EXHIBIT 10.2
INVESTOR RIGHTS AGREEMENT
September 5, 2001
To each of the several Purchasers named in Exhibit 1.01 to the Series A
Convertible Preferred Stock Purchase Agreement of even date herewith (the
"Investors")
This will confirm that in consideration of (i) the Investors' agreement
on the date hereof to purchase up to an aggregate of 5,494,505 shares (the
"Preferred Shares") of Series A Convertible Preferred Stock, no par value
("Preferred Stock"), of FASTNET CORPORATION, a Pennsylvania corporation
(together with all of its subsidiaries, the "Company"), pursuant to the Series A
Convertible Preferred Stock Purchase Agreement of even date herewith (the
"Purchase Agreement") between the Company and the Investors and as an inducement
to the Investors to consummate the transactions contemplated by the Purchase
Agreement.
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"BOARD OF DIRECTORS" shall mean the board of directors of the
Company as constituted from time to time.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"COMMISSION" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
"COMMON STOCK" shall mean the Common Stock, no par value, of
the Company, as constituted as of the date of this Agreement.
"CONVERSION SHARES" shall mean shares of Common Stock issued
or issuable upon conversion of the Preferred Shares and/or upon exercise of the
Warrants.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Investor Rights Agreement - Page 2
"INDEBTEDNESS" shall mean all obligations, contingent and
otherwise, which should, in accordance with generally accepted accounting
principles, be classified upon the obligor's balance sheet (or the notes
thereto) as liabilities, but in any event including liabilities secured by any
mortgage on property owned or acquired subject to such mortgage, whether or not
the liability secured thereby shall have been assumed, and also including (i)
all guaranties, endorsements and other contingent obligations, in respect of
Indebtedness of others, whether or not the same are or should be so reflected in
said balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business and (ii) the present value of any lease payments due
under leases required to be capitalized in accordance with applicable Statements
of Financial Accounting Standards, determined by discounting all such payments
at the interest rate determined in accordance with applicable Statements of
Financial Accounting Standards.
"KEY EMPLOYEE" OR "KEY EMPLOYEES" shall mean and include the
President, chief executive officer, chief financial officer, chief operating
officer, chief technology officer, vice presidents of operations, research,
development, sales or marketing.
"MATERIAL ADVERSE CHANGE" shall mean a material adverse change
in the business, operations, affairs, or condition (financial or otherwise) of
the Company.
"PERSON OR PERSONS" shall mean an individual, corporation,
partnership, joint venture, trust, or unincorporated organization, or a
government or any agency or political subdivision thereof.
"REGISTRATION EXPENSES" shall mean the expenses so described
in Section 9.
"RESERVED EMPLOYEE SHARES" shall mean shares of Common Stock
issued pursuant to stock purchase, stock grant or stock option arrangements for
employees, directors or consultants or advisors of the Company, all under
arrangements approved by the Compensation Committee of the Board of Directors.
"RESTRICTED STOCK" shall mean the Conversion Shares; provided
that a Conversion Share shall only be treated as Restricted Stock if and so long
as (a) it has not been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, (b) it has not been sold
in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions, and restrictive legends with respect thereto, if any, are
removed upon the consummation of such sale, and (c) it may not be publicly sold
pursuant to paragraph (k) of Rule 144 (or any similar provision then in force)
under the Securities Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean the expenses so described in
Section 9.
Investor Rights Agreement - Page 3
"SUBSIDIARY" OR "SUBSIDIARIES" shall mean any corporation or
trust of which the Company and/or any of its other Subsidiaries (as herein
defined) directly or indirectly owns at the time outstanding shares of every
class of such corporation or trust other than directors' qualifying shares
comprising at least fifty percent (50%) of the voting power of such corporation
or trust.
"WARRANTS" means the warrants exercisable for Common Stock
issued pursuant to the Purchase Agreement.
2. RESTRICTIVE LEGEND. Each certificate representing Preferred
Shares, Conversion Shares or Restricted Stock shall, except as otherwise
provided in this Section 2 or in Section 3, be stamped or otherwise imprinted
with a legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
ASSIGNED MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE
SECURITIES LAWS, OR UPON RECEIPT BY THE COMPANY OF AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
FOR SUCH SALE, TRANSFER OR ASSIGNMENT."
3. LEGENDS WITH RESPECT TO TRANSFERS. Each certificate for
Preferred Shares, Conversion Shares or Restricted Stock that is transferred to
another party shall bear the legend set forth in Section 2, except that such
certificate shall not bear such legend if (i) such transfer is in accordance
with the provisions of Rule 144 (or any other rule permitting public sale
without registration under the Securities Act), (ii) such transfer is effected
pursuant to a registration statement under the Securities Act or (iii) in the
opinion of counsel to the Company or an Investor the transferee and any
subsequent transferee (other than an affiliate of the Company) would be entitled
to transfer such securities in a public sale without registration under the
Securities Act.
4. [intentionally omitted]
5. INCIDENTAL REGISTRATION. If the Company at any time (other
than pursuant to Section 6) proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (except with respect to corporate
reorganizations, transactions under Rule 145 of the Securities Act or
registration statements on Forms X-0, X-0 or another form not available for
registering the Restricted Stock for sale to the public), each such time it will
give written notice to all holders of outstanding Restricted Stock of its
intention so to do. Upon the written request of any such holder, received by the
Company within 30 days after the giving of any such notice by the Company, to
register any of its Restricted Stock, the Company will use its best efforts to
cause the Restricted Stock as to which registration shall have been so requested
Investor Rights Agreement - Page 4
to be included in the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent requisite to permit the
sale or other disposition by the holder of such Restricted Stock so registered.
In the event that any registration pursuant to this Section 5 shall be, in whole
or in part, an underwritten public offering of Common Stock, the number of
shares of Restricted Stock to be included in such an underwriting may be reduced
(PRO RATA among the requesting holders based upon the number of shares of
Restricted Stock owned by such holders) if and to the extent that the managing
underwriter shall be of the opinion that such inclusion would materially
adversely affect the offering price of the securities to be sold by the Company
therein, PROVIDED, HOWEVER, that such number of shares of Restricted Stock shall
not be reduced until all shares to be included in such underwriting for the
account of any person other than the Company and the requesting holders of
Restricted Stock are first excluded, and PROVIDED, FURTHER, HOWEVER, that in no
event may less than twenty percent (20%) of the total number of shares of Common
Stock to be included in such underwriting be made available for shares of
Restricted Stock unless all other shares are first excluded from such offering
and the managing underwriter shall in good faith advise the holders proposing to
distribute their securities through such underwriting that such level of
participation would, in its opinion, materially adversely affect the offering
price and its ability to complete the offering and shall specify the number of
shares of Restricted Stock which, in its opinion, can be included in the
registration and underwriting without such an effect. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 5 prior to the effectiveness of such registration whether or not any
holder of Restricted Stock has elected to include securities in such
registration. The registration expenses of such withdrawn registration shall be
borne by the Company in accordance with Section 7 hereof.
6. REGISTRATION ON FORM S-3.
(a) If at any time (i) a holder or holders of Restricted Stock
request that the Company file a registration statement on Form S-3 or any
successor thereto for a public offering of all or any portion of the shares of
Restricted Stock held by such requesting holder or holders which has an
anticipated aggregate price to the public (prior to underwriters commissions and
discounts) that would exceed $1,000,000, and (ii) the Company is a registrant
entitled to use Form S-3 or any successor thereto to register such shares, then
the Company shall use its best efforts to register under the Securities Act on
Form S-3 or any successor thereto, for public sale in accordance with the method
of disposition specified in such notice, the number of shares of Restricted
Stock specified in such notice.
(b) Following receipt of any notice under this Section 6, the
Company shall immediately notify all holders of Restricted Stock and Preferred
Shares from whom notice has not been received and such holders shall then be
entitled within 30 days thereafter to request the Company to include in the
requested registration all or any portion of their shares of Restricted Stock.
The Company shall use its best efforts to register under the Securities Act, for
public sale in accordance with the method of disposition described in paragraph
(a) above, the number of shares of Restricted Stock specified in such notice
(and in all notices received by the Company from other holders within 30 days
after the giving of such notice by the Company).
Investor Rights Agreement - Page 5
(c) The Company shall be entitled to include in any
registration statement referred to in this Section 6 shares of Common Stock to
be sold by the Company for its own account, except as and to the extent that, in
the opinion of the managing underwriter, such inclusion would adversely affect
the marketing of the Restricted Stock to be sold. No other shares may be
included in such registration statement. Except for registration statements on
Form X-0, X-0 or any successor thereto, the Company will not file with the
Commission any other registration statement with respect to its Common Stock,
whether for its own account or that of other shareholders, from the date of
receipt of a notice from requesting holders requesting sale pursuant to an
underwritten offering pursuant to this Section 6 until the completion of the
period of distribution of the registration contemplated thereby.
(d) If in the opinion of the managing underwriter the
inclusion of all of the Restricted Stock requested to be registered under this
Section 6 would adversely affect the marketing of such shares, shares to be sold
by the holders of Restricted Stock, if any, shall be excluded only after any
shares to be sold by the Company have been excluded, in such manner that the
shares to be sold shall be allocated among the selling holders PRO RATA based on
their ownership of Restricted Stock.
Notwithstanding anything to the contrary in this Section 6, the Company shall
not be required to effect any such registration, qualification or compliance
pursuant to this Section 6:
(i) if the Company has, within the six month period preceding
the date of such request, already effected a registration on Form S-3
for the holders of Restricted Stock pursuant to this Section 6;
(ii) if the Company shall furnish to the holders of Restricted
Stock a certificate signed by the Chairman of the Board stating that in
the good faith judgment of the Board of Directors, there exists at the
time material non-public information relating to the Company the
disclosure of which would be required in such registration statement,
and which disclosure would be seriously detrimental to the Company and
its shareholders, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of
not more than ninety (90) days after receipt of the request of the
holders of Restricted Stock under this Section 6; provided, that such
right to delay a request shall be exercised by the Company not more
than once in any twelve month period;
(iii) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance (provided the
Company has not already executed such a consent or is already qualified
to do business in such jurisdiction).
7. REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of Sections 5 or 6 to use its best efforts to effect
the registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
Investor Rights Agreement - Page 6
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its commercially reasonable
efforts to cause such registration statement to become and remain effective for
the period of the distribution contemplated thereby (determined as hereinafter
provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
(d) use its commercially reasonable efforts to register or
qualify the Restricted Stock covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the sellers of Restricted
Stock or, in the case of an underwritten public offering, the managing
underwriter reasonably shall request, PROVIDED, HOWEVER, that the Company shall
not for any such purpose be required to qualify generally to transact business
as a foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) use its commercially reasonable efforts to list the
Restricted Stock covered by such registration statement with any securities
exchange on which the Common Stock of the Company is then listed;
(f) provide a transfer agent and registrar for all such
Restricted Stock, not later than the effective date of such registration
statement;
(g) immediately notify each seller of Restricted Stock and
each underwriter under such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing. The holders
of Restricted Stock covered by such registration statement agree upon receipt of
such notice forthwith to cease making offers and sales of Restricted Stock
pursuant to such registration statement or deliveries of the prospectus
contained therein for any purpose until the Company has prepared and furnished
such amendment or supplement to the prospectus as may be necessary so that, as
thereafter delivered to purchasers of such Restricted Stock, such prospectus
shall not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing. The
Company shall use best efforts to prepare and furnish such amendment or
supplement to the prospectus within a commercially reasonable period of time;
Investor Rights Agreement - Page 7
(h) use its best efforts to furnish on the date that such
Restricted Stock is delivered to the underwriters for sale, if such securities
are being sold through underwriters: (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters and to such seller and (ii) a letter
dated as of such date from the independent certified public accountants of the
Company, in form and substance as is customarily given by the independent
certified public accountants to underwriters in an underwritten public offering
addressed to the underwriters and to such seller;
(i) make available for inspection by each seller of Restricted
Stock, any underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent retained by
such seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
registration statement, except that the Company may refuse to provide such
information or access to any person that the Board of Directors reasonably
concludes is a competitor of the Company;
(j) advise each selling holder of Restricted Stock, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
such purpose and promptly use all reasonable efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be issued;
(k) cooperate with the selling holders of Restricted Stock and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Restricted Stock to be sold, such
certificates to be in such denominations and registered in such names as such
holders or the managing underwriters may request at least two business days
prior to any sale of Restricted Stock; and
(l) permit Edison Venture Fund IV, L.P. ("Edison") or any
affiliate or limited partner of Edison that is a holder of Restricted Stock
which holder, in the sole and exclusive judgment, exercised in good faith, of
such holder, might be deemed to be a controlling person of the Company, to
participate in good faith in the preparation of such registration or comparable
statement and to require the insertion therein of material, furnished to the
Company in writing, which in the reasonable judgment of such holder and its
counsel should be included, subject to review by the Company and its counsel
after consultation with such holder.
For purposes of Section 7(a) and 7(b) and of Section 6(c), the period
of distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and 120 days
after the effective date thereof.
Investor Rights Agreement - Page 8
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Sections 5 or 6
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
8. ASSIGNMENT OF REGISTRATION RIGHTS. The registration rights of
holders of Restricted Stock pursuant to Sections 5 and 6 hereof may be assigned
by a holder to a transferee or assignee of Restricted Stock which (a) is a
subsidiary, parent, general partner, limited partner, retired partner, member,
retired member or affiliate of such holder, (b) is a holder's immediate family
member or a trust for the benefit of an individual holder or immediate family
members, or (c) acquires at least 25% of the Restricted Stock held by the
transferring holder (as adjusted for stock splits and the like); PROVIDED,
HOWEVER, (i) the transferor shall, within ten (10) days after such transfer,
furnish to the Company written notice of the name and address of such transferee
or assignee and the securities with respect to which such registration rights
are being assigned, and (ii) such transferee shall agree to be subject to all
restrictions set forth in this Agreement.
9. EXPENSES. All expenses incurred by the Company in complying
with Sections 5 and 6, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, costs of insurance, and
fees and disbursements of one counsel for the sellers of Restricted Stock, but
excluding any Selling Expenses, are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Restricted Stock are called "Selling Expenses". The Company shall not, however,
be required to pay for Registration Expenses regarding any registration
proceeding begun pursuant to Section 6, the request of which has been
subsequently withdrawn by the holders of Restricted Stock making such request
(and such holders will indemnify the Company against all such reasonable
Registration Expenses) unless (a) the withdrawal is based upon material adverse
information concerning the Company (including a material drop in the market
price of the Company's Common Stock) of which such holders of Restricted Stock
were not aware at the time of such request, or (b) such holders of Restricted
Stock agree to forfeit their right to one requested registration pursuant to
Section 6, in which event such right shall be forfeited by all holders of
Restricted Stock. If the holders of Restricted Stock are required to pay the
Registration Expenses, such expenses shall be borne by the holders of securities
(including Restricted Stock) requesting such registration in proportion to the
number of shares for which registration was requested.
Investor Rights Agreement - Page 9
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 5 or 6. All Selling Expenses in connection
with each registration statement under Sections 5 or 6 shall be borne by the
participating sellers in proportion to the number of shares sold by each, or by
such participating sellers other than the Company (except to the extent the
Company shall be a seller) as they may agree.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any of the Restricted
Stock under the Securities Act pursuant to Sections 5 or 6, the Company will
indemnify and hold harmless each seller of such Restricted Stock thereunder,
each underwriter of such Restricted Stock thereunder and each other person, if
any, who controls such seller or underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Restricted Stock was
registered under the Securities Act pursuant to Sections 5 or 6, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each such seller, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 10(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company; and PROVIDED,
FURTHER, HOWEVER, that the Company will not be liable in any such case if and to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any such
seller (or such seller's partner, officer, director, or controlling person), any
such underwriter or any such controlling person in writing specifically for use
in such registration statement or prospectus.
(b) In the event of a registration of any of the Restricted
Stock under the Securities Act pursuant to Sections 5 or 6, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Restricted Stock
was registered under the Securities Act pursuant to Sections 5 or 6, any
Investor Rights Agreement - Page 10
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 10(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
each seller; PROVIDED, FURTHER, HOWEVER that such seller will be liable
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in such
registration statement or prospectus, and PROVIDED, FINALLY, HOWEVER, that the
liability of each seller hereunder shall be limited to the net proceeds received
by such seller from the sale of Restricted Stock covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10 and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10 if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 10 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, PROVIDED,
HOWEVER, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Restricted Stock exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 10 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 10 provides for indemnification in such case, or (ii) contribution
Investor Rights Agreement - Page 11
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 10; then, and in each such case, the Company and
such holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that such holder is responsible for the portion represented
by the percentage that the public offering price of its Restricted Stock offered
by the registration statement bears to the public offering price of all
securities offered by such registration statement, and the Company is
responsible for the remaining portion; PROVIDED, HOWEVER, that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the public offering price of all such Restricted Stock offered by it pursuant to
such registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(e) The obligations of the Company and holders of Restricted
Stock under this Section 10 shall survive completion of any offering which
includes Restricted Stock in a registration statement and the termination of
this Agreement. No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each indemnified party, consent to
the entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a general release from all liability in respect to such
claim or litigation.
11. CHANGES IN COMMON STOCK OR PREFERRED STOCK. If, and as often
as, there is any change in the Common Stock or the Preferred Stock by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby shall continue with respect to the Common
Stock and the Preferred Stock as so changed.
12. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Stock to the public without registration,
at all times after 90 days after any registration statement covering a public
offering of securities of the Company under the Securities Act shall have become
effective, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
Investor Rights Agreement - Page 12
(c) so long as a holder owns any Restricted Stock, furnish to
each holder of Restricted Stock forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of such Rule
144 and of the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed by the Company as such holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing such holder to sell any
Restricted Stock without registration.
13. RIGHT OF FIRST REFUSAL
(a) RIGHT OF FIRST REFUSAL. The Company shall not issue, sell
or exchange, agree or obligate itself to issue, sell or exchange any (i) shares
of Common Stock, (ii) any other equity security of the Company, including
without limitation, Preferred Shares, (iii) any debt security of the Company
(other than debt with no equity feature) including without limitation, any debt
security which by its terms is convertible into or exchangeable for any equity
security of the Company, (iv) any security of the Company that is a combination
of debt and equity, or (v) any option, warrant or other right to subscribe for,
purchase or otherwise acquire any such equity security or any such debt security
of the Company, unless in each case the Company shall have first offered to sell
such securities (the "Offered Securities") to the Investors (each an "Offeree"
and collectively, the "Offerees") as follows: Each Offeree shall have the right
to purchase (x) that portion of the Offered Securities as the number of shares
of Restricted Stock then held by such Offeree bears to the total number of
shares of Restricted Stock held on such date by all Offerees (the "Basic
Amount"), and (y) such additional portion of the Offered Securities as such
Offeree shall indicate it will purchase should the other Offerees subscribe for
less than their Basic Amounts (the "Undersubscription Amount"), at a price and
on such other terms as shall have been specified by the Company in writing
delivered to such Offeree (the "Offer"), which Offer by its terms shall remain
open and irrevocable for a period of twenty (20) days from receipt of the offer.
(b) NOTICE OF ACCEPTANCE. Notice of each Offeree's intention
to accept, in whole or in part, any Offer made pursuant to Section 13(a) shall
be evidenced by a writing signed by such Offeree and delivered to the Company
prior to the end of the 20-day period of such offer, setting forth such of the
Offeree's Basic Amount as such Offeree elects to purchase and, if such Offeree
shall elect to purchase all of its Basic Amount, such Undersubscription Amount
as such Offeree shall elect to purchase (the "Notice of Acceptance"). If the
Basic Amounts subscribed for by all Offerees are less than the total Offered
Securities, then each Offeree who has set forth Undersubscription Amounts in its
Notice of Acceptance shall be entitled to purchase, in addition to the Basic
Amounts subscribed for, all Undersubscription Amounts it has subscribed for;
PROVIDED, HOWEVER, that should the Undersubscription Amounts subscribed for
exceed the difference between the Offered Securities and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each Offeree who has
subscribed for any Undersubscription Amount shall be entitled to purchase only
that portion of the Available Undersubscription Amount as the Undersubscription
Amount subscribed for by such Offeree bears to the total Undersubscription
Amounts subscribed for by all Offerees, subject to rounding by the Board of
Directors to the extent it reasonably deems necessary.
Investor Rights Agreement - Page 13
(c) CONDITIONS TO ACCEPTANCES AND PURCHASE.
(i) PERMITTED SALES OF REFUSED SECURITIES. In the
event that Notices of Acceptance are not given by the Offerees in respect of all
the Offered Securities, the Company shall have ninety (90) days from the
expiration of the period set forth in Section 13(a) to close the sale of all or
any part of such Offered Securities as to which a Notice of Acceptance has not
been given by the Offerees (the "Refused Securities") to the Person or Persons
specified in the Offer, but only in all respects upon terms and conditions,
including, without limitation, unit price and interest rates, which are no more
favorable, in the aggregate, to such other Person or Persons or less favorable
to the Company than those set forth in the Offer.
(ii) REDUCTION IN AMOUNT OF OFFERED SECURITIES. In
the event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
13(c)(i) above), then each Offeree may, at its sole option and in its sole
discretion, reduce the number of, or other units of the Offered Securities
specified in its respective Notices of Acceptance to an amount which shall be
not less than the amount of the Offered Securities which the Offeree elected to
purchase pursuant to Section 13(b) multiplied by a fraction, (i) the numerator
of which shall be the amount of Offered Securities which the Company actually
proposes to sell, and (ii) the denominator of which shall be the amount of all
Offered Securities. In the event that any Offeree so elects to reduce the number
or amount of Offered Securities specified in its respective Notices of
Acceptance, the Company may not sell or otherwise dispose of more than the
reduced amount of the Offered Securities until such securities have again been
offered to the Offerees in accordance with Section 13(a).
(iii) CLOSING. Upon the closing of the sale to such
other Person or Persons of all or less than all the Refused Securities, the
Offerees shall purchase from the Company, and the Company shall sell to the
Offerees, the number of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 13(c)(ii) if the Offerees have so
elected, upon the terms and conditions specified in the Offer. The purchase by
the Offerees of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Offerees of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Offerees and their respective counsel.
(d) FURTHER SALE. In each case, any Offered Securities not
purchased by the Offerees or other Person or Persons in accordance with Section
13(c) may not be sold or otherwise disposed of until they are again offered to
the Offerees under the procedures specified in Sections 13(a), 13(b) and 13(c).
(e) WAIVER OF RIGHT OF FIRST REFUSAL. The rights of the
Investors pursuant to this Section 13 may be waived as to all of such Investors
by the affirmative vote or written consent of holders of at least a majority in
interest of the then outstanding Restricted Stock, and any such waiver shall be
binding on all Investors, even if any of such Investors do not execute such
waiver and irrespective of whether one or more Investors participates in the
purchase of the Offered Securities.
Investor Rights Agreement - Page14
(f) EXCEPTION. The rights of the Investors under this Section
13 shall not apply to:
(i) Common Stock issued as a stock split or as a
stock dividend to holders of Common Stock or upon any subdivision or combination
of shares of Common Stock,
(ii) Preferred Stock issued as a dividend to holders
of Preferred Stock upon any subdivision or combination of shares of Preferred
Stock,
(iii) the Conversion Shares,
(iv) any Reserved Employee Shares, and the shares of
Common Stock issuable upon exercise thereof,
(v) any shares of capital stock issued pursuant to
any of the rights, options, warrants or agreement outstanding on the date hereof
and listed on Schedule I hereto,
(vi) any securities issued pursuant to the
acquisition of another entity by the Company by merger (whereby the Company owns
no less than 51% of the voting power of such corporation) or purchase of
substantially all of such entity's stock or assets, if such merger or purchase
is approved by the Board of Directors (which approval shall include the
affirmative vote or consent of the directors elected by the holders of Preferred
Stock),
(vii) any securities issued in connection with a
strategic partnership, joint venture or other similar agreement, provided that
such is approved by a majority of the Board of Directors and such majority
includes the directors elected by the holders of Preferred Stock, and
(viii) any warrants to purchase Common Stock issued
in connection with a bank loan, lease, equipment financing arrangement or debt
financing with a financial institution or the issuance of Common Stock upon the
exercise of any such warrant provided that such is approved by a majority of the
Board of Directors and such majority includes the directors elected by the
holders of the Preferred Stock.
14. COVENANTS OF THE COMPANY. For so long as at least 25% of the
Preferred Shares issued under the Purchase Agreement remain outstanding, the
Company will comply with the covenants set forth below:
(a) AFFIRMATIVE COVENANTS OF THE COMPANY OTHER THAN REPORTING
REQUIREMENTS. Without limiting any other covenants and provisions hereof, and
except to the extent the following covenants and provisions of this Section
14(a) are waived in any instance by the holders of a majority in interest of the
holders of Restricted Stock, the Company covenants and agrees that for so long
as any shares of Preferred Stock are outstanding it will perform and observe the
following covenants and provisions, and will cause each Subsidiary, if and when
such Subsidiary exists, to perform and observe such of the following covenants
and provisions as are applicable to such Subsidiary:
Investor Rights Agreement - Page 15
(i) PRESERVATION OF CORPORATE EXISTENCE. Preserve and
maintain, and, unless the Company deems it not to be in its best interests,
cause each Subsidiary to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
or lease of its properties. Secure, preserve and maintain, and cause each
Subsidiary to secure, preserve and maintain, all licenses and other rights to
use intellectual property rights owned or possessed by it and deemed by the
Company to be necessary to the conduct of its business and the businesses of its
Subsidiaries, taken as a whole.
(ii) COMPLIANCE WITH LAWS. Comply, and cause each
Subsidiary to comply, with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, where noncompliance would
have a Material Adverse Effect.
(iii) INSPECTION. Permit, upon reasonable request and
notice, each of the Investors or any agents or representatives thereof, to
examine and make copies of and extracts from the books of account of, and visit
and inspect the properties of the Company and any Subsidiary, to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, directors or Key Employees and independent accountants, and consult
with and advise the management of the Company and any Subsidiary as to their
affairs, finances and accounts, all at reasonable times during normal business
hours. Subject to the disclosure of information of a non-technical nature,
including financial information, which such Investor discloses to its partners
and/or shareholders generally, each Investor agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Investor may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company as
required hereunder, or pursuant to visitation or inspection rights granted
hereunder unless such information is or becomes known to the Investor from a
source other than the Company or is or becomes publicly known, or unless the
Company gives its written consent to such Investor's release of such
information, except that no such written consent shall be required (and the
Investor shall be free to release such information to such recipient) if such
information is to be provided to the Investor's counsel or accountant, or to an
officer, director or partner of such Investor, provided that the Investor shall
inform the recipient of the confidential nature of such information, and shall
instruct the recipient to treat the information as confidential.
(iv) MAINTENANCE OF PROPERTIES. Maintain and
preserve, and cause each Subsidiary to maintain and preserve, all of its
properties and assets, necessary for the proper conduct of its business, in good
repair, working order and condition, ordinary wear and tear excepted.
(v) BUDGETS APPROVAL. Not later than 30 days prior to
the commencement of each fiscal year, prepare and submit to, and obtain the
approval of a majority of the Board of Directors of, a business plan and monthly
operating budgets in detail for the upcoming fiscal year, including capital and
operating expense budgets, cash flow projections and profit and loss
projections, all itemized in reasonable detail (including itemization of
provisions for officers' compensation).
Investor Rights Agreement - Page 16
(vi) [intentionally omitted]
(vii) BY-LAWS. Within 180 days of this Agreement (and
at all times thereafter), cause the bylaws of the Company to provide that,
unless otherwise required by the laws of the Commonwealth of Pennsylvania any
two directors shall have the right to call a meeting of the Board of Directors.
At all times maintain provisions in the bylaws or articles of incorporation of
the Company indemnifying all directors against liability to the maximum extent
permitted under the laws of Commonwealth of Pennsylvania.
(viii) [intentionally omitted]
(ix) MEETINGS OF DIRECTORS. Hold meetings of the
Company's Board of Directors not less than four (4) times a year on a quarterly
basis.
(x) EXPENSES OF DIRECTORS. Promptly reimburse in
full, each director of the Company who is not an employee of the Company for all
of his reasonable, documented out-of-pocket expenses incurred in attending each
meeting of the Board of Directors of the Company or any committee thereof.
(xi) CONTINUED BUSINESS OPERATIONS. Use commercially
reasonable efforts to cause its officers and Key Employees to refrain from
carrying on any for-profit business activity outside of the Company.
(b) NEGATIVE COVENANTS OF THE COMPANY. Without limiting any
other covenants and provisions hereof, the Company covenants and agrees that,
for so long as any shares of Preferred Stock are outstanding, it will comply
with and observe the following covenants and provisions, and will cause each
Subsidiary, if and when such Subsidiary exists, to comply with and observe such
of the following covenants and provisions as are applicable to such Subsidiary,
and will not, without the written consent or waiver of a majority in interest of
the holders of Restricted Stock:
(i) RESTRICTIONS ON INDEBTEDNESS. Create, incur or
assume, or permit any Subsidiary to create, incur or assume, more than
$2,000,000 of additional Indebtedness after September 5, 2001, other than
Indebtedness (i) incurred to refinance existing Indebtedness of the Company
provided that the outstanding principal amount of the Indebtedness so retired
equals or exceeds the aggregate principal amount of the Indebtedness so incurred
or (ii) the conversion of any of the Company's capital leases existing on
September 5, 2001 into other Indebtedness provided that the aggregate amount
owed under such capital lease immediately prior to conversion equals or exceeds
the aggregate principal amount of the Indebtedness so incurred, or (iii)
incurred as trade payables in the ordinary course of the Company's business
consistent with past practices;
Investor Rights Agreement - Page 17
(ii) DISTRIBUTIONS. Declare or pay any dividends,
purchase, redeem, retire, or otherwise acquire for value any of its capital
stock (or rights, options or warrants to purchase such shares) now or hereafter
outstanding, return any capital to its shareholders as such, or make any
distribution of assets to its shareholders as such, or permit any Subsidiary to
do any of the foregoing (such transactions being hereinafter referred to as
"Distributions"), except that any such Subsidiary may declare and make payment
of cash and stock dividends, return capital and make distributions of assets to
the Company, and except as specifically provided for in the Company's Amended
and Restated Articles of Incorporation, as amended (the "Articles"); PROVIDED,
HOWEVER, that nothing herein contained shall prevent the Company from:
(x) effecting a stock split (except for a
reverse stock split) or declaring or paying any dividend consisting of shares of
any class of capital stock to the holders of shares of such class of capital
stock, or
(y) redeeming any stock of a deceased
shareholder out of insurance held by the Company on that shareholder's life, or
(z) repurchasing the shares of Common Stock
held by officers, employees, directors or consultants of the Company which are
subject to restrictive stock purchase agreements under which the Company has the
option to repurchase such shares upon the occurrence of certain events,
including the termination of employment, at a price not in excess of the
original purchase price paid to the Company by such officer, employee, director
or consultant for such shares,
if in the case of any such transaction the payment can be made in compliance
with the other terms of this Agreement.
(iii) CHANGE IN NATURE OF BUSINESS. Make or permit
any Subsidiary to make, any material change in the nature of its business as
contemplated in the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 2001.
(iv) ISSUANCE OF RESERVED EMPLOYEE SHARES. Grant any
options or other rights to purchase Reserved Employee Shares unless authorized
by vote of the Company's Board of Directors or its Compensation Committee.
(v) AMENDMENTS TO THE EXISTING INVESTOR RIGHTS
AGREEMENT. Amend, modify, waive or change any provision or term of the of the
Investor Rights Agreement dated August 3, 1999, or admit any additional parties
thereto, without the prior written consent of the holders of a majority of the
Restricted Stock.
15. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement
by the Company have been duly authorized by all requisite corporate action and
will not violate any provision of law, or any rule or order of any court or
other agency of government, the Articles or By-laws of the Company or any
Investor Rights Agreement - Page 18
provision of any indenture, agreement or other instrument to which it or any or
its properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
16. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement
by or on behalf of any of the parties hereto shall bind and inure to the benefit
of the respective successors and assigns of the parties hereto (including
without limitation transferees of any Preferred Shares or Restricted Stock),
whether so expressed or not.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in person, mailed by
certified or registered mail, return receipt requested, or sent by telecopier or
telex, addressed as follows:
if to the Company or any other party hereto, at the address of
such party set forth in the Purchase Agreement;
if to any subsequent holder of Preferred Shares, Conversion
Shares or Restricted Stock, to it at such address as may have been furnished to
the Company in writing by such holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Preferred Shares,
Conversion Shares or Restricted Stock) or to the holders of Preferred Shares,
Conversion Shares or Restricted Stock (in the case of the Company) in accordance
with the provisions of this paragraph.
(c) This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Pennsylvania, without
regard to its principles of conflicts of laws.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of the Company and
the holders of at least a majority in interest of the Restricted Stock.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Investor Rights Agreement - Page 19
(f) The Company shall not grant to any third party any
registration rights more favorable than or inconsistent with any of those
contained herein, so long as any of the registration rights under this Agreement
remains in effect.
(g) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
(h) The Additional Purchasers (as defined in the Purchase
Agreement) shall become parties to this Agreement, and shall be entitled to all
of the benefits to and shall be subject to all of the obligations of "Investors"
under this Agreement, all upon execution by such Additional Purchaser of a
counterpart signature page to this Agreement.
Investor Rights Agreement - Page 20
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.
Very truly yours,
FASTNET CORPORATION
By:
---------------------------------------
Name
Title:
AGREED TO AND ACCEPTED as of the date first above written.
Investors named in Schedule I to the Purchase Agreement:
EDISON VENTURE FUND IV, L.P.
BY: Edison Partners IV, L.P.
By:
-------------------------------------
Xxxxx Xxxxxx, General Partner
STRATTECH PARTNERS I, L.P.
By: Strattech Partners, LLC
By:
--------------------------------------
Name:
---------------------------------
Title: Managing Director
