EXHIBIT 2.1
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AGREEMENT AND PLAN OF REORGANIZATION
by and among
FASTNET CORPORATION
(a Pennsylvania corporation),
FASTNET MERGER CORP.
(a Pennsylvania corporation),
NETAXS, INC.
(a New Jersey corporation),
and
THE NETAXS, INC. SHAREHOLDERS
LISTED ON THE SIGNATURE PAGE HEREOF
Dated as of April 4, 2002
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TABLE OF CONTENTS
PAGE
1. THE MERGER............................................................1
1.1 Approval and Filing of Articles of Merger....................1
1.2 Merger Effective Date........................................1
1.3 Articles of Incorporation, Bylaws, Board of Directors
and Officers of the Surviving Corporation....................2
2. MERGER CONSIDERATION..................................................2
2.1 Conversion of Capital Stock; Merger Consideration............2
2.2 Exchange Procedures..........................................2
2.3 No Fractional Shares.........................................2
3. INDEMNITY ESCROW......................................................3
3.1 Creation of Escrow...........................................3
3.2 Duration and Terms...........................................3
3.3 Voting and Investment........................................3
4. CLOSING; MERGER EFFECTIVE DATE........................................3
4.1 Closing Date; Location.......................................3
4.2 Effectiveness of Merger......................................3
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDERS........4
5.1 Corporate Existence..........................................4
5.2 Corporate Power; Authorization; Enforceable Obligations......4
5.3 Authority; Ownership.........................................4
5.4 Validity of Contemplated Transactions........................4
5.5 Capital Stock of the Company.................................5
5.6 Transactions in Capital Stock................................5
5.7 No Bonus Shares..............................................5
5.8 Subsidiaries.................................................5
5.9 Predecessor Status; etc......................................5
5.10 Spin-offs by Company.........................................6
5.11 No Third Party Options.......................................6
5.12 Financial Statements.........................................6
5.13 Liabilities and Obligations..................................6
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5.14 Accounts and Notes Receivable................................7
5.15 Permits......................................................7
5.16 Real and Personal Property...................................7
5.17 Contracts and Commitments....................................7
5.18 Redetermination Contracts....................................9
5.19 Insurance....................................................9
5.20 Employees....................................................9
5.21 Employee Benefit Plans and Arrangements.....................10
5.22 Compliance with Law; Authorizations.........................13
5.23 Transactions With Affiliates................................14
5.24 Litigation..................................................14
5.25 Restrictions................................................14
5.26 Taxes.......................................................14
5.27 Intellectual Property Matters...............................15
5.28 Completeness; No Violations.................................16
5.29 Existing Condition..........................................16
5.30 Deposit Accounts; Powers of Attorney........................18
5.31 Books of Account............................................18
5.32 Environmental Matters.......................................18
5.33 No Illegal Payments.........................................19
5.34 Leases......................................................19
5.35 Disclosure..................................................20
5.36 Customers and Suppliers.....................................20
5.37 Consolidation...............................................20
6. REPRESENTATIONS AND WARRANTIES OF FASTNET AND NEWCO..................20
6.1 Corporate Existence.........................................20
6.2 FASTNET Stock...............................................20
6.3 Corporate Power and Authorization...........................20
6.4 No Conflicts................................................21
6.5 Accuracy of Filings.........................................21
6.6 Litigation..................................................21
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6.7 Certain Proceedings.........................................22
6.8 Disclosure..................................................22
7. COVENANTS OF SHAREHOLDERS AND THE COMPANY............................22
7.1 Existing Condition..........................................22
7.2 Maintenance of Properties and Assets........................22
7.3 Employees and Business Relations............................22
7.4 Maintenance of Insurance....................................22
7.5 Compliance with Laws, etc...................................22
7.6 Conduct of Business.........................................22
7.7 Access......................................................23
7.8 Press Releases and Other Communications.....................23
7.9 Exclusivity.................................................23
7.10 Third Party Approvals.......................................24
7.11 Notification of Certain Matters.............................24
7.12 Amendment of Schedules......................................24
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS.........................................................25
8.1 Representations and Warranties; Performance of Obligations..25
8.2 No Litigation...............................................25
8.3 Escrow Agreement............................................25
8.4 Consents and Approvals......................................25
8.5 Board Representative........................................25
8.6 Option Plan.................................................25
8.7 D&O Insurance...............................................25
8.8 Guaranties..................................................25
8.9 Warrant.....................................................26
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF FASTNET AND NEWCO.............26
9.1 Representations and Warranties; Performance of Obligations..26
9.2 No Litigation...............................................26
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9.3 Examination of Financial Statements.........................26
9.4 No Material Adverse Change..................................26
9.5 Regulatory Review and Approval..............................26
9.6 Escrow Agreement............................................26
9.7 Opinion of Counsel..........................................26
9.8 Consents and Approvals......................................27
9.9 Good Standing Certificates..................................27
9.10 Company Options, Employee Agreements........................28
10. INDEMNIFICATION; SURVIVAL............................................28
10.1 General Indemnification by Equityholders....................28
10.2 Specific Indemnification by Equityholders...................29
10.3 Indemnification by FASTNET and Newco........................29
10.4 Third Party Claims..........................................29
10.5 Limitation of Liabilities; "Basket".........................31
10.6 Survival of Representations and Warranties..................32
11. TERMINATION OF AGREEMENT.............................................33
11.1 Termination.................................................33
11.2 Automatic Termination.......................................33
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............................33
12.1 Shareholders................................................33
12.2 Damages.....................................................34
13. LOCK-UP AGREEMENTS...................................................34
13.1 Agreement...................................................34
13.2 Market Stand-Off Agreement...........................................34
13.3 Intended Third Party Beneficiaries..........................35
13.4 Incidental Registration Rights..............................35
14. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON FASTNET STOCK.35
14.1 Investment Intent...........................................35
14.2 Compliance with Law.........................................35
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14.3 Economic Risk; Sophistication...............................35
14.4 Information Supplied........................................35
14.5 Accredited Investor.........................................36
14.6 Legends.....................................................36
15. POST-CLOSING OBLIGATIONS.............................................36
15.1 Tax Returns.................................................36
15.2 Rule 144 Compliance.........................................37
15.3 Use of Facilities...........................................37
15.4 Bonus Payments..............................................37
16. GENERAL..............................................................37
16.1 Cooperation.................................................37
16.2 Successors and Assigns......................................33
16.3 Entire Agreement............................................38
16.4 Counterparts................................................38
16.5 Brokers and Agents..........................................38
16.6 Expenses....................................................38
16.7 Notices.....................................................39
16.8 Governing Law...............................................39
16.9 Exercise of Rights and Remedies.............................40
16.10 Time........................................................40
16.11 Reformation and Severability................................40
16.12 Remedies Cumulative.........................................40
16.13 Captions....................................................40
16.14....Representation..............................................40
17. DEFINITIONS..........................................................40
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EXHIBIT A Plan of Merger
EXHIBIT B Incidental Registration Rights
ANNEX I Articles of Merger
ANNEX II Indemnity Escrow Agreement
ANNEX III Employee Agreements
ANNEX IV Notes
SCHEDULES
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made as
of the 4th day of April, 2002 among FASTNET Corporation, a Pennsylvania
corporation ("FASTNET"), FASTNET Merger Corp. ("NEWCO"), a Pennsylvania
corporation formed for the sole purpose of effecting this transaction, NETAXS,
Inc., a New Jersey corporation (the "COMPANY"), XXXXXXX XXXXXXXX, AVI XXXXXXXX,
and XXXXXX XXXXXXX, XX. (the "Principals"), who are shareholders of the Company
owning a majority of the voting and ownership interests in the capital stock of
the Company, and the additional Company shareholders who subsequently approve
this Agreement (collectively referred to with the Principals as the
"SHAREHOLDERS").
WHEREAS, the respective Boards of Directors of FASTNET, Newco and the
Company deem it advisable and in the best interests of such entities and their
respective shareholders that the Company merge with and into Newco pursuant to
this Agreement, the Plan of Merger attached hereto as EXHIBIT A (the "PLAN") and
the applicable provisions of the laws of the Commonwealth of Pennsylvania and
the State of New Jersey (such transaction being herein called the "MERGER" and
the Company, Newco and FASTNET being hereinafter collectively referred to as the
"CONSTITUENT CORPORATIONS"); and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties intending to be legally bound hereby, agree as follows:
1. THE MERGER
1.1 APPROVAL AND FILING OF ARTICLES OF MERGER. The respective Boards of
Directors of the Constituent Corporations, the sole shareholder of Newco and the
Principals have approved Articles and a Certificate of Merger, in substantially
the form of ANNEX I attached hereto with such changes therein as may be required
by the Department of State of the Commonwealth of Pennsylvania and the
Department of Treasury of the State of New Jersey (collectively, the "ARTICLES
OF Merger"). Promptly following execution of this Agreement, the Company and the
Shareholders shall use their respective best efforts to obtain all approvals
required by the Company's shareholders and any other requisite parties to the
Articles of Merger and the transactions contemplated by this Agreement. The
Principals agree to vote all of their shares of Company Stock (as defined in
Section 2.1) for approval of the Merger and all transactions contemplated by
this Agreement. Following the obtaining of all such approvals and the
fulfillment of all conditions set forth in this Agreement, the Constituent
Corporations shall cause the Articles of Merger to be executed and delivered to
the Department of State of the Commonwealth of Pennsylvania and the Department
of Treasury of the State of New Jersey on or before the Merger Effective Date
(as defined below).
1.2 MERGER EFFECTIVE DATE. The "MERGER EFFECTIVE DATE" shall be the
date specified in Section 4.2. On the Merger Effective Date, the Company shall
be merged with and into Newco in accordance with the Articles of Merger, and the
separate existence of the Company shall cease. Newco, as the entity surviving
the Merger, is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
The Merger shall have the effects specified in the laws of the Commonwealth of
Pennsylvania and the State of New Jersey.
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1.3 ARTICLES OF INCORPORATION, BYLAWS, BOARD OF DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION. On the Merger Effective Date:
(a) the Articles of Incorporation of Newco, as set forth in
the Articles of Merger, shall become the Articles of Incorporation of the
Surviving Corporation until thereafter amended as provided by law;
(b) the Bylaws of Newco shall become the Bylaws of the
Surviving Corporation and shall remain so until thereafter duly amended;
(c) the name of the person who shall serve as the sole member
of the Board of Directors of the Surviving Corporation shall be Xxxxxxx Xxxxx,
who shall hold office subject to the provisions of the laws of the Commonwealth
of Pennsylvania and of the Articles of Incorporation and Bylaws of the Surviving
Corporation; and
(d) the officers of Newco immediately prior to the Merger
Effective Date shall be the officers of the Surviving Corporation in the same
capacity or capacities, each of such officers to serve, subject to the
provisions of the laws of the Commonwealth of Pennsylvania and of the Articles
of Incorporation and Bylaws of the Surviving Corporation, until his successor is
elected and qualified.
2. MERGER CONSIDERATION
2.1 CONVERSION OF CAPITAL STOCK; MERGER CONSIDERATION. On the Merger
Effective Date, all of the shares of capital stock and all of the rights to
acquire equity interests of the Company, issued and outstanding immediately
prior to the effectiveness of the Merger ("COMPANY STOCK") shall, by virtue of
the Merger and without any action on the part of the holders thereof ("HOLDERS")
but subject to the effectiveness of the Merger, automatically be converted into
the right to receive an aggregate of Three Million Four Hundred Ninety-Nine
Thousand Five Hundred Eighty-Eight Dollars ($3,499,588) in cash and/or
promissory notes as provided on SCHEDULE 2.1 and in SECTION 2.2 (collectively,
the "MERGER CASH"), plus Four Million Forty Thousand One Hundred Eighty-Seven
(4,040,187) shares of unregistered common stock, no par value, of FASTNET
("FASTNET STOCK" and collectively with the Merger Cash, the "MERGER
CONSIDERATION") as hereinafter provided.
On the Merger Effective Date and in consideration of the Merger Consideration,
each Holder will release the Company and the Surviving Corporation from any and
all claims, damages, losses, liabilities, actions, suits, proceedings, demands,
assessments, costs and expenses which such Holder had or may have against the
Company or the Surviving Corporation, their officers, directors and
representatives, excepting only in the case of Holders who are also employees of
the Company, any claims for wages for the current payroll period as of the
Merger Effective Date, the Holder Notes set forth in Section 9.10(c), and any
other specifically identified obligations. The Company shall obtain such a
written release from each Holder prior to the Merger Effective Date.
2.2 EXCHANGE PROCEDURES. On the Merger Effective Date, each Holder
shall, subject to Article 3, be entitled to receive, in exchange for its
respective Company Stock, a certificate or certificates registered in the name
of such Holder representing that number of whole shares of FASTNET Stock and a
portion of the Merger Cash which such Holder has the right to receive (other
than Indemnity Escrow Shares and Cash Security as defined in Article 3),
provided the Holders shall receive an aggregate of $984,690 as set forth on
Schedule 2.1 (less the Cash Security) representing for the Holders other than
the Principals all of the Merger Cash to which they are entitled, and the
Principals shall receive in addition an aggregate of $2,514,898 (less the Cash
Security), representing all of the remainder of the Merger Cash to which they
are entitled, in the form of the FASTNET notes set forth in Annex IV attached to
this Agreement ("Principals Notes"). The Principals Notes will provide for an
interest rate and provide for principal payments in consecutive equal monthly
installments as set forth on SCHEDULE 2.1, commencing May 5, 2002. Each Holder
will be issued its portion of the FASTNET Stock and Merger Cash upon surrender
to FASTNET of certificates representing all of its respective outstanding
Company Stock ("CERTIFICATES") as soon as practicable following the Merger
Effective Date. On the Merger Effective Date or as promptly thereafter as is
practicable, and subject to and in accordance with the provisions of Article 3,
FASTNET shall cause to be distributed to the Escrow Agent (as defined in Article
3) the Cash Security and a certificate or certificates representing the
Indemnity Escrow Shares, which shall be registered in the name of the Escrow
Agent as nominee for the Holders and shall be held in accordance with the
provisions of Article 3 and the Indemnity Escrow Agreement referred to therein.
2.3 NO FRACTIONAL SHARES. Notwithstanding any other provision of this
Article 2, no fractional shares of FASTNET Stock will be issued and any Holder
of Company Stock entitled hereunder to receive a fractional share of FASTNET
Stock but for this Section 2.3 will be entitled hereunder to receive in lieu of
such fractional share a cash payment, based on the closing price of shares of
FASTNET common stock as reported by NASDAQ on the day preceding the Merger
Effective Date.
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3. INDEMNITY ESCROW
3.1 CREATION OF ESCROW.
(a) As collateral security for the payment of any
indemnification obligations pursuant to Section 10 hereof, (i) Ten Percent (10%)
of the FASTNET Stock ("INDEMNITY ESCROW SHARES") upon issuance by FASTNET, and
(ii) Ten Percent (10%) of the Merger Cash, including the principal amount of the
Principals Notes exclusive of interest thereon, payable to the Holders
(collectively, "CASH SECURITY"), shall be delivered to FASTNET's transfer agent,
StockTrans, as escrow agent (the "ESCROW AGENT").
(b) The Indemnity Escrow Shares and Cash Security are
collectively referred to as the "INDEMNITY ESCROW PROPERTY." In addition, the
Indemnity Escrow Property shall include all cash and non-cash dividends and
other property at any time received or otherwise distributed in respect of or in
exchange for any or all of the Indemnity Escrow Property, all securities
hereafter issued in substitution for any of the foregoing, all certificates and
instruments representing or evidencing such securities, all cash and non-cash
proceeds of all of the foregoing property and all rights, titles, interests,
privileges and preferences appertaining or incident to the foregoing property.
3.2 DURATION AND TERMS. The Indemnity Escrow Property shall be held and
disbursed by the Escrow Agent in accordance with the terms of an Indemnity
Escrow Agreement substantially in the form attached hereto as ANNEX II. The
Escrow Agent shall hold the Cash Security pursuant to the Escrow Agreement until
the later of: (a) 6 months after the Merger Effective Date; and (b) the
resolution of any claim for indemnification or payment that is pending 6 months
after the Merger Effective Date, but only to the extent of the recoverable
amount of such pending claim. The Escrow Agent shall hold the Indemnity Escrow
Shares pursuant to the Escrow Agreement until the later of: (a) 18 months after
the Merger Effective Date; and (b) the resolution of any claim for
indemnification or payment that is pending 18 months after the Merger Effective
Date, but only to the extent of the amount of such pending claim.
3.3 VOTING AND INVESTMENT. The Shareholders shall be entitled to
exercise all voting powers incident to the Indemnity Escrow Shares held by the
Escrow Agent as their nominee, but shall not be entitled to exercise any
investment or dispositive powers over such Indemnity Escrow Shares.
4. CLOSING; MERGER EFFECTIVE DATE
4.1 CLOSING DATE; LOCATION. The conversion and delivery of shares
referred to in Article 2 hereof (hereinafter referred to as the "CLOSING") shall
take place at the offices of the Company. Subject to the provisions of this
Agreement, the parties shall hold the Closing on the next business day (or such
later date as the parties hereto may agree) following the first business day on
which the last of the Closing conditions in this Agreement are fulfilled or
waived. The date on which the Closing shall occur shall be referred to as the
"CLOSING DATE."
4.2 EFFECTIVENESS OF MERGER. On the Closing Date, the parties hereto
will cause the Merger to be consummated by filing the Articles of Merger with
the Department of State of the Commonwealth of Pennsylvania and the Department
of Treasury of the State of New Jersey. The Merger shall become effective at the
later of (i) the time at which the Articles of Merger is duly filed with the
Department of State of the Commonwealth of Pennsylvania and the Department of
Treasury of the State of New Jersey and (ii) such later time as specified in the
Articles of Merger duly filed with the Department of State of the Commonwealth
of Pennsylvania and the Department of Treasury of the State of New Jersey (the
date upon which the later of (i) and (ii) occurs hereinafter referred to as the
"MERGER EFFECTIVE DATE").
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5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDERS
As of the date hereof and as of each of the Closing Date and the Merger
Effective Date, the Company and each Shareholder, jointly and severally,
represents and warrants to FASTNET, Newco and the Surviving Corporation, as
follows:
5.1 CORPORATE EXISTENCE. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. The Company is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the conduct of its
business requires it to be so qualified, all of which jurisdictions are listed
on SCHEDULE 5.1. Included in Schedule 5.1 are true and complete copies of the
Company's Certificate of Incorporation, Bylaws and foreign jurisdiction
qualifications, as amended through the date of this Agreement.
5.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
Company has the corporate power, authority and legal right to execute, deliver
and perform this Agreement. The execution, delivery and performance of this
Agreement by the Company has been duly authorized by the Board of Directors of
the Company and Shareholders and, subject only to shareholder approval as set
forth in Section 1.1, no further corporate action on the part of the Company, or
its shareholders or holders of rights to acquire equity interests in the Company
("Optionees" and collectively with the Company's shareholders, "Equityholders")
is necessary to authorize this Agreement and the performance of the transactions
contemplated hereby. This Agreement has been, and the other agreements,
documents and instruments required to be delivered by the Company in accordance
with the provisions hereof (the "COMPANY DOCUMENTS") will be, duly executed and
delivered on behalf of the Company by duly authorized officers of the Company,
and this Agreement constitutes, and the Company Documents when executed and
delivered will constitute, the legal, valid and binding obligations of the
Company, enforceable against it in accordance with their respective terms.
5.3 AUTHORITY; OWNERSHIP. Each Shareholder has the full legal right,
power and authority to enter into this Agreement. Upon the date of this
Agreement and immediately prior to the Closing Date, each Holder owns and will
own beneficially and of record (and will on the Merger Effective Date deliver to
the Surviving Corporation) good, marketable and valid title to all of the shares
of capital stock of the Company set forth beside his name on SCHEDULE 5.5,
collectively constituting all of the issued and outstanding shares of capital
stock of the Company, free and clear of all liens, security interests, pledges,
encumbrances, restrictions and options.
5.4 VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution, delivery and
performance of this Agreement by the Company and each Equityholder does not and
will not violate, conflict with or result in the breach of any term, condition
or provision of, or require the consent of any other person under (a) any
existing law, ordinance, or governmental rule or regulation to which the Company
or any Equityholder is subject, (b) any judgment, order, writ, injunction,
decree or award of any Governmental Entity which is applicable to the Company or
any Equityholder, (c) the charter documents of the Company or any securities
issued by the Company, or (d) except as set forth on SCHEDULE 5.4, any mortgage,
indenture, agreement, contract, commitment, lease, plan, Authorization (as
defined in Section 5.22), or other instrument, document or understanding, oral
or written, to which any of the Company or Equityholder is a party, by which the
Company may have rights or by which any of the properties or assets of the
Company may be bound or affected, or give any party with rights thereunder the
right to terminate, modify, accelerate or otherwise change the existing rights
or obligations of the Company thereunder. Except for filing the Articles of
Merger with the Department of State of the Commonwealth of Pennsylvania and the
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Department of Treasury of the State of New Jersey and as set forth on SCHEDULE
5.4, no authorization, approval or consent of, and no registration or filing
with, any Governmental Entity or other party is required in connection with the
execution, delivery or performance of this Agreement by the Company or any
Equityholder.
5.5 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists solely of the shares shown on SCHEDULE 5.5, of which only the
shares shown on such SCHEDULE 5.5 to be issued and outstanding are issued and
outstanding. Each Shareholder represents and warrants that all of the issued and
outstanding shares of the capital stock of the Company owned by that Shareholder
are set forth on SCHEDULE 5.5, are owned of record and beneficiary by that
Shareholder and are free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind. All
of the issued and outstanding shares of Company Stock to be outstanding on the
Merger Effective Date will have been duly authorized and validly issued, fully
paid and nonassessable, will be owned of record and beneficially by the Holders
and in the amounts set forth next to their name on SCHEDULE 5.5, and will have
been offered, issued, sold and delivered by the Company in substantial
compliance with all applicable state and federal laws concerning the offering,
sale or issuance of securities so as to not provide a basis for an action for
recission or damages. None of such shares will have been, and none of the shares
from which they will have derived were, issued in violation of the tag-along,
drag-along or preemptive rights of any past or present equityholder or rights of
first refusal of the Company pursuant to any agreement, or any other statutory
rights of equityholders or the Company. There are no existing agreements,
options, warrants, convertible securities, commitments or rights with, of or to
any person for that person to acquire any capital stock or equity interests in
the Company except as set forth on SCHEDULE 5.5. There are no accrued or
declared but unpaid dividends on such capital stock, except as reflected on the
Unaudited Balance Sheet.
5.6 TRANSACTIONS IN CAPITAL STOCK. The Company has not acquired any
treasury stock. Except as set forth on SCHEDULE 5.5, no option, warrant, call,
conversion right or commitment of any kind exists which obligates any Company to
issue any of its authorized but unissued capital stock. Except as set forth on
SCHEDULE 5.6, the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof.
5.7 NO BONUS SHARES. None of the shares of capital stock of the Company
were, and none of the shares of Company Stock will be, issued pursuant to
awards, grants or bonuses, whether of stock or of options or other rights.
5.8 SUBSIDIARIES. The Company has no subsidiaries or commonly
controlled entities except as listed on SCHEDULE 5.8 and is not a participant in
any joint venture, partnership or other noncorporate entity.
5.9 PREDECESSOR STATUS; ETC. Except as set forth on SCHEDULE 5.9, there
are no predecessor companies of the Company and no entities from whom the
Company previously acquired significant assets. Except as set forth on SCHEDULE
5.9, the Company has never been a subsidiary or division of another corporation
or been a part of an acquisition that was later rescinded.
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5.10 SPIN-OFFS BY COMPANY. There has not been any sale or spin-off of
significant assets of the Company.
5.11 NO THIRD PARTY OPTIONS. Except as set forth on SCHEDULE 5.11,
there are no existing agreements, options, commitments or rights with, of or to
any person for that person to acquire any properties, assets or rights of the
Company or any interest therein.
5.12 FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 5.12 are copies
of the unaudited balance sheet of the Company (the "UNAUDITED BALANCE SHEET") at
March 29, 2002 (the "UNAUDITED BALANCE SHEET DATE"), the unaudited balance sheet
of the Company at December 31, 2001, and the unaudited statement of income for
the period ended December 31, 2001 (collectively, the "FINANCIAL STATEMENTS").
Except as set forth on SCHEDULE 5.12, all of the Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved. Except as set forth on
SCHEDULE 5.12, all of the balance sheets included in the Financial Statements,
including the related notes, fairly present the financial position, assets
(provided however no representation is made with regard to goodwill and any
subsequent goodwill adjustments) and liabilities (whether accrued, absolute,
contingent or otherwise) of the Company on a consolidated basis at the dates
indicated and such statements of income included in the Financial Statements
fairly present the results of operations of the Company on a consolidated basis
for the periods indicated.
5.13 LIABILITIES AND OBLIGATIONS.
(a) Attached hereto as SCHEDULE 5.13 is an accurate list of:
(i) all liabilities of the Company which are reflected on the Unaudited Balance
Sheet; (ii) all liabilities incurred thereafter other than in the ordinary
course of business; (iii) all liabilities greater than $10,000 incurred
thereafter in the ordinary course of business; and (iv) all liabilities incurred
as of the Unaudited Balance Sheet Date or incurred thereafter that are not
reflected on the Unaudited Balance Sheet; provided, however, that SCHEDULE 5.13
does not include liabilities arising out of any Contract described on SCHEDULE
5.17. Each of the foregoing liabilities that has not heretofore been paid or
discharged is so noted on SCHEDULE 5.13. For purposes of this Agreement,
"LIABILITIES" means liabilities of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise.
(b) For each such liability for which the amount is not fixed
or is contested, SCHEDULE 5.13 shall include a summary description of the
liability, together with copies of all relevant documentation relating thereto,
detail of all amounts claimed and any other action or relief sought, the names
of the claimant and all other parties to the claim, suit or proceeding, the name
of each court or agency before which such claim, suit or proceeding is pending,
the date such claim, suit or proceeding was instituted, and a best estimate of
the maximum amount, if any, which is likely to become payable with respect to
each such liability.
(c) All of the liabilities reflected on the Unaudited Balance
Sheet arose only out of or were incurred only in connection with the conduct in
the ordinary course of the business of the Company. Except as set forth on
SCHEDULE 5.13 and except for liabilities not required to be set forth thereon
pursuant to Section 5.13(a), the Company has no liabilities or obligations with
respect to its capital stock or business, whether direct or indirect, matured or
unmatured, absolute contingent or otherwise, and there is no condition,
situation or set of circumstances which would reasonably be expected to result
in any such liability.
(d) On the Merger Effective Date, the Company's liabilities,
including without limitation payables, capital and operating leases and notes
payable, will not exceed Six Million Seventy-Seven Thousand Dollars ($6,077,000)
in the aggregate.
6
5.14 ACCOUNTS AND NOTES RECEIVABLE. Attached hereto as SCHEDULE 5.14 is
a complete and accurate list of the accounts and notes receivable of the Company
(including, without limitation, receivables from and advances to employees of
the Company) (collectively, the "ACCOUNTS RECEIVABLE"). SCHEDULE 5.14 includes
an aging of all Accounts Receivable showing amounts due in 30-day aging
categories. On the Closing Date, the Company will deliver to FASTNET a complete
and accurate list, as of a date not more than two days prior to the Closing
Date, of the Accounts Receivable. All Accounts Receivable represent valid
obligations arising from bona fide business transactions in the ordinary course
of business consistent with past practice. The Accounts Receivable are, and as
of the Closing Date and the Merger Effective Date will be, current and
collectible, net of any reserves shown on the Company's books and records (which
reserves are adequate and calculated consistent with past practice). There is no
contest, claim, counterclaim, defense or right of set-off, other than rebates
and returns in the ordinary course of business which in the aggregate do not
exceed $20,000, under any contract with any obligor of any Account Receivable
relating to the amount or validity of such Account Receivable except as listed
as a liability under SCHEDULE 5.13.
5.15 PERMITS. Except as listed on SCHEDULE 5.15, the Company has no
permit issued by any Governmental Entity.
5.16 REAL AND PERSONAL PROPERTY. The Company owns no real property.
Attached hereto as SCHEDULE 5.16 is an accurate list, including substantially
complete descriptions as of the Unaudited Balance Sheet Date, of all the
personal property (which had an original cost in excess of $10,000) owned or
leased by the Company, including true and correct copies of leases for
equipment. All leases set forth on SCHEDULE 5.16 have been duly authorized,
executed and delivered and constitute the legal, valid and binding obligations
of the Company and the other parties thereto. All fixed assets used by the
Company in the operation of its business are either owned by the Company or
leased under an agreement set forth on SCHEDULE 5.16. SCHEDULE 5.16 sets forth a
summary description of all plans or projects involving the opening of new
operations, expansion of any existing operations or the acquisition of any real
property or existing business to which management of the Company has devoted any
significant effort or expenditure in the one-year period prior to the date of
this Agreement which, if pursued by the Company would require additional
expenditures of significant efforts or capital. Except as set forth on SCHEDULE
5.16, all real and personal property used by the Company are in good condition,
maintenance and repair, subject to reasonable wear and tear. All real property
used by the Company has had adequate utilities for the operation of the
Company's business through the date of this Agreement.
5.17 CONTRACTS AND COMMITMENTS. SCHEDULE 5.17, WHICH REFERENCES
SPECIFIC SUBPARAGRAPHS BELOW, sets forth an accurate, correct and complete list
of all agreements, contracts, commitments, arrangements and understandings,
written or oral, including all amendments and supplements thereto, of the
Company (the "CONTRACTS") to which the Company is a party or is bound, or by
which any of their respective assets are bound, and which involve any:
(a) agreement, contract, commitment, arrangement or
understanding with any present or former employee or consultant or for the
employment of any person, including any consultant;
(b) agreement, contract, commitment, arrangement or
understanding for the future purchase of, or payment for, supplies or products,
or for the performance of services by a third party involving in any one case
$10,000 or more;
7
(c) agreement, contract, commitment, arrangement or
understanding to sell or supply products or to perform services involving in any
one case $10,000 or more;
(d) agreement, contract, commitment, arrangement or
understanding containing requirements or "take or pay" provisions;
(e) agreement, contract, commitment, arrangement or
understanding not otherwise listed on SCHEDULE 5.17 and continuing over a period
of more than six months from the date hereof or exceeding $10,000 in value;
(f) distribution, dealer, representative or sales agency
agreement, contract, commitment, arrangement or understanding;
(g) agreement, contract, commitment, arrangement or
understanding containing a provision to indemnify any person or entity or assume
any tax, environmental or other liability;
(h) agreement, contract, commitment, arrangement or
understanding with federal, state, local, regulatory or other Governmental
Entity;
(i) note, debenture, bond, equipment trust agreement, letter
of credit agreement, loan agreement or other contract or commitment for the
borrowing or lending of money or agreement or arrangement for a line of credit
or guarantee, pledge or undertaking of the indebtedness of any other person;
(j) agreement, contract, commitment, arrangement or
understanding for any charitable or political contribution;
(k) agreement, contract, commitment, arrangement or
understanding for any capital expenditure or leasehold improvement in excess of
$10,000;
(l) agreement, contract, commitment, arrangement or
understanding limiting or restraining the Shareholders or the Company or any
successor thereto, or to the knowledge of Company and Shareholders, any other
employee of the Company or any successor thereto, from engaging or competing in
any manner or in any business;
(m) license, franchise, distributorship or other agreement
which relates in whole or in part to any software, patent, trademark, trade
name, service xxxx or copyright or to any ideas, technical assistance or other
know-how of or used by the Company, but specifically excluding off-the-shelf PC
software licenses and software with a one-time license fee of less than $1,000,
but Company does represent that it has all required, valid licenses for each
copy of software used by Company which is necessary for the operation of its
business, including server operating systems and server software packages, and
operating systems as required for each PC workstation;
(n) agreement, contract, commitment, arrangement or
understanding to which the Company, on the one hand, and any affiliate, officer,
director or shareholder of the Company, on the other hand, are parties; or
(o) agreement, contract, commitment, arrangement or
understanding not made in the ordinary course of business.
8
The Company is, and to the knowledge of the Company and each Shareholder, all
other parties are, in compliance with the provisions to each of the Contracts
listed in SCHEDULE 5.17. The Company is not, and to the knowledge of the Company
and each Shareholder, no other party thereto is, in default in the performance,
observance or fulfillment of any obligation, covenant or condition contained
therein; and no event has occurred which with or without the giving of notice or
lapse of time, or both, would constitute a default thereunder by the Company.
Except as set forth on SCHEDULE 5.17(p), none of the rights of the Company under
any Contract will be impaired by the consummation of the transactions
contemplated hereby, and all such rights will be enforceable by the Surviving
Corporation after the Merger Effective Date without the consent or agreement of
any other party. The Company has delivered accurate and complete copies of each
Contract to FASTNET. Except as set forth in SCHEDULE 5.17(p), no Contract
obligates any party to obtain any consent in connection with the transactions
contemplated hereby, and no Contract contains burdensome or uneconomic terms and
conditions.
5.18 REDETERMINATION CONTRACTS. Except as set forth on SCHEDULE 5.18,
the Company is not now and has never been a party to any contract with any
Governmental Entity or other party which is subject to price redetermination or
renegotiation.
5.19 INSURANCE. The assets, properties and operations of the Company
are insured under various policies of general liability and other forms of
insurance, all of which are described in SCHEDULE 5.19, which discloses for each
policy the risks insured against, coverage limits, deductible amounts, all
outstanding claims thereunder, and whether the terms of such policy provide for
retrospective premium adjustments. All such policies are in full force and
effect in accordance with their terms, no notice of cancellation has been
received, and there is no existing default or event which, with the giving of
notice or lapse of time or both, would constitute a default thereunder. Such
policies are in amounts which, in relation to the business and assets of the
Company, are consistent with the normal or customary industry practice and all
premiums due to date have been paid in full. The Company has never been refused
any insurance, nor has the Company's coverage been limited, by any insurance
carrier to which it has applied for insurance or with which it has carried
insurance during the past five years. SCHEDULE 5.19 also contains a true and
complete description of all outstanding bonds and other surety arrangements
issued or entered into in connection with the business, assets and liabilities
of the Company.
5.20 EMPLOYEES. SCHEDULE 5.20 contains the following with respect to
the Company:
(a) a list of all employees of the Company (including name,
title and position);
(b) each such employee's length of service; and
(c) the compensation (including terms of payment, bonuses,
commissions and deferred compensation, as well as any benefits) of each such
employee.
Except as disclosed on SCHEDULE 5.20: (i) there have not been in the past five
years and, to the knowledge of the Company and the Shareholders, there are not
pending, any labor disputes, work stoppages, requests for representation,
pickets or work slow-downs due to labor disagreements; (ii) there are and have
been no unresolved violations of any laws of any Governmental Entity respecting
the employment of any employees; (iii) there is no unfair labor practice, charge
or complaint pending, unresolved or, to the knowledge of the Company and the
Shareholders, threatened before the National Labor Relations Board or similar
body in any foreign country; (iv) there is no employment handbook, personnel
policy manual, or similar document that creates prospective employment rights or
obligations other than made a part of SCHEDULE 5.20; (v) the employees of the
Company are not covered by any collective bargaining agreement; (vi) the Company
has provided or will timely provide prior to Closing all notices required by law
to be given prior to Closing to all local, state, federal or national labor,
wage-payment, equal employment opportunity, unemployment insurance and related
agencies; (vii) the Company has paid or properly accrued in the ordinary course
of business all wages and compensation due to employees, including all vacations
or vacation pay, holidays or holiday pay, sick days or sick pay, and bonuses;
9
and (viii) the transactions contemplated by this Agreement will not create
liability under any Laws of any Governmental Entity respecting reductions in
force or the impact on employees on plant closing or sales of businesses. All
employees of the Company are legally able to work in the United States.
5.21 EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS. SCHEDULE 5.21 sets forth
a complete and accurate list of each Benefit Plan covering any present or former
officers, employees or directors of the Company. "BENEFIT PLAN" means each
"employee pension benefit plan" (as defined in Section 3(2) of ERISA,
hereinafter a "PENSION PLAN"), "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA, hereinafter a "WELFARE PLAN") and each other plan or
arrangement (written or oral) relating to deferred compensation, bonus,
performance compensation, stock purchase, stock option, stock appreciation,
severance, vacation, sick leave, holiday pay, fringe benefits, personnel policy,
reimbursement program, incentive, insurance, welfare or similar plan, program,
policy or arrangement, in each case maintained or contributed to, or required to
be maintained or contributed to, by the Company or its affiliates or any other
person or entity that, together with the Company, is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code (each, together with
the Company, a "COMMONLY CONTROLLED ENTITY") for the benefit of any present or
former officer, employee or director. The Company has no intent or commitment to
create any additional Benefit Plan or amend any Benefit Plan so as to increase
benefits thereunder. The Company has not created any Benefit Plan or declared or
paid any bonus compensation in contemplation of the transactions contemplated by
this Agreement. A current, accurate and complete copy of each Benefit Plan has
been made available to FASTNET. Except as disclosed on SCHEDULE 5.21:
(a) each Benefit Plan is in compliance with all reporting,
disclosure and other requirements of ERISA applicable to such Benefit Plan;
(b) the Company and the Shareholders represent that they know
of no condition which would prevent any Pension Plan from being determined to be
qualified by the IRS. If requested by FASTNET, the Shareholders will make their
reasonable efforts to obtain a determination letter from the IRS.
(c) neither any Benefit Plan, nor the Company, nor any
Commonly Controlled Entity, nor any trustee or agent has been or is presently
engaged in any prohibited transactions as defined by Section 406 of ERISA or
Section 4975 of the Code for which an exemption is not applicable which could
subject the Company to the tax or penalty imposed by Section 4975 of the Code or
Section 502 of ERISA;
(d) there is no event or condition existing which could be
deemed a "reportable event" (within the meaning of Section 4043 of ERISA) with
respect to which the thirty-day notice requirement has not been waived; to the
knowledge of the Company and the Shareholders, no condition exists which could
subject the Company to a penalty under Section 4071 of ERISA;
(e) neither the Company nor any Commonly Controlled Entity is
or has ever been party to any "multi-employer plan," as that term is defined in
Section 3(37) of ERISA;
10
(f) true and correct copies of the most recent annual report
on Form 5500 and any attached schedules for each Benefit Plan (if any such
report was required by applicable law) and a true and correct copy of the most
recent determination letter issued by the Internal Revenue Service for each
Pension Plan have been provided to FASTNET;
(g) with respect to each Benefit Plan, there are no actions,
suits or claims (other than routine claims for benefits in the ordinary course)
pending or, to the knowledge of the Company and the Shareholders, threatened
against any Benefit Plan, any Company, any Commonly Controlled Entity or any
trustee or agent of any Benefit Plan; and
(h) with respect to each Benefit Plan to which the Company or
any Commonly Controlled Entity is a party which constitutes a group health plan
subject to Section 4980B of the Code, each such Benefit Plan complies, and in
each case has complied, with all applicable requirements of Section 4980B of the
Code.
(i) Except as set forth in SCHEDULE 5.21:
(i) there is no outstanding liability (EXCEPT for
premiums due) under Title IV of ERISA with respect to any Pension Plan;
(ii) neither the Pension Benefit Guaranty Corporation
nor the Company nor any Commonly Controlled Entity has instituted proceedings to
terminate any Pension Plan and the Pension Benefit Guaranty Corporation has not
informed the Company of its intent to institute proceedings to terminate any
Pension Plan;
(iii) full payment has been made of all amounts which
the Company or any Commonly Controlled Entity was required to have paid as a
contribution to the Pension Plans as of the last day of the most recent fiscal
year of each of the Pension Plans ended prior to the date of this Agreement, and
none of the Pension Plans has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, as of the last day of the most recent fiscal year of each such Pension
Plan ended prior to the date of this Agreement;
(iv) to the knowledge of the Company and the
Shareholders, the actuarial assumptions utilized, where appropriate, in
connection with determining the funding of each Pension Plan which is a defined
benefit set forth in the actuarial report for such Pension Plan, are reasonable.
Copies of the most recent actuarial reports have been furnished to FASTNET.
Based on such actuarial assumptions, as of the Unaudited Balance Sheet Date, the
fair market value of the assets or properties held under each such Pension Plan
exceeds the actuarially determined present value of all accrued benefits of such
Pension Plan (whether or not vested) determined on an ongoing Pension Plan
basis;
(v) each of the Benefit Plans is, and its
administration is and has been during the six-year period preceding the date of
this Agreement, in compliance with, and neither the Company has received any
claim or notice that any such Benefit Plan is not in compliance with, all
applicable laws and orders and prohibited transaction exemptions, including
without limitation, to the extent applicable, the requirements of ERISA;
11
(vi) neither the Company and no Commonly Controlled
Entity is in default in performing any of its contractual obligations under any
of the Benefit Plans or any related trust agreement or insurance contract;
(vii) there are no outstanding liabilities of any
Benefit Plan other than liabilities for benefits to be paid to participants in
the Benefit Plans and their beneficiaries in accordance with the terms of the
Benefit Plans;
(viii) each Benefit Plan may be amended or modified
by the Company or Commonly Controlled Entity, as applicable, at any time without
liability, except under any defined pension benefit plan;
(ix) no Benefit Plan other than a Pension Plan,
retiree medical plan or severance plan provides benefits to any individual after
termination of employment;
(x) the consummation of the transactions contemplated
by this Agreement will not (in and of itself): (A) entitle any employee of the
Company to severance pay, unemployment compensation or any other payment; (B)
accelerate the time of payment or vesting, or increase the amount of
compensation due to any such employee; (C) result in any liability under Title
IV of ERISA; (D) result in any prohibited transaction described in Section 406
of ERISA or Section 4975 of the Code for which an exemption is not available; or
(E) result (either alone or in conjunction with any other event) in the payment
or series of payments by the Company or any of their affiliates to any person of
an "excess parachute payment" within the meaning of Section 280G of the Code;
(xi) with respect to each Benefit Plan that is funded
wholly or partially through an insurance policy, all premiums required to have
been paid to date under the insurance policy have been paid, all premiums
required to be paid under the insurance policy through the Merger Effective Date
will have been paid on or before the Merger Effective Date and, as of the Merger
Effective Date, there will be no liability of the Company or any Commonly
Controlled Entity under any insurance policy or ancillary agreement with respect
to such insurance policy in the nature of a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability arising wholly or
partially out of events occurring prior to the Merger Effective Date;
12
(A) each Benefit Plan that constitutes a
"Welfare Plan," within the meaning of Section 3(1) of ERISA, and for which
contributions are claimed by any Company or any Commonly Controlled Entity as
deductions under the provision of the Code, is in material compliance with all
applicable requirements pertaining to such deduction;
(B) with respect to any welfare benefit fund
(within the meaning of Section 419 of the Code) related to a welfare benefit
plan, there is no disqualified benefit (within the meaning of Section 4976(b) of
the Code) that would result in the imposition of a tax under Section 4976(a) of
the Code; and
(C) all welfare benefit funds intended to be
exempt from tax under Section 501(a) of the Code have been determined by the
Internal Revenue Service to be so exempt and no event or condition exists which
would adversely affect any such determination; and
(xii) all benefit plans outside of the United
States, if any (the "FOREIGN PLANS"), are in compliance with all applicable laws
and regulations and have been operated in accordance with the plans' respective
terms. There are no unfunded liabilities under or in respect of the Foreign
Plans, and all contributions or other payments required to be made to or in
respect of the Foreign Plans prior to the Merger Effective Date have been made
or will be made prior to the Merger Effective Date.
5.22 COMPLIANCE WITH LAW; AUTHORIZATIONS. The Company has substantially
complied with each, and is not in violation of any, law, ordinance, or
governmental or regulatory rule or regulation, whether federal, state, local or
foreign ("REGULATIONS"), to which the Company' business, operations, assets or
properties is subject. Except as set forth in SCHEDULE 5.22, the Company owns,
holds, possesses or lawfully uses in the operation of its business all material
franchises, licenses, permits, easements, rights, applications, filings,
registrations and other authorizations ("AUTHORIZATIONS") which are in any
manner necessary for it to conduct its business as now or previously conducted
or for the ownership and use of the assets owned or used by the Company in the
conduct of the business of the Company, free and clear of all liens, charges,
restrictions and encumbrances and in compliance with all Regulations. All such
Authorizations are listed and described in SCHEDULE 5.22. Except as set forth in
SCHEDULE 5.22, the Company is not in default, nor has the Company received any
notice of any claim of default, with respect to any such Authorization. All such
Authorizations are renewable by their terms or in the ordinary course of
business without the need to comply with any special qualification procedures or
to pay any amounts other than routine filing fees. None of such Authorizations
will be adversely affected by consummation of the transactions contemplated
hereby. No shareholder, director, officer, employee or former employee of the
Company or any affiliates of the Company, or any other person, firm or
corporation, owns or has any proprietary, financial or other interest (direct or
indirect) in any Authorization which the Company owns, possesses or uses in the
operation of the business of the Company as now or previously conducted.
13
5.23 TRANSACTIONS WITH AFFILIATES. Except as set forth in SCHEDULE
5.23, no shareholder, director, officer or employee of the Company, or any
member of his or her immediate family or any other of its, his or her
affiliates, owns or has a 5% or more ownership interest in any corporation or
other entity that is or was during the last three years a party to, or in any
property which is or was during the last three years the subject of, any
contract, agreement or understanding, business arrangement or relationship with
such Company.
5.24 LITIGATION.
(a) No litigation, including any arbitration, investigation or
other proceeding of or before any court, arbitrator or governmental or
regulatory official, body or authority is pending or, to the knowledge of the
Company and the Shareholders, has been threatened against the Company which
relates to the transactions contemplated by this Agreement.
(b) Except as set forth on SCHEDULE 5.24, no litigation,
including any arbitration, investigation or other proceeding of or before any
court, arbitrator or governmental or regulatory official, body or authority is
pending or, to the knowledge of the Company and the Shareholders, threatened
against the Company or which relates to the Company.
(c) Neither Company or any Shareholder knows of any reasonably
likely basis for any litigation, arbitration, investigation or proceeding
referred to in Sections 5.24(a) or (b).
(d) The Company is not a party to or subject to the provisions
of any judgment, order, writ, injunction, decree or award of any court,
arbitrator or governmental or regulatory official, body or authority.
5.25 RESTRICTIONS. The Company is not a party to any indenture,
agreement, contract, commitment, lease, plan, license, permit, authorization or
other instrument, document or understanding, oral or written, or subject to any
charter or other corporate restriction or any judgment, order, writ, injunction,
decree or award which materially adversely affects or materially restricts or,
so far as the Company or any of the Shareholders can now reasonably foresee, may
in the future materially adversely affect or materially restrict, the business,
operations, assets, properties, prospects or condition (financial or otherwise)
of the Surviving Corporation after consummation of the transactions contemplated
hereby.
5.26 TAXES. Except as set forth on Schedule 5.26 and as expressly
provided in Section 15.1, all federal, state, local and foreign tax returns,
reports, statements and other similar filings required to be filed by the
Company (the "TAX RETURNS") with respect to any federal, state, local or foreign
taxes, assessments, interest, penalties, deficiencies, fees and other
governmental charges or impositions (including without limitation all income
tax, unemployment compensation, social security, payroll, sales and use, excise,
privilege, property, AD VALOREM, franchise, license, school and any other tax or
similar governmental charge or imposition under laws of the United States or any
state or municipal or political subdivision thereof or any foreign country or
political subdivision thereof) (singly, a "TAX", and collectively, the "TAXES")
have been timely filed with the appropriate governmental agencies in all
jurisdictions in which such Tax Returns are required to be filed, and all such
Tax Returns (and the Section 15.1 Tax Returns when filed will) fairly reflect
the liabilities of the Company for Taxes for the periods, property or events
covered thereby. Included in Schedule 5.26 are copies of all Tax Returns of the
Company for the prior three year period. All Taxes called for by the Tax Returns
have been paid by the Company and any deficiency assessments, penalties and
interest have been timely paid, withheld or accrued. The Company's Tax basis in
its assets for purposes of determining its future amortization, depreciation and
other federal income tax deductions is fairly stated on the Company's Tax books
and records. The Company is not and has not at any time ever been a party to a
Tax sharing, Tax indemnity or Tax allocation agreement, and the Company has not
assumed any Tax liability of any other person or entity under contract. The
Company has not received any notice of assessment or proposed assessment in
connection with any Tax Returns and there are not pending tax examinations of or
tax claims asserted against the Company or any of its assets or properties. The
14
Company has not extended, or waived the application of, any statute of
limitations of any jurisdiction regarding the assessment or collection of any
Taxes. There are now (and as of immediately following the Closing there will be)
no liens (other than any lien for current Taxes not yet due and payable) on any
of the assets or properties of the Company relating to or attributable to Taxes,
except inchoate liens for tax liabilities incurred but not yet due. To the
knowledge of the Company and the Shareholders, there is no basis for the
assertion of any claim relating to or attributable to Taxes which, if adversely
determined, would have an adverse effect on the Company or its business,
operations, assets, properties, prospects or condition (financial or otherwise).
All Tax payments related to employees, including income tax withholding, FICA,
FUTA, unemployment and worker's compensation, required to be made by the Company
have been fully and properly paid, withheld, accrued or recorded. There are no
contracts, agreements, plans or arrangements, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to any payment (or
portion thereof) that would not be deductible pursuant to Sections 280G, 404 or
162 of the Internal Revenue Code, as amended ("CODE"). Correct and complete
copies of (a) all Tax examinations, (b) all extensions of statutory limitations
and (c) all federal, state and local income tax returns and franchise tax
returns of the Company for the last five fiscal years, or such shorter period of
time as any of them shall have existed, have heretofore been delivered by the
Company to FASTNET. The Company has never made an election to be taxed under the
provisions of Subchapter S of the Code and has at all times been taxed under the
provisions of Subchapter C of the Code. The Company has a taxable year ended
December 31 and the Company has not made an election to retain a fiscal year
other than December 31 under Section 444 of the Code. The Company currently
utilizes the accrual method of accounting for income tax purposes and has not
changed its method of accounting for income tax purposes in the past five years.
With respect to any assessment of Taxes to which there is a bona fide dispute as
to the liability of the Company, FASTNET agrees to use its commercially
reasonable efforts to resolve and/or minimize such Tax liabilities of Company
before any indemnification is sought against the Principals or the Indemnity
Escrow Property.
5.27 INTELLECTUAL PROPERTY MATTERS.
(a) The Company uses or has used the patents, trade names,
service marks, copyrights, software, trade secrets and know-how listed on
SCHEDULE 5.27(A) (the "INTELLECTUAL PROPERTY"), all of which are owned by the
Company free and clear of any liens, claims, charges or encumbrances except as
set forth on SCHEDULE 5.27(a). The Intellectual Property constitutes all such
rights necessary for the conduct of the business of the Company.
(b) Except as set forth on SCHEDULE 5.27(b), there are no
royalty, commission or similar arrangements, and no licenses, sublicenses or
agreements, pertaining to any of the Intellectual Property or products or
services of the Company.
(c) To the knowledge of the Company and the Shareholders, the
Company does not infringe upon or unlawfully or wrongfully use any patent,
trademark, trade name, service xxxx, copyright or trade secret owned or claimed
by another. No action, suit, proceeding or investigation has been instituted or,
to the knowledge of the Company and the Shareholders, threatened relating to any
patent, trademark, trade name, service xxxx, copyright or trade secret formerly
or currently used by the Company. None of the Intellectual Property is subject
to any outstanding order, decree or judgment. The Company has not agreed to
indemnify any person or entity for or against any infringement of or by the
Intellectual Property.
15
(d) No present or former employee, consultant or shareholder
of the Company and no other person or entity owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part, in any of
the Intellectual Property. SCHEDULE 5.27(D) lists all confidentiality or
non-disclosure agreements currently in force and effect to which the Company or
to its knowledge any of its employees is a party.
(e) SCHEDULE 5.27(e) sets forth a complete and accurate list
of all items of Intellectual Property duly registered in, filed in or issued by
the United States Copyright Office or the United States Patent and Trademark
Office, any offices in the various states of the United States and any similar
offices in other jurisdictions.
(f) Except as set forth in SCHEDULE 5.27(f), all rights of the
Company in the Intellectual Property shall vest in the Surviving Corporation
pursuant to the transactions contemplated hereby without any consent or other
approval.
5.28 COMPLETENESS; NO VIOLATIONS. Copies of the certified copies of the
Certificate of Incorporation and Bylaws, both as amended to date, of the
Company, and the copies of all leases, instruments, agreements, licenses,
permits, certificates or other documents which are included on schedules
attached hereto or which have been delivered to FASTNET in connection with the
transactions contemplated hereby, are complete and correct; neither the Company
nor, to the knowledge of the Company or the Shareholders, any other party to any
of the foregoing is in default thereunder; and, EXCEPT as set forth in the
schedules and documents attached to this Agreement, the rights and benefits of
the Company thereunder will not be adversely affected by the transactions
contemplated hereby, and the execution of this Agreement and the performance of
the obligations hereunder will not result in a violation or breach or constitute
a default under any of the terms or provisions thereof. Except as set forth on
SCHEDULE 5.28, none of such leases, instruments, agreements, contracts,
licenses, permits, certificates or other documents requires notice to, or the
consent or approval of, any governmental agency or other third party to any of
the transactions contemplated hereby to remain in full force and effect. The
consummation of the transactions contemplated hereby will not give rise to any
right of termination, cancellation or acceleration or result in the loss of any
right or benefit thereunder.
5.29 EXISTING CONDITION. Except as set forth on SCHEDULE 5.29, since
December 31, 2001, the Company has not:
(a) incurred any material liabilities, other than liabilities
incurred in the ordinary course of business consistent with past practice, or
discharged or satisfied any lien or encumbrance, or paid any liabilities, other
than in the ordinary course of business consistent with past practice, or failed
to pay or discharge when due any material liabilities of which the failure to
pay or discharge has caused or will cause any material damage or risk of
material loss to it or any of its assets or properties;
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(b) sold, encumbered, assigned or transferred any material
assets, properties or rights or any interest therein, except for sales in the
ordinary course of business consistent with past practice, or made any agreement
or commitment or granted any option or right with, of or to any person to
acquire any assets, properties or rights of the Company or any interest therein;
(c) created, incurred, assumed or guaranteed any material
indebtedness for money borrowed, or mortgaged, pledged or subjected any of its
material assets to any mortgage, lien, pledge, security interest, conditional
sales contract or other encumbrance of any nature whatsoever, except as
disclosed in SCHEDULE 5.13 in the ordinary course of business consistent with
past practice;
(d) made or suffered any amendment or termination of any
material agreement, contract, commitment, lease or plan to which it is a party
or by which it is bound, or canceled, modified or waived any substantial debts
or claims held by it or waived any rights of substantial value, whether or not
in the ordinary course of business except as disclosed on SCHEDULE 5.17;
(e) declared, set aside or paid any dividend or made or agreed
to make any other distribution or payment in respect of its capital shares or
redeemed, purchased or otherwise acquired or agreed to redeem, purchase or
acquire any of its shares of capital stock or other ownership interests;
(f) suffered any damage, destruction or loss (i) materially
and adversely affecting its business, operations, assets, properties or
prospects or (ii) of any item or items carried on its books of account
individually or in the aggregate at more than $10,000;
(g) made or incurred any material adverse change in its
business, operations, assets, properties, or financial condition;
(h) received notice or had knowledge of any actual or
threatened labor trouble, strike or other occurrence, event or condition of any
similar character which has had or might have an adverse effect on its business,
operations, assets, properties or financial condition;
(i) made commitments or agreements for capital expenditures or
capital additions or betterments exceeding in the aggregate $10,000, except as
disclosed on SCHEDULE 5.17 or such as may be involved in ordinary repair,
maintenance or replacement of its assets;
(j) increased the salaries or other compensation of, or made
any advance (excluding advances for ordinary and necessary business expenses) or
loan to, any of its employees or made any increase in, or any addition to, other
benefits to which any of its employees may be entitled, or entered into any
employment or consulting agreement which requires more than 30 days notice of
termination or the payment of any severance or similar benefits;
(k) changed any of the accounting principles followed by it or
the methods of applying such principles;
(l) entered into any transaction other than in the ordinary
course of business consistent with past practice;
(m) except as reflected in SCHEDULE 5.5, changed its
authorized capital or its securities outstanding or otherwise changed its
ownership interests, or granted any options, warrants, calls, conversion rights
or commitments with respect to any of its capital stock or other ownership
interests; or
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(n) agreed to take any of the actions referred to above.
5.30 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Attached hereto as SCHEDULE
5.30 is an accurate list, as of the date of this Agreement, of:
(a) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
As of the Merger Effective Date, the Company will have on deposit at
such financial institutions at least Four Million Ninety Thousand Dollars
($4,090,000) in cash and cash equivalents, excluding any payments received from
Akamai pursuant to the April 1, 2002 letter with the Company.
5.31 BOOKS OF ACCOUNT. The books, records and accounts of the Company
reflect fairly, in reasonable detail, the transactions and the assets and
liabilities of the Company. The Company has not engaged in any transaction,
maintained any bank account or used any of the funds of the Company except for
transactions, bank accounts and funds which have been and are reflected in the
normally maintained books and records of the business.
5.32 ENVIRONMENTAL MATTERS.
(a) The Company has secured, and is in compliance with, all
Environmental Permits, with respect to any premises on which its business is
operated, all of which Environmental Permits shall vest in the Surviving
Corporation upon consummation of the transactions contemplated hereby. The
Company is in compliance with all Environmental Laws.
(b) No Company or Shareholder has received any communication
from any Governmental Entity that alleges that the Company is not in compliance
with any Environmental Laws or Environmental Permits.
(c) The Company has not entered into or agreed to any court
decree or order, and the Company is not subject to any judgment, decree or
order, relating to compliance with any Environmental Law or to investigation or
cleanup of a Hazardous Substance under any Environmental Law.
(d) No lien, charge, interest or encumbrance has been
attached, asserted, or to the knowledge of the Company and the Shareholders,
threatened to or against any assets or properties of the Company pursuant to any
Environmental Law.
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(e) There has been no treatment, storage, disposal or release
of any Hazardous Substance on any property owned, operated or leased by the
Company.
(f) The Company has not received a CERCLA 104(e) information
request or been named a potentially responsible party for any National
Priorities List site under CERCLA or any site under analogous state law or
received an analogous notice or request from any non-U.S. Governmental Entity,
which notice, request or any resulting inquiry or litigation has not been fully
and finally resolved without possibility of reopening.
(g) There are no aboveground tanks or underground storage
tanks on, under or about any property owned, operated or leased by the Company
and any former aboveground or underground tanks on any property owned, operated
or leased by the Company have been removed in accordance with all Environmental
Laws and no residual contamination, if any, remains at such sites in excess of
applicable standards.
(h) To the Company's knowledge, there are no polychlorinated
biphenyls ("PCBs") leaking from any article, container or equipment on, under or
about any property owned, operated or leased by the Company and there are no
such articles, containers or equipment containing PCBs, and there is no asbestos
containing material in a condition or location currently constituting a
violation of any Environmental Law at, on, under or within any property owned,
operated or leased by the Company.
(i) The Company has provided to FASTNET true and complete
copies of, or access to, all written environmental assessment materials and
reports in its possession that have been prepared by or on behalf of the Company
during the past five years.
5.33 NO ILLEGAL PAYMENTS. The Company and, to the knowledge of the
Company and the Shareholders, any affiliate, officer, agent or employee thereof,
directly or indirectly, has not, during the past five years, on behalf of or
with respect to the Company, or any affiliate thereof, (a) made any unlawful
domestic or foreign political contributions, (b) made any payment or provided
services which were not legal to make or provide or which the Company, or any
affiliate thereof or any such officer, agent or employee should have known were
not legal for the payee or the recipient of such services to receive, (c)
received any payment or any services which were not legal for the payer or the
provider of such services to make or provide, (d) had any transactions or
payments related to the Company which are not recorded in its accounting books
and records or (e) had any bank or cash accounts not reflected in the books and
records of the Company.
5.34 LEASES. The Company is not a lessor or lessee under any lease
except as set forth on SCHEDULE 5.34. Any leases listed on SCHEDULE 5.34 shall
be deemed Contracts for purposes of SECTION 5.17.
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5.35 DISCLOSURE. The Company has delivered to FASTNET true and complete
copies of each agreement, contract, commitment or other document (or, in the
case of any such document not in the possession of or reasonably available to
the Company or a Shareholder, accurate and complete summaries thereof) that is
referred to in the schedules to this Agreement or that has been requested by
FASTNET or its representatives. Without limiting any exclusion, exception or
other limitation contained in any of the representations and warranties made
herein, this Agreement and the schedules hereto and all other documents and
information furnished to FASTNET and its representatives pursuant hereto do not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein and therein not misleading. If the
Company or any Shareholders become aware of any fact or circumstance that would
change a representation or warranty of the Company or any Shareholder in this
Agreement or any representation made on behalf of the Company, then the Company
or the Shareholders shall immediately give notice of such fact or circumstance
to FASTNET. However, such notification shall not relieve the Company or any of
the Shareholders of their respective obligations under this Agreement, and
unless waived at the sole option of FASTNET, the truth and accuracy of any and
all warranties and representations of the Company and the Shareholders, at the
date of this Agreement and at the Closing, shall be a precondition to the
consummation of this transaction. Each item appropriately listed or disclosed on
any Schedule hereto shall be deemed to be incorporated into, and responsive to,
all other reasonably related Schedules to which said item may be responsive. For
example, a lease appropriately disclosed in Schedule 5.34-Leases shall also be
incorporated into Schedule 5.17-Contracts and vice versa, but a real property
lease disclosed in Schedule 5.20 -Employees shall not be incorporated into
Schedule 5.34 or 5.17, nor shall an employee bonus disclosed in Schedule
5.34-Leases be incorporated into Schedule 5.20-Employees.
5.36 CUSTOMERS AND SUPPLIERS. The Company has used reasonable business
efforts to maintain, and currently maintains, good working relationships with
all of its subscribers and suppliers. SCHEDULE 5.36 contains a list of the names
and addresses of all of the Company's subscribers with monthly recurring amount
during the period beginning on December 31, 2000 and ending on the Unaudited
Balance Sheet Date. Except as specified in SCHEDULE 5.36, none of the enterprise
subscribers (greater than $1,000 monthly billing) nor any supplier has given the
Company notice terminating, canceling, or threatening to terminate or cancel,
any contract or relationship with the Company.
5.37 CONSOLIDATION. The March 2001 consolidation of Netaxs, LLC and
L.I.G. Holdings, Inc. into the Company was accomplished in compliance with all
corporate, limited liability company, securities and other applicable laws. All
liabilities, including but not limited to any Taxes, assumed in or created as a
result of such consolidation have been satisfied or are reflected in the
Financial Statements. All equityholders of Netaxs, LLC and L.I.G. Holdings, Inc.
approved the consolidation as required by applicable laws, and surrendered their
equity interests in such entities for shares of common stock of the Company in
accordance with the plan of consolidation for such consolidation. Final Tax
Returns for Netaxs, LLC and L.I.G. Holdings, Inc. will be filed by the
Principals in all applicable jurisdictions in accordance with Section 15.1.
6. REPRESENTATIONS OF FASTNET AND NEWCO
As of the date hereof and as of each of the Closing Date and the Merger
Effective Date, FASTNET and Newco, jointly and severally, represent and as
follows:
6.1 CORPORATE EXISTENCE. FASTNET is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania. Newco is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania.
6.2 FASTNET STOCK. The shares of FASTNET Stock to be issued and
delivered to the Holders, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and nonassessable shares.
The shares of FASTNET Stock to be issued upon the exchange for Company Stock
held by the Holders pursuant to the terms of this Agreement will be free and
clear of all liens, encumbrances and claims of every kind, other than
restrictions upon transfer under applicable securities laws and contained
herein, and other than any liens, encumbrances or claims arising other than by
the actions of FASTNET or Newco.
6.3 CORPORATE POWER AND AUTHORIZATION. FASTNET and Newco have the
corporate power, authority and legal right to execute, deliver and perform this
Agreement. The execution, delivery and performance of this Agreement by FASTNET
20
and Newco have been duly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered by FASTNET and Newco and
constitutes the legal, valid and binding obligation of FASTNET and Newco,
enforceable against FASTNET and Newco in accordance with its terms.
6.4 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the consummation of any transactions contemplated hereby will not
conflict with, and the fulfillment of and compliance with the terms and
conditions of this Agreement do not and will not, with the passing of time or
the giving of notice or both, violate or conflict with, constitute a breach of
or default under, result in the loss of any material benefit under, or permit
the acceleration of any obligation under, (i) any term or provision of the
Articles of Incorporation, Bylaws, or other organizational documents of FASTNET
or Newco; (ii) any Contract material to the business and operations of FASTNET
or Newco; (iii) any judgment, decree, injunction or order of any court or
governmental authority or agency to which FASTNET or Newco is a party or by
which FASTNET or Newco or any of their respective properties is bound or (iv)
any statute, law, regulation or rule (including, but not limited to, securities
laws and regulations) applicable to FASTNET or Newco, so as to have, in the case
of subsections (ii) through (iv) above, a material adverse effect on the assets,
liabilities, results of operations, financial condition, business or prospects
of FASTNET or Newco and their respective subsidiaries taken as a whole. Except
for filing of the Articles of Merger, no consent, approval, order or
authorization of, or registration, declaration or filing with, any government
agency or public or regulatory unit, agency, body or authority with respect to
FASTNET or Newco is required and has not been obtained in connection with the
execution, delivery or performance of this Agreement by FASTNET or Newco or the
consummation of the transactions contemplated by this Agreement by FASTNET or
Newco, the failure to obtain which would have a material adverse effect upon the
assets, liabilities, results of operations, financial condition, business or
prospects of FASTNET or Newco and its subsidiaries taken as a whole.
6.5 ACCURACY OF FILINGS. As of their respective dates, each of
FASTNET's SEC reports filed since January 1, 2001 ("SEC REPORTS") did not
contain any untrue statement of a material fact or omit to state any 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. Since
December 31, 2001, there has been no material adverse change in the assets,
liabilities, results of operations, financial condition, business or prospects
of FASTNET and its subsidiaries taken as a whole, which are required to be
disclosed in accordance with SEC rules and regulations. Since January 1, 2001,
FASTNET has filed all forms, reports and documents with the Securities and
Exchange Commission required to be filed by it pursuant to the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") and the Securities Act of
1933, as amended (the "SECURITIES ACT"), and the rules and regulations
promulgated thereunder, each of which complied as to form, at the time such
form, document or report was filed, in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the applicable rules
and regulations promulgated thereunder.
6.6 LITIGATION. Except as may be disclosed in the SEC Reports, there
are no suits, arbitrations, actions, claims, complaints, grievances,
investigations or proceedings pending or, to the knowledge of FASTNET or Newco,
threatened against FASTNET or Newco that, if resolved against FASTNET or Newco
could be reasonably expected to have a material adverse effect on FASTNET or
Newco on their ability to consummate the Merger and the other transactions
contemplated hereby.
21
6.7 CERTAIN PROCEEDINGS. There is no pending legal, administrative,
criminal governmental or similar proceeding that has been commenced against
FASTNET or Newco that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions
contemplated by this Agreement. To the knowledge of FASTNET or Newco, no such
proceeding has been threatened.
6.8 DISCLOSURE. Without limiting any exclusion, exception or other
limitation contained in any of the representations and warranties made herein,
this Agreement and the schedules hereto and all other documents and information
furnished by FASTNET or Newco to the Company and its representatives pursuant
hereto do not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements herein and therein not
misleading. If FASTNET or Newco becomes aware of any fact or circumstance that
would change a representation or warranty of FASTNET or Newco in this Agreement
or any representation made on behalf of FASTNET or Newco, then FASTNET or Newco
shall immediately give notice of such fact or circumstance to the Company.
However, such notification shall not relieve FASTNET or Newco of their
respective obligations under this Agreement, and unless waived at the sole
option of the Company, the truth and accuracy of any and all warranties and
representations of FASTNET or Newco, at the date of this Agreement and at the
Closing, shall be a precondition to the consummation of this transaction.
7. COVENANTS OF SHAREHOLDERS AND THE COMPANY
From the date hereof through the Merger Effective Date or the earlier
termination of this Agreement as provided in Section 11, the Company and the
Shareholders, jointly and severally, covenant as follows:
7.1 EXISTING CONDITION. The Company shall not, and no Shareholder shall
suffer the Company to, cause or permit to occur any of the events or occurrences
described in Section 5.29 hereof.
7.2 MAINTENANCE OF PROPERTIES AND ASSETS. The Company shall, and the
Shareholders shall cause the Company to, maintain and service its properties and
assets in order to preserve their value and usefulness in the conduct of its
business.
7.3 EMPLOYEES AND BUSINESS RELATIONS. The Company shall, and the
Shareholders shall cause the Company to, use its best efforts to keep available
the services of its current employees and agents and to maintain its relations
and goodwill with its suppliers, customers, distributors and any others with
whom or with which it has business relations.
7.4 MAINTENANCE OF INSURANCE. The Company shall, and the Shareholders
shall cause the Company to, notify FASTNET of any changes in the terms of the
insurance policies and binders referred to in this Agreement.
7.5 COMPLIANCE WITH LAWS, ETC. The Company shall, and the Shareholders
shall cause the Company to, comply with all laws, ordinances, rules, regulations
and orders applicable to the Company or its business, operations, properties or
assets.
7.6 CONDUCT OF BUSINESS. The Company shall, and the Shareholders shall
cause the Company to, use its best efforts to conduct its business in the normal
course consistent with past practice, and in such a manner that on the Closing
Date and on the Merger Effective Date the representations and warranties of the
Company and the Shareholders contained in this Agreement shall be true, as
though such representations and warranties were made on and as of each such
date. The Company shall, and the Shareholders shall cause the Company to, use
its best efforts to cause all of the conditions to the obligations of the
Company and the Shareholders under this Agreement to be satisfied on or prior to
the Closing Date, and to consummate the transactions contemplated by this
Agreement.
22
7.7 ACCESS. The Company shall, and the Shareholders shall cause the
Company to, give to FASTNET's officers, employees, counsel, accountants and
other representatives free and full access to and the right to inspect, during
normal business hours, all of the premises, properties, assets, records,
contracts and other documents relating to the Company and shall permit them to
consult with the officers, employees, accountants, counsel and agents of the
Company for the purpose of making such investigation of the Company as FASTNET
shall desire to make, provided that such investigation shall not unreasonably
interfere with the Company's business operations. Furthermore, the Company
shall, and the Shareholders shall cause the Company to, furnish to FASTNET all
such documents and copies of documents and records and information with respect
to the affairs of the Company and copies of any working papers relating thereto
as FASTNET shall from time to time reasonably request. No information or
knowledge obtained in any investigation pursuant to this Section 7.7 or
otherwise shall affect or be deemed to modify any representation or warranty
contained in this Agreement or the conditions to the obligations of the parties
to consummate the Merger.
7.8 PRESS RELEASES AND OTHER COMMUNICATIONS. The Company (except as
required by law in the opinion of its counsel) shall not give notice to third
parties (except its shareholders provided they are informed of the confidential
nature of such information) or otherwise make any press release or other public
statement concerning this Agreement or the transactions contemplated hereby.
Neither the Company nor any Shareholder shall grant any interview, publish any
article, report or statement, or respond to any press inquiry or other inquiry
of any third party relating to this Agreement, the business of the Company, the
business (current and proposed) of FASTNET, or any other matter connected with
any of the foregoing without the express prior written approval of FASTNET, and
all inquiries and questions with respect to any of the foregoing shall be
coordinated through Xxxxxxx Xxxxxxxx, Chief Financial Officer of FASTNET. The
Company and each Shareholder shall coordinate all communications regarding the
Merger through such FASTNET party prior to making any such communication.
7.9 EXCLUSIVITY. Except with respect to this Agreement and the
transactions contemplated hereby, neither the Company, any Shareholder nor any
of their affiliates shall, and each of them shall cause its respective
directors, shareholders, employees, agents and representatives (including,
without limitation, any investment banking, legal or accounting firm retained by
it or them and any individual member or employee of the foregoing) (each, an
"AGENT") not to, (a) initiate, solicit or seek, directly or indirectly, any
inquiries or the making or implementation of any proposal or offer (including,
23
without limitation, any proposal or offer to its shareholders or any of them)
with respect to an acquisition, consolidation, recapitalization, liquidation,
dissolution or similar transaction involving, or any purchase of all or any
portion of the assets or any equity securities of, the Company (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal"),
or (b) engage in any negotiations concerning, or provide any confidential
information or data to, or have any substantive discussions with, any person
relating to an Acquisition Proposal, (c) otherwise cooperate in any effort or
attempt to make, implement or accept an Acquisition Proposal, or (d) enter into
or consummate any agreement or understanding with any person or entity relating
to an Acquisition Proposal, except for the Merger contemplated hereby. If the
Company or any Shareholder, or any of their respective Agents, have provided any
person or entity (other than FASTNET) with any confidential information or data
relating to an Acquisition Proposal, then they shall request the immediate
return thereof. The Company and the Shareholders shall notify FASTNET
immediately if any inquiries, proposals or offers related to an Acquisition
Proposal are received by, any confidential information or data is requested
from, or any negotiations or discussions related to an Acquisition Proposal are
sought to be initiated or continued with, it or any individual or entity
referred to in the first sentence of this Section 7.9.
7.10 THIRD PARTY APPROVALS. Except as set forth on Schedule 7.10, prior
to the Closing Date, the Company shall satisfy any requirement for notice and
approval of the transactions contemplated by this Agreement under applicable
agreements with third parties which are material (material meaning, for purposes
of this Section only, involving future payments by the Company of at least
$5,000) to the operation of the Company's business, and shall provide FASTNET
with satisfactory evidence of such third party approvals. Any such approvals
which modify the existing contractual relationships between the Company and such
third parties shall be subject to FASTNET's prior written approval. The Company
shall have fully performed all obligations contained in the April 1, 2002 letter
agreement with Akamai Technologies, Inc. included in SCHEDULE 7.10.
7.11 NOTIFICATION OF CERTAIN MATTERS.
(a) The Company and the Shareholders shall give prompt notice
to FASTNET of (i) the occurrence or non-occurrence of any event known to any
Shareholder or the Company the occurrence or non-occurrence of which would be
likely to cause any representation or warranty contained in Article 5 to be
untrue or inaccurate at or prior to the Closing Date or the Merger Effective
Date and (ii) any failure of any Shareholder or the Company to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
such person hereunder.
(b) The delivery of any notice pursuant to this Section 7.11
shall not be deemed to (i) modify the representations or warranties hereunder of
the party delivering such notice, which modification may only be made pursuant
to Section 7.12, (ii) modify the conditions set forth in Sections 8 and 9 or
(iii) limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
7.12 AMENDMENT OF SCHEDULES. The Company and each Shareholder agrees
that, with respect to the representations and warranties of such party contained
in this Agreement, such party shall have the continuing obligation until the
Merger Effective Date to supplement or amend promptly the schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the schedules, provided that no amendment or supplement to a
schedule that constitutes or reflects an adverse change to the Company may be
made unless FASTNET provides its written consent to such amendment or
supplement.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS
The obligations of the Company and the Shareholders hereunder are
subject to the satisfaction on or prior to the Closing Date (or such earlier
date specified below) of the following conditions:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
representations and warranties of FASTNET and Newco contained in Article 6 shall
be accurate as of the Closing Date and as of the Merger Effective Date as though
such representations and warranties had been made as of such times; all of the
terms, covenants and conditions of this Agreement to be complied with and
performed by FASTNET and Newco on or before the Closing Date shall have been
duly complied with and performed; and a certificate to the foregoing effect
dated the Merger Effective Date and signed by a duly authorized agent, the
President or any Vice President of FASTNET shall have been delivered to the
Company and the Shareholders.
8.2 NO LITIGATION. No action or proceeding before a court of any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of the Company as a result of which the Company
deems it inadvisable to proceed with the transactions hereunder.
8.3 ESCROW AGREEMENT. At the Closing, FASTNET shall have delivered to
the Company the Indemnity Escrow Agreement in the form attached hereto as ANNEX
II.
8.4 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
8.5 BOARD REPRESENTATIVE. FASTNET shall have authorized a vacant seat
on its Board of Directors, and shall have caused its Board of Directors to
appoint Xxxxxxx Xxxxxxxx ("Designated Director") to fill such vacancy on the
Merger Effective Date.
8.6 OPTION PLAN. FASTNET shall have reserved 256,813 stock options
under its Equity Compensation Plan for issuance within ten business days after
the Merger Effective Date, at an exercise price equal to the closing price of
shares of FASTNET common stock as reported by NASDAQ on the day preceding the
date of grant, with 75% immediate and 100% at the end of one year vesting
(unless otherwise indicated on Schedule 8.6), and to such employees of the
Surviving Corporation as provided on SCHEDULE 8.6 who have executed and
delivered to it the confidentiality and non-solicitation agreements set forth in
ANNEX III.
8.7 D&O INSURANCE. The Surviving Corporation shall continue to
maintain, to the extent permitted by the insuring issuer, the Company's
directors and officers liability insurance policy for the remaining paid term of
such policy. Alternatively, the Surviving Corporation shall continue to
maintain, to the extent permitted by the insuring issuer, an extended coverage
reporting period, commonly referred to as a "tail", for acts or omissions
occurring prior to the Merger Effective Date for the remaining paid term of such
"tail" and discontinue such policy for periods subsequent to the Merger
Effective Date.
8.8 GUARANTIES. SCHEDULE 8.8 sets forth all liabilities of the Company
which are guaranteed by any of the Shareholders ("Guaranteed Obligations"). The
Surviving Corporation agrees to use its commercially reasonable efforts to
obtain the release of such Shareholders from such guaranties, and further agrees
to make all scheduled payments within the specified payment terms for each such
Guaranteed Obligation as long as the Shareholders remain guarantors thereof. In
the event that any Shareholder should incur any liability on any Guaranteed
Obligation following the Merger Effective Date, that Shareholder shall be
immediately reimbursed in full for said liability by the Surviving Corporation
25
or FASTNET, to the full amount of any such liability. If that Shareholder is not
reimbursed within ten days after his written demand to the Surviving Corporation
and FASTNET, that Shareholder shall be entitled to have such demand resolved by
binding arbitration within thirty days after the date such Shareholder files a
request for binding arbitration with the American Arbitration Association in
Philadelphia, Pennsylvania.
8.9 WARRANT. Company currently holds a warrant to purchase 160,000
shares of common stock of Arriva! Networks, Inc. ("Warrant") Company shall use
its best efforts to distribute such Warrant to the Equityholders. In the event
that the Warrant is not able to be transferred to the Equityholders prior to the
Merger Effective Date, then, as soon as practicable following the Merger
Effective Date, the Surviving Corporation shall take all actions reasonably
necessary to effectuate the transfer of the Warrant to the Equityholders, as
Equityholders shall direct.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF FASTNET AND NEWCO
The obligations of FASTNET and Newco hereunder are subject to the
satisfaction, on or prior to the Closing Date (or such earlier date specified
below), of the following conditions:
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
Shareholders shall have delivered to FASTNET a certificate dated the Merger
Effective Date and signed by them to the effect that all of the representations
and warranties of the Company and the Shareholders contained in this Agreement
shall be true on and as of the Closing Date and as of the Merger Effective Date
with the same effect as though such representations and warranties had been made
on and as of such dates, except for matters expressly disclosed in the
certificate or a schedule thereto (which shall not serve to modify any
representation or warranty made herein or in any other document or otherwise in
information supplied by the Company or any Shareholder); and each and all of the
agreements of the Shareholders and the Company to be performed on or before the
Closing Date pursuant to the terms hereof shall have been performed.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of FASTNET as a result of which FASTNET deems
it inadvisable to proceed with the transactions hereunder.
9.3 EXAMINATION OF FINANCIAL STATEMENTS. Prior to the Closing Date,
FASTNET shall have had sufficient time to review the unaudited balance sheet of
the Company as of the end of the then most recently completed calendar month and
the unaudited consolidated statements of income, cash flows and shareholders'
equity of the Company for the period then ended, which statements shall have
disclosed no adverse change in the financial condition of the Company or the
results of its operations from the Financial Statements originally furnished by
the Company as set forth in SCHEDULE 5.12.
9.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
business, operations, assets, properties or financial condition of the Company
shall have occurred, which individually or in the aggregate exceeds $10,000 and
the Company shall not have suffered any material loss or damage to any of its
assets, since the Unaudited Balance Sheet Date, which change, loss or damage
affects or impairs the ability of such Company to conduct its business as now
conducted or as proposed to be conducted which individually or in the aggregate
exceeds $10,000; and FASTNET shall have received on the Closing Date a
certificate signed by the Shareholders and dated the Merger Effective Date to
such effect. All risk of loss relating to the Company and the Company Stock
shall remain with the Company and the Shareholders until consummation of the
Merger.
9.5 REGULATORY REVIEW AND APPROVAL. FASTNET, through its authorized
representatives, shall have completed a satisfactory review of the practices and
procedures of the Company including, but not limited to, environmental and land
use practices, import and export laws, compliance with contracts and federal,
state and local laws and regulations governing the respective operations of the
Company, which review reflects compliance with all applicable laws governing the
Company, disclosing no material actual or probable violations, compliance
problems, required capital expenditures or other substantive environmental, real
estate and land use related concerns and which review is otherwise satisfactory
in all respects to FASTNET, in its sole discretion.
9.6 ESCROW AGREEMENT. At the Closing, the Equityholders shall have
delivered to FASTNET the Indemnity Escrow Agreement in the form attached as
ANNEX II.
9.7 OPINION OF COUNSEL. FASTNET shall have received an opinion from
counsel to the Company and the Equityholders, dated the Merger Effective Date,
in form and substance reasonably satisfactory to FASTNET stating substantially
that with respect to the Company, and subject to the limitations stated therein:
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(a) the Company has been duly organized and is validly
existing and in good standing under the laws of its state of incorporation;
(b) the Company is duly authorized and qualified to carry on
its business in the Commonwealth of Pennsylvania;
(c) this Agreement has been duly authorized, executed and
delivered by the Company, the Shareholders (and the Equityholders) and
constitutes their valid and binding agreement enforceable in accordance with its
terms, except as such enforceability may be subject to bankruptcy, moratorium,
insolvency, reorganization, arrangement and other similar laws relating to or
affecting the rights of creditors and except (i) as the same may be subject to
the effect of general principles of equity and (ii) that no opinion need be
expressed as to the enforceability of indemnification provisions included
herein;
(d) the execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions of the Company's Articles of
Incorporation or Bylaws;
(e) to such firm's knowledge, the authorized and outstanding
capital stock of the Company is as represented by the Company and the
Shareholders in this Agreement and each share of such stock has been duly and
validly authorized and issued, is fully paid and nonassessable and was not
issued in violation of the preemptive rights of any shareholder;
(f) such firm does not represent the Company in connection
with any violation of or default under any law or regulation, or under any order
of any court, commission, board, bureau, agency or instrumentality wherever
located nor in connection with any claims, actions, suits or proceedings pending
against or affecting the Company, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality wherever located; and
(g) no notice to, consent, authorization, approval or order of
any court or governmental agency or body which has not been obtained is required
in connection with the execution, delivery or consummation of this Agreement by
the Company or any Shareholder (or Equityholder) or for the transfer to FASTNET
of the Company Stock.
Such opinion shall include any other matters incident to the matters set forth
herein as agreed to by the parties and their respective counsel.
9.8 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made, including
without limitation approval by FASTNET's and Newco's respective Boards of
Directors. All approvals and consents of the Company's Equityholders and third
parties shall have been obtained. No Equityholder shall have elected to exercise
any dissenters' or similar rights to the extent applicable to the transactions
contemplated by this Agreement, and all such rights shall have expired, been
waived or otherwise terminated.
9.9 GOOD STANDING CERTIFICATES. The Company or the Shareholders shall
have delivered to FASTNET certificates, dated as of a date no earlier than five
days prior to the Closing Date, duly issued by the appropriate governmental
authority in the Company's state of incorporation and, unless waived by FASTNET,
in each state in which the Company is authorized to do business, showing that
the Company is in good standing and authorized to do business and that all state
franchise and/or income tax returns and taxes for the Company for all periods
prior to the dates of such certificates have been filed and paid.
27
9.10 COMPANY OPTIONS, EMPLOYEE AGREEMENTS.
(a) Prior to the Closing Date, each holder of stock options or
warrants set forth on SCHEDULE 9.10(a) shall have exercised or agreed to the
termination of such stock options or warrants in accordance with their
respective terms. The Company and the Shareholders represent that SCHEDULE
9.10(a) contains a complete list of all rights to acquire any shares of Company
capital stock.
(b) The Company and the Shareholders shall cause the
Principals to execute and deliver confidentiality and non-solicitation
agreements as to current and then existing customers and employees of the
Company and FASTNET, continuing for a period of two years after termination of
employment, and non-competition agreements in the markets of the Company and
FASTNET, continuing for a period of two years after termination of employment,
in the form included in ANNEX III. The Company and the Shareholders will use
their best efforts to have other Company employees execute reasonable
confidentiality and non-solicitation agreements, in the form included in ANNEX
III, without the non-competition provisions, which obligation shall survive the
Closing. No employment agreements will continue after Closing unless terminable
by the Company without advance notice and any further liability. The Company
will continue to pay only for the Principals' existing car leases (including
insurance regarding such vehicles) through the date three months following the
Merger Effective Date, but will provide no other personal benefits except as
offered generally by the Company to its employees. The Principals agree to each
assume his respective car lease and vehicle insurance from and after the date
three months following the Merger Effective Date, and to indemnify, defend and
hold the Company harmless with respect thereto.
(c) The Company and the holders of the promissory notes set
forth on Schedule 9.10(c) (the "Holder Notes") shall have entered into note
modification agreements, waiving all prior defaults and penalties under the
Holder Notes, providing for an interest rate and principal payment as agreed by
the Holder and the Surviving Corporation. The Holder Notes represent all amounts
due from the Company to any Equityholders, excepting only in the case of Holders
who are also employees of the Company, any claims for wages for the current
payroll period as of the Merger Effective Date.
(d) The Surviving Corporation and Xxxxxxx Xxxxxxxx agree that
the $147,000 owed by the Company to him will be paid $100,000 within thirty days
after the Merger Effective Date and $47,000 on January 15, 2003.
10. INDEMNIFICATION; SURVIVAL
10.1 GENERAL INDEMNIFICATION BY EQUITYHOLDERS. Each Shareholder (and
Equityholder upon approval of this Agreement) jointly and severally covenants
and agrees that such Shareholder (and Equityholder), subject to the provisions
of this Agreement and the limitation of liability set forth in Section 10.5(c),
28
will indemnify, defend, protect and hold harmless FASTNET, Newco and the
Surviving Corporation and their respective officers, shareholders, directors,
divisions, subdivisions, affiliates, subsidiaries, parents, agents, employees,
successors and assigns at all times from and after the date of this Agreement
until the Expiration Date (as defined in Section 10.6) from and against all
claims, damages, losses, liabilities, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
(collectively, "Losses") incurred by FASTNET, Newco or the Surviving Corporation
as a result of or arising from (a) any breach of the representations and
warranties made by the Equityholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (b) any
nonfulfillment of any covenant or agreement on the part of the Equityholders or
the Company under this Agreement (c) the business, operations or assets of the
Company prior to the Merger Effective Date or the actions or omissions of the
Company's directors, officers, shareholders, employees or agents prior to the
Merger Effective Date, other than Losses arising from matters expressly
disclosed in the Financial Statements or this Agreement or in the Schedules
attached hereto. Losses shall not include any post-Closing decline in the
Surviving Corporation's customer revenue which is not a result of or arising
from (a), (b) or (c) above.
10.2 SPECIFIC INDEMNIFICATION BY EQUITYHOLDERS. Notwithstanding any
disclosure made in this Agreement or in the schedules or exhibits hereto and
notwithstanding any investigation by FASTNET or Newco, subject to the provisions
of Section 10.5 each Shareholder (and Equityholder) jointly and severally
covenants and agrees that such Shareholder (and Equityholder) will indemnify,
defend, protect and hold harmless FASTNET, Newco and the Surviving Corporation
and their respective officers, shareholders, directors, divisions, subdivisions,
affiliates, subsidiaries, parents, agents, employees, successors and assigns at
all times from and after the date of this Agreement, from and against all Losses
incurred by FASTNET, Newco or the Surviving Corporation as a result of or
incident to: (a) the existence of liabilities of the Company in excess of the
liabilities set forth IN SECTION 5.13, to the extent of such excess, and any and
all liabilities for Taxes arising from or related to the consolidation described
in Section 5.37; (b) the litigation and disputed matters listed on SCHEDULE 5.24
or otherwise disclosed in this Agreement or the Schedules; (c) any adverse
amendments pursuant to Section 7.12 hereof; (d) any deficiency in the cash
balances of the Company set forth in Section 5.30, to the extent of such
deficiency; and (e) any default or termination of any Contract or Lease as a
result of the consummation of the transactions contemplated by this Agreement.
10.3 INDEMNIFICATION BY FASTNET AND NEWCO. FASTNET and Newco, jointly
and severally, covenant and agree that they will indemnify, defend, protect and
hold harmless the Shareholders at all times from and after the date of this
Agreement from and against all Losses incurred by the Shareholders as a result
of or arising from (a) any breach of the representations and warranties made by
FASTNET and Newco set forth herein or on the schedules or certificates attached
hereto or (b) any nonfulfillment of any agreement on the part of FASTNET under
this Agreement.
10.4 THIRD PARTY CLAIMS.
(a) In order for a party hereto eligible to be indemnified
hereunder (an "INDEMNIFIED PARTY") to be entitled to any indemnification
provided for under this Agreement in respect of, arising out of or involving a
claim or demand made by any person or entity against the Indemnified Party (a
"THIRD PARTY CLAIM"), such Indemnified Party must notify the parties obligated
to provide indemnification pursuant to Section 10.1, 10.2, or 10.3 hereof (each,
an "INDEMNIFYING PARTY") in writing, and in reasonable detail, of the Third
Party Claim within 30 business days after receipt by such Indemnified Party of
written notice of the Third Party Claim; provided, however, that failure to give
29
such notification shall not affect the indemnification provided hereunder except
to the extent the Indemnifying Party shall have been actually prejudiced as a
result of such failure. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. Thereafter, the
Indemnified Party shall deliver to the Indemnifying Party, within five business
days after the Indemnified Party's receipt thereof, copies of all notices and
documents (including court papers) received by the Indemnified Party relating to
the Third Party Claim.
(b) The Indemnifying Party shall have right to defend and
settle, at its own expense and by its own counsel, any Third Party Claim as the
Indemnifying Party pursues the same in good faith and diligently and so long as
the Third Party Claim does not relate to an actual or potential Loss to which
Section 10.4(e) applies in which the Indemnified Party is FASTNET, Newco or the
Surviving Corporation. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate with the Indemnifying Party and its
counsel in the defense thereof and in any settlement thereof. Such cooperation
shall include, but shall not be limited to, furnishing the Indemnifying Party
with any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. Notwithstanding
the foregoing, the Indemnified Party shall have the right to participate in any
matter through counsel of its own choosing at its own expense (unless there is a
conflict of interest that prevents counsel for the Indemnifying Party from
representing the Indemnified Party, in which case the Indemnifying Party will
reimburse the Indemnified Party for the expenses of its counsel). After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses, and except in the case of a Third Party Claim relating
to an actual or potential Loss to which Section 10.4(e) applies in which the
Indemnified Party is FASTNET, Newco or the Surviving Corporation.
(c) No Indemnifying Party shall, in the defense of any Third
Party Claim, consent to entry of any judgment (other than a judgment of
dismissal on the merits without costs) or enter into any settlement, except with
the written consent of the Indemnified Party, which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim or
matter.
(d) If the Indemnifying Party does not assume the defense of
any Third Party Claim, then the Indemnified Party may defend against such Third
Party Claim in such manner as it deems appropriate at the expense of the
Indemnifying Party.
(e) Notwithstanding anything to the contrary in this Article
10, if at any time, in the reasonable opinion of FASTNET, Newco or the Surviving
Corporation as the Indemnified Party (notice of which opinion shall be given in
writing to the Indemnifying Party), any Third Party Claim seeks material
prospective relief which could have an adverse effect on any such Indemnified
Party or any subsidiary, then such Indemnified Party shall have the right to
control or assume (as the case may be) the defense of any such Third Party Claim
and the amount of any judgment or settlement and the reasonable costs and
expenses of defense (including, but not limited to, fees and disbursements of
counsel and experts, as well as any sampling, testing, investigation, removal,
treatment or remediation undertaken by FASTNET, Newco or the Surviving
Corporation and all counseling or engineering fees and expenses related thereto)
shall be included as part of the indemnification obligations of the Indemnifying
Party hereunder. If the Indemnified Party elects to exercise such right, then
30
the Indemnifying Party shall have the right to participate in, but not control,
the defense of such Third Party Claim at the sole cost and expense of the
Indemnifying Party. All payments sought against any of the Shareholders for
indemnification pursuant to the terms of this Article 10 shall be first
satisfied against the Indemnity Escrow Property with an equal ratio of Merger
Cash and FASTNET Stock held pursuant to the Indemnity Escrow Agreement to the
extent feasible, which stock shall be valued at the closing sale price as
reported by NASDAQ on the business day immediately preceding the Merger
Effective Date, secondly by set-off against the first payments then due under
the Principals Notes, and lastly against the Principals.
10.5 LIMITATION OF LIABILITIES; "BASKET"
(a) "BASKET" PROVISION. No amount of Losses for which any
Shareholder or Principal shall be liable to indemnify FASTNET or Newco shall be
chargeable against such Shareholder, Principal, or the Indemnity Escrow
Property, unless all such Losses, in the aggregate, exceed the sum of $75,000,
subject to the provisions of this Section. There shall be a threshold amount per
Loss of $2,500, unless and until the total aggregate of Losses exceeds a total
of $75,000 (at which time the full amount of such aggregated Losses shall be
regarded as one Loss in the amount of $75,000 or more), whereupon the threshold
per Loss shall be $0. If the $75,000 basket amount is exceeded, FASTNET or Newco
shall be entitled to full indemnification for the first $75,000 of Losses as
well as any excess above such amounts. FASTNET agrees to use its commercially
reasonable efforts to attempt to mitigate or otherwise limit the scope or effect
of any Losses. For purposes of determining whether a Loss has occurred in the
following specific categories, no Loss shall be deemed to occur unless and until
(i) all Losses attributed to the noncollectability of accounts receivable exceed
in the aggregate the total allowance/reserve provide for on the Unaudited
Balance Sheet, and only to the extent of any such excess, and (ii) all accounts
payable and claims from a specific vendor exceed in the aggregate all accounts
payable on the Unaudited Balance Sheet for such specific vendor, and only to the
extent of such excess. No representation is made with regard to goodwill and any
subsequent goodwill adjustments shall not constitute Losses. Notwithstanding any
disclosure made in this Agreement or in the schedules or exhibits hereto and
notwithstanding any investigation by FASTNET or Newco and notwithstanding any
provision of this Agreement to the contrary, with respect to the disputed
telecommunications xxxxxxxx set forth on SCHEDULE 10.5(a), a Loss shall be
deemed to occur if, and only to the extent, the aggregate amount paid by the
Surviving Corporation with respect to such disputed telecommunications xxxxxxxx
exceeds in total $200,000, and any such excess shall not be subject to the
"basket" above provided, but shall entitle the Surviving Corporation to full
indemnification for any and all such excess amounts. Any Losses arising from any
and all other telecommunication billing disputes not set forth on SCHEDULE
10.5(a) will be subject to the standard operation of the indemnification
provisions of this Agreement.
31
(b) TELECOMMUNICATIONS AND CUSTOMER CHARGES. In the event a
Loss is for undisclosed customer T3/DS3s or customer T1/DS1s, FASTNET will be
entitled to indemnification and to make a claim against the Principals and/or
Indemnity Escrow Property(without regard to any level of materiality of the
Loss) for up to 6 months of expenses for such circuits. FASTNET will notify the
Holders Agent under the Escrow Agreement promptly and will use commercially
reasonable efforts to redeploy such circuits. Except as provided in the next
sentence, Shareholders' liability on such circuits shall not exceed 6 months of
expenses for such circuits. If more than a total of 15 customer T1/DS1s or more
than a total of 3 customer T3/DS3s are undisclosed and discovered, the prior
sentence will be inapplicable and such Losses will be subject to the standard
operation of the indemnification, escrow and basket provisions. Expenses of all
other undisclosed telecommunication circuits will be subject to the standard
operation of the indemnification, escrow and basket provisions. In the event a
Loss is for a disclosed customer which has terminated its services as of the
Merger Effective Date, FASTNET will be entitled to indemnification and to make a
claim against the Principals and/or Indemnity Escrow Property (without regard to
any level of materiality of the Loss) for 6 months of the revenues disclosed to
be payable by such customer.
(c) LIMITATION OF LIABILITIES. In no event shall the liability
to FASTNET or Newco arising out of any breach of this Agreement by any
Shareholder or Equityholder, or any Losses sought to be charged against the
Indemnity Escrow Property, exceed (i) for any Shareholder or Equityholder other
than the Principals, such Shareholder's or Equityholder's interest in the
Indemnity Escrow Property, or (ii) for the Principals, one-half (1/2) of the
total Merger Consideration, including the Principals Notes, provided no
individual Principal's liability shall exceed the Merger Consideration paid and
payable to such Principal; except in either case in the event of fraud or
similar unlawful conduct by the Shareholders or breach of Section 5.3.
10.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The parties agree that
representations and warranties made by the parties in this Agreement, or in any
certificate or other instrument delivered pursuant to this Agreement shall
survive for a period of 18 months from the Merger Effective Date or such longer
period expressly provided as follows in this Section 10.6 (which date is
hereinafter called the "EXPIRATION DATE"):
(a) the representations and warranties contained in Sections
5.26 and 5.37 hereof shall survive until such time as the limitations period has
run for all tax periods ended on or prior to the Merger Effective Date, which
shall be deemed to be the Expiration Date for purposes of this clause (a) and
claims arising from a breach of the representations and warranties contained in
Sections 5.26 and 5.37;
(b) the representations and warranties contained in Section
5.32 hereof regarding environmental matters shall survive for a period of five
years from the Merger Effective Date, which shall be deemed the Expiration Date
for purposes of this clause (b) and claims arising from a breach of the
representations and warranties contained in such Section 5.32;
(c) the representations and warranties of the Shareholders
contained in Sections 5.3 and 5.5 hereof, regarding capital stock shall survive
the Merger Effective Date without time limitation; and
32
(d) any representations and warranties (except Section 5.13
which shall terminate after 18 months) which serve as a basis of the indemnity
obligations of the Shareholders under Section 10.2 shall survive the Merger
Effective Date without time limitation.
11. TERMINATION OF AGREEMENT
11.1 TERMINATION.
(a) FASTNET may, by notice in the manner hereinafter provided
on or before the Closing Date, terminate this Agreement (a) if a default shall
be made by the Company or the Shareholders in the observance or due and timely
performance of any of the covenants, agreements or conditions contained herein,
and the curing of such default shall not have been made on or before the Closing
Date and shall not reasonably be expected to occur or (b) if FASTNET in its sole
judgment determines that any condition exists which has made or could reasonably
be expected to make any of the representations or warranties contained in
Article 5 hereof untrue, or (c) if FASTNET in its sole judgment determines that
information disclosed on the schedules to the Agreement delivered pursuant to
Section 7.12 has or could reasonably be expected to have an adverse effect of
over $10,000 individually or in the aggregate on the business, operations,
assets, properties, prospects or financial condition of the Company.
(b) The Company or the Shareholders may, by notice in the
manner hereinafter provided on or before the Closing Date, terminate this
Agreement (a) if a default shall be made by FASTNET in the observance or due and
timely performance of any of the covenants, agreements or conditions contained
herein, and the curing of such default shall not have been made on or before the
Closing Date and shall not reasonably be expected to occur or (b) if the Company
or the Shareholders in their sole judgment determine that any condition exists
which has made or could reasonably be expected to make any of the
representations or warranties contained in Article 6 hereof untrue.
11.2 AUTOMATIC TERMINATION. This Agreement shall terminate
automatically if the Merger Effective Date has not occurred within 30 business
days after the Closing Date.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12.1 SHAREHOLDERS. The Equityholders recognize and acknowledge that
they have in the past, currently have, and in the future may possibly have
access to certain confidential information of the Company, including, but not
limited to, information disclosed to the Shareholders or known by them as a
result of their employment by the Company, not generally known in the industry,
about the Company's services, products or customers, including, but not limited
to, customer lists, finance, strategic planning, business plans, client
retention, data processing, pricing and cost policies, operational policies,
insurance plans, risk management, marketing, key customers, business prospects,
contracting and selling, employees, special and unique assets of the Company and
its business, and information concerning acquisition opportunities in or
reasonably related to the Company's business or industry. The Equityholders
agree that they will not disclose, use, disseminate, lecture upon, or publish
any confidential information of which they become informed during their
33
employment, whether or not developed by them individually or collectively, at
any time during their employment with the Company, to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except to authorized representatives of FASTNET, unless the Equityholders can
show that such information has become known to the public generally through no
fault of the Equityholders. Prior to disclosing any confidential information
required by law or order of a court of competent jurisdiction, the Equityholders
shall provide FASTNET with prompt notice of the disclosure requirement so that
FASTNET may take whatever action it deems appropriate to prohibit such
disclosure. In the event of a breach or threatened breach by the Equityholders
of the provisions of this Section 12.1, FASTNET and the Surviving Corporation
shall be entitled to an injunction restraining Equityholders from disclosing, in
whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting FASTNET and the Surviving Corporation from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages.
12.2 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which FASTNET and the Surviving
Corporation would have no other adequate remedy, the Equityholders agree that,
in the event of a breach by any of them of the foregoing covenant, the covenant
may be enforced against them by injunctions and restraining orders.
13. LOCK-UP AGREEMENTS
13.1 AGREEMENT. For good and valuable consideration, each Shareholder
(and Equityholder) hereby agrees that it will not, during the period commencing
on the Merger Effective Date and ending 365 days thereafter, (a) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase,
lend, or otherwise transfer or dispose of, directly or indirectly, any shares of
the FASTNET Stock or any securities convertible into or exercisable or
exchangeable for the FASTNET Stock including all shares held in escrow or (b)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of the FASTNET Stock,
whether any such transaction described in clause (a) or (b) above is to be
settled by delivery of the FASTNET Stock or such other securities, in cash or
otherwise, except such shares of FASTNET Stock may be sold or exchanged in
connection with any sale, merger or similar corporate transaction in which
FASTNET is not the surviving corporation and in which all shareholders of
FASTNET are required to surrender their shares of FASTNET Stock.
13.2 MARKET STAND-OFF AGREEMENT. Each Shareholder (and Equityholder)
agrees, if requested by FASTNET or an underwriter in connection with a
registered offering of securities, that during the 30 days before and the 180
days after the effective date such Shareholder (and Equityholder) shall not
offer, sell, contract to sell or otherwise dispose of any shares of FASTNET
Stock or securities convertible into FASTNET Stock. FASTNET may impose stop
transfer instructions with respect to the securities subject to the foregoing
restrictions until the end of the stand-off period.
34
13.3 INTENDED THIRD PARTY BENEFICIARIES. Each Shareholder (and
Equityholder) agrees that the foregoing shall be binding upon their transferees,
successors, assigns, heirs, and personal representatives and shall benefit and
be enforceable by FASTNET. In furtherance of the foregoing, FASTNET and its
transfer agent are hereby authorized to decline to make any transfer of
securities if such transfer would constitute a violation or breach of this
Article 13.
13.4 INCIDENTAL REGISTRATION RIGHTS. FASTNET agrees that each
shareholder of the Company as of the Merger Effective Date shall be entitled to
incidental registration rights on the terms and conditions set forth in Exhibit
B attached hereto, which is incorporated by reference into this Agreement, and
shall be an intended third party beneficiary of this Section 13.4.
14. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON FASTNET STOCK
14.1 INVESTMENT INTENT. The Shareholders (and Equityholders)
acknowledge and agree that the shares of FASTNET Stock to be delivered pursuant
to this Agreement have not been and will not be registered under the Securities
Act and therefore may not be resold without compliance with the Securities Act.
The Shareholders (and Equityholders) represent and warrant that the shares of
FASTNET Stock to be acquired pursuant to this Agreement are being acquired
solely for their own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution.
14.2 COMPLIANCE WITH LAW. The Shareholders (and Equityholders)
covenant, warrant and represent that none of the shares of FASTNET Stock issued
to them will be offered, sold, assigned, pledged, hypothecated, transferred or
otherwise disposed of except after full compliance with all of the applicable
provisions of the Securities Act and the rules and regulations of the SEC
thereunder, and except after full compliance with any applicable state
securities laws.
14.3 ECONOMIC RISK; SOPHISTICATION. The Shareholders (and
Equityholders) represent and warrant that they are able to bear the economic
risk of an investment in FASTNET Stock acquired pursuant to this Agreement and
can afford to sustain a total loss of such investment. The Shareholders (and
Equityholders) further represent and warrant that they (a) fully understand the
nature, scope and duration of the limitations on transfer contained in this
Agreement and (b) have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment and therefore have the capacity to protect their own interests in
connection with the acquisition of the FASTNET Stock.
14.4 INFORMATION SUPPLIED. The Shareholders (and Equityholders)
represent and warrant that they have had an adequate opportunity to ask
questions and receive answers from the officers of FASTNET concerning FASTNET,
its business, operations, plans and strategy, and the background and experience
of its officers and directors. The Shareholders (and Equityholders) represent
and warrant that they have asked any and all questions that they may have in the
nature described in the preceding sentence and that all such questions have been
answered to their satisfaction. The Principals represent and warrant that they
have distributed to the Shareholders the disclosure documents furnished by
FASTNET and notice of dissenters rights as required by applicable laws.
35
14.5 ACCREDITED INVESTOR. Each of the Shareholders (and Equityholders)
represents and warrants that they are "accredited investors" as that term is
defined in Rule 501 of Regulation D.
14.6 LEGENDS. The certificates evidencing the FASTNET Stock to be
received by the Holders hereunder will bear a legend substantially in the form
set forth below and containing such other information as FASTNET may deem
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES OR BLUE SKY LAWS.
SUCH SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER
THE SECURITIES ACT AND ANY STATE SECURITIES OR BLUE SKY
LAWS, UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
In addition, such certificates shall also bear (a) a legend reflecting the
restrictions contained in this Agreement and (b) such other legends as are
required under the applicable laws of any state
15. POST-CLOSING OBLIGATIONS
15.1 TAX RETURNS. The Principals shall be responsible for preparing and
filing all required Tax Returns, and paying any Tax liabilities shown thereon,
for Netaxs, LLC and L.I.G. Holdings, Inc., as well as any Tax Returns required
as a result of the consolidation described in Section 5.37. Such Tax Returns, to
the extent not previously filed, will be subject to FASTNET and its auditors'
prior review and approval, which shall not be unreasonably withheld. The
Surviving Corporation shall prepare all Tax Returns required for the Company for
the year ended December 31, 2001 and for the period from January 1, 2002 through
the Merger Effective Date, and the Principals shall cooperate and provide all
relevant information to assist in the preparation of such Tax Returns, and shall
sign and file such Tax Returns. The Principals shall pay any Tax liabilities
shown thereon. The Surviving Corporation shall prepare and file all Tax Returns
required for itself and the Company for the period after the Merger Effective
Date, and the Principals shall cooperate and provide all relevant information to
assist in the preparation of such Tax Returns. The Surviving Corporation agrees
that it will not make any election under Section 338 of the Code to the extent
any such election would have an adverse effect on the individual tax liabilities
of the Shareholders resulting from the Merger.
36
15.2 RULE 144 COMPLIANCE. With a view to making available the benefits
of certain rules and regulations of the SEC which may at certain times permit
the sale of the FASTNET Stock to the public without registration, at all times
after 90 days after any registration statement covering a public offering of
securities of FASTNET shall have become effective, the Company agrees to use its
best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) file with the SEC, in a timely manner all reports and
other documents required of FASTNET under all applicable SEC rules and
regulations; and
(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,; and
(d) to perform all such other actions as are reasonably
necessary for an offeror to perform under any applicable securities law,
regulation, or national exchange rule to permit the Equityholders to avail
themselves of the then-applicable provisions of Rule 144, as amended.
15.3 USE OF FACILITIES. Following the Merger Effective Date, the
Surviving Corporation agrees to (i) continue forwarding email for a period of
five years for the Principals and for a period of two years for the Shareholders
and current employees of Company, and (ii) for a period of six months provide,
free of charge to the Principals, server co-location space in Company facilities
consisting of one (1) rack, 20 amp AC service, and bandwidth of 10 Mbps in
total. No other free services will be offered by the Surviving Corporation. The
Company has historically provided complimentary Internet access to various
individuals, as set forth on Schedule 15.3. No complimentary Internet access
shall be terminated by FASTNET following the Merger Effective Date without
thirty (30) days' prior notice to the holder of said complimentary account.
15.4 BONUS PAYMENTS. The Surviving Corporation (i) acknowledges that
the Company has declared but not paid an aggregate of $133,990 of bonus payments
to its employees, contingent upon execution and delivery by such employees of
the confidentiality and non-solicitation agreements set forth in ANNEX III, and
(ii) agrees to cause such bonus payments to be paid within ten business days
after the Merger Effective Date to those employees who have executed and
delivered to it the confidentiality and non-solicitation agreements set forth in
ANNEX III.
16. GENERAL
16.1 COOPERATION. The Shareholders (and Equityholders) and FASTNET
shall each deliver or cause to be delivered to the other on the Closing Date,
and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement, including without limitation the written agreement
of the Equityholders to be bound by the terms and conditions of this Agreement.
The Shareholders (and Equityholders) will cooperate and use their best efforts
to have the officers, directors and employees of the Company prior to the
Closing Date cooperate with FASTNET on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
37
16.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of FASTNET, Newco and the Company, and the heirs and legal
representatives of the Shareholders (and Equityholders).
16.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the agreements and documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Shareholders, the Company, FASTNET and Newco and supersedes any prior agreement
and understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto, enforceable in accordance with its terms. This Agreement may be
modified or amended, whether before or after the Merger Effective Date, only by
a written instrument executed by those Shareholders who represented a majority
of the Company Stock, and by the Company(or the Surviving Corporation after the
Merger), FASTNET and Newco acting through their respective officers, duly
authorized by their respective Boards of Directors, and any such amendment shall
be binding upon all Shareholders and Equityholders.
16.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
16.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with the transactions contemplated
hereby, and each of FASTNET and Newco, on the one hand, and the Shareholders
(and Equityholders) on their own behalf and on behalf of the Company, on the
other hand, agrees to indemnify the other against all loss, liability, cost
damages or expense arising out of or related to claims for fees or commissions
of brokers employed or alleged to have been employed by such indemnifying party.
16.6 EXPENSES. In the event the transactions herein contemplated are
not consummated, the Company has agreed to pay $15,000 for Xxxxxx Xxxxxxxx LLP
to perform an audit of the Company's financial statements, with FASTNET paying
all other expenses of Xxxxxx Xxxxxxxx, LLP for said audit. Following
consummation of the transactions herein contemplated, FASTNET shall pay all
audit expenses of Xxxxxx Xxxxxxxx LLP. Whether or not the transactions herein
contemplated shall be consummated, FASTNET will pay the fees, expenses and
disbursements of FASTNET and Newco and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto. Whether or not the transactions herein
contemplated shall be consummated, the Company will pay the fees, expenses and
disbursements of the Company and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement and any
amendments hereto and all other costs and expenses incurred in the performance
of this Agreement by the Company and in compliance with all conditions to be
performed by the Company under this Agreement. Notwithstanding the foregoing, if
the Merger is consummated, all such amounts paid and payable by the Company for
legal fees shall not collectively exceed $35,000, and the Principals shall pay
any amounts in excess of $35,000.
38
16.7 NOTICES. All notices and other communications hereunder shall be
in writing (including wire, telefax or similar writing) and shall be sent,
delivered or mailed, addressed, or telefaxed:
(a) If to FASTNET or Newco, addressed to them at:
Xxxxxxx Xxxxx
FASTNET Corporation
Xxx Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Telefax: (000) 000-0000
If to the Shareholders, addressed to each of them
at their addresses as set forth on the signature page
hereto or such other addresses as the Shareholders have
notified FASTNET, and if to the Company addressed to:
Xxxxxxx Xxxxxxxx
000 Xxxxxxxxxxxx Xxxx
Xxxxxxxxxxxx, XX 00000
With a copy to:
Xxxxx & Xxxxx, 0000 Xxxxxx Xxxxxx, Xxxxx
000, Xxxxxxxxxxxx, XX00000 Attention: Xxxx
X. Xxxxx, Esq.
Each such notice, request or other communication shall be given by hand
delivery, by nationally recognized courier service or by certified mail return
receipt requested.. Each such notice, request or communication shall be
effective if delivered by hand, mail or by nationally recognized courier
service, when delivered at the address specified above (or in accordance with
the latest unrevoked written direction from such party.
16.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Pennsylvania without giving effect to any
of the provisions thereof that would require the application of the substantive
laws of any other jurisdiction. Each party to this Agreement: (a) agrees that
any legal action or proceeding under this Agreement shall be brought in the
39
courts of the Commonwealth of Pennsylvania; (b) irrevocably submits to the
jurisdiction of such courts; (c) agrees not to assert any claim or defense that
it is not personally subject to the jurisdiction of such courts, that any such
forum is not convenient or the venue thereof is improper, or that this Agreement
or the subject matter hereof may not be enforced in such courts; and (d) agrees
to accept service of process on it by certified or registered mail or by any
other method authorized by law.
16.9 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
16.10 TIME. Time is of the essence with respect to this Agreement.
16.11 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
16.12 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
Without limiting the foregoing, any party shall have the right to offset the
amount of any liability owed to it by another party to this Agreement against
any amounts otherwise payable to such other party.
16.13 CAPTIONS. The headings of this Agreement are inserted for
convenience only and shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
16.14 REPRESENTATION. Each of FASTNET, Newco, Company, Equityholders
and Shareholders hereby agree that the firm of Xxxxx & Xxxxx, and any attorney
therein, may continue to represent any or all of the Equityholders and
Shareholders with respect to the transactions contemplated by this Agreement
following the Merger Effective Date, in any capacity, and further, each of the
foregoing parties specifically agrees to waive any or all conflicts of interest
which may arise as a result of Xxxxx & Xxxxx'x representation of Company,
Shareholders, and Equityholders in connection with said transactions.
17. DEFINITIONS
17.1 "Accounts Receivable" is defined in Section 5.14.
40
17.2 "Acquisition Proposal" is defined in Section 7.9.
17.3 "Agent" is defined in Section 7.9.
17.4 "Agreement" is defined in the preamble to this Agreement.
17.5 "Articles of Merger" is defined in Section 1.1.
17.6 "Authorizations" are defined in Section 5.22.
17.7 "Benefit Plan" is defined in Section 5.21.
17.8 "Cash Security" is defined in Section 3.1(a).
17.9 "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq.
17.10 "Certificates" are defined in Section 2.2.
17.11 "Closing" is defined in Section 4.1.
17.12 "Closing Date" is defined in Section 4.1.
17.13 "Code" is defined in Section 5.26.
17.14 "Commonly Controlled Entity" is defined in Section 5.21.
17.15 "Company" is defined in the preamble to this Agreement.
17.16 "Company Documents" are defined in Section 5.2.
17.17 "Company Stock" is defined in Section 2.1.
17.18 "Constituent Corporations" are defined in the recitals to this
Agreement.
17.19 "Contracts" are defined in Section 5.17.
17.20 "Escrow Agent" is defined in Section 3.1.
17.21 "Environmental Laws" mean any and all applicable treaties, laws,
regulations, ordinances, enforceable requirements, binding determinations,
orders, decrees, judgments, injunctions, permits, approvals, authorizations,
licenses or binding agreements issued, promulgated or entered into by any
Governmental Entity, relating to the environment, preservation or reclamation of
natural resources, or to the management, Release or threatened Release of or
exposure to Hazardous Substances, including CERCLA, the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq., the Federal Water Pollution
Control Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 42 U.S.C.
Section 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601
et seq., the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq.,
the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
Section 11001 et. seq., the Safe Drinking Water Act, 42 U.S.C. Section 300(f) et
seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et
seq., and any similar or implementing state or local law and all amendments or
regulations promulgated thereunder.
41
17.22 "Environmental Permits" mean all permits, licenses, approvals or
authorizations from any Governmental Entity required under Environmental Laws
for the operation of the business of the Company.
17.23 "Equityholders" is defined in Section 5.2.
17.24 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
17.25 "Exchange Act' is defined in Section 6.5.
17.26 "Expiration Date" is defined in Section 10.6.
17.27 "FASTNET" is defined in the preamble to this Agreement.
17.28 "FASTNET Stock" is defined in Section 2.1.
17.29 "Financial Statements" are defined in Section 5.12.
17.30 "Foreign Plans" are defined in Section 5.21(i)(xii).
17.31 "GAAP" is defined in Section 5.12.
17.32 "Governmental Entity" means any court, administrative or
regulatory agency or commission, or other governmental authority or
instrumentality, domestic, foreign or supranational.
17.33 "Guaranteed Obligations" is defined in Section 8.8.
17.34 "Hazardous Substances" mean all explosive or regulated
radioactive materials or substances, hazardous or toxic materials, wastes or
chemicals, petroleum and petroleum products (including crude oil or any fraction
thereof), asbestos or asbestos containing materials, and all other materials or
chemicals regulated pursuant to any Environmental Law, including materials
listed in 49 C.F.R. ss.172.101 and materials defined as hazardous pursuant to
Section 101(14) of CERCLA.
17.35 "Holder" is defined in Section 2.1.
17.36 "Holder Notes" is defined in Section 9.10(c).
17.37 "Indemnified Party" is defined in Section 10.4.
42
17.38 "Indemnifying Party" is defined in Section 10.4.
17.39 "Indemnity Escrow Property" is defined in Section 3.1(b).
17.40 "Indemnity Escrow Shares" is defined in Section 3.1.
17.41 "Intellectual Property" is defined in Section 5.27.
17.42 "Liabilities" are defined in Section 5.13.
17.43 "Losses" are defined in Section 10.1.
17.44 "Merger Cash" is defined in Section 2.1.
17.45 "Merger Consideration" is defined in Section 2.1.
17.46 "Merger Effective Date" is defined in Section 4.2.
17.47 "Merger" is defined in the recitals to this Agreement.
17.48 "Newco" is defined in the preamble to this Agreement.
17.49 "Optionees" is defined in Section 5.2.
17.50 "PCBs" are defined in Section 5.32.
17.51 "Pension Plan" is defined in Section 5.21.
17.52 "Permits" mean all permits, licenses, franchises, approvals and
authorizations from any Governmental Entity that are owned or held by the
Company or held by any Shareholder that relate to the operations of the Company.
17.53 "Plan" is defined in the recitals to this Agreement.
17.54 "Principals" is defined in the preamble to this Agreement.
17.55 "Regulations" are defined in Section 5.22.
17.56 "Release" means any spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching, emanation or migration of any
Hazardous Substance in, into, onto or through the environment (including ambient
air, surface water, ground water, soils, land surface, subsurface strata,
workplace or structure).
17.57 "SEC" means the Securities and Exchange Commission.
17.58 "SEC Reports" is defined in Section 6.5.
17.59 "Securities Act" is defined in Section 6.5.
43
17.60 "Shareholders" are defined in the preamble to this Agreement.
17.61 "Surviving Corporation" is defined in Section 1.2.
17.62 "Tax Returns" are defined in Section 5.26.
17.63 "Taxes" are defined in Section 5.26.
17.64 "Third Party Claim" is defined in Section 10.4.
17.65 "UCC" means the Uniform Commercial Code.
17.66 "Unaudited Balance Sheet" is defined in Section 5.12.
17.67 "Unaudited Balance Sheet Date" is defined in Section 5.12.
17.68 "Warrant' is defined in Section 8.9.
17.69 "Welfare Plan" is defined in Section 5.21.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
FASTNET CORPORATION
By: /S/ Xxxxxxx Xxxxx
----------------------------------
Name: Xxxxxxx Xxxxx
Title: Chief Executive Officer and President
FASTNET MERGER CORP.
By: /S/ Xxxxxxx Xxxxx
----------------------------------
Name: Xxxxxxx Xxxxx
Title: Chief Executive Officer and President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
44
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
NETAXS, INC.
By: /s/ Xxxxxxx Xxxxxxxx
----------------------------
Name: Xxxxxxx Xxxxxxxx
Title:
PRINCIPALS
/S/ Xxxxxxx Xxxxxxxx
----------------------------
Xxxxxxx Xxxxxxxx
Shares owned: 1,065,792 Common Stock
/S/ Avi Xxxxxxxx
----------------------------
Avi Xxxxxxxx
Shares owned: 1,744,424 Common Stock
/S/ Xxxxxx Xxxxxxx, Xx.
----------------------------
Xxxxxx Xxxxxxx, Xx.
Shares owned: 1,065,792 Common Stock
45
CERTAIN SCHEDULES AND SIMILAR ATTACHMENTS ARE OMITTED HEREWITH, HOWEVER COPIES
OF SUCH MATERIALS WILL BE FURNISHED SUPPLEMENTALLY TO THE COMMISSION UPON
REQUEST.
EXHIBIT A -PLAN OF MERGER
EXHIBIT B -INCIDENTAL REGISTRATION RIGHTS
ANNEX I -ARTICLES OF MERGER
ANNEX II -INDEMNITY ESCROW AGREEMENT
ANNEX III -EMPLOYEE AGREEMENTS
ANNEX IV -NOTES
46
EXHIBIT B
INCIDENTAL REGISTRATION RIGHTS
For the purposes of this Exhibit, the following terms shall have the following
meanings. All capitalized terms used in this Exhibit and not otherwise defined
in this Exhibit shall have the meanings given them in the Agreement.
"1933 ACT" shall mean the Securities Act of 1933, as amended
prior to or after the date of this Agreement, or any federal statute or statutes
which shall be enacted to take the place of such act, together with all rules
and regulations promulgated thereunder.
"COMMON STOCK" shall mean the common stock of FASTNET.
"EMPLOYEE BENEFIT PLAN" shall mean an employee stock option,
bonus or other compensation or employee benefit plan.
"EXEMPT REGISTRATION" shall mean the Registration of Common
Stock to be offered and sold by FASTNET pursuant to (a) an Employee Benefit
Plan, (b) a dividend or interest reinvestment plan, (c) other similar plans, or
(d) reclassifications of securities, mergers, consolidations or acquisitions.
"HOLDERS" shall mean a Shareholder and any donee, executor,
administrator, personal representative, testate or intestate successor or other
lawful assignee of a Shareholder, that from time to time owns Registrable
Securities.
"PERSON" shall mean any individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, or other entity, or a government or any agency, authority or
political subdivision thereof.
"PIGGYBACK NOTICE" shall have the meaning given in Section
1(a).
"PIGGYBACK SHARES" shall have the meaning given in Section
1(a).
"PROSPECTUS" shall mean any prospectus that is a part of a
Registration Statement, together with all amendments or supplements thereto.
"PUBLIC OFFERING" shall mean any public offering of Common
Stock by means of a Registration Statement that has become effective.
"REGISTRABLE SECURITIES" shall mean at any time, the then
outstanding Shares owned by the Holders.
47
"REGISTRATION" shall mean (a) a registration effected by
preparing and filing a Registration Statement, and the declaration or ordering
of the effectiveness of such Registration Statement, and (b) any contemporaneous
registration or qualification of Registrable Securities under any state
securities or blue sky laws.
"REGISTRATION STATEMENT" shall mean any registration statement
filed with the SEC in accordance with the 1933 Act, together with all amendments
or supplements thereto.
"SEC" shall mean the United States Securities and Exchange
Commission or any successor to the functions of such agency.
"SHARES" shall mean the FASTNET Stock issued by FASTNET upon
the Closing of the Agreement.
1. INCIDENTAL REGISTRATION.
-----------------------
(a) If, after twelve months following the Merger Effective
Date, FASTNET proposes to or is required to register Common Stock under the 1933
Act, other than in an Exempt Registration, on a registration form that permits
inclusion of the Registrable Securities, FASTNET will each such time give
written notice (a "Piggyback Notice") to all Holders of Registrable Securities.
The Piggyback Notice shall describe in detail the proposed Registration and
distribution. Upon the written request of any such Holder given within twenty
(20) days after the date of the Piggyback Notice, FASTNET will use its
reasonable best efforts to cause a percentage of such Holder's Registrable
Securities, equal to the percentage which such Holder's total Registrable
Securities bears to the total outstanding capital stock of FASTNET at such time,
that such Holders have requested be registered ("Piggyback Shares") to be
registered under the 1933 Act and any applicable state securities or blue sky
laws, provided that such Registrable Securities which could be included in such
Registration are not otherwise immediately tradable under Rule 144 promulgated
under the 0000 Xxx.
(b) FASTNET shall have the right to select the investment
banker or bankers who shall serve as the manager and/or co-managers for all
Registrations of offerings of Common Stock under this Section 1.
(c) Nothing in this Section 1 shall be deemed to require
FASTNET to proceed with any Registration of Common Stock after giving a
Piggyback Notice.
2. REGISTRATION PROCEDURES. Whenever FASTNET is required to use its
reasonable best efforts to include in a Registration any Registrable Securities,
FASTNET will:
(a) prepare and file with the SEC a Registration Statement
under the 1933 Act with respect to the Common Stock to be registered, and use
its best efforts to cause such Registration Statement to become effective,
provided that before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, FASTNET will furnish to the Holders and their
counsel copies of all such documents proposed to be filed and give such Holders
and their counsel an opportunity to review and comment upon such documents;
48
(b) prepare and file with the SEC 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 and
to comply with the provisions of the 1933 Act with respect to the sale or other
disposition of all Common Stock included in such Registration Statement;
PROVIDED, HOWEVER, that FASTNET shall have no obligation to file any amendment
or supplement following the expiration of the period that ends nine (9) months
after the effective date of such Registration Statement;
(c) furnish to each Holder such number of copies of such
Registration Statement, each amendment and supplement thereto, the Prospectus
included in the Registration Statement (including each preliminary Prospectus),
and such other documents, as such Holder may reasonably request in order to
enable such Holder to consummate the public sale or other disposition of the
Registrable Securities owned by such Holder included in such Registration
Statement;
(d) use its best efforts to register or qualify all of the
Common Stock under such other securities or blue sky laws of such jurisdictions
as FASTNET shall reasonably determine; PROVIDED, HOWEVER, that FASTNET shall not
be required to (i) qualify to do business as a foreign corporation in any
jurisdiction wherein it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction, (iii)
consent to general service of process in any such jurisdiction (provided that
FASTNET shall, if required by any such jurisdiction, consent to service of
process with respect to matters arising out of the offering of Registrable
Securities then being made) or (iv) qualify as a dealer in securities in any
such jurisdiction;
(e) notify each Holder at any time when a Prospectus relating
to the Registrable Securities owned by such Holder is required to be delivered
under the 1933 Act, of the happening of any event known to FASTNET as a result
of which the Prospectus included in such Registration Statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and at the request of any such Holder and
subject to subsection (b) above, prepare a supplement or amendment to such
Prospectus so that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements therein not
misleading;
(f) cause the Registrable Securities included in such
Registration to be listed on each securities exchange or national market or
quotation system on which the Common Stock is then listed, if any;
(g) provide a transfer agent and registrar for the Registrable
Securities included in such Registration not later than the effective date of
such Registration Statement;
(h) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions as the
Holders of at least a majority of the Registrable Securities included in such
Registration or underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of the Registrable Securities included in such
Registration; and
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(i) make available for inspection by any Holder, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by any such
Holder of at least 25% of the Registrable Securities included in such
Registration, all financial and other records, pertinent corporate documents and
properties of FASTNET, and cause FASTNET's officers, directors and employees to
supply all information reasonably requested by any such Holder, underwriter,
attorney, accountant or agent and reasonably necessary for the purposes of such
Registration Statement.
3. EXPENSES. To the fullest extent allowable under applicable federal
and state securities and blue sky laws, all expenses which would in any event be
incurred by FASTNET in effecting the Registration provided for in Section 1 even
if no Holder participates in the Registration, but specifically excluding any
attorney fees for counsel retained by the Holders and discounts or commissions
with respect to the Registrable Securities, shall be borne and paid by FASTNET.
4. INDEMNIFICATION.
(a) In the event of any Registration of the Registrable
Securities under the 1933 Act pursuant to this Agreement, FASTNET, to the extent
permitted by law, shall indemnify and hold harmless each Holder, each
underwriter (as defined in the 1933 Act), each other Person who participates in
the offering of such Registrable Securities, and each other Person, if any, who
controls (within the meaning of the 0000 Xxx) each such Holder, underwriter or
participating Person, against any losses, claims, damages or liabilities, joint
or several, to which each such Person may become subject under the 1933 Act or
any other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement, or alleged untrue statement, of any material fact
contained, on the effective date thereof, in any Registration Statement under
which the Registrable Securities were registered under the 1933 Act, any
preliminary Prospectus or final Prospectus contained therein, or any summary
Prospectus issued in connection with any Registrable Securities being
registered, or any amendment or supplement thereto, or (ii) any omission or
alleged omission to state in any such document a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
shall reimburse each such Holder, or any such underwriter, participating Person
or controlling Person for any legal or other expenses reasonably incurred by
such Person in connection with investigating or defending any such loss, damage,
liability or action; PROVIDED, HOWEVER, that FASTNET shall not be liable to any
Holder, or any such underwriter, participating Person, or controlling Person in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission (x) that was
made in such Registration Statement, preliminary Prospectus, summary Prospectus,
Prospectus, or amendment or supplement thereto in reliance upon and in
conformity with information furnished in writing to FASTNET by such Person
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specifically for use therein, or (y) that was corrected in an amendment or
supplement to the Registration Statement or any preliminary Prospectus, summary
Prospectus or Prospectus that FASTNET made available to the Holders prior to the
date of the transaction giving rise to a claim of liability and that the Holder
seeking indemnification failed to deliver to the person asserting the claim
prior to the consummation of the transaction, and shall reimburse such Person
for any legal or other expenses reasonably incurred by such Person in connection
with investigating or defending any such loss, claim, damage or liability.
(b) Each Holder shall indemnify and hold harmless each other
Holder, FASTNET, their directors and officers, each underwriter (as defined in
the 1933 Act), and each other Person, if any, who controls (within the meaning
of the 0000 Xxx) each such Holder, FASTNET, or any underwriter, against any
losses, claims, damages or liabilities, joint or several, to which any such
other Holder, FASTNET, any such director or officer, any such underwriter, or
any such Person may become subject under the 1933 Act or any other statute or at
common law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained, on the effective date
thereof, in any Registration Statement under which Registrable Securities were
registered under the 1933 Act at the request of the Holders, any preliminary
Prospectus or final Prospectus contained therein, or any summary Prospectus
issued in connection with the Registrable Securities, or any amendment or
supplement thereto, or (ii) any omission or alleged omission to state in any
such document a material fact required to be stated therein or necessary to make
the statements therein not misleading, in either case to the extent, and only to
the extent, that such untrue statement or omission (x) was made in such
Registration Statement, preliminary Prospectus, final Prospectus, summary
Prospectus, amendment or supplement in reliance upon and in conformity with
information furnished in writing by such Holder specifically for use therein, or
(y) such untrue statement or omission was corrected in an amendment or
supplement to the Registration Statement or any preliminary Prospectus, summary
Prospectus or Prospectus that FASTNET made available to the Holders prior to the
date of the transaction giving rise to a claim of liability and that the Holder
selling Registrable Securities in such transaction failed to deliver to the
person asserting the claim prior to the consummation of the transaction, and
shall reimburse such Person for any legal or other expenses reasonably incurred
by such Person in connection with investigating or defending any such loss,
claim, damage or liability.
(c) Indemnification similar to that specified in subsections
(a) and (b) of this Section 4 (with such modifications as shall be appropriate)
shall be given by FASTNET or the Holder, as the case may be, under any federal
or state securities or blue sky law or regulation other than the 1933 Act.
(d) Any Person that proposes to assert the right to be
indemnified under subsections (a), (b) or (c) of this Section 4 shall, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such Person in respect of which a claim is to be made against an
indemnifying Person under such subsections (a), (b) or (c), notify each such
indemnifying Person of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. The indemnifying Person shall have the
right to investigate and defend any such loss, claim, damage, liability or
action and to employ separate counsel in any such action and to control the
defense thereof. The Person seeking indemnification shall have the right to
employ separate counsel in any such action and to control the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
Person against whom indemnification is sought; PROVIDED, HOWEVER, that
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notwithstanding the foregoing, in any case when indemnification is sought from a
Person and (i) the Person seeking indemnification has been advised by counsel
that representation of such Person and the indemnifying Person by the same
counsel would be inappropriate under applicable standards of professional
conduct, or (ii) the indemnifying Person has not proceeded in a timely manner to
effect such defense, then the reasonable fees and expenses of counsel for such
Person shall be paid by the Indemnifying Person and the Person seeking
indemnification shall have the right to control the defense of such action, suit
or proceeding. In no event shall a Person against whom indemnification is sought
be obligated to indemnify any Person for any settlement of any claim or action
effected without the indemnifying Person's consent. No indemnifying Person will
consent to the entry of any judgment or enter into any settlement (without the
consent of the indemnified Person) that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified Person
of a release from all liability in respect of the applicable claim or
litigation.
(e) The indemnification provided for under this Section 4 will
remain in full force and effect regardless of any investigation made by or on
behalf of the Person seeking indemnification or any officer, director or
controlling Person of such Person seeking indemnification and will survive the
transfer of Registrable Securities.
(f) If the indemnification provided for in this Section 4 is
unavailable or insufficient to hold harmless an indemnified Person in respect of
any losses, claims, damages or liabilities in respect thereof referred to
herein, then each indemnifying Person shall, in lieu of indemnifying such
indemnified Person, contribute to the amount paid or payable by such indemnified
Person as a result of such losses, claims, damages or liabilities, in such
proportion as is appropriate to reflect the relative fault of FASTNET, on the
one hand, and the Holders, on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations, including the failure to give
the notice required hereunder. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact relates to information supplied by FASTNET, on the one hand,
or the Holders, on the other hand, and the Persons' relevant intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. FASTNET and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 4 were determined by pro rata
allocation or by any other method of allocation that did not take account of the
equitable considerations referred to above. The amount paid or payable by an
indemnified Person as a result of the losses, claims, damages or liabilities in
respect thereof referred to above shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified Person in connection with
investigation or defending any such action or claim. Notwithstanding the
contribution provisions of this Section 5, in no event shall the amount
contributed by any Holder of Registrable Securities exceed the aggregate gross
offering proceeds received by such Holder from the sale of Registrable
Securities to which such contribution claim relates. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 0000
Xxx) shall be entitled to contribution from any Person who is not guilty of such
fraudulent misrepresentation.
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5. PARTICIPATION IN UNDERWRITTEN REGISTRATION. No Holder may
participate in any underwritten Registration hereunder unless (i) such Holder
agrees to sell such Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by FASTNET, (ii) such Holder completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) the Holders of a majority of the
Registrable Securities included in such Registration shall have designated a
single agent to act for them in connection with the Registration.
6. MARKETING RESTRICTIONS. If:
(a) any Registrable Securities are to be registered pursuant
to Section 1, and
(b) the offering proposed to be made is to be an underwritten
Public Offering, and
(c) the manager or co-managers of such Public Offering furnish
a written opinion that the total amount of Registrable Securities to be included
in such offering would exceed the maximum amount of securities of FASTNET (as
specified in such opinion) that can be marketed at a price reasonably related to
the then current market value of such Registrable Securities and without
materially and adversely affecting such offering,
then the relative rights to participate in such offering of FASTNET and the
Holders of Registrable Securities having the right to include such Registrable
Securities in such Registration shall be in the following order of priority:
First: FASTNET shall be entitled to include Common Stock in such
Registration; and then
Second: The Holders of Registrable Securities having the right to
include such Registrable Securities in such Registration shall be entitled to
participate pro rata among themselves in accordance with the number of shares of
Registrable Securities that each such Holder shall have requested be registered;
and no Registrable Securities (issued or unissued) other than those registered
and included in the underwritten offering shall be offered for sale or other
disposition by any Holder in a transaction that would require registration under
the 1933 Act until the expiration of one hundred eighty (180) days after the
effective date of the Registration Statement in which Registrable Securities
were included.
Notwithstanding the foregoing or anything to the contrary, the Holders agree
that the incidental registration rights of the Holders set forth herein shall be
subordinate to the registration rights of the current or future holders of
FASTNET's Preferred Stock, and that other current or future holders of common
stock with incidental registration rights granted by FASTNET shall be entitled
to participate herein as if they were Holders of Registrable Securities.
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