied by a statement executed by a duly
authorized officer of its escrow agent, certifying the amount of funds which
have been deposited with such escrow agent and that the escrow agent has been
instructed and agrees to act as redemption agent hereunder.
The Corporation shall effect an Optional Redemption under this Section
VIII.A by giving prior written notice (the "Optional Redemption Notice") of the
date on which such redemption is to become effective (the "Effective Date of
Redemption"), the Prepaid Amount subject to such Optional Redemption and the
Optional Redemption Amount to (i) the holders of Prepaid Warrants at the address
and facsimile number of each holder appearing in the Corporation's register and
(ii) the transfer agent for the Common Stock, which Optional Redemption Notice
shall be deemed to have been delivered on the business day after the
Corporation's fax (with a copy sent by overnight courier to the holders of
Prepaid Warrants) of such notice to the holders of Prepaid Warrants. To be
effective, an Optional Redemption Notice must be so delivered not less than
three (3) business days prior to the Effective Date of Redemption specified in
such notice.
B. (a) The Optional Redemption Amount shall be paid to the holders of
Prepaid Warrants being redeemed within three (3) business days of the Effective
Date of Redemption; provided, however, that the Corporation shall not be
obligated to deliver any portion of the Optional Redemption Amount until either
the certificates evidencing the Prepaid Warrants being redeemed are delivered to
the office of the Corporation or the escrow agent or the holder notifies the
Corporation or the escrow agent that such certificates have been lost, stolen or
destroyed and delivers the documentation in accordance with Article IX.G hereof.
Notwithstanding anything herein to the contrary, in the event that the
certificates evidencing the Prepaid Warrants being redeemed are not delivered to
the Corporation or the escrow agent prior to the third business day following
the Effective Date of Redemption, the redemption of the Prepaid Warrants
pursuant to this Article VIII shall still be deemed effective as of the
Effective Date of Redemption and the Optional Redemption Amount shall be paid to
the holder of Prepaid Warrants being redeemed within five (5) business days of
the date the certificates evidencing the Prepaid Warrants being redeemed are
actually delivered to the Corporation or the escrow agent.
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(b) In the event that any Optional Redemption Notice delivered by
the Corporation pursuant to this Article VIII relates to less than all of the
Prepaid Warrants then outstanding, the Corporation shall redeem Prepaid Warrants
from each holder pro rata, based on the total Prepaid Amount outstanding on the
Effective Date of Redemption held by each holder of Prepaid Warrants relative to
the total number of shares of Prepaid Warrants outstanding on the Effective Date
of Redemption held by all holders of Prepaid Warrants.
(c) If the Corporation fails to pay, when due and owing, any
Optional Redemption Amount, then the holder of Prepaid Warrants entitled to
receive such Optional Redemption Amount shall have the right, at any time and
from time to time during the twenty (20) trading day period following the
Effective Date of Redemption (the "Optional Redemption Amount Period"), to
require the Corporation, upon written notice, to immediately exercise (in
accordance with the terms of paragraph A of Article IV) any or all of the
Prepaid Amount which is the subject of such redemption, into shares of Common
Stock at the lowest Exercise Price in effect during the period beginning on the
date the Corporation elected to redeem such Prepaid Warrants and ending on
expiration of the Optional Redemption Amount Exercise Period. From and after the
expiration of the Optional Redemption Amount Exercise Period, the holders may
convert Prepaid Warrants at the Exercise Price then in effect and in accordance
with Article IV.
ARTICLE IX
MISCELLANEOUS
A. Failure or Indulgency Not Waiver. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
B. Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier and shall be
deemed to have been given upon receipt (which shall include telephone line
facsimile transmission). The addresses for such communications shall be:
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If to the Company:
The Netplex Group, Inc.
8260 Greensboro Drive
McLean, VA 22102
Telecopy: (703) 356-5105
Attn: Gene Zaino, President and CEO
with a copy simultaneously transmitted by like means to:
Vedder, Price, Kaufman & Kammholz
805 Third Avenue
New York, NY 10622-2203
Telecopy: (212) 407-7799
Attn: Edward J. Walsh, Jr.
If to the Holder, at such address as such Holder shall have provided in
writing to the Corporation.
C. Amendment Provision. Except as otherwise provided herein, this
Warrant and any provision hereof may only be amended by an instrument in writing
signed by the Corporation and the Majority Holders. The term "Warrant" and all
references thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
D. Assignability. This Warrant shall be binding upon the Corporation
and its successors and assigns and shall inure to the benefit of the Holder and
its successors and assigns.
E. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed in the State of New York. The Corporation irrevocably
consents to the jurisdiction of the United States federal courts and state
courts located in the City of New York in the State of New York in any suit or
proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Corporation irrevocably waives the defense of an inconvenient forum
to the maintenance of such suit or proceeding. The Corporation further agrees
that service of process upon the Corporation mailed by first class mail shall be
deemed in every respect effective service of process upon the Corporation in any
such suit or proceeding. Nothing herein shall affect Holder's right to serve
process in any other manner permitted by law. The Corporation agrees that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
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F. Denominations. At the request of Holder, upon surrender of this
Warrant, the Corporation shall promptly issue new Warrants in the aggregate
outstanding Prepaid Amount hereof, in the form hereof, in such denominations as
Holder shall request.
G. Lost or Stolen Warrants. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of this Warrant and (ii)
(y) in the case of loss, theft or destruction, of indemnity and affidavit
reasonably satisfactory to the Corporation, or (z) in the case of mutilation,
upon surrender and cancellation of this Warrant, the Corporation shall execute
and deliver new Warrants, in the form hereof, in such denominations as Holder
may request. However, the Corporation shall not be obligated to reissue such
lost or stolen Warrants if Holder contemporaneously requests the Corporation to
exercise this Warrant.
H. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the Holders of Prepaid
Warrants based on the aggregate Prepaid Amount of the Prepaid Warrants issued to
each Holder. Each increase to the Cap Amount and the Reserved Amount shall be
allocated pro rata among the Holders of Prepaid Warrants based on the aggregate
Prepaid Amount of the Prepaid Warrants held by each Holder at the time of the
increase in the Cap Amount or Reserved Amount. In the event a Holder shall sell
or otherwise transfer any of such Holder's Prepaid Warrants, each transferee
shall be allocated a pro rata portion of such transferor's Cap Amount and
Reserved Amount. Any portion of the Cap Amount or Reserved Amount which remains
allocated to any person or entity which does not hold any Prepaid Warrants shall
be allocated to the remaining Holders of Prepaid Warrants pro rata based on the
aggregate Prepaid Amount of the Prepaid Warrants then held by such Holders.
I. Quarterly Statements of Available Shares. The Corporation shall
deliver (or cause its transfer agent to deliver) to Holder a written report
notifying Holder of any occurrence which prohibits the Corporation from issuing
Common Stock upon any exercise of Prepaid Warrants. The Corporation (or its
transfer agent) shall also provide, within fifteen (15) days after delivery to
the Corporation of a written request by any Holder, any of the following
information as of the date of such request: (i) the total outstanding Prepaid
Amount of all Prepaid Warrants, (ii) the total number of shares of Common Stock
issued upon all exercises of all Prepaid Warrants prior to such date, (iii) the
total number of shares of Common Stock which are reserved for issuance upon
exercise of the Prepaid Warrants which are then outstanding, and (iv) the total
number of shares of Common Stock which may thereafter be issued by the
Corporation upon exercise of the Prepaid Warrants before the Corporation would
exceed the Reserved Amount and the Cap Amount.
J. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to Holder under this Warrant (as an Exercise Default
Payment or otherwise), such cash payment shall be made to Holder within five (5)
business days after delivery by Holder of a notice specifying that Holder elects
to receive such payment in cash and the method (e.g., by check, wire transfer)
in which such payment should be made. If such payment is not delivered within
such five (5) business day period, Holder shall thereafter be entitled to
interest on the unpaid amount at a per
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annum rate equal to the lower of twenty-four percent (24%) and the highest
interest rate permitted by applicable law until such amount is paid in full to
Holder.
K. Restrictions on Shares. The shares of Common Stock issuable upon
exercise of this Warrant may not be sold or transferred unless (i) they first
shall have been registered under the Securities Act and applicable state
securities laws, (ii) the Corporation shall have been furnished with an opinion
of legal counsel (in form, substance and scope customary for opinions in such
circumstances) to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act or (iii) they are sold under
Rule 144 under the Act. Except as otherwise provided in the Securities Purchase
Agreement, each certificate for shares of Common Stock issuable upon exercise of
this Warrant that have not been so registered and that have not been sold under
an exemption that permits removal of the legend, shall bear a legend
substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon exercise of this Warrant, the Corporation shall remove the
foregoing legend from the certificate and issue to such holder a new certificate
therefor free of any transfer legend, if (i) with such request, the Corporation
shall have received either (A) an opinion of counsel, in form, substance and
scope customary for opinions in such circumstances, to the effect that any such
legend may be removed from such certificate, or (B) satisfactory representations
from Holder that Holder is eligible to sell such security under Rule 144 or (ii)
a registration statement under the Securities Act covering the resale of such
securities is in effect. Nothing in this Warrant shall (i) limit the
Corporation's obligation under the Registration Rights Agreement, or (ii) affect
in any way Holder's obligations to comply with applicable securities laws upon
the resale of the securities referred to herein.
L. Status as Warrantholder. Upon submission of a Notice of Exercise by
Holder, the Prepaid Amount of this Warrant (other than any portion of this
Warrant, if any, which cannot be exercised because the exercise thereof would
exceed Holder's allocated portion of the Reserved Amount or Cap Amount) shall be
deemed exercised for shares of Common Stock as of the Exercise Date and Holder's
rights as a holder of this Warrant shall cease and terminate, excepting only the
right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to Holder
because of a failure by the Corporation to comply with the terms of this
Warrant.
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<PAGE>
Notwithstanding the foregoing, if Holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to an exercise for any reason,
then (unless Holder otherwise elects to retain its status as a holder of Common
Stock by so notifying the Corporation) the portion of the Prepaid Amount subject
to such exercise shall be deemed outstanding under this Warrant and the
Corporation shall, as soon as practicable, return this Warrant to Holder. In all
cases, Holder shall retain all of its rights and remedies (including, without
limitation, (i) the right to receive Exercise Default Payments pursuant to
Article IV.A to the extent required thereby for such Exercise Default and any
subsequent Exercise Default and (ii) the right to have the Exercise Price with
respect to subsequent exercises determined in accordance with Article IV.B) for
the Corporation's failure to honor the exercise of this Warrant.
M. Remedies Cumulative. The remedies provided in this Warrant shall be
cumulative and in addition to all other remedies available under this Warrant,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance giving rise to such remedy and nothing herein shall limit Holder's
right to pursue actual damages for any failure by the Corporation to comply with
the terms of this Warrant. The Corporation acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, the Holder shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
signed by its duly authorized officer.
THE NETPLEX GROUP, INC.
By:_____________________________________
Name:
Title:
<PAGE>
Exhibit 1
NOTICE OF EXERCISE
To: The Netplex Group, Inc.
8260 Greensboro Drive
McLean, VA 22102
Telecopy: (703) 356-5105
Attn: Gene Zaino, President and CEO
The undersigned hereby irrevocably elects to exercise $____________ of the
Prepaid Amount of this Warrant (the "Exercise") into shares of common stock
("Common Stock") of The Netplex Group, Inc. (the "Corporation") according to the
conditions of the Prepaid Common Stock Purchase Warrant dated September __, 1998
(the "Warrant"), as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
holder for any Exercise, except for transfer taxes, if any. A copy of the
Warrant is attached hereto (or evidence of loss, theft or destruction thereof).
If the Corporation's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, the Corporation
shall electronically transmit the Common Stock issuable pursuant to this Notice
of Exercise to the account of the undersigned or its nominee (which is
________________) with DTC through its Deposit Withdrawal Agent Commission
System ("DTC Transfer"). If the Corporation's transfer agent does not
participate in the DTC program as aforementioned, or if Holder checks the box
set forth below, the Corporation shall deliver to Holder physical certificates
representing the Common Stock issuable upon exercise of the Warrant.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon exercise of this
Warrant shall be made pursuant to registration of the Common Stock under the
Securities Act or pursuant to an exemption from registration under the Act.
In the event of partial exercise, please reissue an appropriate Warrant(s) for
the portion of the Prepaid Amount which shall not have been exercised.
Check Box if Applicable:
/ / In lieu of receiving the shares of Common Stock issuable pursuant to
this Notice of Exercise by way of DTC Transfer, the undersigned hereby
requests that the Corporation issue and deliver to the undersigned
physical certificates representing such shares of Common Stock.
Date of Exercise:
Applicable Exercise Price:
Portion of Prepaid Amount to be exercised:
Amount of Exercise Default
Payments to be exercised, if any:
Number of Shares of
Common Stock to be Issued:
Signature:_______________________________________
Name:____________________________________________
Address:_________________________________________
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
September 28, 1998, by and among THE NETPLEX GROUP, INC., a corporation
organized under the laws of the State of New York (the "Company"), and the
undersigned (together with affiliates, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement of
even date herewith by and between the Company and the Initial Investors (the
"Securities Purchase Agreement"), the Company has agreed, upon the terms and
subject to the conditions contained therein, to issue and sell to the Initial
Investors (i) prepaid common stock purchase warrants (the "Prepaid Warrants")
which entitle the holder thereof to acquire shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), upon the terms and
subject to the limitations and conditions set forth in the Prepaid Warrants and
(ii) additional warrants (the "Incentive Warrants") to acquire shares of Common
Stock;
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws; and
C. The Company has agreed to issue to The Zanett Securities
Corporation (the "Placement Agent") warrants (the "Placement Agent Warrants"
and, collectively with the Prepaid Warrants and the Incentive Warrants, the
"Warrants") to purchase shares of Common Stock pursuant to that certain
Placement Agency Agreement, dated as of even date herewith, by and between the
Company and the Placement Agent and has agreed to provide the Placement Agent
the rights set forth herein. For purposes of this Agreement, the Placement Agent
shall be deemed an "Initial Investor" and the shares of Common Stock issuable
upon the exercise of, or otherwise pursuant to, the Placement Agent Warrants
shall be deemed "Warrant Shares."
<PAGE>
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall
have the following meanings:
(i) "Investors" means the Initial Investors and any
transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer
to a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the Warrant Shares
(including any Warrant Shares issuable with respect to Exercise Default Payments
under the Warrants and any Warrant Shares issuable with respect to the Default
Amount under the Prepaid Warrants) issued or issuable upon exercise of, or
otherwise with respect to, the Warrants and any shares of capital stock issued
or issuable, from time to time (with any adjustments), as a distribution on or
in exchange for or otherwise with respect to any of the foregoing.
(iv) "Registration Statement" means a registration
statement of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement and the Warrants.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and,
on or before the forty-fifth (45th) day following the date of the Closing under
the Securities Purchase Agreement (the "Filing Date"), file with the SEC a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of all of the Registrable Securities required to be included in
such Registration Statement, subject to the consent of the Initial Investors (as
determined pursuant to Section 11(j) hereof)) covering the resale of at least
3,000,000 Registrable Securities (200% of the maximum number of shares of Common
Stock issuable upon the full exercise of or otherwise with respect to the
Prepaid Warrants
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<PAGE>
issued at the Closing (based upon the lowest Exercise Percentage thereunder),
plus 100% of the maximum number of shares of Common Stock issuable upon the full
exercise of the Incentive Warrants and Placement Agent Warrants issued at the
Closing). The Registration Statement filed hereunder, to the extent allowable
under the Securities Act and the Rules promulgated thereunder (including Rule
416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon exercise of the Warrants (i) to prevent dilution resulting from stock
splits, stock dividends or similar transactions or (ii) by reason of reductions
in the Exercise Price of the Warrants in accordance with the terms thereof
(including, but not limited to, in the case of the Prepaid Warrants, the terms
which cause the applicable Exercise Percentages to decrease and the terms which
cause the Variable Exercise Price to decrease to the extent the Closing Bid
Price of the Common Stock decreases). The Registrable Securities included in any
Registration Statement filed hereunder shall be allocated to the Investors as
set forth in Section 11(k) hereof. The Registration Statement filed hereunder
(and each amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to (and subject to the approval of) the
Initial Investors and their counsel prior to its filing or other submission.
b. Underwritten Offering. If any offering pursuant to the
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of the
Initial Investors, shall have the right to select one legal counsel to represent
the Investors (at the Investors' expense) and an investment banker or bankers
and manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the Company.
In the event that any Investors elect not to participate in such underwritten
offering, the Registration Statement covering all of the Registrable Securities
shall contain appropriate plans of distribution reasonably satisfactory to the
Investors participating in such underwritten offering and the Investors electing
not to participate in such underwritten offering (including, without limitation,
the ability of nonparticipating Investors to sell from time to time and at any
time during the effectiveness of such Registration Statement).
c. Payments by the Company. The Company shall cause each
Registration Statement required to be filed pursuant to Section 2(a) hereof to
become effective as soon as practicable, but in no event later than the one
hundred twentieth (120th) day following the date it was required to be filed
hereunder (each a "Registration Deadline"). If (i) (A) the Registration
Statement required to be filed by the Company pursuant to Section 2(a) hereof is
not declared effective by the SEC on or before the Registration Deadline
applicable to such Registration Statement or (B) the Registration Statement
required to be filed by the Company pursuant to Section 3(b) hereof is not
declared effective by the SEC within sixty (60) days after the applicable
Registration Trigger Date (as defined in Section 3(b) hereof), or (ii) if, after
any such Registration Statement has been declared effective by the SEC, sales of
all of the Registrable Securities required to be covered by such Registration
Statement (including any Registrable Securities required to be registered
pursuant to Section 3(b) hereof) cannot be made pursuant to such Registration
Statement (by reason of a stop order or the Company's failure to update the
Registration Statement or any other
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<PAGE>
reason outside the control of the Investors) or (iii) the Common Stock
(including any Registrable Securities) is not listed or included for quotation
on the Nasdaq National Market ("NNM"), the Nasdaq SmallCap Market ("SmallCap"),
the New York Stock Exchange (the "NYSE") or the American Stock Exchange (the
"AMEX") at any time after the initial Registration Deadline hereunder, then the
Company will make payments to the Investors in such amounts and at such times as
shall be determined pursuant to this Section 2(c) as partial relief for the
damages to the Investors by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity). The Company shall pay to
each Investor an amount equal to the product of (i) the aggregate Purchase Price
of the Warrants held by such Investor (including, without limitation, Warrants
that have been exercised for Warrant Shares then held by such Investor) (the
"Aggregate Share Price"), multiplied by (ii) thirty-five thousandths (.035), for
the first thirty (30) day period (or portion thereof) (A) after a Registration
Deadline and prior to the date the applicable Registration Statement filed
pursuant to Section 2(a) is declared effective by the SEC, (B) after the
sixtieth (60th) day following a Registration Trigger Date (as defined in Section
3(b)) and prior to the date the Registration Statement filed pursuant to Section
3(b) hereof is declared effective by the SEC, and (C) during which sales of any
Registrable Securities cannot be made pursuant to any such Registration
Statement after the Registration Statement has been declared effective or the
Common Stock (including any Registrable Securities) is not listed or included
for quotation on the NNM, SmallCap, NYSE or AMEX. In addition, the Company shall
pay to each Investor an amount equal to the product of (i) the Aggregate Share
Price, multiplied by (ii) fifty-five thousandths (.055), for each additional
thirty (30) day period (or portion thereof) following the initial thirty (30)
day period referred to in the preceding sentence (A) after a Registration
Deadline and prior to the date the applicable Registration Statement filed
pursuant to Section 2(a) is declared effective by the SEC, (B) after the
sixtieth (60th) day following a Registration Trigger Date and prior to the date
the Registration Statement filed pursuant to Section 3(b) hereof is declared
effective by the SEC, and (C) during which sales of any Registrable Securities
cannot be made pursuant to any such Registration Statement after the
Registration Statement has been declared effective or the Common Stock
(including any Registrable Securities) is not listed or included for quotation
on the NNM, SmallCap, NYSE or AMEX; provided, however, that there shall be
excluded from each such period any delays which are solely attributable to
changes (other than corrections of Company mistakes with respect to information
previously provided by the Investors) required by the Investors in the
Registration Statement with respect to information relating to the Investors,
including, without limitation, changes to the plan of distribution. (For
example, if a Registration Statement is not effective by the Registration
Deadline applicable thereto, the Company would pay $35,000 for the first thirty
(30) days and $55,000 for each thirty (30) day period thereafter with respect to
each $1,000,000 of Aggregate Share Price until the Registration Statement
becomes effective.) Such amounts shall be paid in cash or, at each Investor's
option, may be convertible into Common Stock at the "Exercise Price" then in
effect with respect to the Prepaid Warrants. Any shares of Common Stock issued
upon conversion of such amounts shall be Registrable Securities. If the Investor
desires to convert the amounts due hereunder into Registrable Securities it
shall so notify the Company in writing within two (2) business days after the
date on which such amounts are first payable in cash and such amounts shall be
so convertible beginning on the last day upon which the cash amount would
otherwise be due in accordance with the following sentence. Payments of cash
pursuant hereto shall be made within five (5) days after the end of each period
that gives rise to such obligation, provided that, if any such period extends
for more than thirty (30) days, interim payments shall be made for each such
thirty (30) day period.
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d. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company shall
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within five (5) business days
after the date of such notice, such Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering, the managing underwriter(s)
thereof shall impose a limitation on the number of shares of Common Stock which
may be included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion hereunder
as the underwriter shall permit. Any exclusion of Registrable Securities shall
be made pro rata among the Investors seeking to include Registrable Securities,
in proportion to the number of Registrable Securities sought to be included by
such Investors; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled to inclusion of such
securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided, further, however, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the Registration Statement other
than holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
e. Eligibility for Form S-3. The Company represents and
warrants that it meets the requirements for the use of Form S-3 for registration
of the sale by the Initial Investors and any other Investor of the Registrable
Securities and the Company shall file all reports required to be filed
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<PAGE>
by the Company with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3.
f. Rule 416. The Company and the Investors each acknowledge
that an indeterminate number of Registrable Securities shall be registered
pursuant to Rule 416 under the Securities Act so as to include in such
Registration Statement any and all Registrable Securities which may become
issuable (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions and (ii) by reason of reductions in the Exercise Price of
the Warrants in accordance with the terms thereof, including, but not limited
to, in the case of the Prepaid Warrants, the terms which cause the applicable
Exercise Percentages to decrease and the terms which cause the Variable Exercise
Price to decrease to the extent the Closing Bid Price of the Common Stock
decreases (collectively, the "Rule 416 Securities"). In this regard, the Company
agrees to take all steps necessary to ensure that all Registrable Securities are
registered pursuant to Rule 416 under the Securities Act in the Registration
Statement and, absent guidance from the SEC or other definitive authority to the
contrary, the Company shall affirmatively support and not take any action
adverse to the position that the Registration Statements filed hereunder cover
all of the Rule 416 Securities. If the Company determines that the Registration
Statements filed hereunder do not cover all of the Rule 416 Securities, the
Company shall immediately provide to each Investor written notice (a "Rule 416
Notice") setting forth the basis for the Company's position and the authority
therefor. The Company acknowledges that the number of shares of Common Stock
initially included in any Registration Statement relating to the Registrable
Securities represents a good faith estimate of the maximum number of shares
issuable upon exercise of the Warrants.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable
Securities, the Company shall have the following obligations:
a. The Company shall prepare and file with the SEC the
Registration Statements required by Section 2(a) (but in no event later than the
applicable Filing Date with respect thereto), and cause such Registration
Statements relating to Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the Registration
Deadline applicable thereto), and keep such Registration Statements effective
pursuant to Rule 415 at all times until such date as is the earlier of (i) the
date on which all of the Registrable Securities have been sold and (ii) the date
on which all of the Registrable Securities (in the reasonable opinion of counsel
to the Initial Investors) may be immediately sold to the public without
registration or restriction pursuant to Rule 144(k) under the Securities Act or
any successor provision (the "Registration Period"), which Registration
Statements (including any amendments or supplements thereto and prospectuses
contained therein and all documents incorporated by reference therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein not
misleading.
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b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration Statements
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the Registration
Statements until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statements. In the event (i)
the Company delivers a Rule 416 Notice to the Investors or the Investors who
hold a majority in interest of the Registrable Securities shall reasonably
determine, or the SEC shall state formally or informally, that Rule 416 under
the Securities Act does not permit a registration statement to cover securities
which may become issuable upon conversion or exercise of convertible or
exercisable securities by reason of reductions in the conversion or exercise
price of such securities and (ii) the number of shares available under all
Registration Statements filed pursuant to this Agreement is, for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"Registration Trigger Date"), insufficient to cover one hundred thirty-five
percent (135%) of the Registrable Securities issued or issuable upon exercise of
the Warrants (without giving effect to any limitations on exercise contained in
the Warrants), the Company shall amend the Registration Statements, or file a
new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover two hundred percent (200%) of the
Registrable Securities issued or issuable (without giving effect to any
limitations on exercise contained in the Warrants) as of the Registration
Trigger Date, in each case, as soon as practicable, but in any event within
fifteen (15) days after the Registration Trigger Date (based on the market price
then in effect of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall cause such amendment(s)
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof, but in any event within sixty (60) days after the
applicable Registration Trigger Date.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of each such Registration
Statement and any amendment thereto, each preliminary prospectus and prospectus
and each amendment or supplement thereto, and, in the case of any Registration
Statement referred to in Section 2(a), each letter written by or on behalf of
the Company to the SEC or the staff of the SEC (including, without limitation,
any request to accelerate the effectiveness of any Registration Statement or
amendment thereto), and each item of correspondence from the SEC or the staff of
the SEC, in each case relating to any such Registration Statement (other than
any portion, if any, thereof which contains information for which the Company
has sought confidential treatment), (ii) on the date of effectiveness of any
Registration Statement or any amendment thereto, a notice stating that such
Registration Statement or amendment has been declared effective, and (iii) such
number of copies of a prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as such Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
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d. The Company shall use its best efforts to (i) register
and qualify the Registrable Securities covered by each Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as each Investor who holds Registrable Securities being offered
reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in
interest of the Registrable Securities being offered in an offering select
underwriters for the offering, the Company shall enter into and perform its
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
a Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable moment (including in each
case by amending or supplementing such Registration Statement) and to notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance of such
order and the resolution thereof (and if such Registration Statement is
supplemented or amended, deliver such number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request).
h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review each Registration Statement (at
the Initial Investors' expense) and all
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amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC, and not file any document in a form to which such counsel
reasonably objects and will not request acceleration of the effectiveness of any
Registration Statement without prior notice to such counsel.
i. The Company shall make generally available to its
security holders as soon as practical, but not later than ninety (90) days after
the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of a Registration Statement.
j. At the request of any Investor, the Company shall
furnish, on the date of effectiveness of any Registration Statement which
involves an underwritten offering (i) an opinion, dated as of such date, from
counsel representing the Company addressed to the Investors and in form, scope
and substance as is customarily given in an underwritten public offering and
(ii) a letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and the Investors.
k. The Company shall make available for inspection by (i)
any Investor, (ii) any underwriter participating in any disposition pursuant to
a Registration Statement, (iii) one firm of attorneys and one firm of
accountants or other agents retained by the Investors, and (iv) one firm of
attorneys retained by all such underwriters (collectively, the "Inspectors") all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be reasonably
deemed necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein shall be deemed to
limit the Investors' ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
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l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws (as determined in good faith by the Company upon advice of
outside legal counsel), (ii) the disclosure of such information is necessary to
avoid or correct a misstatement or omission in any Registration Statement, (iii)
the release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use its best efforts to promptly
either (i) cause all of the Registrable Securities covered by any Registration
Statement to be listed on the NYSE or the AMEX or another national securities
exchange and on each additional national securities exchange on which securities
of the same class or series issued by the Company are then listed, if any, if
the listing of such Registrable Securities is then permitted under the rules of
such exchange, or (ii) secure the designation and quotation of all of the
Registrable Securities covered by any Registration Statement on the NNM or
SmallCap and, without limiting the generality of the foregoing, to arrange for
or maintain at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities.
n. The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable Securities not
later than the effective date of any Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to any Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as Exhibit 1.
p. At the request of any Investor, the Company shall
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration
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Statement and the prospectus used in connection with such Registration Statement
as may be necessary in order to change the plan of distribution set forth in
such Registration Statement.
q. The Company shall comply with all applicable laws
related to a Registration Statement and offering and sale of securities and all
applicable rules and regulations of governmental authorities in connection
therewith (including, without limitation, the Securities Act and the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated by
the SEC.)
r. The Company shall take all such other actions as any
Investor or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of the Registrable Securities.
s. From and after the date of this Agreement, the Company
shall not, and shall not agree to, allow the holders of any securities of the
Company to include any of their securities in any Registration Statement under
Section 2(a) hereof or any amendment or supplement thereto under Section 3(b)
hereof without the consent of the holders of a majority in interest of the
Registrable Securities.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable
Securities, the Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of each
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. In the event Investors holding a majority in interest of
the Registrable Securities being offered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and
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customary form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Securities, unless such Investor
has notified the Company in writing of such Investor's election not to
participate in such underwritten distribution.
d. Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Sections
3(f) or 3(g), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Sections 3(f) or 3(g) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
e. No Investor may participate in any underwritten
distribution hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company and the fees and disbursements
contemplated by Section 3(k) hereof shall be borne by the Company. In addition,
the Company shall pay all of the Investors' costs and expenses (including legal
fees) incurred in connection with the enforcement of the rights of the Investors
hereunder.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds such Registrable
Securities, and (ii) the directors, officers, partners, members, employees,
agents and each person who controls any Investor within the meaning of Section
15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), if any, (each, an "Indemnified Person"),
against any joint or several losses,
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claims, damages, liabilities or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened, in respect thereof, "Claims") to which any of
them may become subject insofar as such Claims arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state therein a
material fact required to be stated or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other applicable securities law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Investors and each other Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (ii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue statement
or omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or supplemented,
if such corrected prospectus was timely made available by the Company pursuant
to Section 3(c) hereof, and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use giving rise to a
Violation and such Indemnified Person, notwithstanding such advice, used it.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9 hereof.
b. In connection with any Registration Statement in which
an Investor is participating, each such Investor agrees severally and not
jointly to indemnify, hold harmless and defend, to the same extent and in the
same manner set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (collectively and together
with an
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Indemnified Person, an "Indemnified Party"), against any Claim to which any of
them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds actually
received by such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9 hereof. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented, and the Indemnified Party
failed to utilize such corrected prospectus.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that such indemnifying party shall not be
entitled to assume such defense and an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential conflicts of interest between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding or the actual or potential defendants in, or targets
of, any such action include both the Indemnified Person or the Indemnified Party
and the indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall be selected by
Investors holding a majority-in-
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interest of the Registrable Securities included in the Registration Statement to
which the Claim relates (with the approval of the Initial Investors if they hold
Registrable Securities included in such Registration Statement), if the
Investors are entitled to indemnification hereunder, or by the Company, if the
Company is entitled to indemnification hereunder, as applicable. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
a. file with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under the
Securities Act and the Exchange Act so long as the Company remains subject to
such requirements (it being understood that nothing herein shall limit the
Company's obligations under Section 4(c) of the Securities Purchase Agreement)
and the filing and availability of such reports and other documents is required
for the applicable provisions of Rule 144; and
b. furnish to each Investor so long as such Investor owns
shares of Preferred Stock, Warrants or Registrable Securities, promptly upon
request, (i) a written statement by the Company that it has complied with the
reporting requirements of Rule 144, the Securities Act and the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be
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reasonably requested to permit the Investors to sell such securities under Rule
144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to
have the Company register Registrable Securities pursuant to this Agreement,
shall be automatically assignable by each Investor to any transferee of all or
any portion of the Warrants or the Registrable Securities if: (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company after such assignment, (ii)
the Company is furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, (iv) the transferee or assignee agrees in writing for the
benefit of the Company to be bound by all of the provisions contained herein,
and (v) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
Investors who hold a majority in interest of the Registrable Securities;
provided, however, that no amendment hereto which restricts the ability of an
Investor to elect not to participate in an underwritten offering shall be
effective against any Investor which does not consent in writing to such
amendment; provided, further, however, that no consideration shall be paid to an
Investor by the Company in connection with an amendment hereto unless each
Investor similarly affected by such amendment receives a pro-rata amount of
consideration from the Company. Unless an Investor otherwise agrees, each
amendment hereto must similarly affect each Investor. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
b. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five (5) days after being
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placed in the mail, if mailed, or upon receipt or refusal of receipt, if
delivered personally or by courier or confirmed telecopy, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
The Netplex Group, Inc.
8260 Greensboro Drive
McLean, VA 22102
Telecopy: (703) 356-5105
Attn: Gene Zaino, President and CEO
with a copy simultaneously transmitted by like means to:
Vedder, Price, Kaufman & Kammholz
805 Third Avenue
New York, NY 10622-2203
Telecopy: (212) 407-7799
Attn: Edward J. Walsh, Jr.
and if to any Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed in the State of New York. The Company irrevocably consents
to the jurisdiction of the United States federal courts and the state courts
located in the City of New York in the State of New York in any suit or
proceeding based on or arising under this Agreement and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company further agrees that
service of process upon the Company, mailed by first class mail shall be deemed
in every respect effective service of process upon the Company in any such suit
or proceeding. Nothing herein shall affect the Investors' right to serve process
in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
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<PAGE>
e. This Agreement, the Securities Purchase Agreement
(including all schedules and exhibits thereto) and the Warrants constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. This Agreement, the Securities Purchase Agreement and the
Warrants supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents, approvals and other determinations to be
made by the Investors or the Initial Investors pursuant to this Agreement shall
be made by the Investors or the Initial Investors holding a majority in interest
of the Registrable Securities (determined as if all Warrants then outstanding
had been exercised for Registrable Securities) held by all Investors or Initial
Investors, as the case may be.
k. The initial number of Registrable Securities included on
any Registration Statement and each increase (if any) to the number of
Registrable Securities included thereon shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each Investor at
the time of such establishment or increase, as the case may be. In the event an
Investor shall sell or otherwise transfer any of such holder's Registrable
Securities, each transferee shall be allocated a pro rata portion of the number
of Registrable Securities included on a Registration Statement for such
transferor. Any shares of Common Stock included on a Registration Statement and
which remain allocated to any person or entity which does not hold any
Registrable Securities shall be allocated to the remaining Investors, pro rata
based on the number of shares of Registrable Securities then held by such
Investors. For the avoidance of doubt, the number of Registrable Securities held
by any Investor shall be determined as if all Warrants then outstanding were
exercised for Registrable Securities.
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<PAGE>
l. Each party to this Agreement has participated in the
negotiation and drafting of this Agreement. As such, the language used herein
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party to this Agreement.
m. For purposes of this Agreement, the term "business day"
means any day other than a Saturday or Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law,
regulation or executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first above written.
THE NETPLEX GROUP, INC.
By:_________________________
Name:_______________________
Its:________________________
INITIAL INVESTORS:
GOLDMAN SACHS PERFORMANCE PARTNERS, L.P.
By: Commodities Corporation LLC, its general partner
By:_________________________
Name:_______________________
Its:________________________
GOLDMAN SACHS PERFORMANCE PARTNERS
(OFFSHORE), L.P.
By: Commodities Corporation LLC, its general partner
By:_________________________
Name:_______________________
Its:________________________
THE ZANETT SECURITIES CORPORATION
By:_________________________
Name:_______________________
Its:________________________
<PAGE>
EXHIBIT 1
to
Registration
Rights
Agreement
[Date]
[Name and address
of transfer agent]
RE: THE NETPLEX GROUP, INC.
Ladies and Gentlemen:
We are counsel to THE NETPLEX GROUP, INC., a corporation
organized under the laws of the State of New York (the "Company"), and we
understand that [Name of Investor] (the "Holder") has purchased from the Company
(i) prepaid common stock purchase warrants (the "Prepaid Warrants") which
entitle the holder thereof to acquire shares of the Company's common stock, par
value $.001 per share (the "Common Stock"), and (ii) additional warrants (the
"Incentive Warrants") to acquire shares of Common Stock. Pursuant to a
Registration Rights Agreement, dated as of September __, 1998, by and among the
Company and the signatories thereto (the "Registration Rights Agreement"), the
Company agreed with the Holder, among other things, to register the Registrable
Securities (as that term is defined in the Registration Rights Agreement) under
the Securities Act of 1933, as amended (the "Securities Act"), upon the terms
provided in the Registration Rights Agreement. In connection with the Company's
obligations under the Registration Rights Agreement, on ___________, 1998, the
Company filed a Registration Statement on Form S-___ (File No. 333-
_____________) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the Registrable Securities, which names the
Holder as a selling stockholder thereunder. The Registration Statement was
declared effective by the SEC on _____________, 1998.
[Other customary introductory and scope of examination
language to be inserted]
Based on the foregoing, we are of the opinion that the
Registrable Securities have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
cc: [Name of Investor]
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of September
25, 1998, by and among THE NETPLEX GROUP, INC., a corporation organized under
the laws of the State of New York (the "Company"), and each of the purchasers
(the "Purchasers") set forth on the execution pages hereof (the "Execution
Pages").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act").
B. The Company desires to sell, and the Purchasers collectively desire
to purchase, upon the terms and conditions stated in this Agreement, 1,700 units
(the "Units"), each Unit consisting of (i) a Prepaid Common Stock Purchase
Warrant, in the form attached hereto as Exhibit A (the "Prepaid Warrants"),
which entitles the holder thereof to acquire such number of shares of the
Company's common stock, par value $.001 per share (the "Common Stock"), as is
equal to One Thousand Dollars ($1,000) divided by the Exercise Price set forth
in the Prepaid Warrants, and (ii) an additional warrant, in the form attached
hereto as Exhibit B, to acquire shares of Common Stock (the "Incentive
Warrants"). The shares of Common Stock issuable upon exercise of or otherwise
pursuant to the Prepaid Warrants and the Incentive Warrants are referred to
herein as the "Warrant Shares." The Prepaid Warrants, the Incentive Warrants and
the Warrant Shares are collectively referred to herein as the "Securities" and
each of them may individually be referred to herein as a "Security."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
<PAGE>
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF UNITS.
a. Purchase of Units. The issuance, sale and purchase of the Units
shall take place in a closing (the "Closing"). The purchase price (the "Purchase
Price") per Unit shall be equal to One Thousand Dollars ($1,000.00). Each
Purchaser's obligation to purchase Units hereunder is distinct and separate from
each other Purchaser's obligation to purchase Units and no Purchaser shall be
required to purchase hereunder more than the number of Units set forth on such
Purchaser's Execution Page hereto notwithstanding any failure by any other
Purchaser to purchase Units hereunder. On the date of the Closing, subject to
the satisfaction (or waiver) of the conditions set forth in Section 6(a) and
Section 7(a) below, the Company shall issue and sell to each Purchaser, and each
Purchaser severally agrees to purchase from the Company, such number of Units as
is set forth on such Purchaser's Execution Page as being purchasable by such
Purchaser at the First Closing.
b. Form of Payment. At the Closing hereunder, each Purchaser shall pay
the aggregate Purchase Price for the Units being purchased by such Purchaser at
such closing hereunder by wire transfer to the Company, in accordance with the
Company's written wiring instructions, against delivery of the duly executed
Prepaid Warrants and Incentive Warrants being purchased by such Purchaser at
such closing hereunder and the Company shall deliver such Prepaid Warrants and
Incentive Warrants against delivery of such aggregate Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Units pursuant to this Agreement shall be 12:00
noon, New York City time, on September 29, 1998, or such other time as may be
mutually agreed upon by the Company and the Purchasers purchasing Units. The
Closing shall occur at the offices of Klehr, Harrison, Harvey, Branzburg &
Ellers, LLP, 1401 Walnut Street, Philadelphia, Pennsylvania 19102.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company as
follows:
a. Investment Purpose. Purchaser is purchasing the Units for
Purchaser's own account for investment purposes only and not with a present view
towards the public sale or distribution thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. Purchaser understands that Purchaser must
bear the economic risk of this investment indefinitely, unless the Securities
are registered pursuant to the Securities Act and any applicable state
securities or blue sky laws or an exemption from such registration is available,
and that the Company has no present intention of registering the resale of any
such Securities other than as contemplated by the Registration Rights Agreement.
Notwithstanding anything in this Section 2(a) to the contrary, by making the
representations herein,
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<PAGE>
the Purchaser does not agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption from the
registration requirements under the Securities Act.
b. Accredited Investor Status. Purchaser is an "Accredited Investor" as
that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Purchaser understands that the Units are
being offered and sold to Purchaser in reliance upon specific exemptions from
the registration requirements of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and Purchaser's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to acquire the
Units.
d. Information. Purchaser and its counsel, if any, have been furnished
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities which have been
specifically requested by Purchaser or its counsel (including the SEC Documents
(as defined in Section 3(f) hereof)). Purchaser and its counsel have been
afforded the opportunity to ask questions of the Company and have received what
Purchaser believes to be satisfactory answers to any such inquiries. Neither
such inquiries nor any other investigation conducted by Purchaser or its counsel
or any of its representatives shall modify, amend or affect Purchaser's right to
rely on the Company's representations and warranties contained in Section 3
below. Purchaser understands that Purchaser's investment in the Securities
involves a high degree of risk.
e. Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be transferred unless
(a) the resale of the Securities has been registered thereunder; or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; or (c) the Securities are sold under Rule 144 promulgated under
the Securities Act (or a successor rule) ("Rule 144"); or (d) the Securities are
sold or transferred to an affiliate of Purchaser who agrees to sell or otherwise
transfer the Securities only in accordance with the provisions of this Section
2(f) and who is an Accredited Investor; and (ii) neither the Company nor any
other person is under any obligation to register such Securities under the
Securities Act or any state securities laws (other than pursuant to the
Registration Rights Agreement). Notwithstanding
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<PAGE>
the foregoing or anything else contained herein to the contrary, the Securities
may be pledged as collateral in connection with a bona fide margin account or
other lending arrangement.
g. Legends. Purchaser understands that the Prepaid Warrants and
Incentive Warrants and, until such time as the Warrant Shares have been
registered under the Securities Act (including registration pursuant to Rule 416
thereunder) as contemplated by the Registration Rights Agreement or otherwise
may be sold by Purchaser under Rule 144, the certificates for the Warrant Shares
may bear a restrictive legend in substantially the following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of any
state of the United States. The securities represented hereby may not be
offered, sold, transferred or assigned in the absence of an effective
registration statement for the securities under applicable securities laws
unless offered, sold, transferred or assigned under an available exemption from
the registration requirements of those laws.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the Securities Act (including registration
pursuant to Rule 416 thereunder) as contemplated by the Registration Rights
Agreement; (b) such holder provides the Company with an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Security may
be made without registration under the Securities Act; or (c) such holder
provides the Company with reasonable assurances that such Security can be sold
under Rule 144. Purchaser agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, pursuant
to an effective registration statement or under an exemption from the
registration requirements of the Securities Act. In the event the above legend
is removed from any Security and thereafter the effectiveness of a registration
statement covering such Security is suspended or the Company determines that a
supplement or amendment thereto is required by applicable securities laws, then
upon reasonable advance notice to Purchaser the Company may require that the
above legend be placed on any such Security that cannot then be sold pursuant to
an effective registration statement or under Rule 144 and Purchaser shall
cooperate in the replacement of such legend. Such legend shall thereafter be
removed when such Security may again be sold pursuant to an effective
registration statement or under Rule 144.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their terms.
i. Residency. Purchaser is a resident of the jurisdiction set forth
under such Purchaser's name on the Execution Page hereto executed by such
Purchaser.
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<PAGE>
j. Acknowledgments Regarding Placement Agent. Purchaser acknowledges
that The Zanett Securities Corporation is acting as placement agent (the
"Placement Agent") for the Securities being offered hereby and will be
compensated by the Company for acting in such capacity. Purchaser further
acknowledges that the Placement Agent has acted solely as placement agent in
connection with the offering of the Securities by the Company, that the
information and data provided to Purchaser and referred to in subsection (d)
above or otherwise in connection with the transactions contemplated hereby have
not been subjected to independent verification by the Placement Agent, and that
the Placement Agent makes no representation or warranty with respect to the
accuracy or completeness of such information, data or other related disclosure
material. Purchaser further acknowledges that in making its decision to enter
into this Agreement and purchase the Securities it has relied on its own
examination of the Company and the terms of, and consequences of holding, the
Securities. Purchaser further acknowledges that the provisions of this Section
2(j) are for the benefit of, and may be enforced by, the Placement Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser as follows:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on (i) the
Securities, (ii) the ability of the Company to perform its obligations hereunder
or under the Prepaid Warrants, the Incentive Warrants or the Registration Rights
Agreement or (iii) the business, operations, properties, prospects or financial
condition of the Company and its subsidiaries, taken as a whole.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Prepaid Warrants, the Incentive Warrants and the
Registration Rights Agreement, to issue and sell the Units in accordance with
the terms hereof, and to issue the Warrant Shares upon exercise of the Prepaid
Warrants and the Incentive Warrants, as applicable, in accordance with the terms
of such Warrants; (ii) the execution, delivery and performance of this
Agreement, the Prepaid Warrants, the Incentive Warrants and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Prepaid Warrants and the Incentive Warrants and the issuance and reservation
for issuance of the Warrant Shares) have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the Company, its
Board of Directors, any committee of the Board of Directors, or the Company's
stockholders is required (under Rules 4310(c)(25)(H) or 4460(i) promulgated by
the National Association of Securities Dealers ("NASD") or otherwise); (iii)
this
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<PAGE>
Agreement has been duly executed and delivered by the Company; and (iv) this
Agreement constitutes, and, upon execution and delivery by the Company of the
Prepaid Warrants, the Incentive Warrants and the Registration Rights Agreement,
such agreements will constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Prepaid Warrants and the
Incentive Warrants) exercisable or exchangeable for, or convertible into, any
shares of capital stock and the number of shares to be reserved for issuance
upon exercise of the Prepaid Warrants and the Incentive Warrants is set forth on
Schedule 3(c). All of such outstanding shares of capital stock have been, or
upon issuance in accordance with the terms of any such warrants, options or
preferred stock, will be, validly issued, fully paid and non-assessable. None of
the authorized but unissued shares of capital stock of the Company (including
the Warrant Shares) are subject to preemptive rights or any other similar rights
of the stockholders of the Company or any liens or encumbrances created by the
Company. Except for the Securities and as set forth on Schedule 3(c), as of the
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Securities Act (except the
Registration Rights Agreement). Except as set forth on Schedule 3(c), there are
no securities or instruments containing antidilution or similar provisions that
will be triggered by the issuance of the Securities in accordance with the terms
of this Agreement, the Prepaid Warrants or the Incentive Warrants. The Company
has furnished to the Purchasers true and correct copies of the Company's
Certificate of Incorporation as in effect on the date hereof ("Certificate of
Incorporation"), the Company's By-laws as in effect on the date hereof (the
"By-laws"), and all other forms of instruments and agreements governing
securities convertible into or exercisable or exchangeable for capital stock of
the Company.
d. Issuance of Warrant Shares. The Warrant Shares are duly authorized
and reserved for issuance, and, upon exercise of the Prepaid Warrants and the
Incentive Warrants, as applicable, in accordance with the terms thereof, will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances and will not be subject to preemptive rights or other
similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the
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<PAGE>
issuance and reservation for issuance of the Warrant Shares) will not (i) result
in a violation of the Certificate of Incorporation or By-laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment (including, without limitation, the triggering of any anti-dilution
provisions), acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including U.S. federal and state securities laws and regulations and rules or
regulations of any self-regulatory organizations to which either the Company or
its securities are subject) applicable to the Company or any of its subsidiaries
or by which any property or asset of the Company or any of its subsidiaries is
bound or affected (except, with respect to clause (ii), for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect).
Neither the Company nor any of its subsidiaries is in violation of its
Certificate of Incorporation, By-laws or other organizational documents and
neither the Company nor any of its subsidiaries is in default (and no event has
occurred which, with notice or lapse of time or both, would put the Company or
any of its subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, except
for actual or possible violations, defaults or rights as would not, individually
or in the aggregate, have a Material Adverse Effect. The businesses of the
Company and its subsidiaries are not being conducted, and shall not be conducted
so long as a Purchaser owns any of the Securities, in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations the sanctions for which either singly or in the aggregate would not
have a Material Adverse Effect. Except as specifically contemplated by this
Agreement and the Registration Rights Agreement, the Company is not required to
obtain any consent, approval, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self
regulatory agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Prepaid Warrants, the Incentive Warrants
or the Registration Rights Agreement, in each case in accordance with the terms
hereof or thereof. Except as set forth on Schedule 3(e), the Company is not in
violation of the listing requirements of the Nasdaq SmallCap Market ("SmallCap")
and does not reasonably anticipate that the Common Stock will be delisted by the
SmallCap for the foreseeable future.
f. SEC Documents, Financial Statements. Since December 31, 1994, the
Company has timely filed (within applicable extension periods) 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") (all of the foregoing and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to herein as the
"SEC Documents"). The Company has delivered to the Purchasers true and complete
copies of the SEC Documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act or
the Securities Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the
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<PAGE>
time they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. None of the statements made in any
such SEC Documents is, or has been, required to be amended or updated under
applicable law (except for such statements as have been amended or updated in
subsequent filings made prior to the date hereof). As of their respective dates,
the financial statements of the Company included in the SEC Documents complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC applicable with respect thereto.
Such financial statements have been prepared in accordance with U.S. generally
accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
immaterial year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents filed prior to the date
hereof or on Schedule 3(f) hereto, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such financial statements, (ii) liabilities
not required by generally accepted accounting principles ("GAAP") to be
disclosed on a balance sheet prepared in accordance with GAAP, and (iii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which liabilities and obligations
referred to in clauses (i), (ii) and (iii), individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
g. Absence of Certain Changes. Since December 31, 1997, there has been
no material adverse change and no material adverse development in the business,
properties, operations, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole, except as disclosed in
Schedule 3(g) or in the SEC Documents filed prior to the date hereof.
h. Absence of Litigation. Except as disclosed in the SEC Documents
filed prior to the date hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the Company, any of
its subsidiaries, or any of their respective directors or officers in their
capacities as such, which could reasonably be expected to have a Material
Adverse Effect. To the Company's knowledge, there are no facts which, if known
by a potential claimant or governmental authority, could give rise to a claim or
proceeding which, if asserted or conducted with results unfavorable to the
Company or any of its subsidiaries, could reasonably be expected to have a
Material Adverse Effect.
i. Intellectual Property. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service
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marks, copyrights, copyright applications, licenses, permits, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted and as described in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997. To the best
knowledge of the Company, neither the Company nor any subsidiary of the Company
infringes or is in conflict with any right of any other person with respect to
any Intangibles which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect.
Neither the Company nor any of its subsidiaries has received written notice of
any pending conflict with or infringement upon such third party Intangibles,
which alleged pending conflict or alleged infringement, if adversely determined,
would result in a Material Adverse Effect. Except as disclosed in the SEC
Documents, the termination of the Company's ownership of, or right to use, any
single Intangible would not result in a Material Adverse Effect on the Company.
Neither the Company nor any of its subsidiaries has entered into any consent
agreement, indemnification agreement, forbearance to sue or settlement agreement
with respect to the validity of the Company's or its subsidiaries' ownership or
right to use its Intangibles and, to the best knowledge of the Company, there is
no reasonable basis for any such claim to be successful. The Intangibles are
valid and enforceable and no registration relating thereto has lapsed, expired
or been abandoned or canceled or is the subject of cancellation or other
adversarial proceedings, and all applications therefor are pending and in good
standing. The Company and its subsidiaries have complied, in all material
respects, with their respective contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the best knowledge
of the Company, no person is infringing on or violating the Intangibles owned or
used by the Company or its subsidiaries.
j. Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
k. Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided to the Purchasers pursuant to Section
2(d) hereof and otherwise in connection with the transactions contemplated
hereby is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists with
respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial conditions, which has not been
publicly disclosed but, under applicable law, rule or regulation, would be
required to be disclosed by the Company in a registration statement filed on the
date hereof by the Company under the Securities Act with respect to the primary
issuance of the Company's securities.
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l. Acknowledgment Regarding Purchasers' Purchase of the Units. The
Company acknowledges and agrees that none of the Purchasers or the Placement
Agent is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement or the transactions
contemplated hereby, the relationship between the Company and the Purchasers and
the Placement Agent is "arms-length" and any statement made by any Purchaser or
the Placement Agent or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to such Purchaser's purchase
of Securities or such Placement Agent's role as a placement agent and has not
been relied upon by the Company, its officers or directors in any way. The
Company further acknowledges that the Company's decision to enter into this
Agreement has been based solely on an independent evaluation by the Company and
its representatives. The Company intends that the sale of Units hereunder shall
be short term financing and that it expects to exercise its rights under Section
VIII of the Prepaid Warrants to redeem the Prepaid Warrants when and if the
Company is able to arrange the sale of additional securities or otherwise
consummate long-term financing.
m. Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement).
n. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
o. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause this offering of
Securities to be integrated with any prior offering of securities of the Company
for purposes of the Securities Act (other than the equity financing described in
Exhibit F attached hereto (the "Related Party Offering")) or for purposes of any
applicable stockholder approval provisions, and, notwithstanding any possible
integration of the Related Party Offering with the offering of Securities
described herein for purposes of the Securities Act, neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would require registration
of the Securities being offered hereby under the Securities Act.
p. No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with The Zanett Securities Corporation,
whose commissions and fees will be paid by the Company.
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q. Acknowledgment of Dilution. The number of Warrant Shares issuable
upon exercise of the Prepaid Warrants may increase in certain circumstances,
including the circumstance wherein the trading price of the Common Stock
declines. The Company's executive officers have studied and fully understand the
nature of the Securities being sold hereunder. The Company acknowledges that its
obligation to issue Warrant Shares upon exercise of the Prepaid Warrants in
accordance with the terms thereof is absolute and unconditional, regardless of
the dilution that such issuance may have on the ownership interests of other
stockholders. Taking the foregoing into account, the Company's Board of
Directors has determined in its good faith business judgment that the issuance
of the Prepaid Warrants hereunder and the consummation of the other transactions
contemplated hereby are in the best interests of the Company and its
stockholders.
r. Title. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(r) or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.
s. Tax Status. Except as set forth on Schedule 3(s) and except to the
extent that the failure to do so would not have a Material Adverse Effect, the
Company and each of its subsidiaries has made or filed all foreign, federal,
state and local income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only to the
extent that the Company and each of its subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. Except as set forth on Schedule 3(s), there are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to any statute of
limitations relating to the assessment or collection of any federal, state or
local tax. Except as set forth on Schedule 3(s), none of the Company's tax
returns is presently being audited by any taxing authority.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.
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b. Form D: Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the date of the Closing, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to the Purchasers on or prior to the date
of the Closing.
c. Reporting Status. So long as any Purchaser beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination. In addition, the Company shall take all actions necessary to
continue to be eligible to register the resale of its Common Stock on a
registration statement on Form S-3 under the Securities Act.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Securities as set forth in Schedule 4(d). The Company believes in good faith
that the transactions contemplated by this Preliminary Closing (as defined in
the certain Asset Acquisition Agreement dated as of August 31, 1998 by and among
Applied Intelligence Group, Inc. and the Company, as amended as of September 9,
1998 (the "Asset Agreement")) shall be consummated not later than two business
days after the date the Company receives the Purchase Price and that the
transactions contemplated by the Closing (as defined in the Asset Agreement)
shall occur not later than October 12, 1998. The Company shall use all
commercially reasonable efforts to consummate the Preliminary Closing and the
Closing on or prior to such dates. The Company shall provide Purchasers with
reasonable evidence that such events have occurred promptly after the occurrence
thereof.
e. Expenses. Except as otherwise provided herein and in Section 5 of
the Registration Rights Agreement, each party hereto shall be responsible for
its own expenses incurred in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith.
f. Financial Information. The Company agrees to send the following
reports to each Purchaser until such Purchaser transfers, assigns or sells all
of its Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB,
its proxy statements and any Current Reports on Form 8-K; and (ii) within one
(1) day after release, copies of all press releases issued by the Company or any
of its subsidiaries.
g. Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance the number of shares of
Common Stock set forth in Prepaid Warrants and the Incentive Warrants to provide
for the full exercise of the Prepaid Warrants and the Incentive Warrants and the
issuance of the Warrant Shares in connection therewith, subject to and as
otherwise required by the Prepaid Warrants and the Incentive Warrants.
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<PAGE>
h. Listing. The Company shall promptly secure the listing of the
Warrant Shares upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any Purchaser (or
any of their affiliates) own any Securities, such listing of all Warrant Shares
from time to time issuable upon exercise of the Prepaid Warrants and the
Incentive Warrants. The Company will use its best efforts to continue the
listing and trading of its Common Stock on the Nasdaq National Market ("NNM"),
the New York Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX") or
the SmallCap and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and such
exchanges, as applicable. The Company shall promptly provide to each holder of
Prepaid Warrants and/or Incentive Warrants copies of any notices it receives
regarding the continued eligibility of the Common Stock for trading on the
SmallCap or, if applicable, any securities exchange or automated quotation
system on which securities of the same class or series issued by the Company are
then listed or quoted, if any.
i. Corporate Existence. So long as a Purchaser beneficially owns any
Securities, the Company shall maintain its corporate existence, and in the event
of a merger, consolidation or sale of all or substantially all of the Company's
assets, the Company shall ensure that the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
Prepaid Warrants and Incentive Warrants and the agreements and instruments
entered into in connection herewith regardless of whether or not the Company
would have had a sufficient number of shares of Common Stock authorized and
available for issuance in order to effect the exercise in full of all Prepaid
Warrants and all Incentive Warrants outstanding as of the date of such
transaction and (ii) is a publicly traded corporation whose common stock is
listed for trading on the NNM, SmallCap, NYSE or AMEX.
j. No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of Securities to be integrated with any
other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
k. Legal Compliance. The Company shall conduct its business and the
business of its subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except where
the failure to do so would not have a Material Adverse Effect.
l. Stockholder Approval. The Company shall hold an annual or special
meeting of its stockholders no later than June 15, 1999 and use its best efforts
to obtain at such meeting such approvals of the Company's stockholders as may be
required to issue all of the shares of Common Stock issuable upon exercise of,
or otherwise with respect to, the Prepaid Warrants, the Incentive Warrants and
any warrants issuable to the Placement Agent in connection with the transactions
contemplated by this Agreement without violating NASD Rules 4310(c)(25)(H) or
4460(i) (or any
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<PAGE>
successor rules thereto which may then be in effect) (the "Stockholder
Approval"), provided there are Prepaid Warrants outstanding at such time. The
Company shall comply with the filing and disclosure requirements of Section 14
promulgated under the Exchange Act in connection with the solicitation,
acquisition and disclosure of such Stockholder Approvals. The Company represents
and warrants that its Board of Directors has unanimously recommended that the
Company's stockholders approve the proposals contemplated by this Section 4(l)
and shall so indicate such recommendation in the proxy statement used to solicit
such Stockholder Approvals.
m. No Manipulation. So long as a Purchaser (or any affiliate of such
Purchaser) beneficially owns any Prepaid Warrants, neither the Purchaser nor any
person acting on behalf of such Purchaser shall take any action intended, or
which can be assumed, to decrease the trading price of the Company's Common
Stock during any period in which the Exercise Price (as defined in the Prepaid
Warrants) is being computed for purposes of any exercise of Prepaid Warrants.
Notwithstanding the foregoing, the provisions of this Section 4(m) shall not
prohibit a sale by a Purchaser of shares of Common Stock effected on the date on
which a notice of exercise of Prepaid Warrants is delivered to the Company
entitling such Purchaser to receive a number of shares of Common Stock at least
equal to the number of shares so sold.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Warrant Shares
in such amounts as specified from time to time by such Purchaser to the Company
upon exercise of the Prepaid Warrants and the Incentive Warrants, as applicable.
To the extent and during the periods provided in Section 2(f) and 2(g) of this
Agreement, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement.
b. The Company warrants that no instruction other than such
instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof in the case of the transfer of the Warrant
Shares prior to registration of the Warrant Shares under the Securities Act or
without an exemption therefrom, will be given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Registration Rights Agreement. Nothing in this Section shall affect in
any way each Purchaser's obligations and agreement set forth in Section 2(g)
hereof to resell the Securities pursuant to an effective registration statement
or under an exemption from the registration requirements of applicable
securities law.
c. If a Purchaser provides the Company and the transfer agent with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration, or a Purchaser provides the Company
with reasonable assurances that such Securities may be sold under Rule 144, the
Company shall permit the transfer, and, in the case of the Warrant Shares,
promptly instruct its transfer agent to
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<PAGE>
issue one or more certificates in such name and in such denominations as
specified by such Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Units to
a Purchaser at the Closing hereunder is subject to the satisfaction, at or
before the Closing, of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion. The obligation of the Company to
issue and sell the Units to any Purchaser hereunder is distinct and separate
from its obligation to issue and sell Units to any other Purchaser hereunder and
any failure by one or more Purchasers to fulfill the conditions set forth herein
or to consummate the purchase of Units hereunder will not relieve the Company of
its obligations with respect to any other Purchaser.
a. The applicable Purchaser shall have executed the signature page to
this Agreement and the Registration Rights Agreement, and delivered the same to
the Company.
b. The applicable Purchaser shall have delivered the Purchase Price
for the Units purchased at the Closing in accordance with Section 1(b) above.
c. The representations and warranties of the applicable Purchaser
shall be true and correct as of the date when made and as of the date and time
of the Closing as though made at that time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable
Purchaser shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the applicable Purchaser at or prior to
the date of the Closing.
d. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7 CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Units to be
purchased by it at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in the Purchaser's sole discretion:
a. The Company shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to such Purchaser.
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b. The Company shall have delivered to such Purchaser the duly executed
Prepaid Warrants and Incentive Warrants (each in such denominations as such
Purchaser shall request) being so purchased by such Purchaser at the Closing in
accordance with Section 1(b) above.
c. The Common Stock shall be authorized for quotation and listed on the
SmallCap and trading in the Common Stock (or the SmallCap generally) shall not
have been suspended by the SEC or the SmallCap.
d. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the date of the Closing as though
made at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date) and the Company shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Company at or
prior to the date of the Closing. Such Purchaser shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the date of the Closing to the foregoing effect and as to such other matters as
may be reasonably requested by such Purchaser.
e. No litigation, statute, rule, regulation, executive order, decree,
ruling, injunction, action or proceeding shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which questions the validity of, or challenges or
prohibits the consummation of any of the transactions contemplated by this
Agreement.
f. Such Purchaser shall have received an opinion of the Company's
counsel, dated as of the date of the Closing, in form, scope and substance
reasonably satisfactory to the Purchaser and in substantially the form of
Exhibit D attached hereto.
g. The Company shall have delivered evidence reasonably satisfactory to
the Purchasers that the Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit E.
h. There shall have been no material adverse changes and no material
adverse developments in the business, properties, operations, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, since the date hereof, and no information, of
which the Purchasers are not currently aware, shall come to the attention of the
Purchasers that is materially adverse to the Company.
i. The aggregate number of Units being purchased hereunder by all
Purchasers at the Closing hereunder shall be 1,700.
j. The Company shall have received written confirmation from The Nasdaq
Stock Market, Inc. that the Related Party Offering described in Exhibit F
attached hereto will not be
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integrated with the offering of Securities described herein for purposes of NASD
Rules 4310(c)(25)(H) or 4460(i) (or any successor rules thereto).
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
the state courts located in the City of New York in the State of New York in any
suit or proceeding based on or arising under this Agreement and irrevocably
agrees that all claims in respect of such suit or proceeding may be determined
in such courts. The Company irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. The Company further agrees
that service of process mailed by first class mail shall be deemed in every
respect effective service of process in any such suit or proceeding. Nothing
herein shall affect the right of any Purchaser to serve process in any other
manner permitted by law. The Company agrees that a final non-appealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
to be physically delivered to the other party within five (5) days of the
execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein. No provision of this Agreement may be
waived other than by an instrument in writing signed by the party to be charged
with enforcement and no provision of this Agreement may be amended other than by
an instrument in writing signed by the Company and each Purchaser.
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f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
The Netplex Group, Inc.
8260 Greensboro Drive
McLean, VA 22102
Telecopy: (703) 356-5105
Attn: Gene Zaino, President and CEO
with a copy simultaneously transmitted by like means to:
Vedder, Price, Kaufman & Kammholz
805 Third Avenue
New York, NY 10622-2203
Telecopy: (212) 407-7799
Attn: Edward J. Walsh, Jr.
If to any Purchaser, to such address set forth under such Purchaser's
name on the Execution Page hereto executed by such Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein or therein, neither the Company nor any Purchaser shall assign
this Agreement, the Registration Rights Agreement, the Prepaid Warrants or the
Incentive Warrants or any rights or obligations hereunder or thereunder.
Notwithstanding the foregoing, any Purchaser may assign its rights hereunder to
any of its "affiliates" (as that term is defined under the Exchange Act) who are
Accredited Investors without the consent of the Company (provided such assignees
agree to be bound by all of the terms and conditions hereof), or to any other
person or entity with the consent of the Company, which consent shall not be
unreasonably withheld. This provision shall not limit a Purchaser's right to
transfer the Securities pursuant to the terms of the Prepaid Warrants, the
Incentive Warrants and this Agreement or to assign such Purchaser's rights
hereunder and/or thereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may
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any provision hereof be enforced by, any other person, except for the provisions
of Section 2(j) and Section 3(l) which are for the benefit of, and may be
enforced by, the Placement Agent.
i. Survival. The representations, warranties, agreements and covenants
of the Company set forth in Sections 3, 4, 5 and 8 hereof shall survive the
closings hereunder notwithstanding any investigation conducted by or on behalf
of any Purchasers and the representations, warranties, covenants and agreements
of the Purchasers set forth in Section 2 hereof shall survive the closings
hereunder notwithstanding any investigation conducted by or on behalf of the
Company. Moreover, none of the representations and warranties made by the
Company herein shall act as a waiver of any rights or remedies a Purchaser may
have under applicable federal or state securities laws. The Company agrees to
indemnify and hold harmless each Purchaser and each of such Purchaser's
officers, directors, employees, partners, members, agents and affiliates for
loss or damage arising as a result of or related to any breach or alleged breach
by the Company of any of its representations or covenants set forth herein,
including advancement of reasonable expenses as they are incurred.
j. Publicity. The Company and each Purchaser shall have the right to
review before issuance any press releases, SEC or NASD filings, or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior review
of the Purchasers, to make any press release or SEC or NASD filings with respect
to such transactions as is required by applicable law and regulations (although
the Purchasers shall be consulted by the Company in connection with any such
press release and filing prior to its release and shall be provided with a copy
thereof) and such press release shall not name the Purchasers.
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have occurred
on or before September 30, 1998, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date. Notwithstanding
any termination of this Agreement, any party not in breach of this Agreement
shall preserve all rights and remedies it may have against another party hereto
for a breach of this Agreement prior to or relating to the termination hereof.
m. Joint Participation. Each party to this Agreement has participated
in the negotiation of this Agreement, the Prepaid Warrants, the Incentive
Warrants and the Registration Rights Agreement. As such, the language used
herein and therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement.
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<PAGE>
n. Equitable Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to a Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its obligations pursuant
to Section 5 hereof) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement (including,
but not limited to, its obligations pursuant to Section 5 hereof), that a
Purchaser shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer
of the Securities, without the necessity of showing economic loss and without
any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
THE NETPLEX GROUP, INC.
By: _______________________
Name:______________________
Title:_____________________
PURCHASER:
GOLDMAN SACHS PERFORMANCE PARTNERS, L.P.
By: Commodities Corporation LLC, its general partner
By:_________________________________
Name:
Title:
RESIDENCE: Delaware
ADDRESS: c/o Commodities Corporation LLC
701 Mount Lucas Road
CN 850
Princeton, NJ 08540
SUBSCRIPTION AMOUNT
Number of Units: 938.4
Purchase Price ($1,000 per Unit): $938,400
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
THE NETPLEX GROUP, INC.
By: _______________________
Name:______________________
Title:_____________________
PURCHASER:
GOLDMAN SACHS PERFORMANCE PARTNERS (OFFSHORE), L.P.
By: Commodities Corporation LLC, its general partner
By:_____________________________
Name:
Title:
RESIDENCE: Cayman Islands
ADDRESS: P.O. Box 309
South Church Street
George Town, Grand Cayman
Cayman Islands
with copies of all notices to:
c/o Commodities Corporation LLC
701 Mount Lucas Road
CN 850
Princeton, NJ 08540
SUBSCRIPTION AMOUNT
Number of Units: 761.6
Purchase Price ($1,000 per Unit): $761,600
Accountants' Consent
The Board of Directors
The Netplex Group, Inc.:
We consent to the use of our report incorporated by reference herein, and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
McLean, Virginia
November 13, 1998
