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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 31, 2000
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FASTCOMM COMMUNICATIONS CORPORATION
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(Exact name of registrant as specified in its chapter)
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Virginia 000-17168 54-1289115
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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45472 Holiday Drive, Sterling, VA 20166
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(703) 318-7750
NOT APPLICABLE
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 2. OTHER EVENTS.
On March 31, 2000, FastComm Communications Corporation, a Virginia
corporation ("FastComm") completed its acquisition of substantially all of the
assets of Cronus Technology, Inc. a privately held Illinois corporation that
provides system interoperability solutions to the telecommunications industry
("Cronus"). The acquisition was effected pursuant to an Agreement and Plan of
Reorganization executed by FastComm, Cronus, Cronus Communications, Inc. and
certain principal stockholders of Cronus, dated as of March 27, 1999 (the
"Acquisition Agreement").
In the acquisition, FastComm issued 3,700,000 shares of its common stock
(the "Acquisition Price") in exchange for substantially all of the assets of
Cronus and the assumption of certain liabilities of Cronus, including certain
secured indebtedness, management and bank debt. At Closing, indebtedness of
certain former owners of Cronus, management debt and subordinated debt was
retired in consideration of
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the issuance of an additional 728,063 restricted shares of FastComm stock, the
payment of cash, and the issuance of warrants to purchase shares of FastComm
stock.
Under the terms of the Acquisition Agreement, a further adjustment will
be made to the Acquisition Price if the closing price of FastComm's common
stock on the Nasdaq Stock Market for the 15 trading day period ended March 31,
2001 (the "First Anniversary") does not equal or exceed $7.30 per share. In
such event up to 1,125,000 additional shares of FastComm common stock will be
issued such that the value of the Acquisition Price is as close as possible to
$27 million based upon that average closing price. The foregoing collar will be
null and void (a) if at any time prior to the First Anniversary of the Closing
and after the shares have been registered by FastComm, FastComm's common stock
share price closes at $7.30 per share or above for five consecutive trading
days or (b) if the average closing price for the shares is above $7.30 per
share for the fifteen days prior to the First Anniversary. In addition, the
Acquisition Agreement provides for an adjustment in the Acquisition Price if
the audited net worth of Cronus varies by 5% or more from the unaudited net
worth of Cronus at December 31, 1999.
The Acquisition constituted a tax-free reorganization.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Businesses Acquired.
To be filed by amendment on or before May 29, 2000.
(b) Pro Forma Financial Information.
To be filed by amendment on or before May 29, 2000
(c) Exhibits.
The following exhibits are filed with this Report:
Exhibit No. Description
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2.1 Agreement and Plan of Reorganization
by and among FastComm Communications
Corporation, Cronus Technology, Inc.,
Cronus Communications, Inc., and
certain Principal Stockholders, dated
as of March 27, 2000.
10.1 Registration Rights Agreement made by
FastComm Communications Corporation,
in favor of the holders of common
stock of Cronus Technology, Inc.,
dated as of March 31, 2000.
10.2 Form of Registration Rights Agreement
between FastComm Communications
Corporation, in favor of certain
individuals and a subordinated debt
holder, dated as of March 31, 2000.
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10.3 Form of Warrant Agreement between
FastComm Communications Corporation in
favor of certain individuals, dated as
of March 31, 2000.
10.4 Investment Banking Agreement between
FastComm Communications Corporation
and Kaufman Bros. L.P., dated January
24, 2000.
10.5 Financial Advisor Agreement between
FastComm Communications Corporation
and Kaufman Bros. L.P., dated March
14, 2000.
10.6 Warrant Agreement between FastComm
Communications Corporation and Kaufman
Bros. L.P., dated February 1, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FASTCOMM COMMUNICATIONS CORPORATION
Date: April 14, 2000
/s/ Mark H. Rafferty
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Name: Mark H. Rafferty
Title: Chief Financial Officer
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EXHIBIT LIST
Exhibit No. Description
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2.1 Agreement and Plan of Reorganization
by and among FastComm Communications
Corporation, Cronus Technology, Inc.,
Cronus Communications, Inc., and
certain Principal Stockholders, dated
as of March 27, 2000.
10.1 Registration Rights Agreement made by
FastComm Communications Corporation,
in favor of the holders of common
stock of Cronus Technology, Inc.,
dated as of March 31, 2000.
10.2 Form of Registration Rights Agreement
between FastComm Communications
Corporation, in favor of certain
individuals and a subordinated debt
holder, dated as of March 31, 2000.
10.3 Form of Warrant Agreement between
FastComm Communications Corporation in
favor of certain individuals, dated as
of March 31, 2000.
10.4 Investment Banking Agreement between
FastComm Communications Corporation
and Kaufman Bros. L.P., dated January
24, 2000.
10.5 Financial Advisor Agreement between
FastComm Communications Corporation
and Kaufman Bros. L.P., dated March
14, 2000.
10.6 Warrant Agreement between FastComm
Communications Corporation and Kaufman
Bros. L.P., dated February 1, 2000.
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EXHIBIT 2.1
CONFORMED COPY
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
FASTCOMM COMMUNICATIONS CORPORATION,
CRONUS TECHNOLOGY, INC.,
AND
CRONUS COMMUNICATIONS, INC.
AND
DHRU D. DESAI, PRADUMAN MAHIDA, STEVEN C. SMITH
DATED AS OF MARCH 27, 2000
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS
1. Definitions.................................................................................................2
ARTICLE II PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets.................................................................................5
2.2 Excluded Assets.............................................................................................6
2.3 Assumption of Liabilities...................................................................................7
2.4 Excluded Liabilities........................................................................................7
2.5 Purchase Price..............................................................................................8
2.6 Post Closing Adjustment to Purchase Price...................................................................9
2.7 Closing.....................................................................................................10
2.8 Nontransferability..........................................................................................10
2.9 Allocation of Purchase Price................................................................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER
3.1 Organization of Seller......................................................................................11
3.2 Seller Capital Structure....................................................................................12
3.3 Subsidiaries................................................................................................12
3.4 Authority...................................................................................................13
3.5 Seller Financial Statements.................................................................................14
3.6 No Undisclosed Liabilities..................................................................................15
3.7 No Changes..................................................................................................15
3.8 Tax and Other Returns and Reports...........................................................................17
3.9 Restrictions on Business Activities.........................................................................19
3.10 Title of Properties; Absence of Liens
and Encumbrances; Condition of Equipment....................................................................20
3.11 Intellectual Property.......................................................................................20
3.12 Agreements, Contracts and Commitments.......................................................................24
3.13 Interested Party Transactions..............................................................................27
3.14 Governmental Authorization..................................................................................27
3.15 Litigation..................................................................................................27
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3.16 Accounts Receivable.........................................................................................28
3.17 Minute Books................................................................................................28
3.18 Environmental Matters.......................................................................................28
3.19 Brokers' and Finders' Fees..................................................................................30
3.20 Employee Benefit Plans......................................................................................30
3.21 Compliance with Laws........................................................................................34
3.22 Warranties; Indemnities.....................................................................................34
3.23 Software Development Agreements.............................................................................34
3.24 Insurance...................................................................................................35
3.25 Bank Accounts...............................................................................................36
3.26 Materiality.................................................................................................36
3.27 Disclosure..................................................................................................36
3.28 Consents....................................................................................................36
3.29 Acknowledgement.............................................................................................36
ARTICLE III B LIMITED REPRESENTATIONS AND WARRANTIES OF THE
SIGNIFICANT MINORITY STOCKHOLDER
3B.1 Authority...................................................................................................37
3B.2 Seller Financial Statements.................................................................................38
3B.3 No Undisclosed Liabilities..................................................................................39
3B.4 Interested Party Transactions...............................................................................39
3B.5 Litigation..................................................................................................40
3B.6 Compliance with Laws........................................................................................40
3B.7 Materiality.................................................................................................40
3B.8 Disclosure..................................................................................................41
EB.9 Acknowledgement.............................................................................................41
EB.10 Knowledge...................................................................................................41
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization; Standing and Power............................................................................42
4.2 Authority..................................................................................................42
4.3 SEC Filings; Material Adverse Change........................................................................43
4.4 Buyer's Common Stock........................................................................................43
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4.5 Brokers' and Finders' Fees..................................................................................43
4.6 Acknowledgment..............................................................................................44
4.7 Disclosure..................................................................................................44
4.8 No Litigation...............................................................................................44
4.9 Tax Return & Audits.........................................................................................45
ARTICLE V SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
5.1 Survival of Representations and Warranties..................................................................48
5.2 Stockholder Escrow Arrangements.............................................................................48
5.3 Escrow Agent's Duties.......................................................................................54
5.4 Limitation on Liability.....................................................................................55
ARTICLE VI PRE-CLOSING COVENANTS
6.1 General.....................................................................................................56
6.2 Operation of Seller's Business.............................................................................56
6.3 Access......................................................................................................59
6.4 Notice of Developments......................................................................................59
6.5 Exclusive Dealing...........................................................................................59
6.6 Financial Statements........................................................................................61
6.7 Nasdaq Listing..............................................................................................61
6.8 Bulk Transfer Laws..........................................................................................61
ARTICLE VII CONDITIONS TO OBLIGATION TO CLOSE
7.1 Conditions to Obligation of Buyer...........................................................................61
7.2 Conditions to Obligation of Seller.........................................................................64
ARTICLE VIII TERMINATION
8.1 Termination of Agreement....................................................................................66
8.2 Effect of Termination.......................................................................................67
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ARTICLE IX GENERAL PROVISIONS
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9.1 Indemnification, Exculpation and Insurance..................................................................67
9.2 Notices.....................................................................................................69
9.3 Interpretation..............................................................................................71
9.4 Knowledge Defined...........................................................................................71
9.5 Counterparts................................................................................................71
9.6 Entire Agreement; Assignment................................................................................71
9.7 Severability................................................................................................72
9.8 Other Remedies..............................................................................................72
9.9 Governing Law...............................................................................................73
9.10 Rules of Construction.......................................................................................73
9.11 Confidentiality.............................................................................................73
9.12 Fees of Transaction.........................................................................................73
EXHIBIT INDEX...........................................................................................................76
SCHEDULE INDEX..........................................................................................................77
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of March 27, 2000 by and between FastComm Communications
Corporation, a Virginia corporation ("BUYER"), Cronus Technology Inc., an
Illinois corporation, Cronus Communications, Inc., an Illinois corporation,
(collectively the "SELLER") and Dhru D. Desai, Praduman Mahida and Steven C.
Smith ("Principal Stockholders") and William J. Dawson ("Significant Minority
Stockholder").
RECITALS
A. The Board of Directors of each of Seller, and all of the
stockholders of Seller ("Seller's Stockholders") desire to transfer and Buyer
desires to acquire substantially all of the assets and business of Seller,
subject to certain liabilities, except Excluded Liabilities, as defined herein;
B. The Board of Directors of Seller as part of its approval of and
subject to the same conditions as apply to this Agreement, as set forth below,
has approved a Plan of Complete Liquidation and Dissolution of Seller pursuant
to which the shares of Buyer's common stock received by Seller ("Buyer Common
Stock") will be distributed by Seller ratably to Seller's Stockholders in
exchange for and in complete cancellation and retirement of all its issued and
outstanding stock (consisting of common stock) and in complete liquidation of
Seller, followed by the dissolution of Seller immediately thereafter, which Plan
of Complete Liquidation and Dissolution will also be submitted to Seller's
Stockholders for their approval; and
C. Each of the Principal Stockholders entering into this agreement,
is willing to represent and warrant to Buyer as hereinafter set forth.
D. Buyer is entering into a Registration Rights Agreement pursuant to
which Buyer shall file a registration statement providing for the sale of the
Buyer Common Stock received pursuant to the reorganization transaction.
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E. Buyer, Seller and the Principal Stockholders, and the Significant
Minority Stockholder desire to make certain representations and warranties and
other agreements in connection with the transaction.
F. Certain key employees of Seller, as of the date hereof, are being
offered employment arrangements with Buyer (collectively, the "EMPLOYMENT
AGREEMENTS").
G. The parties intend that the transactions contemplated by this
Agreement will qualify as a tax free "Reorganization" within the meaning of
Section 368(a)(1)(c) of the Internal Revenue Code of 1986, as amended (the
"CODE"). Buyer agrees that it shall perform all actions reasonably requested in
connection with this transaction so that it complies with Section 368(a)(1)(c)
of the Code.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
DEFINITIONS
1. DEFINITIONS. When used in this Agreement and not defined herein,
the following terms shall have the respective meanings specified therefore below
(such meanings to be equally applicable to both the singular and the plural
forms of the terms defined).
"Affiliate" shall mean, with respect to any Person, and other Person
which controls, is controlled by or is under common control with such Person. A
Person shall be deemed to control another person if such person Possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise.
"Agreement" and "this Agreement" shall mean this Agreement and Plan of
Reorganization as amended, modified or supplemented from time to time.
"Assigned Contracts" shall have the meaning specified in Section 2.1(b).
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"Assumed Chicago Liabilities" shall mean those liabilities listed on
Exhibit I.
"Assumed Liabilities" shall have the meaning specified in Section 2.3.
"Balance Sheet" shall have the meaning specified in Section 3.5.
"Balance Sheet Date" shall have the meaning specified in Section 3.5.
"Books and Records" shall mean all books, records, files and data related
exclusively to the conduct of the Cronus Business or the ownership of the
Purchased Assets that are listed on Schedule 1.1 hereto.
"Bridge Holders Indebtedness" shall mean that certain indebtedness of
Seller to Richard L. Abrahams, Robert R. Bellick and Chris L. Gust, in principal
amount of $1,500,000 together with accrued interest.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banks located in New York, New York shall be authorized or required
by law to close.
"Buyer Indemnitee" shall have the meaning specified in Section 9.1(a).
"Chicago Liabilities" shall mean those liabilities of Seller listed on
Exhibit H.
"Closing" shall have the meaning specified in Section 2.7.
"Closing Date" shall have the meaning specified in Section 2.7.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Condition" shall mean the results of operations and financial condition
of any Person.
"Cronus Business" shall mean the businesses presently conducted by Seller
and by its subsidiaries, namely the design, manufacture and sale of system
interoperability solutions to the telecommunications industry including the
development, manufacture, marketing, sale or exchange, lease and licensing of
any products, including products consisting of signal conversion, signal
converter, network management interface, switching, protocol converters,
multiplex, translation, voice over IP and related or evolved technology whether
presently existing or in development.
"Damages" shall have the meaning specified in Section 9.1(a).
"Dawson Indebtedness" shall mean that certain indebtedness of Seller to
William J. Dawson, J.A. Sunkel, William F. Ferguson and George Chen in principal
amount of $4,730,687, together with accrued interest.
"Employee Benefit Plans" shall mean all employee benefit plans, within
the meaning of
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Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended,
maintained by Seller or to which Seller contributes or is a party.
"Encumbrances" shall mean liens, security interest, options, rights of
first refusal, easements, mortgages, charges, indentures, deeds of trust,
rights-of-way, restrictions on the use of real property, encroachments, licenses
to third parties, leases to third parties, security agreements, or any other
encumbrances and other restrictions or limitations on the use of real or
personal property or irregularities in title thereto.
"Excluded Assets" shall have the meaning specified in Section 2.2.
"Excluded Liabilities" shall have the meaning specified in Section 2.4.
"General Assignment Agreement" shall mean the General Assignment
Agreement, in the form attached hereto as Exhibit A.
"Indemnitee" shall mean a Buyer Indemnitee or a Seller Indemnitee, as the
context may require.
"Intellectual Property" shall have the meaning specified in Section 3.11.
"Lasalle Indebtedness" shall mean the outstanding amount of that certain
secured indebtedness of Seller to Lasalle National Bank at Closing, as evidenced
by a Revolving Credit Note and Term Note, each dated March 19, 1999.
"Management Loans" shall mean those loans aggregating $346,578 made to
Seller by certain members of management including the Principal Stockholders.
"Net Worth" shall mean assets less liabilities as determined in
accordance with GAAP.
"Permitted Encumbrances" shall have the meaning specified in Section 3.5.
"Person" shall mean and include an individual, a partnership, a limited
liability company, a corporation, a trust, an unincorporated organization and a
government or other department or agency thereof.
"Pre-Closing Period" shall mean all taxable years or other taxable
periods ending prior to the Closing Date and, with respect to any taxable year
or other taxable period that begins before and ends on or after the Closing
Date, the portion of such taxable year or other taxable periods ending
immediately prior to the Closing Date.
"Purchase Price" shall have the meaning specified in Section 2.5.
"Purchase Price Adjustment" shall have the meaning specified in Section
2.6.
"Purchased Assets" shall have the meaning specified in Section 2.1.
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"Seller Indemnitee" shall have the meaning specified in Section 9.1(b).
"Subsidiary or Subsidiaries" shall mean and include Cronus
Communications, Inc., an Illinois Corporation and Cronus Solutions, a Division
of Seller, an Illinois corporation.
"Tax" shall mean all taxes, assessments, duties, fees, levies or other
governmental charges, including, without limitation, all Federal, state, local
and foreign and other income, franchise, profits, capital gains, capital stock,
transfer, sales, use, ad valorem, occupation, property, excise, gross receipts,
stamp, license, payroll, withholding, alternative or add-on minimum tax and
other taxes, assessments, duties, fees, levies or other governmental charges of
any kind whatsoever, and all estimated taxes, additions to tax, penalties,
interest and additional amounts attributable thereto.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 PURCHASE AND SALE OF ASSETS. Upon the terms and subject to the
conditions of this Agreement, Buyer agrees to purchase from Seller and Seller
agrees to sell, convey, transfer, assign and deliver, or cause to be sold,
conveyed, transferred, assigned and delivered, to Buyer on the Closing Date the
Purchased Assets. The term "Purchased Assets" shall mean all of the following
assets, properties and business that are owned by Seller and any Subsidiary or
their Affiliates as of the close of business on the Closing Date, [but shall not
include the Excluded Assets as defined in Section 2.2];
(a) the trade names, trademarks and service marks, trademark and
service mark registrations and applications therefore, and copyrighted works
listed on Schedule 2.1(a) attached hereto;
(b) all of the transferable contracts, commitments, licenses,
contracts for services or supplies, contracts to sell products or services and
all other agreements (whether written or oral) to which Seller is a party or
under which it receives benefit or is bound arising out of or related to the
Cronus Business (the "Assigned Contracts"), including, without limitation, the
transferable contracts listed on Schedule 2.1(b) attached hereto;
(c) all of Seller's accounts receivable and prepaid items of the
Cronus Business;
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(d) all tangible property of Seller including all inventory
(including works-in-progress, supplies and raw materials owned by Seller and
used or held for use in connection with the conduct of the Cronus Business;
(e) any rights of Seller pertaining to any claims, causes of
action, rights of recovery, set-offs or defenses of any kind pertaining to, and
arising out of, the Cronus Business to the extent, but only to the extent, that
they offset any Assumed Liabilities;
(f) Seller's Books and Records;
(g) the Cronus Business as a going concern including goodwill
if any; and
(h) all cash on hand and cash equivalents; and
(i) all Intellectual Property of Seller
To the extent title to any asset identified in Sections 2.1(a) and (b)
above is held by an Affiliate or by the Subsidiary of Seller, Seller shall, at
the Closing, cause such Affiliate or Subsidiary to transfer to Buyer all of such
Affiliate's or Subsidiary's right, title and interest in and to such asset.
2.2 EXCLUDED ASSETS. Notwithstanding the foregoing, the
Purchased Assets shall not include the following items (the "Excluded Assets"):
(a) all past, present and future rights of Seller and its
Affiliates pertaining to any claims, causes of action, rights of recovery,
set-offs or defenses of any kind based on facts and circumstances in existence
prior to the Closing Date, except those set forth in paragraph 2.1(e).
(b) rights arising under or in connection with insurance
policies or other contracts of insurance of Seller or acquired or assumed by
Seller prior to the Closing Date and the proceeds or benefits of such insurance
policies; provided however that Buyer is acquiring all rights to Credit
Insurance with American Credit Indemnity.
(c) rights arising from any refunds due with respect to
insurance premium payments and refunds due from federal, state and/or local
taxing authorities with respect to taxes relating to any Pre-Closing Period;
(d) Seller's rights under this Agreement and the agreements and
instruments delivered pursuant hereto;
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(e) Those contracts noted on Schedule 2.1(b);
(f) all assets related to the Employee Benefit Plans,
including, without limitation, any assets held in trust with respect to such
plans and any insurance policies and the proceeds or benefits thereof,
maintained or acquired or assumed by Seller with respect to the Employee Benefit
Plans.
2.3 ASSUMPTION OF LIABILITIES. Upon the closing, Buyer shall
assume and agree to pay, perform or discharge, in a timely manner in accordance
with the terms thereof, all of the following obligations and liabilities of
Seller and its Affiliates including the Subsidiary, related to the Cronus
Business (other than those specifically described in Section 2.4 hereof),
whether accrued, absolute, fixed, contingent or otherwise (the "Assumed
Liabilities"):
(a) the obligations of Seller, subsidiary and its Affiliates
and subsidiary under all Assigned Contracts and other grants of right assigned
pursuant to Section 2.1;
(b) Seller's current liabilities existing as of the Closing
Date, including but not by way of limitation, trade payables and attorney fees
as shown in Exhibit I, but not Seller's attorneys fees in connection with this
transaction incurred in the ordinary course of business;
(c) all Taxes imposed on or with respect to the Cronus Business
for all taxable periods other than any Pre-Closing Periods.
(d) those assumed Chicago Liabilities listed on Exhibit J.
hereto, together with additional amounts, if any, in respect of such liabilities
specifically listed on Exhibit J, and incurred in the ordinary course of
business since March 14, 2000 up to the Closing Date.
2.4 EXCLUDED LIABILITIES. Buyer and Seller agree that,
notwithstanding anything to the contrary contained in Section 2.3, Buyer is not
assuming any of the following liabilities or obligations of Seller, Subsidiary
or its Affiliates or Subsidiaries (the "Excluded Liabilities"):
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(a) liabilities for any income, gain, profit or similar Tax
arising out of or resulting from the sale, conveyance, transfer, assignment and
delivery of the Purchased Assets provided for in this Agreement;
(b) all Taxes imposed on or with respect to the Cronus Business
for all Pre-Closing Periods;
(c) liabilities for any sales, exercise, transfer or other tax
on or arising out of the sale, conveyance, transfer, assignment or delivery of
the Purchased Assets;
(d) liabilities and obligations pursuant to any agreements
relating to the employment of any individual in connection with Seller's
business, including, but not limited to liabilities for any option, warrant,
bonus, performance, golden parachute, consulting, or similar liability;
(e) liabilities and obligations (whether fixed or contingent)
with respect to the Employee Benefit Plans; and
(f) all liabilities and obligations arising out of the Excluded
Assets.
(g) liability of Seller for its lease for premises at 424 East
State Parkway - Suite 228, Schaumburg, Illinois 60173; and
(h) liability for any contract not assigned to Buyer;
(i) liability for any employee or stockholder loan except for
the Management Loans, which will be satisfied at Closing as set forth in
Schedule 2.4;
(j) liability for any pending lawsuits, including those listed
on Schedule 3.15;
(k) the Chicago Liabilities; and
(l) liability for Seller's or Principal Stockholder's costs,
fees, and expenses of this transaction.
2.5 PURCHASE PRICE.
(a) Upon the Closing, Buyer shall pay to Seller, in
consideration for the purchase of the Purchased Assets and the assumption of the
Assumed Liabilities ("Purchase Price");
(i) 3,700,000 shares of the common stock of Buyer (the
"Shares") and on the First Anniversary of the Closing (the "First Anniversary")
up to a maximum of 1,125,000 additional shares ("Collar") so as to bring the
total value of this paragraph as close as possible to
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$27 million valued according to the average closing price for the fifteen (15)
days prior to the First Anniversary; provided however, (a) if at any time prior
to the First Anniversary of the Closing and after the Shares have been
registered by Buyer, Buyer's common stock share price closes at $7.30 per share
or above for five consecutive trading days, or (b) if the average closing price
for the Shares is above $7.30 per share for the fifteen days prior to the First
Anniversary, the foregoing Collar will be null and void.
(b) None of the Shares of Buyer contained in Section 2.5
above will be registered at Closing. Buyer will file for registration of all of
the shares contained in Section 2.5 within 45 days of filing of Buyer's Annual
Report on Form 10-K for its fiscal year 2000 and will take all reasonable
efforts to secure an effective registration as soon as practicable thereafter.
If such registration statement is not filed within such time period absent force
majeure, Buyer shall pay liquidated damages of $100,000 to Seller. Such
registration may in the Buyer's discretion, be combined with other
registrations.
2.6 POST-CLOSING ADJUSTMENT TO PURCHASE PRICE.
(a) Following the Closing, Buyer's independent public
accountants, BDO Seidman, LLP ("BDO") will complete an audit of the books and
records of Seller for the two fiscal years ending December 31, 1998 and December
31, 1999 and a review for the interim period from the December 31, 1999 to the
Closing Date. Such audit shall be performed by BDO in accordance with GAAP and
applicable Regulation S-X accounting regulations for public companies. Seller
agrees to cause its employees and outside accountants to cooperate fully with
BDO in connection with this audit. The costs of this audit shall be borne by
Buyer.
In connection with the performance of its audit,
which audit shall be completed within approximately 75 days after the Closing,
BDO shall prepare and submit an audited closing balance sheet as at December 31,
1999 ("Closing Balance Sheet") which shall be irrevocably binding on the
parties, absent manifest error. If the Net Worth as shown on such Closing
Balance Sheet is 5% higher or lower than the Net Worth shown on the unaudited
Balance Sheet, as herein after defined in Section 3.5 then the Purchase Price
shall be adjusted accordingly. The increase or decrease to the Purchase Price
shall be determined by dividing the total adjustment (the "Adjustment Amount")
by $7.30 to determine the increase or decrease in
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the number of shares to be delivered to Seller from the escrow described in
Section 2.6(b) and Article V below. If this Agreement has been executed by the
parties by close of business on March 27, 2000, the Adjustment Amount shall be
increased by $400,000. If the Agreement has not been executed by close of
business on March 27, 2000, the amount of such increase shall be reduced by
$100,000 per day thereafter to and through March 31, 2000.
(b) At Closing 55% of the 3,700,000 shares listed in Section
2.5(a) of the Agreement shall be issued to Seller and delivered to the Escrow
Agent, as hereinafter defined, to be issued to Seller's Stockholders and the
Significant Minority Stockholder (in such ratios and numbers as the Seller's
Stockholders and the Significant Minority Stockholder may instruct the Escrow
Agent by separate writing) and 30% of such shares shall be held in escrow
pursuant to the terms and conditions of Article V, pending completion of the
adjustment described in 2.6(a) above. An additional 15% of the shares shall be
held in escrow for a period of 180 days after the Closing as security for the
indemnities and other covenants of Seller to be given at Closing, including the
indemnity referenced in Article IX hereof.
2.7 CLOSING. The closing of the sale referred to in Section 2.1
(the "Closing") shall take place at the offices of the Buyer, 45472 Holiday
Drive, Dulles, Virginia at 9:00 A.M. on March 31, 2000 or at such earlier time
and date following the satisfaction or waiver of the conditions precedent set
forth in Article VIII of this Agreement as the parties hereto may mutually
agree. Such date is herein referred to as the "Closing Date."
2.8 NONTRANSFERABILITY. The parties intend that all of the
agreements set forth in Schedule 2.1(b) hereto be assigned to and assumed by
Buyer. To the extent that the transactions contemplated hereby would constitute
the assignment of any contract, lease, commitment, sales order, purchase order,
account, license or undertaking of Seller or any of its Affiliates requiring the
consent of another party thereto, this Agreement shall not constitute an
agreement to assign the same if an attempted assignment would constitute a
breach thereof. If such consents are not obtained, the parties shall cooperate
with each other (at Buyer's expense and so long as Seller and its Affiliates
shall not incur any unreimbursed liability or obligation of
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any type) to establish lawful arrangements whereby Buyer is provided with the
benefits and undertakes the obligations of Seller or its Affiliates under any
such documents.
2.9 ALLOCATION OF PURCHASE PRICE. Sellers and Buyers agree to
allocate the aggregate purchase price to be paid for the Purchased Assets in
accordance with Section 1060 of the Code and to reduce such allocation to
writing prior to the Closing Date. In addition, Seller and Buyer hereby
undertake and agree to file timely any information that may be required to be
filed pursuant to Treasury Regulations promulgated under Section 1060(b) of the
Code. Neither Seller nor Buyer shall file any tax return or other document or
otherwise take any position which is inconsistent with the allocation determined
pursuant to this Section 2.9.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE PRINCIPAL STOCKHOLDERS
Seller and the Principal Stockholders represent and warrant to Buyer as
of the date hereof, subject to such exceptions as are specifically disclosed in
the disclosure schedules supplied by Seller to Buyer (the "Seller Schedules" or
"Disclosure Schedules") and dated as of the date hereof, as follows:
3.1 ORGANIZATION OF SELLER. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois.
Seller has the corporate power to own its properties and to carry on its
business as now being conducted. Seller is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction identified on
Schedule 3.1, and such jurisdictions are the only jurisdictions in which the
failure to be so qualified would have a material adverse effect on the business,
assets (including intangible assets), prospects, financial condition or results
of operations of Seller (hereinafter referred to as a "MATERIAL ADVERSE
EFFECT"). Seller has delivered a true and correct copy of its Articles of
Incorporation and By-laws, each as amended to date, to Buyer.
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3.2 SELLER'S CAPITAL STRUCTURE.
(a) The authorized capital stock of Seller consists of
20,000,000 shares, all of which are designated as Common Stock. Seller's
Common Stock is held by the persons and in the amounts set forth on
Schedule 3.2(a). All outstanding shares of Seller's Common Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject
to preemptive rights created by statute, the Articles of Incorporation or
By-laws of Seller or any agreement to which Seller is a party or by which
it is bound.
(b) As of Closing, Seller shall have reserved * * * shares of
Seller's Common Stock for issuance pursuant to Seller Options and Seller
Warrants. Schedule 3.2(b) sets forth for each outstanding Seller Option the name
of the holder of such option, the number of shares of Seller Common Stock
subject to such option, the exercise price of such option and the vesting
schedule for such option. Schedule 3.2(b) also sets forth for each outstanding
Seller Warrant the name of the holder of such Seller Warrant, the number of
shares of Seller Common Stock subject to such Seller Warrant, the exercise price
of such Seller Warrant and the expiration date of such Seller Warrant. Except
for Seller Options and Seller Warrants described in Schedule 3.2(b), there are
no options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which Seller is a party or by which it is bound obligating
Seller to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Seller or obligating Seller to grant, extend, accelerate the vesting of, change
the price of, otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement.
(c) All outstanding securities of Seller have been issued in
substantial compliance with applicable securities laws pursuant to exemptions
from the registration requirements of the Securities Act of 1933 and applicable
state securities laws. No holder of any outstanding security of Seller has any
rescission right with respect thereto under applicable securities laws.
3.3 SUBSIDIARIES. Seller has one subsidiary, Cronus Communications,
Inc., an Illinois corporation ("Subsidiary") and one division, Cronus Solutions,
and does not have and
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has never had any other subsidiaries or affiliated companies and does not
otherwise own and has never otherwise owned any shares of capital stock or any
interest in (other than stock or other interest in a public Company not
exceeding a 1% interest), or control, directly or indirectly, any other
corporation, partnership, limited liability Company, association, joint venture
or other business entity. Subsidiary is owned 92% by Seller and 8% by William
Dawson. At Closing, Subsidiary will be owned 100% by Seller.
3.4 AUTHORITY. Seller has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Seller, and all of its Stockholders. Seller's
Board of Directors has approved the sale of assets and this Agreement. Each of
this Agreement and each other document executed by Seller in connection with
this Agreement and the sale of assets has been or at the time of execution will
be duly executed and delivered by Seller and constitutes or will constitute the
valid and binding obligation of Seller, enforceable in accordance with its terms
except as such enforceability may be subject to the laws of general application
relating to bankruptcy, insolvency, and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
Except as set forth on Schedule 3.4, the execution and performance of this
Agreement and the consummation of the transactions contemplated hereby will not,
with or without the giving of due notice or the lapse of time or both: (a)
violate, conflict with, or result in a breach or default under any provision of
the Certificate of Incorporation or By-Laws of Seller; (b) violate any statute,
ordinance, rule, regulation, order, judgment or decree of any court or any
governmental or regulatory body, agency or authority applicable to Seller or the
Cronus Business or by which the properties or assets of Seller or the Cronus
Business may be bound; (c) require any filing by Seller or require Seller to
obtain any permit, consent or approval of, or require Seller to give any notice
to, any governmental or regulatory body, agency or authority; or (d) result in a
violation or breach by Seller or, constitute (with or without due notice or
lapse of time or both) a default by Seller (or give rise to any right on the
part of another party of termination or cancellation) under, or result in the
creation of any Encumbrance upon any of the Purchased Assets under, any of the
terms, conditions or provisions of any license, agreement, lease or other
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instrument or obligation to which Seller is a party, or by which Seller or the
Purchased Assets or the Cronus Business may be bound excluding from the
foregoing clauses (b), (c) and (d) filings, notices, permits, consents and
approvals the absence of which, and violations, breaches, defaults, conflicts
and Encumbrances which, individually or in the aggregate, (i) are not reasonably
likely to have a material adverse effect on the Condition of the Cronus Business
and (ii) would not have a material adverse effect on Seller's ability to perform
the agreements and obligations contemplated by this Agreement.
3.5 SELLER FINANCIAL STATEMENTS. (a) Seller has heretofore furnished
Buyer with audited balance sheets in respect of the Cronus Business for the two
years ended December 31, 1996 and December 31, 1997 and unaudited balance sheets
in respect of the Cronus Business for the two years ended December 31, 1998 and
December 31, 1999 and the related audited and unaudited income statements for
the years then ended, which in each case are subject to the footnotes stated
therein and do not reflect intracorporate charges. The unaudited balance sheet
in respect of the Business as at December 31, 1999 is hereinafter referred to as
the "Balance Sheet" and December 31, 1999 is hereinafter referred to as the
"Balance Sheet Date" copies of which are attached hereto as Exhibit A. Such
financial statements have been prepared from the books and records of Seller and
on a consistent basis for each of the periods presented in all material
respects.
(b) To the Knowledge of Seller, since the Balance Sheet Date, except
as set forth on Schedule 3.5(b), (i) there has been no material adverse change
in the Condition of the Cronus Business, (ii) the Cronus Business has, in all
material respects, been conducted in the ordinary course of business consistent
with past practice, (iii) there has not been any material obligation or
liability (contingent or otherwise) incurred by Seller with respect to the
Cronus Business other than obligations and liabilities incurred in the ordinary
course of business, (iv) there has not been any purchase, sale or other
disposition, or any agreement or other arrangement, oral or written, for the
purchase, sale or other disposition, of any properties or assets having a value
in excess of $5,000 in any case other than in the ordinary course of business,
and (v) none of the assets of Seller have been used to reduce liabilities which
are not being assumed by Buyer.
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3.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 3.6 or
set forth on the Balance Sheet, Seller does not have any liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, in excess of $5,000 individually or $10,000 in the aggregate, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles).
3.7 NO CHANGES. Except as set forth in Schedule 3.7, since December
31, 1999, there has not been, occurred or arisen any:
(a) material transaction by Seller except in the ordinary
course of business as conducted on that date;
(b) capital expenditure or commitment by Seller, in excess of
$5,000.00 individually or $10,000.00 in the aggregate;
(c) destruction of, damage to or loss of any material assets,
business or customer of Seller (whether or not covered by insurance);
(d) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Seller;
(f) revaluation by Seller of any of its assets;
(g) declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of Seller, or any direct or
indirect redemption, purchase or other acquisition by Seller of any of its
capital stock;
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(h) increase in the salary or other compensation payable or to
become payable by Seller to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by Seller, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement other than normal course of business salary increases in connection
with ongoing yearly reviews or promotions (none of which exceeds 10% of the
previous year's salary);
(i) acquisition, sale or transfer of any material asset of
Seller, except in the ordinary course of business as conducted on that date;
(j) amendment or termination of any material contract,
agreement or license to which Seller is a party or by which it is bound;
(k) loan by Seller to any person or entity (other than (i)
loans to all employees aggregating to no more than $5,000 and (ii) expense
advances to employees, all of which are immaterial in any amount and are issued
in the normal course of business), incurring by Seller of any material
indebtedness, guaranteeing by Seller of any material indebtedness, issuance or
sale of any debt securities of Seller or guaranteeing of any debt securities of
others;
(l) waiver or release of any material right or claim of Seller,
including any write-off or other compromise of any account receivable of Seller
in excess of $5,000;
(m) the commencement or notice or, to the knowledge of Seller,
threat of commencement of any lawsuit or proceeding against or investigation of
Seller or its affairs;
(n) notice of any claim of ownership by a third party of
Seller's Intellectual Property (as defined in Section 3.11 below) or of
infringement by Seller of any third party's Intellectual Property rights;
(o) issuance or sale by Seller of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefore, or of
any other of its securities other than those disclosed on Schedule 3.7(o);
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(p) change in pricing or royalties set or charged by Seller;
(q) any event or condition of any character that has or could
be reasonably expected to have a Material Adverse Effect on Seller; or
(r) agreement, oral or written, by Seller or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (q) (other than agreements with Buyer and its representatives regarding
the transactions contemplated by this Agreement).
3.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
"TAX" or, collectively, "TAXES," shall have the meaning set forth in Article 1
hereof.
(b) TAX RETURNS AND AUDITS. Except as set forth in Schedule
3.8:
(i) Seller as of the Closing Date will have prepared and
filed all required federal, state, local and foreign
returns, estimates, information statements and reports
("RETURNS") relating to any and all Taxes concerning or
attributable to Seller or its operations and such Returns
will be true and correct in all material respects and will
have been completed in accordance with applicable law in
all material respects.
(ii) Seller as of the Closing Date: (A) will have paid or
accrued all material Taxes it is required to pay or accrue
and (B) will have withheld with respect to its employees
all federal and state income taxes, FICA, FUTA and other
Taxes required to be withheld.
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(iii) Seller has not been adjudicated delinquent by any Tax
Authority in the payment of any Tax nor is there any Tax
deficiency outstanding, proposed or assessed against
Seller, nor has Seller executed any waiver of any statute
of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) No audit or other examination of any Return of Seller
is presently in progress, nor has Seller been notified of
any request for such an audit or other examination.
(v) Seller does not have any material liabilities for
unpaid federal, state, local and foreign Taxes which have
not been accrued or reserved against on the current Balance
Sheet, whether asserted or unasserted, contingent or
otherwise, and Seller has no knowledge of any basis for the
assertion of any such liability attributable to Seller, its
assets or operations.
(vi) Seller has provided to Buyer copies of all federal and
state income and all state sales and use Tax Returns filed
for fiscal years 1996, 1997, and 1998.
(vii) There are (and as of immediately following the
Closing there will be) no material liens, pledges, charges,
claims, security interests or other encumbrances of any
sort ("LIENS") on the assets of Seller relating to or
attributable to Taxes.
(viii) Seller has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes
which, if adversely determined, would result in any Lien on
the assets of Seller.
(ix) None of Seller's assets are treated as "tax exempt
use property" within the meaning of Section 168(h) of the
Code.
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(x) As of the Closing Date, Seller will not be a party to
any contract, agreement, plan or arrangement, including but
not limited to the provisions of this Agreement, covering
any employee or former employee of Seller that could
obligate Seller to pay any amount that would not be
deductible pursuant to Section 280G of the Code.
(xi) Seller has not filed any consent agreement under
Section 341(f) of the Code nor agreed to have Section 341
(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code)
owned by Seller.
(xii) Seller is not a party to a tax sharing or allocation
agreement nor does Seller owe any amount under any such
agreement.
(xiii) Seller is not, and has not been at any time, a
"United States real property holding corporation" within
the meaning of Section 897(c)(2) of the Code.
(xiv) Seller's tax basis in its assets for purposes of
determining its future amortization, depreciation and other
federal income tax deductions is accurately reflected on
Seller's tax books and records in all material respects.
3.9 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on
Schedule 3.9, there is no agreement (noncompete or otherwise), commitment,
judgment, injunction, order or decree to which Seller is a party or otherwise
binding upon Seller which has or reasonably could be expected to have the effect
of materially impairing or prohibiting any lawful business practice of Seller,
any acquisition of property (tangible or intangible) by Seller or the conduct of
business by Seller as presently conducted.
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3.10 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION
OF EQUIPMENT.
(a) Seller owns no real property, nor has it ever owned any
real property. Schedule 3.10(a) sets forth a list of all real property
currently, or at any time in the past three years, leased by Seller, the name of
the lessor, the date of the lease and each amendment thereto and, with respect
to any current lease, the aggregate annual rental and/or other fees payable
under any such lease. All such current leases being assumed by Buyer are in full
force and effect, are valid and effective in accordance with their respective
terms, and there is not with respect to Seller, or to the knowledge of Seller,
any other party to such leases any existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a default)
under such leases that would result in any material monetary damage to Seller or
materially interfere with the present use of the property subject to such lease.
(b) Seller has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the Balance Sheet
or in Schedule 3.10(b) and except for liens for taxes not yet due and payable
and such imperfections of title and encumbrances, if any, which are not material
in character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use, of the property subject
thereto or affected thereby.
(c) Except as described in Schedule 3.10(c), the equipment (the
"Equipment") owned or leased by Seller is, taken as a whole, (i) adequate for
the conduct of the business of Seller as currently conducted and (ii) in good
operating condition, regularly and properly maintained, subject to normal wear
and tear.
3.11 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following
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and all rights in, arising out of, or associated therewith: (i) all United
States, international and foreign patents and applications therefore and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyright registrations
and applications therefore and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefore throughout the world; (v) all trade names, logos, common law
trademarks and service marks; trademark and service mark registrations and
applications therefore throughout the world; (vi) all databases and data
collections and all rights therein throughout the world; (vii) all moral and
economic rights of authors and inventors, however denominated, throughout the
world, and (viii) any similar or equivalent rights to any of the foregoing
anywhere in the world.
"SELLER INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, Seller.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; and (iv) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued, filed with, or recorded by any state, government or other public legal
authority.
"SELLER REGISTERED INTELLECTUAL PROPERTY" means all of the
Registered Intellectual Property owned by, or filed in the name of, Seller.
(a) Except as set forth in Schedule 3.11, no material Seller
Intellectual Property or Seller Registered Intellectual Property or product or
service of Seller is subject to any proceeding or outstanding decree, order,
judgment, agreement, or stipulation
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restricting in any manner the use, transfer, or licensing thereof by Seller, or
which may affect the validity, use or enforceability of such Seller Intellectual
Property.
(b) All necessary registration, maintenance and renewal fees
currently due in connection with Seller Registered Intellectual Property have
been paid and all necessary documents, recordation's and certificates in
connection with such Registered Intellectual Property have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property, except for such failures to pay and file
as will not have a Material Adverse Effect.
(c) Seller owns and has good and exclusive title to, or has
license (sufficient for the conduct of its business as currently conducted and
as proposed to be conducted) to, each material item of Seller Intellectual
Property free and clear of any lien or encumbrance (excluding licenses and
related restrictions); and Seller is the exclusive owner of all trademarks and
trade names used in connection with the operation or conduct of the business of
Seller, including the sale of any products or the provision of any services by
Seller, except for such failures of title as will not have a Material Adverse
Effect.
(d) Seller owns exclusively, and has good title to, all
copyrighted works that are Seller products or which Seller otherwise expressly
purports to own, except for such failures of title as will not have a Material
Adverse Effect.
(e) To the extent that any material Intellectual Property has
been developed or created by a third party for Seller, Seller has a written
agreement with such third party with respect thereto and Seller thereby either
(i) has obtained ownership of, and is the exclusive owner of or (ii) has
obtained a license (sufficient for the conduct of its business as currently
conducted and as proposed to be conducted) to all such third party's
Intellectual Property in such Intellectual Property by operation of law or by
valid assignment.
(f) Except as set forth in Schedule 3.11(f), Seller has not
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transferred ownership of or granted any exclusive distribution rights or
exclusive license with respect to, any Intellectual Property that is or was
Seller Intellectual Property, to any third party.
(g) Sellers Schedules list all material contracts, licenses and
agreements to which Seller is a party (i) with respect to Seller Intellectual
Property licensed or transferred to any third party (other than end-user
licenses in the ordinary course); or (ii) pursuant to which a third party has
licensed or transferred any Intellectual Property to Seller.
(h) All material contracts, licenses and agreements relating to
Seller Intellectual Property are in full force and effect. Seller is in material
compliance with, and has not materially breached any term any of such contracts,
licenses and agreements and, to the knowledge of Seller, all other parties to
such contracts, licenses and agreements are in compliance with, and have not
materially breached any term of such contracts, licenses and agreements. Except
as set forth in Schedule 3.4 or 3.11, following the Closing Date, the Buyer will
be permitted to exercise all of Seller's rights under such contracts, licenses
and agreements to the same extent Seller would have been able to had the
transactions contemplated by this Agreement not occurred and without the payment
of any additional amounts or consideration other than ongoing fees, royalties or
payments which Seller would otherwise be required to pay
(i) The operation of the Business of Seller as such business
currently is conducted, including Seller's design, development, manufacture,
marketing and sale of the products or services of Seller (including with respect
to products currently under development) has not, does not and will not infringe
or misappropriate the Intellectual Property of any third party (provided that
with respect to patent rights, such representation is limited to Seller's
knowledge), except for any infringement or misappropriation that will not have a
Material Adverse Effect or, to its knowledge, constitute unfair competition or
trade practices under the laws of any jurisdiction.
(j) Seller has not received notice from any third party that
the
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operation of the business of Seller or any act, product or service of Seller,
infringes or misappropriates the Intellectual Property of any third party or
constitutes unfair competition or trade practices under the laws of any
jurisdiction.
(k) Except as set forth in Schedule 3.11(k), to the Knowledge
of Seller, no Person has or is infringing or misappropriating any Seller
Intellectual Property.
(l) Seller has taken reasonable steps to protect Seller's
rights in Seller's confidential information and trade secrets that it wishes to
protect or any trade secrets or confidential information of third parties
provided to Seller.
(m) YEAR 2000. To the knowledge of Seller, Seller's computer
software, hardware, databases and/or embedded control systems (collectively, a
"System") are and will continue to be Year 2000 Compliant. As used herein, "YEAR
2000 COMPLIANT" means that each System (i) is designed (or has been modified) to
be used prior to, on and after January 1, 2000, (ii) operate without error
arising from the creation, recognition, acceptance, calculation, display,
storage, retrieval, accessing, comparison, sorting, manipulation, processing or
other use of dates or date-based, date-dependent or date-related data,
including, but not limited to, century recognition, day-of-the-week recognition,
leap years, date values and interfaces of date functionalities; and (iii) are
not adversely affected by the advent of the year 2000, the advent of the
twenty-first century or the transition from the twentieth century through the
year 2000 and into the twenty-first century. Seller has no reason to believe
that the operation of Seller's business as currently operated will result in the
incurrence of material expenses arising from or relating to the failure of any
of its Systems to be Year 2000 Compliant. To the Knowledge of Seller, all goods
and services utilizing computer software and related systems that Seller
receives from third parties are Year 2000 Compliant.
3.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 3.12(a), Seller does not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements,
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(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or
obligations,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit
plans or arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or
salesperson or consulting or sales agreement, contract or
commitment with a firm or other organization,
(v) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or
stock purchase plan, any of the benefits of which will be
increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
individually in excess of $5,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of Seller to engage in any
line of business or to compete with any person,
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(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in
excess of $5,000,
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of material assets or any
interest in any business enterprise outside the ordinary
course of Seller's business,
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or
instruments relating to the borrowing of money or extension
of credit, including guaranties referred to in clause
(viii) hereof,
(xiii) any purchase order or contract for the purchase of
raw materials involving $10,000 or more other than
purchases in the ordinary course of business,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development
agreement, or
(xvi) any other agreement, contract or commitment that
involves $5,000 or more and is not cancelable without
penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events
that would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, all as noted in Schedule 3.12(b), Seller has not
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment to which it is a party or by which it is bound and which
are required to be set forth in Schedule 3.12(a) (any such agreement, contract
or commitment, a "CONTRACT") except for breaches, violations or defaults that
will not have a Material Adverse
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Effect. Each agreement, contract or commitment set forth in any of Seller
Schedules is in full force and effect and, except as otherwise disclosed in
Schedule 3.12(b), is not subject to any default thereunder of which Seller has
knowledge by any party obligated to Seller pursuant thereto.
3.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule
3.13, to the knowledge of Seller, no director, officer or stockholder of Seller
(nor to the knowledge of Seller any ancestor, sibling, descendant or spouse of
any of such persons, or any trust, partnership or corporation in which any of
such persons has an interest), has, directly or indirectly, (i) a direct
interest in any entity which finished or sold, or finishes or sells, services or
products that Seller finishes or sells, or proposes to finish or sell, or (ii) a
direct interest in any entity that purchases from or sells or finishes to,
Seller, any goods or services or (iii) a beneficial interest in any contract or
agreement set forth in Schedule 3.12(a); PROVIDED, that ownership of no more
than one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "interest in any entity" for purposes of this
Section 3.13.
3.14 GOVERNMENTAL AUTHORIZATION. Schedule 3.14 accurately lists each
material consent, license, permit, grant or other authorization issued to Seller
by a governmental entity (i) pursuant to which Seller currently operates or
holds any interest in any of its properties or (ii) which is required for the
operation of its business or the holding of any such interest (herein
collectively called "SELLER AUTHORIZATIONS"), which Seller Authorizations are in
full force and effect and constitute all Seller Authorizations required to
permit Seller to operate or conduct its business substantially as it is
currently and has been conducted or hold any interest in its properties or
assets.
3.15 LITIGATION. Except as set forth in Schedule 3.15, there is no
action, suit, claim or proceeding of any nature pending or, to the knowledge of
Seller, threatened against Seller, its properties or any of its officers or
directors in their capacity as such, nor, to the knowledge of Seller, is there
any basis therefore. Except as set forth in Schedule 3.15, there is no
investigation pending or to the knowledge of Seller, threatened against Seller,
its properties or any of its officers or directors (nor, to the Knowledge of
Seller, is there any basis therefore) by or before
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any governmental entity. Schedule 3.15 sets forth, with respect to any pending
or threatened action, suit, proceeding or investigation, the forum, the parties
thereto, the subject matter thereof and the amount of damages claimed or other
remedy requested. Except as set forth in Schedule 3.15, no governmental entity
has at any time challenged or questioned the legal right of Seller to
manufacture, offer or sell any of its products in the present manner or style
thereof. Neither Seller nor any of the Purchased Assets is subject to any
material order, writ, injunction, judgment or decree of any court or other
governmental agency or authority.
3.16 ACCOUNTS RECEIVABLE. Schedule 3.16 lists Seller's Accounts
Receivable as at February 29, 2000; including an aging report. All of such
accounts receivable except for reserves noted on Schedule 3.16 are collectible
within thirty days except as noted on Schedule 3.16.
3.17 MINUTE BOOKS. The minutes of corporate proceedings and consents of
Seller and Subsidiary made available to counsel for Buyer are the only minute
books of Seller and Subsidiaries and contain a reasonably accurate summary of
the meetings of directors (or committees thereof) referred to therein.
3.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. No underground storage tanks and no
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws, (a
"HAZARDOUS MATERIAL"), but excluding office and janitorial supplies or similar
items, are present in any material quantities, as a result of the deliberate
actions of Seller, or, to Seller's knowledge, as a result of any actions of any
third party or otherwise, in, on or under any property, including the
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land and the improvements, ground water and surface water thereof, that Seller
has at any time owned, operated, occupied or leased, except for such presence as
will not have a Material Adverse Effect.
(b) HAZARDOUS MATERIALS ACTIVITIES. Seller has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has Seller disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (collectively "HAZARDOUS MATERIALS
ACTIVITIES") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity, except for such Hazardous Material Activity as would not have a
Material Adverse Effect.
(c) PERMITS. Seller currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of Seller's Hazardous Material Activities
and other businesses of Seller as such activities and businesses are currently
being conducted.
(d) ENVIRONMENTAL LIABILITIES. No material action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to Seller's knowledge, threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of Seller. Seller
is not aware of any fact or circumstance which could involve Seller in any
material environmental litigation or impose upon Seller any material
environmental liability.
(e) CAPITAL EXPENDITURES. Seller is not aware of any material
capital expenditures which are required in order for it to comply with
Environmental Laws.
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3.19 BROKERS' AND FINDERS' FEES. Seller has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.20 EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS. For purposes of this Section 3.20 of the
Agreement, the following terms shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under
common control with Seller within the meaning of Section
414(b), (c) or (m) of the Code and the regulations
thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "SELLER EMPLOYEE PLAN" shall refer to any plan,
program, policy, practice, contract, agreement or other
arrangement providing for compensation, severance,
termination pay, performance awards, stock or stock-
related awards, fringe benefits or other employee benefits
or remuneration of any kind, whether formal or informal,
funded or unfunded and whether or not legally binding,
including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has
been maintained, contributed to, or required to be
contributed to, by Seller or any Affiliate for the benefit
of any "Employee" (as defined below), and pursuant to which
Seller or any Affiliate has or may have any material
liability contingent or otherwise;
(iv) "EMPLOYEE" shall mean any current, former, or retired
employee, officer, or director of Seller or any Affiliate;
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(v) "EMPLOYEE AGREEMENT" shall refer to each management,
employment, severance, consulting or similar agreement or
contract between Seller or any Affiliate and any Employee;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "PENSION PLAN"
(as defined below) which is a "multiemployer plan," as
defined in Section 3(37) of ERISA; and
(viii) "PENSION PLAN" shall refer to each Seller Employee
Plan which is an "employee pension benefit plan," within
the meaning of Section 3(2) of ERISA.
(b) SCHEDULE. Schedule 3.20(b) contains an accurate and
complete list of each Seller Employee Plan and each Employee Agreement. Seller
does not have any plan or commitment, whether legally binding or not, to
establish any new Seller Employee Plan or Employee Agreement, to modify any
Seller Employee Plan or Employee Agreement (except to the extent required by law
or to conform any such Seller Employee Plan or Employee Agreement to the
requirements of any applicable law, in each case as previously disclosed to
Buyer in writing, or as required by this Agreement), or to enter into any Seller
Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) DOCUMENTS. Prior to Closing, Seller has provided to Buyer
where available or applicable (i) correct and complete copies of all documents
embodying or relating to each Seller Employee Plan and each Employee Agreement
including all amendments thereto and written interpretations thereof and (ii)
all communications material to any Employee or Employees relating to any Seller
Employee Plan and any proposed Seller Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to Seller.
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(d) EMPLOYEE PLAN COMPLIANCE. (i) Seller has performed in all
material respects all obligations required to be performed by it under each
Seller Employee Plan and each Seller Employee Plan has been established and
maintained in all material respects in accordance with its terms and in material
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred with respect to any Seller Employee Plan; (iii) there are no
actions, suits or claims pending, or, to the knowledge of Seller, threatened or
anticipated (other than routine claims for benefits) against any Seller Employee
Plan or against the assets of any Seller Employee Plan; (iv) except as described
in Schedule 2.30(d), each Seller Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to Seller, Buyer or any of its Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (v) there
are no inquiries or proceedings pending or, to the knowledge of Seller or any
affiliates, threatened by the IRS or the U.S. Department of Labor with respect
to any Seller Employee Plan; and (vi) neither Seller nor any Affiliate is
subject to any penalty or tax with respect to any Seller Employee Plan under
Section 402(i) of ERISA or Section 4975 through 4980 of the Code.
e) PENSION PLANS. Seller does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has Seller contributed to
or been requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. No Seller Employee Plan
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any Employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute, and Seller has
never represented, promised or contracted (whether in oral or written form) to
any Employee (either individually or to
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Employees as a group) that such Employee(s) would be provided with life
insurance, medical or other employee welfare benefits upon their retirement or
termination of employment, except to the extent required by statute.
(h) EFFECT OF TRANSACTION.
(i) The execution of this Agreement and the consummation of
the transactions contemplated hereby will not (either alone
or upon the occurrence of any additional or subsequent
events) constitute an event under any Seller Employee Plan,
Employee Agreement, trust or loan that will or may result
in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund
benefits with respect to any employee, except to the extent
it accelerates employee's rights to nonqualified options
granted to them by Seller.
(ii) No payment or benefit which will or may be made by
Seller or any of its affiliates with respect to any
Employee will be characterized as an "excess parachute
payment," within the meaning of Section 280G(b)(1) of the
Code.
(i) EMPLOYMENT MATTERS. Seller (i) is in compliance in all
material respects with all applicable federal, state and local Laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees; (iii) is not liable for any
material arrears of wages (except for those disclosed to Buyer in connection
with certain employees of Seller, and not being assumed by Buyer), or any taxes
or any penalty for failure to comply with any of the foregoing; and (iv) (other
than routine payments to be made in the normal course of business and consistent
with past practice) is not liable for any material payment to any trust or other
fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits for
Employees.
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(j) LABOR. No work stoppage or labor strike against Seller is
pending or, to the knowledge of Seller, threatened. Seller is not involved in
or, to the knowledge of Seller, threatened with, any labor dispute, grievance,
or litigation relating to labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in material liability to Seller. Neither Seller nor
any of its subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly result in a material liability to Seller.
Seller is not presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement or union contract with respect to Employees
and no collective bargaining agreement is being negotiated by Seller.
3.21 COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.21 hereto,
to the knowledge of Seller, Seller is in compliance with all applicable Federal,
state, municipal, and other political subdivision or governmental agency
statutes, ordinances, regulations, orders, judgments and decrees relating to the
Cronus Business or the Purchased Assets, except where the failure to so comply
is not reasonably likely, individually or in the aggregate, to have a material
adverse effect on the Condition of the Cronus Business.
3.22 WARRANTIES; INDEMNITIES. Schedule 3.22 indicates all warranty and
indemnity claims in excess of $5,000 made against Seller since January 1, 1998.
3.23 SOFTWARE DEVELOPMENT AGREEMENTS. Seller has not violated, is not
in violation of, nor would the entry into this Agreement or consummation of the
transaction contemplated hereby, cause any violation of, any terms or provisions
of any agreement under which Seller has or had an obligation to develop, supply
or distribute software to or for any third party, excluding end-user licenses
for object code executed in the ordinary course of business, nor is Seller nor
would Seller be, under any circumstances, under any obligation to deliver source
code to any third party, except delivery of source code to a third party
exclusively for the internal use of such third party to support, maintain and
develop its software products, which
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products are (i) used only for programming of such third party's hardware
products and (ii) distributed only to such third party's customers only in
object code format. In any such case after delivery of such source code Seller
does not have nor would it have under any circumstances, any other obligation of
any nature to any such third party, including without limitation any support or
similar obligation.
3.24 INSURANCE. Schedule 3.24 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which Seller has been a party, a named insured, or otherwise
the beneficiary of coverage at any time within the past three (3) years:
(a) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(b) the policy number and the period of coverage;
(c) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) neither Seller nor any other party to the policy is in material
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a material breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) no party to the policy
has repudiated any provision thereof. Schedule 3.24(e) describes any
self-insurance arrangements affecting Seller.
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3.25 BANK ACCOUNTS. Schedule 3.25 contains a true, correct and complete
list as of the date hereof of all banks, trust companies, savings and loan
associations and brokerage firms in which Seller has an account or safe deposit
box and the names of all persons authorized by Seller to draw thereon or have
access thereto.
3.26 MATERIALITY. The matters and items excluded from the
representations and warranties set forth in this Article by operation of the
materiality exceptions and materiality qualifications contained in such
representations and warranties, in the aggregate for all such excluded matters
and items, are not and could not reasonably be expected to have a Material
Adverse Effect.
3.27 DISCLOSURE. None of the representations or warranties of Seller
and the Principal Stockholders contained herein, none of the information
contained in the Schedules referred to in this Article III, and none of the
other information or documents furnished or to be furnished to Buyer by Seller
pursuant to the terms of this Agreement, is false or misleading in any material
respect or omits to state a fact herein or therein necessary to make the
statements herein or therein not misleading in any material respect.
3.28 CONSENTS. Seller shall use its commercially reasonable efforts to
obtain the consents, waivers and approvals under any of the Contracts as may be
required in connection with the acquisition of purchased assets (all of such
consents and approvals are set forth in Schedule 3.4) so as to preserve all
rights of, and benefits to, Seller thereunder.
3.29 ACKNOWLEDGEMENT. Each of the Seller's Stockholders has
acknowledged to Buyer that such Seller Stockholder and his representatives and
advisors has had the opportunity to ask questions of and receive answers from
Buyer and its representatives to the extent that such Seller Stockholder and his
representatives and advisors have deemed necessary and appropriate relating to
all Buyers publicly filed written documentation provided by Buyer, for the
purpose of evaluating Buyer, the sale of Purchased Assets to Buyer and the other
transactions contemplated by this Agreement and the agreements contemplated
hereby. Each of the Seller Stockholders has also acknowledged that in entering
into this Agreement and in
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performing his obligations hereunder, such Seller Stockholder has relied solely
upon his own due diligence, his knowledge of the industry in which the business
of Seller and Buyer is conducted and the representations and warranties of Buyer
and Seller expressly set forth in this Agreement, and not upon any other
representations, warranties or statements of any kind.
ARTICLE IIIB
LIMITED REPRESENTATIONS AND WARRANTIES OF THE SIGNIFICANT
MINORITY STOCKHOLDER
THE SIGNIFICANT MINORITY STOCKHOLDER IS NOT A PARTY TO AND MAKES NO
REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE WHATSOEVER EXCEPT AS EXPRESSLY
SET FORTH IN THE ARTICLE IIIB, IT BEING ACKNOWLEDGED THAT SIGNIFICANT MINORITY
STOCKHOLDER IS A PRINCIPAL CREDITOR OF THE SELLER AND NOT A PART OF MANAGEMENT
OF THE SELLER.
Significant Minority Stockholder represents and warrants to Buyer as of
the date hereof, subject to such exceptions as are specifically disclosed in the
disclosure schedules supplied by Seller to Buyer (the "Seller Schedules" or
"Disclosure Schedules") and dated as of the date hereof, as follows:
3B.1 AUTHORITY. To Significant Minority Stockholder's Knowledge: Seller
has all requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby. The execution and deliver of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Seller,
and all of its Stockholders. Seller's Board of Directors has approved the sale
of assets and this Agreement. Each of this Agreement and each other document
executed by Seller in connection with this Agreement and the sale of assets has
been or at the time of execution will be duly executed and delivered by Seller
and constitutes or
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will constitute the valid and binding obligation of Seller, enforceable in
accordance with its terms except as such enforceability may be subject to the
laws of general application relating to bankruptcy, insolvency, and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies. Except as set forth on Schedule 3.4, the execution and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not, with or without the giving of due notice or the
lapse or time or both: (a) violate, conflict with, or result in a breach or
default under any provision of the Certificate of Incorporation or By-Laws of
Seller; (b) violate any statute, ordinance, rule, regulation, order, judgment or
decree of any court or any governmental or regulatory body, agency or authority
applicable to Seller or the Cronus Business or by which the properties or assets
of Seller or the Cronus Business may be bound; (c) require any filing by Seller
or require Seller to obtain any permit, consent or approval of, or require
Seller to give any notice to, any governmental or regulatory body, agency or
authority; or (d) result in a violation or breach by Seller or, constitute (with
or without due notice or lapse of time or both) a default by Seller (or give
rise to any right on the part of another party of termination or
cancellation)under, or result in the creation of any Encumbrance upon any of the
Purchased Assets under, any of the terms, conditions or provisions of any
license, agreement, lease or other instrument or obligation to which Seller is a
party, or by which Seller or the Purchased Assets or the Cronus Business may be
bound excluding from the foregoing clauses (b), (c) and (d) filings, notices,
permits, consents and approvals the absence of which any violations, breaches,
defaults, conflicts and Encumbrances which, individually or in the aggregate,
(i) are not reasonably likely to have a material adverse effect on the Condition
of the Cronus Business and (ii) would not have a material adverse effect on
Seller's ability to perform the agreements and obligations contemplated by this
Agreement.
3B.2 SELLER FINANCIAL STATEMENTS. (a) Seller has heretofore furnished
Buyer with audited balance sheets in respect of the Cronus Business for the two
years ended December 31, 1996 and December 31, 1997 and unaudited balance sheets
in respect of the Cronus Business for the two years ended December 31, 1998 and
December 31, 1999 and the related audited and unaudited income statements for
the years then ended, which in each case are subject to the footnotes stated
therein and do not reflect intracorporate charges (the unaudited
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balance sheet in respect of the Business as at December 31, 1999 is hereinafter
referred to as the "Balance Sheet" and December 31, 1999 is hereinafter referred
to as the "Balance Sheet Date") copies of which are attached hereto as Exhibit
A.
(b) To the Knowledge of Significant Minority Stockholder, since the
Balance Sheet Date, except as set forth on Schedule 3.5(b), (i) there has been
no material adverse change in the Condition of the Cronus Business, (ii) the
Cronus Business has, in all material respects, been conducted in the ordinary
course of business consistent with past practice, (iii) there has not been any
material obligation or liability(contingent or otherwise) incurred by Seller
with respect to the Cronus Business other than obligations and liabilities
incurred in the ordinary course of business and (iv) there has not been any
purchase, sale or other disposition, or any agreement or other arrangement, oral
or written, for the purchase, sale or other disposition, of any properties or
assets having a value in excess of $5,000 in any case other than in the ordinary
course of business and (v) none of the assets of Seller have been used to reduce
liabilities which are not being assumed by Buyer.
3B.3 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 3.6 or
set forth on the Balance Sheet to the Knowledge of the Significant Minority
Stockholder, Seller does not have any liability, indebtedness, obligation,
expense, claim, deficiency, guaranty or endorsement of any type, in excess of
$5,000 individually or $10,000 in the aggregate, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with generally accepted accounting
principles).
3B.4 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule
3.13, to the Knowledge of the Significant Minority Stockholder, no director,
officer or stockholder of Seller (nor to the Knowledge of Significant Minority
Stockholder, any ancestor, sibling, descendant or spouse of any of such persons,
or any trust, partnership or corporation in which any of such persons has an
interest), has, directly or indirectly, (i) a direct interest in any entity
which finished or sold, or finishes or sells, services or products that Seller
finishes or sells, or proposes to finish or sell, or (ii) a direct interest in
any entity that purchases form or sells or finishes to, Seller, any goods or
services or (iii) a beneficial interest in any contract or agreement
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set forth in Schedule 3.12(a); PROVIDED, that ownership of no more than one
percent (1%) of the outstanding voting stock of a publicly traded corporation
shall not be deemed an "interest in any entity" for purposes of this Section
3.13.
3B.5 LITIGATION. Except as set forth in Schedule 3.15, to the Knowledge
of Significant Minority Stockholder, there is no action, suit, claim or
proceeding of any nature pending or, to the Knowledge of Seller, threatened
against Seller, its properties or any of its officers or directors in their
capacity as such, nor, to the Knowledge of Significant Minority Stockholder, is
there any basis therefore. Except as set forth in Schedule 3.15, there is no
investigation pending or to the Knowledge of Significant Minority Stockholder,
threatened against Seller, its properties or any of its officers or directors
(nor, to the Knowledge of Significant Minority Stockholder, is there any basis
therefore) by or before any governmental entity. Schedule 3.15 sets forth, with
respect to any pending or threatened action, suit, proceeding or investigation,
the forum, the parties thereto, the subject matter thereof and the amount of
damages claimed or other remedy requested. Except as set forth in Schedule 3.15.
no governmental entity has at any time challenged or questioned the legal right
of Seller to manufacture, offer or sell any of its products in the present
manner or style thereof. neither Seller nor any of the Purchased Assets is
subject to any material order, writ, injunction, judgment or decree of any court
or other governmental agency or authority.
3B.6 COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.21 hereto,
to the Knowledge of Significant Minority Stockholder, Seller is in compliance
with all applicable Federal, state, municipal, and other political subdivision
or governmental agency statues, ordinances, regulations, orders, judgments and
decrees relating to the Cronus Business or the Purchased Assets, except where
the failure to so comply is not reasonably likely, individually or in the
aggregate, to have a material adverse effect on the Condition of the Cronus
Business.
3B.7 MATERIALITY. The matters and items excluded from the
representations and warranties set forth in this Article III B by operation of
the materiality exceptions and materiality qualifications contained in such
representations and warranties, in the aggregate for all such
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excluded matters and items, are not and could not reasonably be expected to have
a Material Adverse Effect.
3B.8 DISCLOSURE. To the Knowledge of Significant Minority Stockholder,
none of the representations or warranties of Seller and the Principal
Stockholders contained herein, none of the information contained in the
Schedules referred to in Article III, and none of the other information or
documents furnished or to be furnished to Buyer by Seller pursuant to the terms
of this Agreement, is false or misleading in any material respect or omits to
state a fact herein or therein necessary to make the statements herein or
therein not misleading in any material respect.
3B.9 ACKNOWLEDGEMENT. Significant Minority Stockholder has acknowledged
to Buyer that such Significant Minority Stockholder and his representatives and
advisors has had the opportunity to ask questions of and receive answers from
Buyer and its representatives to the extent that such Seller Stockholder and his
representatives and advisors have deemed necessary and appropriate relating to
all buyers; publicly filed written documentation provided by Buyer, for the
purpose of evaluating Buyer, the sale of Purchased Assets to Buyer and the other
transactions contemplated by this Agreement and the agreements contemplated
hereby. Significant Minority Stockholder has also acknowledged that in entering
into this Agreement and in performing his obligations hereunder, such
Significant Minority Stockholder has relied solely upon his own due diligence,
his knowledge of the industry in which the business of Seller and Buyer is
conducted and the representations and warranties of Buyer and Seller expressly
set forth in this Agreement, and not upon any other representations, warranties
or statements of any kind.
3B.10 KNOWLEDGE OF SIGNIFICANT MINORITY STOCKHOLDER. For purposes of
this Article IIIB, "Knowledge" of Significant Minority Stockholder shall mean
actual personal knowledge, but without having made any special inquiry or
undertaken any investigation with respect thereto.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 ORGANIZATION; STANDING AND POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Virginia. Buyer has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect on the ability of Buyer to consummate the
transactions contemplated hereby.
4.2 AUTHORITY. Buyer has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated, including, but not limited to the Registration Rights
Agreement and the Warrant Agreement hereby have been duly authorized by all
necessary corporate action on the part of Buyer. This Agreement, the
Registration Rights Agreement and the Warrant Agreement have been duly executed
and delivered by Buyer and constitute the valid and binding obligation of Buyer,
enforceable in accordance with its terms, except as such enforceability may be
limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. The execution and delivery of this Agreement (and the
registration rights agreement delivered to , and the warrant agreement delivered
to ) by Buyer does not, and, as of the Closing Date, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of; or default under (with or without notice or lapse of time, or
both), or give rise to a Conflict (as defined in Section 3.4) under (i) any
provision of the Certificate of Incorporation or By-laws of Buyer or (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Buyer or their properties or assets.
No consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity (as defined in Section 3.4)
or any third party (so as not to trigger any Conflict), is required by or with
respect to Buyer in
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connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
4.3 SEC FILINGS; MATERIAL ADVERSE CHANGE. Buyer has filed all forms,
reports and documents required to be filed by Buyer with the SEC since January
1, 1999, and has made available to Seller and its Principal Stockholders, such
forms, reports and documents in the form filed with the SEC. All such required
forms, reports and documents (including those that Buyer may file subsequent to
the date hereof) are referred to herein as the "BUYER SEC REPORTS." As of their
respective dates, the Buyer SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Buyer SEC
Reports, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Except as disclosed in the Buyer SEC Reports filed by
Buyer and publicly available prior to the date of this Agreement, as of the date
hereof, there has not been any material adverse change with respect to Buyer
that would require disclosure under the Securities Act.
4.4 BUYER COMMON STOCK. The shares of Buyer's Common Stock to be
issued in connection with the purchase of the Purchased Assets, when issued in
accordance with the terms and provisions of this Agreement, will be duly
authorized, validly issued, fully paid and non-assessable and will not be
subject to any preemptive or other statutory right of stockholders.
4.5 BROKERS' AND FINDERS' FEES. Buyer has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby except to Kaufman Bros., L.P., whose fees
shall be the responsibility of Buyer.
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4.6 ACKNOWLEDGMENT. Buyer acknowledges that it and its representatives
and advisors have had the opportunity to ask questions of and receive answers
from Seller and its representatives to the extent that Buyer, and its
representatives and advisors have deemed necessary and appropriate and to review
all written documentation and other information requested by them and provided
by Seller, for the purpose of evaluating Seller, the acquisition of assets and
the other transactions contemplated by this Agreement and the agreements
contemplated hereby. In entering into this Agreement and in performing their
obligations hereunder, Buyer has relied solely upon its own due diligence, its
knowledge of the industry in which the business of Seller is conducted and the
representations and warranties of Seller expressly set forth in this Agreement,
and Schedules included herewith, and not upon any other representations,
warranties or statements of any kind; PROVIDED, HOWEVER, that such diligence and
knowledge shall not be deemed a waiver by Buyer of its rights with respect to
the representations and warranties of the Seller and the Principal Stockholders.
4.7 DISCLOSURE. None of the representations or warranties of Buyer
contained herein, and none of the other information or publicly filed documents
furnished or to be furnished to Seller by Buyer pursuant to the terms of this
Agreement, is false or misleading in any material respect or omits to state a
fact herein or therein necessary to make the statements herein or therein not
misleading in any material respect.
4.8 NO LITIGATION. There is no action, suit, claim or proceeding on
any nature pending or, to the knowledge of Buyer, threatened against Buyer, its
properties or any of its officers or directors in their capacity as such, nor,
to the knowledge of Buyer, is there any basis therefore. There is no
investigation pending or to the knowledge of Buyer, threatened against Buyer,
its properties or any of its officers or directors (nor, to the Knowledge of
Buyer, is there any basis therefore) by or before any governmental entity. No
governmental entity has at any time challenged or questioned the legal right of
Buyer to manufacture, offer or sell any of its products in the present manner or
style thereof. Buyer is not subject to any material order, writ, injunction,
judgment or decree of any court or other governmental agency or authority.
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4.9 TAX RETURN AND AUDITS
(i) Buyer as of the closing Date will have prepared and
filed all required federal, state, local and foreign
returns, estimates, information statements and reports
("RETURNS") relating to any and all Taxes concerning or
attributable to Buyer or its operations and such Returns
will be true and correct in all material respects and will
have been completed in accordance with applicable law in
all material respects.
(ii) buyer as of the closing Date: (A) will have paid all
material Taxes it is required to pay or accrue and (B) will
have withheld with respect to its employees all federal and
state income taxes, FICA, FUTA and other Taxes required to
be withheld.
(iii) Buyer has not been adjudicated delinquent by any Tax
Authority in the payment of any Tax nor is there any Tax
deficiency outstanding, proposed or assessed against Buyer,
nor has Buyer executed any waiver of any statute of
limitations on or extending the period for the assessment
or collection of any Tax.
(iv) No audit or other examination of any Return of Buyer
is presently in progress to Buyer's knowledge, nor has
Buyer been notified of any request for such an audit or
other examination.
(v) Buyer has provided to Seller copies of all federal and
state income and all state sales and use Tax Returns filed
for fiscal years 1996, 1997, and 1998.
(vi) Buyer has provided to Seller copies of all federal and
state income and all state sales and use Tax Returns filed
for fiscal years 1996, 1997, and 1998.
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(vii) There are (and as of immediately following the
closing there will be) no material liens, pledges, charges,
claims, security interests or other encumbrances of any
sort ("LIENS") on the assets of Buyer relating to or
attributable to Taxes.
(viii) buyer has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes
which, if adversely determined, would result in any Lien on
the assets of Buyer.
(ix) None of Buyer's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(x) As of the Closing Date, Buyer will not be a party to
any contract, agreement, plan or arrangement, including but
not limited to the provisions of this Agreement, covering
any employee or former employee of Buyer that could
obligate Buyer to pay any amount that would not be
deductible pursuant to Section 280G of the Code.
(xi) Buyer has not filed any consent agreement under
Section 341(f) of the Code nor agreed to have Section 341
(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code)
owned by Buyer.
(xii) Buyer is not a party to a tax sharing or allocation
agreement nor does Buyer owe any amount under any such
agreement.
(xiii) Buyer is not, and has not been at any time, a
"United States real property holding corporation" within
the meaning of Section 897(C)(2) of the Code.
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(xiv) Buyer's tax basis in its assets for purposes of
determining its future amortization, depreciation and other
federal income tax deductions is accurately reflected on
Buyer's tax books and records in all material respects.
4.10 RESTRICTIONS OF BUSINESS ACTIVITIES There is no agreement
(non-compete or otherwise), commitment, judgment, injunction, order or decree to
which Buyer is a party or otherwise binding upon Buyer which has or reasonably
could be expected to have the effect of materially impairing or prohibiting any
lawful business practice of Buyer, any acquisition of property (tangible or
intangible) by Buyer or the conduct of business by Buyer as presently conducted.
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ARTICLE V
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive
the Closing and continue until September 30, 2001.
5.2 STOCKHOLDER ESCROW ARRANGEMENTS.
(a) ESCROW FUNDS. As provided in Section 2.6(b), at the Closing , the
45% of the Buyers Common Stock to be issued to Seller ("Escrow Amount") will be
deposited into an escrow account with Tighe, Patton & Babbin, P.L.L.C. (the
"ESCROW AGENT"), such deposit to constitute an escrow fund (the "ESCROW FUND").
The terms upon which the Escrow Agent will serve in such capacity shall be as
provided in an Escrow Agreement to be mutually agreed upon by Buyer and Seller,
and which will be consistent with the provisions of Section 2.6 and of this
Article V (the "ESCROW AGREEMENT"). The Escrow Fund is to be governed by the
terms set forth in the Escrow Agreement and maintained at Buyer's sole cost and
expense (the "STOCKHOLDER ESCROW"). The portion of the Escrow Amount contributed
on behalf of each of Seller's Stockholders shall correspond to such
Stockholder's Proportionate Escrow Interest.
(b) PURPOSE. (i) That portion of the Escrow Fund referenced in
section 2.6(b) relating to Post Closing adjustments to the Purchase Price
(herein the "Adjustment Portion") shall be utilized for such purpose; and (ii)
the balance of the Escrow Fund shall be available to compensate Buyer and its
affiliates for any claim, loss, expense, liability or other damage, including
reasonable attorneys' fees, to the extent of the amount of such claim, loss,
expense, liability or other damage (collectively "LOSSES") that Buyer or any of
its affiliates has incurred or reasonably anticipates incurring (in the case of
an extension of the Stockholder Escrow period pursuant to Section 5.2(c)) by
reason of the breach by Seller or Principal Stockholders of any representation,
warranty, covenant or agreement of Seller
or Principal
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Stockholders contained herein, including the indemnities provided
for in Section 9.1(a) hereof and the covenants contained in Section 6.2 hereof.
Losses shall not include amounts recovered from insurance. Buyer shall
undertake commercially reasonable efforts to claim and collect insurance to
which it is entitled with respect to any Losses.
(c) TERMINATION AND DISTRIBUTION OF ESCROW FUND. On or about June 15,
2000, the Escrow shall terminate as to the Adjustment Portion and on such date
the Escrow Agent shall distribute the Adjustment Portion of the Escrow Fund to
the Seller or Buyer, as the case may be, all in accordance with Section 2.6
hereof. The Escrow as to the balance of the Escrow Fund shall terminate on
September 30, 2000. PROVIDED HOWEVER, that such portion of the Stockholder
Escrow, which, in the reasonable judgment of Buyer, subject to the objection of
the Seller Stockholder Agent and the subsequent arbitration of the matter in the
manner provided in Section 5.2(i) hereof, is necessary to satisfy any identified
but unsatisfied Losses specified in any Officer's Certificate theretofore
delivered to the Escrow Agent prior to termination of the Stockholder Escrow,
shall remain in the Stockholder Escrow (and the Stockholder Escrow shall remain
in existence) until the earlier of (i) the expiration of the statute of
limitations applicable to such claims or (ii) the resolution of such claims. As
soon as all such claims have been resolved or the statute of limitations has
expired, the Escrow Agent shall deliver to the appropriate security holders of
Seller the remaining portion of the Stockholder Escrow not required to satisfy
such claims. Deliveries of Escrow Amounts to the Seller's stockholders pursuant
to this Section 5.2(c) shall be made according to each stockholder's
Proportionate Escrow Interest as certified to the Escrow Agent by the Seller
Stockholder Agent.
(d) PROTECTION OF ESCROW FUND. The Escrow Agent shall hold and
safeguard the Escrow Funds during their existence, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as the
property of Buyer and shall hold and dispose of the Escrow Funds only in
accordance with the terms hereof.
(e) CLAIMS UPON ESCROW FUND. In the event Buyer incurs or becomes aware
of any Losses or potential Losses for which it is entitled to indemnity under
Article IX and this Article V, it shall deliver to the Escrow Agent and the
Seller Stockholder
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Agent a certificate signed by any officer of Buyer (an "OFFICER'S CERTIFICATE")
(A) stating that Buyer has (i) incurred or (ii) for purposes of extending the
Escrow pursuant to Section 5.2(c above, reasonably anticipates that it will
have to incur Losses, (B) specifying in reasonable detail the individual items
of Losses included in the amount so stated, the date each such item was paid or
properly incurred, or the basis for such anticipated liability, and either the
nature of the misrepresentation, breach of warranty or claim or the litigation
matter to which such item is related. Upon the receipt of a certificate pursuant
to clause (A)(i) above and after compliance with the provisions of Sections
5.2(f), (g) and (h) hereof, and if there is no written objection by Seller as
further provided in subsection (g) hereof, the Escrow Agent shall deliver to
Buyer out of the Escrow Fund, as promptly as practicable, such amounts held in
the Escrow Fund equal to such Losses incurred. In determining the number of
shares of Buyer Common Stock to be paid out by the Escrow Agent pursuant to this
Article V, such shares shall be valued by the Escrow Agent at the value of $7.30
per share.
(f) Buyer shall not be entitled to receive any disbursement or cause any
amount to be retained in Escrow with respect to any Losses arising in respect
of any individual occurrence or circumstance unless the aggregate amount of all
Losses shall exceed $10,000; provided that in the event the aggregate amount of
such Losses of Buyer shall exceed $10,000, then Buyer shall be entitled to
recover from the Escrow Fund only Losses in excess of $10,000.
(g) OBJECTIONS TO CLAIMS. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Seller Stockholder Agent (as defined in Section 5.2(i)). The
Escrow Agent shall make no delivery to Buyer of any amounts out of the Escrow
Fund, pursuant to Section 5.2(e)(A)(i) hereof, unless and until the Escrow
Agent shall have received written authorization from the Seller Stockholder
Agent to make such delivery or unless the claim shall have been resolved
pursuant to Section 5.2(h). If the Seller Stockholder Agent shall object to the
claim made in the Officer's Certificate, the Seller Stockholder Agent shall do
so in a written statement to such effect delivered to the Escrow Agent. The
Seller Stockholder Agent shall approve or object to any such claim within a
reasonable time after actual receipt of the Officer's Certificate.
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(h) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Seller Stockholder Agent shall so object in
writing to any claim or claims made in any Officer's
Certificate, the Seller Stockholder Agent and Buyer shall
attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If
the Seller Stockholder Agent and Buyer should so agree, a
memorandum setting forth such agreement shall be prepared
and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely
on any such memorandum and distribute amounts from the
Escrow Funds in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, the matter shall be arbitrated before the
American Arbitration Association. Either Buyer or the
Seller Stockholder Agent may demand arbitration of the
matter unless the amount of the damage or loss is at issue
in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is
ascertained upon the conclusion of such litigation or both
parties agree to arbitration, and in either such event the
matter shall be settled by binding arbitration conducted by
three arbitrators. Buyer and the Seller Stockholder Agent
shall each select one arbitrator, and the two arbitrators
so selected shall select a third arbitrator. The
arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity,
adequate in the sole judgment of the arbitrators, to
discover relevant information from the opposing parties
about the subject matter of the dispute. The arbitrators
shall rule upon motions to compel or limit discovery and
shall have the authority to impose sanctions, including
attorneys' fees and costs, to the same extent as a court
of competent law or equity, should the arbitrators
determine that discovery was sought without substantial
justification or that discovery was refused or objected to
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without substantial justification. The decision of the
arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive
upon the parties to this Agreement, and notwithstanding
anything in this Section 5.2(h); the Escrow Agent shall be
entitled to act in accordance with such decision and make
or withhold payments out of the Escrow Fund in accordance
therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions of
law, which shall set forth the award, decree or order of
the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any such
arbitration shall be held in either Washington, D.C. or
Richmond, Virginia, under the rules then in effect of the
American Arbitration Association.
(i) AGENT OF SELLER'S STOCKHOLDERS; POWER OF ATTORNEY. (i)
Upon execution and delivery of this Agreement, without
further act of any stockholder of Seller, William J. Dawson
shall be appointed as agent and attorney-in-fact (the
"SELLER STOCKHOLDER AGENT") for each stockholder of Seller
on whose behalf any Buyer Common Stock was deposited into
the Escrow Fund for and on behalf of stockholders of
Seller, to give and receive notices and communications, to
authorize delivery to Buyer of Buyer Common Stock from the
Escrow Fund in satisfaction of claims by Buyer, to object
to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators
with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Seller
Stockholder Agent for the accomplishment of the foregoing.
Such agency may be changed by the stockholders of Seller
from time to time upon not less than thirty (30) days prior
written notice to Buyer; provided that the Seller
Stockholder Agent may not be removed
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unless holders of a two-thirds interest of the Escrow
Funds agree to such removal and to the identity of the
substituted agent. No bond shall be required of the Seller
Stockholder Agent, and the Seller Stockholder Agent shall
not receive compensation for his services. Notices or
communications to or from the Seller Stockholder Agent
shall constitute notice to or from each of the stockholders
of Seller.
(ii) The Seller Stockholder Agent shall not be liable for
any act done or omitted hereunder as Agent while acting in
good faith and in the exercise of reasonable judgment. The
stockholders of Seller on whose behalf the amounts were
contributed to the Escrow Funds shall severally indemnify
the Seller Stockholder Agent and hold the Seller
Stockholder Agent harmless against any loss, liability or
expense incurred without negligence or bad faith on the
part of the Seller Stockholder Agent and arising out of or
in connection with the acceptance or administration of the
Seller Stockholder Agent's duties hereunder, including the
reasonable fees and expenses of any legal counsel retained
by the Seller Stockholder Agent.
(j) ACTIONS OF THE SELLER'S STOCKHOLDER AGENT. A decision, act, consent
or instruction of the Seller Stockholder Agent shall constitute a decision of
all the stockholders for whom a portion of the amounts otherwise issuable to
them are deposited in the Escrow Funds and shall be final, binding and
conclusive upon each of such stockholders, and the Escrow Agent and Buyer may
rely upon any such decision, act, consent or instruction of the Seller's
Stockholder Agent as being the decision, act, consent or instruction of each and
every such stockholder of Seller. The Escrow Agent and Buyer are hereby relieved
from any liability to any person for any acts done by them in accordance with
such decision, act, consent or instruction of the Seller Stockholder Agent.
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(k) THIRD-PARTY CLAIMS. If during The Escrow
Period, a third-party asserts a claim which gives rise to a
claim to The Escrow supported by an Officer's Certificate,
Buyer shall have the right in its sole discretion to defend and to
settle such third-party claim, provided, however, that any counsel
retained to defend a third-party claim to be satisfied from the
Escrow Fund shall be reasonably acceptable to the Seller Stockholder
Agent and Buyer shall not settle any such third party claim without
the prior consent of the Seller Stockholder Agent, which consent
shall not be unreasonably withheld.
5.3 ESCROW AGENT'S DUTIES.
(a) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of Buyer
and the Seller Stockholder Agent, and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed to be genuine
and to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow Agent
while acting in good faith and in the exercise of reasonable judgment, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(b) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court, the Escrow Agent shall not be liable to any of
the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(c) The Escrow Agent shall not be liable in any respect on
account of the
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rights of the parties executing or delivering or purporting to execute or
deliver this Agreement or any documents or papers deposited or called for
hereunder.
(d) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(e) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to Buyer and the Seller Stockholder Agent
to this Agreement; PROVIDED, HOWEVER, that no such resignation shall become
effective until the appointment of a successor escrow agent which shall be
accomplished as follows: Buyer and the Seller Stockholder Agent shall use their
best efforts to mutually agree upon a successor agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, Buyer shall have the right to appoint a
successor escrow agent. The successor escrow agent selected in the preceding
manner shall execute and deliver an instrument accepting such appointment and
it shall thereupon be deemed the Escrow Agent hereunder and it shall without
further acts be vested with all the estates, properties, rights, powers, and
duties of the predecessor Escrow Agent as if originally named as Escrow Agent.
Thereafter, the predecessor Escrow Agent shall be discharged from any further
duties and liabilities under this Agreement.
5.4 LIMITATION ON LIABILITY. Notwithstanding any other
provision of this Agreement to the contrary, absent fraud or bad faith, the
liability of Seller and the Principal Stockholders with respect to any claim
for a breach of any representation, warranty, covenant or agreement contained
in this Agreement shall be limited to the assets of the Escrow Fund, and no
Principal Stockholder or significant Minority Stockholder shall have any
liability to Buyer or arising from any breach after the termination of the
Escrow other than with respect to claims made prior to such termination under
Section 5.2(c) (and liability with such claims shall be limited to the amount
held in the Escrow as a result thereof).
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ARTICLE VI
PRE-CLOSING COVENANTS
Each of the Buyer and Seller agrees as follows with respect to the
period from and after the execution of this Agreement through and including the
Closing Date:
6.1 GENERAL. Each of the Seller and Buyer will use all reasonable
efforts to take all actions and to do all things necessary in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Article VII below). In addition, as promptly as practicable after signing this
Agreement, Buyer and Seller shall retain the Escrow Agent and negotiate and
enter into an Escrow Agreement.
6.2 OPERATION OF SELLER'S BUSINESS. During the period from the
date of this Agreement to the Closing Date, Seller agrees to use its reasonable
best efforts to maintain, and to cause its Subsidiary and Affiliates to
maintain, all rights to the Intellectual Property listed on Schedule 3.11(a)
and the goodwill of the Cronus Business. Seller will not, without the written
consent of Buyer, take any action or enter into any transaction other than in
the ordinary course of business consistent with past practice. Without limiting
the generality of the foregoing, except as expressly provided in this Agreement
without the written consent of Buyer, Seller will not:
(i) authorize or effect any change in its charter or by-
laws or comparable organizational document;
(ii) grant any stock rights, options or warrants, or issue
sell, authorize or otherwise dispose of any of its capital
stock,
(iii) sell, lease, encumber or otherwise dispose of, or
otherwise agree to sell, lease, encumber or otherwise
dispose of, any of its assets which are material,
individually or in the aggregate, to Seller, other than
equipment
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sales from inventory arising in the ordinary course of
business consistent with past practice;
(iv) declare, set aside or pay any dividend or
distribution with respect to its capital stock (whether in
cash or in kind);
(v) split, combine or reclassify any of its capital stock
or redeem, repurchase or otherwise acquire any of its
capital stock;
(vi) acquire or agree to acquire by merger or
consolidation with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or
by any other manner, any business of any Person or
division thereof or otherwise acquire or agree to acquire
any assets (other than assets used in the operation of the
business of Seller in the ordinary course consistent with
past practice);
(vii) incur or commit to any capital expenditures other
than capital expenditures incurred or committed to in the
ordinary course of business consistent with past practice;
(viii) make any loans, advances or capital contributions
to, or investments in, any other person or entity, (y) pay
discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or
otherwise) including any Excluded Liabilities, other than
payments, discharges or satisfactions incurred or committed
to in the ordinary course of business consistent with past
practice or (z) create, incur, assume or suffer to exist
any indebtedness, issuances of debt securities, guarantees,
security interests, loans or advances not in existence as
of the date of this Agreement except pursuant to the credit
facilities, indentures and other arrangements in existence
on the date of this Agreement and incurred in the ordinary
course of business consistent with
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past practice, and any other indebtedness existing on the
date of this Agreement, in each case as such credit
facilities, indentures, other arrangements and other
existing indebtedness may be amended, extended, modified,
refunded, renewed or refinanced after the date of this
Agreement, but only if the aggregate principal amount
thereof is not increased thereby, the term thereof is not
extended thereby and the other terms and conditions
thereof, taken as a whole, are not less advantageous to
Seller than those in existence as of the date of this
Agreement;
(ix) make any change in employment terms for any of its
directors, officers and employees other than (A) customary
increases to employees whose total annual cash
compensation is less than $60,000 awarded in the ordinary
course of business consistent with past practices, and (B)
customary employee bonuses (including to employees who are
officers) approved by the Board of Directors of Seller
(the "SELLER BOARD") and paid in the ordinary course of
business consistent with past practices and (C) immaterial
changes to Seller Employee Plans;
(x) change its methods of accounting in a manner
materially affecting the consolidated assets, liabilities
or results of operations of Seller, except as required by
changes in generally accepted accounting principles as
concurred in by Seller's independent auditors, and (i)
change its fiscal year or (ii) make any material tax
election, other than in the ordinary course of business
consistent with past practice; and
(xi) write-off as uncollectible any accounts receivable of
the Cronus Business, except write-offs in the ordinary
course of business charged to applicable reserves, none of
which individually or in the aggregate is reasonably likely
to have a material adverse effect on the Condition of the
Cronus Business.
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(xii) resolve or commit, whether or not in writing, to any
of the foregoing.
In the event Seller shall request Buyer to consent in
writing to an action otherwise prohibited by this Section
6.2, Buyer shall use reasonable efforts to respond in a
prompt and timely fashion (but in no event later than ten
(10) business days following such request), but may
otherwise respond affirmatively or negatively in its sole
discretion.
6.3 ACCESS. Seller will permit representatives of Buyer to have
access at all reasonable times and in a manner so as not to materially
interfere with the normal business operations of Seller and Subsidiary, to all
premises, properties, personnel, books, records (including without limitation
tax and financial records), contracts and documents of or pertaining Seller.
Buyer and all of its representatives will treat and hold as such any
confidential information it receives from Seller or any of its representatives.
6.4 NOTICE OF DEVELOPMENTS. Seller will give prompt written notice
to Buyer of any material adverse development causing a breach of any of its own
representations and warranties in Article III above. No disclosure by Seller
pursuant to this Section 6.4, however, shall be deemed to amend or supplement
Seller Schedules or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant.
6.5 EXCLUSIVE DEALING.
(a) Seller shall immediately cease and terminate any
existing solicitation, initiation, encouragement, activity, discussion or
negotiation with any Persons conducted heretofore by Seller, its officers,
directors, employees, financial advisors, stockholders, agents or
representatives (each a "REPRESENTATIVE") with respect to any proposed,
potential or contemplated proposal or offer (including, without limitation, any
proposal or offer to the Seller Stockholders) with respect to a merger,
acquisition, sale, consolidation, recapitalization, reorganization, liquidation,
tender offer, or exchange offer or similar transaction involving, or any
purchase of 25% or more of the consolidated assets of, or any equity interest
representing
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25% or more of the outstanding shares of capital stock in, Seller
(an "ACQUISITION PROPOSAL").
(b) From and after the date hereof, without the prior written
consent of Buyer, Seller shall cause any and all of its Representatives not to,
directly or indirectly, (A) solicit, initiate, or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, an
Acquisition Proposal, or (B) engage in negotiations or discussions with any
third party concerning, or provide any non-public information to any person or
entity relating to, an Acquisition Proposal, or (C) enter into any letter of
intent, agreement in principle or any acquisition agreement or other similar
agreement with respect to any Acquisition Proposal.
(c) Seller shall notify Buyer promptly after receipt by Seller
or Seller's knowledge of the receipt by any of its Representatives of any
Acquisition Proposal or any request for non-public information in connection
with an Acquisition Proposal or for access to the properties, books or records
of Seller by any Person that informs such party that it is considering making
or has made an Acquisition Proposal. Such notice shall be made orally and in
writing and shall indicate the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact. Seller shall keep Buyer
informed of the status (including any change to the material terms) of any such
Acquisition Proposal or request for non-public information.
(d) Seller agrees with Buyer that any breach of this
Section 6.5 could not be compensated with monetary damages alone and that
without in any way limiting Buyer's rights, Buyer shall be entitled to
injunctive or other equitable relief against any breach or threatened breach of
this Section 6.5. In the event of a breach by Seller of this Section 6.5 then
Seller shall pay, within ten days of such breach, to Buyer an amount equal to
the greater of (1) the amount of professional fees and out-of-pocket expenses
incurred by Buyer in the connection with this proposed transaction and (2)
$250,000.
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If at any time after the date of this Agreement and during the Exclusivity
Period a business combination proposal which is superior to the terms and
conditions set forth herein as to price shall have been publicly announced or
communicated to, or reviewed by, the Seller's Board of Directors and shall have
not been irrevocably withdrawn prior to the end of the Exclusivity Period, then
Seller and its shareholders shall pay to Buyer, not later than two Business Days
after the date of termination of this Agreement an amount equal to $2.0 million.
The liability to pay such break-up fee shall be joint and several to Buyer and
to its Shareholders.
6.6 FINANCIAL STATEMENTS. Seller shall make available to Buyer
and its Accountants, the internally generated monthly (if any), quarterly and
annual financial statements of Seller, consisting of a balance sheet, and
statements of income and of cash flows.
6.7 NASDAQ LISTING. After the Closing, Buyer shall use all
reasonable efforts to cause the Buyer Common Stock to be issued in connection
with the transaction to be approved for listing on Nasdaq Smallcap Market,
subject to official notice of issuance, prior to the registration of the Buyers
Common Stock.
6.8 BULK TRANSFER LAWS. Buyer hereby waives compliance with the
provisions of any so-called bulk transfer laws of any jurisdiction in connection
with the transactions contemplated by this Agreement. Buyer shall indemnify and
hold harmless each Seller Indemnitee against any and all liabilities that may be
asserted by third parties against such Seller Indemnitee as a result of
noncompliance by Seller with any such bulk transfer law.
ARTICLE VII
CONDITIONS TO OBLIGATION TO CLOSE
7.1 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
purchase the Purchased Assets and to assume the Assumed Liabilities is subject
to satisfaction or waiver by Buyer of the following conditions at or prior to
the Closing Date:
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(a) the representations and warranties set forth in Article III
above shall be true and correct in all material respects at and as of the
Closing Date, except for those representations and warranties which address
matters only as of a particular date (which shall have been true and correct as
of such date);
(b) Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(c) Seller shall have caused its name and the names of its
subsidiaries to be changed to a name not including "Cronus" effective as of the
Closing Date.
(d) neither any statute, rule, regulation, order, stipulation
or injunction (each an "ORDER") shall be enacted, promulgated, entered,
enforced or deemed applicable to the transactions contemplated hereby, nor any
other action shall have been taken by any Governmental Entity (1) which
prohibits the consummation of the transactions contemplated hereby; (2) which
prohibits Buyer's ownership or operation of all or any material portion of its
or the Cronus Business or Purchased Assets, or which compels Buyer to dispose
of or hold separate all or any material portion of its or the Cronus Business
or Purchased Assets as a result of the transactions contemplated hereby; (3)
which makes the transactions contemplated hereby illegal; (4) which imposes
material limitations on the ability of Buyer to consummate the transactions
contemplated hereby; or (5) which imposes any limitations on the ability of
Buyer effectively to control in any material respect the Cronus Business or
operations of Seller;
(e) Seller shall have delivered to Buyer a certificate to the
effect that each of the conditions specified above in Section 7.1(a) through
(d) is satisfied in all respects;
(f) the Dawson Indebtedness, the Lasalle Indebtedness and the
Bridge Holders
Indebtedness and the Management Loans shall have been satisfied or assumed by
Buyer on terms satisfactory to Buyer in its sole discretion; and
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(g) Deliveries. Seller and the Principal Stockholders shall have
delivered, or shall have caused any applicable Affiliate to have delivered, to
Buyer the following:
(i) a General Conveyance, Assignment and Bill of
Sale substantially in the form attached as Exhibit B hereto;
(ii) evidence of payment of all pre-Closing Tax Liabilities of
Seller;
(iii) a duly executed Assignment of Trademarks substantially in
the form attached as Exhibit C hereto;
(iv) a duly executed Assignment of Copyrights substantially
in the form attached as Exhibit D hereto; and
(v) a duly executed Registration Rights Agreement,
substantially with form attached as Exhibit E herein
(vi) duly executed Non-Competition Agreements signed by each of
the Principal Stockholders, substantially in the form of Exhibit F hereto.
(vii) Opinion of Seller's counsel, satisfactory to Buyer,
covering those matters set forth in Article III, Sections 3.1 to 3.4, 3.9 (to
the best of counsel's knowledge) 3.10 - 3.12 (to the best of such counsel's
knowledge) 3.14 (to the best of counsel's knowledge) and 3.15;
(viii) A certificate executed by the Secretary of Seller
confirming the stockholders list of Sellers' Stockholders for purposes of
issuance of the Buyer's Common Stock at Closing and a receipt, signed by the
Seller Stockholder Agent for such shares; which receipt shall acknowledge on
behalf of such stockholders that the shares are restricted and are being
acquired for investment.
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(ix) a duly executed Escrow Agreement signed by the
Escrow Agent and the parties hereto;
(h) No Material Adverse Change. From the date of
this Agreement to the Closing Date there shall have been no material adverse
change in the Condition of the Cronus Business, and Seller shall have delivered
to Buyer a certificate, dated the Closing Date, to such effect.
(i) Approvals. All governmental and other consents
and approvals disclosed on any Schedule hereto or otherwise necessary to permit
the consummation of the transactions contemplated by this Agreement, including
the consent of Seller's Shareholders, shall have been received.
Subject to the provisions of applicable law, Buyer may waive, in
whole or in part, any condition specified in this Section 7.1 if Buyer executes
a writing so stating at or prior to the Closing.
7.2 CONDITIONS TO OBLIGATION OF SELLER. The obligation of
Seller to sell the Purchased Assets is subject to satisfaction or waiver by
Seller of the following conditions at or prior to the Closing Date:
(a) the representations and warranties set forth in
Article IV above shall betrue and correct in all material respects at and as
of the Closing Date, except for those representations and warranties which
address matters only as of a particular date (which shall have been true and
correct as of such date);
(b) Buyer shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing;
(c) neither any Order shall be enacted, promulgated,
entered, enforced or
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deemed applicable to the transaction contemplated hereby nor any other action
shall have been taken by any Government Entity (1) which prohibits the
consummation of the transactions contemplated hereby; (2) which prohibits
Buyer's ownership or operation of all or any material portion of its or the
Cronus Business or Purchased Assets, or which compels Buyer to dispose of or
hold separate all or any material portion of its or the Cronus Business or
Purchase Assets as a result of the transactions contemplated hereby; or (3)
which makes the transactions contemplated hereby illegal; and
(d) Buyer shall have delivered to Seller a certificate
to the effect that each of the conditions specified above in Sections 7.2(a)
through (c) is satisfied in all respects.
(e) Deliveries. Buyer shall have delivered to Seller
and the following:
(i) a duly executed General Assignment Agreement
substantially in the form attached as Exhibit C hereto;
(ii) an Assumption of Liabilities Agreement
substantially in the form attached as Exhibit H hereto;
(iii) the Buyer's Common Stock registered in the name of
Seller's Stockholders as certified to by Seller in accordance with Section 7.1
with restrictive legends therein; provided however, that those Shares delivered
to the Escrow Agent and constituting the Escrow Fund shall be registered in the
name of Cronus Technology, Inc.; and
(iv) a duly executed Registration Rights Agreement,
substantially in the form of Exhibit F herein.
(v) Opinion of Buyer's counsel covering those
matters set forth in Article IV, Sections 4.1 to 4.4 and 4.8.
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(f) Approvals. All governmental and other consents and
approvals disclosed on any Schedule hereto or otherwise necessary to permit
the consummation of the transactions contemplated by this Agreement shall have
been received.
Subject to the provisions of applicable law, Seller may waive, in
whole or in part, any condition specified in this Section 7.2 if it executes a
writing so stating at or prior to the Closing.
ARTICLE VIII
TERMINATION
8.1 TERMINATION OF AGREEMENT. The parties may terminate
this Agreement with the prior authorization of their respective board of
directors as provided below:
(a) The parties may terminate this Agreement, and the
transaction may be abandoned, by mutual written consent at any time prior to
the Closing Date;
(b) This Agreement may be terminated and the transaction may
be abandoned by action of the Board of Directors of either Buyer or Seller (1)
if the Closing shall not have occurred by April 30, 2000 (the "OUTSIDE DATE")
(unless the failure to consummate the transaction by such date is due to the
action or failure to act of the Party seeking to terminate) or (2) if any
condition to the obligation of the terminating party to consummate the
transaction shall have become incapable of being satisfied prior to the Outside
Date as of a result of an Order that is final and non-appealable;
(c) This Agreement may be terminated and the transaction may
be abandoned at any time prior to the Closing Date, by action of Seller's Board
of Directors, in the event that Buyer shall have breached any of its
representations, warranties or covenants under this Agreement which breach (1)
would give rise to the failure of a condition set forth in Section 7.2 above,
and (2) cannot be or has not been cured within 60 days after the giving of
written notice
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by Seller to Buyer of such breach (provided that Seller is not then in material
breach of any representation, warranty or covenant contained in this Agreement);
(d) This Agreement may be terminated and the transaction may
be abandoned at any time prior to the Closing Date, by action of the Board of
Directors of Buyer, in the event that Seller shall have breached any of its
representations, warranties or covenants under this Agreement which breach (1)
would give rise to the failure of a condition set forth in Section 7.1 above,
and (2) cannot be or has not been cured within 60 days after the giving of
written notice by Buyer to Seller of such breach (provided that Buyer is not
then in material breach of any representation, warranty or covenant contained
in this Agreement);
8.2 EFFECT OF TERMINATION. If any party terminates this Agreement
pursuant to Section 8.1 above, all rights and obligations of the parties
hereunder shall terminate without any liability of either party to the other
party (except for any liability of any party then in breach); PROVIDED, HOWEVER
that the provisions of this Section 8.2 and Section 9.12 shall survive any such
termination.
ARTICLE IX
GENERAL PROVISIONS
9.1 INDEMNIFICATION, EXCULPATION AND INSURANCE.
(a) Seller and the principal Stockholders agree to
indemnify Buyer, its Affiliates and their respective directors, officers,
employees, agents and representatives (each a "Buyer Indemnitee") against, and
hold each Buyer Indemnitee harmless from, any and all loss, liability, cost,
damage, claim and expense, including reasonable attorneys' fees and
disbursements, interest and penalties (collectively, "Damages") (such Damages to
be calculated taking into account any reduction in Taxes or any other Tax
benefit to such Buyer Indemnitee resulting from or received as a result of the
incurrence of such Damages), whether or not resulting from third party claims,
which the
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Buyer Indemnitee may sustain at any time by reason of or resulting
from (i) the inaccuracy of any of the representations or warranties of Seller
contained in Article III hereof or (ii) any Excluded Liability.
(b) The Seller and the principal Stockholders, their
affiliates and the successors to the foregoing, hereby indemnify and hold the
Buyer and its officers, directors, and affiliates, harmless on an after-Tax
basis for (i) all Taxes relating to the income, operations, or assets of Seller
imposed on the Buyer and its affiliates for all Pre-Closing Periods; (ii) all
Taxes imposed on the Seller or any corporation in which the Seller or its
affiliates have a direct or indirect equity interest for any taxable year or
period; and (iii) all Taxes resulting from, arising out of, or incurred with
respect o, any claims that may be asserted by any party based upon,
attributable to, or resulting from any breach by the Seller of the
representations set forth in this Agreement.
(c) Buyer agrees to indemnify Seller, its Affiliates
and their respective directors, officers, employees, agents and representative
(each a "Seller Indemnitee") against, and hold each Seller Indemnitee harmless
from, any and all Damages (such Damages to be calculated taking into account any
reduction in Taxes or any other Tax benefit to such Seller Indemnitee resulting
from or received as a result of the incurrence of such Damages including
reasonable attorney's fees and disbursements, interest and penalties), whether
or not resulting from third party claims, which the Seller Indemnitee may
sustain at any time by reason of or resulting from (i) the inaccuracy of any of
the representations or warranties of Buyer contained in Article IV hereof or
(ii) Buyer's failure after the Closing Date to pay, discharge or perform and of
the Assumed Liabilities when due.
(d) If any Indemnitee shall incur any Damages and believes
that it is entitled to be indemnified against such Damages by Seller or Buyer,
as the case may be, such Indemnitee shall promptly notify such party in
reasonable detail of the basis of such Damages and such claim for
indemnification hereunder.
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(e) Each party's obligations pursuant to this Section
9.1 are subject to the following further limitations.
(i) the Buyer Indemnitees shall not be entitled
to recover hereunder until the total amount of Damages, exclusive
of attorneys fees exceeds $10,000; provided that to the extent the
amount of Damages exceed such amount the Buyer Indemnitees shall
be entitled to recover only the amount of Damages in excess of
$10,000;
(ii) the Seller Indemnitees shall not be
entitled to recover hereunder until the total amount of Damages,
exclusive of attorneys fees, exceeds $10,000; provided that to
the extent the amount of Damages exceed such amount the Seller
Indemnitees shall be entitled to recover only the amount of
Damages in Excess of $10,000; and
(iii) Buyers claims for damages shall first
be satisfied out of the Escrow Fund.
(f) The foregoing indemnification provisions shall be
the exclusive remedy for any breach of the representations, warranties,
covenants or obligations set forth in this Agreement; provided, however, that
the provision of this Section 9.1 shall not prevent Seller, on the one hand, or
Buyer, on the other hand, from seeking the remedies of specific performance or
injunctive relief in connection with a breach of a covenant of the other party
contained herein.
9.2 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (postage prepaid and
return receipt requested) or sent via facsimile (with a copy of such notice or
other communication and a confirmation of complete transmission delivered
personally or sent by certified or registered mail, postage prepaid and return
receipt requested, no later than the close of business on the third business
day following such
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transmission) to the parties at the following addresses at such other address
for a party as shall be specified by like notice):
(a) if to Buyer: FastComm Communications Corp.
45472 Holiday Drive
Sterling, Virginia 20166
Fax: (703) 318-4315
Attention: Mark Rafferty
with a copy to: Sokolow, Dunaud, Mercadier
& Carreras, LLP
50 Rockefeller Plaza,
Suite 928
New York, NY 10020
(212) 3150169
Attn: Thomas G. Amon, Esq.
(b) if to Seller, to: Dhru Desai
424 East State Parkway -
Suite 228
Schaumbeurg, Illinois
60173-4538
with a copy to: Patrick J. Sherlock, Esq.
Law Office of Patrick J. Sherlock
11 South LaSalle Street
Suite 1600
Chicago, IL 60603
(c) If to Stockholder's
Agent, to: William J. Dawson
c/o Aussys Corporation
1250 S. Capital of Texas Hwy
Bldg 2, Suite 300
Austin, TX 78746
(d) If to Significant
Minority
Stockholder, to: William J. Dawson
c/o Aussys Corporation
1250 S. Capital of Texas Hwy
Bldg 2, Suite 300
Austin, TX 78746
With copy to: Robert B. Webb, III
Reed Smith Hazel & Thomas
8251 Greensboro Drive,
Suite 1100
McLean, VA 22102
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Each notice transmitted in the manner described in this Section 9.3 shall be
deemed to have been given, and become effective for all purposes at the time it
shall have been (i) delivered to the addressee by the return receipt (if
transmitted by mail or commercial delivery service), or the affidavit of the
messenger (if transmitted by personal delivery) or (ii) presented for delivery
to the addressee as so indicated during normal business hours, if such delivery
shall have been refused for any reason.
9.3 INTERPRETATION. The words "INCLUDE," "INCLUDES" and "INCLUDING"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
interpretation of this Agreement.
9.4 KNOWLEDGE DEFINED. The term "Knowledge" of Seller or
Buyer as used in this Agreement, with respect to any fact or circumstance,
shall mean any fact or circumstance which is actually known to any Principal
Stockholder of Seller or executive officer of Buyer or of which any Principal
Stockholder or executive office should have known in the performance of his
duties in a manner typical of executives of a business similar to the Cronus
Business or Buyer's business.
9.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart. Signature pages received by
facsimile shall constitute originals.
9.6 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the schedules
and Exhibits hereto, and the documents and instruments and other agreements
among the parties hereto referenced herein: (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof; (b) are not intended to confer
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upon any other person (including, without limitation, those persons listed on
any exhibits hereto) any rights or remedies hereunder; and (c) without the
prior written consent of each party shall not be assigned by operation of law
or otherwise, except that Buyer may assign its rights and obligations hereunder
to an affiliate of Buyer provided that Buyer shall remain liable for all its
obligations hereunder notwithstanding such assignment. Any assignment of rights
or delegation of duties under this Agreement by a party without the prior
written consent of the other parties, if such consent is required hereby, shall
be void.
9.7 SEVERABILITY. If any provision of this Agreement shall
hereafter be held to be invalid, unenforceable or illegal, in whole or in part,
in any jurisdiction under any circumstances for any reason, (i) such provision
shall be reformed to the minimum extent necessary to cause such provision to be
valid, enforceable and legal while preserving the intent of the parties as
expressed in, and the benefits to the parties provided by, this Agreement or
(ii) if such provision cannot be so reformed, such provision shall be severed
from this Agreement and an equitable adjustment shall be made to this Agreement
(including, without limitation, addition of necessary further provisions to
this Agreement) so as to give effect to the intent as so expressed and the
benefits so provided. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under
any other circumstances. Neither such holding nor such reformation or severance
shall affect or impair the legality, validity or enforceability of any other
provision of this Agreement.
9.8 OTHER REMEDIES. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy. The Buyer is intended to be a third-party
beneficiary of the representations and warranties of the Principal Stockholders
contained herein and it is expressly acknowledged that no provision of this
Agreement (other than Article V) in any way limits or results in a waiver of any
right of Buyer to bring an action against the Principal Stockholders for damages
incurred by Buyer arising from or relating to any such breach.
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9.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
9.10 RULES OF CONSTRUCTION. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
9.11 CONFIDENTIALITY. Each of the parties hereto hereby agrees to
keep such information or knowledge obtained in any investigation pursuant to
the negotiation and execution of this Agreement, or the effectuation of the
transactions contemplated hereby, confidential ("CONFIDENTIAL INFORMATION");
PROVIDED, HOWEVER, that the foregoing shall not apply to information or
knowledge which (a) a party can demonstrate was already lawfully in its
possession prior to the disclosure thereof by the other party, (b) is generally
known to the public and did not become so known through any violation of law,
(c) became known to the public through no fault of such party, (d) is later
lawfully acquired by such party from other sources, (e) is required to be
disclosed by order of court or government agency with subpoena powers
(provided that such party shall given the other party prior notice of such
order and a reasonable opportunity to object or take other available action),
(f) is disclosed in the course of any litigation between any of the parties
hereto or (g) is developed independently by either party without reference to,
or specific knowledge of the other parties' Confidential Information.
Notwithstanding the foregoing, it is acknowledged that Buyer may publicly
disclose the material terms of this Agreement following the date hereof
pursuant to the federal securities laws and otherwise in a manner reasonably
satisfactory to Seller.
9.12 FEES OF TRANSACTION / TRANSFER TAXES. Each party shall pay
its own costs, fees and expenses associated with this transaction. All stamp,
transfer, documentary, sales, use, registration, and other such taxes and fees
(including any penalties and interest) incurred in connection with this
Agreement and the transactions contemplated hereby
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(collectively, the "Transfer Taxes") shall be paid by the Seller and the Seller
shall properly file on a timely basis all necessary tax returns, reports, forms,
and other documentation
* * *
IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to
be signed by their duly authorized respective officers and each of the
Principal Stockholders and the Significant Minority Stockholder has signed this
Agreement, all as of the date first written above.
SELLER: BUYER:
CRONUS TECHNOLOGY FASTCOMM COMMUNICATIONS
CORPORATION CORPORATION
By: /s/ Dhru Desai By: /s/ Peter C. Madsen
------------------------ --------------------
Name: Dhru Desai Name: Peter C. Madsen
---------------------- --------------------
Title: President Title: President
---------------------- -------------------
CRONUS COMMUNICATIONS, INC.
By: /s/ Dhru Desai
-----------------------------
Name: Dhru Desai
-----------------------------
Title: President
-----------------------------
SELLER'S PRINCIPAL STOCKHOLDERS:
/s/ Dhru d. Desai
- -----------------------------
Dhru D. Desai
/s/ Praduman Mahida
- -----------------------------
Praduman Mahida
74
<PAGE> 80
/s/ Steven c. Smith
- -----------------------------
Steven C. Smith
SIGNIFICANT MINORITY STOCKHOLDER
/s/ William J. Dawson
- -----------------------------
William J. Dawson
SELLER STOCKHOLDER AGENT
William J. Dawson
- -----------------------------
William J. Dawson
75
<PAGE> 81
INDEX OF EXHIBITS
Exhibit A Balance Sheet of Seller
Exhibit B General Conveyance, Assignment
and Bill of Sale Agreement
Exhibit C Assignment of Trademarks
Exhibit D Assignment of Copyrights
Exhibit E Registration Rights Agreement
Exhibit F Non-Competition Agreement
Exhibit G Assumption of Liabilities
Exhibit H Chicago Obligations Specifically Excluded
Exhibit I Chicago Obligations Specifically Assumed
76
<PAGE> 82
INDEX OF SCHEDULES
SCHEDULE 1.1 LIST OF BOOKS AND RECORDS OF SELLER
SCHEDULE 2.1(a) TRADE NAMES, TRADEMARKS AND SERVICE MARKS, TRADEMARK
AND SERVICE MARK REGISTRATIONS AND APPLICATIONS;
COPYRIGHTS OF CRONUS TECHNOLOGY INC. AND CRONUS
COMMUNICATIONS, INC.
SCHEDULE 2.1(b) ASSIGNED CONTRACTS
SCHEDULE 2.9 PURCHASED ASSETS ALLOCATION
SCHEDULE 3.1 STATE QUALIFICATIONS
SCHEDULE 3.2(a) STOCKHOLDER LIST
SCHEDULE 3.2(b) OPTION AND WARRANT LIST
SCHEDULE 3.4 GOVERNMENTAL AND THIRD PARTY CONSENTS
SCHEDULE 3.5 SELLER FINANCIALS
SCHEDULE 3.6 UNDISCLOSED LIABILITIES
SCHEDULE 3.7 NO CHANGES
SCHEDULE 3.8 TAX RETURNS AND AUDITS
SCHEDULE 3.9 RESTRICTIONS ON BUSINESS ACTIVITIES
SCHEDULE 3.10(a) LEASED PROPERTY
SCHEDULE 3.10(b) LIENS ON PROPERTY
SCHEDULE 3.10(c) EQUIPMENT
SCHEDULE 3.11 INTELLECTUAL PROPERTY
SCHEDULE 3.11(f) SELLER INTELLECTUAL PROPERTY - LICENSES
SCHEDULE 3.11(k) INFRINGEMENT
SCHEDULE 3.12(a) AGREEMENTS, CONTRACTS AND COMMITMENTS
SCHEDULE 3.12(b) BREACHES
SCHEDULE 3.13 INTERESTED PARTY TRANSACTIONS
SCHEDULE 3.14 GOVERNMENTAL AUTHORIZATIONS
SCHEDULE 3.15 LITIGATION
SCHEDULE 3.16 ACCOUNTS RECEIVABLE
SCHEDULE 3.19 EXPENSES OF TRANSACTION
SCHEDULE 3.20(b) EMPLOYEE BENEFIT PLANS AND EMPLOYEES
77
<PAGE> 83
SCHEDULE 3.20(d) EMPLOYEE PLAN COMPLIANCE
SCHEDULE 3.21 COMPLIANCE WITH LAWS
SCHEDULE 3.22 WARRANTIES/INDEMNITIES
SCHEDULE 3.24 INSURANCE
SCHEDULE 3.24(e) SELF-INSURANCE
Schedule 3.25 BANK ACCOUNTS
<PAGE> 1
EXHIBIT 10.1
CONFORMED COPY
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of March 31, 2000 between
FastComm Communications Corporation, a Virginia corporation (the "Company"),
and CTI Telecom, Inc. (formerly Cronus Technology, Inc.) (the "Holder").
1. Introduction. Pursuant to an Agreement and Plan of
Reorganization dated as of March 27, 2000 among the Company, Cronus Technology,
Inc., Cronus Communications Inc, and certain Principal Stockholders of Cronus
Technology, Inc. (the "Seller") (the "Agreement"), the Board of Directors of
the Company has authorized the grant of certain registration rights to the
Holder on the terms and conditions set forth herein.
2. Registration under the Securities Act. The Holder shall have
the registration rights specified below:
2.1 Primary Registration. The Company will use best
efforts to affect the registration under the Securities Act of the Registrable
Shares within 45 days after the Company has filed its Annual Report on form
10-K for the Company's year 2000 fiscal year. In that regard, the Company
will:
(a) prepare and file with the Commission a
registration statement on any form that the Company is eligible to use, such
form to be selected by the Company after consultation with counsel, with
respect to such Registrable Securities and use best efforts to cause such
registration statement to become effective as soon as practicable. If, for any
reason, such registration statement is not filed with the Commission on or
before September 30, 2000, the Holder shall have the right to demand
registration of his Registrable Securities. Upon receipt of such demand, the
Company shall, as promptly as practicable prepare and file with the Commission
a registration statement sufficient to permit the public offering of the
Registrable Securities and will use best efforts through it's officers,
directors, auditors, and counsel, in all matters necessary or advisable, to
cause such registration statement to become effective as promptly as
practicable; provided, however, the Company shall only be obligated to file one
such registration for the Registrable Securities;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities and other
securities covered by such registration statement until the earlier of such
time as all of such Registrable Securities and securities have been disposed of
in accordance with the intended methods of disposition by the Holder thereof
set forth in such registration statement or the expiration of one hundred and
eighty (180) days after such registration statement becomes effective; and will
furnish, within a reasonable time prior to filing, to the Holder's
Representative prior to the filing thereof a copy of any amendment or
supplement to such registration statement or prospectus and shall not file any
such amendment or supplement to which the Holder's Representative shall have
reasonably objected on the
<PAGE> 2
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or of the rules or
regulations thereunder;
(c) furnish to the Holder's Representative of
such Registrable Securities a copy of each such amendment and supplement
thereto (in each case including all exhibits), and such documents, if any,
incorporated by reference in such registration statement or prospectus, and
such other documents, as the Holder's Representatives may reasonably request;
(d) use best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of the States of the
United States as the Holder shall reasonably request, to keep such registration
or qualification in effect for so long as such registration statement remains
in effect, and do any and all other acts and things which may be necessary or
advisable to enable the Holder to consummate the disposition in such
jurisdictions of his Registrable Securities offered by such registration
statement, except that the Company shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subsection
(d) be obligated to be so qualified, or to subject itself to taxation in any
such jurisdiction, or to consent general service of process in any such
jurisdiction;
In addition, the Company shall not be required to
qualify the Registrable Shares or any portion thereof in any jurisdiction where
the Registrable Shares do not meet the requirements of such jurisdiction.
(e) upon request, furnish to the Holder of
Registrable Securities a signed counterpart, addressed to the Holder, an
opinion of counsel for the Company, dated the effective date of such
registration statement covering such items that are customarily covered in the
opinion of issuer's counsel delivered to underwriters in underwritten public
offerings of securities;
(f) provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
(g) use best efforts to list all Registrable
Securities covered by such registration statement on each securities exchange
on which any of the Company's Common Stock is then listed or, if the Common
Stock is not then quoted on NASDAQ or listed on any national securities
exchange, use its best efforts to have such Company's Common Stock covered by
such registration statement quoted by NASDAQ or, at the option of the Company,
listed on a national securities exchange; and
(h) Expenses. Except as otherwise required by
applicable law, the Company shall pay all Registration Expenses in connection
with the registration of the Registrable Securities pursuant to Section 2.1.
(i) Penalty. If the Company has not filed the
Registration Statement referenced in this Section 2.1 within the time period
specified above and such non-filing was not caused by force majeure, then the
Company will pay to the Holder's Representative a penalty of $100,000.
2
<PAGE> 3
2.2 Piggy-Back Registration.
(a) Right to Include Registrable Shares. If the
Company at any time proposes to register any of its securities under the
Securities Act (other than a registration on Form S-4, S-8, or any successor or
similar forms and other than pursuant to Section 2.1), for sale to the public
whether on its own account or on account of the other holders or both, it will
each such time give prompt written notice to the Holder's Representative of its
intention to do so and of the Holder's rights under this Section 2.2. Upon the
written request of the Holder made within thirty (30) days after the receipt of
the notice (which request shall specify the Registrable Shares intended to be
disposed of by the Holder and the intended method of disposition thereof), the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Shares which the Company has been so
requested to register by the Holder, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Shares so to be registered, by inclusion of such Registrable
Shares in the registration statement and, in the case of an underwritten
offering, the underwriting which covers the securities which the Company
proposes to register; provided, however, that if, at any time after giving
written notice or its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason either not to register
or to delay registration of such securities, the Company may, at its election,
give written notice of such determination to the Holder's Representative and,
upon the giving of such notice, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Shares in connection with such registration (but shall pay all Registration
Expenses in connection therewith), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering such other
securities. No registration effected under this Section 2.2 shall relieve the
Company of its obligation to effect the Primary Registration under Section 2.1.
The Holder's participation in any such piggyback registration shall not require
that he or she pay any portion of the Registration Expenses incurred by the
Company but such Holder shall pay the proportional amount of all underwriting
discounts and commissions applicable to Registrable Shares sold by it and fees
and disbursements of any legal counsel or accountants retained by such Holder.
(b) Priority in Piggy-Back Registrations. If (i)
a registration pursuant to this Section 2.2 involves an underwritten offering
of the securities so being registered to be distributed (on a firm commitment
basis) by or through one or more underwriters of recognized standing under
underwriting terms appropriate for such a transaction, and (ii) the managing
underwriter of such underwritten offering shall inform the Company and the
Holder's Representative (if any Registrable Shares held by the Holder have been
requested to be included in such underwritten offering) by letter of its belief
that the distribution of all or a specified number of the Registrable Shares
requested to be included concurrently with the securities being distributed by
such underwriters would interfere with the successful marketing of the
securities being distributed by such underwriters (such writing to state the
basis of such belief and the approximate number of the Registrable Shares
requested to be included which may be distributed without such effect), then
the Company may, upon written notice to the Holder's Representative, reduce (if
and to the extent stated by such managing underwriter to be necessary to
eliminate such effect) the number of the Registrable Shares, if any, requested
to be included so that the resultant aggregate number of the Registrable Shares
requested to be included that will be included in such registration shall be
equal to the number of shares stated in such managing underwriter's letter;
provided, however, that the priority in such registration shall be subject to
the following restriction. The parties who received Common Stock of the
Company are divided into two classes: (1) former creditors, and (ii) former
stockholders of the Seller. See Attachment 1 hereto. To the extent that there
is a limit on the number of shares that can be registered, such shares shall be
registered in
3
<PAGE> 4
the following order of priority: (i) stockholder-creditors of the Seller, and
(ii) non-creditor, stockholder of the Seller.
(c) Expiration of Piggy-Back Rights. The Company
shall not be obligated to include Registrable Shares in any registration
statement pursuant to this Section 2.2 that will become effective during a
period when the Holder thereof is eligible to sell such Registrable Shares
pursuant to the Commission's Rule 144.
(d) Lack of Information. The Company shall not
be required to register or cause the registration of the Registrable Shares or
any portion thereof pursuant to this Section 2.2 hereof if the Holder shall not
promptly supply the Company with any information about the Holder or his
Registrable Shares which the Company may reasonably and timely request in
written form in order to permit the preparation, filing and effectiveness of a
registration statement in accordance with the Securities Act and any rules and
regulations promulgated by the Commission thereunder.
2.3 Registration Procedures. If and whenever the Company
is required to use best efforts to effect the registration of any Registrable
Shares under the Securities Act as provided in Sections 2.1 and 2.2 the Company
shall, as expeditiously as possible:
(i) prepare and (within sixty (60) days after the
end of the period within which requests for registration may be given to the
Company or in any event as soon thereafter as possible) file with the
Commission the requisite registration statement to effect such registration and
thereafter use best efforts to cause such registration statement to become and
remain effective; provided, however, that the Company may discontinue any
registration of its securities which are not Registrable Shares (and, under the
circumstances specified in Section 2.2(a), its securities which are Registrable
Shares) at any time prior to the effective date of the registration statement
relating thereto;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Shares covered by such
registration statement until the earlier of such time as all of such securities
have been disposed of in accordance with the intended methods of disposition by
the Holder thereof set forth in such registration statement or (a) in the case
of a registration pursuant to Section 2.1, the period of time specified in
Section 2.1, or (b) in the case of a registration pursuant to Section 2.2, the
expiration of one hundred eighty (180) days after such registration statement
becomes effective;
(iii) furnish to the Holder's
Representative of the Registrable Shares covered by such registration statement
and each underwriter, if any, of the securities being sold by such seller such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits), such
number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any
other prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents, as the
Holder and underwriter, if any, may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Shares owned by such
seller;
4
<PAGE> 5
(iv) use best efforts to register or qualify all
Registrable Shares and other securities covered by such registration statement
under such other securities laws or blue sky laws of such jurisdiction the
Holder and any underwriter of the securities being sold by such underwriter and
the Holder shall reasonably request, to keep such registration statement in
effect, and take any other action which may be reasonably necessary or
advisable to enable the Holder and underwriter to consummate the disposition in
such jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not but
for the requirements of this subdivision (iv) be obligated to be so qualified,
to subject itself to taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
(v) notify each seller of Registrable Shares
covered by such registration statement and the Holder, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon the Company's discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made, and at the request of any such seller or the Holder promptly
prepare and furnish to such seller or the Holder and each underwriter, if any,
a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made; and
The Holder agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in subdivision (v)
of this Section 2.3, the Holder will forthwith discontinue his disposition of
Registrable Shares until the Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by subdivision (v) of this Section 2.3 and,
if so directed by the Company (at the Company's expense) all copies, other than
permanent file copies, then in the Holder's possession of the prospectus
relating to such Registrable Shares current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
mentioned in paragraph (ii) of this Section 2.3 shall be extended by the length
of the period from and including the date when each seller of any Registrable
Shares covered by such registration statement shall have received such notice
to the date on which each such seller has received the copies of the
supplemented or amended prospectus contemplated by paragraph (v) of this
Section 2.3.
2.4 Underwritten Offerings.
(a) Underwritten Piggy-Back Offerings. The
Holder of Registrable Shares to be distributed by underwriters in a
registration pursuant to Section 2.2 shall be parties to the underwriting
agreement between the Company and such underwriters and may require that any or
all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement also be conditions precedent to the obligations of
the Holder of Registrable Shares. The Holder agrees to make such
representations or warranties to or agreements with the Company or the
underwriters as are customarily given to the underwriters and any other
representation required by law.
5
<PAGE> 6
(b) Holdback Agreements. Holder agrees, if so
required by the managing underwriter, not to effect any public sale or
distribution of any securities of the Company during the seven days prior to
and the one hundred eighty (180) days (or such longer period as the managing
underwriter may reasonably require for all holdback agreements entered into
with holders of Common Stock) after any underwritten registration pursuant to
Section 2.2 has become effective (the "Holdback"), except as part of such
underwritten registration, whether or not such Holder participates in such
registration; provided however, that if a Holder does not participate in a
registration, such Holder shall not be subject to the Holdback beyond the
expiration of this Agreement, unless agreed to in writing.
2.5 Preparation; Reasonable Investigation.
Notwithstanding Section 2.1 hereof and despite a Request, the Company shall not
be required to file any registration statement, or if filed cause any
registration statement to become effective, if at the time the Holder makes a
Request, or during the period after filing but before effectiveness, the
Company is engaged in negotiations to acquire the stock or assets of any
business entity which would be required to make any public announcement
thereof; provided, however, no such delay occasioned under this Section shall
exceed ninety (90) days. If, however, the Company shall take any action with
respect to the acquisition of the stock or assets of any business entity which
would require the Company to amend any prospectus included in a registration
statement which became effective under the provisions of Section 2.1 hereof by
including therein financial statements which conform to the requirements of
Regulation S-X promulgated by the Commission, the Holder agrees to suspend the
offering or sale of the Registrable Shares or any portion thereof for a period
not to exceed 90 days so that the Company may prepare such financial
statements, provided that the Company uses best efforts to prepare such
financial statements as promptly as possible and provided further that the
ninety (90) day period referred to in the first sentence of this Section shall
be extended for a period equivalent to the delay.
The Company shall furnish the Holder's Representative with a printer's
proof of Part I of any registration statement sufficiently in advance of its
filing with the Commission to provide the Holder and it's counsel with a
reasonable opportunity for review and comment, which proof shall not be
materially different in content from Part I of the registration statement as
filed. In addition, the Company shall furnish to the Holder's Representative,
within reasonable time prior to the filing thereof, a copy of any registration
statement as filed with the Commission and any amendments thereto, including if
requested, copies of any exhibits and consents filed therewith and of any
exhibits incorporated therein by reference, and shall not circulate any
preliminary prospectus until five (5) days after a copy of the same has been
furnished to the Holder's Representative. In addition, the Company shall
furnish the Holder's Representative as many copies of any prospectuses (and of
any preliminary, amended or supplemented prospectuses) in connection with such
registration as the Holder's Representative may reasonably request.
3. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
(a) Agreement: As defined in Section 1 of this Agreement.
(b) Closing Date: As defined in Section 1 (c) of the
Agreement.
(c) Commission: The Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
6
<PAGE> 7
(d) Common Stock: The common stock, .01 par value, of the
Company.
(e) Company: As defined in the introductory paragraph of
this Agreement.
(f) Holder: As defined in the introductory paragraph to
this Agreement. "Holders" shall mean all of the former stockholders of Seller
listed on Attachment 1.
(g) Holder's Representative shall mean William J. Dawson.
(h) Person: A corporation, an association, a partnership,
an organization, business, an individual, a governmental or political
subdivision thereof or a governmental agency.
(i) Registrable Shares or Registrable Securities: (a) Any
shares of Common Stock received by Holder pursuant to the Agreement, and (b)
any additional shares of Common Stock receivable or received by the Holder upon
the payment of stock dividends thereon and (c) any securities issued or
issuable with respect to the Common Stock referred to in the foregoing
subdivision by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise, excepting any of the aforementioned shares which,
in the opinion of Sokolow, Dunaud, Mercadier & Carreras, LLP (or if such firm
is not counsel to the Company, counsel to the Holder), may at the time of
proposed sale or registration be sold pursuant to Rule 144(k) of the Securities
Act or any exemption to the same effect which permits such shares to be freely
sold. Any particular Registrable Shares shall cease to be Registrable Shares
when (i) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (ii) they
may be distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, or (iii) three years shall have expired
since the Closing Date.
(j) Registration Expenses: All expenses incident to the
Company's performance of or compliance with Section 2, including, without
limitation, all registration, filing Securities and Exchange commission and
National Association of Securities Dealers, Inc. fees, all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating
and printing expenses, messenger and delivery expenses, internal expenses, the
fees and disbursement of counsel for the Company and of its independent public
accountants any fees and disbursements of underwriters customarily paid by
issuers of securities, but excluding underwriting discounts and commissions and
fees and disbursements of legal counsel and accountants, if any, retained by
the Holders.
(k) Request: The act of the Holder or Holder's
Representative to either demand or request registration by the Company of
either all or any portion thereof of it's Registrable Shares.
(l) Securities Act: The Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as of the same shall be in effect at the time.
References to a particular section of the Securities Act of 1933 shall include
a reference to the comparable section, if any, of any such similar Federal
statute.
7
<PAGE> 8
4. Covenants and Representations of the Company.
(a) From the date of this Agreement, the Company shall
not, without the prior written consent of the holders of at least a majority of
the outstanding Registrable Securities held by the Holders, enter into any
agreement with any holder or prospective holder of any securities of the
Company which gives such holder or prospective holder rights that are superior
to, or which adversely affect, the rights granted under this Agreement;
provided however, that the foregoing covenant shall be null and void upon the
earlier of (i) the Registration of the Registrable Shares pursuant to Section
2.1; (ii) the Registration of the Registrable Shares pursuant to Section 2.2;
(iii) the availability for resale of the Registrable Shares pursuant to Rule
144, or other applicable rule.
(b) The Company hereby represents and warrants that there
are no other registration rights which it has previously granted which are
superior to those stated herein, except as set forth in Attachment 2 hereof.
5. Rule 144. The Company shall timely request and/or file the
reports required to be filed by it under the Securities Exchange Act of 1934
(including but not limited to the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the
Commission under the Securities Act) and the rules and regulations adopted by
the Commission thereunder and will take such further action as any Holder of
Registrable Shares may reasonably request, all to the extent required from time
to time to enable such Holder to sell Registrable Shares without registration
under the Securities Act within the limitation of the exemptions provided by
(a) Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or (b) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of the Holder, the Company will deliver to such
Holder a written statement as to whether it has complied with such
requirements.
6. Amendments and Waivers. This Agreement may be amended only by
written instrument signed by the parties hereto.
7. Nominees for Beneficial Owners. In the event that any
Registrable Shares are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at his election, be treated as the Holder of such
Registrable Shares for purposes of any request or other action by any Holder or
the Holders pursuant to this Agreement. If the beneficial owner of any
Registrable Shares so elects, the Company may require assurance reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Shares.
8. Notices. Any notice or other communication required or
permitted to be given hereunder shall be deemed to have been given if
delivered, or five (5) days after mailing by certified or registered mail,
return receipt requested, first class postage prepaid, or one business day
after the time dispatched by telecopy; in every case addressed as follows:
<TABLE>
<S> <C> <C>
(a) If to the Company: FastComm Communications Corporation
45472 Holiday Drive
Sterling, Virginia 20166
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C>
(b) If to the Holder or the
Holder's Representative: William J. Dawson
4001 Prentice Lane
Austin, Texas 78746
(c) With Copies to: Robert B. Webb, III
Reed Smith Hazel & Thomas LLP
8251 Greensboro Drive - Suite 1100
Suite 1100
McLean, Virginia 22102
</TABLE>
(which shall not constitute notice to Holder or Holder's Representative)
or at such address as the party addressed may from time to time designate in
writing to the other parties in like manner. Any communication dispatched by
telecopy shall be confirmed by letter.
9. Indemnification. The Company and the Holder agree to
indemnify each other on the terms and conditions set forth below:
(a) Indemnification by the Company. The Company will
indemnify and hold harmless the Holder and each underwriter (as defined in the
Securities Act) employed by the Holder (including any broker or dealer through
whom the shares may be sold) and each person, if any, who controls the Holder
or any such underwriter within the meaning of the Securities Act from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them may become subject under the Securities
Act or under any other statute or at common law or otherwise, including the
Blue Sky laws of the various jurisdictions, and, except as hereinafter
provided, will reimburse the Holder and each of the underwriters and each such
controlling person, if any, for any legal or other expenses reasonably incurred
by them or any of them in connection with investigating or defending any
actions whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based
upon any untrue statement of a material fact, or omission to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, contained in any registration statement, preliminary or
amended prospectus or any prospectus (or any registration statement or
prospectus as from time to time amended or supplemented by the Company) which
the Company shall file pursuant to either Sections 2.1 or 2.2 hereof, unless
such untrue statement or omission was made in such registration statement,
preliminary or amended preliminary prospectus or prospectus (or any
registration statement or prospectus as from time to time amended or
supplemented by the Company) in reliance upon and in conformity with
information furnished in writing to the Company by the Holder or any
underwriter employed by the Holder and arising out of any violations by the
Company of any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with such registration. Promptly after
receipt by the Holder or any underwriter or any person controlling the Holder
or such underwriter of notice of the commencement of any action (but in no
event later than ten (10) days prior to the time any notice of appearance or
any response thereto is required) in respect of which indemnity may be sought
against the Company, the Holder or such underwriter, as the case may be, shall
notify the Company in writing of the commencement thereof, and, subject to the
provisions hereinafter stated, the Company shall assume the defense of such
action (including the employment of counsel) insofar as such action shall
relate to any alleged liability in respect of which indemnity may be sought
against the Company. The Holder or any underwriter or any such controlling
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<PAGE> 10
person shall have the right to employ separate counsel in any such action and
to participate in the defense thereof, but the fees and expenses of such
counsel shall not be at the expense of the Company unless the employment of
such counsel has been specifically authorized by it. The Company shall not be
liable to indemnify any person, as required by this Section, for any settlement
of any such action effected without its consent, nor shall it be liable to
indemnify any person unless it shall be notified of the commencement of any
action within the time limits and as set forth above.
(b) Indemnification by the Holder. The Holder will
indemnify and hold harmless the Company, each of its directors and officers who
have signed the registration statement and each person, if any, who controls
the Company with the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them may become subject under the Securities
Act or under any other statute or at common law or otherwise, including the
Blue Sky laws of the various jurisdictions, and except as hereinafter provided,
will reimburse the Company and each such director, officer or controlling
person for any legal or other expenses reasonably incurred by them or any of
them in connection with investigating or defending any actions whether or not
resulting in any liability, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue statement of
material fact, or an omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, contained in any registration statement, any preliminary or amended
preliminary prospectus or in any prospectus (or the registration statement or
prospectus as from time to time amended or supplemented) which the Company
shall file pursuant to Sections 2.1 or 2.2 hereof, but only insofar as any such
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by the Holder or any
underwriter employed by the Holder. Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought against
the Holder (but in no event later than ten (10) days prior to the time any
notice of appearance or any response thereto is required) the Company shall
notify the Holder in writing of the commencement thereof, and the Holder shall,
subject to the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel) insofar as such action shall relate to
any alleged liability in respect of which indemnity may be sought against the
Holder. The Company and each director, officer or controlling person shall
have the right to employ separate counsel in any such action and to participate
in the defense thereof, but the fees and expenses of such counsel shall not be
at the expense of the Holder unless the employment of such counsel has been
specifically authorized by him. The Holder shall not be liable to indemnify
any person, as required by this Section, for any settlement of any such action
effected without the Holder's consent, nor shall he be liable to indemnify any
person unless he shall be notified of the commencement of any action within the
time limits and as set forth above.
10. Miscellaneous.
(a) Assignment. This Agreement and the rights, interests
and obligations hereunder shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
assigns. In addition, and whether or not any express assignment shall have
been made, the provisions of this Agreement which are for the benefit of the
parties hereto other than the Company shall also be for the benefit of and
enforceable by any subsequent Holder of any Registrable Shares. Any assignment
pursuant hereto by either party shall be consented in writing, and any such
written consent shall not be unreasonably withheld by either party.
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<PAGE> 11
(b) No Third-Party Beneficiaries. Except for the
provisions of Section 9(a) and (b) this Agreement is for the sole benefit of
the parties hereto and their respective successors and permitted assigns and
nothing herein expressed or implied shall give or be construed to give to any
Person, other than the parties hereto and such successors and assigns, any
legal or equitable rights hereunder, except to the extent otherwise provided in
this Agreement.
(c) Descriptive Headings. The descriptive headings of
the several sections and paragraphs of this Agreement are inserted for
reference only and shall not limit or otherwise affect the meaning hereof.
(d) Waivers. No failure or delay of any party in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the parties hereunder are
cumulative and are not exclusive of any rights or remedies which the parties
would otherwise have. No waiver of any provision of this Agreement or consent
to any departure by the Company therefrom shall in any event be effective
unless the same shall be effected in accordance with this Section 10(d), and
then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances. Neither this Agreement nor any provision
hereof may be waived, amended or modified except pursuant to prior written
consent of the Holders.
(e) Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed
by, the laws of the Commonwealth of Virginia without reference to the
principles of conflicts of laws.
(f) Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, and may be executed in any number
of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
(g) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the Company and each other party hereto and
supersedes all prior agreements and understandings related to the subject
matter hereof.
(h) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions held invalid, illegal or
unenforceable shall substantially impair the benefits of the remaining
provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
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<PAGE> 12
<TABLE>
<S> <C>
THE COMPANY:
FASTCOMM COMMUNICATIONS CORPORATION
/s/ Peter C. Madsen
-------------------------------------
Name: Peter C. Madsen
Title: President
THE HOLDER:
CTI TELECOM, INC.
/s/ Dhru Desai
-------------------------------------
Name: Dhru Desai
Title: President
HOLDER'S REPRESENTATIVE
/s/ William J. Dawson
-------------------------------------
William J. Dawson
</TABLE>
12
<PAGE> 13
ATTACHMENT 1
CREDITOR-STOCKHOLDERS
1. WILLIAM J. DAWSON
2. J.A. SUNKEL
3. WILLIAM F. FERGUSON
4. GEORGE CHEN
NON-CREDITOR STOCKHOLDERS:
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<PAGE> 14
ATTACHMENT 2
1. REGISTRATION RIGHTS GRANTED TO KAUFMAN BROS. LLP
14
<PAGE> 1
EXHIBIT 10.2
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of March 31, 2000
between FastComm Communications Corporation, a Virginia corporation (the
"Company"), and _________________________ (the "Holder").
1. Introduction. Pursuant to an Agreement and Plan of
Reorganization dated as of March 27, 2000 among the Company, Cronus Technology,
Inc., Cronus Communications Inc, and certain Principal Stockholders of Cronus
Technology, Inc. (the "Seller") (the "Agreement"), the Board of Directors of
the Company has authorized the grant of certain registration rights to the
Holder on the terms and conditions set forth herein.
2. Registration under the Securities Act. The Holder
shall have the registration rights specified below:
2.1 Primary Registration. The Company will use
best efforts to affect the registration under the Securities Act of the
Registrable Shares within 45 days after the Company has filed its Annual Report
on form 10-K for the Company's year 2000 fiscal year. In that regard, the
Company will:
(a) prepare and file with the Commission
a registration statement on any form that the Company is eligible to use, such
form to be selected by the Company after consultation with counsel, with
respect to such Registrable Securities and use best efforts to cause such
registration statement to become effective as soon as practicable. If, for any
reason, such registration statement is not filed with the Commission on or
before September 30, 2000, the Holder shall have the right to demand
registration of his Registrable Securities. Upon receipt of such demand, the
Company shall, as promptly as practicable prepare and file with the Commission
a registration statement sufficient to permit the public offering of the
Registrable Securities and will use best efforts through it's officers,
directors, auditors, and counsel, in all matters necessary or advisable, to
cause such registration statement to become effective as promptly as
practicable; provided, however, the Company shall only be obligated to file one
such registration for the Registrable Securities;
(b) prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
and other securities covered by such registration statement until the earlier
of such time as all of such Registrable Securities and securities have been
disposed of in accordance with the intended methods of disposition by the
Holder thereof set forth in such registration statement or the expiration of
one
<PAGE> 2
hundred and eighty (180) days after such registration statement becomes
effective; and will furnish, within a reasonable time prior to filing, to the
Holder's Representative prior to the filing thereof a copy of any amendment or
supplement to such registration statement or prospectus and shall not file any
such amendment or supplement to which the Holder's Representative shall have
reasonably objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
of the rules or regulations thereunder;
(c) furnish to the Holder's
Representative of such Registrable Securities a copy of each such amendment and
supplement thereto (in each case including all exhibits), and such documents,
if any, incorporated by reference in such registration statement or prospectus,
and such other documents, as the Holder's Representatives may reasonably
request;
(d) use best efforts to register or
qualify all Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of the
States of the United States as the Holder shall reasonably request, to keep
such registration or qualification in effect for so long as such registration
statement remains in effect, and do any and all other acts and things which may
be necessary or advisable to enable the Holder to consummate the disposition in
such jurisdictions of his Registrable Securities offered by such registration
statement, except that the Company shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subsection
(d) be obligated to be so qualified, or to subject itself to taxation in any
such jurisdiction, or to consent general service of process in any such
jurisdiction;
In addition, the Company shall not be
required to qualify the Registrable Shares or any portion thereof in any
jurisdiction where the Registrable Shares do not meet the requirements of such
jurisdiction.
(e) upon request, furnish to the Holder
of Registrable Securities a signed counterpart, addressed to the Holder, an
opinion of counsel for the Company, dated the effective date of such
registration statement covering such items that are customarily covered in the
opinion of issuer's counsel delivered to underwriters in underwritten public
offerings of securities;
(f) provide and cause to be maintained a
transfer agent and registrar for all Registrable Securities covered by such
registration statement from and after a date not later than the effective date
of such registration statement;
(g) use best efforts to list all
Registrable Securities covered by such registration statement on each
securities exchange on which any of the Company's Common Stock is then listed
or, if the Common Stock is not then quoted on NASDAQ or listed on any national
securities exchange, use its best efforts to have such Company's Common Stock
covered by such registration statement quoted by NASDAQ or, at the option of
the Company, listed on a national securities exchange; and
(h) Expenses. Except as otherwise
required by applicable law, the Company shall pay all Registration Expenses in
connection with the registration of the Registrable Securities pursuant to
Section 2.1.
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<PAGE> 3
(i) Penalty. If the Company has not
filed the Registration Statement referenced in this Section 2.1 within the time
period specified above and such non-filing was not caused by force majeure,
then the Company will pay to the Holder's Representative a penalty of $100,000.
2.2 Piggy-Back Registration.
(a) Right to Include Registrable Shares.
If the Company at any time proposes to register any of its securities under the
Securities Act (other than a registration on Form S-4, S-8, or any successor or
similar forms and other than pursuant to Section 2.1), for sale to the public
whether on its own account or on account of the other holders or both, it will
each such time give prompt written notice to the Holder's Representative of its
intention to do so and of the Holder's rights under this Section 2.2. Upon the
written request of the Holder made within thirty (30) days after the receipt of
the notice (which request shall specify the Registrable Shares intended to be
disposed of by the Holder and the intended method of disposition thereof), the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Shares which the Company has been so
requested to register by the Holder, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Shares so to be registered, by inclusion of such Registrable
Shares in the registration statement and, in the case of an underwritten
offering, the underwriting which covers the securities which the Company
proposes to register; provided, however, that if, at any time after giving
written notice or its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason either not to register
or to delay registration of such securities, the Company may, at its election,
give written notice of such determination to the Holder's Representative and,
upon the giving of such notice, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Shares in connection with such registration (but shall pay all Registration
Expenses in connection therewith), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering such other
securities. No registration effected under this Section 2.2 shall relieve the
Company of its obligation to effect the Primary Registration under Section 2.1.
The Holder's participation in any such piggyback registration shall not require
that he or she pay any portion of the Registration Expenses incurred by the
Company but such Holder shall pay the proportional amount of all underwriting
discounts and commissions applicable to Registrable Shares sold by it and fees
and disbursements of any legal counsel or accountants retained by such Holder.
(b) Priority in Piggy-Back
Registrations. If (i) a registration pursuant to this Section 2.2 involves an
underwritten offering of the securities so being registered to be distributed
(on a firm commitment basis) by or through one or more underwriters of
recognized standing under underwriting terms appropriate for such a
transaction, and (ii) the managing underwriter of such underwritten offering
shall inform the Company and the Holder's Representative (if any Registrable
Shares held by the Holder have been requested to be included in such
underwritten offering) by letter of its belief that the distribution of all or
a specified number of the Registrable Shares requested to be included
concurrently with the securities being distributed by such underwriters would
interfere with the successful marketing of the securities being distributed by
such underwriters (such writing to state the basis of such belief and the
approximate number of
3
<PAGE> 4
the Registrable Shares requested to be included which may be distributed
without such effect), then the Company may, upon written notice to the Holder's
Representative, reduce (if and to the extent stated by such managing
underwriter to be necessary to eliminate such effect) the number of the
Registrable Shares, if any, requested to be included so that the resultant
aggregate number of the Registrable Shares requested to be included that will
be included in such registration shall be equal to the number of shares stated
in such managing underwriter's letter; provided, however, that the priority in
such registration shall be subject to the following restriction. The parties
who received Common Stock of the Company are divided into two classes: (1)
former creditors, and (ii) former stockholders of the Seller. See Attachment 1
hereto. To the extent that there is a limit on the number of shares that can
be registered, such shares shall be registered in the following order of
priority: (i) stockholder-creditors of the Seller, and (ii) non-creditor,
stockholder of the Seller.
(c) Expiration of Piggy-Back Rights.
The Company shall not be obligated to include Registrable Shares in any
registration statement pursuant to this Section 2.2 that will become effective
during a period when the Holder thereof is eligible to sell such Registrable
Shares pursuant to the Commission's Rule 144.
(d) Lack of Information. The Company
shall not be required to register or cause the registration of the Registrable
Shares or any portion thereof pursuant to this Section 2.2 hereof if the Holder
shall not promptly supply the Company with any information about the Holder or
his Registrable Shares which the Company may reasonably and timely request in
written form in order to permit the preparation, filing and effectiveness of a
registration statement in accordance with the Securities Act and any rules and
regulations promulgated by the Commission thereunder.
2.3 Registration Procedures. If and whenever the
Company is required to use best efforts to effect the registration of any
Registrable Shares under the Securities Act as provided in Sections 2.1 and 2.2
the Company shall, as expeditiously as possible:
(i) prepare and (within sixty (60) days
after the end of the period within which requests for registration may be given
to the Company or in any event as soon thereafter as possible) file with the
Commission the requisite registration statement to effect such registration and
thereafter use best efforts to cause such registration statement to become and
remain effective; provided, however, that the Company may discontinue any
registration of its securities which are not Registrable Shares (and, under the
circumstances specified in Section 2.2(a), its securities which are Registrable
Shares) at any time prior to the effective date of the registration statement
relating thereto;
(ii) prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Shares
covered by such registration statement until the earlier of such time as all of
such securities have been disposed of in accordance with the intended methods
of disposition by the Holder thereof set forth in such registration statement
or (a) in the case of a registration pursuant to Section 2.1, the period of
time specified in Section 2.1, or (b) in the case of a registration pursuant to
Section 2.2, the expiration of one hundred eighty (180) days after such
registration statement becomes effective;
4
<PAGE> 5
(iii) furnish to the Holder's
Representative of the Registrable Shares covered by such registration statement
and each underwriter, if any, of the securities being sold by such seller such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits), such
number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any
other prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents, as the
Holder and underwriter, if any, may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Shares owned by such
seller;
(iv) use best efforts to register or
qualify all Registrable Shares and other securities covered by such
registration statement under such other securities laws or blue sky laws of
such jurisdiction the Holder and any underwriter of the securities being sold
by such underwriter and the Holder shall reasonably request, to keep such
registration statement in effect, and take any other action which may be
reasonably necessary or advisable to enable the Holder and underwriter to
consummate the disposition in such jurisdictions of the securities owned by
such seller, except that the Company shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subdivision
(iv) be obligated to be so qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in any such
jurisdiction;
(v) notify each seller of Registrable
Shares covered by such registration statement and the Holder, at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act, upon the Company's discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made, and at the request of any such seller or the Holder promptly
prepare and furnish to such seller or the Holder and each underwriter, if any,
a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made; and
The Holder agrees that, upon receipt of any notice
from the Company of the occurrence of any event of the kind described in
subdivision (v) of this Section 2.3, the Holder will forthwith discontinue his
disposition of Registrable Shares until the Holder's receipt of the copies of
the supplemented or amended prospectus contemplated by subdivision (v) of this
Section 2.3 and, if so directed by the Company (at the Company's expense) all
copies, other than permanent file copies, then in the Holder's possession of
the prospectus relating to such Registrable Shares current at the time of
receipt of such notice. In the event the Company shall give any such notice,
the period mentioned in paragraph (ii) of this Section 2.3 shall be extended by
the length of the period from and including the date when each seller of any
Registrable Shares covered by such registration statement shall have received
such notice to the date on which each such seller has received the
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<PAGE> 6
copies of the supplemented or amended prospectus contemplated by paragraph (v)
of this Section 2.3.
2.4 Underwritten Offerings.
(a) Underwritten Piggy-Back Offerings.
The Holder of Registrable Shares to be distributed by underwriters in a
registration pursuant to Section 2.2 shall be parties to the underwriting
agreement between the Company and such underwriters and may require that any or
all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement also be conditions precedent to the obligations of
the Holder of Registrable Shares. The Holder agrees to make such
representations or warranties to or agreements with the Company or the
underwriters as are customarily given to the underwriters and any other
representation required by law.
(b) Holdback Agreements. Holder agrees,
if so required by the managing underwriter, not to effect any public sale or
distribution of any securities of the Company during the seven days prior to
and the one hundred eighty (180) days (or such longer period as the managing
underwriter may reasonably require for all holdback agreements entered into
with holders of Common Stock) after any underwritten registration pursuant to
Section 2.2 has become effective (the "Holdback"), except as part of such
underwritten registration, whether or not such Holder participates in such
registration; provided however, that if a Holder does not participate in a
registration, such Holder shall not be subject to the Holdback beyond the
expiration of this Agreement, unless agreed to in writing.
2.5 Preparation; Reasonable Investigation.
Notwithstanding Section 2.1 hereof and despite a Request, the Company shall not
be required to file any registration statement, or if filed cause any
registration statement to become effective, if at the time the Holder makes a
Request, or during the period after filing but before effectiveness, the
Company is engaged in negotiations to acquire the stock or assets of any
business entity which would be required to make any public announcement
thereof; provided, however, no such delay occasioned under this Section shall
exceed ninety (90) days. If, however, the Company shall take any action with
respect to the acquisition of the stock or assets of any business entity which
would require the Company to amend any prospectus included in a registration
statement which became effective under the provisions of Section 2.1 hereof by
including therein financial statements which conform to the requirements of
Regulation S-X promulgated by the Commission, the Holder agrees to suspend the
offering or sale of the Registrable Shares or any portion thereof for a period
not to exceed 90 days so that the Company may prepare such financial
statements, provided that the Company uses best efforts to prepare such
financial statements as promptly as possible and provided further that the
ninety (90) day period referred to in the first sentence of this Section shall
be extended for a period equivalent to the delay.
The Company shall furnish the Holder's Representative with a
printer's proof of Part I of any registration statement sufficiently in advance
of its filing with the Commission to provide the Holder and it's counsel with a
reasonable opportunity for review and comment, which proof shall not be
materially different in content from Part I of the registration statement as
filed. In addition, the Company shall furnish to the Holder's Representative,
within reasonable time prior to the filing
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<PAGE> 7
thereof, a copy of any registration statement as filed with the Commission and
any amendments thereto, including if requested, copies of any exhibits and
consents filed therewith and of any exhibits incorporated therein by reference,
and shall not circulate any preliminary prospectus until five (5) days after a
copy of the same has been furnished to the Holder's Representative. In
addition, the Company shall furnish the Holder's Representative as many copies
of any prospectuses (and of any preliminary, amended or supplemented
prospectuses) in connection with such registration as the Holder's
Representative may reasonably request.
3. Definitions. As used herein, unless the context
otherwise requires, the following terms have the following respective meanings:
(a) Agreement: As defined in Section 1 of this
Agreement.
(b) Closing Date: As defined in Section 1 (c) of
the Agreement.
(c) Commission: The Securities and Exchange
Commission or any other Federal agency at the time administering the Securities
Act.
(d) Common Stock: The common stock, .01 par
value, of the Company.
(e) Company: As defined in the introductory
paragraph of this Agreement.
(f) Holder: As defined in the introductory
paragraph to this Agreement. "Holders" shall mean all of the former
stockholders of Seller listed on Attachment 1.
(g) Holder's Representative shall mean William J.
Dawson.
(h) Person: A corporation, an association, a
partnership, an organization, business, an individual, a governmental or
political subdivision thereof or a governmental agency.
(i) Registrable Shares or Registrable Securities:
(a) Any shares of Common Stock received by Holder pursuant to the Agreement,
and (b) any additional shares of Common Stock receivable or received by the
Holder upon the payment of stock dividends thereon and (c) any securities
issued or issuable with respect to the Common Stock referred to in the
foregoing subdivision by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise, excepting any of the aforementioned shares which,
in the opinion of Sokolow, Dunaud, Mercadier & Carreras, LLP (or if such firm
is not counsel to the Company, counsel to the Holder), may at the time of
proposed sale or registration be sold pursuant to Rule 144(k) of the Securities
Act or any exemption to the same effect which permits such shares to be freely
sold. Any particular Registrable Shares shall cease to be Registrable Shares
when (i) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (ii) they
may be distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, or (iii) three years shall have expired
since the Closing Date.
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<PAGE> 8
(j) Registration Expenses: All expenses incident
to the Company's performance of or compliance with Section 2, including,
without limitation, all registration, filing Securities and Exchange commission
and National Association of Securities Dealers, Inc. fees, all fees and
expenses of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, internal
expenses, the fees and disbursement of counsel for the Company and of its
independent public accountants any fees and disbursements of underwriters
customarily paid by issuers of securities, but excluding underwriting discounts
and commissions and fees and disbursements of legal counsel and accountants, if
any, retained by the Holders.
(k) Request: The act of the Holder or Holder's
Representative to either demand or request registration by the Company of
either all or any portion thereof of it's Registrable Shares.
(l) Securities Act: The Securities Act of 1933,
as amended, or any similar Federal statute, and the rules and regulations of
the Commission thereunder, all as of the same shall be in effect at the time.
References to a particular section of the Securities Act of 1933 shall include
a reference to the comparable section, if any, of any such similar Federal
statute.
4. Covenants and Representations of the Company.
(a) From the date of this Agreement, the Company
shall not, without the prior written consent of the holders of at least a
majority of the outstanding Registrable Securities held by the Holders, enter
into any agreement with any holder or prospective holder of any securities of
the Company which gives such holder or prospective holder rights that are
superior to, or which adversely affect, the rights granted under this
Agreement; provided however, that the foregoing covenant shall be null and void
upon the earlier of (i) the Registration of the Registrable Shares pursuant to
Section 2.1; (ii) the Registration of the Registrable Shares pursuant to
Section 2.2; (iii) the availability for resale of the Registrable Shares
pursuant to Rule 144, or other applicable rule.
(b) The Company hereby represents and warrants
that there are no other registration rights which it has previously granted
which are superior to those stated herein, except as set forth in Attachment 2
hereof.
5. Rule 144. The Company shall timely request and/or
file the reports required to be filed by it under the Securities Exchange Act
of 1934 (including but not limited to the reports under Sections 13 and 15(d)
of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by
the Commission under the Securities Act) and the rules and regulations adopted
by the Commission thereunder and will take such further action as any Holder of
Registrable Shares may reasonably request, all to the extent required from time
to time to enable such Holder to sell Registrable Shares without registration
under the Securities Act within the limitation of the exemptions provided by
(a) Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or (b) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of the Holder, the Company will deliver to such
Holder a written statement as to whether it has complied with such
requirements.
8
<PAGE> 9
6. Amendments and Waivers. This Agreement may be
amended only by written instrument signed by the parties hereto.
7. Nominees for Beneficial Owners. In the event that
any Registrable Shares are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at his election, be treated as the Holder of
such Registrable Shares for purposes of any request or other action by any
Holder or the Holders pursuant to this Agreement. If the beneficial owner of
any Registrable Shares so elects, the Company may require assurance reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Shares.
8. Notices. Any notice or other communication required
or permitted to be given hereunder shall be deemed to have been given if
delivered, or five (5) days after mailing by certified or registered mail,
return receipt requested, first class postage prepaid, or one business day
after the time dispatched by telecopy; in every case addressed as follows:
<TABLE>
<S> <C> <C>
(a) If to the Company: FastComm Communications Corporation
45472 Holiday Drive
Sterling, Virginia 20166
(b) If to the Holder or the
Holder's Representative: William J. Dawson
4001 Prentice Lane
Austin, Texas 78746
(c) With Copies to: Robert B. Webb, III
Reed Smith Hazel & Thomas LLP
8251 Greensboro Drive - Suite 1100
Suite 1100
McLean, Virginia 22102
</TABLE>
(which shall not constitute notice to Holder or Holder's Representative)
or at such address as the party addressed may from time to time designate in
writing to the other parties in like manner. Any communication dispatched by
telecopy shall be confirmed by letter.
9. Indemnification. The Company and the Holder agree to
indemnify each other on the terms and conditions set forth below:
(a) Indemnification by the Company. The Company
will indemnify and hold harmless the Holder and each underwriter (as defined in
the Securities Act) employed by the Holder (including any broker or dealer
through whom the shares may be sold) and each person, if any, who controls the
Holder or any such underwriter within the meaning of the Securities Act from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several, to which they or any of them may become subject under the
Securities Act or under any other statute or at common law or otherwise,
including the Blue Sky laws of the various jurisdictions, and, except as
hereinafter
9
<PAGE> 10
provided, will reimburse the Holder and each of the underwriters and each such
controlling person, if any, for any legal or other expenses reasonably incurred
by them or any of them in connection with investigating or defending any
actions whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based
upon any untrue statement of a material fact, or omission to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, contained in any registration statement, preliminary or
amended prospectus or any prospectus (or any registration statement or
prospectus as from time to time amended or supplemented by the Company) which
the Company shall file pursuant to either Sections 2.1 or 2.2 hereof, unless
such untrue statement or omission was made in such registration statement,
preliminary or amended preliminary prospectus or prospectus (or any
registration statement or prospectus as from time to time amended or
supplemented by the Company) in reliance upon and in conformity with
information furnished in writing to the Company by the Holder or any
underwriter employed by the Holder and arising out of any violations by the
Company of any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with such registration. Promptly after
receipt by the Holder or any underwriter or any person controlling the Holder
or such underwriter of notice of the commencement of any action (but in no
event later than ten (10) days prior to the time any notice of appearance or
any response thereto is required) in respect of which indemnity may be sought
against the Company, the Holder or such underwriter, as the case may be, shall
notify the Company in writing of the commencement thereof, and, subject to the
provisions hereinafter stated, the Company shall assume the defense of such
action (including the employment of counsel) insofar as such action shall
relate to any alleged liability in respect of which indemnity may be sought
against the Company. The Holder or any underwriter or any such controlling
person shall have the right to employ separate counsel in any such action and
to participate in the defense thereof, but the fees and expenses of such
counsel shall not be at the expense of the Company unless the employment of
such counsel has been specifically authorized by it. The Company shall not be
liable to indemnify any person, as required by this Section, for any settlement
of any such action effected without its consent, nor shall it be liable to
indemnify any person unless it shall be notified of the commencement of any
action within the time limits and as set forth above.
(b) Indemnification by the Holder. The Holder
will indemnify and hold harmless the Company, each of its directors and
officers who have signed the registration statement and each person, if any,
who controls the Company with the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages, expenses or liabilities,
joint or several, to which they or any of them may become subject under the
Securities Act or under any other statute or at common law or otherwise,
including the Blue Sky laws of the various jurisdictions, and except as
hereinafter provided, will reimburse the Company and each such director,
officer or controlling person for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based
upon any untrue statement of material fact, or an omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, contained in any registration statement, any
preliminary or amended preliminary prospectus or in any prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented) which the Company shall file pursuant to Sections 2.1 or 2.2
hereof, but only insofar as any such statement or
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<PAGE> 11
omission was made in reliance upon and in conformity with information furnished
in writing to the Company by the Holder or any underwriter employed by the
Holder. Promptly after receipt of notice of the commencement of any action in
respect of which indemnity may be sought against the Holder (but in no event
later than ten (10) days prior to the time any notice of appearance or any
response thereto is required) the Company shall notify the Holder in writing of
the commencement thereof, and the Holder shall, subject to the provisions
hereinafter stated, assume the defense of such action (including the employment
of counsel) insofar as such action shall relate to any alleged liability in
respect of which indemnity may be sought against the Holder. The Company and
each director, officer or controlling person shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
Holder unless the employment of such counsel has been specifically authorized
by him. The Holder shall not be liable to indemnify any person, as required by
this Section, for any settlement of any such action effected without the
Holder's consent, nor shall he be liable to indemnify any person unless he
shall be notified of the commencement of any action within the time limits and
as set forth above.
10. Miscellaneous.
(a) Assignment. This Agreement and the rights,
interests and obligations hereunder shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the
benefit of the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent Holder of any Registrable Shares.
Any assignment pursuant hereto by either party shall be consented in writing,
and any such written consent shall not be unreasonably withheld by either
party.
(b) No Third-Party Beneficiaries. Except for the
provisions of Section 9(a) and (b) this Agreement is for the sole benefit of
the parties hereto and their respective successors and permitted assigns and
nothing herein expressed or implied shall give or be construed to give to any
Person, other than the parties hereto and such successors and assigns, any
legal or equitable rights hereunder, except to the extent otherwise provided in
this Agreement.
(c) Descriptive Headings. The descriptive
headings of the several sections and paragraphs of this Agreement are inserted
for reference only and shall not limit or otherwise affect the meaning hereof.
(d) Waivers. No failure or delay of any party in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the parties hereunder are
cumulative and are not exclusive of any rights or remedies which the parties
would otherwise have. No waiver of any provision of this Agreement or consent
to any departure by the Company therefrom shall in any event be effective
unless the same shall be effected in accordance with this Section 10(d), and
then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice or demand on the
11
<PAGE> 12
Company in any case shall entitle the Company to any other or further notice or
demand in similar or other circumstances. Neither this Agreement nor any
provision hereof may be waived, amended or modified except pursuant to prior
written consent of the Holders.
(e) Governing Law. This Agreement shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the Commonwealth of Virginia without reference to
the principles of conflicts of laws.
(f) Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, and may be executed in any number
of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
(g) Entire Agreement. This Agreement embodies
the entire agreement and understanding between the Company and each other party
hereto and supersedes all prior agreements and understandings related to the
subject matter hereof.
(h) Severability. In the event that any one or
more of the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions held invalid, illegal or
unenforceable shall substantially impair the benefits of the remaining
provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the date first above written.
<TABLE>
<S> <C>
THE COMPANY:
FASTCOMM COMMUNICATIONS CORPORATION
--------------------------------
Name:
Title:
THE HOLDER:
--------------------------------
HOLDER'S REPRESENTATIVE
--------------------------------
William J. Dawson
</TABLE>
12
<PAGE> 13
ATTACHMENT 1
CREDITOR-STOCKHOLDERS
1. WILLIAM J. DAWSON
2. J.A. SUNKEL
3. WILLIAM F. FERGUSON
4. GEORGE CHEN
NON-CREDITOR STOCKHOLDERS:
13
<PAGE> 14
ATTACHMENT 2
1. REGISTRATION RIGHTS GRANTED TO KAUFMAN BROS. LLP
14
<PAGE> 1
EXHIBIT 10.3
FORM OF WARRANT AGREEMENT
ISSUED TO DAWSON GROUP
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON MARCH 31, 2002
THIS WARRANT CERTIFICATE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITITES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE
SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Right to Purchase __________ Shares of
Common Stock, par value $.01 per share
Date: March 31, 2000
FASTCOMM COMMUNICATIONS CORPORATION
STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES THAT, for value received,
_______________________________("Holder") is entitled to purchase from FASTCOMM
COMMUNICATIONS CORPORATION, a Virginia corporation (the "COMPANY"), at any time
during the period specified in Section 2 hereof,
___________________________________________________ (________________) fully
paid and nonassessable shares of the Company's common stock, par value $.01 per
share (the "COMMON STOCK" or "WARRANT SHARES"), at an exercise price per share
(the "EXERCISE PRICE") of $7.30 per share. The term "WARRANTS" means this
Warrant and the other warrants of the Company issued in connection with the
satisfaction of certain indebtedness of the Holder and others to the Company
This Warrant is subject to the following terms, provisions, and
conditions:
<PAGE> 2
MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. Subject
to the provisions hereof, this Warrant may be exercised by the Holder
hereof, by the surrender of this Warrant, together with a completed
exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company during normal business hours on any business
day at the Company's principal executive offices (or such other office or
agency of the Company as it may designate by notice to the Holder
hereof), and upon payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company,
of the Exercise Price for all of the Warrant Shares. The Warrant Shares
so purchased shall be deemed to be issued to the Holder hereof, as the
record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment shall have been made for
such shares as set forth above. THE WARRANT SHARES SO PURCHASED WILL BE
"RESTRICTED" AND UNREGISTERED SHARES. Certificates for the Warrant Shares
so purchased, representing the aggregate number of shares specified in
the Exercise Agreement, shall be delivered to the Holder hereof within a
reasonable time, not exceeding twenty (20) business days, after this
Warrant shall have been so exercised. The certificates so delivered shall
be in such denominations as may be requested by the Holder hereof and
shall be registered in the name of such Holder.
1. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from time
to time on or after the date on which this Warrant is issued and before
5:00 p.m. New York City time on the second (2nd) anniversary of the date
of issuance (the "EXERCISE PERIOD").
2. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid,
and non-assessable and free from all taxes, liens, claims and
encumbrances.
(b) RESERVATION OF SHARES. During the Exercise Period, the Company shall at
all times have authorized, and reserved for the purpose of issuance upon
exercise of this Warrant, a sufficient number of shares of Common Stock
to provide for the exercise of this Warrant.
(c) LISTING. The Company will secure the listing of the shares of Common
Stock issuable upon exercise of this Warrant upon the automated quotation
system, the OTC Bulletin Board or on any other system or exchange on
which the Company shares may hereafter be listed or traded, upon which
shares of Common Stock are currently listed and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of
all shares of Common Stock issuable upon the exercise of this Warrant;
and the Company shall so list on such automated quotation system and
shall maintain such listing of, any other shares of capital stock of the
Company issuable upon the exercise of this Warrant if and so long as any
shares of the same class shall be listed on such automated quotation
system.
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<PAGE> 3
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all
times in good faith assist in the carrying out of all the provisions of
this Warrant and in the taking of all such action as may reasonably be
requested by the Holder of this Warrant in order to protect the exercise
privilege of the Holder of this Warrant during the exercise period.
Without limiting the generality of the foregoing, the Company (i) will
not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and
(ii) will take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock upon the exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any entity
succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets (a "change in control"). In
the event of a change in control, the surviving entity may call all
outstanding ("in the money") warrants upon thirty (30) days notice.
3. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder of
this Warrant or such Warrant Shares for any issuance tax or other costs
in respect thereof, provided that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in
the issuance and delivery of any certificate in a name other than the
Holder of this Warrant, or any tax due with respect to the resale of any
Warrant Shares.
4. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not entitle
the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder hereof to purchase Warrant Shares, and
no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of such Holder for the Exercise
Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
6. ANTIDILUTION PROVISIONS. After the initial issuance of this Warrant, the
Exercise Price and the number of Warrant Shares shall be subject to
adjustment from time to time as provided in this Section 6.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up
or down to the nearest cent.
(a) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company, at any time
after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification
or otherwise) its shares of Common Stock into a greater number of shares,
then, after the date of record for effecting such subdivision, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial
issuance of this Warrant, combines (by
3
<PAGE> 4
reverse stock split, recapitalization, reorganization, reclassification
or otherwise) its shares of Common Stock into a smaller number of shares,
then, after the date of record for effecting such combination, the
Exercise Price in effect immediately prior to such combination will be
proportionately increased.
(b) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 6, the number of shares
of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of shares of Common Stock issuable
upon exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(c) CONSOLIDATION, MERGER OR SALE. In case of any consolidation of the
Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets
of the Company other than in connection with a plan of complete
liquidation of the Company at any time after the initial issuance of this
Warrant, then adequate provision will be made in such transaction whereby
the holder of this Warrant will have the right to acquire and receive
upon exercise of this Warrant in lieu of the shares of Common Stock
immediately theretofore acquirable upon the exercise of this Warrant,
such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this
Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to
insure that the provisions of this Section 6 hereof will thereafter be
applicable as nearly as may be in relation to any shares of stock or
securities thereafter deliverable upon the exercise of this Warrant. The
Company will not effect any consolidation, merger or sale or conveyance
unless prior to the consummation thereof, the successor corporation (if
other than the Company) assumes by written instrument the obligations
under this Section 6 and the obligations to deliver to the holder of this
Warrant such shares of stock, securities or assets as, in accordance with
the foregoing provisions, the holder may be entitled to acquire.
(d) DISTRIBUTION OF ASSETS. In case the Company shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "DISTRIBUTION"), at any time after the
initial issuance of this Warrant, then the holder of this Warrant shall
be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of
such assets (or rights) which would have been payable to the holder had
such holder been the holder of such shares of Common Stock on the record
date for the determination of shareholders entitled to such Distribution.
(e) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which requires any
adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such
4
<PAGE> 5
adjustment and the increase or decrease in the number of Warrant Shares
purchasable at such price upon exercise, setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(f) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the Exercise Price
shall be made in an amount of less than 1% of the Exercise Price in
effect at the time such adjustment is otherwise required to be made, but
any such lesser adjustment shall be carried forward and shall be made at
the time and together with the next subsequent adjustment which, together
with any adjustments so carried forward, shall amount to not less than 1%
of such Exercise Price.
(g) NO FRACTIONAL SHARES. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise
be issuable in an amount equal to the same fraction of the Market Price
of a share of Common Stock on the date of such exercise.
(h) NO ADJUSTMENT. Notwithstanding anything in this Section 6 to the
contrary, no adjustment in the number of securities purchaseable on
exercise of this Warrant shall be made with respect to dilution which
would result from the issuance of Common Stock pursuant to the exercise
of outstanding warrants or options or warrants or options which may be
granted pursuant to an incentive plan of the Company, whether qualified
or nonqualified and for the benefit of employers and non-employees.
(i) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock payable
in shares of stock of any class or make any other distribution (other than
dividends or distributions payable in cash out of retained earnings consistent
with the Company's past practices with respect to declaring dividends and making
distributions) to the holders of the Common Stock;
(ii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all of its assets to, another
corporation or entity; or
(iii) there shall be a voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also
5
<PAGE> 6
specify the date on which the holders of Common Stock shall be entitled to
receive such dividend, distribution, or subscription rights or to exchange their
Common Stock for stock or other securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at
least 30 days prior to the record date or the date on which the Company's books
are closed in respect thereto; provided, however, that the Company shall not be
required to disclose any material information to the holder hereof prior to the
public disclosure thereof. Failure to give any such notice or any defect therein
shall not affect the validity of the proceedings referred to in clauses (i),
(ii), and (iii) above.
7. TRANSFER, EXCHANGE, REDEMPTION AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights granted to the
Holder hereof are not transferable, in whole or in part, without the
written consent of the Company, and delivery of the form of transfer
attached hereto duly executed by the registered Holder hereof,
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by the Holder hereof at the
office or agency of the Company referred to in Section 6(e) below, for
new Warrants of like tenor of different denominations representing in the
aggregate the right to purchase the number of shares of Common Stock
which may be purchased hereunder, each of such new Warrants to represent
the right to purchase such number of shares as shall be designated by the
Holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction, or mutilation of this
Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and
amount to the Company (which may, in the Company's discretion require
delivery of a bond), or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this Warrant in
connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company.
The Warrant Holder shall pay all taxes (including securities transfer
taxes) and all other expenses (including legal expenses, if any, incurred
by the Holder, the Company or transferees) and charges payable in
connection with the preparation, execution, and delivery of new Warrants
pursuant to this Section 7(d).
(e) WARRANT REGISTER. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may
designate by notice to the Holder hereof), a register for this Warrant
and all Warrants of like term, in which the Company shall record the name
and address of the person in whose name this Warrant has been issued.
6
<PAGE> 7
8. REGISTRATION OF WARRANT SHARES.
(a) If the Company at any time or times proposes to register any of its
securities under the Securities Act (other than a registration effected
solely to implement an employee benefit plan or any other form or type of
registration in which Warrant Shares cannot be included pursuant to
Commission rule or practice), the Company will give written notice to the
Holder of its intention to do so and such registration shall be governed
by the terms and conditions of a certain Registration Rights Agreement of
even date hereof between the Holder and the Company.
(b) The Holder's right to require registration of the Warrant Shares under
this Section 8, shall cease and terminate as to any particular Warrant
Shares when such Warrant Shares shall have been effectively registered
under the Securities Act in accordance with the Registration Rights
Agreement. For purposes of this Warrant Certificate, shares of Common
Stock issued hereunder shall also cease to be Warrant Shares when such
shares have been sold to the public pursuant to an exemption from
registration thereunder.
(c) The Company covenants that it will, so long as any Warrant Shares or
Warrants exercisable for Warrant Shares remain outstanding, file all
reports required to be filed by it under the Securities Act and the
Securities Exchange Act of 1934 and the rules and regulations promulgated
by the Securities and Exchange Commission thereunder (or, if it is not
required to file such reports , it will upon the request of any Holder
make publicly available such information as will enable such Holder to
sell such Warrant Shares without registration within the limitations of
the exemptions provide by (i) Rule 144 promulgated under the Securities
Act, as such rule may be amended from time to time, or (ii) any similar
rule or regulation hereafter promulgated by the Securities Exchange
Commission.
9. NOTICES.
Any notices required or permitted to be given under the terms of this Warrant
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier or by confirmed telecopy, and shall be
effective five days after being placed in the mail, if mailed, or upon receipt
or refusal of receipt, if delivered personally or by courier or confirmed
telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
FastComm Communications Corporation
45472 Holiday Drive, Suite Three
Dulles, Virginia 20166
Telecopy: (703) 318-4315
Attn: Chief Financial Officer
and if to the Holder, at such address as such Holder shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 8. The Company may deem and treat
the registered Holder of this certificate as
7
<PAGE> 8
the absolute owner of the Warrant Certificate for all purposes and shall not be
affected by any notice to the contrary.
10. GOVERNING LAW. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia
without regard to its conflicts of laws rules as applied to contracts
made and to be performed in the Commonwealth of Virginia.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may only be amended by
an instrument in writing signed by the Company and the Holder hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several sections of
this Warrant are inserted for purposes of reference only, and shall not
affect the meaning or construction of any of the provisions hereof.
(c) FORCE MAJEURE. Neither the Company nor the Holder hereof shall be
responsible for any delay or failure to perform any part of this Warrant
to the extent that such delay or failure is solely caused by fire, flood,
earthquake, explosion, war, labor strike, riot, act of governmental,
civil or military authority which imposes a moratorium on the performance
of the specific obligation in question, failure of transfer agent, postal
strike or other comparable extraordinary event beyond the Company's or
Holder's control. Notice with full details of any such event shall be
given to the other party as promptly as practicable after its occurrence.
The affected party shall use its best efforts to minimize the effects of
or end any such event so as to facilitate the resumption of full
performance hereunder.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be signed by its duly authorized officer.
FASTCOMM COMMUNICATIONS
CORPORATION
By: /s/ Mark H. Rafferty
--------------------------------
Name: Mark H. Rafferty
-----------------
Title: Vice President & Chief Financial Officer
-----------------------------------------
8
<PAGE> 9
FORM OF EXERCISE AGREEMENT
(TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)
The undersigned hereby irrevocably exercises the right to purchase
_____________ shares of common stock of FastComm Communications Corporation, a
Virginia corporation (the "COMPANY"), evidenced by the attached Warrant
Certificate, and herewith makes payment of the Exercise Price with respect to
such shares, in full, all in accordance with the conditions and provisions of
said Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise dispose of any
Common Stock obtained on exercise of the Warrant, except under circumstances
that will not result in a violation of the Securities Act of 1933, as amended,
or any state securities laws.
The undersigned requests that stock certificates for such shares be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:___________,_____
-------------------------------------
Signature of Holder
-------------------------------------
Name of Holder (Print)
Address:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
<PAGE> 10
TRANSFER OF WARRANT CERTIFICATE
For value received___________________________________________________
hereby sells, assigns and transfers unto __________________________ the rights
to purchase_______ shares of common stock, $.01 par value, of FastComm
Communications Corporation, which rights are represented by the within Warrant
Certificate, and does hereby irrevocably constitute and appoint
__________________________attorney to transfer said rights on the books of the
within named Corporation, with full power of substitution in the premises.
----------------------------------------
Dated:
In the Presence of
Social Security or Other identifying
Number of Assignee:
-----------------
Address of Assignee:
Street -----------------
City, State and Zip Code
Approved by the Company:
By:
-----------------------------------
<PAGE> 1
EXHIBIT 10.4
[KBRO LETTERHEAD]
March 14, 2000
PRIVATE AND CONFIDENTIAL
Mr. Peter Madsen
Chairman & CEO
FastComm Communications Corporation
45472 Holiday Drive
Sterling, VA 20166
Dear Peter:
This letter confirms that Kaufman Bros., L.P. ("Kaufman") has been
retained by FastComm Communications Corporation (the "Company") to act as the
Company's exclusive financial advisor in connection with the acquisition of
Cronus Communications, Inc. and Cronus Technology, Inc. (together, the
"Target").
A. Performance of Services
Kaufman will provide the Company with investment banking and financial
advice in an attempt to identify, evaluate and negotiate a joint venture,
acquisition, merger, consolidation, reorganization, recapitalization, business
combination, purchase or sale of capital stock or assets outside the ordinary
course of business or other similar transaction (a "Transaction") during the
term of this agreement. Kaufman will assess the financial impact of the various
alternatives available to the Company, as well as examining the effects of any
proposed Transaction upon the Company and its shareholders. In addition, Kaufman
will evaluate offers and, to the extent deemed appropriate, assist and direct
negotiations leading to the conclusion of a Transaction.
B. Compensation for Services
Merger Fee
If during the term of this agreement or within one year thereafter the
Company enters into an acquisition, merger, consolidation, reorganization,
recapitalization or business combination with the Target, the Company will issue
to Kaufman 58,824 shares of the Company's restricted Common Stock (the
"Shares"). The Company will register all of the Shares with the SEC as soon as
practicable upon their issuance hereunder but in no event later than 120 days
after the Shares are due to Kaufman.
<PAGE> 2
FastComm Communications Corporation
March 14, 2000
Page 2
Aggregate Consideration
Aggregate Consideration is defined and computed as the total proceeds and
all other consideration received or receivable upon the consummation of a
transaction (including payments to be made in installments), including cash,
securities, notes, consulting agreements and agreements not to compete. If a
portion of such consideration includes escrowed or contingent payments (whether
or not related to future earnings of operations), Aggregate Consideration will
include such payments only when the conditions for the payment of such amounts
have been satisfied, at which time the Transaction Fee based thereon shall be
paid to Kaufman.
Out-of-Pocket Expenses
The Company will reimburse Kaufman for all reasonable out-of-pocket
expenses incurred in performance of this agreement without regard to whether a
Transaction is consummated.
C. Indemnification
The Company shall indemnify Kaufman in accordance with Exhibit I attached
hereto.
D. Confidentiality
Any financial or other advice, descriptive memoranda or other
documentation rendered by Kaufman pursuant to this agreement may not be
disclosed publicly or to any third party in any manner without the prior written
approval of Kaufman. All non-public information given to Kaufman by the Company
will be considered as confidential information and shall be maintained as such
by Kaufman until the same becomes known to third parties or the public without
release thereof by Kaufman. Kaufman may advertise the conclusion of a
Transaction in the financial press.
E. Engagement Period
This engagement shall continue in effect until August 31, 2001 and shall
be automatically renewed for successive monthly periods until terminated in
writing by either the Company or Kaufman. The provisions of the paragraphs
regarding compensation, confidentiality and indemnification shall survive the
term of this Agreement.
The Company acknowledges that Kaufman is and has been engaged as a
broker, dealer, underwriter, placement agent, finder, advisor, and dealmaker, by
and for other companies in the industry in which the Company is involved.
Accordingly, the Company agrees that Kaufman shall not be required to act
exclusively for the Company and may now and, from time to time in the future,
be engaged by other companies that compete with the Company. Kaufman may, but
shall not be required to bring opportunities to the Company.
<PAGE> 3
FastComm Communications Corporation
March 14, 2000
Page 3
F. Miscellaneous
This agreement sets forth the entire understanding of the parties
relating to the subject matter hereof. This agreement may not be modified or
changed, nor can any of its provisions be waived, except by written agreement
signed by all parties hereto. This agreement shall be governed by and construed
in accordance with the laws of the State of New York. The parties hereto shall
deliver notices to each other by personal delivery or by registered mail (return
receipt requested). The Company and Kaufman expressly waives all right to trial
by jury in any action or proceeding arising out of this letter agreement.
Please confirm that the foregoing accurately reflects your understanding
of the agreement between us by signing on behalf of the Company and returning to
Kaufman a duplicate of this letter attached hereto, whereupon it shall become a
binding agreement between the Company and Kaufman.
Very truly yours,
KAUFMAN BROS., L.P.
By: /s/ CRAIG D. KAUFMAN
---------------------------------
Craig D. Kaufman
Chief Executive Officer
ACCEPTED AND AGREED TO:
FASTCOMM COMMUNICATIONS CORPORATION
By: /s/ PETER MADSEN
---------------------------------
Peter Madsen
Chairman & CEO
<PAGE> 4
FastComm Communications Corporation
March 14, 2000
Page 4
EXHIBIT I -- INDEMNIFICATION
The Company agrees that it will indemnify and hold harmless Kaufman, its
affiliates, control persons, officers, directors, employees and agents and each
person who controls Kaufman within the meaning of Section 15 of the Securities
Act of 1933 or Section 20 of the Securities Exchange Act (Kaufman and each such
entity and person being hereinafter called an "Indemnified Party") from and
against any and all losses, claims, damages, liabilities, costs or expenses
(including reasonable attorneys' and accountants' fees), as incurred, to which
such Indemnified Party may become subject which are (a) related to or arise out
of (i) actions taken or omitted to be taken (including any untrue statements
made or any statements omitted to be made) by the Company or (ii) actions taken
or omitted to be taken (including any untrue statements made or any statements
omitted to be made) by an Indemnified Party with the Company's consent or in
conformity with the instructions of, or actions taken or omitted to be taken by
the Company or (b) otherwise related to or arising out of Kaufman's acting
pursuant to this agreement. The Company also agrees to reimburse each
Indemnified Party within 30 days of submission of an invoice with respect
thereto for all expenses incurred (including fees and disbursements of counsel)
in connection with the investigation of or the preparation for or defense of any
pending or threatened formal or informal claim, action, investigation or other
proceeding caused by or arising out of or in connection with Kaufman's acting
pursuant to this agreement, whether or not Kaufman is a named party thereto and
whether or not any liability results therefrom. The Company will not be
responsible, however, for any loss, claim damage or liability for which
indemnification is sought solely pursuant to the first sentence of this
paragraph which a court of competent jurisdiction shall have determined by a
final judgment to have resulted primarily from willful misconduct or gross
negligence on the part of the Indemnified Party seeking indemnification
hereunder.
Promptly after receipt by any Indemnified Party of notice of any
complaint or the commencement of any action or proceeding in connection with any
matter related to Kaufman's activities pursuant to the letter agreement, Kaufman
will notify the Company in writing of such complaint or of the commencement of
such action or proceeding and if the Company so elects or is requested by
Kaufman, the Company will assume the defense of such action or proceeding,
including the employment of counsel reasonably satisfactory to Kaufman and the
payment of the fees and disbursements of such counsel, in which event the
Company shall not be obligated to pay the fees and disbursements of separate
counsel for Kaufman in such action. However, failure by Kaufman to so notify the
Company of such claim or such commencement shall not relieve the Company from
any obligation hereunder except to the extent that such failure shall result in
prejudice to the Company. In the event, however, that Kaufman's legal counsel
shall determine that defenses may be available to an Indemnified Party that are
different from or in addition to those available to the Company or that there is
or could reasonably be expected to be a conflict of interest by reason of the
Company and an Indemnified Party having common counsel in any action or
proceeding, or if the Company has not assumed the defense of any action or
proceeding, then Kaufman may employ separate counsel to represent or defend it
or any Indemnified Party in any such action or proceeding in which it or such
Indemnified Party
<PAGE> 5
FastComm Communications Corporation
March 14, 2000
Page 5
may become involved or is named as defendant and the Company shall pay the fees
and disbursements, as Incurred by such separate counsel; provided that the
Company shall not be obligated to pay the fees and disbursements of more than
one such separate counsel for any one such action or proceeding in any one
jurisdiction.
If for any reason the foregoing indemnification is unavailable to
Kaufman, or insufficient to hold it harmless, then the Company shall contribute
to the amount paid or payable by Kaufman as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect the relative
benefits received by the Company and its stockholders on the one hand and
Kaufman on the other; provided that in no event will the aggregate contribution
by Kaufman hereunder exceed the amount of fees actually received by Kaufman
pursuant to this agreement. It is agreed that the relative benefit of the
Company on the one hand and of Kaufman on the other hand with respect to any
financing shall be deemed to be in the same proportion as (x) the Aggregate
Consideration paid or proposed to be paid in such financing (whether or not such
financing is consummated) bears (y) to the fee payable to Kaufman with respect
to such financing pursuant to this agreement.
The reimbursement, indemnity and contribution obligations of the Company
under this paragraph shall be in addition to any liability which the Company may
otherwise have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, Kaufman
and any such person. The provisions of this Exhibit I shall survive the
termination and expiration of this agreement.
<PAGE> 1
EXHIBIT 10.5
[KBRO LETTERHEAD]
January 24, 2000
PRIVATE AND CONFIDENTIAL
FastComm Communications Corporation
45472 Holiday Drive
Dulles, VA 20166
Attention: Mr. Peter C. Madsen
Chairman & Chief Executive Officer
Dear Mr. Madsen:
This letter confirms that Kaufman Bros., L.P. ("Kaufman") has been
retained by FastComm Communications Corporation (the "Company") to act as the
Company's financial advisor and investment banker in connection with a variety
of future services including any financing, joint venture, merger, acquisition,
exchange offer, purchase or sale of capital stock or assets outside the ordinary
course of business or other similar transaction (a "Transaction").
A. Performance of Services
Kaufman will provide the Company with a variety of services as part of an
on-going investment banking relationship. Among the services will include access
to the investment banking team for consultation and advice on corporate finance
issues as required by the Company.
<PAGE> 2
FastComm Communications Corporation
January 24, 2000
Page 2
B. Compensation for Services
Advisory Fee
As compensation for its investment banking services, the Company agrees
to pay Kaufman a nonrefundable retainer fee of $5,000 upon the signing of this
letter, and four subsequent monthly installments of $5,000 each. In addition,
the Company will pay Kaufman upon signing of this letter, 200,000 warrants to
purchase common stock of the Company (the "Warrants") at an exercise price of
$7.50 and shall have a term of three years from the date of issue and other
usual and customary terms including anti-dilution provisions as is in Kaufman's
standard warrant agreement.
Placement Fee
If a Transaction is completed with any investor identified by Kaufman
prior to the termination or expiration of this agreement (a "Target Investor"),
or any future private financing within two years thereafter by such Target
Investor, the Company will pay Kaufman a placement fee equal to 5% of the gross
proceeds raised from the sale of securities to such Target Investor (the
"Placement Fee"); plus Warrants (as described above) equal to 5% of the shares
sold to such parties in the financing, at an exercise price equal to 120% of the
price per share of the common stock (or common stock equivalent) purchased in
the Transaction.
The Placement Fee and Warrants will NOT be owed on any investment made by
any current investor in the Company or any party pursuant to an underwritten
public offering.
Merger Fee
If during the term of this agreement or within one year thereafter the
Company enters into a merger, consolidation, reorganization, recapitalization,
restructuring, tender or exchange offer, negotiated purchase, leveraged buyout,
partnership or collaborative venture whereby the Company's then existing
shareholders own less than 50% of the equity of the surviving entity, the
Company will pay Kaufman a fee equal to 2% of the Aggregate Consideration of the
completed transaction (the "Transaction Fee").
Aggregate Consideration
Aggregate Consideration is defined and computed as the total proceeds and
all other consideration received or receivable upon the consummation of a
transaction (including payments to be made in installments), including cash,
securities, notes, consulting agreements and agreements not to compete. If a
portion of such consideration includes escrowed or
<PAGE> 3
FastComm Communications Corporation
January 24, 2000
Page 3
contingent payments (whether or not related to future earnings of operations),
Aggregate Consideration will include such payments only when the conditions for
the payment of such amounts have been satisfied, at which time the Transaction
Fee based thereon shall be paid to Kaufman.
Out-of-Pocket Expenses
The Company will reimburse Kaufman for all reasonable out-of-pocket
expenses incurred in performance of this agreement without regard to whether a
Transaction is consummated. Individual expenditures may not exceed $1,500
without the prior consent of the Company.
C. Rights of First Refusal
The Company shall grant to Kaufman for a period of 18 months from the
date hereof, a first right of refusal to (i) co-manage any public offering of
the Company with any other underwriters of the Company's choosing provided that
Kaufman shall be entitled to at least 35% of the total compensation paid to the
underwriters in such a public offering; (ii) act as placement agent on any
future private financing of the Company; and (iii) to act as financial advisor
on other transactions including merger & acquisition assignments. The terms of
engagement of any future transaction, including customary investment banking
fees, will be covered under a letter of engagement separate from this letter.
It is understood that execution of this engagement letter does not assure
that any transaction contemplated in "Rights of First Refusal" will take place.
D. Disclosure
Any financial or other advice, descriptive memoranda or other
documentation rendered by Kaufman pursuant to this agreement may not be
disclosed publicly or to any third party in any manner without the prior written
approval of Kaufman which approval shall not be unreasonably withheld. All
non-public information given to Kaufman by the Company will be considered as
confidential information and shall be maintained as such by Kaufman until the
same becomes known to third parties or the public without release thereof by
Kaufman.
The Company shall provide to Kaufman full, complete and accurate
information regarding the Company's business, prospects, financial condition and
any other material items. It is acknowledged and agreed that all information
provided to Kaufman is the property of the Company. The Company shall be solely
responsible for the accuracy and completeness of all disclosures regarding the
Company and shall promptly advise Kaufman of any material changes in any
information previously provided to Kaufman.
<PAGE> 4
FastComm Communications Corporation
January 24, 2000
Page 4
E. Indemnification
The Company shall indemnify Kaufman in accordance with Exhibit I attached
hereto.
F. Engagement Period
This engagement shall continue in effect until August 31, 2001 and shall
be automatically renewed for successive monthly periods until terminated in
writing by either the Company or Kaufman. Notwithstanding the foregoing, either
the Company or Kaufman can terminate this agreement on 90 days written notice.
The provisions of the paragraphs regarding compensation, disclosure and
indemnification shall survive the term of this Agreement.
The Company acknowledges that Kaufman is and has been engaged as a
broker, dealer, underwriter, placement agent, finder, advisor, and deal maker,
by and for other companies in the industry in which the Company is involved.
Accordingly, the Company agrees that Kaufman shall not be required to act
exclusively for the Company and may now and, from time to time in the future, be
engaged by other companies that compete with the Company. Kaufman may, but shall
not be required to bring opportunities to the Company.
G. Miscellaneous
This agreement sets forth the entire understanding of the parties
relating to the subject matter hereof. This agreement may not be modified or
changed, nor can any of its provisions be waived, except by written agreement
signed by all parties hereto. This agreement shall be governed by and construed
in accordance with the laws of the State of New York. The parties hereto shall
deliver notices to each other by personal delivery or by registered mail (return
receipt requested). The Company and Kaufman expressly waives all right to trial
by jury in any action or proceeding arising out of this letter agreement.
<PAGE> 5
FastComm Communications Corporation
January 24, 2000
Page 5
Please confirm that the foregoing accurately reflects your understanding
of the agreement between us by signing on behalf of the Company and returning to
Kaufman a duplicate of this letter attached hereto, whereupon it shall become a
binding agreement between the Company and Kaufman.
Very truly yours,
KAUFMAN BROS., L.P.
By: /s/ CRAIG KAUFMAN
----------------------------------------
Craig Kaufman
Chairman & Chief Executive Officer
ACCEPTED AND AGREED TO:
FASTCOMM COMMUNICATIONS CORPORATION
By: /s/ PETER C. MADSEN
-----------------------------------
Peter C. Madsen
Chairman & Chief Executive Officer
<PAGE> 6
FastComm Communications Corporation
January 24, 2000
Page 6
EXHIBIT I -- INDEMNIFICATION
The Company agrees that it will indemnify and hold harmless Kaufman, its
affiliates, control persons, officers, directors, employees and agents and each
person who controls Kaufman within the meaning of Section 15 of the Securities
Act of 1933 or Section 20 of the Securities Exchange Act (Kaufman and each such
entity and person being hereinafter called an "Indemnified Party") from and
against any and all losses, claims, damages, liabilities, costs or expenses
(including reasonable attorneys' and accountants' fees), as incurred, to which
such Indemnified Party may become subject which are (a) related to or arise out
of (i) actions taken or omitted to be taken (including any untrue statements
made or any statements omitted to be made) by the Company or (ii) actions taken
or omitted to be taken (including any untrue statements made or any statements
omitted to be made) by an Indemnified Party with the Company's consent or in
conformity with the instructions of, or actions taken or omitted to be taken by
the Company or (b) otherwise related to or arising out of Kaufman's acting
pursuant to this agreement. The Company also agrees to reimburse each
Indemnified Party within 30 days of submission of an invoice with respect
thereto for all expenses incurred (including fees and disbursements of counsel)
in connection with the investigation of or the preparation for or defense of any
pending or threatened formal or informal claim, action, investigation or other
proceeding caused by or arising out of or in connection with Kaufman's acting
pursuant to this agreement, whether or not Kaufman is a named party thereto and
whether or not any liability results therefrom. The Company will not be
responsible, however, for any loss, claim damage or liability for which
indemnification is sought solely pursuant to the first sentence of this
paragraph which a court of competent jurisdiction shall have determined by a
final judgment to have resulted primarily from willful misconduct or gross
negligence on the part of the Indemnified Party seeking indemnification
hereunder.
Promptly after receipt by any Indemnified Party of notice of any
complaint or the commencement of any action or proceeding in connection with any
matter related to Kaufman's activities pursuant to the letter agreement, Kaufman
will notify the Company in writing of such complaint or of the commencement of
such action or proceeding and if the Company so elects or is requested by
Kaufman, the Company will assume the defense of such action or proceeding,
including the employment of counsel reasonably satisfactory to Kaufman and the
payment of the fees and disbursements of such counsel, in which event the
Company shall not be obligated to pay the fees and disbursements of separate
counsel for Kaufman in such action. However, failure by Kaufman to so notify the
Company of such claim or such commencement shall not relieve the Company from
any obligation hereunder except to the extent that such failure shall result in
prejudice to the Company. In the event, however, that Kaufman's legal counsel
shall determine that defenses may be available to an Indemnified Party that are
different from or in addition to
<PAGE> 7
FastComm Communications Corporation
January 24, 2000
Page 7
those available to the Company or that there is or could reasonably be expected
to be a conflict of interest by reason of the Company and an Indemnified Party
having common counsel in any action or proceeding, or if the Company has not
assumed the defense of any action or proceeding, then Kaufman may employ
separate counsel to represent or defend it or any Indemnified Party in any such
action or proceeding in which it or such Indemnified Party may become involved
or is named as defendant and the Company shall pay the fees and disbursements,
as Incurred by such separate counsel; provided that the Company shall not be
obligated to pay the fees and disbursements of more than one such separate
counsel for any one such action or proceeding in any one jurisdiction.
If for any reason the foregoing indemnification is unavailable to
Kaufman, or insufficient to hold it harmless, then the Company shall contribute
to the amount paid or payable by Kaufman as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect the relative
benefits received by the Company and its stockholders on the one hand and
Kaufman on the other; provided that in no event will the aggregate contribution
by Kaufman hereunder exceed the amount of fees actually received by Kaufman
pursuant to this agreement. It is agreed that the relative benefit of the
Company on the one hand and of Kaufman on the other hand with respect to any
financing shall be deemed to be in the same proportion as (x) the Aggregate
Consideration paid or proposed to be paid in such financing (whether or not such
financing is consummated) bears (y) to the fee payable to Kaufman with respect
to such financing pursuant to this agreement.
The reimbursement, indemnity and contribution obligations of the Company
under this paragraph shall be in addition to any liability which the Company may
otherwise have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, Kaufman
and any such person. The provisions of this Exhibit I shall survive the
termination and expiration of this agreement.
<PAGE> 1
EXHIBIT 10.6
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE OFFERED OR
SOLD IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
FASTCOMM COMMUNICATIONS CORPORATION
Warrant for the Purchase of Shares of Common Stock,
par value $0.01 per Share
No. KB-1 200,000 Shares
THIS CERTIFIES that, for value received, KAUFMAN BROS., L.P., 800
Third Avenue - 25th Floor, New York, New York 10022 (the "Holder"), is entitled
to subscribe for and purchase from FASTCOMM COMMUNICATIONS CORPORATION, a
Delaware corporation (the "Company"), upon the terms and conditions set forth
herein, at any time or from time to time after February 1, 2000, and before 5:00
P.M. on January 31, 2003, New York time (the "Exercise Period"), 200,000 shares
of the Company's Common Stock, par value $0.01 per share ("Common Stock"), at a
price of $7.50 per share (the "Exercise Price"). As used herein the term "this
Warrant" shall mean and include this Warrant and any Common Stock or Warrants
hereafter issued as a consequence of the exercise or transfer of this Warrant in
whole or in part. This Warrant may not be sold, transferred, assigned or
hypothecated except that it may be transferred, in whole or in part, to (i) not
more that ten officers or partners of the Holder (or the officers or partners of
any such partner); (ii) a successor to the Holder, or the officers or partners
of such successor; (iii) a purchaser of substantially all of the assets of the
Holder; or (iv) by operation of law; and the term the "Holder" as used herein
shall include any transferee to whom this Warrant has been transferred in
accordance with the above.
The number of shares of Common Stock issuable upon exercise of the
Warrant (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth.
1. This Warrant may be exercised during the Exercise Period,
as to the whole or any lesser number of whole Warrant Shares, by the surrender
of this Warrant (with the election at the end hereof duly executed) to the
Company at its office at 45472 Holiday Drive, Dulles, Virginia, 20166 or at such
other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
<PAGE> 2
amount equal to the Exercise Price multiplied by the number of Warrant Shares
for which this Warrant is being exercised (the "Stock Purchase Price").
2. (a) In lieu of the payment of the Stock Purchase Price,
the Holder shall have the right (but not the obligation), to require the
Company to convert this Warrant, in whole or in part, into shares of
Common Stock (the "Conversion Right") as provided for in this Section 2.
Upon exercise of the Conversion Right, the Company shall deliver to the
Holder (without payment by the Holder of any of the Stock Purchase Price)
that number of shares of Common Stock (the "Conversion Shares") equal to
the quotient obtained by dividing (x) the value of this Warrant (or
portion thereof as to which the Conversion Right is being exercised if
the Conversion Right is being exercised in part) at the time the
Conversion Right is exercised (determined by subtracting the aggregate
Stock Purchase Price of the shares of Common Stock as to which the
Conversion Right is being exercised in effect immediately prior to the
exercise of the Conversion Right from the aggregate Current Market Price
(as defined in Section 6(d) hereof) of the shares of Common Stock as to
which the Conversion Right is being exercised) by (y) the Current Market
Price of one share of Common Stock immediately prior to the exercise of
the Conversion Right.
(b) The Conversion Right provided under this Section 2
may be exercised in whole or in part and at any time and from time to
time while this Warrant remains outstanding. In order to exercise the
Conversion Right, the Holder shall surrender to the Company, at its
offices, this Warrant with the Notice of Conversion at the end hereof
duly executed. The presentation and surrender shall be deemed a waiver of
the Holder's obligation to pay all or any portion of the aggregate
purchase price payable for the shares of Common Stock as to which such
Conversion Right is being exercised. This Warrant (or so much thereof as
shall have been surrendered for conversion) shall be deemed to have been
converted immediately prior to the close of business on the day of
surrender of such Warrant for conversion in accordance with the foregoing
provisions.
3. Upon each exercise of the Holder's rights to purchase
Warrant Shares or Conversion Shares, the Holder shall be deemed to be the holder
of record of the Warrant Shares or Conversion Shares issuable upon such exercise
or conversion, notwithstanding that the transfer books of the Company shall then
be closed or certificates representing such Warrant Shares or Conversion Shares
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise or conversion of this Warrant, the Company
shall issue and deliver to the Holder a certificate or certificates for the
Warrant Shares or Conversion Shares issuable upon such exercise or conversion,
registered in the name of the Holder or its designee. If this Warrant should be
exercised or converted in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the right
of the Holder to purchase the balance of the Warrant Shares (or portions
thereof) subject to purchase hereunder.
<PAGE> 3
4. Any Warrant issued upon the transfer or exercise or
conversion in part of this Warrant shall be numbered and shall be registered in
a Warrant Register as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto. This Warrant may be exchanged, at the option of the Holder
thereof, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like number
of Warrant Shares (or portions thereof), upon surrender to the Company or its
duly authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with
applicable law, including without limitations, the provisions of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations thereunder
and any state securities laws or regulations.
5. The Company shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
providing for the exercise of the rights to purchase all Warrant Shares and/or
Conversion Shares granted pursuant to this Warrant, such number of shares of
Common Stock as shall, from time to time, be sufficient therefor. The Company
covenants that all shares of Common Stock issuable upon exercise of this
Warrant, upon receipt by the Company of the full Exercise Price therefor, and
all shares of Common Stock issuable upon conversion of this Warrant, shall be
validly issued, fully paid, non-assessable, and free of preemptive rights.
6. (a) In case the Company shall at any time after the date
hereof (i) declare a dividend on the outstanding shares of Common Stock
payable solely in the shares of its capital stock, (ii) subdivide the
outstanding Common Stock, (iii) combine the outstanding Common Stock into
a smaller number of shares, or (iv) issue any shares of its capital stock
by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the
Exercise Price, and the number and kind of securities issuable upon
exercise or conversion of this Warrant, in effect at the time of the
record date for such dividend or of the effective date of such
subdivision, combination, or reclassification, shall be proportionately
adjusted so that the Holder after such time shall be entitled to receive
the aggregate number and kind of shares
<PAGE> 4
which, if such Warrant had been exercised or converted immediately prior
to such time, he would have owned upon such exercise or conversion and
been entitled to receive by virtue of such dividend, subdivision,
combination, or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date
for the issuance to all holders of Common Stock of rights, options, or
warrants to subscribe for or purchase Common Stock (or securities
convertible into or exchangeable for Common Stock) at a price per share
(or having a conversion or exchange price per share, if a security
convertible into or exchangeable for Common Stock) less than the Current
Market Price per share of Common Stock on such record date, then, in each
case, the Exercise Price shall be adjusted by multiplying the Exercise
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of
Common Stock so to be offered (or the aggregate initial conversion or
exchange price of the convertible or exchangeable securities so to be
offered) would purchase at such Current Market Price and the denominator
of which shall be the number of shares of Common Stock outstanding on
such record date plus the number of additional shares of Common Stock to
be offered for subscription or purchase (or into which the convertible or
exchangeable securities so to be offered are initially convertible or
exchangeable). Such adjustment shall become effective at the close of
business on such record date; provided, however, that, to the extent the
shares of Common Stock (or securities convertible into or exchangeable
for shares of Common Stock) are not delivered, the Exercise Price shall
be readjusted after the expiration of such rights, options, or warrants
(but only with respect to Warrants exercised after such expiration), to
the Exercise Price which would then be in effect had the adjustments made
upon the issuance of such rights, options, or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock)
actually issued. In case any subscription price may be paid in a
consideration part or all of which shall be in a form other than cash,
the value of such consideration shall be as determined in good faith by
the board of directors of the Company, whose determination shall be
conclusive absent manifest error. Shares of Common Stock owned by or held
for the account of the Company or any majority-owned subsidiary shall not
be deemed outstanding for the purpose of any such computation.
(c) In case the Company shall distribute to all holders
of Common Stock (including any such distribution made to the stockholders
of the Company in connection with a consolidation or merger in which the
Company is the continuing corporation) evidences of its indebtedness or
assets (other than cash dividends or distributions and dividends payable
in shares of Common Stock), or rights, options, or warrants to subscribe
for or purchase Common Stock, or securities convertible into or
exchangeable for shares of Common Stock (excluding those with respect to
the issuance
<PAGE> 5
of which an adjustment of the Exercise Price is provided pursuant to Section
6(b) hereof), then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to the record date
for the determination of stockholders entitled to receive such distribution by a
fraction, the numerator of which shall be the Current Market Price per share of
Common Stock on such record date, less the fair market value (as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error) of the portion of the evidences of
indebtedness or assets so to be distributed, or of such rights, options, or
warrants or convertible or exchangeable securities, applicable to one share, and
the denominator of which shall be such Current Market Price per share of Common
Stock. Such adjustment shall be made whenever any such distribution is made, and
shall become effective on the record date for the determination of stockholders
entitled to receive such distribution.
(d) For the purpose of any computation under this Section 6,
the Current Market Price per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices for the 30 consecutive
trading days immediately preceding the date in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the closing bid price regular way, in
either case on the principal national securities exchange (including, for
purposes hereof, the NASDAQ SmallCap Market) on which the Common Stock is listed
or admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the highest reported bid price for
the Common Stock as furnished by the National Association of Securities Dealers,
Inc. through NASDAQ or a similar organization if NASDAQ is no longer reporting
such information. If on any such date the Common Stock is not listed or admitted
to trading on any national securities exchange and is not quoted by NASDAQ or
any similar organization, the fair value of a share of Common Stock on such
date, as determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error, shall be used.
(e) No adjustment in the Exercise Price shall be required if
such adjustment is less than $.05; provided, however, that any adjustments which
by reason of this Section 6 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 6 shall be made to the nearest cent or to the nearest one-thousandth of
a share, as the case may be.
(f) In any case in which this Section 6 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised or converted this Warrant
after such record date, the shares of Common Stock, if any, issuable upon such
exercise or conversion over and above the shares of Common Stock, if any,
issuable upon such exercise or conversion on the basis of the Exercise Price in
effect prior to such adjustment; provided, however,
<PAGE> 6
that the Company shall deliver to the Holder a due bill or other appropriate
instrument evidencing the Holder's right to receive such additional shares upon
the occurrence of the event requiring such adjustment.
(g) Upon each adjustment of the Exercise Price as a result of
the calculations made in Sections 6(b) or 6(c) hereof, this Warrant shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (i)
the product obtained by multiplying the number of shares purchasable upon
exercise of this Warrant prior to adjustment of the number of shares by the
Exercise Price in effect prior to adjustment of the Exercise Price, by (ii) the
Exercise Price in effect after such adjustment of the Exercise Price.
(h) Whenever there shall be an adjustment as provided in this
Section 6, the Company shall promptly cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(j) The Company shall not be required to issue fractions of
shares of Common Stock or other capital stock of the Company upon the exercise
or conversion of this Warrant. If any fraction of a share would be issuable on
the exercise or conversion of this Warrant (or specified portions thereof), the
Company shall purchase such fraction for an amount in cash equal to the same
fraction of the Current Market Price of such share of Common Stock on the date
of exercise or conversion of this Warrant.
7. (a) In case of any consolidation with or merger of the Company
with or into another corporation (other than a merger or consolidation in which
the Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise or conversion of this Warrant solely
the kind and amount of shares of stock and other securities, property, cash, or
any combination thereof receivable upon such consolidation, merger, sale, lease,
or conveyance by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised or converted immediately prior to such
consolidation, merger, sale, lease, or conveyance, and (ii) make effective
provision in its certificate of incorporation or otherwise, if necessary, to
effect such agreement. Such agreement shall provide for adjustments which shall
be as nearly equivalent as practicable to the adjustments in Section 6.
<PAGE> 7
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise or conversion of this Warrant (other than a
change in par value or from no par value to a specified par value, or as a
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), or in case of any consolidation
or merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
shares of Common Stock (other than a change in par value, or from no par value
to a specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), the Holder shall have the right thereafter to receive upon exercise or
conversion of this Warrant solely the kind and amount of shares of stock and
other securities, property, cash, or any combination thereof receivable upon
such reclassification, change, consolidation, or merger by a holder of the
number of shares of Common Stock for which this Warrant might have been
exercised or converted immediately prior to such reclassification, change,
consolidation, or merger. Thereafter, appropriate provision shall be made for
adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 6.
(c) The above provisions of this Section 7 shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales, leases, or conveyances.
8. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common Stock;
or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation, merger, sale, lease, or conveyance
of property, described in Section 7; or
(d) to effect any liquidation, dissolution, or winding-up of
the Company; or
(e) to take any other action which would cause an adjustment to
the Exercise Price;
<PAGE> 8
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price.
9. The issuance of any shares or other securities upon the
exercise or conversion of this Warrant, and the delivery of certificates or
other instruments representing such shares or other securities, shall be made
without charge to the Holder for any tax or other charge in respect of such
issuance. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of any
certificate in a name other than that of the Holder and the Company shall not be
required to issue or deliver any such certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
10. (a) If, at any time prior to February 1, 2003, while any
Warrant or Warrant Shares are outstanding, the Company shall file a
registration statement with the Securities and Exchange Commission (the
"Commission") to register the sale any of its equity securities for its
own account (and not for the account of a security holder or holders) for
cash, other than (w) a registration relating to employee benefit plans,
(x) a registration relating to a corporate reorganization or other
transaction under Rule 145, (y) a registration relating to the Company's
equity line of credit with Cambois Finance, Inc., or (z) a registration
on any registration form that does not permit secondary sales, the
Company shall give the Holder at least 15 days prior written notice of
the filing of such registration statement. If requested by the Holder in
writing within 10 days after receipt of any such notice, the Company
shall, at the Company's sole expense (other than the fees and
disbursements of counsel for the Holder and the underwriting discounts,
if any, payable in respect of the Warrant Shares sold by the Holder),
register or qualify all or, at the Holders' option, any portion of the
Warrant Shares of the Holder concurrently with the registration of such
other securities, all to the extent requisite to permit the public
offering and sale of the Warrant Shares through the facilities of all
appropriate securities exchanges and the over-the-counter market. As a
condition to the registration of any Warrant Shares in an underwritten
public offering, the Holder shall (together with the Company and the
other holders of securities of the Company with registration rights to
participate therein distributing their securities through such
<PAGE> 9
underwriting) enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected by the Company.
Notwithstanding the foregoing, if the representative of the underwriter or
underwriters of any such offering shall advise the Company in writing that, in
its opinion, the distribution of all or a portion of the Warrant Shares
requested to be included in the registration concurrently with the securities
being registered by the Company would adversely affect the distribution of such
securities by the Company for its own account, the number of shares that may be
included in such registration in such offering shall be allocated as follows:
(i) first, the Company shall be permitted to include all shares of capital stock
to be registered thereby and (ii) second, the Holder shall be allowed to include
such additional amount as the lead managing underwriter deems appropriate, such
amount to be allocated among such Holder and any other selling stockholders on a
pro rata basis based on the total number of shares of capital stock held
thereby. As used herein, "Warrant Shares" shall mean the Warrant Shares and the
Conversion Shares which, in each case, have not been previously sold pursuant to
a registration statement or Rule 144 promulgated under the Act.
(b) In the event of a registration pursuant to the provisions
of this Section 10, the Company shall use its best efforts to cause the Warrant
Shares so registered to be registered or qualified for sale under the securities
or blue sky laws of such jurisdictions as the Holder may reasonably request;
provided, however, that the Company shall not be required to qualify to do
business in any state by reason of this Section 10(b) in which it is not
otherwise required to qualify to do business.
(c) The Company shall keep effective any registration or
qualification contemplated by this Section 10 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for such period of
time as shall be required to permit the Holder to complete the offer and sale of
the Warrant Shares covered thereby. The Company shall in no event be required to
keep any such registration or qualification in effect for a period in excess of
90 days from the date on which the Holder is first free to sell such Warrant
Shares; provided, however, that, if the Company is required to keep any such
registration or qualification in effect with respect to securities other than
the Warrant Shares beyond such period, the Company shall keep such registration
or qualification in effect as it relates to the Warrant Shares for so long as
such registration or qualification remains or is required to remain in effect in
respect of such other securities.
(d) In the event of a registration pursuant to the provisions
of this Section 10, the Company shall furnish to the Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act
<PAGE> 10
and the rules and regulations thereunder, and such other documents, as the
Holder may reasonably request to facilitate the disposition of the Warrant
Shares included in such registration.
(e) In the event of a registration pursuant to the provisions
of this Section 10, the Company shall furnish the Holder so registered with an
opinion of its counsel covering such matters as are customarily the subject of
opinions of issuer's counsel provided to underwriters in underwritten public
offerings.
(f) The Company agrees that until the Warrant has expired or
all of the Warrant Shares have been sold under a registration statement or
pursuant to Rule 144 under the Act, it shall keep current in filing all reports,
statements and other materials required to be filed with the Commission to
permit the Holder to sell the Warrant Shares under Rule 144.
11. (a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Holder, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all loss, liability, charge, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 11, but not be
limited to, attorneys' fees and any and all reasonable expense whatsoever
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation), as and when incurred, arising out of,
based upon, or in connection with (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any registration statement,
preliminary prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, relating to the sale of
the Warrant Shares, or (B) in any application or other document or communication
(in this Section 11 collectively called an "application") executed by or on
behalf of the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to register or qualify
any of the Warrant Shares under the securities or blue sky laws thereof or filed
with the Commission or any securities exchange; or any omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company with respect to the Holder by or on behalf of the Holder
expressly for inclusion in any registration statement, preliminary prospectus,
or final prospectus, or any amendment or supplement thereto, or in any
application, as the case may be, or (ii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in this Warrant. The
foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Warrant.
<PAGE> 11
If any action is brought against the Holder or any of its officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of such person (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company in writing of the institution
of such action (but the failure so to notify shall not relieve the Company from
any liability pursuant to this Section 11(a) except to the extent that such
failure shall result in prejudice to the Company) and the Company shall promptly
assume the defense of such action, including the employment of counsel
(reasonably satisfactory to such indemnified party or parties) and payment of
expenses. Such indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action or the Company shall not have
promptly employed counsel reasonably satisfactory to such indemnified party or
parties to have charge of the defense of such action or such indemnified party
or parties shall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of which
events such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. The Company shall not be obligated to pay the fees
and expenses of more than one such separate counsel for any one such action or
proceeding in any one jurisdiction. Anything in this Section 11 to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The Company shall not, without the prior written consent
of each indemnified party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment in or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be sought hereunder (whether or not any
indemnified party is a party thereto), unless such settlement, compromise,
consent, or termination includes an unconditional release of each indemnified
party from all liability in respect of such action. The Company agrees promptly
to notify the Holder of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale of any Warrant Shares or any preliminary prospectus, prospectus,
registration statement, or amendment or supplement thereto, or any application
relating to any sale of any Warrant Shares.
(b) The Holder agrees to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Warrant Shares held by the
Holder, each other person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, and its or their
respective counsel, to the same extent as the foregoing indemnity from the
Company to the Holder in Section 11(a), but only with
<PAGE> 12
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application, in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against the Holder pursuant to
this Section 11(b), the Holder shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
11(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 11(a) or
11(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Holder (including for this purpose
any contribution by or on behalf of an indemnified party), as a second entity,
shall contribute to the losses, liabilities, claims, damages, and expenses
whatsoever to which any of them may be subject, on the basis of relevant
equitable considerations such as the relative fault of the Company and such
Holder in connection with the facts which resulted in such losses, liabilities,
claims, damages, and expenses. The relative fault, in the case of an untrue
statement, alleged untrue statement, omission, or alleged omission, shall be
determined by, among other things, whether such statement, alleged statement,
omission, or alleged omission relates to information supplied by the Company or
by such Holder, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement, alleged
statement, omission, or alleged omission. The Company and the Holder agree that
it would be unjust and inequitable if the respective obligations of the Company
and the Holder for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages, and expenses
(even if the Holder and the other indemnified parties were treated as one entity
for such purpose) or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 11(c). In no case shall the
Holder be responsible for a portion of the contribution obligation imposed on it
in excess of its pro rata share based on the number of shares of Common Stock
owned (or which would be owned upon exercise of all Warrant or Warrant Shares)
by it and included in such registration as compared to the total number of
shares of Common
<PAGE> 13
Stock included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 11(c), each
person, if any, who controls the Holder within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee, agent, and counsel of each such Holder or
control person shall have the same rights to contribution as such Holder
or control person and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed any such
registration statement, each director of the Company, and its or their
respective counsel shall have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 11(c).
Anything in this Section 11(c) to the contrary notwithstanding, no party
shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 11(c)
is intended to supersede any right to contribution under the Act, the
Exchange Act or otherwise.
12. Unless registered pursuant to the provisions of Section 10
hereof, the Warrant Shares or Conversion Shares issued upon exercise or
conversion of the Warrants shall be subject to a stop transfer order and the
certificate or certificates evidencing such Warrant Shares shall bear the
following legend:
"THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES
CANNOT BE SOLD OR TRANSFERRED WITHOUT SUCH REGISTRATION AND QUALIFICATION
UNLESS AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION IS AVAILABLE
AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY TO THAT EFFECT."
13. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant (and upon surrender of
this Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder thereof
a new Warrant of like date, tenor, and denomination.
14. The Holder shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
15. This Warrant shall be construed in accordance with the laws
of the State of New York applicable to contracts made and performed within such
State, without regard to principles of conflicts of law.
<PAGE> 14
16. The Company irrevocably consents to the jurisdiction of the
courts of the federal courts located in the City of New York in connection with
any action or proceeding arising out of or relating to this Warrant, any
document or instrument delivered pursuant to, in connection with or
simultaneously with this Warrant, or a breach of this Warrant or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint or other process and agrees that
service thereof may be made by registered mail, return receipt requested. Within
30 days after such service, or such other time as may be mutually agreed upon in
writing by the attorneys for the parties to such action or proceeding, the
Company shall appear to answer such summons, complaint or other process. Should
the Company so served fail to appear or answer within such 30-day period or such
extended period, as the case may be, the Company shall be deemed in default and
judgment may be entered against the Company for the amount as demanded in any
summons, complaint or other process so served. The Company and Holder (by
Holder's acceptance of this Warrant) agree that if any action or proceeding is
brought to construe or enforce the terms and conditions of this Warrant or the
rights of the parties hereunder, the losing party shall pay to the prevailing
party all court costs and reasonable attorneys' fees and costs (at the
prevailing party's attorneys then-current rates) incurred in such action or
proceeding. A party that voluntarily dismisses an action or proceeding shall be
considered a losing party for purposes of this provision.
Dated: January 31, 2000
FASTCOMM COMMUNICATIONS CORPORATION
By:
----------------------------------------------
Peter C. Madsen, Chairman & Chief Executive Officer
<PAGE> 15
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder is permitted to transfer
the attached Warrant.)
FOR VALUE RECEIVED, _________________ hereby sells, assigns, and
transfers unto __________________ a Warrant to purchase __________ shares of
Common Stock, par value $.01 per share, of FastComm Communications Corporation
(the "Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint _______________________ attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
Dated:
-------------------------
By:
-----------------------------------
Signature
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE> 16
To: FastComm Communications Corporation
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith in the
amount of $_________ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
- -----------------------------------------
- -----------------------------------------
- -----------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated:
------------------------
By:
---------------------------------
Print Name
------------------------------------
Signature
Address:
- ----------------------------------
- ----------------------------------
- ----------------------------------
<PAGE> 17
To: FastComm Communications Corporation
CASHLESS EXERCISE FORM
(To be executed upon conversion of the attached Warrant)
The undersigned hereby irrevocably elects to surrender its Warrant for
the number of shares of Common Stock as shall be issuable pursuant to the
cashless exercise provisions of the within Warrant, in respect of __________
shares of Common Stock underlying the within Warrant, and requests that
certificates for such securities be issued in the name of and delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of shares shall not be all the shares exchangeable or
purchasable under the within Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name of, and
delivered to, the undersigned at the address stated below.
Dated: Name
---------------------------- -------------------------------
(Print)
Address:
----------------------------------------------------------------
------------------------------------
(Signature)
