INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") made as of this 30th
day of September, 1998, by and among THE NETPLEX GROUP, INC., a New York
corporation (the "Company"), XXXX X. XXXXX (the "Stockholder"), and WATERSIDE
CAPITAL CORPORATION, a Virginia corporation (collectively, with its successors
and assigns, the "Investor"). (The Company, the Stockholder and the Investor are
each a "Party" and collectively, the "Parties".)
R E C I T A L S:
A. The Company has authorized Forty Million (40,000,000) shares of
common stock (the "Common Stock");
B. The Company has also authorized Six Million (6,000,000) Shares of
Preferred Stock, of which One Million Five Hundred Thousand (1,500,000) shares
have been designated Class C Preferred Stock with such terms as have been set
forth in the Corporation's Certificate of Incorporation, as amended ("Articles
of Incorporation");
C. Contemporaneously with the execution and delivery of this Agreement,
the Investor is acquiring from the Company, (1) One Million Five Hundred
Thousand (1,500,000) shares of Class C Preferred Stock (the "Preferred Shares")
pursuant to a Class C Preferred Stock Purchase Agreement dated as of the date
hereof, by and among the Investor and the Company and the Stockholder (the
"Stock Purchase Agreement") and (2) a stock purchase warrant (the "Warrant") to
purchase shares of Common Stock (the "Warrant Stock").
D. The Stockholder is the record and beneficial owner of 1,938,350
shares (including vested and unvested stock options) of Common Stock, which
represents 19.0% of the issued and outstanding shares of Common Stock on the
date of this Agreement; and
E. One of the conditions to the investment by the Investor is the
execution and delivery of this Agreement by the Company and the Stockholder.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Company, the Stockholder and the Investor
agree as follows:
ARTICLE 1
DEFINITIONS
Appraisal Procedure. The term "Appraisal Procedure" as used herein
means a procedure whereby two (2) independent appraisers, one (1) chosen by the
Company and one by the Investor, shall mutually agree upon the determinations
then the subject of appraisal. Each party shall deliver a notice to the other
appointing its appraiser within fifteen (15) days after the Appraisal Procedure
is invoked. If within thirty (30) days after appointment of the two (2)
appraisers they are unable to
agree upon the amount in question, a third independent appraiser shall be chosen
within ten (10) days thereafter by the mutual consent of such first two (2)
appraisers or, if such first two (2) appraisers fail to agree upon the
appointment of a third appraiser, such appointment shall be made by the American
Arbitration Association, or any organization successor thereto, from a panel of
arbitrators having experience in the appraisal of the subject matter to be
appraised. The decision of the third appraiser so appointed and chosen shall be
given within thirty (30) days after the selection of such third appraiser. If
three (3) appraisers shall be appointed and the determination of one (1)
appraiser is disparate from the middle determination by more than twice the
amount by which the other determination is disparate from the middle
determination, then the determination of such appraiser shall be excluded, the
remaining two (2) determinations shall be averaged and such average shall be
binding and conclusive on the Company and the Investor; otherwise, the average
of all three (3) determinations shall be binding and conclusive on the Company
and the Investor. The costs of conducting any Appraisal Procedure shall be borne
by the Company. Notwithstanding the foregoing, if shares of the Company's Common
Stock are trading on the Nasdaq SmallCap Market, Nasdaq NMS, AMEX, or the NYSE,
rather than invoke the Appraisal Procedure to value Common Stock, the Common
Stock will be valued by reference to the average of the closing prices over the
20 trading days prior to the valuation date.
Founder Shares. The term "Founder Shares" as used herein shall mean and
include all shares of Common Stock or securities convertible into Common Stock
of the Company owned by the Stockholders, whether presently held or hereafter
acquired.
ARTICLE 2
BOARD OF DIRECTORS
Section 2.1 Election of Board; Designation of Chairman. At its next
meeting of its Board of Directors, the Company shall appoint the individual
designated by the Investor to the Board of Directors (the "Investor Director").
In addition, so long as the Preferred Shares are outstanding, the Board of
Directors shall nominate one individual designated by the Investor (whose
identity is reasonably acceptable to the Company) and two (2) Directors, who
shall not be officers of the Corporation (each an "Outside Director") for
election as a board member at any shareholder meeting called for the purpose of
electing directors. The Board will not nominate more nominees at any such
election than there are board seats up for election at such meeting. the
Stockholder shall vote as a shareholder at any such shareholder meeting for the
Investor's nominee. In the event the Investor's designee/nominee is not elected
by the Company's shareholders at any such meeting, the Investor shall have the
right to appoint an individual (whose identity is reasonably acceptable to the
Company) to receive notice of, attend and observe all meetings of the Board of
Directors. Any vacancy in the office of a director may be filled in accordance
with the Articles of Incorporation and the Bylaws of the Company and applicable
law. Any director that is not an employee of the Corporation shall be entitled
to receive those fees and benefits, including the issuance of stock options, as
are afforded the other non-employee members of the Board of Directors, plus out
of pocket expenses.
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Section 2.2 Removal of Investor Designee. Any Investor Director may be
removed during his or her term of office, without cause, by and only by the
written consent of the Investor.
Section 2.3 Insurance. The Company shall maintain directors' and
officers' liability insurance coverage consistent with its current coverage.
ARTICLE 3
CO-SALE IN SALES BY THE STOCKHOLDER
Section 3.1 Co-Sale Right. If at any time the Stockholder desires to
sell or transfer all or any part of the Founder Shares owned by him in a
privately negotiated transaction to any person (the "Purchaser") other than to
the Investor in accordance with Section 3.1, the Stockholder shall promptly give
written notice (the "Notice") to the Investor at least thirty (30) days prior to
the closing of such sale or transfer. The Notice shall describe in reasonable
detail the proposed sale or transfer including, without limitation, the nature
of such sale or transfer, the number of Founder Shares to be sold or
transferred, the consideration to be paid, and the name and address of each
prospective Purchaser or transferee. The Investor shall then have the right to
participate in the Stockholder's sale of Founder Shares by selling its Warrant
Stock at the same price per share and upon the same terms and conditions as
stated in the Notice. To the extent the Investor exercises such right of
participation with respect to its Warrant Stock in accordance with the terms and
conditions set forth below, the number of Founder Shares which the Stockholder
may sell pursuant to such purchase offer shall be correspondingly reduced. For
purposes of this Agreement, the term "privately-negotiated transaction" shall
not refer to any sale of shares pursuant to an underwritten public offering or
pursuant to Rule 144 as promulgated by the Securities and Exchange Commission.
The right of participation of the Investor shall be subject to the following
terms and conditions.
3.1.1 The Investor may sell all or any part of that number of shares
of Warrant Stock equal to the product obtained by multiplying (A) the aggregate
number of Founder Shares to be sold or transferred, by (B) a fraction, the
numerator of which is the number of shares of Warrant Stock then subject to
exercise by the Investor, and the denominator of which is the total number of
shares of Warrant Stock then subject to exercise by the Investor plus the number
of shares of Common Stock held by the Stockholder.
3.1.2 The Investor may effect its participation in the sale by
delivering to the Stockholder for transfer to the Purchaser one or more
certificates, properly endorsed for transfer, which represents the number of
shares of Warrant Stock which the Investor elects to sell pursuant to this
Section 3.2, and the Stockholder shall concurrently therewith remit to the
Investor that portion of the sale proceeds to which the Investor is entitled by
reason of participating in such sale. To the extent that any prospective
Purchaser prohibits such assignment or otherwise refuses to purchase shares or
other securities from the Investor, the Stockholder shall not sell to such
prospective Purchaser any Founder Shares unless and until, simultaneously with
such sale, the Stockholder shall purchase such shares or other securities from
the Investor to effect the purposes of this Agreement in accordance with and
subject to the same terms and conditions that the prospective Purchaser would
have been obligated to purchase the shares from the Investor.
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Section 3.2 Lapse of Restrictions. Any Founder Shares sold by the
Stockholder to any third party pursuant to this Section 3.2 shall no longer be
subject to the restrictions or benefits imposed by this Agreement and any
Warrant Stock sold by the Investor pursuant to this Section 3.2 shall no longer
be entitled to the benefits or restrictions conferred by this Agreement or the
Series B Preferred Stock Purchase Agreement.
Section 3.3 No Waiver. The exercise or non-exercise of the rights of
the Investor hereunder to participate in one or more sales made by the
Stockholder shall not adversely affect its rights to participate in subsequent
sales.
As used in this Section 3.2, the term "Stockholder" is deemed to
include any transferees of the Stockholder, except for a transferee that has
acquired Founder Shares as expressly permitted herein.
ARTICLE 4
SPECIAL RIGHTS
Section 4.1 Rights General. In addition to such rights as are forth in
the Articles of Incorporation, the Investor shall have the rights set forth in
this Article 4.
Section 4.2 Conversion of Class C Preferred Stock. At any time after
the earlier of (a) a Change of Control (as defined below) or (b) that date which
is five (5) years after the date of the issuance of the first share of Class C
Preferred Stock, the Investor shall have the right to require the Company to
convert up to all of the shares of Class C Preferred Stock into shares of Common
Stock in an amount calculated as follows: Number of shares of Common Stock =
($1,500,000 plus accrued or unpaid dividends) / [20-day average of closing
prices on Nasdaq SmallCap Market (or closing sales price if Company is then on
Nasdaq NMS) on the 20 trading day period preceding the notice of conversion
times 0.25]. Following such notice, the Company shall within five (5) business
days convert all of such outstanding shares of Class C Preferred Stock held by
the Investor by delivering to the Investor a stock certificate in the
appropriate amount. A "Change of Control" shall be deemed to occur on (x) the
date upon which Xxxx X. Xxxxx shall cease to be employed by the Company on a
full-time basis, (y) the date Xxxx X. Xxxxx shall cease to be a director of the
Company, or (z) any consolidation, merger, reorganization or other similar
transaction with or into any other corporation or other entity or person, or any
other corporate reorganization, in which the shareholders of the Company
immediately prior to such consolidation, merger or reorganization, or any
transaction or series of related transactions do not hold shares possessing a
majority of votes in the election of directors immediately after such
consolidation, merger or reorganization, or any transaction or series of
transactions.
Section 4.3 Company Redemption Right. At any time up to that date which
is five (5) years after the date of the issuance of the first share of the Class
C Preferred Stock, the Company shall have the right to redeem or repurchase up
to all of the Class C Preferred Stock by giving written notice thereof to the
Company. Following any such notice, the Company shall redeem or repurchase
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all of such outstanding shares of Class C Preferred Stock by paying to the then
current holder an amount equal to $1,500,000 plus any accrued or unpaid
dividends.
ARTICLE 5
DIVIDENDS
The Company shall pay dividends on the Preferred Shares, out of any
funds legally available therefor, as provided in the Articles of Incorporation
of the Company, as amended.
ARTICLE 6
TERMINATION
This Agreement, and the respective rights and obligations of the
parties hereto, shall terminate upon the sale by the Investor to the Company of
all of its Preferred Shares and Warrant Stock.
ARTICLE 7
LEGEND
Any certificates representing shares of capital stock subject to this
Agreement shall bear on their face the following legend prominently displayed:
THE SHARES REPRESENTED BY THIS CERTIFICATE, AND THE TRANSFER
THEREOF, ARE SUBJECT TO THE PROVISIONS OF THAT CERTAIN INVESTOR
RIGHTS AGREEMENT, DATED AS OF SEPTEMBER 30, 1998, AMONG THE
CORPORATION AND WATERSIDE CAPITAL CORPORATION, A COPY OF WHICH
IS ON FILE AND MAY BE EXAMINED AT, THE PRINCIPAL OFFICE OF THE
CORPORATION.
All such shares hereafter issued to the any Company stockholder shall bear the
same endorsement.
ARTICLE 8
MISCELLANEOUS
Section 8.1 No Future Issuances. The Stockholder and the Company
acknowledge and agree that no additional shares of Preferred Stock will be
issued without the approval of the holders of a majority of the Class C
Preferred Stock.
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Section 8.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when delivered by
hand or mailed via a nationally recognized overnight delivery service, by first
class mail registered or certified mail (air mail if to or from outside the
United States), postage prepaid, facsimile transmission that is acknowledged as
received by the recipient, if to the Stockholders, at the Company's address, if
to the Investor, at 000 Xxxx Xxxx Xxxxxx, Xxxxx 0000, Xxxxxxx Xxxxxxxx 00000, if
to the Company, at 0000 Xxxxxxxxxx Xxxxx, Xxxxx Xxxxx, XxXxxx, Xxxxxxxx 00000 or
to such other address as the addressee shall have furnished to the other parties
hereto in the manner prescribed by this Section 8.1.
Section 8.3 Specific Performance. The rights of the parties under this
Agreement are unique and, accordingly, the parties shall have the right, in
addition to such other remedies as may be available to any of them at law or in
equity, to enforce their rights hereunder by actions for specific performance in
addition to any other legal or equitable remedies they might have to the extent
permitted by law.
Section 8.4 Entire Agreement. This Agreement, the Class C Preferred
Stock Purchase Agreement, the Stock Purchase Warrant and the Registration Rights
Agreement, and the documents contemplated thereby, constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between them or any of them
as to such subject matter.
Section 8.5 Waivers and Further Agreements. Any of the provisions of
this Agreement may be waived by an instrument in writing with the consent of the
party or parties whose rights are being waived.
Section 8.6 Amendments. This Agreement may be amended by and shall be
effective upon the receipt of the written consent of the Investor and the
Stockholder.
Section 8.7 Assignment. Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, legal representatives, successors and permitted
transferees, except as may be expressly provided otherwise herein.
Section 8.8 Severability. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
Section 8.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8.10 Section Headings. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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Section 8.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive laws of the Commonwealth of
Virginia.
Section 8.12 Jurisdiction and Venue. The Company consents to the
jurisdiction of the Circuit Court of the City of Norfolk, Virginia, for the
purpose of any suit, action or other proceeding arising out of any of its
obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in such court.
IN WITNESS WHEREOF, the undersigned have executed this Stockholders
Agreement as of the day and year first above written.
COMPANY:
THE NETPLEX GROUP, INC., a New York corporation
By:___________________________________ (SEAL)
Xxxx X. Xxxxx, President
STOCKHOLDER:
-----------------------------------------------
Xxxx X. Xxxxx
INVESTOR:
WATERSIDE CAPITAL CORPORATION
By:___________________________________ (SEAL)
Xxxxxx X. XxXxxxxx
Secretary/Treasurer
