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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------
CURRENT REPORT
ON
FORM 8-K
PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT (Date of earliest event reported): March 28, 2000
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THE NETPLEX GROUP, INC.
(Exact name of registrant as specified in its charter)
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New York 1-11784 11-2824578
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
1800 Robert Fulton Drive, Suite 250, Reston, Virginia 20191
(Address of principal executive offices)
Registrant's telephone number, including area code: (703) 716-4777
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ITEM 5. OTHER EVENTS.
Private Placement
On March 28, 2000, the Company entered into a Securities Purchase
Agreement (the "Agreement")(attached hereto as Exhibit 4.1), by and among the
Company and the buyers named therein (the "Buyers"). In connection with the
Agreement, the Board of Directors of the Company authorized a new series of its
preferred stock, par value $0.01 per share, designated "Series D Convertible
Preferred Stock" (the "Preferred Stock"). Pursuant to the Agreement, and in
exchange for the aggregate payment of $10,000,000, the Buyers purchased 10,000
shares of Preferred Stock from the Company. In consideration for their payment
above, and pursuant to the terms of certain Warrant Agreements, dated as of
March 29, 2000 (a form of which is attached hereto as Exhibit 4.2) between each
of the Buyers and the Company, the Buyers also received, in the aggregate,
warrants (the "Warrants") exercisable for a certain number of shares of common
stock, par value $0.001 of the Company (the "Common Stock"), the number of
shares and the exercise price per share to be determined as of a future date in
accordance with the terms of the Agreement. The Warrants are exercisable for a
period of three years.
In addition, the Buyers have a call option to purchase, for an aggregate
consideration of $5,000,000, an additional 5,000 shares of the Preferred Stock,
and to receive additional Warrants, if certain events do not occur by August 1,
2000. The number of shares issuable under the Warrants and the price per share
will be determined as of a future date in accordance with the terms of the
Agreement.
Subject to the terms of the Company's Certificate of Amendment to the
Certificate of Incorporation (the "Certificate of Amendment"), as filed with the
Department of State of the State of New York on March 28, 2000 (attached hereto
as Exhibit 3.1), the Preferred Stock is convertible, in accordance with the then
applicable conversion rate, as detailed in the Certificate of Amendment, into
shares of Common Stock at the option of the holders thereof, at any time from
the date of issuance. The Preferred Stock is mandatorily convertible by the
Company two years and forty-five days from the date of issuance. The Preferred
Stock shall bear cumulative dividends at a rate of seven percent (7%) per annum
and be payable quarterly, beginning on the first day of the calendar quarter
subsequent to the date of issuance. Subject to the terms of the Certificate of
Amendment, dividends may be paid in cash or shares of Common Stock, at the
option of the Company. Upon the occurrence of certain triggering events, as
contained in the Certificate of Amendment, the holders of Preferred Stock shall
have the right to require the Company to redeem all or a portion of such
holder's Preferred Stock, at such price, subject to adjustment, as contained in
the Certificate of Amendment. The holders of Preferred Stock shall also be
entitled to certain preferred status, vis a vis other series or classes of
securities of the Company, in connection with any liquidation, dissolution or
winding up of the Company. The rights, preferences and privileges of the
Preferred Stock are more fully described in the Certificate of Amendment and the
brief summary above is qualified in its entirety by reference thereto.
The Company and the Buyers also entered into a Registration Rights
Agreement, dated as
<PAGE>
of March 28, 2000 (the "Registration Rights Agreement") (attached hereto as
Exhibit 4.3), pursuant to which the Company has agreed to prepare and file a
registration statement on Form S-3, or such other form for registration in the
event that use of Form S-3 is unavailable to the Company. The Company has agreed
to prepare a registration statement covering the resale of the Common Stock of
the Company, underlying the Buyers' Preferred Stock and the Warrants, and
issuable therefor in accordance with the conversion and exercise of such
securities, respectively. In the event that the Company is unable to comply with
the timing requirements associated with its required registration of Common
Stock, the Company may be subject to cash penalties as set forth in the
Registration Rights Agreement, in connection with its delay. Subject to the
terms of the Registration Rights Agreement, all reasonable expenses, other than
underwriting discounts and commissions, incurred in connection with the
registration, filing or qualification of the Common Stock underlying the
Preferred Stock and Warrants, including listing, accounting, printing and
attorney's fees, shall be paid by the Company.
The offer and sale of the above-mentioned securities is made in reliance
upon a safe harbor from applicable federal registration requirements, as
provided by Rule 506 of Regulation D promulgated by the United States Securities
and Exchange Commission under the Securities Act of 1933, as amended.
The Company has described the events set forth herein in a press release
dated March 28, 2000 (attached hereto as Exhibit 99.1).
Additional Information
The Company also agreed to file with this 8-K a copy of certain agreements
that the Company entered into with The Zanett Securities Corporation and two
investors. Attached as Exhibits hereto are the form of Prepaid Warrants issued
to the Zanett investors, the form of Incentive Warrants issued to the Zanett
investors and certain principals of The Zanett Securities Corporation, and the
Amended and Restated Placement Agency Agreement between The Zanett Securities
Corporation and the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
3.1 Certificate of Amendment to the Company's Certificate of Incorporation, as
filed with the Secretary of State of the State of New York on March 28, 2000.
4.1 Securities Purchase Agreement, dated as of March 28, 2000, by and among
the Company and the Buyers.
4.2 Form of Warrant Agreement, dated as of March __, 2000, by and between the
Company and each of the Buyers.
4.3 Registration Rights Agreement, dated as of March 28, 2000, by and among
the Company and the Buyers.
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4.4 Form of Prepaid Common Stock Purchase Warrant, dated as of March __, 2000,
by and between the Company and each of the Holders.
4.5 Form of The Netplex Group, Inc. Incentive Stock Purchase Warrant, dated as
of March __, 2000, by and between the Company and each of the holders.
99.1 Press Release of the Company dated March 28, 2000.
99.2 Amended and Restated Placement Agency Agreement, dated March 22, 2000, by
and between the Company and The Zanett Securities Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE NETPLEX GROUP, INC.
(Registrant)
Date: March 31, 2000 By: /s/ Gene F. Zaino
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Name: Gene F. Zaino
Title: Chairman of the Board and President
Ex-3.1
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
THE NETPLEX GROUP, INC.
(Pursuant to Section 805 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 as
follows:
FIRST: The name of the corporation is THE NETPLEX GROUP, INC., the name
under which the corporation was formed is COMPLINK, LTD.
SECOND: The Certificate of Incorporation of the Corporation was filed with the
Department of State on August 1, 1986 under the name 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 of
the Certificate of Incorporation was filed with the Department of
State on June 12, 1996. An Amendment of the Certificate of
Incorporation was filed with the Department of State on September 19,
1996. A Certificate of Correction of the Amendment of the Certificate
of Incorporation was filed with the Department of State on October 16,
1996. An Amendment of the Certificate of Incorporation was filed with
the Department of State on August 5, 1998. An Amendment of the
Certificate of Incorporation was filed with the Department of State on
September 30, 1998. An additional Amendment of the Certificate of
Incorporation was filed with the Department of State on September 30,
1998. An Amendment of the Certificate of Incorporation was filed with
the Department of State on March 14, 2000.
THIRD: The amendment of the Certificate of Incorporation of the Corporation
effected by this certificate of amendment is as follows:
To add a provision stating the number, designation, relative rights,
preferences, and limitations of the shares of the Series D Convertible
Preferred Stock, as fixed by the Board of Directors of the
Corporation.
FOURTH: To accomplish the foregoing amendment, the Certificate of
Incorporation of the Corporation is hereby amended by the addition of
a new Article FOURTH (E), which new Article FOURTH (E) shall read in
its entirety as follows:
* * * * *
Fifteen Thousand (15,000) of the Six Million (6,000,000) authorized shares
of Preferred Stock of the Corporation are hereby designated Series D Convertible
Preferred Stock, par value $0.01 per share (the "Preferred Shares"). References
to section numbers in this Article FOURTH (E) of the Certificate of
Incorporation shall refer only to such sections in this Article FOURTH (E),
unless otherwise expressly stated herein. The Series D Convertible Preferred
Stock shall possess the rights and preferences set forth below:
(1) Dividends. The Preferred Shares shall bear dividends
("Dividends") at a rate of 7% per annum, which shall be cumulative, accrue daily
from the applicable Issuance Date (as defined below) and be payable on the first
day of each Calendar Quarter (as defined below) beginning on first day of the
calendar quarter after the applicable Issuance Date (each a "Dividend Date"). If
a Dividend Date is not a Business Day (as defined below) then the Dividend shall
be due and payable on the Business Day immediately following the Dividend Date.
Dividends shall be payable in cash or, at the option of the Corporation, in
shares of Common Stock (as defined below) ("Dividend Shares"), provided that the
Dividends which accrued during any period shall be payable in shares of Common
Stock only if the Corporation provides written notice ("Dividend Election
Notice") to each holder of the applicable Preferred Shares at least 20 days
prior to the Dividend Date. Dividends to be paid in shares
<PAGE>
of Common Stock shall be paid in a number of fully paid and nonassessable shares
(rounded to the nearest whole share in accordance with Section 2(b)) of Common
Stock equal to the quotient of (I) the Additional Amount (as defined below) and
(II) the Dividend Conversion Price (as defined below) on the applicable Dividend
Date. Notwithstanding the foregoing, the Corporation shall not be entitled to
pay Dividends in shares of Common Stock and shall be required to pay such
Dividends in cash if (x) any event constituting a Triggering Event (as defined
in Section 3(b)), or an event that with the passage of time would constitute a
Triggering Event, if not cured, has occurred and is continuing on the date of
the Corporation's Dividend Election Notice or on the Dividend Date, unless
otherwise consented to in writing by the holder of Preferred Shares entitled to
receive such Dividend or (y) the Registration Statement (as defined in the
Registration Rights Agreement (as defined below)) is not effective and available
for the resale of all of the Registrable Securities (as defined in the
Registration Rights Agreement), including but not limited to the Dividend
Shares, on the date of the Corporation's Dividend Election Notice or on the
Dividend Date. Any accrued and unpaid Dividends which are not paid within five
(5) Business Days of such accrued and unpaid dividends' Dividend Date shall bear
interest at the rate of 18.0% per annum from such Dividend Date until the same
is paid in full (the "Default Interest").
(2) Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Corporation's common stock, par value $0.001 per
share (the "Common Stock"), on the terms and conditions set forth in this
Section 2.
(a) Certain Defined Terms. For purposes of this Certificate of
Amendment, the following terms shall have the following meanings:
(i) "Additional Amount" means, on a per share basis, the
sum of (A) unpaid Default Interest through the date of determination plus (B)
the result of the following formula: (.07)(N/365)($1,000)."
(ii) "Additional Preferred Shares" means, all Preferred
shares issued after the Initial Issuance date.
(iii) "Business Day" means any day other than Saturday,
Sunday or other day on which commercial banks in the city of New York are
authorized or required by law to remain closed.
(iv) "Calendar Quarter" means, each of the period
beginning on and including January 1 and ending on and including March 31, the
period beginning on and including April 1 and ending on and including June 30,
the period beginning on and including July 1 and ending on and including
September 30, and the period beginning on and including October 1 and ending on
and including December 31."
(v) "Closing Sale Price" means, for any security as of
any date, the last closing trade price for such security on the Principal Market
(as defined below) as reported by Bloomberg Financial Markets ("Bloomberg"), or
if the Principal Market begins to operate on an extended hours basis, and does
not designate the closing trade price, then the last trade price at 4:00 p.m.
Eastern Time as reported by Bloomberg, or if the foregoing do not apply, the
last closing trade 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
last closing trade price is reported for such security by Bloomberg, the last
closing ask price of such security as reported by Bloomberg, or, if no last
closing ask price is reported for such security by Bloomberg, the average of the
lowest ask price and lowest bid price of any market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Sale Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Sale Price of such security on such date shall
be the fair market value as mutually determined by the Corporation and the
holders of the Preferred Shares. If the Corporation and the holders of Preferred
Shares are unable to agree upon the fair market value of the Common Stock, then
such dispute shall be resolved pursuant to Section 2(d)(iii) below with the term
"Closing Sale Price" being substituted for the term "Conversion Price." All such
determinations shall be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period.
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(vi) "Conversion Amount" means, with respect to each
Preferred Share, the sum of (1) the Additional Amount and (2) the Stated Value
(as defined below).
(vii) "Conversion Price" means, (A) on any Conversion
Date (as defined below) or other date of determination during the period
beginning on the Issuance Date (as defined below) and ending on and including
the day prior to the date which is two years after the Issuance Date, the Fixed
Conversion Price and (B) on any Conversion Date or other date of determination
during the period beginning on and including the date which is two years after
the Issuance Date and ending on and including the Maturity Conversion Date, the
Maturity Conversion Price, each in effect as of such date and subject to
adjustment as provided herein.
(viii) "Dividend Conversion Price" means, that price
which shall be computed as the arithmetic average of the Closing Sale Prices for
the Common Stock on each of the 10 consecutive trading days immediately
preceding such date of determination. All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(ix) "Fixed Conversion Price" means (A) with respect to
any Initial Preferred Share, 120% of the average of the Weighted Average Prices
(as defined below) of the Common Stock for the 30 consecutive trading days
beginning on and including the first trading day after the date on which the
Corporation files a Form 8-K or Form 10-K with the Securities and Exchange
Commission describing the terms of the offering of Preferred Shares (the
"Closing 8-K or 10-K") pursuant to the first sentence of Section 4(j) of the
Securities Purchase Agreement (as defined below) (the "Initial Fixed Conversion
Price"), provided that in no event shall the Initial Fixed Conversion Price
exceed $18.00 (as adjusted for stock splits, stock dividends, stock combinations
and other similar transactions), or (B) with respect to any Additional Preferred
Share, 120% of the average of the Weighted Average Prices of the common stock
for the 15 consecutive trading days beginning on and including the first trading
day after the Call Trigger Date (as defined in the Securities Purchase
Agreement), in each case, subject to adjustment as provided herein;
(x) "Initial Issuance Date" means the first date on
which Preferred Shares are issued pursuant to the Securities Purchase Agreement.
(xi) "Initial Preferred Shares" means, all Preferred
shares issued on the Initial Issuance Date.
(xii) "Issuance Date" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
(xiii) "Maturity Conversion Price" means 95% of the
Weighted Average Price of the Common Stock on the Conversion Date or other date
of determination.
(xiv) "Maturity Conversion Date" means the date which is
two (2) years and 45 Business Days after the applicable Issuance Date, unless
extended pursuant to Section 2(d)(vii)(E).
(xv) "Maturity Redemption Date" means the date which is
two (2) years after the applicable Issuance Date.
(xvi) "N" means the number of days from, but excluding,
the last Dividend Date with respect to which Dividends, along with any Default
Interest, have been paid by the Corporation on the applicable Preferred Share
(or the applicable Issuance Date, in the event no Dividends have been paid on
such Preferred Share) through and including the Conversion Date, the Maturity
Conversion Date or other date of determination for such Preferred Share, as the
case may be, for which such determination is being made."
(xvii) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
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(xviii) "Principal Market" means the Nasdaq SmallCap
Market or if the Common Stock is not traded on the Nasdaq SmallCap Market, then
the principal securities exchange or trading market for the Common Stock.
(xix) "Registration Rights Agreement" means that certain
registration rights agreement between the Corporation and the initial holders of
the Preferred Shares relating to the filing of a registration statement covering
the resale of the shares of Common Stock issuable upon conversion of the
Preferred Shares.
(xx) "SEC" means the United States Securities and
Exchange Commission.
(xxi) "Securities Purchase Agreement" means that certain
securities purchase agreement between the Corporation and the initial holders of
the Preferred Shares.
(xxii) "Stated Value" means $1,000.
(xxiii) "Weighted Average Price" means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market (as defined below) during normal business hours for such
Principal Market as reported by Bloomberg through its "Volume at Price"
functions or, if the foregoing does not apply, the dollar volume-weighted
average 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 dollar
volume-weighted average price is reported for such security by Bloomberg, the
average of the bid prices of each of the market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Weighted Average Price cannot be calculated for such security on such date on
any of the foregoing bases, the Weighted Average Price of such security on such
date shall be the fair market value as mutually determined by the Corporation
and the holders of the Preferred Shares. If the Corporation and the holders of
the Preferred Shares are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved pursuant to Section 2(d)(iii)
below with the term "Weighted Average Price" being substituted for the term
"Conversion Price." All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period.
(b) Holder's Conversion Right; Mandatory Conversion. Subject
to the provisions of Section 5, at any time or times on or after the applicable
Issuance Date, any holder of Preferred Shares shall be entitled to convert any
whole number of Preferred Shares into fully paid and nonassessable shares of
Common Stock in accordance with Section 2(d), at the Conversion Rate (as defined
below). If any Preferred Shares remain outstanding on the Maturity Conversion
Date for such Preferred Shares, then all such Preferred Shares shall be
converted at the Conversion Rate as of such date in accordance with Section
2(d)(vii). The Corporation shall not issue any fraction of a share of Common
Stock upon any conversion. All shares of Common Stock (including fractions
thereof) issuable upon the submission of a Conversion Notice (as defined below)
for more than one Preferred Share by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of a
fraction of a share of Common Stock. If, after the aforementioned aggregation,
the issuance would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall round such fraction of a share of Common Stock up
or down to the nearest whole share.
(c) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to Section 2(b) shall
be determined according to the following formula (the "Conversion Rate"):
Conversion Amount
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Conversion Price
(d) Mechanics of Conversion. The conversion of Preferred
Shares shall be conducted in the following manner:
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<PAGE>
(i) Holder's Delivery Requirements. To convert Preferred
Shares into shares of Common Stock on any date (the "Conversion Date"), the
holder thereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m., Eastern Time on such date, a copy of a fully
executed notice of conversion in the form as set forth in Section 20 (the
"Conversion Notice") to the Corporation and (B) if required by Section
2(d)(viii), surrender to a common carrier for delivery to the Corporation as
soon as practicable following such date the original certificates representing
the Preferred Shares being converted (or an indemnification undertaking with
respect to such shares in the case of their loss, theft or destruction) (the
"Preferred Stock Certificates").
(ii) Corporation's Response. Upon receipt by the
Corporation of a copy of a Conversion Notice, the Corporation (I) shall
promptly, but in no event later than one (1) Business Day, send, via facsimile,
a confirmation of receipt of such Conversion Notice to such holder and the
Corporation's designated transfer agent (the "Transfer Agent"), which
confirmation shall constitute an instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms herein and (II) on or before
the second Business Day following the date of receipt by the Corporation of the
facsimile or other copy of such Conversion Notice (the "Share Delivery Date"),
(A) issue and deliver to the address as specified in the Conversion Notice, a
certificate, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled, or (B)
provided the Transfer Agent is participating in The Depository Trust Corporation
("DTC") Fast Automated Securities Transfer Program, upon the request of the
holder, credit such aggregate number of shares of Common Stock to which the
holder shall be entitled to the holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system. As may be required
by Section 2(d)(viii), if the number of Preferred Shares represented by the
Preferred Stock Certificate(s) submitted for conversion is greater than the
number of Preferred Shares being converted, then the Corporation shall, as soon
as practicable and in no event later than three Business Days after receipt of
the Preferred Stock Certificate(s) (the "Preferred Stock Delivery Date") and at
its own expense, issue and deliver to the holder a new Preferred Stock
Certificate representing the number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as to
the determination of the Conversion Price or the arithmetic calculation of the
Conversion Rate, the Corporation shall instruct the Transfer Agent to issue to
the holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one (1) Business Day of receipt of such holder's Conversion
Notice. If such holder and the Corporation are unable to agree upon the
determination of the Conversion Price or arithmetic calculation of the
Conversion Rate within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the holder, then the Corporation shall
within one (1) Business Day submit via facsimile (A) the disputed determination
of the Conversion Price to an independent, reputable investment bank selected by
the Corporation and approved by the holders of at least two-thirds (_) of the
Preferred Shares then outstanding or (B) the disputed arithmetic calculation of
the Conversion Rate to the Corporation's independent, outside accountant. The
Corporation shall cause the investment bank or the accountant, as the case may
be, to perform the determinations or calculations and notify the Corporation and
the holder of the results no later than forty-eight (48) hours from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.
(v) Corporation's Failure to Timely Convert.
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(A) Cash Damages. If within five (5) Business Days
after the Corporation's receipt of the facsimile copy of a Conversion Notice the
Corporation shall fail to issue a certificate to a holder or credit such
holder's balance account with DTC for the number of shares of Common Stock to
which such holder is entitled upon such holder's conversion of Preferred Shares
or to issue a new Preferred Stock Certificate representing the number of
Preferred Shares to which such holder is entitled pursuant to Section 2(d)(ii),
in addition to all other available remedies which such holder may pursue
hereunder and under the Securities Purchase Agreement (including indemnification
pursuant to Section 8 thereof), the Corporation shall pay additional damages to
such holder for each date after the Share Delivery Date such conversion is not
timely effected and/or each date after the Preferred Stock Delivery Date such
Preferred Stock Certificate is not delivered in an amount equal to 0.5% of the
sum of (a) the product of (I) the number of shares of Common Stock not issued to
the holder on or prior to the Share Delivery Date and to which such holder is
entitled and (II) the Closing Sale Price of the Common Stock on the Share
Delivery Date, and (b) in the event the Corporation has failed to deliver a
Preferred Stock Certificate to the holder on or prior to the Preferred Stock
Delivery Date, the product of (y) the number of shares of Common Stock issuable
upon conversion of the Preferred Shares represented by such Preferred Stock
Certificate, as of the Preferred Stock Delivery Date and (z) the Closing Sale
Price of the Common Stock on the Preferred Stock Delivery Date. If the
Corporation fails to pay the additional damages set forth in this Section
2(d)(v) within five Business Days of the date incurred, then the holder entitled
to such payments shall have the right at any time, so long as the Corporation
continues to fail to make such payments, to require the Corporation, upon
written notice, to immediately issue, in lieu of such cash damages, the number
of shares of Common Stock equal to the quotient of (X) the aggregate amount of
the damages payments described herein divided by (Y) the Conversion Price in
effect on such Conversion Date as specified by the holder in the Conversion
Notice.
(B) Void Conversion Notice; Adjustment to
Conversion Price. If for any reason a holder has not received all of the shares
of Common Stock prior to the tenth (10th) Business Day after the Share Delivery
Date with respect to a conversion of Preferred Shares, then the holder, upon
written notice to the Corporation, with a copy to the Transfer Agent, may void
its Conversion Notice with respect to, and retain or have returned, as the case
may be, any Preferred Shares that have not been converted pursuant to such
holder's Conversion Notice; provided that the voiding of a holder's Conversion
Notice shall not effect the Corporation's obligations to make any payments which
have accrued prior to the date of such notice pursuant to Section 2(d)(v)(A) or
otherwise. Thereafter, the Fixed Conversion Price of any Preferred Shares
returned or retained by the holder for failure to timely convert shall be
adjusted to the lesser of (I) the Fixed Conversion Price as in effect on the
date on which the holder voided the Conversion Notice and (II) the lowest
Closing Sale Price during the period beginning on the Conversion Date and ending
on the date such holder voided the Conversion Notice, subject to further
adjustment as provided for in this Certificate of Amendment.
(C) Redemption. If for any reason a holder has not
received all of the shares of Common Stock prior to the tenth (10th) Business
Day after the Share Delivery Date with respect to a conversion of Preferred
Shares (a "Conversion Failure"), then the holder, upon written notice to the
Corporation, may require that the Corporation redeem, in accordance with Section
3, all Preferred Shares held by such holder, including the Preferred Shares
previously submitted for conversion and with respect to which the Corporation
has not delivered shares of Common Stock.
(vi) Pro Rata Conversion Subject to Section 13, in the
event the Corporation receives a Conversion Notice from more than one holder of
Preferred Shares for the same Conversion Date and the Corporation can convert
some, but not all, of such Preferred Shares, the Corporation shall convert from
each holder of Preferred Shares electing to have Preferred Shares converted at
such time a pro rata amount of such holder's Preferred Shares submitted for
conversion based on the number of Preferred Shares submitted for conversion on
such date by such holder relative to the number of Preferred Shares submitted
for conversion on such date.
(vii) Mandatory Conversion or Redemption at Maturity. If
any Preferred Shares remain outstanding on the Maturity Conversion Date for such
Preferred Shares, then all such Preferred Shares shall be converted at the
Conversion Price for such Preferred Shares as of such date as if the holders of
such Preferred Shares had given the Conversion Notice on the Maturity Conversion
Date (a "Maturity Date Mandatory Conversion"). At the Corporation's option, the
Corporation may redeem all of the applicable Preferred Shares outstanding on the
Maturity Redemption Date for such Preferred Shares, to the extent funds are
legally available
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therefor, for an amount in cash per Preferred Share (the "Maturity Date
Redemption Price") equal to the Liquidation Preference (as defined in Section 9)
(a "Maturity Date Mandatory Redemption").
(A) Mechanics of Maturity Date Mandatory
Redemption. If the Corporation elects a Maturity Date Mandatory Redemption, the
Corporation shall deliver written notice of its election to effect a Maturity
Date Mandatory Redemption ("Maturity Redemption Notice") to each holder of the
applicable Preferred Shares at least 15 Business Days prior to the Maturity
Redemption Date. On the Maturity Redemption Date (provided a notice of the
Corporation's Maturity Date Mandatory Redemption election has been delivered at
least 15 Business Days prior to the Maturity Date) the Corporation shall pay to
each holder of the applicable Preferred Shares outstanding on the Maturity
Redemption Date for such Preferred Shares, by wire transfer of immediately
available funds, an amount per Preferred Share equal to the Maturity Date
Redemption Price.
(B) Failure to Pay Maturity Date Redemption Price.
If the Corporation elects a Maturity Date Mandatory Redemption and fails to
redeem all of the applicable Preferred Shares outstanding on the Maturity
Redemption Date for such Preferred Shares by payment of the Maturity Date
Redemption Price, then in addition to any remedy any holder of such Preferred
Shares may have under this Certificate of Amendment, the Securities Purchase
Agreement and the Registration Rights Agreement each holder of such Preferred
Shares shall have the option (X) to require that the applicable Maturity Date
Redemption Price payable in respect of such unredeemed Preferred Shares bear
interest at the rate of 2.0% per month, prorated for partial months, until paid
in full or (Y) at any time after the Maturity Redemption Date and until the
Corporation pays such unpaid applicable Maturity Date Redemption Price in full
(but not later than the Maturity Conversion Date), to void the Corporation's
Maturity Date Mandatory Redemption as it relates to those applicable Preferred
Shares for which the Corporation has not paid the Maturity Date Redemption
Price, by sending written notice thereof to the Corporation via facsimile
("Maturity Redemption Void Notice"). Upon the Corporation's receipt of a holders
Maturity Redemption Void Notice (i) the Corporation's Maturity Date Mandatory
Redemption shall be void with respect to such holder's applicable Preferred
Shares for which the Corporation failed to deliver the Maturity Date Redemption
Price prior to the Corporation's receipt of such holder's Maturity Redemption
Void Notice and (ii) such holder shall be entitled to convert the Preferred
Shares for which the Maturity Date Redemption Price was not paid prior to such
holder's delivery of its Maturity Redemption Void Notice at any time prior to
and including the Maturity Conversion Date.
(C) Conversion of Preferred Shares On and After
the Maturity Redemption Date. Notwithstanding anything contained in the Section
2(d)(vii), but subject to Section 5, any holder of Preferred Shares may convert
any Preferred Shares (including Preferred Shares selected for Maturity Date
Mandatory Redemption) into Common Stock pursuant to Section 2 on or prior to the
date immediately preceding the Maturity Redemption Date for such Preferred
Shares. If the Corporation fails to send a Maturity Redemption Notice on or
before the date which is 15 Business Days prior to the Maturity Redemption Date
then the holders of the applicable Preferred Share shall be entitled to convert
such Preferred Shares into Common Stock pursuant to Section 2 at any time prior
to and including the Maturity Conversion Date for such Preferred Shares.
(D) Delivery of Preferred Shares. Upon the
Corporation paying the Maturity Date Redemption Price to each holder of
Preferred Shares, such holder of Preferred Shares shall surrender all Preferred
Stock Certificates for all such Preferred Shares, duly endorsed for
cancellation, to the Corporation or the Transfer Agent, otherwise, each holder
of such Preferred Shares shall surrender all Preferred Stock Certificates, duly
endorsed for cancellation, to the Corporation or the Transfer Agent on the
Maturity Conversion Date.
(E) Extension of Maturity Conversion Date. If the
Corporation has elected a Maturity Date Mandatory Conversion or has failed to
pay the Maturity Date Redemption Price in a timely manner as described above,
then the Maturity Conversion Date shall be extended for any applicable Preferred
Shares for as long as (a) the conversion of such Preferred Shares would violate
the provisions of Section 5, (b) a Triggering Event shall have occurred and be
continuing, or (c) an event shall have occurred and be continuing which with the
passage of time and the failure to cure would result in a Triggering Event.
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(F) Limitation on Sale of Shares After Maturity
Redemption Date. During the period beginning on and including the date which is
two (2) Business Days after the Maturity Redemption Date of specific Preferred
Shares and ending on and including the Maturity Conversion Date no holder of
such Preferred Shares shall be entitled to sell a number of shares of Common
Stock issued pursuant to the conversion of such Preferred Shares in excess of
the greater of (I) the product of (a) the result of (i) the aggregate Conversion
Amount of all such Preferred Shares held by such holder at 7:00 a.m., Eastern
Time, on the date which is two (2) Business Days after the Maturity Redemption
Date for such Preferred Shares, divided by (ii) the lowest Conversion Price
during the period beginning on and including the date which is two (2) Business
Days after the Maturity Redemption Date for such Preferred Shares and ending on
and including the date as of which this determination is being made, multiplied
by (b) the result of (X) the number of Business Days during the period beginning
on and including the date which is two (2) Business Days after the Maturity
Redemption Date for such Preferred Shares and ending on and including the date
as of which this determination is being made, divided by (Y) 45, and (II) 15% of
the daily trading volume for the Common Stock (as reported by Bloomberg) on such
date of determination, multiplied by (w) the result of (A) the number of
Preferred Shares purchased by such holder on the Issuance Date of such Preferred
Shares pursuant to the Securities Purchase Agreement, divided by (B) the total
number of Preferred Shares purchased on the Issuance Date pursuant to the
Securities Purchase Agreement. Notwithstanding the foregoing, the limitations on
sales set forth in this Section 2(d)(vii)(F) shall not apply if the Company
delivered a Maturity Redemption Notice and failed to pay the full Maturity Date
Redemption Price on the Maturity Redemption Date for such Preferred Shares to
each holder of such Preferred Shares on the Maturity Redemption Date for such
Preferred Shares.
(viii) Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion of Preferred Shares in accordance
with the terms hereof, the holder thereof shall not be required to physically
surrender the certificate representing the Preferred Shares to the Corporation
unless the full number of Preferred Shares represented by the certificate are
being converted. The holder and the Corporation shall maintain records showing
the number of Preferred Shares so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the holder and the
Corporation, so as not to require physical surrender of the certificate
representing the Preferred Shares upon each such conversion. In the event of any
dispute or discrepancy, such records of the Corporation shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if Preferred Shares represented by a certificate are converted as aforesaid, the
holder may not transfer the certificate representing the Preferred Shares unless
the holder first physically surrenders the certificate representing the
Preferred Shares to the Corporation, whereupon the Corporation will forthwith
issue and deliver upon the order of the holder a new certificate of like tenor,
registered as the holder may request, representing in the aggregate the
remaining number of Preferred Shares represented by such certificate. The holder
and any assignee, by acceptance of a certificate, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of any
Preferred Shares, the number of Preferred Shares represented by such certificate
may be less than the number of Preferred Shares stated of the face thereof. Each
certificate for Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS
OF THE COMPANY'S CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF
INCORPORATION FOR THE PREFERRED SHARES REPRESENTED BY THIS
CERTIFICATE, INCLUDING SECTION 2(d)(viii) THEREOF. THE NUMBER OF
PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN
THE NUMBER OF PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT TO
SECTION 2(d)(viii) OF THE CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION.
(e) Taxes. The Corporation shall pay any and all taxes that
may be payable with respect to the issuance and delivery of Common Stock upon
the conversion of Preferred Shares.
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(f) Adjustments to Conversion Price. The Conversion Price will
be subject to adjustment from time to time as provided in this Section 2(f).
(i) Adjustment of Fixed Conversion Price upon Issuance
of Common Stock. If and whenever on or after the Initial Issuance Date, in the
case of any Initial Preferred Share, or the Call Trigger Date, in the case of
any Additional Preferred Share, the Corporation issues or sells, or in
accordance with this Section 2(f) is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Corporation, but excluding shares of Common
Stock deemed to have been issued by the Corporation in connection with an
Approved Stock Plan (as defined below), Excluded Securities (as defined below)
or upon conversion of the Preferred Shares or exercise of the Warrants) for a
consideration per share less than a price (the "Applicable Price") equal to the
Fixed Conversion Price in effect immediately prior to such time, then
immediately after such issue or sale, the Fixed Conversion Price then in effect
shall be reduced to an amount equal to such consideration per share. For
purposes of determining the adjusted Fixed Conversion Price under this Section
2(f)(i), the following shall be applicable:
(A) Issuance of Options. If the Corporation in any
manner grants or sells any Options (as defined below) and the lowest price per
share for which one share of Common Stock is issuable upon the exercise of any
such Option or upon conversion or exchange of any Convertible Securities (as
defined below) issuable upon exercise of such Option is less than the Applicable
Price, then such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the granting or sale
of such Option for such price per share. For purposes of this Section
2(f)(i)(A), the "lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such Option" shall be equal
to the sum of the lowest amounts of consideration (if any) received or
receivable by the Corporation with respect to any one share of Common Stock upon
granting or sale of the Option, upon exercise of the Option and upon conversion
or exchange of any Convertible Security issuable upon exercise of such Option.
No further adjustment of the Fixed Conversion Price shall be made upon the
actual issuance of such Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(B) Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is issuable upon such
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Corporation at the time of the issuance of sale of such
Convertible Securities for such price per share. For the purposes of this
Section 2(f)(i)(B), the "lowest price per share for which one share of Common
Stock is issuable upon such conversion or exchange" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Corporation with respect to any one share of Common Stock upon the issuance or
sale of the Convertible Security and upon the conversion or exchange of such
Convertible Security. No further adjustment of the Fixed Conversion Price shall
be made upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment
of the Fixed Conversion Price had been or are to be made pursuant to other
provisions of this Section 2(f)(i), no further adjustment of the Fixed
Conversion Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion.
If the purchase or exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock changes at any time, the Fixed
Conversion Price in effect at the time of such change shall be adjusted to the
Fixed Conversion Price which would have been in effect at such time had such
Options or Convertible Securities provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold. For purposes of this Section 2(f)(i)(C),
if the terms of any Option or Convertible Security that was outstanding as of
the date of issuance of the Preferred Shares are changed in the manner described
in the immediately preceding sentence, then such Option or
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Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change. No adjustment shall be made if such adjustment would result
in an increase of the Fixed Conversion Price then in effect.
(D) Calculation of Consideration Received. In case
any Option is issued in connection with the issue or sale of other securities of
the Corporation, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of $0.01. If any
Common Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Corporation therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Corporation will be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Corporation will be the market price of such
securities on the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Corporation is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Corporation and the holders of a majority of the Preferred Shares
then outstanding. If such parties are unable to reach agreement within 10 days
after the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Corporation and the holders of a
majority of the Preferred Shares then outstanding. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the
fees and expenses of such appraiser shall be borne by the Corporation.
(E) Record Date. If the Corporation takes a record
of the holders of Common Stock for the purpose of entitling them (1) to receive
a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(F) Certain Definitions. For purposes of this
Section 2(f)(i), the following terms have the respective meanings set forth
below:
(I) "Approved Stock Plan" shall mean any
employee benefit plan which has been approved by the Board of Directors of the
Corporation, pursuant to which the Corporation's securities or stock
appreciation rights may be issued to any employee, officer, director or
consultant of the Corporation provided that such issuance is for not less than
the market price of the Common Stock on the date of issuance.
(II) "Convertible Securities" means any
stock or securities (other than Options) directly or indirectly convertible into
or exchangeable for Common Stock.
(III) "Options" means any rights, warrants
or options to subscribe for or purchase Common Stock or Convertible Securities.
(IV) "Excluded Securities" means any of the
following: (i) a loan from a commercial bank which does not have any equity
feature, (ii) any transaction involving the Corporation's issuances of
securities (A) as consideration in a merger or consolidation, (B) in connection
with any strategic partnership or joint venture (the primary purpose of which is
not to raise equity capital), or (C) as consideration for the acquisition of a
business, product, license or other assets by the Corporation, (iii) the
issuance of Common Stock or debt in a firm commitment, underwritten public
offering, (iv) the issuance of securities upon exercise or conversion of the
Corporation's options, warrants or other convertible securities outstanding as
of the
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date hereof, and (v) the issuance of securities pursuant to an underwritten
offering by the Corporation in reliance upon Rule 144A under the 1933 Act with
proceeds to the Corporation of at least $50,000,000 and which does not provide
for any demand or piggyback registration rights for at least one (1) year from
the date of the offering.
(ii) Adjustment of the Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Corporation at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Corporation at any time
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Fixed Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(iii) Holder's Right of Alternative Floating Conversion
Price Following Issuance of Convertible Securities. If the Corporation in any
manner issues or sells any Options or Convertible Securities after the Initial
Issuance Date that are convertible into or exchangeable or exercisable for
Common Stock at a price which may vary with the market price of the Common
Stock, including by way of one or more resets to the conversion, exchange or
exercise price of such Convertible Security (the formulation for such variable
price being herein referred to as, the "Variable Price"), the Corporation shall
provide written notice thereof via facsimile and overnight courier to each
holder of Preferred Shares ("Variable Notice") on the date of issuance of such
Convertible Securities. From and after the date the Corporation issues any such
Convertible Securities with a Variable Price, a holder of Preferred Shares shall
have the right, but not the obligation, in its sole discretion to substitute the
Variable Price for the Conversion Price upon conversion of any Preferred Shares
by designating in the Conversion Notice delivered upon conversion of such
Preferred Shares that solely for purposes of such conversion the holder is
relying on the Variable Price rather than the Floating Conversion Price then in
effect. A holder's election to rely on a Variable Price for a particular
conversion of Preferred Shares shall not obligate the holder to rely on a
Variable Price for any future conversions of Preferred Shares.
(iv) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 2(f) but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Corporation's Board of Directors will make an appropriate adjustment in
the Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(f).
(v) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Corporation will give written notice thereof to each
holder of Preferred Shares, setting forth in reasonable detail, and certifying,
the calculation of such adjustment.
(B) The Corporation will give written notice to
each holder of Preferred Shares at least ten (10) Business Days prior to the
date on which the Corporation closes its books or takes a record (I) with
respect to any dividend or distribution upon the Common Stock, (II) with respect
to any pro rata subscription offer to holders of Common Stock or (III) for
determining rights to vote with respect to any Organic Change (as defined in
Section 4), dissolution or liquidation, provided that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to such holder.
(C) The Corporation will also give written notice
to each holder of Preferred Shares at least ten (10) Business Days prior to the
date on which any Organic Change, dissolution or liquidation will take place,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
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(3) Redemption at Option of Holders.
(a) Redemption Option Upon Triggering Event. In addition to
all other rights of the holders of Preferred Shares contained herein, after a
Triggering Event (as defined below), each holder of Preferred Shares shall have
the right, at such holder's option, to require the Corporation to redeem all or
a portion of such holder's Preferred Shares at a price per Preferred Share equal
to the greater of (i) 125% of the Conversion Amount and (ii) the product of (A)
the Conversion Rate in effect at such time as such holder delivers a Notice of
Redemption at Option of Buyer (as defined below) and (B) the Closing Sale Price
of the Common Stock on the date immediately preceding such Triggering Event on
which the Principal Market is open for trading ("Redemption Price").
(b) Triggering Event. A "Triggering Event" shall be deemed to
have occurred at such time as any of the following events:
(i) the failure of the applicable Registration Statement
(as defined in the Registration Rights Agreement) to be declared effective by
the SEC on or prior to the date that is 30 days after the applicable
Effectiveness Deadline (as defined in the Registration Rights Agreement);
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the holder of the Preferred Shares for sale of all of the Registrable
Securities (as defined in the Registration Rights Agreement) in accordance with
the terms of the Registration Rights Agreement, and such lapse or unavailability
continues for a period of five consecutive trading days or for more than on
aggregate of 10 trading days in a 365-day period;
(iii) the suspension from trading or failure of the
Common Stock to be listed on the Nasdaq SmallCap Market, the Nasdaq National
Market, The American Stock Exchange, Inc. or the New York Stock Exchange, Inc.
for a period of five consecutive trading days or for more than an aggregate of
10 trading days in any 365-day period;
(iv) the Corporation's or the Transfer Agent's notice to
any holder of Preferred Shares, including by way of public announcement, at any
time, of its intention not to comply with a request for conversion of any
Preferred Shares into shares of Common Stock that is tendered in accordance with
the provisions of this Certificate of Amendment;
(v) a Conversion Failure (as defined in Section
2(d)(v)(C));
(vi) upon the Corporation's receipt of a Conversion
Notice, the Corporation shall not be obligated to issue shares of Common Stock
upon such conversion due to the provisions of Section 13; or
(vii) the Corporation breaches any representation,
warranty, covenant or other term or condition of the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrants, this Certificate of
Amendment or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated thereby and hereby,
except to the extent that such breach would not have a Material Adverse Effect
(as defined in Section 3(a) of the Securities Purchase Agreement) and except, in
the case of a breach of a covenant which is curable, only if such breach
continues for a period of at least 20 days.
(c) Mechanics of Redemption at Option of Buyer. Within one (1)
day after the occurrence of a Triggering Event, the Corporation shall deliver
written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of Preferred Shares. At any time after the
earlier of a holder's receipt of a Notice of Triggering Event and such holder
becoming aware of a Triggering Event, any holder of Preferred Shares then
outstanding may require the Corporation to redeem up to all of such Preferred
Shares by delivering written notice thereof via facsimile and overnight courier
("Notice of Redemption at Option of Buyer") to the Corporation, which Notice of
Redemption at Option of Buyer shall indicate (i) the number of Preferred Shares
that such holder is electing to redeem and (ii) the applicable Redemption Price,
as calculated pursuant to Section 3(a) above.
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(d) Payment of Redemption Price. Upon the Corporation's
receipt of a Notice(s) of Redemption at Option of Buyer from any holder of
Preferred Shares, the Corporation shall immediately notify each other holder of
Preferred Shares by facsimile of the Corporation's receipt of such notices. Each
holder which has sent such a notice shall, if required pursuant to Section
2(d)(viii), promptly submit to the Corporation such holder's Preferred Stock
Certificates which such holder has elected to have redeemed. The Corporation
shall deliver the applicable Redemption Price to such holder within five
Business Days after the Corporation's receipt of a Notice of Redemption at
Option of Buyer; provided that a holder's Preferred Stock Certificates shall
have been so delivered to the Corporation. If the Corporation is unable to
redeem all of the Preferred Shares submitted for redemption, the Corporation
shall (i) redeem a pro rata amount from each holder of Preferred Shares based on
the number of Preferred Shares submitted for redemption by such holder relative
to the total number of Preferred Shares submitted for redemption by all holders
of Preferred Shares and (ii) in addition to any remedy such holder of Preferred
Shares may have under this Certificate of Amendment and the Securities Purchase
Agreement, pay to each holder interest at the rate of 2.0% per month (prorated
for partial months) in respect of each unredeemed Preferred Share until paid in
full.
(e) Void Redemption. In the event that the Corporation does
not pay the Redemption Price within the time period set forth in Section 3(d),
at any time thereafter and until the Corporation pays such unpaid applicable
Redemption Price in full, a holder of Preferred Shares shall have the option
(the "Voidable Redemption Option") to, in lieu of redemption, require the
Corporation to promptly return to such holder any or all of the Preferred Shares
that were submitted for redemption by such holder under this Section 3 and for
which the applicable Redemption Price (together with any interest thereon) has
not been paid, by sending written notice thereof to the Corporation via
facsimile (the "Voidable Redemption Notice"). Upon the Corporation's receipt of
such Voidable Redemption Notice, (i) the Notice of Redemption at Option of Buyer
shall be null and void with respect to those Preferred Shares subject to the
Voidable Redemption Notice, and (ii) the Corporation shall immediately return
any Preferred Shares subject to the Voidable Redemption Notice and (iii) the
Fixed Conversion Price of such returned Preferred Shares shall be adjusted to
the lesser of (A) the Fixed Conversion Price as in effect on the date on which
the Voidable Redemption Notice is delivered to the Corporation and (B) the
lowest Closing Sale Price during the period beginning on the date on which the
Notice of Redemption at Option of Buyer is delivered to the Corporation and
ending on the date on which the Voidable Redemption Notice is delivered to the
Corporation.
(f) Disputes; Miscellaneous. In the event of a dispute as to
the determination of the Closing Sale Price or the arithmetic calculation of the
Redemption Price, such dispute shall be resolved pursuant to Section 2(d)(iii)
above with the term "Closing Sale Price" being substituted for the term
"Conversion Price" and the term "Redemption Price" being substituted for the
term "Conversion Rate". A holder's delivery of a Voidable Redemption Notice and
exercise of its rights following such notice shall not effect the Corporation's
obligations to make any payments which have accrued prior to the date of such
notice. In the event of a redemption pursuant to this Section 3 of less than all
of the Preferred Shares represented by a particular Preferred Stock Certificate,
the Corporation shall promptly cause to be issued and delivered to the holder of
such Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been redeemed.
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(4) Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets to another
Person or other transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "Organic Change." Prior to the
consummation of any (i) sale of all or substantially all of the Corporation's
assets to an acquiring Person or (ii) other Organic Change following which the
Corporation is not a surviving entity, the Corporation will secure from the
Person purchasing such assets or the successor resulting from such Organic
Change (in each case, the "Acquiring Entity") a written agreement (in form and
substance satisfactory to the holders of at least two-thirds (_) of the
Preferred Shares then outstanding) to deliver to each holder of Preferred Shares
in exchange for such shares, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to the Preferred
Shares, including, without limitation, having a stated value and liquidation
preference equal to the Stated Value and the Liquidation Preference of the
Preferred Shares held by such holder, and satisfactory to the holders of at
least two-thirds (_) of the Preferred Shares then outstanding. Prior to the
consummation of any other Organic Change, the Corporation shall make appropriate
provision (in form and substance satisfactory to the holders of at least
two-thirds (_) of the Preferred Shares then outstanding) to insure that each of
the holders of the Preferred Shares will thereafter have the right to acquire
and receive in lieu of or in addition to (as the case may be) the shares of
Common Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Preferred Shares such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of shares of Common Stock which would
have been acquirable and receivable upon the conversion of such holder's
Preferred Shares as of the date of such Organic Change (without taking into
account any limitations or restrictions on the convertibility of the Preferred
Shares).
(b) Optional Redemption Upon Change of Control. In addition to
the rights of the holders of Preferred Shares under Section 4(a), upon a Change
of Control (as defined below) of the Corporation each holder of Preferred Shares
shall have the right, as such holder's option, to require the Corporation to
redeem all or a portion of such holder's Preferred Shares at a price per
Preferred Share equal to the greater of (A) 125% of the Conversion Amount and
(B) the Product of (I) the Conversion Rate on the date the holder of Preferred
Shares gives a Notice of Redemption upon Change of Control and (II) the
arithmetic average of the Closing Sale Prices of the Common Stock during the
five trading days immediately preceding such date ("Change of Control Redemption
Price"). No sooner than 15 days nor later than 10 days prior to the consummation
of a Change of Control, but not prior to the public announcement of such Change
of Control, the Corporation shall deliver written notice thereof via facsimile
and overnight courier (a "Notice of Change of Control") to each holder of
Preferred Shares. At any time during the period beginning after receipt of a
Notice of Change of Control (or, in the event a Notice of Change of Control is
not delivered at least 10 days prior to a Change of Control, at any time on or
after the date which is 10 days prior to a Change of Control) and ending on the
date of such Change of Control, any holder of the Preferred Shares then
outstanding may require the Corporation to redeem all or a portion of the
holder's Preferred Shares then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "Notice of Redemption Upon Change of
Control") to the Corporation, which Notice of Redemption Upon Change of Control
shall indicate (i) the number of Preferred Shares that such holder is submitting
for redemption, and (ii) the applicable Change of Control Redemption Price, as
calculated pursuant to this Section 4(b). Upon the Corporation's receipt of a
Notice(s) of Redemption Upon Change of Control from any holder of Preferred
Shares, the Corporation shall promptly, but in no event later than one (1)
Business Day following such receipt, notify each holder of Preferred Shares by
facsimile of the Corporation's receipt of such Notice(s) of Redemption Upon
Change of Control. The Corporation shall deliver the applicable Change of
Control Redemption Price simultaneous with the consummation of the Change of
Control; provided that, if required by Section 2(d)(viii), a holder's Preferred
Stock Certificates shall have been so delivered to the Corporation. Payments
provided for in this Section 4(b) shall have priority to payments to other
stockholders in connection with a Change of Control. For purposes of this
Section 4(b), "Change of Control" means (i) the consolidation, merger or other
business combination of the Corporation with or into another Person (other than
(A) a consolidation, merger or other business combination in which holders of
the Corporation's voting power immediately prior to the transaction continue
after the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect at least two-thirds (_) of the
members of the board of directors (or
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their equivalent if other than a corporation) of such entity or entities, or (B)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Corporation), (ii) the sale or transfer of
all or substantially all of the Corporation's assets, or (iii) a purchase,
tender or exchange offer made to and accepted by the holders of more than the
50% of the outstanding shares of Common Stock.
(c) Forced Delisting. If a redemption voided pursuant to
Section 3(e) was caused by a Triggering Event involving the Corporation's
inability to issue Conversion Shares because of the Primary Exchange Cap (as
defined in Section 13), and if so directed by the holders of at least two-thirds
(_) of the Preferred Shares then outstanding, including Preferred Shares
submitted for redemption pursuant to Section 3 with respect to which the
applicable Redemption Price has not been paid, in a Void Mandatory Redemption
Notice, the Corporation shall immediately delist the Common Stock from exchange
or automated quotation system on which the Common Stock is traded and have the
Common Stock, at such holders' option, traded on the electronic bulletin board
or the "pink sheets".
(d) Purchase Rights. If at any time the Corporation grants,
issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the holders of Preferred
Shares will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Preferred Shares (without taking into account any
limitations or restrictions on the convertibility of the Preferred Shares)
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.
(5) Limitations on Beneficial Ownership. The Corporation shall not
effect any conversion of Preferred Shares and no holder of Preferred Shares
shall have the right to convert Preferred Shares in excess of that number of
Preferred Shares which, upon giving effect to such conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates to exceed 4.99% of the total outstanding shares of Common Stock
following such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of the Preferred Shares with respect to which the determination of
such proviso is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining, nonconverted
Preferred Shares beneficially owned by the holder and its affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Corporation (including, without limitation, any warrants or
convertible preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the holder
and its affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 2(a), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this Section 5, in determining the number of outstanding shares of
Common Stock a holder may rely on the number of outstanding shares of Common
Stock as reflected in (1) the Corporation's most recent Form 10-Q or Form 10-K,
as the case may be, (2) a more recent public announcement by the Corporation or
(3) any other notice by the Corporation or its transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the written request of any
holder, the Corporation shall promptly, but in no event later than one (1)
Business Day following the receipt of such request, confirm in writing to any
such holder the number of shares Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to conversions of Preferred Shares and exercise of Warrants (as defined
below) by such holder and its affiliates since the date as of which such number
of outstanding shares of Common Stock was reported.
(6) Intentionally omitted.
(7) Reservation of Shares.
(a) Reservation. The Corporation shall take all action
necessary to reserve out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Initial Preferred
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Shares, such number of shares of Common Stock equal to 175% of the number of
shares of Common Stock for which the Initial Preferred Shares are convertible as
of the date which is 35 trading days after the date on which the Corporation
files the Closing 8-K or 10-K. The corporation shall take all action necessary
to reserve out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Additional Preferred Shares, such
number of shares of Common Stock equal to 175% of the number of shares of Common
Stock for which 5,000 Additional Preferred Shares would be convertible into as
of the date which is 15 trading days after the Call Trigger Date, as if all such
Additional Preferred Shares were outstanding on such 15th trading day. The
Corporation shall, so long as any of the Preferred Shares are outstanding, take
all action necessary to reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of the
Preferred Shares, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Preferred Shares then
outstanding; provided that the number of shares of Common Stock so reserved
shall at no time be less than 100% of the number of shares of Common Stock for
which the Preferred Shares are at that time convertible (without regard to any
limitations on conversions) (the "Required Reserve Amount). The initial number
of shares of Common Stock reserved for conversions of the Preferred Shares and
each increase in the number of shares so reserved shall be allocated pro rata
among the holders of the Preferred Shares based on the number of Preferred
Shares held by each holder at the time of issuance of the Preferred Shares or
increase in the number of reserved shares, as the case may be. In the event a
holder shall sell or otherwise transfer any of such holder's Preferred Shares,
each transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and allocated to any Person which ceases to hold any Preferred Shares
shall be allocated to the remaining holders of Preferred Shares, pro rata based
on the number of Preferred Shares then held by such holders.
(b) Insufficient Authorized Shares. If at any time while any
of the Preferred Shares remain outstanding the Corporation does not have a
sufficient number of authorized and unreserved shares of Common Stock to satisfy
its obligation to reserve for issuance upon conversion of the Preferred Shares
at least a number of shares of Common Stock equal to the Required Reserve Amount
(an "Authorized Share Failure"), then the Corporation shall immediately take all
action necessary to increase the Corporation's authorized shares of Common Stock
to an amount sufficient to allow the Corporation to reserve the Required Reserve
Amount for the Preferred Shares then outstanding. Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than 60
days after the occurrence of such Authorized Share Failure, the Corporation
shall hold a meeting of its stockholders for the authorization of an increase in
the number of authorized shares of Common Stock. In connection with such
meeting, the Corporation shall provide each stockholder with a proxy statement
and shall use its best efforts to solicit its stockholders' approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.
(8) Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the New York
Business Corporation Law, and as expressly provided in this Certificate of
Amendment.
(9) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of the Preferred Shares shall be entitled to receive in
cash out of the assets of the Corporation, whether from capital or from earnings
available for distribution to its stockholders (the "Liquidation Funds"), before
any amount shall be paid to the holders of any of the capital stock of the
Corporation of any class junior in rank to the Preferred Shares in respect of
the preferences as to the distributions and payments on the liquidation,
dissolution and winding up of the Corporation, an amount per Preferred Share
equal to the Conversion Amount (otherwise the "Liquidation Preference");
provided that, if the Liquidation Funds are insufficient to pay the full amount
due to the holders of Preferred Shares and holders of shares of other classes or
series of preferred stock of the Corporation that are of equal rank with the
Preferred Shares as to payments of Liquidation Funds (the "Pari Passu Shares"),
then each holder of Preferred Shares and Pari Passu Shares shall receive a
percentage of the Liquidation Funds equal to the full amount of Liquidation
Funds payable to such holder as a liquidation preference, in accordance with the
Certificate of Incorporation of the Corporation, as a percentage of the full
amount of Liquidation Funds payable to all holders of Preferred Shares and Pari
Passu Shares. In addition to the receipt of the Liquidation Preference, in the
event of any voluntary or involuntary liquidation,
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<PAGE>
dissolution or winding up of the Corporation, the holders of the Preferred
Shares shall be entitled to receive Liquidation Funds distributed to holders of
Common Stock, after the Liquidation Preference has been paid, to the same extent
as if such holders of Preferred Shares had converted the Preferred Shares into
Common Stock (without regard to any limitations on conversions herein or
elsewhere) and had held such shares of Common Stock on the record date for such
distribution of the remaining Liquidation Funds. The purchase or redemption by
the Corporation of stock of any class, in any manner permitted by law, shall
not, for the purposes hereof, be regarded as a liquidation, dissolution or
winding up of the Corporation. Neither the consolidation or merger of the
Corporation with or into any other Person, nor the sale or transfer by the
Corporation of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding up of the
Corporation. No holder of Preferred Shares shall be entitled to receive any
amounts with respect thereto upon any liquidation, dissolution or winding up of
the Corporation other than the amounts provided for herein; provided that a
holder of Preferred Shares shall be entitled to all amounts previously accrued
with respect to amounts owed hereunder.
(10) Preferred Rank. All shares of Common Stock shall be of junior
rank to all Preferred Shares in respect to the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of the
Corporation. The rights of the shares of Common Stock shall be subject to the
preferences and relative rights of the Preferred Shares. The Preferred Shares
shall be of junior rank to the Series A Preferred Stock and shall be pari passu
to the Series B Preferred Stock and the Series C Preferred Stock in respect to
the preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Corporation. Without the prior express written
consent of the holders of not less than two-thirds (_) of the then outstanding
Preferred Shares, the Corporation shall not hereafter authorize or issue
additional or other capital stock that is of senior or equal rank to the
Preferred Shares in respect of the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Corporation. Without the
prior express written consent of the holders of not less than two-thirds (_) of
the then outstanding Preferred Shares, the Corporation shall not hereafter
authorize or make any amendment to the Corporation's Certificate of
Incorporation or bylaws, or file any resolution of the board of directors of the
Corporation with the New York Secretary of State or enter into any agreement
containing any provisions, which would adversely affect or otherwise impair the
rights or relative priority of the holders of the Preferred Shares relative to
the holders of the Common Stock or the holders of any other class of capital
stock. In the event of the merger or consolidation of the Corporation with or
into another corporation, the Preferred Shares shall maintain their relative
powers, designations and preferences provided for herein and no merger shall
result inconsistent therewith.
(11) Participation. Subject to the rights of the holders, if) any,
of the Pari Passu Shares, the holders of the Preferred Shares shall, as holders
of Preferred Stock, be entitled to such dividends paid and distributions made to
the holders of Common Stock to the same extent as if such holders of Preferred
Shares had converted the Preferred Shares into Common Stock (without regard to
any limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(12) Restriction on Redemption and Cash Dividends. Until all of the
Preferred Shares have been converted or redeemed as provided herein, the
Corporation shall not, directly or indirectly, redeem, or declare or pay any
cash dividend or distribution on, its Common Stock without the prior express
written consent of the holders of not less than two-thirds (_) of the then
outstanding Preferred Shares.
(13) Limitation on Number of Conversion Shares. The Corporation
shall not be obligated to issue any shares of Common Stock upon conversion of
the Preferred Shares if the issuance of such shares of Common Stock would exceed
that number of shares of Common Stock which the Corporation may issue upon
Conversion of the Preferred Shares (the "Exchange Cap") without breaching the
Corporation's obligations under the rules or regulations of the Principal
Market, except that such limitation shall not apply in the event that the
Corporation (a) obtains the approval of its stockholders as required by the
applicable rules of the Principal Market (or any successor rule or regulation)
for issuances of Common Stock in excess of such amount or (b) obtains a written
opinion from outside counsel to the Corporation that such approval is not
required, which opinion shall be reasonably satisfactory to the holders of at
least two-thirds (_) of the Preferred Shares then outstanding. Until such
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<PAGE>
approval or written opinion is obtained, no purchaser of Preferred Shares
pursuant to the Securities Purchase Agreement (the "Purchasers") shall be
issued, upon conversion of Preferred Shares, shares of Common Stock in an amount
greater than the product of (i) the Exchange Cap amount multiplied by (ii) a
fraction, the numerator of which is the number of Preferred Shares issued to
such Purchaser on the Initial Issuance Date pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate amount of all the
Preferred Shares issued to the Purchasers on the Initial Issuance Date pursuant
to the Securities Purchase Agreement (the "Cap Allocation Amount"). In the event
that any Purchaser shall sell or otherwise transfer any of such Purchaser's
Preferred Shares, the transferee shall be allocated a pro rata portion of such
Purchaser's Cap Allocation Amount. In the event that any holder of Preferred
Shares shall convert all of such holder's Preferred Shares into a number of
shares of Common Stock which, in the aggregate, is less than such holder's Cap
Allocation Amount and such holder does not have any right to purchase any
Additional Preferred Shares pursuant to the Securities Purchase Agreement, then
the difference between such holder's Cap Allocation Amount and the number of
shares of Common Stock actually issued to such holder shall be allocated to the
respective Cap Allocation Amounts of the remaining holders of Preferred Shares
on a pro rata basis in proportion to the number of Preferred Shares then held by
each such holder.
(14) Vote to Change the Terms of Preferred Shares. The affirmative
vote at a meeting duly called for such purpose or the written consent without a
meeting, of the holders of not less than of two-thirds (_) of the then
outstanding Preferred Shares, shall be required for (A) any change to this
Certificate of Amendment or the Corporation's Certificate of Incorporation which
would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares and (B) the issuance of Preferred
Shares other than pursuant to the Securities Purchase Agreement.
(15) Lost or Stolen Certificates. Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates representing the
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Corporation in customary form
and, in the case of mutilation, upon surrender and cancellation of the Preferred
Stock Certificate(s), the Corporation shall execute and deliver new preferred
stock certificate(s) of like tenor and date; provided, however, the Corporation
shall not be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Corporation to convert such Preferred Shares into
Common Stock.
(16) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Amendment shall
be cumulative and in addition to all other remedies available under this
Certificate of Amendment, 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 with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Corporation to comply with the terms of this Certificate of
Amendment. The Corporation covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Corporation (or the
performance thereof). The Corporation acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Corporation therefore agrees that, in the event of any such
breach or threatened breach, the holders of the Preferred Shares 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.
(17) Specific Shall Not Limit General; Construction. No specific
provision contained in this Certificate of Amendment shall limit or modify any
more general provision contained herein. This Certificate of Amendment shall be
deemed to be jointly drafted by the Corporation and all Buyers and shall not be
construed against any person as the drafter hereof.
(18) Failure or Indulgence Not Waiver. No failure or delay on the
part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall
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<PAGE>
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.
(19) Notice. Whenever notice is required to be given under these
Articles of Amendment, unless otherwise provided herein, such notice shall be
given in accordance with Section 9(f) of the Securities Purchase Agreement.
(20) Conversion Notice. The following shall be the form of
Conversion Notice for the conversion of the Preferred Shares:
ISSUER
CONVERSION NOTICE
Reference is made to the Certificate of Amendment of The Netplex Group, Inc.,
filed with the Secretary of State of the State of New York on March __, 2000
(the "Certificate of Amendment"). In accordance with and pursuant to the
Certificate of Amendment, the undersigned hereby elects to convert the number of
shares of the Series D Convertible Preferred Stock, par value $0.01 per share
(the "Preferred Shares"), of The Netplex Group, Inc., a New York corporation
(the "Corporation"), indicated below into shares of Common Stock, par value
$0.001 per share (the "Common Stock"), of the Corporation, by tendering the
stock certificate(s) representing the share(s) of Preferred Shares specified
below as of the date specified below.
Date of Conversion:_______________________________________________________
Number of Preferred Shares to be converted:_______________________________
Stock certificate no(s). of Preferred Shares to be converted:_____________
Please confirm the following information:
Conversion Price:_________________________________________________________
Number of shares of Common Stock to be issued:____________________________
Is the Variable Price being relied on pursuant to Section 2(f)(iii) of the
Certificate of Amendment? (check one) YES |_| No |_|
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Corporation
in the following name and to the following address:
Issue to:_________________________________________________________________
Address:__________________________________________________________________
__________________________________________________________________
EIN:
Facsimile Number:_________________________________________________________
Authorization:____________________________________________________________
By:_______________________________________________________
Title:____________________________________________________
Dated:____________________________________________________________________
Account Number (if electronic book entry transfer):_______________________
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Transaction Code Number (if electronic book entry transfer): _____________
25
<PAGE>
ACKNOWLEDGMENT
The Corporation hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated ___________ ___,
2000 from the Corporation and acknowledged and agreed to by [TRANSFER AGENT].
THE NETPLEX GROUP, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
* * * * *
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FIFTH: The foregoing amendment to the Certificate of Incorporation was
authorized and approved by unanimous written consent of the Board of
Directors of the corporation, pursuant to the authority expressly
vested in it in the Corporation's Certificate of Incorporation.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to its
Certificate of Incorporation to be signed by Gene F. Zaino, its Chairman & CEO,
as of the 24th day of March 2000.
THE NETPLEX GROUP, INC.
By: /s/ GENE F. ZAINO
-------------------------------------
Name: GENE F. ZAINO
-----------------------------------
Its: CHAIRMAN & CEO
------------------------------------
Ex-4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of March 28,
2000, by and among The Netplex Group, Inc., a New York corporation, with
headquarters located at 1800 Robert Fulton Drive, Suite 250, Reston, Virginia
20191 (the "Company"), and the investors listed on the Schedule of Buyers
attached hereto (individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
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 "1933 Act");
B. The Company has authorized the following new series of its preferred
stock, par value $0.01 per share: the Company's Series D Convertible Preferred
Stock (the "Preferred Stock"), which shall be convertible into shares of the
Company's common stock, par value $0.001 per share (the "Common Stock") (as
converted, the "Conversion Shares"), in accordance with the terms of the
Company's Certificate of Amendment to its Certificate of Incorporation for the
Preferred Stock, substantially in the form attached hereto as Exhibit A (the
"Certificate of Amendment");
C. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement (i) the number of shares of Preferred Stock in the respective
amounts set forth opposite each Buyer's name on the Schedule of Buyers (which
number of Preferred Stock to be issued to all Buyers in the aggregate shall
equal 10,000 shares of Preferred Stock (the "Initial Preferred Shares")) and
(ii) warrants, substantially in the form attached hereto as Exhibit B (the
"Initial Warrants"), to acquire a number of shares of Common Stock for each
Initial Preferred Share purchased equal to the result of (a) $570, divided by
(b) the average of the Weighted Average Prices (as defined in the Initial
Warrants) of the Common Stock for the 30 consecutive trading days beginning on
and including the first trading day after the date on which the Company files a
Form 8-K or Form 10-K with the SEC describing the terms of the offering of
Preferred Stock pursuant to the first sentence of Section 4(j) (as exercised,
collectively, the "Initial Warrant Shares");
D. Subject to the terms and conditions set forth in this Agreement, each
Buyer has the right to purchase and the Company may be required to sell (i) a
number of additional shares of Preferred Stock equal to such Buyer's pro rata
portion of a total of 5,000 shares of Preferred Stock (based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares issued) (collectively, the "Additional Preferred
Shares") and (ii) warrants, substantially in the form of Exhibit B (the
"Additional Warrants"), to acquire a number of shares of Common Stock for each
Additional Preferred Share purchased equal to the result of (a) $570, divided by
(b) the average of the Weighted Average Prices (as defined in the Additional
Warrants) of the Common Stock for the 15 consecutive trading days beginning on
and including the first trading day after the Call Trigger Date (as defined
below) (as exercised, collectively, the "Additional Warrant Shares"); the
Initial Preferred Shares and the Additional Preferred Shares collectively are
referred to in this Agreement as the "Preferred Shares"; the Initial Warrants
and the Additional Warrants collectively are referred to in this Agreement as
the "Warrants"; and the Initial Warrant Shares, and the Additional Warrant
Shares are collectively referred to in this Agreement as the "Warrant Shares";
and
E. Contemporaneously with the execution and delivery of this Agreement,
the Company and each Buyer are executing and delivering a Registration Rights
Agreement substantially 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 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
<PAGE>
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares. Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6(a) and 7(a) below, the Company
shall issue and sell to each Buyer and each Buyer severally agrees to purchase
from the Company the respective number of Initial Preferred Shares set forth
opposite such Buyer's name on the Schedule of Buyers, along with Initial
Warrants to acquire a number of shares of Common Stock for each Initial
Preferred Share purchased equal to the result of (a) $570, divided by (b) the
average of the Weighted Average Prices (as defined in the Initial Warrants) of
the Common Stock for the 30 consecutive trading days beginning on and including
the first trading day after the date on which the Company files a Form 8-K or
Form 10-K with the SEC describing the terms of the offering of Preferred Stock
pursuant to the first sentence of Section 4(j) (the "Initial Closing"). Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 1(c),
6(b) and 7(b), at the option of each Buyer, the Company shall issue at multiple
closings, if applicable, and sell to each such Buyer and each such Buyer may
purchase from the Company that number of Additional Preferred Shares equal to
such Buyer's pro rata portion of 5,000 Additional Preferred Shares (based on the
number of Initial Preferred Shares each Buyer purchased in relation to the total
number of Initial Preferred Shares issued), along with the Additional Warrants
to purchase a number of Additional Warrant Shares per Additional Preferred Share
equal to the result of (i) $570, divided by (ii) the average of the Weighted
Average Prices (as defined in the Additional Warrants) of the Common Stock for
the 15 consecutive trading days beginning on and including the first trading day
after the Call Trigger Date (each an "Additional Closing" and collectively with
the Initial Closing, the "Closings."). The purchase price (the "Purchase Price")
of each Preferred Share and the related Warrants at each of the Closings shall
be an aggregate of $1,000. "Business Days" means any day other than Saturday,
Sunday or other day on which commercial banks in the City of New York are
authorized or required by law to remain closed.
b. The Initial Closing Date. The date and time of the Initial
Closing (the "Initial Closing Date") shall be 10:00 a.m. Central Time, within
three (3) Business Days following the date hereof, subject to the satisfaction
(or waiver) of the conditions to the Closing set forth in Sections 6(a) and 7(a)
(or such later date as is mutually agreed to by the Company and the Buyers). The
Initial Closing shall occur on the Initial Closing Date at the offices of Katten
Muchin Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
c. The Additional Closing Date. The date and time of each Additional
Closing (an "Additional Closing Date") shall be 10:00 a.m. Central time, on the
date specified in the Additional Share Notice (as defined below), subject to
satisfaction (or waiver) of the conditions to each Additional Closing set forth
in Sections 6(b) and 7(b) and the conditions contained in this Section 1(c) (or
such later date as is mutually agreed to by the Company and each Buyer
purchasing Preferred Shares at such Closing). At any time during the period
beginning on and including the Call Trigger Date and ending on and including the
date which is two (2) years after the Call Trigger Date, but subject to the
requirements of Sections 6(b) and 7(b) and the conditions contained in this
Section 1(c); each Buyer may purchase, at such Buyer's option, Additional
Preferred Shares and the related Additional Warrants by delivering written
notice to the Company (a "Additional Share Notice") at least five Business Days
(the "Additional Share Notice Date") prior to the Additional Closing Date set
forth in the Additional Share Notice. The Additional Share Notice shall set
forth (i) the number of Additional Preferred Shares along with the related
Additional Warrants such Buyer will purchase at such Additional Closing which
number shall not exceed such Buyer's pro rata portion of 5,000 Additional
Preferred Shares (based on the number of Initial Preferred Shares each Buyer
purchased in relation to the total number of Initial Preferred Shares issued),
(ii) the aggregate Purchase Price for the Additional Preferred Shares and the
related Additional Warrants to be purchased and (iii) the Additional Closing
Date. "Call Trigger Date" shall mean (I) the earlier of (A) the date the Company
files its Form 10-Q for the three months ended June 30, 2000, if such Form 10-Q
does not disclose that on or before August 1, 2000 the Company (x) consummated
the Subsequent Financing (as defined below), and (y) obtained a new credit
facility with a bank providing immediately available funds of at least
$5,000,000 on commercially reasonable terms (the "Credit Facility") or (B)
August 14, 2000, if the Company fails to file its Form 10-Q for the three months
ended June 30, 2000 on or before August 14, 2000, unless the Company has
publicly disclosed prior to August 14, 2000 that on or before August 1, 2000 the
Company (x) consummated the Subsequent Financing and (y) obtained the Credit
Facility,
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or (II) any date subsequent to (y) the date the Company files its Form 10-Q for
the three months ended June 30, 2000 or (z) August 14, 2000 if the Company fails
to file such form 10-Q on or before August 14, 2000, on which the Company
publicly discloses that the Credit Facility is not effective and available, or a
new credit facility with a bank which has terms which are no less favorable to
the Company than, and for an amount not less than, the Credit Facility is
effective and available. The Additional Closing shall occur on an Additional
Closing Date at the offices of Katten Muchin Zavis, 525 West Monroe Street,
Suite 1600, Chicago, Illinois 60661-3693. The Initial Closing Date and the
Additional Closing Dates collectively are referred to in this Agreement as the
"Closing Dates". For purposes of this Section 1(c), "Subsequent Financing" means
the sale by the Company of shares of Common Stock or securities convertible into
or exercisable or exchangeable for shares of Common Stock which (i) includes net
proceeds to the Company of at least $5,000,000 at the time such offering is
consummated, (ii) is classified as equity under U.S. Generally Accepted
Accounting Principles, (iii) does not include or involve, directly or
indirectly, the exercise, conversion or exchange of any securities or rights
outstanding on March 28, 2000, and (iv) is not pursuant to any agreement entered
into by the Company prior to March 28, 2000 nor any amendment to any such
agreement.
d. Form of Payment. On each of the Closing Dates, (i) each Buyer
purchasing Preferred Shares and Warrants at such Closing shall pay the Purchase
Price to the Company for the Preferred Shares and the related Warrants to be
issued and sold to such Buyer at such Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, less
any amount withheld for expenses pursuant to Section 4(i), and (ii) the Company
shall deliver to each Buyer, stock certificates (in the denominations as such
Buyer shall request) (the "Preferred Stock Certificates") representing such
number of the Preferred Shares which such Buyer is then purchasing hereunder
along with warrants representing the related Warrants, duly executed on behalf
of the Company and registered in the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof (the
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "Securities"), for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of 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 under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire the Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with 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 requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
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accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a form reasonably acceptable to the Company,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act, as amended, (or a successor rule thereto) ("Rule 144"); (ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
Notwithstanding the foregoing, the Securities may be pledged in connection with
a bona fide margin account or other loan secured by the Securities.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF
COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II)
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel,
in a form reasonably acceptable to the Company, to the effect that a public
sale, assignment or transfer of the Securities may be made without registration
under the 1933 Act, or (iii) such holder provides the Company with a
representation letter in the form attached hereto as Exhibit E (a
"Representation Letter") relating to the sale of the Securities pursuant to Rule
144.
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h. Authorization; Enforcement; Validity. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and are valid and binding agreements of
such Buyer enforceable against such Buyer in accordance with their terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that jurisdiction
specified in its address on the Schedule of Buyers.
j. No Other Agreements. Such Buyer has not, directly or indirectly,
made any agreements with the Company relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. Except as set forth in
Schedule 3(a), the Company and its "Subsidiaries" (which for purposes of this
Agreement means any entity in which the Company, directly or indirectly, owns
capital stock or holds an equity or similar interest of an amount greater than
fifty percent (50%) of the total equity or similar interest of such entity) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below) or the
Certificate of Amendment. A complete list of entities in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest in an amount greater than one percent (1%) of the total equity of such
entity is set forth in Schedule 3(a).
b. Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5), the Warrants
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of the Transaction
Documents of the Company and the execution and filing of the Certificate of
Amendment by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
the Preferred Shares and the Warrants and the reservation for issuance and the
issuance of the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise thereof, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders. The Transaction Documents have been
duly executed and delivered by the Company. The Transaction Documents constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
Certificate of Amendment has been filed on or prior to the Closing Date with the
Department of State of the State of New York and will be in full force and
effect, enforceable against the Company in accordance with its terms and shall
not have been amended unless in compliance with its terms.
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c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 40,000,000 shares of Common Stock,
of which as of March 24, 2000, 17,797,755 shares are issued and outstanding,
5,199,362 shares are reserved for issuance pursuant to the Company's stock
option and purchase plans and 8,061,390 shares are issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares and the
Warrants or shares reserved for issuance pursuant to the Company's stock option
and purchase plans) exercisable or exchangeable for, or convertible into, shares
of Common Stock and during the period between March 24, 2000 and the date
hereof, no additional issuances of Common Stock have been made which in the
aggregate exceed 50,000 shares of Common Stock and (ii) 6,000,000 shares of
Preferred Stock, of which as of the date hereof, 1,904,438 shares have been
designated as Series A Preferred Stock of which 80,597 shares are issued and
outstanding; 1,500,000 shares have been designated Series B Preferred Stock of
which no shares are issued and outstanding; and 1,500,000 shares have been
designated Series C Preferred Stock of which 1,500,000 shares are issued and
outstanding. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), (A) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights (other than antidilution or
similar rights) or any liens or encumbrances suffered or permitted by the
Company; (B) there are no outstanding debt securities issued by the Company; (C)
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, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings 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 or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (D) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement); (E) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (F) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; and (G) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement. The Company has furnished to each Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's Bylaws, as amended and as in effect on the date hereof (the "Bylaws"),
and the terms of all securities convertible into or exercisable for Common Stock
and the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issuance thereof and (iii) entitled to the
rights and preferences set forth in the Certificate of Amendment. 2,300,000
shares of Common Stock (subject to adjustment pursuant to the Company's covenant
set forth in Section 4(f) below) have been duly authorized and reserved for
issuance upon conversion of the Preferred Shares and upon exercise of the
Warrants. Upon conversion or exercise in accordance with the Certificate of
Amendment or the Warrants, as the case may be, the Conversion Shares and the
Warrant Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock.
Assuming the accuracy of the Buyer's representations and warranties as to
factual matters contained in Section 2, the issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
e. No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Amendment and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the reservation for issuance and issuance of the Conversion Shares
and the Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation, any Certificate of Amendment, Preferences and Rights of any
outstanding series of preferred stock of the Company or the Bylaws; (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, acceleration or cancellation of, any material agreement,
indenture or instrument to which
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the Company or any of its Subsidiaries is a party; (iii) result in a violation
of any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market (as defined below)) 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. Neither the Company nor its Subsidiaries is
in violation of any term of its Certificate of Incorporation, any Certificate of
Amendment, Preferences and Rights of any outstanding series of preferred stock
of the Company or Bylaws or their organizational charter or bylaws,
respectively. Except as disclosed in Schedule 3(e), neither the Company or any
of its Subsidiaries is in violation or any term of or in default under any
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, except where such violations and defaults would not result,
either individually or in the aggregate, in a Material Adverse Effect. The
Company has not violated any term of and is in compliance with all the terms and
conditions of (i) each security issued by the Company to The Zanett Securities
Corporation or any predecessor or successor thereto or any affiliate or client
of The Zanett Securities Corporation ("Zanett") and (ii) each agreement to which
the Company and Zanett are parties. The business of the Company and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, ordinance or regulation of any governmental entity, except where such
violations would not result, either individually or in the aggregate, in a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, 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 or
contemplated by the Transaction Documents or to perform its obligations under
the Certificate of Amendment, in each case in accordance with the terms hereof
or thereof. Except as disclosed in Schedule 3(e), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are unaware of any facts or
circumstances which may reasonably be expected to give rise to any of the
foregoing. The Company is not in violation of the listing requirements of the
Principal Market, including, without limitation, the requirements set forth in
Rule 4310(c)(25)(H) of the Principal Market and has no actual knowledge of any
facts which would reasonably lead to delisting or suspension of the Common Stock
by the Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since December 31,
1997, the Company has filed 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 "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). A complete list of the SEC Documents is set forth on Schedule 3(f)
hereto. As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents. 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 exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d), contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading. Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided the Buyers with any
material, nonpublic information, except for the Disclosed Information (as
defined below). On April 20, 2000, the Company will meet the requirements for
the use of Form S-3 for registration of the resale of the Registrable Securities
(as defined in the Registration Rights Agreement). The "Disclosed Information"
is certain information
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disclosed by the Company to each Buyer (i) on March 24, 2000 relating to the
draft, dated March 24, 2000, of the Company's Form 10-K for the year ended
December 31, 1999 (the "Draft 10-K") and (ii) on March 20, 2000 relating to
Zanett exercising its right to purchase additional prepaid warrants and
incentive warrants from the Company.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g), the Draft 10-K or as disclosed in the SEC Documents filed with the SEC on
EDGAR at least five (5) days prior to the date hereof, since December 31, 1998
there has been no material adverse change and no material adverse development in
the business, properties, assets, operations, results of operations or financial
conditions of the Company or its Subsidiaries. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact which
would reasonably lead a creditor to do so. Except as disclosed in Schedule 3(g)
or as disclosed in the SEC Documents filed with the SEC on EDGAR at least five
(5) days prior to the date hereof, since December 31, 1998 the Company has not
declared or paid any dividends, sold any assets, individually or in the
aggregate, in excess of $100,000 outside of the ordinary course of business or
had capital expenditures, individually or in the aggregate, in excess of
$100,000 outside the ordinary course of business.
h. Absence of Litigation. Except as disclosed in the SEC
Documents filed with the SEC on EDGAR at least five (5) days 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, the Common Stock or any of the
Subsidiaries or any of the Company's or the Subsidiaries' officers or directors
in their capacities as such, except as expressly set forth in Schedule 3(h).
Except as set forth in Schedule 3(h), to the knowledge of the Company none of
the directors or officers of the Company have been involved in securities
related litigation during the past five years.
i. Acknowledgment Regarding Buyer's Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the Certificate of Amendment and the transactions
contemplated hereby and thereby. The Company further acknowledges that each
Buyer is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
Certificate of Designation and the transactions contemplated hereby and thereby
and any advice given by any of the Buyers or any of their respective
representatives or agents in connection with the Transaction Documents and the
Certificate of Amendment and the transactions contemplated hereby and thereby is
merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. Intentionally Omitted.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. 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 require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
m. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise
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of the Warrants will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares in accordance with this Agreement and the Certificate of
Amendment and its obligation to issue the Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Warrants, is, in each case,
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
n. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union which relates to
such employee's relationship with the Company, neither the Company nor any of
its Subsidiaries is a party to a collective bargaining agreement. No executive
officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company
that such officer intends to leave the Company or otherwise terminate such
officer's employment with the Company. No executive officer, to the knowledge of
the Company and its Subsidiaries, is in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant.
o. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct their respective businesses as now conducted. Except as set forth on
Schedule 3(o), none of the Company's trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other intellectual property rights necessary to conduct its business as now
conducted have expired or terminated, or are expected to expire or terminate
within two years from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, trade secrets or other intellectual property rights of others, or of
any development of similar or identical trade secrets or technical information
by others and, except as set forth on Schedule 3(o), there is no claim, action
or proceeding being made or brought against, or to the Company's knowledge,
being threatened against, the Company or its Subsidiaries regarding its
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, trade secrets,
or infringement of other intellectual property rights; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing, except where any of the foregoing would not result, either
individually or in the aggregate, in a Material Adverse Effect. The Company and
its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
p. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval except where, in each of the
three foregoing cases, the failure to so comply would not result, either
individually or in the aggregate, in a Material Adverse Effect.
q. 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(q) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and facilities by the
Company and its Subsidiaries.
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r. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect, taken as a
whole.
s. Regulatory Permits. Except for the absence of which would
not result, either individually or in the aggregate, in a Material Adverse
Effect, the Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
t. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
u. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or could reasonably be expected in the
future to have a Material Adverse Effect.
v. Tax Status. The Company and each of its Subsidiaries (i)
has made or filed all federal and state 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), (ii) 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 for which the Company has made appropriate reserves for on its
books, and (iii) 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 (referred to in clause (i) above) apply. 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.
w. Transactions With Affiliates. Except as set forth on
Schedule 3(w) and in the SEC Documents filed at least ten days prior to the date
hereof, and other than the grant of stock options disclosed on Schedule 3(c),
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
x. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and the Buyers'
ownership of the Securities.
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y. Rights Agreement. The Company has not adopted a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.
z. 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 of its Subsidiaries has, in the course of
its 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, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
aa. Year 2000 Compliance. The Company believes that the
computer applications that are currently material to its or any Subsidiary's
business and operations are reasonably expected to be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000.
bb. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
cc. Series C Convertible Preferred Stock. Waterside Capital
Corporation, a Virginia corporation, is the only holder of the Company's Series
C Convertible Preferred Stock and the warrants issued in connection with the
issuance of the Series C Convertible Preferred Stock.
dd. The Pennsylvania Merchant Group and Farris, Baker and
Watts, Inc. Warrants. The warrants issued to The Pennsylvania Merchant Group on
October 21, 1999 and to Farris, Baker and Watts, Inc. in June, 1998, contain no
anti-dilution provision other than for stock splits, stock dividends, stock
combinations or any similar transactions.
ee. Zanett Placement Agent Agreement. The Amended and Restated
Placement Agency Agreement dated March 22, 2000 between the Company and Zanett
is the only placement agent agreement or similar agreement between the Company
and Zanett and supersedes all prior placement agent or similar agreements
between the Company and Zanett or any affiliate of Zanett.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Form D and Blue Sky. 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 Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for or to
qualify the Securities for sale to the Buyers at each of the Closings pursuant
to this Agreement 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
each Buyer on or prior to the Closing Dates. The Company shall make all filings
and reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following the Closing Date.
c. Reporting Status. Until the date which is 60 days after the date
on which the last Preferred Share or Warrant or right to purchase Preferred
Shares has been converted, exercised or expired, as the case may be (the
"Reporting Period"), the Company shall file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would otherwise permit such
termination.
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d. Use of Proceeds. The Company will use the proceeds from the sale
of the Preferred Shares for working capital purposes.
e. Financial Information. The Company agrees to send the following
to each Investor (as that term is defined in the Registration Rights Agreement)
during the Reporting Period: (i) within two (2) days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports
on Form 10-Q, any Current Reports on Form 8-K and any registration statements
(other than on Form S-8) or amendments filed pursuant to the 1933 Act,
(provided, however, that the Company will have satisfied its obligations under
this clause (i) if the information required by this clause (i) is filed on and
available for retrieval from EDGAR; (ii) on the same day as the release thereof,
facsimile copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders;.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 100% of the number of shares of Common Stock needed to
provide for the issuance of the shares of Common Stock upon conversion of all
outstanding Preferred Shares (without regard to any limitations on conversions)
and 100% of the number of shares of Common Stock needed to provide for the
issuance of the shares of Common Stock upon exercise of all outstanding Warrants
(without regard to any limitations on exercises).
g. Right of Participation. Subject to the exceptions described
below, the Company and its Subsidiaries agrees that during the period beginning
on the date hereof and ending on and including the date which is two hundred
seventy-one (271) days after the Initial Closing Date, neither the Company nor
its Subsidiaries will negotiate or contract with any party for any equity
financing (including any debt financing with an equity component) or issue any
equity securities of the Company or any Subsidiary or securities convertible or
exchangeable into or for equity securities of the Company or any Subsidiary
(including debt securities with an equity component) in any form (a
"Participation Offering") unless it shall have first delivered to each Buyer or
a designee appointed by such Buyer written notice (the "Participation Offering
Notice") describing the proposed Participation Offering, including the size,
terms and conditions thereof, and providing each Buyer an option to purchase up
to its Aggregate Participation Percentage (as defined below) of the securities
to be issued in such Participation Offering (the limitations referred to in this
and the preceding sentence are collectively referred to as the "Capital Raising
Limitations"). For purposes of this Section 4(g), "Aggregate Participation
Percentage" shall mean the percentage obtained by multiplying (I) 75% by (II)
the quotient of (i) the aggregate number of Initial Preferred Shares issued to
such Buyer on the Initial Closing Date by (ii) the aggregate number of Initial
Preferred Shares issued to all the Buyers on the Initial Closing Date. A Buyer
can exercise its option to participate in a Participation Offering by delivering
written notice to the Company within five (5) Business Days after receipt of a
Participation Offering Notice, which notice shall state the quantity of
securities being offered in the Participation Offering that such Buyer will
purchase, up to its Aggregate Participation Percentage, and that number of
securities it is willing to purchase in excess of its Aggregate Participation
Percentage. In the event that one or more Buyers fail to elect to purchase up to
each such Buyer's Aggregate Participation Percentage, then each Buyer which has
indicated that it is willing to purchase a number of securities in such
Participation Offering in excess of its Aggregate Participation Percentage shall
be entitled to purchase its pro rata portion (determined in the same manner as
described in the preceding sentence) of the securities in the Participation
Offering which one or more of the Buyers have not elected to purchase. In the
event the Buyers fail to elect to fully participate in the Participation
Offering within the periods described in this Section 4(g), the Company shall
have 45 days thereafter to sell the securities in the Participation Offering
that the Buyers did not elect to purchase, upon terms and conditions, no more
favorable to the purchasers thereof than specified in the Participation Offering
Notice. In the event the Company has not sold such securities of the
Participation Offering within such 45 day period, the Company shall not
thereafter issue or sell such securities without first offering such securities
to the Buyers in the manner provided in this Section 4(g). The Capital Raising
Limitations shall not apply to (i) a loan from a commercial bank which does not
have any equity feature, (ii) any transaction involving the Company's issuances
of securities (A) as consideration in a merger or consolidation, (B) in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or (C) as consideration for the
acquisition of a business, product, license or other assets by the Company,
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(iii) the issuance of Common Stock or debt in a firm commitment, underwritten
public offering, (iv) the issuance of securities upon exercise or conversion of
the Company's options, warrants or other convertible securities outstanding as
of the date hereof, (v) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option plan,
restricted stock plan or stock purchase plan for the benefit of the Company's
employees, directors or consultants, (vi) the issuance of securities pursuant to
an underwritten offering by the Company in reliance upon Rule 144A under the
1933 Act with proceeds to the Company of at least $50,000,000 and which does not
provide for any demand or piggyback registration rights for at least one (1)
year from the date of the offering, and (vii) the issuance of Common Stock,
without any additional equity component, which meets the following conditions:
(A) the price per share is greater than the average of the Weighted Average
Prices (as defined in the Certificate of Amendment) of the Common Stock for the
five (5) trading days ending on the date immediately preceding the Initial
Closing Date, and (B) on the date of issuance of such shares of Common Stock,
the price per share of such Common Stock is not less than eighty percent (80%)
of the market price of the Common Stock on such date of issuance. The Buyers
shall not be required to participate or exercise their right of first refusal
with respect to a particular Participation Offering in order to exercise their
right of first refusal with respect to later Participation Offerings.
h. Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and 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 Registrable Securities from time to time
issuable under the terms of the Transaction Documents and the Certificate of
Amendment. The Company shall maintain the Common Stock's authorization for
quotation on the Nasdaq National Market or the Nasdaq Small Cap Market or listed
on The New York Stock Exchange or The American Stock Exchange (as applicable,
the "Principal Market"). The Company shall promptly, and in no event later than
the following Business Day, offer to provide to each Buyer copies of any notices
it receives from the Principal Market regarding the continued eligibility of the
Common Stock for listing on such automated quotation system or securities
exchange. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(h).
i. Expenses. Subject to Section 9(l) below, at or before the
Closing, the Company shall pay an expense allowance of $50,000 to HFTP
Investment L.L.C. (a Buyer) or their designee(s), which amount shall be paid
prior to Closing or withheld by such Buyer from its Purchase Price to be paid at
the Closing. HFTP Investment L.L.C. acknowledges that it has received $30,000 of
such amount prior to the Closing.
j. Filing of Form 8-K or Form 10-K. On or before March 30, 2000, the
Company shall file a Form 8-K or Form 10-K with the SEC describing the terms of
the transactions contemplated by the Transaction Documents and including as
exhibits to such Form 8-K or Form 10-K this Agreement, the Certificate of
Amendment, the Registration Rights Agreement and the Form of Warrant, in the
form required by the 1934 Act. On or before the first (1st) Business Day
following each Additional Closing Date the Company shall file a Form 8-K with
the SEC describing the transaction consummated or proposed on such date. On or
prior to the date the Company files the Form 8-K or Form 10-K with the SEC
relating to the Initial Closing Date referred to in the first sentence of this
Section 4(j), the Company shall publicly disclose the Disclosed Information by
filing with the SEC the Company's Form 10-K for the year ended December 31,
1999.
k. Transactions With Affiliates. So long as (i) any Preferred Shares
or Warrants are outstanding or any Buyer has the right to purchase any
Additional Preferred Shares or (ii) any Buyer owns Conversion Shares or Warrant
Shares with a market value equal to or greater than $500,000, the Company shall
not, and shall cause each of its Subsidiaries not to, enter into, amend, modify
or supplement any agreement, transaction, commitment or arrangement with any of
its or any Subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two years, stockholders who
beneficially own 5% or more of the Common Stock, or affiliates of the Company or
its Subsidiaries or with any individual related by blood, marriage or adoption
to any such individual or with any entity in which any such entity or individual
owns a 5% or more beneficial interest (each a "Related Party"), except for (a)
customary employment arrangements and benefit programs on reasonable terms, (b)
any agreement, transaction, commitment or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, or (c) any
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agreement, transaction, commitment or arrangement which is approved by a
majority of the disinterested directors of the Company. For purposes hereof, any
director who is also an officer of the Company or any Subsidiary shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "Control" or
"controls" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
l. Proxy Statement. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which
meeting shall occur on or before the earlier of (A) the date which is 60 days
after the Proxy Statement Triggering Date (as defined below) and (B) June 30,
2001 (the "Stockholder Meeting Deadline"), a proxy statement, which has been
previously reviewed by the Buyers and a counsel of their choice, soliciting each
such stockholder's affirmative vote at such annual stockholder meeting for
approval of the Company's issuance of all of the Securities as described in this
Agreement in accordance with applicable law and the rules and regulations of the
Principal Market (such affirmative approval being referred to herein as the
"Stockholder Approval" and the Company shall use its best efforts to solicit its
stockholders' approval of such issuance of the Securities and to cause the Board
of Directors of the Company to recommend to the stockholders that they approve
such proposal. Such proxy statement shall not seek approval of any matters other
than the approval described in the preceding sentence and the election of
directors. If the Company fails to hold a meeting of its stockholders by the
Stockholder Meeting Deadline, then, as partial relief (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Preferred Shares an amount in cash per Preferred
Share equal to the product of (i) the Purchase Price multiplied by (ii) .02
multiplied by (iii) the quotient of (x) the number of days after the Stockholder
Meeting Deadline and prior to the date that a meeting of the Company's
stockholders is held, divided by (y) 30. The Company shall make the payments
referred to in the immediately preceding sentence within five days of the
earlier of (I) the filing of the proxy statement or the holding of the meeting
of the Company's stockholders, the failure of which resulted in the requirement
to make such payments, and (II) the last day of each 30-day period beginning on
the Stockholder Meeting Deadline. In the event the Company fails to make such
payments in a timely manner, such payments shall bear interest at the rate of
2.0% per month (pro rated for partial months) until paid in full. "Proxy
Statement Triggering Date" shall mean the first date after the date of this
Agreement on which the sum of (A) the number of shares of Common Stock
previously issued upon conversion of any of the shares of Preferred Stock, (B)
the number of shares of Common Stock issuable upon conversion of all the
outstanding shares of Preferred Stock based on the Conversion Price in effect on
the date of such determination (without regard to any limitation upon the
conversion), (C) the number of shares of Common Stock previously issued upon
exercise of the Warrants, (D) and the number of shares of Common Stock issuable
upon exercise of all the outstanding Warrants (without regard to any limitation
upon exercise) and (E) on or after the Call Trigger Date, the number of shares
of Common Stock which would be issuable upon conversion of the 5,000 Additional
Preferred Shares and exercise of the related Additional Warrants, as if such
Additional Preferred Shares and Additional Warrants were outstanding on such
date of determination (without regard to any limitation upon the conversion of
the Additional Preferred Shares or exercise of the Additional Warrants) equals
or exceeds 15% of the number of shares of Common Stock issued and outstanding
immediately prior to the Closing Date.
m. Corporate Existence. So long as a Buyer beneficially owns any
Preferred Shares or Warrants or has the right to purchase any Additional
Preferred Shares, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is quoted on or listed for trading on the
Principal Market.
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5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of each Buyer or its respective nominee(s), for the Conversion Shares
and the Warrant Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Preferred Shares or exercise of the
Warrants (the "Irrevocable Transfer Agent Instructions"). Prior to registration
of the Conversion Shares and the Warrant Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(g). The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5 and stop transfer instructions to
give effect to Section 2(f) (in the case of the Conversion Shares and the
Warrant Shares, prior to registration of the Conversion Shares and the Warrant
Shares under the 1933 Act) 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. If a Buyer provides the Company with an opinion
of counsel, in a form reasonably acceptable to the Company, to the effect that a
public sale, assignment or transfer of the Securities may be made without
registration under the 1933 Act or the Buyer provides the Company with a
Representation Letter (as defined in Section 2(g)) relating to the sale of the
Securities pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer and without any restrictive legend. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company to issue and
sell the Initial Preferred Shares and the Initial Warrants to each Buyer at the
Initial Closing is subject to the satisfaction, at or before the Initial Closing
Date, of each of the following conditions, 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 by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
(ii) The Certificate of Amendment shall have been filed with the
Department of State of the State of New York.
(iii) Such Buyer shall have delivered to the Company the Purchase
Price (less in the case of HFTP Investment L.L.C., the amounts withheld
pursuant to Section 4(i)) for the Initial Preferred Shares and the Initial
Warrants being purchased by such Buyer at the Initial Closing by wire
transfer of immediately available funds pursuant to the wire instructions
provided by the Company.
(iv) The representations and warranties of such Buyer shall be true
and correct as of the date when made and as of the Initial Closing Date as
though made at that time (except for representations and warranties that
speak as of a specific date), and such Buyer shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by such Buyer at or prior to the Initial Closing Date.
b. Additional Closing Date. The obligation of the Company hereunder
to issue and sell the Additional Preferred Shares and the Additional Warrants to
each Buyer at each Additional Closing is subject to the satisfaction, at or
before such Additional Closing Date, of each of the following conditions,
provided that these
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<PAGE>
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:
(i) Such Buyer shall have delivered to the Company the Purchase
Price for the Additional Preferred Shares and the related Additional
Warrants being purchased by such Buyer at the applicable Additional
Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be true
and correct as of the date when made and as of the applicable Additional
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to the applicable
Additional Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer hereunder to
purchase the Initial Preferred Shares and the Initial Warrants from the Company
at the Initial Closing is subject to the satisfaction, at or before the Initial
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:
(i) The Company shall have executed each of the Transaction
Documents and delivered the same to such Buyer.
(ii) The Certificate of Amendment, shall have been filed with the
Department of State of the State of New York, and a copy thereof certified
by such Department of State shall have been delivered to such Buyer.
(iii) The Common Stock (x) shall be designated for quotation or
listed on the Principal Market and (y) shall not have been suspended by
the SEC or the Principal Market from trading on the Principal Market nor
shall suspension by the SEC or the Principal Market have been threatened
either (A) in writing by the SEC or the Principal Market or (B) by falling
below the minimum listing maintenance requirements of the Principal
Market; and the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise of the Preferred Shares and the related Warrants,
as the case may be shall be listed upon the Principal Market.
(iv) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Initial Closing Date as
though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to the Initial Closing Date. Such
Buyer shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Initial Closing Date, to the
foregoing effect and as to such other matters as may be reasonably
requested by such Buyer including, without limitation, an update as of the
Initial Closing Date regarding the representation contained in Section
3(c) above.
(v) Such Buyer shall have received the opinion of Venable Baetjer
Howard & Civiletti, LLP dated as of the Initial Closing Date, in form,
scope and substance satisfactory to such Buyer.
(vi) Such Buyer shall have received the opinion of Patricia Ann
Lind, Esq. dated as of the Initial Closing Date, in form, scope and
substance satisfactory to such Buyer.
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<PAGE>
(vii) The Company shall have executed and delivered to such Buyer
the Preferred Stock Certificates for the Initial Preferred Shares and the
Initial Warrants (in such denominations as such Buyer shall request) for
the Initial Preferred Shares and the Initial Warrants being purchased by
such Buyer at the Initial Closing.
(viii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "Resolutions").
(ix) As of the Initial Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Initial Preferred Shares and the exercise
of the Initial Warrants, at least 2,300,000 shares of Common Stock.
(x) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent.
(xi) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
active Subsidiary in such entity's state of incorporation or organization
issued by the Secretary of State of such state of incorporation or
organization as of a date within ten days of the Initial Closing Date.
(xii) The Company shall have delivered to such Buyer a certified
copy of the Certificate of Incorporation as certified by the Department of
State of the State of New York as of a date within ten days of the Initial
Closing Date.
(xiii) The Company shall have delivered to such Buyer a secretary's
certificate, dated as the Closing Date, as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) the Bylaws, each as in effect at the
Initial Closing.
(xiv) The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance of
the Securities pursuant to this Agreement in compliance with such laws.
(xv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
b. Additional Closing Dates. The obligation of each Buyer hereunder
to purchase the Additional Preferred Shares and the Additional Warrants from the
Company at each of the applicable Additional Closings is subject to the
satisfaction, at or before each of the Additional Closing Dates, of each of the
following conditions, provided that these conditions are for each Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:
(i) The Company shall have complied with and satisfied all of the
requirements of Section 1(c).
(ii) The Certificate of Amendment, shall be in full force and effect
and shall not have been amended since the Initial Closing Date, and a copy
thereof certified by the Department of State of the State of New York
shall have been delivered to such Buyer.
(iii) The Common Stock (x) shall be designated for quotation or
listed on the Principal Market and (y) shall not have been suspended by
the SEC or the Principal Market from trading on the Principal Market nor
shall suspension by the SEC or the Principal Market have been threatened
either (A) in writing by the SEC or the Principal Market or (B) by falling
below the minimum listing maintenance requirements of the Principal
Market; and the Conversion Shares and the Warrant Shares issuable upon
conversion or
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<PAGE>
exercise of the Additional Preferred Shares and the related Additional
Warrants, as the case may be shall be listed upon the Principal Market.
(iv) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the applicable Additional
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents or the Certificate of
Amendment to be performed, satisfied or complied with by the Company at or
prior to the applicable Additional Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the applicable Additional Closing Date, to the
foregoing effect and as to such other matters as may be reasonably
requested by such Buyer including, without limitation, an update as of the
applicable Additional Closing Date regarding the representation contained
in Section 3(c).
(v) Such Buyer shall have received the opinion of Venable Baetjer
Howard & Civiletti, LLP dated as of the applicable Additional Closing
Date, in form, scope and substance satisfactory to such Buyer.
(vi) Such Buyer shall have received the opinion of Patricia Anne
Lind, Esq. dated as of the applicable Additional Closing Date, in form,
scope and substance satisfactory to such Buyer.
(vii) The Company shall have executed and delivered to such Buyer
the Preferred Stock Certificates for the Additional Preferred Shares and
the Additional Warrants (in such denominations as such Buyer shall
request) for the Additional Preferred Shares and the Additional Warrants
being purchased by such Buyer at the applicable Additional Closing.
(viii) The Board of Directors of the Company shall have adopted, and
shall not have amended, the Resolutions.
(ix) As of the applicable Additional Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Additional Preferred Shares
and exercise of the Additional Warrants being purchased at such Additional
Closing, a number of shares of Common Stock equal to at least 175% of the
number of shares of Common Stock which would be issuable upon conversion
in full of such Additional Preferred Shares (without regard to any
limitations on conversions) and 175% of the number of shares of Common
Stock which would be issuable upon exercise in full of such Additional
Warrants (without regard to any limitations on exercises), as if such
Additional Preferred Shares and Additional Warrants were issued and
outstanding on such Additional Closing Date.
(x) The Irrevocable Transfer Agent Instructions shall remain in
effect as of the applicable Additional Closing Date and the Company shall
cause its Transfer Agent to deliver a letter to such Buyer to that effect.
(xi) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
active Subsidiary in such entity's state of incorporation or organization
issued by the Secretary of State of such state of incorporation or
organization as of a date within ten days of the applicable Additional
Closing Date.
(xii) The Company shall have delivered to such Buyer a certified
copy of the Certificate of Incorporation as certified by the Department of
State of the State of New York as of a date within ten days of the
applicable Additional Closing Date.
(xiii) The Company shall have delivered to such Buyer a secretary's
certificate, dated as the Closing Date, as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) the Bylaws, each as in effect at the
applicable Additional Closing.
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<PAGE>
(xiv) The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance of
the Securities pursuant to this Agreement in compliance with such laws.
(xv) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the applicable
Additional Closing Date.
(xvi) The Initial Registration Statement (as defined in the
Registration Rights Agreement) covering the resale of the Conversion
Shares and Warrant Shares has been declared effective by the SEC on or
prior to the applicable Effectiveness Deadline and at all times since
being declared effective has been effective and available for the sale of
no less than the sum of (A) 100% of the number of Conversion Shares then
issuable upon the conversion of all outstanding Preferred Shares (without
regard to any limitations on conversions), (B) 100% of the number of
Warrant Shares into which all outstanding Warrants are then exercisable
(without regard to any limitations on exercises)and (C) the number of
Conversion Shares and Warrant Shares outstanding, which were acquired upon
conversion or exercise of the Initial Preferred Shares the Initial
Warrants, as the case may be, and held by the Buyers at such time.
(xvii) If the applicable Additional Closing is after the Stockholder
Meeting Deadline, then the Company shall have received Stockholder
Approval on or prior to the Stockholder Meeting Deadline.
(xviii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Amendment, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities
and all of their stockholders, officers, directors, employees and direct or
indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any breach of any representation or warranty made by the Company in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby or (d) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 8 shall be the same as those set forth in
Sections 6(a) and (d) of the Registration Rights Agreement, including, without
limitation, those procedures with respect to the settlement of claims and the
Company's rights to assume the defense of claims.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws of
the State of New York shall govern all issues concerning the relative rights of
the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule
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<PAGE>
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of
the state and federal courts sitting in the City of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
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 in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between each Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyers which purchased at least two-thirds (_) of the Initial
Preferred Shares on the Initial Closing Date or, if prior to the Initial Closing
Date, the Buyers listed on the Schedule of Buyers as being obligated to purchase
at least two-thirds (_) of the Initial Preferred Shares, and no provision hereof
may be waived other than by an instrument in writing signed by the party against
whom enforcement is sought. No such amendment shall be effective to the extent
that it applies to less than all of the holders of the Preferred Shares or
Warrants then outstanding. No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents or the Certificate of Amendment unless the same
consideration also is offered to all of the parties to the Transaction Documents
or holders of the Securities, as the case may be.
f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
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<PAGE>
If to the Company:
The Netplex Group, Inc.
1800 Robert Fulton Drive, Suite 250
Reston, Virginia 20191
Telephone: (703) 262-6875
Facsimile: (703) 716-1110
Attention: Gene F. Zaino
With a copy to:
Venable, Baetjer, Howard & Civiletti, LLP
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Telephone: (202) 429-3245
Facsimile: (202) 429-3231
Attention: Wallace Christner, Esq.
If to the Transfer Agent:
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
Telephone: (718) 921-8254
Facsimile: (718) 921-8328
Attention: Milton Sierra
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Preferred Shares. The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least two-thirds (_) of the Preferred Shares then
outstanding, including by merger or consolidation, except pursuant to a Change
of Control (as defined in Section 4(c) of the Certificate of Amendment) with
respect to which the Company is in compliance with Section 4 of the Certificate
of Amendment. A Buyer may assign some or all of its rights hereunder to (i) a
Permitted Transferee (as defined below) without the consent of the Company and
(ii) to a person which is not a Permitted Transferee with the prior written
consent of the Company, which consent shall not be unreasonably withheld,
provided, however, that any such assignment shall not release such Buyer from
its obligations hereunder unless such obligations are assumed by such assignee
and the Company has consented to such assignment and assumption, to the extent
necessary. Notwithstanding anything to the contrary contained in the Transaction
Documents, the Buyers shall be entitled to pledge the Securities in connection
with a bona fide margin account or other loan secured by the Securities. For
purposes of this Section 9(g), a "Permitted Transferee" shall mean (i) a Buyer,
(ii) an Affiliate (as that term is defined in Rule 501(b) under the 1933 Act) of
a Buyer, (iii) any holder of Preferred Shares or Warrants or rights to purchase
Additional Preferred Shares, (iv) any Affiliate of a holder of Preferred Shares
or Warrants, or (v) any other investment fund that, with such investment fund's
Affiliates, has under management at least $100 million.
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h. No 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 any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closings. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
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 Initial Closing shall not have
occurred with respect to a Buyer on or before five (5) Business Days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse any
nonbreaching Buyers for the expenses described in Section 4(i) above.
m. Placement Agent. The Company acknowledges that it has engaged
J.C. Bradford and Co. as placement agent in connection with the sale of the
Preferred Shares and the related Warrants, which placement agent may have
formally or informally engaged other agents on its behalf. The Company shall be
responsible for the payment of any placement agent's fees or broker's
commissions relating to or arising out of the transactions contemplated hereby.
The Company shall pay, and hold each Buyer harmless against, any liability, loss
or expense (including, without limitation, attorneys' fees and out of pocket
expenses) arising in connection with any such claim.
n. No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and the
Certificate of Amendment and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to the Registration Rights
Agreement, the Certificate of Amendment or Warrants or the Buyers enforce or
exercise their rights hereunder or thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the
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obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
* * * * * *
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IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY: BUYERS:
THE NETPLEX GROUP, INC. HFTP INVESTMENT L.L.C.
By: /s/ GENE F. ZAINO By: Promethean Asset Management L.L.C.
-------------------------------- Its: Investment Manager
Name: GENE F. ZAINO
---------------------------
Title: CHAIRMAN & CEO By: /s/ [ILLEGIBLE]
-------------------------- -------------------------------------
Name:
--------------------------------
Title:
-------------------------------
FISHER CAPITAL LTD.
By: /s/ Daniel J. Hopkins
-------------------------------------
Name: Daniel J. Hopkins
Its: Authorized Signatory
WINGATE CAPITAL LTD.
By: /s/ Daniel J. Hopkins
-------------------------------------
Name: Daniel J. Hopkins
Title: Authorized Signatory
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Number of
Initial
Investor Address Preferred Investor's Legal Representatives'
Investor's Name and Facsimile Number Shares Address and Facsimile Number
- ------------------------------- ------------------------------------- ----------- -----------------------------------
<S> <C> <C> <C>
HFTP Investment L.L.C. Promethean Asset Management L.L.C. 3,400 Promethean Investment Group, L.L.C.
50 Lexington Avenue, 22nd Floor 750 Lexington Ave., 22nd Floor
New York, NY 10022 New York, New York 10022
Attention: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
John Floegel John Floegel
Telephone: (212) 702-5200 Telephone: 212-702-5200
Facsimile: (212) 758-9334 Facsimile: 212-758-9334
Residence: New York
Katten Muchin & Zavis
525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Telephone: (312) 902-5200
Facsimile: (312) 902-1061
Fisher Capital Ltd. _Citadel Investment Group, L.L.C. 4,290 Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel J. Hopkins Attention: Robert J. Brantman, Esq.
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Residence: Cayman Islands
Wingate Capital Ltd. _Citadel Investment Group, L.L.C. 2,310 Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel J. Hopkins Attention: Robert J. Brantman, Esq.
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Residence: Cayman Islands
</TABLE>
<PAGE>
SCHEDULES
Schedule 3(a) Subsidiaries
Schedule 3(c) Capitalization
Schedule 3(e) Conflicts
Schedule 3(f) SEC Documents
Schedule 3(g) Material Changes
Schedule 3(h) Litigation
Schedule 3(o) Intellectual Property
Schedule 3(q) Liens
Schedule 3(w) Certain Transactions
EXHIBITS
Exhibit A Form of Certificate of Amendment for the Series D
Preferred Stock
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Irrevocable Transfer Agent Instructions
Exhibit E Form of Representation Letter
Ex-4.2
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B)
AN OPINION OF COUNSEL, IN A FORM ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY THE SECURITIES.
THE NETPLEX GROUP, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.:___________________
Date of Issuance: ________________, 200_
The Netplex Group, Inc., a New York corporation (the "Company"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ____________________, the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 11:59 P.M. Eastern Standard Time on
the Expiration Date a number of fully paid nonassessable shares of Common Stock
(as defined herein) of the Company equal to the product of (i) the number of
[INITIAL WARRANTS: Initial Preferred Shares (as defined in the Securities
Purchase Agreement (as defined below)) purchased by the initial holder of this
Warrant on the Initial Closing Date (as defined in the Securities Purchase
Agreement)] OR [ADDITIONAL WARRANTS: Additional Preferred Shares (as defined in
the Securities Purchase Agreement) purchased by the initial holder of this
Warrant on the initial date of issuance of this Warrant], multiplied by (ii)
result of (A) $570, divided by (ii) the average of the Weighted Average Prices
(as defined below) of the Common Stock for the [INITIAL WARRANTS: 30 trading
days after the date the Company files a Form 8-K or Form 10-K pursuant to the
first sentence of Section 4(j) of the Securities Purchase Agreement] OR
[ADDITIONAL WARRANTS: 15 trading days after the Call Trigger Date (as defined
the Securities Purchase Agreement)] (the "Warrant Shares") at the purchase price
per share provided in Section 1(b) below; provided, however, that in no event
shall the holder be entitled to exercise this Warrant for a number of Warrant
Shares in excess of that number of Warrant Shares which, upon giving effect to
such exercise, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 5.00% of the
outstanding shares of the Common Stock following such exercise. For purposes of
the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such proviso is being made, but shall exclude shares
of Common Stock which would be issuable upon (i) exercise of the remaining,
unexercised Warrants beneficially owned by the holder and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by the holder and its
affiliates (including, without limitation, any convertible notes or preferred
stock) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange
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Act of 1934, as amended. For purposes of this Warrant, in determining the number
of outstanding shares of Common Stock a holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-Q or Form 10-K, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall promptly, but in no
event later than one (1) Business Day following the receipt of such notice,
confirm in writing to any such holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to conversions of Preferred Shares and
exercise of Warrants (as defined below) by such holder and its affiliates since
the date as of which such number of outstanding shares of Common Stock was
reported.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
Warrants (the "Preferred Share Warrants") issued pursuant to Section 1 of that
certain Securities Purchase Agreement dated as of March 28, 2000, among the
Company and the Persons referred to therein (the "Securities Purchase
Agreement").
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "Approved Stock Plan" shall mean any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities or stock appreciation rights may be issued to any
employee, officer, director or consultant of the Company and such issuance is
for not less than the market price of the Common Stock on the date of issuance.
(ii) "Business Day" means any day other than Saturday, Sunday
or other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.
(iii) "Certificate of Amendment" means the Company's
Certificate of Amendment to the Certificate of Incorporation for the Series D
Convertible Preferred Stock.
(iv) "Closing Sale Price" means, for any security as of any
date, the last closing trade price for such security on the Principal Market (as
defined below) as reported by Bloomberg Financial Markets ("Bloomberg"), or if
the Principal Market begins to operate on an extended hours basis, and does not
designate the closing trade price, then the last trade price at 4:00 p.m.
Eastern Time as reported by Bloomberg, or if the foregoing do not apply, the
last closing trade 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
last closing trade price is reported for such security by Bloomberg, the last
closing ask price of such security as reported by Bloomberg, or, if no last
closing ask price is reported for such security by Bloomberg, the average of the
lowest ask price and lowest bid price of any market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Sale Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Sale Price of such security on such date shall
be the fair market value as mutually determined by the Company and the holders
of the Preferred Shares. If the Company and the holders the Warrant are unable
to agree upon the fair market value of the Common Stock, then such dispute shall
be resolved pursuant to Section 2(a) of this Warrant with the term "Closing Sale
Price" being substituted for the term "Market Price." All such determinations
shall be appropriately adjusted for any stock dividend, stock split or other
similar transaction during such period.
(v) "Common Stock" means (i) the Company's common stock, par
value $0.001 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(vi) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable for
Common Stock.
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(vii) "Excluded Securities" means any of the following: (i) a
loan from a commercial bank which does not have any equity feature, (ii) any
transaction involving the Company's issuances of securities (A) as consideration
in a merger or consolidation, (B) in connection with any strategic partnership
or joint venture (the primary purpose of which is not to raise equity capital),
or (C) as consideration for the acquisition of a business, product, license or
other assets by the Company, (iii) the issuance of Common Stock or debt in a
firm commitment, underwritten public offering, (iv) the issuance of securities
upon exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof, provided, however,
that if the conversion or exercise price of such options, warrants or other
convertible securities is adjusted below the Warrant Exercise Price in effect
[INITIAL WARRANTS: 31 trading days after the date the Company files a Form 8-K
or Form 10-K pursuant to the first sentence of Section 4(j) of the Securities
Purchase Agreement] OR [ADDITIONAL WARRANTS: 16 trading days after the Call
Trigger Date] as a result of the issuance of any of the Preferred Shares, the
Conversion Shares (as defined in the Securities Purchase Agreement), this
Warrant, the Preferred Share Warrants or any shares of Common Stock upon
exercise of this Warrant or any of the Preferred Share Warrants, then for
purposes of Section 8 such options, warrants or other convertible securities
shall not be Excluded Securities and shall be deemed to have been issued on the
date which is [INITIAL WARRANTS: 31 trading days after the date the Company
files a Form 8-K or Form 10-K pursuant to the first sentence of Section 4(j) of
the Securities Purchase Agreement] OR [ADDITIONAL WARRANTS: 16 trading days
after the Call Trigger Date], and (v) the issuance of securities pursuant to an
underwritten offering by the Company in reliance upon Rule 144A under the 1933
Act with proceeds to the Company of at least $50,000,000 and which does not
provide for any demand or piggyback registration rights for at least one (1)
year from the date of the offering.
(viii) "Expiration Date" means the date three years from the
date of this Warrant or, if such date does not fall on a Business Day or on a
day on which trading takes place on the principal exchange or automated
quotation system on which the Common Stock is traded, then the next date
Business Day.
(ix) "Market Price" means, with respect to any security for
any date of determination, that price which shall be computed as the arithmetic
average of the Closing Sale Prices for such security on each of the ten (10)
trading days immediately preceding such date of determination. All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during the pricing period.
(x) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(xi) "Other Securities" means (i) those warrants of the
Company issued prior to, and outstanding on, the date of issuance of this
Warrant, (ii) the Preferred Shares and (iii) the shares of Common Stock issued
upon conversion of the Preferred Shares or exercise of the Preferred Share
Warrants.
(xii) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xiii) "Preferred Shares" means the shares of the Company's
Series D Convertible Preferred Stocks issued pursuant to the Securities Purchase
Agreement.
(xiv) "Principal Market" means the Nasdaq SmallCap Market or
if the Common Stock is not traded on the Nasdaq SmallCap Market, then the
principal securities exchange or trading market for the Common Stock.
(xv) "Registration Right Agreement" means that agreement dated
March 28, 2000 by and among the Company and the Persons referred to therein.
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(xvi) "Securities Act" means the Securities Act of 1933, as
amended.
(xvii) "Warrant" means this Warrant and all Warrants issued in
exchange, transfer or replacement thereof.
(xviii) "Warrant Exercise Price" shall be equal to, with
respect to any Warrant Share, 120% of the average of the Weighted Average Prices
of the Common Stock for the [INITIAL WARRANTS: 30 consecutive trading days
beginning on and including the first trading day after the date on which the
Company files a Form 8-K or Form 10-K with the Securities and Exchange
Commission describing the terms of the offering of Preferred Stock pursuant to
the first sentence of Section 4(j) of the Securities Purchase Agreement] OR
[ADDITIONAL WARRANTS: 15 consecutive trading days beginning on and including the
first trading day after the Call Trigger Date (as defined in the Securities
Purchase Agreement)], subject to adjustment as hereinafter provided.
(xix) "Weighted Average Price" means, for any security as of
any date, the dollar volume-weighted average price for such security on the
Principal Market (as defined below) during normal business hours of such
Principal Market as reported by Bloomberg through its "Volume at Price"
functions or, if the foregoing does not apply, the dollar volume-weighted
average 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 dollar
volume-weighted average price is reported for such security by Bloomberg, the
average of the bid prices of each of the market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Weighted Average Price cannot be calculated for such security on such date on
any of the foregoing bases, the Weighted Average Price of such security on such
date shall be the fair market value as mutually determined by the Company and
the holders of the Preferred Shares. If the Company and the holders of the
Warrant are unable to agree upon the fair market value of the Common Stock, then
such dispute shall be resolved pursuant to Section 2(a) below with the term
"Weighted Average Price" being substituted for the term "Market Price." All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any Business Day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Eastern Standard Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (the "Aggregate Exercise
Price") in cash or wire transfer of immediately available funds or (B) by
notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 2(e), and (iii) the surrender to a
common carrier for overnight delivery to the Company as soon as practicable
following such date, this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction);
provided, that if such Warrant Shares are to be issued in any name other than
that of the registered holder of this Warrant, such issuance shall be deemed a
transfer and the provisions of Section 7 shall be applicable. In the event of
any exercise of the rights represented by this Warrant in compliance with this
Section 2(a), the Company shall on the second (2nd) Business Day following the
date of its receipt of the Exercise Notice, the Aggregate Exercise Price (or
notice of Cashless Exercise) and this Warrant (or an indemnification undertaking
with respect to this Warrant in the case of its loss, theft or destruction) (the
"Exercise Delivery Documents"), credit such aggregate number of shares of Common
Stock to which the holder shall be entitled to the holder's or its designee's
balance account with The Depository Trust Company; provided, however, if the
holder who submitted the Exercise Notice requested physical delivery of any or
all of the Warrant Shares, then the Company shall, on or before the second
Business Day following receipt of all of the Exercise Delivery Documents issue
and
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surrender to a common carrier for overnight delivery to the address
specified in the Exercise Notice, a certificate, registered in the name of the
holder, for the number of shares of Common Stock to which the holder shall be
entitled pursuant to such request. Upon delivery of the Exercise Notice and
Aggregate Exercise Price referred to in clause (ii)(A) above or notification to
the Company of a Cashless Exercise referred to in Section 2(e), the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of this Warrant as required
by clause (iii) above or the certificates evidencing such Warrant Shares. In the
case of a dispute as to the determination of the Warrant Exercise Price, the
Market Price of a security or the arithmetic calculation of the number of
Warrant Shares, the Company shall promptly issue to the holder the number of
shares of Common Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via facsimile within one
(1) Business Day of receipt of the holder's subscription notice. If the holder
and the Company are unable to agree upon the determination of the Warrant
Exercise Price, the Market Price or arithmetic calculation of the number of
Warrant Shares within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the holder, then the Company shall
immediately submit via facsimile (i) the disputed determination of the Warrant
Exercise Price or the Market Price to an independent, reputable investment
banking firm or (ii) the disputed arithmetic calculation of the number of
Warrant Shares to its independent, outside accountant. The Company shall cause
the investment banking firm or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment banking firm's or
accountant's determination or calculation, as the case may be, shall be deemed
conclusive absent manifest error.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in no event later than five (5) Business Days after any exercise and at its
own expense, issue a new Warrant identical in all respects to this Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(d) If the Company shall fail for any reason or for no reason to
issue to the holder within five (5) Business Days of receipt of the Exercise
Delivery Documents, a certificate for the number of shares of Common Stock to
which the holder is entitled or to credit the holder's balance account with The
Depository Trust Company for such number of shares of Common Stock to which the
holder is entitled upon the holder's exercise of this Warrant or a new Warrant
for the number of shares of Common Stock to which such holder is entitled
pursuant to Section 2(b) hereof, the Company shall, in addition to any other
remedies under this Warrant or the Securities Purchase Agreement or otherwise
available to such holder, including any indemnification under Section 8 of the
Securities Purchase Agreement, pay as additional damages in cash to such holder
on each day the issuance of such Common Stock certificate or new Warrant, as the
case may be, is not timely effected an amount equal to 0.5% of the product of
(A) the sum of the number of shares of Common Stock not issued to the holder on
a timely basis and to which the holder is entitled and/or, the number of shares
represented by the portion of this Warrant which is not being converted, as the
case may be, and (B) the average of the Closing Sale Prices of the Common Stock
for the three consecutive trading days immediately preceding the last possible
date which the Company could have issued such Common Stock or Warrant, as the
case may be, to the holder without violating this Section 2.
(e) If, despite the Company's obligations under the Securities
Purchase Agreement and the Registration Rights Agreement, the Warrant Shares to
be issued are not registered and available for resale pursuant to a registration
statement in accordance with the Registration Rights Agreement, then
notwithstanding anything contained herein to the contrary, the holder of this
Warrant may, at its election exercised in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the
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Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to receive upon such exercise the "Net Number" of shares of Common Stock
determined according to the following formula (a "Cashless Exercise"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which this
Warrant is then being exercised.
B= the Closing Sale Price of the Common Stock on the date
immediately preceding the date of the subscription notice.
C= the Warrant Exercise Price then in effect for the
applicable Warrant Shares at the time of such exercise.
(f) Adjustment to Warrant Exercise Price -- Market Price of Common
Stock. In addition to any other adjustment to the Warrant Exercise Price
provided for in this Warrant, in the event that 120% of the Market Price of the
Common Stock on the date which is one (1) year after the issuance date of this
Warrant (the "Reset Date") is less than the Warrant Exercise Price in effect
immediately prior to such Reset Date, then from and after such Reset Date the
Warrant Exercise Price shall be equal to 120% of the Market Price of the Common
Stock on the Reset Date, subject to adjustment as provided herein. Upon a reset
of the Warrant Exercise Price hereunder, the number of shares of Common Stock
acquirable upon exercise of this Warrant shall be adjusted to the number of
shares determined by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Warrant Exercise Price resulting from
such adjustments.
Section 3. Covenants as to Common Stock. The Company hereby covenants and
agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) 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 (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 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.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary
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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 exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. No impairment of the designations, preferences and rights of the
Preferred Shares contained in the Company's Certificate of Designations or any
waiver thereof which has an adverse effect on the rights granted hereunder shall
be given effect until the Company has taken appropriate action (satisfactory to
the holders of Preferred Share Warrants representing at least two-thirds (_) of
the shares of Common Stock issuable upon the exercise of such Preferred Share
Warrants then outstanding) to avoid such adverse effect with respect to 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 Warrant 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.
(f) 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.
Section 4. Taxes. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "Accredited Investor"). Upon exercise of this
Warrant, other than pursuant to a Cashless Exercise, the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale and that such holder is an
Accredited Investor. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
exercise of this Warrant, other than pursuant to a Cashless Exercise, that the
Company receive such other representations as the Company considers reasonably
necessary to assure the Company that the issuance of its securities upon
exercise of this Warrant shall not violate any United States or state securities
laws.
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Section 7. Ownership and Transfer.
(a) 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. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) This Warrant and the rights granted hereunder shall not be
assignable by the holder hereof without the prior written consent of the
Company; provided, however, that this Warrant and the rights granted to the
holder hereof are transferable, in whole or in part, to a Permitted Transferee
(as defined below) without the consent of the Company, which consent shall not
be unreasonably withheld, upon surrender of this Warrant, together with a
properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below. A "Permitted Transferee" shall mean
(i) a Buyer (as defined in the Securities Purchase Agreement), (ii) an Affiliate
(as such term is defined in Rule 501(b) under the Securities Act) of a Buyer,
(iii) any holder of Preferred Shares or Preferred Warrant Shares, (iv) any
Affiliate of a holder of Preferred Shares or Preferred Warrant Shares, or (v)
any other investment fund that, with such investment fund's Affiliates, has
under management at least $100 million.
(c) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
and the initial holder of this Warrant (and certain assignees thereof) is
entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever on or after the [INITIAL WARRANTS:
date of issuance of this Warrant] OR [ADDITIONAL WARRANTS: Call Trigger Date],
the Company issues or sells, or is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
issued or deemed to have been issued by the Company in connection with an
Approved Stock Plan, Excluded Securities or upon exercise or conversion of the
Other Securities) for a consideration per share less than the Warrant Exercise
Price in effect immediately prior to such issuance or sale (the "Applicable
Price"), then immediately after such issue or sale the Warrant Exercise Price
then in effect shall be reduced to an amount equal to such consideration per
share. Upon each such adjustment of the Warrant Exercise Price hereunder, the
number of shares of Common Stock acquirable upon exercise of this Warrant shall
be adjusted to the number of shares determined by multiplying the Warrant
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants
any Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion or exchange
of any Convertible Securities issuable upon exercise of any such Option is less
than the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
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Section 8(b)(i), the "lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion or exchange of such
Convertible Securities" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 8(b)(ii), the "lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the Convertible Security and upon conversion
or exchange of such Convertible Security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.
(c) Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:
(i) Calculation of Consideration Received. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
marketable securities, in which case the amount of consideration received by the
Company will be the Market Price of such securities on the date of receipt. If
any Common Stock, Options or Convertible Securities are issued to the owners of
the non-surviving entity in connection with any merger in which the Company is
the surviving entity, the amount of consideration therefor will be deemed to be
the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the Company and the
holders of Preferred Share Warrants representing at least two-thirds (_) of the
shares of Common Stock obtainable upon exercise of the
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Preferred Share Warrants then outstanding. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser jointly selected by
the Company and the holders of Preferred Share Warrants representing at least
two-thirds (_) of the shares of Common Stock obtainable upon exercise of the
Preferred Share Warrants then outstanding. The determination of such appraiser
shall be final and binding upon all parties and the fees and expenses of such
appraiser shall be borne by the Company.
(ii) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased. Any adjustment under this Section 8(d) shall become effective at the
close of business on the date the subdivision or combination becomes effective
(e) Distribution of Assets. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a "Distribution"), at any time
after the issuance of this Warrant, then, in each such case:
(i) the Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing Sale Price of the Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (B) the denominator shall be the Closing Sale Price
of the Common Stock on the trading day immediately preceding such record date;
and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
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(f) Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features other than
securities issued pursuant to a Approved Stock Plan), then the Company's Board
of Directors will make an appropriate adjustment in the Warrant Exercise Price
and the number of shares of Common Stock obtainable upon exercise of this
Warrant so as to protect the rights of the holders of the Preferred Share
Warrants; provided that no such adjustment will increase the Warrant Exercise
Price or decrease the number of shares of Common Stock obtainable as otherwise
determined pursuant to this Section 8.
(g) Notices.
(i) Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder
of this Warrant at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale. (a) In addition to any adjustments pursuant to
Section 8 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then the holder of this Warrant will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete exercise of this Warrant
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.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "Acquiring Entity") written agreement (in form and substance
satisfactory to the holders of Preferred Share Warrants representing at least
two-thirds (_) of the shares of Common Stock obtainable upon exercise of the
Preferred Share Warrants then outstanding) to deliver to each holder of
Preferred Share Warrants in exchange for such Warrants, a security of the
Acquiring Entity evidenced by a written instrument substantially similar in form
and substance to this Warrant and satisfactory to the holders of the Preferred
Share Warrants (including, an adjusted warrant exercise price equal to the value
for the Common Stock reflected by the terms of such consolidation, merger or
sale, and exercisable for a
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corresponding number of shares of Common Stock acquirable and receivable upon
exercise of the Preferred Share Warrants (without regard to any limitations on
exercises), if the value so reflected is less than the Warrant Exercise Price in
effect immediately prior to such consolidation, merger or sale). Prior to the
consummation of any other Organic Change, the Company shall make appropriate
provision (in form and substance satisfactory to the holders of Preferred Share
Warrants representing at least two-thirds (_) of the shares of Common Stock
obtainable upon exercise of the Preferred Share Warrants then outstanding) to
insure that each of the holders of the Preferred Share Warrants will thereafter
have the right to acquire and receive in lieu of or in addition to (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the exercise of such holder's Preferred Share Warrants (without
regard to any limitations on exercises), such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of shares of Common Stock which would
have been acquirable and receivable upon the exercise of such holder's Warrant
as of the date of such Organic Change (without taking into account any
limitations or restrictions on the exerciseability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt
of an indemnification undertaking (or in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed for which the holder of this Warrant shall
reimburse the Company for any reasonable expense incurred by the Company in
satisfying this Section 10.
Section 11. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
The Netplex Group, Inc.
1800 Robert Fulton Drive, Suite 250
Reston, Virginia 20191
Telephone: (703) 262-6875
Facsimile: (703) 716-1110
Attention: Gene F. Zaino
With copy to:
Venable, Baetjer, Howard & Civiletti, LLP
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Telephone: (202) 429-3245
Facsimile: (202) 429-3231
Attention: Wallace Christner, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized
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<PAGE>
overnight delivery service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.
Section 12. Amendments. This Warrant and any term hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party or holder hereof against which enforcement of such change, waiver,
discharge or termination is sought.
Section 13. Limitation on Number of Warrant Shares. The Company shall not
be obligated to issue any Warrant Shares upon exercise of this Warrant if the
issuance of such shares of Common Stock would cause the Company to exceed that
number of shares of Common Stock which the Company may issue upon exercise of
this Warrant (the "Exchange Cap") without breaching the Company's obligations
under the rules or regulations of Principal Market, except that such limitation
shall not apply in the event that the Company (a) obtains the approval of its
stockholders as required by the Principal Market (or any successor rule or
regulation) for issuances of Common Stock in excess of such amount or (b)
obtains a written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the holders
of Warrants representing at least two-thirds (_) of the Warrant Shares then
issuable upon exercise of outstanding Warrants. Until such approval or written
opinion is obtained, the holder of this Warrant shall not be issued, upon
exercise of this Warrant, Warrant Shares in an amount greater than such holder's
Cap Allocation Amount (as defined in the Certificate of Designations). In the
event the Company is prohibited from issuing Warrant Shares as a result of the
operation of this Section 13, the Company shall redeem for cash those Warrant
Shares which can not be issued, at a price equal to the difference between the
Market Price and the Exercise Price of such Warrant Shares as of the date of the
attempted exercise.
Section 14. Date. The date of this Warrant is _______ ___, 200_. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
Section 15. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Preferred Share Warrants may be amended and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, only if the Company has obtained the written consent of the
holders of Preferred Share Warrants representing at least two-thirds (_) of the
shares of Common Stock obtainable upon exercise of the Preferred Share Warrants
then outstanding; provided that no such action may increase the Warrant Exercise
Price of the Preferred Share Warrants or decrease the number of shares or class
of stock obtainable upon exercise of any Preferred Share Warrants without the
written consent of the holder of such Preferred Share Warrant.
Section 16. Descriptive Headings; Governing Law. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of New York shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of New York.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
Gene F. Zaino, its Chairman & CEO, as of the 29th day of March, 2000.
THE NETPLEX GROUP, INC.
By: /s/ GENE F. ZAINO
-------------------------------------
Name: GENE F. ZAINO
-----------------------------------
Title: CHAIRMAN & CEO
----------------------------------
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
THE NETPLEX GROUP, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of The
Netplex Group, Inc., a New York corporation (the "Company"), evidenced by the
attached Warrant (the "Warrant"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of the
Warrant Exercise Price shall be made as:
____________ "Cash Exercise" with respect to _________ Warrant
Shares; and/or
____________ "Cashless Exercise" with respect to ______ Warrant
Shares (to the extent permitted by the terms of the
Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: ________________, ______
Name of Registered Holder
By:________________________________
Name:___________________________
Title:__________________________
<PAGE>
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of The Netplex Group, Inc., a New York
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated: _________, 2000
----------------------------------------
By:
-----------------------------------
Its:
-----------------------------------
Ex-4.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March 28,
2000, by and among The Netplex Group, Inc., a New York corporation, with
headquarters located at 1800 Robert Fulton Drive, Suite 250, Reston, Virginia
20191 (the "Company"), and the undersigned buyers (each, a "Buyer" and
collectively, the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers (i) shares of the
Company's Series D Convertible Preferred Stock (the "Initial Preferred Shares"),
which will be convertible into shares of the Company's common stock, par value
$0.001 per share (the "Common Stock") (as converted, the "Initial Conversion
Shares") in accordance with the terms of the Company's Certificate of Amendment
to its Certificate of Incorporation for the Preferred Shares (the "Certificate
of Amendment"), and (ii) warrants to purchase shares of Common Stock (the
"Initial Warrants;" and as exercised, the "Initial Warrant Shares");
B. In connection with the Securities Purchase Agreement, each Buyer has
the right, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to require the Company to issue and sell to such Buyer (i)
shares of the Company's Series D Convertible Preferred Stock (the "Additional
Preferred Shares"), which will be convertible into shares of Common Stock (as
converted, the "Additional Conversion Shares") in accordance with the terms of
the Certificate of Amendment, and (ii) warrants to purchase shares of Common
Stock (the "Additional Warrants;" and as exercised, the "Additional Warrant
Shares"); and
C. To induce each Buyer 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 "1933 Act"), and
applicable state securities laws.
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 each of the Buyers
hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer, any transferee or assignee thereof to
whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.
b. "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a governmental or any department or agency thereof.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis
<PAGE>
("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange
Commission (the "SEC").
d. "Initial Registrable Securities" means (i) the Initial Conversion
Shares issued or issuable upon conversion of the Initial Preferred Shares (ii)
the Initial Warrant Shares issued or issuable upon exercise of the Initial
Warrants, (iii) the Dividend Shares (as defined in the Certificate of Amendment)
issued in relation to the Initial Preferred Shares and (iv) any shares of
capital stock issued or issuable with respect to the Initial Conversion Shares,
the Initial Preferred Shares, the Dividend Shares issued in relation to the
Initial Preferred Shares, the Initial Warrant Shares or the Initial Warrants, as
a result of any stock split, stock dividend, recapitalization, exchange or
similar event or otherwise, without regard to any limitations on conversions of
Preferred Shares or exercises of Warrants.
e. "Additional Registrable Securities" means (i) the Additional
Conversion Shares issued or issuable upon conversion of the Additional Preferred
Shares, (ii) the Additional Warrant Shares issued or issuable upon exercise of
the Additional Warrants, (iii) the Dividend Shares (as defined in the
Certificate of Amendment) issued in relation to the Additional Preferred Shares
and (iii) any shares of capital stock issued or issuable with respect to the
Additional Conversion Shares, the Additional Preferred Shares, the Dividend
Shares issued in relation to the Additional Preferred Shares, the Additional
Warrant Shares, the Additional Warrants, as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitations on conversion of Preferred Shares or exercise of
Warrants.
f. "Registrable Securities" means the Initial Registrable Securities
and the Additional Registrable Securities.
g. "Initial Registration Statement" means a registration statement
or registration statements of the Company filed under the 1933 Act covering the
Initial Registrable Securities.
h. "Additional Registration Statement" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering the Additional Registrable Securities.
i. "Registration Statement" means the Initial Registration Statement
and the Additional Registration Statement, as applicable.
j. "Filling Deadline" means the Initial Filing Deadline and the
Additional Filling Deadline (each as defined below), as applicable.
k. "Effectiveness Deadline" means the Initial Effectiveness Deadline
and the Additional Effectiveness Deadline (each as defined below), as
applicable.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration.
(i) Initial Mandatory Registration. The Company shall prepare, and,
as soon as practicable but in no event later than 35 trading days after the
Initial Closing Date (as defined in the Securities Purchase Agreement) (the
"Initial Filing Deadline"), file with the SEC an Initial Registration Statement
on Form S-3 covering the resale of all of the Initial Registrable Securities
relating to the Initial Preferred Shares and the Initial Warrants issued on such
Initial Closing Date. In the event that Form S-3 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration, subject to the provisions of Section 2(d). The Initial
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to the product of (x) 1.75 and
(y) the number of Initial Registrable Securities as of the trading day
immediately preceding the date the Initial Registration Statement is initially
filed with the SEC, subject to adjustment as provided in Section
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<PAGE>
2(e). The Company shall use its best efforts to have the Initial Registration
Statement declared effective by the SEC as soon as practicable, but in no event
later than the date which is 120 days after the Initial Closing Date (the
"Initial Effectiveness Deadline").
(ii) Additional Mandatory Registration. The Company shall prepare,
and, as soon as practicable but in no event later than 30 days after each
Additional Closing Date (as defined in the Securities Purchase Agreement) (the
"Additional Filing Deadline"), file with the SEC an Additional Registration
Statement or Additional Registration Statements (as necessary) on Form S-3
covering the resale of all of the Additional Registrable Securities relating to
the Additional Preferred Shares and the Additional Warrants issued on such
Additional Closing Date. In the event that Form S-3 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration, subject to the provisions of Section 2(d). Each Additional
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to the product of (x) 1.75 and
(y) the number of Additional Registrable Securities as of the trading day
immediately preceding the date such Additional Registration Statement is
initially filed with the SEC, subject to adjustment as provided in Section 2(e).
The Company shall use its best efforts to cause such Additional Registration
Statement to be declared effective by the SEC as soon as practicable, but in no
event later than the date which is 120 days after the applicable Additional
Closing Date (the "Additional Effectiveness Deadline").
b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Investor's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement.
c. Legal Counsel. Subject to Section 5 hereof, the Buyers holding at
least two-thirds (_) of the Registrable Securities shall have the right to
select one legal counsel to review any offering pursuant to this Section 2
("Legal Counsel"), which shall be Katten Muchin Zavis or such other counsel as
thereafter designated by the holders of at least two-thirds (_) of the
Registrable Securities. The Company shall reasonably cooperate with Legal
Counsel in performing the Company's obligations under this Agreement.
d. Ineligibility for Form S-3. In the event that Form S-3 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form reasonably acceptable to the holder of at
least two-thirds (_) of the Registrable Securities and (ii) undertake to
register the Registrable Securities on Form S-3 as soon as such form is
available, provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.
e. Sufficient Number of Shares Registered. In the event the number
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities required to be
covered by such Registration Statement or an Investor's allocated portion of the
Registrable Securities pursuant to Section 2(b), the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover at least 175% of the
number of such Registrable Securities as of the trading day immediately
preceding the date of the filing of such amendment or new Registration
Statement, in each case, as soon as practicable, but in any event not later than
fifteen (15) days after the necessity therefor arises. The Company shall use it
best efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. For purposes of
the foregoing provision, the number of shares available under a Registration
Statement shall be deemed "insufficient to cover all of the Registrable
Securities" if at any time the number of Registrable Securities issued or
issuable upon conversion of
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the Preferred Shares and exercise of the Warrants covered by such Registration
Statement is greater than the quotient determined by dividing (i) the number of
shares of Common Stock available for resale under such Registration Statement by
(ii) 1.0. The calculation set forth in the foregoing sentence shall be made
without regard to any limitations on the conversion of the Preferred Shares or
exercise of the Warrants and such calculation shall assume that the Preferred
Shares and the Warrants are then convertible and exercisable, respectively, into
shares of Common Stock at the then prevailing Conversion Rate (as defined in the
Company's Certificate of Amendment) and Warrant Exercise Price (as defined in
the Warrant), respectively, if applicable.
f. Effect of Failure to File and Obtain and Maintain Effectiveness
of Registration Statement. If (i) a Registration Statement covering all the
Registrable Securities and required to be filed by the Company pursuant to this
Agreement is not (A) filed with the SEC on or before the applicable Filing
Deadline or (B) declared effective by the SEC on or before the applicable
Effectiveness Deadline or (ii) on any day after the Registration Statement has
been declared effective by the SEC sales of all the Registrable Securities
required to be included on such Registration Statement cannot be made pursuant
to the Registration Statement (including, without limitation, because of a
failure to keep the Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to the Registration
Statement or to register sufficient shares of Common Stock), then, as partial
relief for the damages to any holder by reason of any such delay in or reduction
of its ability to sell the underlying shares of Common Stock (which remedy shall
not be exclusive of any other remedies available at law or in equity), the
Company shall pay to each holder of Preferred Shares an amount in cash per
Preferred Share held equal to the product of (i) $1,000 multiplied by (ii) the
sum of (A) 0.02, if the Registration Statement is not filed by the applicable
Filing Deadline, plus (B) 0.02, if the Registration Statement is not declared
effective by the applicable Effectiveness Deadline, plus, (C) the product of (I)
0.000667 multiplied by (II) the sum of (x) the number of days after the
applicable Filing Deadline that such Registration Statement is not filed with
the SEC, plus (y) the number of days after the applicable Effectiveness Deadline
that the Registration Statement is not declared effective by the SEC, plus (z)
the number of days after the Registration Statement has been declared effective
by the SEC that such Registration Statement is not available for the sale of at
least all the Registrable Securities required to be included on such
Registration Statement pursuant to section 2(e). The payments to which a holder
shall be entitled pursuant to this Section 2(f) are referred to herein as
"Registration Delay Payments." Registration Delay Payments shall be paid on the
earlier of (I) the last day of the calendar month during which such Registration
Delay Payments are incurred and (II) the third business day after the event or
failure giving rise to the Registration Delayed Payments is cured. In the event
the Company fails to make Registration Delay Payments in a timely manner, such
Registration Delay Payments shall bear interest at the rate of 2.0% per month
(prorated for partial months) until paid in full.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration Statement
with the SEC pursuant to Section 2(a) or 2(e), the Company will use its best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, pursuant thereto, the
Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the applicable Registrable Securities
(but in no event later than the applicable Filing Deadline) and use its best
efforts to cause such Registration Statement relating to the Registrable
Securities to become effective as soon as practicable after such filing (but in
no event later than the applicable Effectiveness Deadline). The Company shall
keep each Registration Statement effective pursuant to Rule 415 at all times
until the earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or successor thereto) promulgated under the
1933 Act or (ii) the date on which the Investors shall have sold all the
Registrable Securities covered by such Registration Statement (the "Registration
Period"), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained 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, in light of the
circumstances in which they were made, not misleading. The term "best efforts"
shall mean, among other things, that the Company shall submit to the SEC, within
two (2) business days after the Company learns that no review of a particular
Registration Statement will be made by the staff of the SEC or that the staff
has no further comments on the Registration Statement, as the case may
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be, a request for acceleration of effectiveness of such Registration Statement
to a time and date not later than 48 hours after the submission of such request.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any
analogous report under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the Company shall have incorporated such report by reference into
the Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the 1934 Act report is filed
which created the requirement for the Company to amend or supplement the
Registration Statement.
c. The Company shall (A) permit Legal Counsel to review and comment
upon (i) the Initial Registration Statement and each Additional Registration
Statement at least three (3) business days prior to its filing with the SEC and
(ii) all other Registration Statements and all amendments and supplements to all
Registration Statements (except for Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K and any similar or
successor reports) within a reasonable number of days prior to their filing with
the SEC, and (B) not file any document in a form to which Legal Counsel
reasonably objects. The Company shall not submit a request for acceleration of
the effectiveness of a Registration Statement or any amendment or supplement
thereto without prior notification to each Investor and Legal Counsel. The
Company shall furnish to Legal Counsel, without charge, (i) any correspondence
from the SEC or the staff of the SEC to the Company or its representatives
relating to any Registration Statement, (ii) promptly after the same is prepared
and filed with the SEC, one copy of any Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, all
exhibits and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
e. The Company shall use its best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
Registrable Securities covered by a Registration Statement under such securities
or "blue sky" laws of all jurisdictions in the United States, (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 (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
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registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f. The Company shall notify Legal Counsel and each Investor in
writing of the happening of any event, as promptly as practicable after becoming
aware of such event, 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, in light of the circumstances under
which they were made, not misleading (provided that in no event shall such
notice contain any material, nonpublic information), and promptly prepare a
supplement or amendment to such Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement or
amendment to Legal Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request). The Company shall also
promptly notify Legal Counsel and each Investor in writing (i) when a prospectus
or any prospectus supplement or post-effective amendment has been filed, and
when a Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile on the same day of such effectiveness and
by overnight mail), (ii) of any request by the SEC for amendments or supplements
to a Registration Statement or related prospectus or related information, and
(iii) of the Company's reasonable determination that a post-effective amendment
to a Registration Statement would be appropriate.
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,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
h. At the request of any Investor and at such Investor's expense,
the Company shall furnish to such Investor, on the date of the effectiveness of
the Registration Statement and thereafter from time to time on such dates as an
Investor may reasonably request (i) 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 Investors, and (ii) an
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the Investors.
i. During normal business hours and upon reasonable notification,
the Company shall make available for inspection by (i) any Investor, (ii) Legal
Counsel and (iii) one firm of accountants or other agents retained by the
Investors (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, and cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree to hold in strict confidence and shall not make
any disclosure (except to an Investor) or use 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 or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or 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 of which
the Inspector has knowledge. 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.
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j. 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, (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 final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. 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
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
k. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each 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
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq SmallCap Market System, or (iii) if,
despite the Company's best efforts to satisfy the preceding clause (i) or (ii),
the Company is unsuccessful in satisfying the preceding clause (i) or (ii), to
secure the inclusion for quotation on the Over The Counter Bulletin Board for
such Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(k).
l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities to be offered pursuant to a
Registration Statement and enable such certificates to be in such denominations
or amounts, as the case may be, as the Investors may reasonably request and
registered in such names as the Investors may request.
m. Intentionally Omitted.
n. If requested by an Investor, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information as an Investor requests to be included therein relating to the
sale and distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; (ii) as soon
as practicable make all required filings of such prospectus supplement or
post-effective amendment after being notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment; and (iii) as soon as
practicable, supplement or make amendments to any Registration Statement if
reasonably requested by an Investor of such Registrable Securities.
o. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
p. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 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 the Registration Statement.
q. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
r. Within two (2) business days after a Registration Statement which
covers applicable Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for
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the Company to deliver, to the transfer agent for such Registrable Securities
(with copies to the Investors whose Registrable Securities are included in such
Registration Statement) confirmation that such Registration Statement has been
declared effective by the SEC in the form attached hereto as Exhibit A.
s. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by Investors of Registrable Securities
pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
a. At least five (5) business days prior to the anticipated filing
date of a Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement. 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.
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 any 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. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f) and for which the Investor has not
yet settled.
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, and
fees and disbursements of counsel for the Company shall be paid by the Company.
The Company shall also reimburse the Investors for the fees and disbursements of
Legal Counsel in connection with registration filing or qualification pursuant
to Sections 2 and 3 of this Agreement, which reimbursement shall be not exceed
$5,000. The Company shall not be required to pay Legal Counsel for fees and
disbursements in connection with the filing of a prospectus supplement or
amendment solely relating to the transfer of Preferred Shares or Warrants
pursuant to Section 9(g) of the Securities Purchase Agreement or Section 7 of
the Warrants.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, employees, agents, representatives of, and
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each Person, if any, who controls any Investor within the meaning of the 1933
Act or the Securities and Exchange Act of 1934, as amended (the "1934 Act")
(each, an "Indemnified Person"), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys'
fees, amounts paid in settlement or expenses, joint or several, (collectively,
"Claims") incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made,
(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,
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement or (iv) any material
violation of this Agreement (the matters in the foregoing clauses (i) through
(iv) being, collectively, "Violations"). Subject to Section 6(c), the Company
shall reimburse the Indemnified Persons, promptly as such reasonable 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 by an Indemnified Person 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 for such
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(d); (ii) with respect to any preliminary prospectus, shall not inure to the
benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(d), 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; (iii) shall not be available to
the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3(d);
and (iv) 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. 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.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act (each an
"Indemnified Party"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are 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 reasonable legal or other expenses reasonably incurred by them in
connection with investigating or defending any
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such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) and the agreement with respect to contribution contained in Section
7 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 Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to 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. 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.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be 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 an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party 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
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least two-thirds (_) of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or Claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or Claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such Claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
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
prejudiced in its ability to defend such action.
d. 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 and when bills are received or Indemnified Damages are incurred.
e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
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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 seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution 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 pursuant to such
Registration Statement.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 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. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 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 of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 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 reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of 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 within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, 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) immediately following such transfer or assignment the further disposition
of such securities by the transferee or assignee is restricted under the 1933
Act and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with 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 the written consent of the Company
and Investors who then hold at least two-thirds (_) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
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11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons 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, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
The Netplex Group, Inc.
1800 Robert Fulton Drive, Suite 250
Reston, Virginia 20191
Telephone: (703) 262-6875
Facsimile: (703) 716-1110
Attention: Gene F. Zaino
With a copy to:
Venable, Baetjer, Howard & Civiletti, LLP
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Telephone: (202) 429-3245
Facsimile: (202) 429-3231
Attention: Wallace Christner, Esq.
If to Legal Counsel:
Katten Muchin Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or to such other address and/or facsimile number
and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
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<PAGE>
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. The corporate laws of the State of New York shall govern all
issues concerning the relative rights of the Company and its stockholders. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
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 in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the Securities Purchase Agreement, the Warrants
and the Certificate of Amendment constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement, the Securities Purchase
Agreement, the Warrants and the Certificate of Amendment 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, this Agreement shall
inure to the benefit of and be binding upon the permitted 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 identical 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 and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding at least two-thirds (_) of the Registrable
Securities, determined as if all of the Preferred Shares and the Warrants then
outstanding have been converted into or exercised for Registrable Securities
without regard to any limitations on conversion of the Preferred Shares or the
exercise of the Warrants.
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k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. 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 any provision hereof be enforced by, any other Person.
* * * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
THE NETPLEX GROUP, INC. HFTP INVESTMENT L.L.C.
By: /s/ GENE F. ZAINO By: Promethean Asset Management L.L.C
------------------------------ Its: Investment Manager
Name: GENE F. ZAINO
------------------------- By: /s/ [ILLEGIBLE]
Its: CHAIRMAN & CEO ----------------------------------
------------------------- Name:
-----------------------------
By:
-------------------------------
FISHER CAPITAL LTD.
By: /s/ Daniel J. Hopkins
--------------------------------
Name: Daniel J. Hopkins
Its: Authorized Signatory
WINGATE CAPITAL LTD.
By: /s/ Daniel J. Hopkins
--------------------------------
Name: Daniel J. Hopkins
Title: Authorized Signatory
84
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Investor Address Investor's Legal Representatives'
Investor's Name and Facsimile Number Address and Facsimile Number
- ------------------------------- ------------------------------------- -----------------------------------
<S> <C> <C>
HFTP Investment L.L.C. Promethean Asset Management L.L.C. Promethean Investment Group, L.L.C.
50 Lexington Avenue, 22nd Floor 750 Lexington Ave., 22nd Floor
New York, NY 10022 New York, New York 10022
Attention: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
John Floegel John Floegel
Telephone: (212) 702-5200 Telephone: 212-702-5200
Facsimile: (212) 758-9334 Facsimile: 212-758-9334
Katten Muchin & Zavis
525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Telephone: (312) 902-5200
Facsimile: (312) 902-1061
Fisher Capital Ltd. _Citadel Investment Group, L.L.C. Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel J. Hopkins Attention: Robert J. Brantman, Esq.
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Wingate Capital Ltd. _Citadel Investment Group, L.L.C. Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel J. Hopkins Attention: Robert J. Brantman, Esq.
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
</TABLE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn:______________________
Re: THE NETPLEX GROUP, INC.
Ladies and Gentlemen:
We are counsel to The Netplex Group, Inc., a New York corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Purchase Agreement") entered into by and
among the Company and the buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders shares of its Preferred
Stock, par value $0.01 per share, (the "Preferred Shares") convertible into
shares of the Company's common stock, par value $0.001 per share (the "Common
Stock"), and warrants to purchase shares of the Common Stock, subject to
adjustment (the "Warrants"). Pursuant to the Purchase Agreement, the Company
also has entered into a Registration Rights Agreement with the Holders (the
"Registration Rights Agreement") pursuant to which the Company agreed, among
other things, to
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register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Preferred Shares and exercise of the Warrants, under the Securities Act of 1933,
as amended (the "1933 Act"). In connection with the Company's obligations under
the Registration Rights Agreement, on ____________ ___, 2000 the Company filed a
Registration Statement on Form S-3 (File No. 333-_____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
-------------------------------------
cc: [LIST NAMES OF HOLDERS]
86
Ex-4.4
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
March ___, 2000 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 March 31, 1998, by and among the
Corporation, the Holder and the other parties named therein (the "Securities
Purchase Agreement").
<PAGE>
ARTICLE I
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 Percentage" shall initially have the meaning set forth below
during each of the periods set forth below. The Exercise Percentage also shall
be subject to adjustment as provided herein.
If the Exercise Date is: Then the Exercise Percentage is:
------------------------ --------------------------------
Prior to the 91st day following
the Second Closing Date 100%
On or after the 91st day following
the Second Closing Date and before
the 151st day following the Second
Closing Date 85%
2
<PAGE>
On or after the 151st day following
the Second Closing Date and before
the 211th day following the Second
Closing Date 75%
On or after the 211th day following
the Second Closing Date 65%
C. "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").
D. "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.
E. "Exercise Price" means, with respect to any Exercise Date, 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.
F. "Second Closing Date" means the date of the Second Closing under the
Securities Purchase Agreement.
G. "Fixed Exercise Price" means $10.00 (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), and shall be
subject to adjustment as provided herein.
H. "Variable Exercise Price" means, as of any date of determination, the
amount obtained by multiplying the Exercise Percentage than in effect by the
average of the five (5) 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.
I. "business day" and "trading day" means any day on which the New York
Stock Exchange is open for trading.
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<PAGE>
ARTICLE II
EXERCISE
A. Exercise by the Holder. 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:
Exercise Amount
Exercise Price
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 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 VIII.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.
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(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 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):
(ii) 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") (19.99% of the total shares
outstanding on the Second 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 VIII.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.
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(iii)
(iv) No Five Percent Holders. Unless Holder delivers a waiver in accordance
with the last sentence of this subparagraph (ii), 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. Notwithstanding the foregoing,
Zanett may, by providing written notice to the Company, (xx) adjust the
restrictions set forth in this paragraph so that the limitations on beneficial
ownership of 4.99% of the outstanding shares of Common Stock referred to above
shall not be applicable to Zanett, which adjustment shall not take effect until
the 61st day after the date of such notice and (yy) irrevocably waive the right
to deliver a waiver in accordance with clause (x) of this sentence; provided,
however, that if such adjustment would result in beneficial ownership greater
than 9.99% of Trucking Shares or Professional Shares, as the case may be, by
Zanett and its affiliates than such adjustment shall not take effect until the
75th day after the date of such notice.
(v)
ARTICLE III
RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. On the Second Closing Date, the Corporation shall have
reserved 300,000 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 Second 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 VIII.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
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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) 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, 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.
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:
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(.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; 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 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 VIII.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
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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.
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.
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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:
(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).
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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;
(i) 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;
(ii)
(iii) 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);
(iv)
(v) the Corporation shall:
(vi)
(b) sell, convey or dispose of all or substantially all of its assets;
(c)
(d) 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
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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
(e)
(f) 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);
(g)
(h) (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;
(i)
(j) (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);
(k)
(l) (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
(m)
(n) (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 by or against the Corporation or any subsidiary
of the Corporation (other than Technology Development Systems, Inc.);
(o)
(p)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,
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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.
(q)
(r) B. Definition of Default Amount. The "Default Amount" with respect to
this Warrant means an amount equal to the greater of:
(s)
(t) (i) A X M
(u) -------------------
(v) and EP
(w)
(x) (ii) The sum of (x) the product of (I) one hundred percent (100%) divided
by the Exercise Percentage in effect on the date on which the Corporation
receives the Default Notice, times (II) the outstanding Prepaid Amount hereof on
the date on which the Corporation receives the Default Notices, plus (y) all
unpaid Exercise Default Payments owing (if any) with respect thereto through the
date of payment of the Default Amount.
(y)
(z) where:
(aa)
(bb) "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) with respect thereto through the date of payment
of the Default Amount;
(cc)
(dd) "EP" means the Exercise Price in effect on the date on which the
Corporation receives the Default Notice; and
(ee)
(ff) "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
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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.
(gg)
(hh) 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. (ii)
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
Second 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.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the
Second 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
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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 Second 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 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
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<PAGE>
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 Second
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 Second 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 calculated utilizing the higher of the greatest
discount applicable to any such Convertible Securities and the difference
between one hundred percent (100%) and the Exercise Percentage then in effect.
F. Purchase Rights. If, at any time after the Second 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 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,
16
<PAGE>
(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
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:
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:
Venable Baetjer Howard & Civiletti
1615 L Street, NW, Suite 400
Washington, DC 20036
Telecopy: (202) 429-3231
Attn: Wallace Christner
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
17
<PAGE>
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.
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
18
<PAGE>
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 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
19
<PAGE>
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. 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]
20
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be signed
by its duly authorized officer.
THE NETPLEX GROUP, INC.
By: /s/ GENE F. ZAINO
-------------------------------------
Name: GENE F. ZAINO
Title: CHAIRMAN & CEO
21
<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 March ____, 2000
(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:
---------------------------------------
<PAGE>
Name:
--------------------------------------------
Address:
-----------------------------------------
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 March ____, 2000
(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:
---------------------------------------
Ex-4.5
EXHIBIT B
to Securities Purchase Agreement
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON MARCH ___, 2005
(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: March __, 2000
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 the closing
market price of the Common Stock at the end of business on March 22, 1998. 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 March 31, 2000, by and among
the Company and the other signatories thereto (the "Securities Purchase
Agreement").
24
<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.
2.
3. 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:
4.
<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)
(c) 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.
(d)
(e) 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).
(f)
5. Period of Exercise.
6.
(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.
(b)
7. Certain Agreements of the Company. The Company hereby covenants and agrees
as follows:
8.
(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)
(c) 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).
(d)
(e) 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 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
<PAGE>
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.
(f)
(g) 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.
(h)
(i) 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.
(j)
(k) 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.
(l)
9. 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.
10.
11. 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.
12.
(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 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:
(b)
(c) E' = E x O + P/M
--------
<PAGE>
(d) CSDO
(e)
(f) where:
(g)
(h) E' = the adjusted Exercise Price; (i) 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.
(a) 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:
(b)
(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 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)
<PAGE>
(iii) Issuance of Convertible Securities.
(iv)
(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.
(i) 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 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
<PAGE>
outstanding provided for such changed additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold.
(ii)
(iii) 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.
(iv)
(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)
(vii) 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 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 on the Second Closing Date in accordance with the terms of the
Securities Purchase Agreement; or (iv) upon exercise of the Prepaid Warrants and
the Incentive Warrants.
(viii)
<PAGE>
(b) 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.
(c)
(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)
(f) Consolidation, Merger or Sale.
(g)
(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 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.
<PAGE>
(ii)
(iii) 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.
(iv)
(h) 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.
(i)
(j) 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.
(k)
(l) 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.
(m)
(n) 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.
(o)
(p) Other Notices. In case at any time:
(q) (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;
<PAGE>
(i) 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;
(ii)
(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) (v) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
(vi)
(vii) 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.
(viii)
(b) 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.
(c)
(d) 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.
<PAGE>
(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)
(iv) "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.
(v)
2. 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.
3.
4. 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.
5.
<PAGE>
6. Transfer, Exchange, Redemption and Replacement of Warrant.
7.
(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 March 31, 1998, by and among the Company and the other signatories
thereto (the "Registration Rights Agreement").
(a) 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.
(b)
(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)
(e) 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 Warrant for all costs and expenses (including
legal fees) incurred by such holder in connection with the enforcement of its
rights hereunder.
(f)
(g) 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.
(h)
(i) 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,
<PAGE>
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.
(j)
(k) 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).
(l)
2. 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
<PAGE>
in the Registration Rights Agreement, including the right to assign such rights
to certain assignees, as set forth therein.
3.
4. 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:
5.
6. If to the Company:
7.
8. THE NETPLEX GROUP, INC.
9. 8260 Greensboro Drive
10. McLean, VA 22102
11. Telecopy: (703) 356-5105
12. Attn: Gene Zaino, President and CEO
13.
14. with a copy simultaneously transmitted by like means to:
15.
16. Venable Baetjer Howard & Civiletti
1615 L Street, NW, Suite 400
Washington, DC 20036
Telecopy: (202) 429-3231
Attn: Wallace Christner
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.
1. 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 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.
<PAGE>
1. Miscellaneous.
2.
(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.
(a) 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.
(b)
(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)
(e) 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.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
THE NETPLEX GROUP, INC.
By: /s/GENE F. ZAINO
-------------------------------------
Name: GENE F. ZAINO
---------------------------------
Title: CHAIRMAN & CEO
--------------------------------
<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) 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:
(ii)
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.
(i) 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:
(ii)
(iii) Dated:_________________
_____________________________________
(iv) Signature of Holder
(v)
(vi) ________________________________________
(vii) Name of Holder (Print)
(viii)
(ix) Address:
<PAGE>
(x) ________________________________________
(xi) ________________________________________
(xii) ________________________________________
<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.
Ex-99.1
<PAGE>
[NETPLEX LOGO] Corporate Headquarters:
1800 Robert Fulton Drive, Second Floor
Reston, VA 20191
Tel: 703-716-4777 Fax: 703-716-1110
Netplex Contact: Investor Contact:
Walton Bell, The Netplex Group, Inc. Joe Zappulla, Wall Street Investor
703-356-1717 Relations Corp.
[email protected] 301-907-4090
[email protected] [email protected]
For Immediate Release
Netplex Ends Year with 86 Percent Increase
in e-Business Solutions Revenue
o e-Business Fourth Quarter Revenue Increased 34 Percent Over Previous Year
o Company Takes $2.9 Million Write-Down of Acquisition-Related Assets
o Company Recently Agreed to Terms for a $10 Million Private Placement
RESTON, Va.--March 28, 2000--The Netplex Group, Inc. (Nasdaq: NTPL) today
announced results for its fourth quarter ended December 31, 1999. The Company
reported revenue of $22.1 million compared to $18.0 million for the fourth
quarter of 1998. Revenue for the Company's e-Solutions group totaled $12 million
(including inter-company e-consulting services provided to Contractor's
Resources of $568,000), a thirty-four percent increase over the previous year's
fourth quarter level of $9.0 million. The Company also reported a loss for the
fourth quarter of $6.2 million, which includes a $2.9 million charge for
write-downs of intangible and other assets related to prior acquisitions; a $1.1
million investment in infrastructure development within its Contractor's
Resources subsidiary; and other one-time charges and adjustments totaling
$906,000. This compares with a net profit of $89,000 for the same period in
1998. Excluding these items, and before interest, taxes, depreciation and
amortization (EBITDA), the loss for the current fourth quarter was $238,000
compared to an EBITDA of $593,000 for the same period in the previous year.
For the full year, the Company reported revenue of $87.8 million, an increase of
43% over the previous year level of $61.3 million. Revenue from Netplex's
e-Solutions business increased 86 percent, reaching $49.2 million. The Company's
Contractor's Resources subsidiary reported gross revenue of $38.6 million
compared to $34.9 million for the same period in 1998.
"The results this quarter reflect a number of positive developments within
Netplex, that we expect will produce outstanding long-term benefits for
shareholders," commented Gene Zaino, Netplex's chairman and CEO. "In preparation
for a strategically planned promotion of Contractor's Resources Internet-based
Techcellence service, we developed and installed an infrastructure to support a
significantly larger base of members. In addition, we are building a marketing
capability designed to reach the independent contractor marketplace, which the
<PAGE>
Department of Labor currently estimates to represent about 2 million
professionals.
We also utilized Netplex's e-Solutions resources in the development of the
Techcellence web initiative. The missed revenue associated with this development
work is estimated at $568,000, while the related costs were $170,000. These
investments are critical to achieving the level of success that we have planned
for Contractor's Resources' Techcellence business and, while this investment has
impeded our near-term bottom-line results, we believe its mid- to long-term
impact has the potential to be an enormous contributor to Netplex's future."
The Company's pro-forma financial information, after giving effect to the
inclusion of the unbilled revenues related to the development of the
Techcellence Web initiative and associated costs, the investment in
infrastructure for Contractor's Resources, and the special adjustments related
to the write-down of intangibles and other one-time charges mentioned above, is
as follows:
<TABLE>
<CAPTION>
Fourth Quarter Full Year
- ------------------------------------------------------------------------------------------------------------
1999 1998 % Chg 1999 1998 % Chg
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
- ------------------------------------------------------------------------------------------------------------
e-Business Solutions 12,015 8,975 34% 49,729 $26,398 88%
- ------------------------------------------------------------------------------------------------------------
Contractor's Resources 10,670 8,997 19% 38,624 34,881 11%
- ------------------------------------------------------------------------------------------------------------
Total 22,685 17,972 26% 88,353 61,279 44%
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Gross Profit:
- ------------------------------------------------------------------------------------------------------------
e-Business Solutions 4,218 2,906 45% 15,940 8,671 84%
- ------------------------------------------------------------------------------------------------------------
Contractor's Resources 390 448 (13)% 1,564 1,325 18%
- ------------------------------------------------------------------------------------------------------------
Total 4,608 3,354 37% 17,504 9,996 75%
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Operating income 937 1,196 (22)% 5,382 1,744 209%
- ------------------------------------------------------------------------------------------------------------
Corporate expenses 1,175 603 95% 3,952 3,055 29%
- ------------------------------------------------------------------------------------------------------------
EBITDA (238) 593 -- 1,430 (1,311) --
- ------------------------------------------------------------------------------------------------------------
Interest taxes and depr. 656 504 30% 2,963 1,238 139%
- ------------------------------------------------------------------------------------------------------------
Write-downs of acquisition-related
assets 2,869 -- -- 2,869 -- --
- ------------------------------------------------------------------------------------------------------------
Techcellence development and
infrastructure costs 1,142 -- -- 1,717 -- --
- ------------------------------------------------------------------------------------------------------------
Inter-co gross profit elim. 398 -- -- 398 -- --
- ------------------------------------------------------------------------------------------------------------
One-time charges 906 -- -- 906 -- --
- ------------------------------------------------------------------------------------------------------------
Net operating income (6,209) 89 -- (7,423) (2,549) --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
To provide a consistent and accurate reflection of Netplex's gross profits, the
"non-productive" time of billable professionals has been included in cost of
sales, thereby slightly reducing the gross margin rates, while providing a
corresponding reduction in operating expenses. The Company believes the new
format provides a more accurate measurement of productivity.
44
<PAGE>
The Contractor's Resources consecutive quarter growth was 17%, which reflects
new membership growth as well as increased revenue per member. Since introducing
Contractor's Resources Internet service, Techcellence(TM) in January, there have
been over 10,000 unique visitors who have spent an average of 22 minutes
visiting the site. Netplex's marketing efforts to date have been concentrated in
the Washington D.C. region. The Company intends to expand its marketing efforts
to other areas where demographics include a high concentration of independent IT
professionals. To augment this effort Netplex intends to aggressively expand its
strategic marketing partnership program with Web-based technology marketplaces
such as job boards, online job fairs, B2B e-commerce sites focused on the
service sector, etc.
In December, Netplex announced its alliance with SkillsVillage.com, an online
community that enhances the relationship between contractors, staffing
companies, and corporations by matching IT contractors with projects. Netplex is
actively pursuing additional online relationships for its Techcellence service.
The objective of these relationships is to both drive membership interest as
well as enhance its service offerings to further strengthen its membership
satisfaction and retention rate. As it creates these relationships, Netplex is
committed to managing the growth of the Techcellence infrastructure in order to
preserve the existing high degree of member satisfaction.
"Netplex's e-business consecutive quarterly revenue growth does not reflect the
build-up of sales and marketing professionals that was accomplished during the
fourth quarter, which will begin to show signs of progress towards the second
quarter 2000," added Pamela Fredette, Netplex's President. "We upgraded the
quality of our sales team to support our strategic plans to escalate the value
of Netplex's sales mix. During this process, we disengaged our sales effort
focused on lower-end projects, and added highly experienced technical personnel
to improve Netplex's quality of business. We are targeting larger contract value
services projects to improve our product mix, which, in addition to lengthening
our normal sales cycle, requires a more qualified sales force. Our efforts are
showing signs of great progress. Netplex's prospect-adjusted pipeline has grown
from $15 million at the end of the fourth quarter, to $26 million today, which
includes seven deals valued in excess of $1 million each."
During the quarter, Netplex added John Paglione to its management team as
Executive Vice President of its e-Infrastructure Services division. Over the
course of the last two quarters, Netplex has increased its sales force to 28
professionals, an increase of 12 from the end of 1998.
Financing
Today, the Company also signed an agreement for a $10 million private financing
consisting of convertible preferred stock, which was placed with two
institutional investors. The preferred stock earns dividends at the rate of
seven percent per year, is convertible at 120% of market, and includes
additional warrants. "This financing strengthens our balance sheet and provides
Netplex with record levels of liquidity to enable us to fund our future
expansion," commented Walton Bell, Netplex's chief financial officer.
Conference Call
45
<PAGE>
Netplex management has scheduled a conference call to provide further insights
regarding the financial results and to respond to investor questions, today,
Tuesday, March 28 at 4:30 p.m. (EDT). The dial-in number is:
1-888-209-3914
Reservation #: 14794429
The conference will be recorded and will be available for replay for 24 hours
beginning at 6:30 p.m. The dial-in and reservation numbers are:
1-800-633-8284
Reservation #: 14794429
The conference call can also be accessed through the Internet at Vcall
(www.vcall.com).
About The Netplex Group, Inc.
Netplex (Nasdaq: NTPL) (www.netplexgroup.com) creates e-business solutions that
combine industry-specific business strategies; interactive digital marketing;
user-centric applications and data systems; and secure, high-performance
Internet systems infrastructure. Netplex's complete spectrum of "industrial
strength" e-solutions positions customers with vision, confidence, and
continuing competitive advantage.
About Contractor's Resources
Contractor's Resources ("CR") is a business-to-business (B2B) service designed
to provide the financial infrastructure, resources, and business services that
help Information Technology (IT) professionals build careers as independent
contractors. Launched by Netplex in 1999 as an integrated online service under
the brand name Techcellence(TM), Contractor's Resources serves as a "virtual
corporate office" for its member contractors by providing the services of a full
corporate administration staff. These services include contract review, time
sheet administration, billing and collections, health benefits, retirement
plans, wealth-building financial strategies, and tax administration.
Netplex and the Netplex logo are trademarks of The Netplex Group, Inc.
Except for historical information, all of the statements, expectations and
assumptions contained in the foregoing are "forward-looking statements" (within
the meaning of the Private Securities Litigation Reform Act of 1995) that
involve a number of risks and uncertainties. It is possible that the assumptions
made by management--including, but not limited to, those relating to contract
awards, service offerings, market opportunities, results, performance or
expectations--may not materialize. Actual results may differ materially from
those projected or implied in any forward-looking statements. In addition to the
above factors, other important factors including the risks associated with
unforeseen technical difficulties, the ability to meet customer requirements,
market acceptance of service offerings, changes in technology and standards,
dependencies on key employees, customer satisfaction, availability of technical
talent, dependencies on certain technologies, delays, market acceptance and
competition, as well as other risks described from time to time in the Company's
filings with the Securities Exchange Commission, press releases, and other
communications.
# # #
46
<PAGE>
Consolidated Operating Results by Segment
47
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Operating revenues
e-Information Services $ 11,044,166 $ 3,533,025 $ --
-------------- -------------- --------------
e-Infrastructure Services 20,437,959 17,459,183 6,346,530
e-Infrastructure Product Resales 17,679,075 5,406,410 2,073,254
-------------- -------------- --------------
e-infrastructure 38,117,034 22,865,593 8,419,784
-------------- -------------- --------------
e-Business Solutions 49,161,200 26,398,618 8,419,784
Contractor's Resources 38,624,064 34,880,542 32,048,350
-------------- -------------- --------------
Operating revenues 87,785,264 61,279,160 40,468,134
-------------- -------------- --------------
Gross profit
e-Information Services 5,442,115 1,690,505 --
-------------- -------------- --------------
e-Infrastructure Services 5,915,833 5,468,254 2,337,358
e-Infrastructure Product Resales 4,184,097 1,511,650 949,518
-------------- -------------- --------------
e-infrastructure 10,099,930 6,979,904 3,286,876
-------------- -------------- --------------
e-Business Solutions 15,542,045 8,670,409 3,286,876
Contractor's Resources 1,373,887 1,324,682 1,096,104
-------------- -------------- --------------
Gross profit 16,915,932 9,995,091 4,382,980
-------------- -------------- --------------
Gross profit percentage
e-Information Services 49.3% 47.8% --
-------------- -------------- --------------
e-Infrastructure Services 28.9% 31.3% 36.8%
e-Infrastructure Product Resales 23.7% 28.0% 45.8%
-------------- -------------- --------------
e-infrastructure 26.5% 30.5% 39.0%
-------------- -------------- --------------
e-Business Solutions 31.6% 32.8% 39.0%
Contractor's Resources 3.6% 3.8% 3.4%
-------------- -------------- --------------
Gross profit percentage 19.3% 16.3% 10.8%
-------------- -------------- --------------
Operating Expenses
e-Information Services 3,305,752 709,826 --
e-Infrastructure Services and Product Resales 7,784,245 6,715,607 3,166,492
-------------- -------------- --------------
e-Business Solutions 11,089,997 7,425,433 3,166,492
Contractor's Resources 3,086,904 1,144,143 1,169,120
-------------- -------------- --------------
Operating expenses 14,176,901 8,569,576 4,335,612
-------------- -------------- --------------
Operating income
e-Information Services 2,136,363 1,299,363 --
e-Infrastructure Services and product Resales 2,315,685 264,297 (829,134)
-------------- -------------- --------------
e-Business Solutions 4,452,048 1,563,660 (829,134)
Contractor's Resources (1,713,017) 180,539 (73,016)
-------------- -------------- --------------
Operating income 2,739,031 1,744,199 (902,150)
-------------- -------------- --------------
Corporate Expenses 5,530,469 3,055,308 1,480,453
-------------- -------------- --------------
EBITDA (2,791,438) (1,311,109) (2,382,603)
Interest, taxes, depreciation
& amortization 4,632,385 1,237,615 491,000
-------------- -------------- --------------
Net operating income(loss) $ (7,423,823) $ (2,548,724) $ (2,873,603)
============== ============== ==============
</TABLE>
49
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
Assets 1999 1998
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,220,148 $ 870,465
accounts receivable, net of allowance for doubtful
accounts of $342,000 and $589,000, respectively 12,513,823 11,654,743
Prepaid expenses and other current assets 923,762 772,242
-------------- -------------
Total current assets 17,657,733 13,297,450
Property and equipment, net 1,891084 1,704,975
Other assets 775,290 213,174
Goodwill and other intangible assets, net 6,092,610 5,435,024
-------------- -------------
Total assets $ 26,416,717 $ 20,650,623
============== =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,294,404 $ 2,545,730
Line of credit 5,126,245 4,041,000
Notes payable - 300,000
Accrued expenses and other current liabilities 9,305,229 6,418,326
Capital lease obligation, current portion 107,890 97,315
Deferred revenues 193,262 835,827
-------------- -------------
Total current liabilities 18,027,030 14,238,198
Obligation for non-compete agreement 850,000 --
Capital lease obligations, net of current portion 195,504 57,901
-------------- -------------
Total liabilities 19,072,534 14,296,099
Commitments and contingencies
-------------- -------------
Minority interest in subsidiary 481,877 --
-------------- -------------
Stockholders' equity:
Preferred Stock:
Class A Cumulative, $.01 par value, 2,000,000 shares authorized, 109,961 and
987,753 shares outstanding at December 31, 1999 and
1998 respectively 1,099 9,875
Class B, $.01 par value; 1,500,000 shares authorized, 643,770 shares
issued and outstanding at December 31, 1998 -- 6,438
Class C Cumulative, $.01 par value; 2,500,000 shares authorized;
1,500,000 share issued and outstanding at December 31, 1999 and
1998, respectively 15,000 15,000
Common Stock: $.001 par value, 40,000,000 shares authorized,
16,137,250 and 10,204,735 shares Issued and outstanding at
December 31, 1999 and 1998, respectively 16,137 10,204
Additional paid in capital 21,762,418 13,821,531
Accumulated deficit (14,932,347) (7,508,524)
-------------- -------------
Total stockholders' equity 6,862,306 6,354,524
-------------- -------------
Total liabilities and stockholders' equity $ 26,416,717 $ 20,650,623
============== =============
</TABLE>
50
Ex-99.2
Amended and Restated Placement Agency Agreement
March 22, 2000
The Zanett Securities Corporation
Tower 49, 25th 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 1,500 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 $1,500,000 of
Common Stock based on the sale of 1,500 Units), and (ii) additional warrants
(the "Incentive Warrants") to acquire Seventy-Eight Thousand (78,000) 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.
1. Closing- Placement Fee and Warrant- Expenses.
2.
(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)
(c) Procedures at Closing. Counsel for the Placement Agent shall act as escrow
agent for the Closing (the "Escrow Agent"). At each Closing:
(d)
(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)
(iii) 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.
(iv)
(v) 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.
(i) Each Investor shall deliver to the Escrow Agent two executed copies of the
Securities Purchase Agreement and Registration Rights Agreement signed by such
Investor, and
<PAGE>
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.
(ii)
(iii) 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.
(iv)
(v) 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.
(vi)
(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.
(viii)
(b) 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.
(c)
(d) Warrants. In addition to the Placement Agent Fee, at the 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
Thirty-Nine Thousand (39,000) shares of the Company's Common Stock (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 of $10.00 (the
"Fixed Conversion 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.
(e)
(f) 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
<PAGE>
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).
<PAGE>
1. Representations and Warranties and Covenants of the Company.
2.
(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.
(a) 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, 1998, 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, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
(b)
(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
<PAGE>
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)
(e) 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.
(f)
(g) 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.
(h)
(i) 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.
(j)
(k) 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
<PAGE>
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.
(l)
(m) 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.
(n)
(o) 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 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.
(p)
(q) 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.
<PAGE>
(a) 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.
2. 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).
3.
4. Indemnification and Contribution.
5. (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.
(a) 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,
<PAGE>
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.
(b)
(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 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.
<PAGE>
(d)
(e) 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.
(f)
(g) 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.
(h)
2. 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.
3.
4. Miscellaneous.
5.
(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:
<PAGE>
(i) If to Placement Agent, to
(ii)
(iii) The Zanett Securities Corporation
(iv) Tower 49, 25th Floor
(v) 12 East 49th Street
New York, NY 10017
Attention: Claudio Guazzoni
-with a copy to -
Klehr, Harrison, Harvey, Branzburg & Ellers
260 South Broad Street
Philadelphia, PA 19102
Attention: Barry J. Siegel, Esquire
<PAGE>
(i) If to the Company, to
(ii)
(iii) The Netplex Group, Inc.
(iv) 8260 Greensboro Drive, 5th Floor
(v) McLean, VA 22102
(vi) Attention: Gene Zaino, President and CEO
(vii)
-with a copy to -
Venable Baetjer Howard & Civiletti
1615 L Street, NW, Suite 400
Washington, DC 20036
Telecopy: (202) 429-3231
Attn: Wallace Christner
(a) 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.
(a) This Agreement shall be governed by, and construed in accordance
with, the
(b) 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 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.
(c)
(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)
(f) This Agreement may not be modified or amended except in writing duly
sworn by the parties hereto.
(g)
<PAGE>
(h) 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.
(i)
(j) 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.
(k)
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<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:/s/GENE F. ZAINO
-------------------------------------
GENE F. ZAINO
CHAIRMAN & CEO
Accepted and Agreed to this
22nd day of March, 2000.
THE ZANETT SECURITIES CORPORATION
By:
-------------------------------
Name: Claudio Guazzoni
Title: President
