EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made this 15 day
of August, 2002, by and among Entrada Networks, Inc., a Delaware corporation
("ESAN"), DBW, Inc., a Delaware corporation ("DBWI"), and HandsOn Ventures, LLC,
a Delaware limited liability company ("HOV").
W I T N E S S E T H
WHEREAS, the Boards of Directors of ESAN and DBWI have approved the
merger (the "Merger") of DBWI with and into ESAN subject to the terms and
conditions of this Agreement, whereby the outstanding shares of common stock of
DBWI (the "DBWI Common Stock") will be converted into five thousand (5,000)
shares of Series B preferred stock of ESAN (the "ESAN Preferred Stock") and
shares of common stock of ESAN (the "ESAN Common Stock");
WHEREAS, ESAN, HOV and DBWI desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
WHEREAS, DBWI is the owner of twenty million (20,000,000) shares of the
common stock of Savant Consulting Group, Inc., a New Jersey corporation
("Savant"), which constitute all of the issued and outstanding shares of common
stock of Savant as of the date hereof; and
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual agreements recited
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, and intending to be legally bound, ESAN, HOV
and DBWI agree as follows:
ARTICLE I
THE MERGER
1.01 Definitions. The following terms shall have the meanings ascribed
thereto:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Business Day" means any day other than Saturday, Sunday
or other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.
(c) "Certificate of Designation" means the Certificate of
Designation of Rights, Preferences and Privileges of Series B Preferred Stock of
Entrada Networks, Inc., in the form attached hereto as Exhibit A, which by the
Closing Date will be filed with the Secretary of State of the State of Delaware.
(d) "Closing Price" means the last closing bid price for ESAN
Common Stock on the NASDAQ Small Cap Market or in the over-the-counter market on
the electronic bulletin board for ESAN Common Stock as reported by Bloomberg,
or, if no closing bid price is reported for ESAN Common Stock by Bloomberg, the
last closing trade price for ESAN Common Stock as reported by Bloomberg. If no
last closing bid or trade price is reported for ESAN Common Stock by Bloomberg,
"Closing Price" means the average of the bid prices of any market makers for
ESAN Common Stock as reported in the "pink sheets" by the National Quotation
Bureau, Inc.
(e) "DBWI Common Stock" means the Class A common stock, par
value $0.01 per share, of DBWI.
(f) "DGCL" means the Delaware General Corporation Law, as
amended.
(g) "ESAN Common Stock" means the shares of common stock, par
value $.001 per share, of ESAN.
(h) "ESAN Preferred Stock" means the shares of Series B
Convertible Preferred Stock of ESAN, par value $0.001 per share, having the
rights, preferences and privileges as set forth in the Certificate of
Designation, and each share having a liquidation value of One Thousand ($1,000)
Dollars.
(i) "knowledge," "best knowledge" or "know" means with respect
to each entity which is a party to this the Agreement, the knowledge of such
entity (including its directors and officers) after due inquiry and
investigation.
(j) "Material Adverse Effect" means any with respect to any
entity, to the extent not reflected on such entity's balance sheet, any
liability, obligation, impairment, restriction, lien, cost, expense, loss,
compensation, payment, reimbursement, damage, judgment or settlement to, of, by
or on the business (including on assets that has such effect on the business),
operations, cash flow, property, assets, prospects or condition (financial or
otherwise) of such entity and its subsidiaries taken as a whole in the amount of
$250,000 or more for an individual occurrence or $500,000 or more in the
aggregate for multiple occurrences, arising outside the ordinary course of
business. "Material Adverse Effect" includes, without limitation, any effect
that impairs the ability of any of the parties hereto to consummate any
transaction contemplated hereby.
(k) "Payment Dates" means November 1, 2002, February 1, 2003,
May 2, 2003 and August 1, 2003. In the event the Closing occurs after November
1, 2002, the payment due with respect to any and all Payment Dates already past
shall be due on the first business day after the Closing.
(l) "SEC" means the Securities and Exchange Commission.
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(m) "Value" of ESAN Common Stock means the arithmetic average
of the Closing Price of ESAN Common Stock on each trading day during the twenty
(20) consecutive trading days immediately preceding each Payment Date.
1.02 The Merger. Upon the terms and subject to the conditions of this
Agreement, and in accordance with the DGCL, ESAN and DBWI will cause DBWI to be
merged with and into ESAN at the Effective Time (as hereinafter defined).
Following the Merger, the separate corporate existence of DBWI shall cease and
ESAN shall continue as the surviving corporation (the "Surviving Corporation")
and shall succeed to all rights, privileges, powers, franchises, assets,
liabilities and obligations of ESAN and DBWI in accordance with the provisions
of the DGCL.
1.03 Closing. Unless this Agreement shall have been terminated and the
transactions contemplated herein shall have been abandoned pursuant to the
provisions of Article XI, the closing of the Merger (the "Closing") shall take
place at 10:00 a.m., on a date within three (3) business days of the approval of
the transactions contemplated by the shareholders of ESAN and any other party
whose consent is required (the "Closing Date"), at the offices of Greenbaum,
Rowe, Xxxxx, Xxxxx, Xxxxx & Xxxxxx LLP, 99 Wood Avenue South, Woodbridge, New
Jersey, or such other place, time and date as the parties may agree. Subject to
the provisions of this Agreement, a certificate of merger shall be duly
prepared, executed and acknowledged by the Surviving Corporation and thereafter
delivered for filing and recordation with the Secretary of State of the State of
Delaware in accordance with the DGCL on the Closing Date.
1.04 Effective Time. The Merger shall become effective at the time of
the filing of the Certificate of Merger with the Secretary of State of the State
of Delaware (or at such later time as shall be agreed by ESAN and DBWI and as
shall be set forth in such certificate) in accordance with the DGCL (the date
and time the Merger becomes effective being the "Effective Time").
1.05 Certificate of Incorporation; By-laws. At the Effective Time and
without any further action on the part of ESAN and DBWI (i) the certificate of
incorporation of ESAN as in effect immediately prior to the Effective Time shall
be the certificate of incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law, (ii) the
by-laws of ESAN shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law and (iii)
the Merger shall, from and after the Effective Time, have all the effects
provided by applicable law, including the DGCL.
1.06 Officers and Directors. The officers and directors of ESAN at the
Effective Time shall be the officers and directors of the Surviving Corporation,
each to hold office in accordance with the certificate of incorporation and
by-laws of the Surviving Corporation.
ARTICLE II
EFFECT OF MERGER ON CAPITAL STOCK OF ESAN AND DBWI
2.01 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
ESAN Common Stock or of DBWI
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Common Stock, all of the shares of DBWI Common Stock outstanding immediately
prior to the Effective Time shall be converted and exchanged for the following
(the "Merger Consideration"):
(a) Five thousand (5,000) shares of ESAN Preferred Stock.
(b) On each of the Payment Dates, that number of shares of
ESAN Common Stock as has an aggregate Value of Two Hundred Fifty
Thousand ($250,000) Dollars on such respective Payment Date.
(c) Within one hundred twenty (120) days following the close
of each of the calendar years 2003, 2004 and 2005 in which Savant
achieves net revenues of at least seventy percent (70%) of its Annual
Target and a Pretax Percentage of at least seven percent (7%), ESAN
shall issue to HOV that number of Shares of ESAN Common Stock as has a
Value (as of the date of issuance) of $1,800,000 for 2003 and $800,000
for each of 2004 and 2005. For the purposes of this Section 2.01, the
Annual Target shall be defined as net revenues of $25,000,000 and the
Pretax Percentage shall be defined as pretax income divided by net
revenues, multiplied by 100, all as computed in accordance with
generally accepted accounting principles, consistently applied, and
certified by ESAN's independent auditors.
(d) Each stock certificate of DBWI evidencing shares of DBWI
Common Stock shall thereafter evidence ownership of shares of ESAN
Common Stock or ESAN Preferred Stock, as the case may be.
(e) If any issuance of the ESAN Common Stock becomes due on a
date that is not a Business Day, payment shall be deferred until the
next Business Day.
2.02 Stock Transfer Books. At the close of business, eastern time, on
the day the Effective Time occurs, the stock transfer books of DBWI shall be
transferred to ESAN and there shall be no further registration of transfers of
shares by DBWI of DBWI Common Stock thereafter on the records of DBWI. From and
after the Effective Time, holders of DBWI Common Stock shall cease to have any
rights with respect to such shares of DBWI Common Stock formerly represented by
the aforementioned certificates surrendered pursuant to Section 2.01(d), except
as otherwise provided herein or by law.
ARTICLE III
ADDITIONAL TRANSACTIONS
3.01 Due Diligence Investigation. Prior to the Closing, each of ESAN
and DBWI shall have the opportunity to conduct and complete to such party's
satisfaction in its sole discretion, customary business, financial, tax, legal
and environmental due diligence investigations of ESAN, DBWI and Savant (the
"Due Diligence Investigation"), as the case may be. The Due Diligence
Investigation shall include, but not be limited to, corporate records, sales
records and contract, financial and tax records, legal matters, regulatory
matters, environmental matters, employment matters, contractual matters,
insurance matters, employment and labor matters, patent and
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trademark matters, pension and benefit records and matters, and such other
agreements and matters as such party and its counsel and financial advisors deem
relevant. Each party acknowledges that the consummation of the transactions
contemplated by this Agreement is subject to the completion of the Due Diligence
Investigation, the results of which shall be satisfactory to each such party in
its sole discretion. Each of DBWI and ESAN shall, upon reasonable prior notice,
permit representatives of ESAN and DBWI, respectively to have access to DBWI's,
Savant's and ESAN's facilities, management, books, records, personnel, customers
and suppliers for the purpose of conducting the Due Diligence Investigation.
3.02 Restricted Securities. DBWI understands that the shares of ESAN
Preferred Stock being issued hereunder, the shares of ESAN Common Stock issuable
upon conversion of ESAN Preferred Stock, and the shares of ESAN Common Stock
issuable as part of the Merger Consideration (collectively, the "ESAN
Securities") are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being issued by ESAN in a transaction not
involving a public offering and that under such laws and applicable regulations
ESAN Securities may be resold without registration under the Act, only in
certain limited circumstances.
3.03 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, unless there is then in effect a
registration statement under the Act covering such proposed disposition and such
disposition is made in accordance with such registration statement, DBWI further
agrees not to make any disposition of all or any portion of ESAN Securities
unless and until the transferee has agreed in writing for the benefit of ESAN to
be bound by this Section 3.03 and the Investor Rights Agreement, and if
reasonably requested by ESAN, DBWI shall have furnished ESAN with an opinion of
counsel, reasonably satisfactory to ESAN, that such disposition will not require
registration of such shares under the Act. It is agreed that ESAN will not
require opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances.
3.04 Legend. It is understood that the certificates evidencing ESAN
Securities will bear the following legend unless such securities are registered
under the Act:
"The shares evidenced by this certificate have not been registered or
qualified under the Securities Act of 1933, as amended, or any state securities
laws and may not be sold or transferred unless registered or qualified pursuant
to such Act and applicable state securities laws or an exemption from
registration under such Act or such applicable state securities laws is
available."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HOV AND DBWI
DBWI and HOV make the following representations and warranties to ESAN,
each of which shall be deemed material (and ESAN, in executing, delivering and
performing its obligations under this Agreement has relied and will rely upon
the correctness and completeness of each of such representations and
warranties):
4.01 DBWI Corporate Existence and Qualification. DBWI is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. DBWI
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was formed on May 23, 2002 and since that date, has conducted no business other
than acquiring all of the issued and outstanding stock of Savant on June 28,
2002. Except as listed on Schedule 4.01, DBWI has no other assets other than the
stock of Savant, it conducts no other business and it has no liabilities. The
authorized capital stock of DBWI consists of (a) one thousand (1,000) shares of
Class A common stock, $0.01 par value per share, of which one hundred (100)
shares are issued and outstanding, all of which are owned by HOV; (b) one
thousand (1,000) shares of Class B common stock, $0.01 par value per share, none
of which are issued and outstanding; and (c) two thousand (2,000) shares of
preferred stock, $0.01 par value per share, none of which are issued and
outstanding. DBWI has no subsidiaries other than Savant.
4.02. Savant Corporate Existence and Qualification. Savant is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New Jersey. Savant has the corporate power to carry on its
business as now conducted and to own its assets. Savant is duly qualified to
conduct business and is in good standing as a foreign corporation in those
jurisdictions set forth on Schedule 4.02, which are the only jurisdictions in
which Savant is required to qualify in order to own its assets or properties or
to carry on its business as now conducted except where the failure to so qualify
could be reasonably expected to have a Material Adverse Effect. The copies of
Savant's Certificate of Incorporation (certified by the Department of Treasury
of the State of New Jersey) and By-Laws (certified by Savant's secretary), as
amended to date, which have been delivered to ESAN, are true and complete copies
of those documents as now in effect. The minute books of Savant contain accurate
records, in all material respects, of all material meetings of its Board of
Directors and shareholders since its incorporation, and accurately reflect, in
all material respects, all actions referred to therein.
4.03. Capitalization. The authorized capital stock of Savant consists
of (a) fifty million (50,000,000) shares of common stock, no par value, of which
twenty million (20,000,000) shares are issued and outstanding; (b) ten million
(10,000,000) shares of Preferred Stock, of which (i) one thousand eight hundred
(1,800) have been designated Series A Preferred Stock, no par value per share,
all of which are issued and outstanding (the "Savant Series A Preferred"); (ii)
eight hundred (800) have been designated Series B Preferred Stock, no par value
per share, all of which are issued and outstanding (the "Savant Series B
Preferred"); and (iii) eight hundred (800) have been designated Series C
Preferred Stock, no par value per share (the "Savant Series C Preferred Stock,"
which, together with the Savant Series A Preferred and Savant Series B
Preferred, are referred to herein as the "Savant Preferred Stock"), all of which
are issued and outstanding. All of the shares of Savant Common Stock and Savant
Preferred Stock are duly authorized and validly issued and outstanding, fully
paid and nonassessable. All of the shares of Preferred Stock of Savant will be
cancelled without cost to Savant or ESAN prior to the Closing. Except as set
forth on Schedule 4.03 to this Agreement, there are no subscriptions, options,
warrants, rights or calls or other commitments or agreements to which Savant or
DBWI is a party or by which Savant or DBWI is bound, calling for the issuance,
transfer, sale or other disposition of the Savant Common Stock. Except for the
Savant Preferred Stock and all outstanding employee stock options and as set
forth on Schedule 4.03, there are no outstanding securities of Savant
convertible or exchangeable, actually or contingently, into shares of Savant
Common Stock or any other securities of Savant.
4.04. Subsidiaries. There are no corporations, partnerships, limited
liability companies, trusts or other business entities controlled by Savant.
Savant has made no investments in, or owns,
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none of the capital stock of, or any other proprietary interest in, any other
corporation, partnership or other business entity.
4.05. Consents. All requisite consents of governmental and other
regulatory agencies, foreign or domestic, and of other parties required to be
received by or on the part of HOV, Savant or DBWI to enable such persons to
enter into and carry out this Agreement in all material respects have been, or
prior to the Closing will have been, obtained.
4.06. Binding Nature of Agreement; Title to Shares.
(a) This Agreement constitutes DBWI's valid and binding obligation and
is enforceable in accordance with its terms. DBWI is, and at the Closing will
be, the sole record and beneficial owner of the Savant Common Stock, free and
clear of all manner of liens, charges, encumbrances, and claims. DBWI has, and
at the Closing will have, good and marketable title to the Savant Common Stock.
(b) This Agreement constitutes HOV's valid and binding obligation and
is enforceable in accordance with its terms. HOV is, and at the Closing will be,
the sole record and beneficial owner of the DBWI Common Stock, free and clear of
all manner of liens, charges, encumbrances, and claims. HOV has, and at the
Closing will have, good and marketable title to the DBWI Common Stock.
4.07. Financial Statements, etc. The books of accounts of Savant, taken
as a whole, fairly reflect its income, expenses, assets and liabilities in all
material respects. Savant's balance sheets as of December 31, 2000, December 31,
2001, and April 30, 2002, and the related statements of income and retained
earnings and cash flows for the years ended December 31, 1999, 2000 and 2001 and
the three month period ended March 31, 2002 (collectively, the "Financial
Statements") fairly present the financial position of Savant in all material
respects as of the said dates and the results of its operations for such fiscal
years and periods and, except as set forth therein or in Schedule 4.07 were
prepared in all material respects in conformity with generally accepted
accounting principles consistently applied throughout the fiscal year and
periods covered thereby. The Financial Statements have been or will be audited
or, with respect to the March 31, 2002 Financial Statements only, reviewed, by
BDO Xxxxxxx LLP, independent, certified public accountants ("BDO").
4.08. Liabilities. As of April 30, 2002 (the "Savant Balance Sheet
Date"), Savant had no material debts, liabilities or obligations, contingent or
absolute, other than those debts, liabilities and obligations reflected or
reserved against Savant's Balance Sheet at the Balance Sheet Date (the "Savant
Balance Sheet").
4.09. Action Since Balance Sheet Date. Except as otherwise expressly
provided or set forth in, or required by, this Agreement, since the Savant
Balance Sheet Date, Savant has not: (i) issued or sold, or agreed to issue or
sell any of its capital stock, options, warrants, rights or calls to purchase
such stock, any securities convertible or exchangeable into such capital stock
or other corporate securities, or effected any subdivision or other
recapitalization affecting its capital stock;
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(ii) incurred any material obligation or liability, absolute or contingent,
except those arising in the ordinary and usual course of its business: (iii)
discharged or satisfied any lien or encumbrance, except in the ordinary and
usual course of business, or paid or satisfied any liability, absolute or
contingent, other than liabilities as to the Savant Balance Sheet Date and
current liabilities incurred since the Savant Balance Sheet Date in the ordinary
and usual course of business; (iv) made any wage or salary increases or granted
any bonuses other than wage and salary increases and bonuses granted in
accordance with its normal salary increase and bonus policies; (v) mortgaged,
pledged or subjected to any lien or other encumbrance any of its properties or
assets, or permitted any of its property or assets to be subjected to any lien
or other encumbrance, except in the ordinary and usual course of business; (vi)
sold, assigned or transferred any of its properties or assets, except in the
ordinary and usual course of business; (vii) entered into any transaction having
an aggregate value greater than $25,000; (viii) waived any rights of substantial
value, or cancelled, modified or waived any indebtedness for borrowed money held
by it, except in the ordinary and usual course of business; (ix) declared, paid
or set aside any dividends or other distributions or payments on its capital
stock, or redeemed or repurchased, or agreed to redeem or repurchase, any shares
of its capital stock; (x) made any loans or advances to any person, or assumed,
guaranteed, endorsed or otherwise became responsible for the obligations of any
person; or (xi) incurred any indebtedness for borrowed money (except for
endorsement, for collection or deposit of negotiable instruments received in the
ordinary and usual course of business).
4.10. Adverse Developments. Except as otherwise expressly provided or
set forth in, or required by this Agreement, since the Savant Balance Sheet
Date, there have been no changes in the properties, operations or financial
condition of Savant, and no event has occurred other than in the ordinary and
usual course of business which could be reasonably expected to have a Material
Adverse Effect upon the business of Savant, and Savant, after reasonable
inquiry, knows of no development or threatened development of a nature that is,
or which could be reasonably expected to have a Material Adverse Effect upon the
business of Savant and or upon any of its respective assets or properties,
including, without limitation, the loss of any licenses or permits, suppliers,
customers or employees, which loss would result in a Material Adverse Effect.
4.11. Taxes. Savant has delivered to ESAN true and complete copies of
the Federal income tax returns on Form 1120, or approved extensions therefor, of
Savant as filed with the Internal Revenue Service for the fiscal years ended
December 31, 1999, 2000 and 2001. Such returns were prepared in conformity in
all material respects with information contained in the books and records of
Savant and contain no untrue statement of a material fact or omit to state any
fact required to make any such return not materially misleading. Except as set
forth in Schedule 4.11, all taxes, including, without limitation, income,
property, sales, use, franchise, capital stock, excise, added value, employees'
income withholding, social security and unemployment taxes imposed by the United
States, any state or any foreign country, or by any other taxing authority,
which have or may have become due or payable by Savant and all interest and
penalties thereon, whether disputed or not, have been paid in full or adequately
provided for by reserves shown in its books of account; all deposits required by
law to be made by Savant with respect to estimated income, franchise and
employees' withholding taxes have been duly made; and all tax returns, including
estimated tax returns, required to be filed have been duly filed. No extension
of time for the assessment of deficiencies for any year is in effect. Except as
set forth in said Schedule 4.11, no deficiency is proposed or to the knowledge
of Savant, after reasonable inquiry, threatened against Savant.
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Schedule 4.11 also sets forth a list of those states in which income, franchise
or sales and use tax returns were or will be filed by Savant for the fiscal year
ended December 31, 2001.
4.12. Ownership of Assets. Except as set forth in Schedule 4.12, Savant
owns outright, and has good and marketable title to all of its assets,
properties and business (including all assets reflected in Savant's Balance
Sheet, except as the same may have been disposed of in the ordinary course of
business since the Savant Balance Sheet Date), free and clear of all liens,
mortgages, pledges, conditional sales agreements, restrictions on transfer or
other encumbrances or changes. Schedule 4.12 sets forth a true and complete list
and brief description of all patents, copyrights, trademarks, trade names and
other similar intangible assets which are either owned by Savant or in which it
has an interest. Except as set forth in said Schedule 4.12, no other person,
firm or corporation has any proprietary or other interest in any such intangible
assets. Such assets so owned or leased are, in the reasonable business judgment
of DBWI, sufficient to permit Savant to conduct its business as now conducted.
Except as set forth in Schedule 4.12, Savant is not a party to or bound by any
license or agreement requiring the payment to any person, firm or corporation of
any royalty. To the knowledge of DBWI, Savant is not infringing upon any patent,
copyright, trade name or trademark or otherwise is violating the rights of any
third party with respect thereto, and no proceedings have been instituted or, to
the knowledge of DBWI, after reasonable inquiry, are threatened and no claim has
been received by Savant or DBWI alleging any such violation.
4.13. Insurance. Schedule 4.13 sets forth a list and brief description
of all policies of fire, liability and other forms of insurance held by Savant
as of the date hereof. Except as set forth in Schedule 4.13, such policies are
valid, outstanding and enforceable policies, as to which premiums have been paid
currently. Except as set forth in Schedule 4.13, DBWI, after reasonable inquiry,
does not know of any state of facts, or of the occurrence of any event which
might reasonably (i) form the basis for any claim against Savant not fully
covered by insurance for liability on account of any express or implied warranty
or tortious omission of commission, or (ii) result in a material increase in
insurance premiums of Savant.
4.14. Litigation, Compliance with Law. Except as set forth in Schedule
4.14, there are no actions, suits, proceedings or governmental investigations
relating to Savant or to any of its respective properties, assets or businesses
pending or, to the knowledge of DBWI, after reasonable inquiry, threatened, or
any order, injunction, award or decree outstanding against Savant or against or
relating to any of its properties, assets or businesses. Except as set forth in
Schedule 4.14, Savant is not in violation of any law, regulation, ordinance,
order, injunction, decree, award or other requirement of any governmental body,
court or arbitrator relating to its properties, assets or business, which
violation would have a Material Adverse Effect on Savant.
4.15. Real Property. Schedule 4.15 sets forth a brief description of
all real property which is owned by, or leased to Savant, including all material
structures located hereon. The real property leases described in Schedule 4.15
that relate to the leased properties described therein are now in full force and
effect, and all amounts payable thereunder have been paid. All uses of such
owned or leased property by Savant conform, in all material respects, to all
applicable building and zoning ordinances, laws, and regulations and, in the
case of leased property, to all terms of the leases relating thereto.
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4.16. Agreements and Obligations; Performance. Except as set forth in
this Agreement or listed and briefly described in Schedule 4.16 (the "Listed
Agreements"), Savant is not a party to, or bound by any: (i) written or oral
agreement or other contractual commitment, understanding or obligation which
involves aggregate payments or receipts in excess of $20,000; (ii) contract,
arrangement, commitment or understanding which involves aggregate payments or
receipts in excess of $20,000 that cannot be cancelled on thirty (30) days or
less notice without penalty or premium or any continuing obligation or
liability: (iii) contractual obligation or contractual liability of any kind to
DBWI; (iv) contract, arrangement, commitment or understanding with its customers
or any officer, employee, shareholder, director, representative or agent thereof
for the repurchase of products, sharing of fees, the rebating of charges to such
customers, bribes, kickbacks from such customers or other similar arrangements;
(v) contract for the purchase or sale of any materials, products or supplies
which contain, or which commits or will commit it for a fixed term; (vi)
contract of employment with any officer or employee not terminable at will
without penalty or premium or any continuing obligation of liability; (vii)
deferred compensation, bonus or incentive plan or agreement not cancelable at
will without penalty or premium or any continuing obligation or liability;
(viii) management or consulting agreement not terminable at will without penalty
or premium or any continuing obligation or liability; (ix) lease for real or
personal property (including borrowings thereon), license or royalty agreement;
(x) union or other collective bargaining agreement; (xi) agreement, commitment
or understanding relating to the indebtedness for borrowed money; (xii) contract
which, by its terms, requires the consent of any party thereto to the
consummation of the transactions contemplated hereby; (xiii) contract containing
covenants limiting the freedom of Savant to engage or compete in any line or
business or with any person in any geographical area; (xiv) contract or opinion
relating to the acquisition or sale of any business; (xv) voting trust agreement
or similar shareholders' agreement; (xvi) other contract, agreement, commitment
or understanding which materially affects any of its properties, assets or
business, whether directly or indirectly, or which was entered into other than
in the ordinary course of business. Except as set forth in Schedule 4.16, Savant
has not during the last 36 months entered into any of the types of contracts,
arrangements, commitments or understandings with any of its suppliers or
customers referred to in item (iv) of this Section 4.16. A true and correct copy
of each of the written listed Agreements, has been made available or delivered
to ESAN. Savant has in all material respects performed all obligations required
to be performed by it to date under all of the Listed Agreements, is not in
default in any material respect under any of the Listed Agreements which would
reasonably be expected to result in a Material Adverse Effect on Savant and has
received no notice of any default or alleged default thereunder which has not
heretofore been cured or which notice has not heretofore been withdrawn. DBWI,
after reasonable inquiry, knows of no material default under any of the Listed
Agreements by any other party thereto or by any other person, firm or
corporation bound thereunder.
4.17. Condition of Assets. Except for normal breakdowns and servicing
requirements, all machinery and equipment regularly used by Savant in the
conduct of its respective businesses are in good operating condition and repair,
ordinary wear and tear excepted.
4.18 Accounts Receivable. All of the accounts receivable are reflected
in the books of account of Savant in accordance with GAAP and arose in the
ordinary course of its business from the sale of services or goods.
10
4.19. Permits and Licenses. Schedule 4.19 sets forth (i) all permits,
licenses, orders, franchises and approvals from all federal, state, local and
foreign governmental regulatory bodies held by Savant. Savant has all permits,
licenses, order and approvals of all federal, state, local and foreign
governmental or regulatory bodies required of it to carry on its business as
presently conducted; all such other permits, licenses, orders, franchises and
approvals are in full force and effect, and to the knowledge of DBWI, after
reasonable inquiry, no suspension or cancellation or any of such other permits,
licenses, etc. is threatened, the suspension or cancellation of which would have
a Material Adverse Effect on Savant; and Savant is in compliance in all material
respects with all requirements, standards and procedures of the federal, state,
local and foreign governmental bodies which have issued such permits, licenses,
orders, franchises and approvals. Schedule 4.19 also sets forth a brief
description of all vans, automobiles, trucks or other vehicles owned or leased
by Savant and the state of title thereof.
4.20. Banking Arrangements. Schedule 4.20 sets forth the name of each
bank in or with which Savant has an account, credit line or safety deposit box,
and a brief description of each such account, credit line or safety deposit box
including the names of all persons currently authorized to draw thereon or
having access thereto, and the names of all persons, if any, now holding powers
of attorney from Savant and a summary statement of the terms thereof.
4.21. Interest in Assets. Neither DBWI nor any third party owns any
property or rights, tangible or intangible, used in or related, directly or
indirectly, to the business of Savant.
4.22. Salary Information. Schedule 4.22 contains a list of the names
and current salary rates of and bonus commitments to all present officers of
Savant, and the names and current annual salary rates of all other persons
employed by Savant whose annual salaries and bonuses exceed $100,000.00.
4.23. Employee Benefit Plans. Schedule 4.23 includes a list of all of
the "pension" and "welfare" benefit plans (within the respective meanings of
sections 3(2) and 3(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) maintained by Savant or to which it makes employer
contributions with respect to its employees, a complete and correct copy of each
of which has been delivered to ESAN. There are no vested and unfunded benefits
under any such plans.
4.23.1. All of the pension and profit sharing plans maintained
by Savant (herein collectively referred to as the "Pension Plans") are listed in
Part A of Schedule 4.23. Each of the Pension Plans has received a favorable
determination letter as to its qualification under section 4.01(a) of the
Internal Revenue Code of 1986, as amended (the "Code") (including, but not
limited to, amendments made by ERISA), to DBWI's knowledge, after reasonable
inquiry, nothing has occurred with respect to any such Pension Plan which would
cause the loss of such qualification, and Savant has delivered to ESAN true and
correct copies of all such determination letters.
4.23.2. All of the Pension Plans not maintained by Savant but
to which it makes employer contributions with respect to its employees (herein
collectively referred to as the "Other Pension Plans"), are listed in Part B of
Schedule 4.23. Each of the Other Pension Plans is a multi-employer plan (within
the meaning of section 3(37) of ERISA), but Savant is not a substantial
11
employer (within the meaning of section 4001(a)(2) of ERISA) with respect to any
of the Other Pension Plans.
4.23.3. To DBWI's knowledge, after reasonable inquiry, all
contributions required by law or required under the Pension Plans with respect
to the three plan years ended prior to the Closing Date shall have been made on
or prior to the Closing Date by Savant. With regard to the current plan year of
each of the Other Pension Plans, all contributions required to meet the employer
contribution obligations of Savant, under section 412 of the Code, Part 3 of
Title I(B) of ERISA, such other Pension Plan or any applicable collective
bargaining agreement, with respect to that portion of the current plan year
ending on the Closing Date, to DBWI's knowledge, after reasonable inquiry, shall
have been made on or prior to the Closing Date by Savant.
4.23.4. No Pension Plan or related trust has terminated, and
no "reportable event" (within the meaning of section 4043(b) of ERISA) has
occurred with respect to either any of the Pension Plans or the participation of
Savant in any of the Other Pension Plans, other than the transactions
contemplated by this Agreement, since the effective date of ERISA.
4.23.5. None of the Pension Plans which are subject to
provisions of section 412 of the Code or Part 3 of Title I(B) of ERISA or their
related trusts has incurred any "accumulated funding deficiency" (within the
meanings of section 412(a) of the Code and section 302 of ERISA) since the
effective date of ERISA.
4.23.6. Savant has not incurred any liability (except for
required premium payments, which premium payments have been made for plan years
ended prior to the Closing Date, to the Pension Benefit Guaranty Corporation),
with respect to the Pension Plans.
4.23.7. All of the welfare plans maintained by Savant or to
which it makes employer contributions with respect to its employees (herein
collectively referred to as the "Welfare Plans") are listed in Part C of
Schedule 4.23. To DBWI's knowledge, after reasonable inquiry, there are no
actions, suits or claims, pending or threatened against any of the Pension
Plans, or (with respect to the participation of Savant therein) against any of
the Other Pension or Welfare Plans, or against Savant with respect to any
thereof.
4.23.8. Savant has satisfied in all material respects all
reporting and disclosure requirements applicable to it under ERISA, and the
Department of Labor and Internal Revenue Service regulations promulgated
thereunder, with respect to all of the Pension and Welfare Plans, and Savant
will deliver to ESAN prior to the Closing Date true and complete copies of the
most recently filed and disclosed Forms EBS-1, Forms 5500 and 5500-C (with
exhibits), 1976 "ERISA Notices" and summary plan descriptive for the Pension and
Welfare Plans.
4.23.9. To DBWI's knowledge, after reasonable inquiry, none of
the Pension and Welfare Plans or any of their related trusts, or Savant or any
trustee, administrator or other "party in interest" or "disqualified person"
(within the meaning of section 3(14) of ERISA or section 4975(e)(2) of the Code,
respectively) with respect to the Plans, has engaged in any "prohibited
transaction" (within the meaning of section 408 of ERISA or section 4975(c)(23)
or (d) of the Code), with respect to the participation of Savant therein, which
could subject any of the Pension or
12
Welfare Plans or related trusts, or any trustee, administrator or other
fiduciary of the Plan, or Savant or ESAN, or any other party dealing with the
Plans, to the penalties or excise tax imposed on prohibited transactions by
section 502(i) or ERISA or section 4975 of the Code.
4.23.10. The Trustees of each of the Pension Plans have
completed their required annual accountings for the plan year ended December 31,
2001, such accountings accurately reflect the financial positions of the Pension
Plans as at such date, and true and complete copies of the Trustees' reports or
schedules of such accountings have been delivered to ESAN.
4.24. No Breach. Neither the execution and delivery of this Agreement
nor compliance by Savant, HOV and DBWI with any of the provisions hereof nor the
consummation of the transactions contemplated hereby, will:
(a) violate or conflict with any provision of the Certificate
of Incorporation or By-Laws of DBWI or Savant or the Certificate of Formation or
Operating Agreement of HOV;
(b) violate or, alone or with notice of the passage of time,
result in the material breach or termination of, or otherwise give any
contracting party the right to terminate, or declare a material default under,
the terms of any agreement or other document or undertaking, oral or written to
which Savant, HOV or DBWI is a party or by which either of them or any of their
respective properties or assets may be bound (except for such violations,
conflicts, breaches or defaults as to which required waivers or consents by
other parties have been, or will, prior to the Closing, be, obtained);
(c) result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Savant pursuant to
the terms of any such agreement or instrument;
(d) violate any judgment, order, injunction, decree or award
against, or binding upon, Savant, HOV or DBWI or upon their respective
properties or assets; or
(e) violate any law or regulation of any jurisdiction relating
to Savant or any of its respective securities, assets or properties which
violation would result in a Material Adverse Effect upon Savant.
4.25. Brokers. Neither DBWI nor HOV has engaged, consented to, or
authorized any broker, finder, investment banker or other third party to act on
its behalf, directly or indirectly, as a broker or finder in connection with the
transaction contemplated by this Agreement, and DBWI and HOV agree to indemnify
ESAN against, and to hold it harmless from any claim for brokerage or similar
commission or other compensation which may be made against ESAN by any third
party in connection with any transactions contemplated hereby which claim is
based upon any action by DBWI or HOV.
4.26. Labor Discussions. Except with respect to the agreements listed
in Schedule 4.16 pursuant to Section 4.16(x), Savant is not, or during the past
three years has not been, involved in any labor discussions with any unit or
group seeking to become the bargaining unit for any of its
13
employees. With respect to said agreements, Schedule 4.16 sets forth a
description of the status thereof, including any demands or proposals with
respect to the renewal, extension or replacement thereof.
4.27. Change of Name. Savant has not conducted business under any name
during the past three (3) years except those set forth on Schedule 4.27
("Alternate Names").
4.28 Environmental. To DBWI's knowledge, Savant has not used,
generated, manufactured, installed, released, discharged, stored or disposed of
any "Hazardous Materials," as defined below, on, under, in or about the site of
any real property of Savant. The term "Hazardous Materials" shall mean any waste
material which is regulated by any state or local governmental authority in the
states in which Savant conducts business, or the United States Government,
including, but not limited to, any material or substance which is (i) defined as
a "hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste," or "restricted hazardous waste" under any provision of New
Jersey law, (ii) petroleum, (iii) asbestos, (iv) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. 1251 et
seq. (33 U.S.C. 1321) or listed pursuant to Section 307 of the Clean Water Act
(33 U.S.C. 1317), (v) defined as a "hazardous waste" pursuant to Section 1004 of
the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42 U.S.C.
6903) or (vi) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
9601 et seq. (42 U.S.C. 9601). The current operations of Savant comply with all
applicable laws and governmental regulations including all applicable federal,
state and local laws, ordinances, and regulations pertaining to air and water
quality, Hazardous Materials, waste, disposal or other environmental matters,
including the Clean Water Act, the Clean Air Act, the Federal Water Pollution
Control Act, the Solid Waste Disposal Act, the Resource Conservation Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
and the statutes, rules, regulations and ordinances or the state, city and
country in which such property is located. All sewage and waste discharged at
such property is and has been discharged in compliance with applicable federal,
state and local law. To DBWI's knowledge, no xxxxx of any kind which may exist
on such property are or have been receiving any discharges and no underground
storage tanks exist at any such property.
4.29 Untrue or Omitted Facts. No representation, warranty or statement
by DBWI or HOV in this Agreement contains any untrue statement of a material
fact, or omits or will omit to state a fact necessary in order to make such
representations, warranties or statements not materially misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ESAN
ESAN makes the following representations and warranties to DBWI and
HOV, each of which shall be deemed material, and DBWI and HOV, in executing this
Agreement, has relied and will rely on the correctness and completeness of such
representations and warranties:
5.01. Organization. ESAN is a corporation, duly formed, validly
existing and in good standing under the laws of the State of Delaware, and has
the corporate power to carry on its
14
business as now conducted and to own its assets. A complete list of entities in
which ESAN, directly or indirectly, owns capital stock or holds an equity or
similar interest is disclosed in ESAN's 10K filing for the fiscal year ended
January 31, 2002, filed with the SEC on May 1, 2002 (the "10K Filing").
5.02 Capitalization and Voting Rights. The authorized capital and
voting rights of shareholders of ESAN is as disclosed in ESAN's 10K Filing, 10Q
and other filings made with the SEC.
5.03 SEC Documents. Since September 30, 2000, ESAN has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"). As of the date of filing of
such documents (the "SEC Documents") with the SEC, the SEC Documents, as they
may have been subsequently amended by filings made by ESAN with the SEC prior to
the date hereof, complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents. None of the SEC Documents, as of the date filed
and as they may have been subsequently amended by filings made by ESAN with the
SEC prior to the date hereof, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. As of their respective dates, the
financial statements of ESAN included in the SEC Documents complied as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.
5.04 Valid Issuance of Securities. The ESAN Securities being delivered
as part of the Merger Consideration hereunder, when issued and delivered in
accordance with the terms hereof, will be duly and validly issued, fully paid
and nonassessable and free of any liens or encumbrances or restrictions on
transfer other than restrictions on transfer under this Agreement, the Investor
Rights Agreement and applicable state and federal securities laws and will be
issued in compliance with all applicable federal and state securities laws, as
currently in effect, of the United States and each of the states whose
securities laws govern the issuance of any of ESAN Securities hereunder. The
ESAN Securities are not and will not be subject to any preemptive rights, rights
of first refusal, rights of first offer or other similar rights that have not
been properly waived or complied with.
5.05. No Breach. Neither the execution and delivery of this Agreement
nor compliance by ESAN with any of the provisions hereof nor the consummation of
the transactions contemplated hereby, will:
(a) violate or conflict with any provision of the Certificate
of Incorporation or By-Laws of ESAN;
(b) violate or, alone or with notice of the passage of time,
result in the material breach or termination of, or otherwise give any
contracting party the right to terminate, or declare a material default under,
the terms of any agreement or other document or undertaking, oral or written to
which ESAN is a party or by which it or any of its respective properties or
assets may be
15
bound (except for such violations, conflicts, breaches or defaults as to which
required waivers or consents by other parties have been, or will, prior to the
Closing, be, obtained);
(c) result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of ESAN pursuant to
the terms of any such agreement or instrument;
(d) violate any judgment, order, injunction, decree or award
against, or binding upon, ESAN or upon its properties or assets; or
(e) violate any law or regulation of any jurisdiction relating
to ESAN or any of its respective securities, assets or properties.
5.06. Authority for and Binding Nature of Agreement. All corporate and
other proceedings required to be taken by or on behalf of ESAN including,
without limitation, all actions required to be taken by its Board of Directors,
to authorize ESAN to enter into and carry out this Agreement will have been duly
and properly taken at or prior to the Closing Date. All corporate action on the
part of ESAN, its officers, directors and shareholders necessary for the
authorization, issuance (or reservation for issuance) of ESAN Securities has
been taken or will be taken prior to the Closing, and this Agreement constitutes
a valid and legally binding obligation of ESAN, enforceable in accordance with
its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies.
5.07. Brokers. ESAN has not engaged, consented to, or authorized any
broker, finder, investment banker or third party to act on its behalf, directly
or indirectly, as a broker or finder in connection with the transactions
contemplated by this Agreement, and ESAN agrees to indemnify DBWI against, and
to hold each of them harmless from, any claim for brokerage or similar
commission or other compensation which may be made against Savant or DBWI by any
third party in connection with the transactions contemplated hereby, which claim
is based upon any action by ESAN.
5.08. Action Since Balance Sheet Date. Except as otherwise expressly
provided or set forth in, or required by, this Agreement, since April 30, 2002
(the "ESAN Balance Sheet Date"), ESAN has not: (i) with the exception of any
issuances under its Employee Stock Plan, Employee Stock Option Plan or
Director's Stock Option Plan (all issuances with regard thereto being set forth
on Schedule 5.08 attached hereto), issued or sold, or agreed to issue or sell
any of its capital stock, options, warrants, rights or calls to purchase such
stock, any securities convertible or exchangeable into such capital stock or
other corporate securities, or effected any subdivision or other
recapitalization affecting its capital stock; (ii) incurred any material
obligation or liability, absolute or contingent, except those arising in the
ordinary and usual course of its business: (iii) discharged or satisfied any
lien or encumbrance, except in the ordinary and usual course of business, or
paid or satisfied any liability, absolute or contingent, other than liabilities
as to the ESAN Balance Sheet Date and current liabilities incurred since the
ESAN Balance Sheet Date in the ordinary and usual course of business; (iv) made
any wage or salary increases or granted any bonuses other than wage
16
and salary increases and bonuses granted in accordance with its normal salary
increase and bonus policies; (v) mortgaged, pledged or subjected to any lien or
other encumbrance any of its properties or assets, or permitted any of its
property or assets to be subjected to any lien or other encumbrance, except in
the ordinary and usual course of business; (vi) sold, assigned or transferred
any of its properties or assets, except in the ordinary and usual course of
business; (vii) entered into any transaction having an aggregate value greater
than $500,000; (viii) waived any rights of substantial value, or cancelled,
modified or waived any indebtedness for borrowed money held by it, except in the
ordinary and usual course of business; (ix) declared, paid or set aside any
dividends or other distributions or payments on its capital stock, or redeemed
or repurchased, or agreed to redeem or repurchase, any shares of its capital
stock; (x) made any loans or advances to any person, or assumed, guaranteed,
endorsed or otherwise became responsible for the obligations of any person; or
(xi) incurred any indebtedness for borrowed money (except for endorsement, for
collection or deposit of negotiable instruments received in the ordinary and
usual course of business).
5.09. Adverse Developments. Except as otherwise expressly provided or
set forth in, or required by, this Agreement, since the ESAN Balance Sheet Date,
there have been no changes in the properties, operations or financial condition
of ESAN, and no event has occurred other than in the ordinary and usual course
of business which could be reasonably expected to have a Material Adverse Effect
upon the business of ESAN, and ESAN, after reasonable inquiry, knows of no
development or threatened development of a nature that is, or which could be
reasonably expected to have a Material Adverse Effect upon the business of ESAN
and or upon any of its respective assets or properties, including, without
limitation, the loss of any licenses or permits, suppliers, customers or
employees, which loss would be of a materially adverse nature.
5.10. Litigation, Compliance with Law. Except as set forth in Schedule
5.10, there are no actions, suits, proceedings or governmental investigations
relating to ESAN or to any of its respective properties, assets or businesses
pending or, to its knowledge, after reasonable inquiry, threatened, or any
order, injunction, award or decree outstanding against ESAN or against or
relating to any of its properties, assets or businesses; and ESAN, after
reasonable inquiry, does not know of any basis for any such action, suits or
proceedings within the past two years or any such governmental investigations,
orders, injunctions or decrees at any time in the past. Except as set forth in
Schedule 5.10, ESAN is not in violation of any law, regulation, ordinance,
order, injunction, decree, award or other requirement of any governmental body,
court or arbitrator relating to its properties, assets or business, which
violation would have a Material Adverse Effect on ESAN.
5.11. Employee Benefit Plans. Schedule 5.11 includes a list of all of
the "pension" and "welfare" benefit plans (within the respective meanings of
sections 3(2) and 3(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) maintained by ESAN or to which it makes employer
contributions with respect to its employees. There are no vested and unfunded
benefits under any such plans.
5.11.1. All of the pension and profit sharing plans maintained
by ESAN (herein collectively referred to as the "ESAN Pension Plans") are listed
in Part A of Schedule 5.11. Each of the ESAN Pension Plans has received a
favorable determination letter as to its qualification
17
under section 4.01(a) of the Internal Revenue Code of 1986, as amended (the
"Code") (including, but not limited to, amendments made by ERISA), nothing has
occurred with respect to any such ESAN Pension Plan which would cause the loss
of such qualification.
5.11.2. All of the Pension Plans not maintained by ESAN but to
which it makes employer contributions with respect to its employees (herein
collectively referred to as the "Other ESAN Pension Plans"), are listed in Part
B of Schedule 5.11. Each of the Other ESAN Pension Plans is a multi-employer
plan (within the meaning of section 3(37) of ERISA), but ESAN is not a
substantial employer (within the meaning of section 4001(a)(2) of ERISA) with
respect to any of the Other ESAN Pension Plans.
5.11.3. All contributions required by law or required under
the ESAN Pension Plans with respect to plan years ended prior to the Closing
Date shall have been made on or prior to the Closing Date by ESAN. With regard
to the current plan year of each of the Other ESAN Pension Plans, all
contributions required to meet the employer contribution obligations of ESAN,
under section 412 of the Code, Part 3 of Title I(B) of ERISA, such Other ESAN
Pension Plan or any applicable collective bargaining agreement, with respect to
that portion of the current plan year ending on the Closing Date, shall have
been made on or prior to the Closing Date by ESAN.
5.11.4. No ESAN Pension Plan or related trust has terminated,
and no "reportable event" (within the meaning of section 4043(b) of ERISA) has
occurred with respect to either any of the ESAN Pension Plans or the
participation of ESAN in any of the Other ESAN Pension Plans, other than the
transactions contemplated by this Agreement, since the effective date of ERISA.
5.11.5. None of the ESAN Pension Plans which are subject to
provisions of section 412 of the Code or Part 3 of Title I(B) of ERISA or their
related trusts has incurred any "accumulated funding deficiency" (within the
meanings of section 412(a) of the Code and section 302 of ERISA) since the
effective date of ERISA.
5.11.6. ESAN has not incurred any liability (except for
required premium payments, which premium payments have been made for plan years
ended prior to the Closing Date, to the Pension Benefit Guaranty Corporation),
with respect to the ESAN Pension Plans.
5.11.7. All of the welfare plans maintained by ESAN or to
which it makes employer contributions with respect to its employees (herein
collectively referred to as the "ESAN Welfare Plans") are listed in Part C of
Schedule 4.22. There are no actions, suits or claims, pending or threatened, and
ESAN has no knowledge of any facts which could give rise to any actions, suits
or claims against any of the ESAN Pension Plans, or (with respect to the
participation of ESAN therein) against any of the Other ESAN Pension or ESAN
Welfare Plans, or against ESAN with respect to any thereof.
5.11.8. ESAN has satisfied in all material respects all
reporting and disclosure requirements applicable to it under ERISA, and the
Department of Labor and Internal Revenue Service regulations promulgated
thereunder, with respect to all of the ESAN Pension and ESAN Welfare Plans.
18
5.11.9. None of the ESAN Pension and ESAN Welfare Plans or any
of their related trusts, or ESAN or any trustee, administrator or other "party
in interest" or "disqualified person" (within the meaning of section 3(14) of
ERISA or section 4975(e)(2) of the Code, respectively) with respect to the
Plans, has engaged in any "prohibited transaction" (within the meaning of
section 408 of ERISA or section 4975(c)(23) or (d) of the Code), with respect to
the participation of ESAN therein, which could subject any of the ESAN Pension
or ESAN Welfare Plans or related trusts, or any trustee, administrator or other
fiduciary of the Plan, or ESAN, Savant or DBWI, or any other party dealing with
the Plans, to the penalties or excise tax imposed on prohibited transactions by
section 502(i) or ERISA or section 4975 of the Code.
5.11.10. The Trustees of each of the ESAN Pension Plans have
completed their required annual accountings for the plan year ended December 31,
2001, such accountings accurately reflect the financial positions of the ESAN
Pension Plans as at such date.
5.12. Environmental. ESAN has not used, generated, manufactured,
installed, released, discharged, stored or disposed of any "Hazardous
Materials," as defined below, on, under, in or about the site of any property of
ESAN. The term "Hazardous Materials" shall mean any waste material which is
regulated by any state or local governmental authority in the states in which
ESAN conducts business, or the United States Government, including, but not
limited to, any material or substance which is (i) defined as a "hazardous
waste," "hazardous material," "hazardous substance," "extremely hazardous
waste," or "restricted hazardous waste" under any provision of California or
Maryland law, (ii) petroleum, (iii) asbestos, (iv) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. 1251 et
seq. (33 U.S.C. 1321) or listed pursuant to Section 307 of the Clean Water Act
(33 U.S.C. 1317), (v) defined as a "hazardous waste" pursuant to Section 1004 of
the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42 U.S.C.
6903) or (vi) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
9601 et seq. (42 U.S.C. 9601). The current operations of ESAN comply with all
applicable laws and governmental regulations including all applicable federal,
state and local laws, ordinances, and regulations pertaining to air and water
quality, Hazardous Materials, waste, disposal or other environmental matters,
including the Clean Water Act, the Clean Air Act, the Federal Water Pollution
Control Act, the Solid Waste Disposal Act, the Resource Conservation Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
and the statutes, rules, regulations and ordinances or the state, city and
country in which such property is located. All sewage and waste discharged at
such property is and has been discharged in compliance with applicable federal,
state and local law. No xxxxx of any kind which may exist on such property are
or have been receiving any discharges. There are no underground storage tanks or
any kind at any such property.
5.14 Untrue or Omitted Facts. No representation, warranty or statement
by ESAN in this Agreement contains any untrue statement of a material fact, or
omits or will omit to state a fact necessary in order to make such
representations, warranties or statements not materially misleading.
19
ARTICLE VI
PRE-CLOSING COVENANTS
6.01 Covenants of HOV and DBWI. HOV and DBWI hereby covenant that, from
and after the date hereof, and until the Closing or earlier termination of this
Agreement as follows:
6.01.1 Access. Savant and DBWI shall afford to the managers,
officers, attorneys, accountants and other authorized representatives of ESAN
free and full access, during regular business hours and upon reasonable notice,
to the books, records, personnel and properties of Savant (including, without
limitation, the work papers prepared by Savant's auditors) so that ESAN may have
full opportunity to conduct the Due Diligence Investigation. Savant will cause
its employees, accountants and attorneys to cooperate fully with the Due
Diligence Investigation, and to make full disclosure to ESAN of all material
facts affecting its financial condition and business operations.
6.01.2 Conduct of Business. Savant shall conduct its business
only in the ordinary and usual course and shall make no material change in any
of its policies without the prior written consent of ESAN, which shall not be
unreasonably withheld or delayed.
6.01.3 Insurance. Savant shall maintain in force the insurance
policies listed in Schedule 4.13, except to the extent that they may be replaced
with equivalent policies at the same or lower rates approved by ESAN, which
approval shall not be unreasonably denied.
6.01.4 Liabilities. Savant shall not incur any obligation or
liability required in accordance with GAAP to be set forth on Savant's financial
statements, absolute or contingent, except for those incurred in the ordinary
and usual course of its business; nor shall it pay any obligation or liability
other than: (i) the foregoing obligations and liabilities, (ii) debts,
liabilities, and obligations set forth in the Balance Sheet; (iii) debts,
liabilities and obligations arising after the Balance Sheet Date in the ordinary
course of its business; and (iv) debts, liabilities and obligations under the
contracts, agreements, past practices, arrangements, relationships, documents
and instruments listed, described or contained in this Agreement or in the
Exhibits and Schedules annexed to this Agreement.
6.01.5 Preservation of Business. HOV and DBWI will use its
best efforts to preserve Savant's business organization intact, to keep
available the services of its present officers, employees and consultants
(except as ESAN may otherwise approve), and to preserve its goodwill.
6.01.6 Financial Statements. HOV and DBWI will provide ESAN
with the Financial Statements required by Section 4.07 of this Agreement, as
well as the unqualified opinions and reports of BDO thereon. In addition to the
foregoing, DBWI shall deliver to ESAN at Closing, an unaudited balance sheet of
Savant, dated as of the Closing Date (the "Closing Date Balance Sheet"), and,
within thirty (30) days of the Closing Date, shall deliver an audited balance
sheet of Savant, dated as of the close of business on the Closing Date.
6.01.7 No Breach. HOV and DBWI will (i) use their best efforts
to assure that all of its representations and warranties contained herein are
true in all material respects as of the
20
Closing; (ii) promptly notify ESAN of any event or fact which represents or is
likely to cause such a breach or default.
6.02 Covenants of ESAN. ESAN hereby covenants that, from and
after the date hereof, and until the Closing or earlier termination of this
Agreement as follows:
6.02.1 Access. ESAN shall afford to the managers, officers,
attorneys, accountants and other authorized representatives of HOV and DBWI free
and full access, during regular business hours and upon reasonable notice, to
the books, records, personnel and properties of ESAN (including, without
limitation, the work papers prepared by ESAN's auditors) so that HOV and DBWI
may have full opportunity to conduct the Due Diligence Investigation. ESAN will
cause its employees, accountants and attorneys to cooperate fully with HOV's and
DBWI's due diligence investigation, and to make full disclosure to HOV and DBWI
of all material facts affecting ESAN's financial condition and business
operations.
6.02.2 Conduct of Business. ESAN shall conduct its business
only in the ordinary and usual course and shall make no material change in any
of its policies without the prior written consent of HOV and DBWI, which shall
not be unreasonably withheld or delayed.
6.02.3 Insurance. ESAN shall maintain in force the insurance
policies listed in Schedule 5.12, except to the extent that they may be replaced
with equivalent policies at the same or lower rates approved by ESAN, which
approval shall not be unreasonably denied.
6.02.4 Liabilities. ESAN shall not incur any obligation or
liability required in accordance with GAAP to be set forth on ESAN's financial
statements, absolute or contingent, except for those incurred in the ordinary
and usual course of its business; nor shall it pay any obligation or liability
other than: (i) the foregoing obligations and liabilities, (ii) debts,
liabilities, and obligations set forth in the Balance Sheet; (iii) debts,
liabilities and obligations arising after the ESAN Balance Sheet Date in the
ordinary course of its business; and (iv) debts, liabilities and obligations
under the contracts, agreements, past practices, arrangements, relationships,
documents and instruments listed, described or contained in this Agreement or in
the Exhibits and Schedules annexed to this Agreement.
6.02.5 Preservation of Business. ESAN will use its best
efforts to preserve ESAN's business organization intact, to keep available the
services of its present officers, employees and consultants (except as HOV and
DBWI may otherwise approve), and to preserve its goodwill.
6.02.6 Financial Statements. Upon the first date after the
Closing on which ESAN files with the SEC its financial statements, ESAN will
deliver such financial statements to HOV and DBWI.
6.02.7 No Breach. ESAN will (i) use its best efforts to assure
that all of its representations and warranties contained herein are true in all
material respects as of the Closing; (ii) promptly notify DBWI of any event or
fact which represents or is likely to cause such a breach or default.
21
6.02.8 Reservation of ESAN Common Stock. ESAN shall at all
times reserve and keep available out of its authorized but unissued shares of
ESAN Common Stock, for the purpose of effecting the conversion of the ESAN
Preferred Stock, and otherwise complying with the terms of this Agreement, such
number of its duly authorized shares of ESAN Common Stock as shall be necessary
therefor.
6.02.9 Listing Requirement. On the Closing Date, ESAN shall
have secured the listing of the ESAN Securities (including the ESAN Common
Stock, ESAN Preferred Stock and ESAN Common Stock issuable upon conversion of
the ESAN Preferred Stock), upon the Nasdaq Stock Market ("Nasdaq") and shall use
its best efforts to maintain such listing of all ESAN Common Stock from time to
time issuable as dividends under the Certificate. ESAN shall use its
commercially reasonable efforts to continue the trading and listing of its
Common Stock on Nasdaq and shall include from and after the Closing all ESAN
Securities in such listing and shall comply in all respects with ESAN's filing
and other obligations under the rules of Nasdaq as applicable.
6.02.10 ESAN Shareholder Meeting. ESAN hereby covenants that
it shall take all action necessary, in accordance with applicable law and its
Certificate of Incorporation and By-Laws, to convene a meeting of the holders of
ESAN Common Stock (the "ESAN Shareholder Meeting") as promptly as practicable
following the date of this Agreement for the purpose of considering and
approving the transactions contemplated by this Agreement. Except to the extent
legally required for the discharge by the Board of Directors of its fiduciary
duties, the Board of Directors of ESAN shall recommend, contingent upon the
fairness opinion, that the holders of ESAN Common Stock vote in favor of and
approve the transactions contemplated by this Agreement at the ESAN Shareholder
Meeting.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATION OF ESAN TO CLOSE
The obligation of ESAN to enter into and complete the Closing
is subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions, any one or more of which may be waived by ESAN in its sole
discretion (except when the fulfillment of such condition is a requirement of
law).
7.01. Representations and Warranties. All representations and
warranties of HOV and DBWI contained in this Agreement and in any written
statement (including financial statements), exhibit, certificate, schedule or
other document delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be true and correct in all material respects as at the
Closing Date, as if made at the Closing and as of the Closing Date.
7.02. Covenants. HOV and DBWI shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by them prior to or at the
Closing.
7.03. No Action. No action, suit, proceeding or investigation
shall have been instituted, and be continuing before a court or before or by a
governmental body or agency, and be
22
unresolved, to restrain or to prevent or to obtain damages in respect of, the
carrying out of the transactions contemplated hereby, or which might materially
adversely affect the right of ESAN to own the Savant Common Stock or to operate
or control the assets, properties and business of Savant after the Closing Date,
or which might have a Material Adverse Effect thereon.
7.04. Consents, Licenses and Permits. HOV, DBWI and ESAN shall have
each obtained all consents, licenses and permits of third parties necessary for
the performance by each of them of all of their respective obligations under
this Agreement, and such other consents, if any, to prevent (i) agreements of
Savant from terminating, the termination of which, in the aggregate, would have
a Material Adverse Effect on the business, financial condition or assets of
Savant, or (ii) any material indebtedness of Savant from becoming due or being
subject to becoming due with the passage of time or on notice as a result of the
performance of this Agreement, any other provisions of this Agreement to the
contrary notwithstanding.
7.05. Certificate of Satisfaction of Conditions. ESAN shall have
received a certificate dated the Closing Date, signed by the President and
Secretary of DBWI and the authorized representative of HOV as to the
satisfaction of the conditions contained in Section 7.01 and 7.02.
7.06 Good Standing Certificate. DBWI shall have delivered to ESAN a
certificates dated as of the most recent practicable date prior to the Closing
(i) issued by the Department of Treasury of the State of New Jersey to the
effect that Savant is legally existing and in good standing and (ii) issued by
the Secretary of State of the State of Delaware to the effect that DBWI is
legally existing and in good standing.
7.07 Secretary's Certificate. DBWI shall have delivered to ESAN at the
Closing a certificate to the effect that attached thereto are true and complete
copies of (a) the Certificates of Incorporation and the Bylaws of Savant and of
DBWI, respectively, as in effect on the date thereof, and (ii) resolutions
adopted by the Board of Directors DBWI and by HOV authorizing the execution,
delivery and performance of this Agreement.
7.08. Opinion. ESAN shall have received the written opinion of counsel
to HOV and DBWI and Savant, dated the Closing Date, in the form attached hereto
as Exhibit C.
7.09. No Material Adverse Change. There shall have been no material
adverse change at the Closing Date in the business, assets and properties,
financial status, capital stock, or prospects of DBWI and Savant as at the
Balance Sheet Date.
7.10 Due Diligence Investigation. ESAN shall have conducted, and be
satisfied in its sole discretion with the results of, the Due Diligence
Investigation, including the unaudited Closing Date Balance Sheet of Savant.
Receipt of and satisfaction with such unaudited Closing Date Balance Sheet of
Savant shall in no way affect Savant's obligation to deliver the audited balance
sheet of Savant, dated as of the close of business on the Closing Date, which is
to be delivered to ESAN not later than thirty (30) days following the Closing
Date.
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7.11 Financial Statements. The audited and reviewed Financial
Statements will have been delivered to ESAN in accordance with Section 4.07 of
this Agreement without material change from the unaudited Financial Statements
previously delivered.
7.12 Fairness Opinion. ESAN shall have received a fairness opinion, in
form and substance reasonably satisfactory to ESAN's Board of Directors, with
respect to the transactions contemplated by this Agreement.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATION OF HOV AND DBWI TO CLOSE
The obligation of HOV and DBWI to enter into and complete the Closing
is subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions, any one or more of which may be waived by DBWI in its sole
discretion (except when the fulfillment of such condition is a requirement of
law).
8.01. Representations and Warranties. All representations and
warranties of ESAN contained in this Agreement and in any written statement,
schedule or other document delivered pursuant hereto or in connection with the
transactions contemplated hereby shall be true and correct in all material
respects as at the Closing Date, as if made at the Closing and as of the Closing
Date.
8.02. Covenants. ESAN shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it prior to or at the Closing.
8.03. No Actions. No action, suit, proceeding or investigation shall
have been instituted, and be continuing before a court or before or by a
governmental body or agency, and be unresolved, to restrain or to prevent or to
obtain damages in respect of, the carrying out of the transactions contemplated
hereby, or which might materially affect the right of DBWI to own the ESAN
Preferred Stock after the Closing Date, or which might have a Material Adverse
Effect thereon.
8.04 Consents, Licenses and Permits. HOV, DBWI and ESAN shall have each
obtained all consents, licenses and permits of third parties necessary for the
performance by each of them of all of their respective obligations under this
Agreement, and such other consents, if any, to prevent (i) agreements of Savant
from terminating, the termination of which, in the aggregate, would have a
Material Adverse Effect on the business, financial condition or assets of
Savant, or (ii) any material indebtedness of Savant from becoming due or being
subject to becoming due with the passage of time or on notice as a result of the
performance of this Agreement, any other provisions of this Agreement to the
contrary notwithstanding.
8.05 Certificates. HOV and DBWI shall have received a certificate of
ESAN, dated the Closing Date, signed by the President of ESAN as to the
satisfaction of the conditions contained in Sections 8.01 and 8.02.
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8.06 Good Standing Certificate. ESAN shall have delivered to HOV and
DBWI a certificate dated as of the most recent practicable date prior to the
Closing issued by the Department of Treasury of the State of Delaware to the
effect that ESAN is legally existing and in good standing.
8.07 Secretary's Certificate. ESAN shall have delivered to HOV and DBWI
at the Closing a certificate to the effect that (i) attached thereto is a true
and complete copy of the Certificate of Incorporation and the Bylaws of ESAN (as
amended through such date) as in effect on the date thereof, and (ii) attached
thereto is a true and complete copy of resolutions adopted by the Board of
Directors of ESAN authorizing the execution, delivery and performance of this
Agreement.
8.08. Opinion. HOV and DBWI shall have received the written opinion of
counsel to ESAN, dated the Closing Date, in the form attached hereto as Exhibit
D.
8.09 Investor Rights Agreement. HOV and ESAN shall have entered into
the Investor Rights Agreement in the form attached as Exhibit B and such
agreement shall be in full force and effect.
8.10 Certificate of Designation. ESAN shall have filed the Certificate
of Designation with the Secretary of State of the State of Delaware and such
filing shall have been accepted by the Secretary of State of the State of
Delaware prior to the Closing and such certificate shall be in full force and
effect.
8.11. No Material Adverse Change. There shall have been no material
adverse change at the Closing Date in the business, assets and properties,
financial status, capital stock, or prospects of ESAN as at the ESAN Balance
Sheet Date.
8.12 Due Diligence Investigation. HOV and DBWI shall have conducted,
and be satisfied in its sole discretion with the results of, the Due Diligence
Investigation.
ARTICLE IX
CLOSING
9.01. Items to be Delivered by DBWI. At the Closing, DBWI will deliver
or cause to be delivered to ESAN:
(a) The Certificate of Merger;
(b) The certificates required by Section 7.05, 7.06 and 7.07;
(c) The opinion of HOV's and DBWI's counsel as required by
Section 7.08;
(d) The Investor Rights Agreement, in the form attached hereto
as Exhibit B; and
25
(e) Such other certified resolutions, documents and
certificates as are required to be delivered by Savant and DBWI pursuant to the
provisions of this Agreement.
9.02. Items to be Delivered by ESAN. At the Closing, ESAN will deliver
or cause to be delivered to HOV and DBWI:
(a) The Certificate of Merger;
(b) The certificates representing the ESAN Preferred Stock to
be delivered as part of the Merger Consideration pursuant to Section 2.01.1;
(c) The certificate required by Sections 8.05, 8.06 and 8.07;
(d) The opinion of ESAN's counsel as required by Section 8.08;
(e) The Investor Rights Agreement, in the form attached hereto
as Exhibit B; and
(f) Such other certified resolutions, documents and
certificates as are required to be delivered by ESAN pursuant to the provisions
of this Agreement.
ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
10.01 Survival. Notwithstanding any right of the parties hereto
(whether or not exercised) to investigate the affairs of the other parties
hereto, including, without limitation, the right to conduct the Due Diligence
Investigation, or any right of any party (whether or not exercised) to
investigate the accuracy of the representations and warranties of the other
party contained in this Agreement, DBWI, HOV and ESAN have the right to rely
fully upon the representations, warranties, covenants and agreements of the
other parties contained in this Agreement (without limitation or restriction).
The parties hereto agree that their respective representations, warranties,
covenants and agreements contained in this Agreement shall survive the Closing
for a term of two (2) years with the exception of those regarding taxes set
forth in Section 4.11 which shall survive the Closing for the statute of
limitations periods applicable to the matters referred to therein.
10.02 Indemnification.
(a) HOVagrees to save, defend and indemnify ESAN against and hold it
harmless from any losses, damages, deficiencies or liabilities (including,
without limitation, counsel fees and expenses and any settlement amounts in
connection therewith) ("Losses") caused by, resulting or arising from or
otherwise relating to (i) any failure by DBWI or HOV to perform or otherwise
fulfill or comply with any undertaking, agreement, or obligation of DBWI or HOV
hereunder, or (ii) any breach of any representation or warranty of DBWI or HOV
contained herein. HOV shall have no liability for any Losses suffered by ESAN
unless the aggregate of all Losses suffered by ESAN exceeds, on a cumulative
basis, two hundred fifty thousand dollars ($250,000) and HOV shall be liable for
all Losses in excess of that amount.
26
(b) ESAN agrees to save, defend and indemnify DBWI and HOV and their
respective officers, directors, employees, agents and affiliates against and
hold it harmless from any and all Losses caused by, resulting or arising from or
otherwise relating to (i) any failure by ESAN to perform or otherwise fulfill or
comply with any undertaking, agreement, or obligation of ESAN hereunder or (ii)
by reason of any breach of any representation or warranty of ESAN contained
herein. ESAN shall have no liability for any Losses suffered by DBWI or HOV
unless the aggregate of all Losses suffered by DBWI and HOV exceeds, on a
cumulative basis, two hundred fifty thousand dollars ($250,000) and ESAN shall
be liable for all Losses in excess of that amount.
10.03. Defense of Claims. An indemnified party agrees to notify the
indemnifying party or parties with reasonable promptness of any claim asserted
against it in respect of which the indemnifying party or parties may be liable
under this Agreement, which notification shall be accompanied by a written
statement setting forth the basis of such claim and the manner of calculation
thereof. The indemnifying party shall have the right to defend any such claim at
their own expense and with counsel of their choice; provided, however, that such
counsel shall have been approved by the indemnified party prior to engagement,
which approval shall not be unreasonably withheld, or delayed; and provided
further, that the indemnified party may participate in such defense, if it so
chooses, with its own counsel and as its own expense. The parties hereby
acknowledge and agree that the obligation of any indemnifying party to indemnify
any indemnified party with respect to any claim or demand in respect of which
such indemnified party might seek indemnity from such indemnifying party shall
be reduced by an amount equal to the amount, if any, received by the indemnified
party in respect of insurance proceeds or other similar compensation paid to
such indemnified party as a result of or in connection with such claim or
demand.
10.04. Exclusive Remedy. The indemnification provisions of this Article
X will be the sole and exclusive remedy of DBWI, HOV, ESAN and any other
indemnified parties after the date hereof for any relief and/or damages suffered
by any indemnified party hereunder in connection with this Agreement or the
transactions contemplated hereby.
ARTICLE XI
TERMINATION AND WAIVER
11.01 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions provided
for herein abandoned at any time prior to the Closing Date:
11.01.1 By mutual consent of HOV, ESAN and DBWI;
11.01.2 By ESAN if any of the conditions set forth in Article
VII hereof shall not have been fulfilled on or prior to October 31, 2002, or
shall become incapable of fulfillment at any time, and shall not have been
waived;
11.01.3 By HOV and DBWI if any of the conditions set forth in
Article VIII hereof shall not have been fulfilled on or prior to October 31,
2002, or shall have become incapable of fulfillment at any time, and shall not
have been waived;
27
11.01.4 By either ESAN or HOV and DBWI if any material legal
action or proceeding shall have been instituted or threatened seeking to
restrain, prohibit, invalidate or otherwise affect the consummation of the
transactions contemplated by this Agreement which makes it inadvisable, in the
judgment of such party, to consummate same.
In the event that this Agreement is terminated as described above, this
Agreement shall be void and of no force and effect, without any liability or
obligation on the part of any of the parties hereto except for any liability
which may arise pursuant to Section 12.02.
11.02. Waiver. Any condition to the performance of HOV and DBWI or ESAN
which legally may be waived on or prior to the Closing Date may be waived at any
time by the party entitled to the benefit thereof by action taken or authorized
by an instrument in writing executed by the relevant party or parties. The
failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right of such party as a later
time to enforce the same. No waiver by any party of the breach of any term,
covenant, representation or warranty contained in this Agreement as a condition
to such party's obligations hereunder shall release or affect any liability
resulting from such breach, and no waiver of any nature, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or of any breach of any other
term, covenant, representation or warranty of this Agreement.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01. Expenses. ESAN shall bear its expenses in connection herewith,
and HOV shall bear the expenses of HOV, DBWI, and Savant in connection herewith.
12.02. Confidential Information. Each party agrees that such party and
its representatives will hold in strict confidence all information and documents
received from the other parties and, if the transactions herein contemplated
shall not be consummated, each party will continue to hold such information and
documents in strict confidence and will return to such other party all such
documents (including the documents annexed to this Agreement) then in such
receiving party's possession without retaining copies thereof: provided,
however, that each party's obligations under this Section 12.02 to maintain such
confidentiality shall not apply to any information or documents that are in the
public domain at the time furnished by the others or that become in the public
domain thereafter through any means other than as a result of any act of the
receiving party or of its agents, officers, directors, managers or shareholders
which constitutes a breach of this Agreement, or that are required by applicable
law to be disclosed.
12.03. Modification, Termination or Waiver. This Agreement may be
amended, modified, superseded or terminated, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived, but only by a
written instrument executed by the party waiving compliance. The failure of any
party at any time or times to require performance of any provision hereof shall
in no manner affect the right of such party at a later time to enforce the same.
28
12.04. Publicity. The parties agree that no publicity release or other
public announcement concerning this Agreement or the transactions contemplated
by this Agreement shall be issued by any party without the advance approval of
both the form and substance of the same by the other party and its counsel,
which approval, in the case of any publicity, release or other public
announcement required by applicable law, shall not be unreasonably withheld or
delayed.
12.05. Notices. Any notice or other communication required or which may
be given hereunder shall be in writing and either be delivered personally or by
reputable overnight delivery service, or be mailed, certified or registered
mail, postage prepaid, as follows:
If to HOV or DBWI:
HandsOn Ventures, LLC
0000 Xxxxxx Xxxxxx, Xxxxx Xxxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Partner
With a copy to:
Xxxxx Xxxx LLP
000 Xxxxxxxx, Xxxxx 000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000-0000
Attn: D. Xxxxxx Xxxxxx
and if to ESAN, to:
Entrada Networks, Inc.
00 Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: President
With a copy to:
Greenbaum, Rowe, Xxxxx, Xxxxx,
Xxxxx & Xxxxxx, LLP
00 Xxxx Xxxxxx Xxxxx
X.X. Xxx 0000
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attention: W. Xxxxxxx Xxxxxx
The parties may change the persons and addresses to which the notices
or other communications are to be sent to it by giving written notice of any
such change in the manner provided herein for giving notice.
12.06 Binding Effect and Assignment. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the parties
hereto: provided, however, that no
29
assignment of any rights or delegation of any obligations provided for herein
may be made by any party without the express consent of the other parties.
12.07. Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof.
12.08. Exhibits and Schedules. All Exhibits and Schedules annexed
hereto and the documents and instruments referred to herein or required to be
delivered simultaneously herewith or at the Closing are expressly made a part of
this Agreement as fully as though completely set forth herein, and all
references to this Agreement herein or in any of such Exhibits, Schedules,
documents or instruments shall be deemed to refer to and include all such
Exhibits, Schedules, documents and instruments.
12.09. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within that state, excluding the choice of law
rules thereof.
12.10 Specific Performance. In the event of a material breach by either
party of its representations and obligations hereunder to sell and deliver the
Savant Common Stock or ESAN Securities, as the case may be, to the other party
which is not cured within thirty (30) calendar days after written notice to that
effect, the non-breaching party, in addition to any other rights or remedies,
shall have the right to bring an action to enforce the terms of this Agreement
by decree of specific performance without being required to prove actual
damages, post bond or furnish other security, it being agreed that the Savant
Common Stock and ESAN Securities to be transferred hereunder are each unique and
not readily available in the open market, and the breaching party thereby
further agrees to waive any and all defenses against any such action for
specific performance based on the grounds that there is an adequate remedy for
money damages available.
12.11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but which together shall
constitute one and the same instrument.
12.12. Section Headings. The section headings contained in this
Agreement are inserted for conveniences of reference only and shall not affect
the meaning or interpretation of this Agreement.
30
WITNESS the execution of this Agreement as of the date first above
written.
ENTRADA NETWORKS, INC.
By: /s/ Xxxxxxxx Xxxxx
-------------------------
Xxxxxxxx Xxxxx, Ph.D., Chief Financial Officer
DBW, INC.
By: /s/ Xxxx Xxxxx
---------------------------------
Xxxx Xxxxx, President
HANDSON VENTURES, LLC.
By: /s/ Xxxx Xxxxx
---------------------------------
Xxxx Xxxxx, Partner
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SCHEDULES
4.01 DBWI Corporate Existence and Qualification
4.02 Savant Corporate Existence and Qualification
4.03 Capitalization
4.07 Financial Statements
4.11 Taxes
4.12 Ownership of Assets
4.13 Insurance
4.14 Litigation, Compliance with Law
4.15 Real Property
4.16 Listed Agreements
4.19 Permits and Licenses
4.20 Banking Arrangements
4.22 Salary Information
4.23 Employee Benefit Plans
4.27 Alternate Names
5.08 Actions Since Balance Sheet Date
5.10 Litigation, Compliance with Law
5.11 Employee Benefit Plans
EXHIBITS
Exhibit A: Certificate of Designation
Exhibit B: Investor Rights Agreement
Exhibit C: Opinion of Counsel to HOV and DBWI
Exhibit D: Opinion of Counsel to ESAN
32
EXHIBIT A
CERTIFICATE OF DESIGNATION
of
SERIES B PREFERRED STOCK
of
ENTRADA NETWORKS, INC.
Pursuant to Section 151 of the Delaware General Corporation Law,
Entrada Networks, Inc., a corporation organized and existing under the laws of
the State of Delaware ("ESAN"), does hereby certify that, pursuant to the
authority conferred on the Board of Directors of ESAN by Article III of the
Certificate of Incorporation (the "Certificate of Incorporation") of ESAN and in
accordance with Section 151 of the Delaware General Corporation Law, the Board
of Directors of ESAN (the "Board") adopted the following resolution establishing
a series of 5,000 shares of Preferred Stock of ESAN designated as "Series B
Preferred Stock" (referred to herein as the "Series B Preferred Stock"):
RESOLVED, that pursuant to the authority conferred on the Board by
Article III of the Certificate of Incorporation and by Section 151 of the
Delaware General Corporation Law, a series of Preferred Stock, $0.001 par value
per share, of ESAN is hereby established and created, and the Board of Directors
hereby fixes the designations and preferences and relative participating,
optional and other special rights and qualifications, limitations and
restrictions of a series of Preferred Stock consisting of 5,000 shares to be
designated as Series B Preferred Stock.
1. Dividend Provisions.
(a) The holders of shares of Series B Preferred Stock, hereinafter the
"Preferred Shares", in preference to the holders of shares of any classes of
common stock of ESAN and each other class of capital stock or series of
Preferred Stock hereafter created by the Board, the terms of which do not
expressly provide that it ranks prior to or pari passu with the Series B
Preferred Stock as to dividends and distributions upon the liquidation,
winding-up or dissolution of ESAN, shall be entitled to receive preferential
dividends, at a rate of eight and one half percent (8.5%) per annum (the
"Dividend Rate") of the Original Series B Issue Price (as hereinafter defined)
payable, at ESAN's option (i) in cash, or (ii) in shares of the common stock of
ESAN (the "Common Stock"), or (iii) any combination of (i) and (ii) by issuing
additional shares (whether whole or fractional) of the Common Stock. If ESAN
determines to pay such dividends in cash, such payments shall be made out of
funds legally available therefor (the "Legally Available Funds"). For purposes
of this Certificate of Designation, the term "Original Series B Issue Price"
shall mean $1,000.00 for each outstanding Preferred Share, as it may be adjusted
for stock splits, dividends, combinations or other recapitalization with respect
to such shares. ESAN may, at its option, pay in cash the liquidation value of
fractional shares of the Common Stock in lieu of issuing fractional shares
thereof as a dividend. For purposes of calculating any dividend to be paid in
shares of Common Stock, the number of shares of
Common Stock to be paid shall be determined using the average of the closing bid
prices for the Common Stock on the principal securities exchange or trading
market for the Common Stock (the "Principal Market") as reported by Bloomberg
Financial Services, L.P. ("Bloomberg") for the last twenty trading days of such
quarter. The issuance of such shares of Common Stock shall constitute full
payment of the dividend otherwise payable in cash. Dividends, if due, shall be
payable quarterly on the first (1st) Business Day of each fiscal quarter (each
such date a "Series B Dividend Payment Date"), commencing on November 1, 2002.
The term "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in the City of New York are authorized or required by
law to remain closed. The dividends payable on Preferred Shares shall be paid to
the holders of Preferred Shares (whether whole or fractional) (each a "Holder"
and, collectively, the "Holders") as they appear on the stock records of ESAN at
the close of business on the applicable Series B Dividend Payment Date.
(b) Dividends, whether paid in cash or in shares of Common Stock, shall
be cumulative from the Series B Dividend Payment Date. If dividends are paid in
shares of Common Stock, such shares shall be deemed to have been issued on the
Series B Dividend Payment Date on which they accrue.
(c) Dividends payable on the Preferred Shares for any period more or
less than a full quarterly dividend period shall be computed on the basis of a
360 day year of twelve 30 day months.
(d) Subject to the last sentence of this subparagraph (d) of Section 1,
if ESAN fails on any Series B Dividend Payment Date to pay any dividends then
payable on the Preferred Shares, whether or not declared and whether or not
there shall exist Legally Available Funds, such failure shall constitute an
"Event of Noncompliance." Upon the occurrence of such an Event of Noncompliance,
the Dividend Rate shall be automatically increased to a rate of thirteen (13%)
percent per annum (the "Noncompliance Dividend Rate") of the Original Series B
Issue Price for all subsequent periods until the amount in arrears has been paid
in full. At such time as the amount in arrears has been paid in full, the
Noncompliance Dividend Rate shall cease to be in effect and the dividend rate
shall revert to the Dividend Rate. The failure of ESAN on any Series B Dividend
Payment Date to pay any dividends then payable on the Preferred Shares, whether
or not declared, and whether or not there shall exist Legally Available Funds,
shall not constitute an Event of Noncompliance if, within fifteen (15) days of
the occurrence of such Event of Noncompliance, ESAN makes such dividend payment,
provided, however, that at the time of the payment of such dividend, no other
Event of Noncompliance then exists.
(e) In the event dividends or distributions are paid on any share of
Common Stock, ESAN shall pay an additional dividend or distribution on all
outstanding shares of Preferred Shares in an amount equal per share (on an
as-if-converted to Common Stock basis) to the amount paid or set aside for each
share of Common Stock.
(f) All numbers relating to calculation of dividends shall be subject
to equitable adjustment in the event of any stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the capital structure of the Series B Preferred
Stock.
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2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of ESAN
(collectively, a "Liquidation") either voluntary or involuntary, the Holders of
Preferred Shares shall be entitled to receive, prior and in preference to any
distribution of any of the assets of ESAN to the holders of any other shares of
capital stock of ESAN by reason of their ownership thereof, an amount per share
of the Preferred Shares equal to the sum of (i) accrued but unpaid dividends of
such shares, and (ii) one hundred percent (100%) of the Original Series B Issue
Price. If upon the occurrence of such event, the assets and funds thus
distributed among the Holders shall be insufficient to permit the payment to
such Holders of the full aforesaid preferential amounts (the "Liquidation
Preference"), then the entire assets and funds of ESAN legally available for
distribution shall be distributed ratably among the Holders in proportion to the
amount of such stock owned by each such Holder.
(b) Upon the completion of the distribution required by subparagraph
(a) of this Section 2, the remaining assets of ESAN available for distribution
to shareholders shall be distributed among the holders of Common Stock pro rata
based on the number of shares of Common Stock held by each.
(c) For purposes of this Section 2, a "Liquidation" shall be deemed to
be occasioned by, or to include, (i) the acquisition of ESAN by another entity
by means of any transaction or series of related transactions, (ii) a
reorganization, merger or consolidation of ESAN or of Savant Consulting Group,
Inc., a New Jersey corporation and a wholly owned-subsidiary of ESAN ("Savant"),
but excluding any merger effected exclusively for the purpose of changing the
domicile of ESAN or of Savant; or (iii) a sale of all or substantially all of
the assets of ESAN or Savant. Notwithstanding the foregoing, nothing in this
Section 2 shall limit the right of any Holder to convert any of his, her or its
Preferred Shares then outstanding into Common Stock, as set forth in Section 4
herein of this Certificate of Designation, prior to or subsequent to any
acquisition of ESAN or Savant or sale of assets described herein.
(d) In any event of Liquidation, if the consideration received by ESAN
is other than cash, its value will be deemed its fair market value. Any
securities received as consideration shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange or through the
Nasdaq National Market System, the value shall be deemed to be the average of
the closing prices of the securities on such exchange over the thirty (30) day
period ending three (3) days prior to such event;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty (30)-day period ending three (3) days prior to
the closing; and
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(3) If there is no active public market, the
fair market value shall be determined in good faith by the Board.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (d)(i) (1), (2) or (3) to reflect the approximate
fair market value thereof, as determined in good faith by the Board.
(iii) In the event the requirements of this subparagraph (d)
of Section 2 are not complied with, ESAN shall forthwith either:
(1) cause such closing to be postponed until such
time as the requirements of this Section 2 have been complied with; or
(2) cancel such transaction, in which event the
rights, preferences and privileges of the Holders shall revert to and be the
same as the rights, preferences and privileges existing immediately prior to the
date of the first notice referred to in subparagraph 2(d)(iv) below.
(iv) ESAN shall give each Holder written notice of an
impending event of Liquidation not later than twenty (20) days prior to the
shareholders' meeting called to approve such transaction, or twenty (20) days
prior to the closing of such transaction, whichever is earlier, and shall also
notify each Holder in writing of the final approval of such transaction. The
first of such notices shall describe the material terms and conditions of the
impending transaction and the provisions of this Section 2, and ESAN shall
thereafter give each Holder prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after ESAN
has given the first notice provided for herein or sooner than ten (10) days
after ESAN has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the Holders that are entitled to such notice rights or similar notice rights
and that represent at least a majority of the voting power of all then
outstanding Preferred Shares.
3. Right of Redemption.
(a) Provided that ESAN complies with the requirements of this Section
3, during each calendar year in which Preferred Shares are outstanding, ESAN
shall have the right, but not the obligation, to redeem Preferred Shares having
an aggregate Series B Issue Price of up to One Million ($1,000,000) Dollars
(each such redemption a "Mandatory Redemption Event"). The redemption price in
the event of a Mandatory Redemption Event shall be the Series B Issue Price per
share plus all accrued but unpaid dividends and shall be payable in cash out of
Legally Available Funds.
4
(b) Upon the occurrence of a Mandatory Redemption Event, ESAN shall
redeem Preferred Shares pro rata from among the Holders based on the number of
Preferred Shares held by each Holder.
(c) Holders shall be obligated to tender their Preferred Shares upon a
Mandatory Redemption Event only if (i) ESAN has first given the Holders five (5)
Business Days prior written notice of such Mandatory Redemption Event, during
which five (5) Business Day period, each Holder shall have the right to convert
its Preferred Shares into shares of the Common Stock at the then applicable
Conversion Price, as that term is defined in Section 4 hereof, plus an amount in
cash or in shares of common stock equal to all accrued but unpaid dividends at
the time of the Mandatory Redemption Event; and (ii) the funds used to pay for
the Mandatory Redemption Event are not funds raised by selling any form of
equity for the purpose of redeeming such shares of Series B Preferred Stock from
the Holders. In case fewer than the total number of Preferred Shares represented
by any single certificate are redeemed, a new certificate representing the
number of unredeemed Preferred Shares shall be issued to the Holder thereof
without cost to such Holder within five (5) Business Days after surrender of the
certificate representing the redeemed Preferred Shares.
4. Conversion.
The Holders shall have conversion rights as follows (the "Conversion
Rights"):
(a) Each Preferred Share shall be convertible, at the option of the
Holder thereof, at any time, at the office of ESAN or any transfer agent for
such stock, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Original Series B Issue Price by the
Conversion Price applicable to such Share, determined as hereafter provided.
From and after the date of issuance of each Preferred Share until three years
from its date of issuance, the Conversion Price per share for Preferred Shares
shall be the average of the closing bid prices for the Common Stock on the
Principal Market for the Common Stock as reported by Bloomberg for the twenty
(20) trading days preceding [the date upon which the Merger Agreement and Plan
of Merger by and between ESAN and HandsOn Ventures, LLC, is executed (the
"Agreement Execution Date")].
(b) Each Preferred Share shall be convertible, at the option of the
Holder thereof, at any time, at the office of ESAN or any transfer agent for
such stock, into that number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Original Series B Issue Price by the
Conversion Price applicable to such Share, determined as hereafter provided.
From and after the third year from the date of issuance of each Preferred Share,
the Conversion Price per share for Preferred Shares shall be the lesser of (i)
the average of the closing bid prices for the Common Stock on the Principal
Market for the Common Stock as reported by Bloomberg for the twenty (20) trading
days [preceding the Agreement Execution Date], and (ii) the average of the
closing bid prices for the Common Stock on the Principal Market for the Common
Stock as reported by Bloomberg for the twenty (20) trading days immediately
preceding the date upon which the Holders of such Preferred Shares shall have
submitted to ESAN their written intention to convert all or a portion of the
Preferred Shares held by them.
5
(c) Automatic Conversion.
(i) Each Preferred Share shall automatically be converted (an
"Automatic Conversion Event") into shares of the Common Stock at the then
applicable Conversion Price in effect for such Preferred Share if, at any time
prior to December 31, 2003, the Closing Bid Price on the Principal Market for
the Common Stock as reported by Bloomberg is greater than or equal to $0.80 per
share of Common Stock for any period of at least fifteen consecutive trading
days (the "Automatic Conversion Trigger Price"). Upon the occurrence of such an
event, the number of Preferred Shares to be so automatically converted shall not
exceed the amount that would result in the issuance to the Holders of such
Preferred Shares of the lesser of (i) twenty percent (20%) of the number of
shares of Common Stock traded on the Principal Market as reported by Bloomberg
during the immediately preceding ninety (90) day period and (ii) 4.99% of the
total shares of Common Stock then outstanding.
(ii) In the event that an Automatic Conversion Event occurs
during any one calendar year, or if any one calendar year beginning with 2003
concludes without the occurrence of an Automatic Conversion Event, the Automatic
Conversion Trigger Price shall automatically, and without any further action on
the part of ESAN or the Holders of the Preferred Shares, increase by $0.30 for
each such occurrence or for each such completed calendar year.
(iii) In the event that ESAN has given the Holders written
notice (the "Automatic Conversion Event Notice") in accordance with the
provisions of this Certificate of Designation of an Automatic Conversion Event
and if, upon the fifth business day immediately following the date of such
Notice, the Holders have failed to tender all of the Preferred Shares subject to
that Automatic Conversion Event, then ESAN shall have the right, but not the
obligation, to repurchase from Holders such Preferred Shares as the Holders have
failed to tender, for the Original Series B Issue Price, which price shall be
paid in cash, provided, however, that the funds used to pay for such repurchase
shall not have been raised through the sale of any of ESAN's equity securities
as described in Section 3 (c)(ii) above.
(d) Mechanics of Conversion.
Before any Holder shall be entitled to convert his, her, or its
Preferred Shares into shares of Common Stock, such Holder shall surrender the
certificate or certificates therefor, duly endorsed, or shall provide an
affidavit of loss, at the office of ESAN or of any transfer agent for the
Preferred Shares, and shall give written notice by mail, postage prepaid, to
ESAN at its principal corporate office, of the election to convert the same and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. ESAN shall, within five (5) days of
such surrender, issue and deliver at such office to such Holder, or to the
nominee or nominees of such Holder, a certificate or certificates for the number
of shares of Common Stock to which such Holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the Preferred Shares to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date.
6
(e) Notices of Record Date.
Upon (i) ESAN establishing a record date of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or (ii) any Acquisition (as
defined below) or other capital reorganization of ESAN, any reclassification or
recapitalization of the capital stock of ESAN, any merger or consolidation of
ESAN with or into any other corporation, or any Asset Transfer (as defined
below), or any voluntary or involuntary dissolution, liquidation or winding up
of ESAN, ESAN shall mail to each holder of Preferred Shares at least ten (10)
days prior to the record date specified therein a notice specifying (1) the date
on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the date on
which any such Acquisition, reorganization, reclassification, transfer,
consolidation, merger, Asset Transfer, dissolution, liquidation or winding up is
expected to become effective, and (3) the date, if any, that is to be fixed as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up. For purposes of this Certificate, "Acquisition" shall
mean any consolidation or merger of ESAN with or into any other corporation or
other entity or person, or any other corporate reorganization, in which the
stockholders of ESAN immediately prior to such consolidation, merger or
reorganization, own less than 50% of the voting power of the surviving or
acquiring entity immediately after such consolidation, merger or reorganization,
or any transaction or series of related transactions in which in excess of 50%
of ESAN's voting power is transferred; and "Asset Transfer" shall mean a sale,
lease or other disposition of all or substantially all of the assets of ESAN.
(f) No Impairment. ESAN will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalizations, transfer of
assets, merger, consolidation, 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 hereunder by ESAN but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Shares against impairment.
(g) Reservation of Stock Issuable Upon Conversion. ESAN will at all
times reserve and keep available out of its authorized but unissued shares,
solely for the purpose of issue upon conversion of the Preferred Shares, as
provided in this section 4, such number of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of
Preferred Shares, and, upon the issuance thereof upon conversion, all in
accordance with the provisions hereof, such Common Stock shall be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens and
charges. ESAN shall take all such actions as may be necessary to assure that all
such Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which Common Stock may be listed (except for official notice of issuance
which shall be immediately delivered by ESAN upon each such issuance). ESAN
shall not take any action which would cause the number of authorized but
unissued shares of Common Stock to be
7
less than the number of such shares required to be reserved hereunder for
issuance upon conversion of the Preferred Shares.
(h) Tax Matters. The issuance of certificates for Common Stock shall be
made without charge for any tax in respect of such issuance or other cost
incurred by ESAN in connection with such conversion and the related issuance of
Common Stock upon conversion of Preferred Shares. Upon conversion of each share
of Preferred Shares, ESAN shall take all such actions as are necessary in order
to ensure that the Common Stock issuable with respect to such conversion shall
be validly issued, fully paid and nonassessable, free and clear of all taxes,
liens, charges and encumbrances with respect to the issuance thereof other than
claims of creditors of the person or persons to whom the Common Stock is issued.
However, if any such certificate is to be issued in a name other than that of
the holder of the converted Preferred Shares, ESAN shall not be required to
issue or deliver any share certificate or certificates unless and until the
holder has paid to ESAN the amount of any tax which may be payable in respect of
any transfer involved in such issuance or shall establish to the satisfaction of
ESAN that such tax has been paid or is not due.
(i) Dividends and Distributions. If ESAN at any time or from time to
time after the date upon which the Series B Preferred Shares are issued, makes,
or fixes a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in securities of ESAN other
than shares of Common Stock, in each such event provision shall be made so that
the holders of the Preferred Shares shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of other securities of ESAN which they would have received had their
Preferred Shares been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 4 with respect to the rights of the holders of
the Preferred Shares or with respect to such other securities by their terms.
(j) Subdivisions and Combinations. If ESAN shall at any time or from
time to time after the date on which this Certificate of Designation is filed
with the Secretary of State of the State of Delaware effect a subdivision of the
outstanding Common Stock without a corresponding subdivision of the Preferred
Shares, the Conversion Price in effect immediately before that subdivision shall
be proportionately decreased. Conversely, if ESAN shall at any time or from time
to time after the Effective Date combine the outstanding shares of Common Stock
into a smaller number of shares without a corresponding combination of the
Preferred Shares, the Conversion Price in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 4(j) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(k) ESAN's Cooperation. ESAN shall not close its books against the
transfer of Preferred Shares or of Common Stock issued or issuable upon
conversion of Preferred Shares in any manner which interferes with the timely
conversion of the Preferred Shares. ESAN shall assist and cooperate with any
holder of Preferred Shares required to make any governmental filings or obtain
any governmental approval prior to or in connection with any conversion of
8
Preferred Shares hereunder (including, without limitation, making any filings
required to be made by ESAN).
5. Protective Provisions.
(a) In addition to any other rights provided by law, for as long as at
least twenty percent (20%) of the Preferred Series B Shares are outstanding,
ESAN shall not without first obtaining the approval (by vote or written consent,
as provided by law) of the Holders of at least a majority of the then
outstanding Preferred Shares, voting as a class:
(i) alter, change or amend the rights, preferences or
privileges of the Preferred Shares; or
(ii) authorize, create or issue, or obligate itself to issue,
any other equity security, including any other security convertible into or
exercisable for any equity security (including, without limitation, additional
Preferred Shares or shares of ESAN's Series A Preferred Stock) having a
preference over, or being on a parity with the Series B Preferred Stock with
respect to voting, dividends or upon liquidation.
(b) In addition to any other rights provided by law, for so long as
shares of the Series B Preferred Stock having an aggregate Original Series B
Issue Price of at least twenty (20%) percent of the total Original Series B
Issue Price are outstanding and held by the person to whom such shares were
originally issued or an Affiliate of such person, ESAN shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
Holders of at least a majority of the then outstanding shares of Series B
Preferred Stock, voting as a class:
(i) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge with or into or
consolidate with any other corporation (other than a merger of a wholly-owned
subsidiary corporation with or into ESAN) or effect any transaction or series of
related transactions in which more than fifty percent (50%) any of the ownership
and/or voting power of ESAN is disposed of; or
(ii) effect any voluntary liquidation, dissolution, bankruptcy
or winding up of ESAN.
6. Voting Rights.
(a) For so long as at least twenty percent (20%) of the Preferred Stock
remains outstanding, Holders of Preferred Shares (voting together as one class
and separately from any other series of ESAN's capital stock), shall be entitled
to elect two (2) members of ESAN's Board of Directors. Without limiting or
derogating from the foregoing, Holders of Preferred Shares at all times shall
have the right to nominate at least 40% of the total number of Directors
comprising ESAN's Board of Directors (including the two (2) Directors referred
to in the previous sentence) as long as at least twenty percent (20%) of the
Preferred Stock remains outstanding.
9
(b) The Holders of Preferred Shares shall vote as if such shares were
converted to Common Stock, with the Holders of the Preferred Shares voting with
the holders of Common Stock as a single class, and the Holders of the Preferred
Shares shall be entitled to the number of votes equal to the largest integral
number of shares of Common Stock into which such Holder's Preferred Shares could
be converted in accordance with Section 4 of this Certificate of Designation as
of the record date in the case of a meeting or the effective date of any consent
given in lieu of a meeting.
7. Status of Converted Stock.
In the event any Preferred Shares shall be redeemed or converted
pursuant to Section 3 or 4 hereof, the Preferred Shares so converted shall be
cancelled and shall not be issuable by ESAN. The Articles of Incorporation shall
be appropriately amended to effect the corresponding reduction in ESAN's
authorized capital stock.
IN WITNESS WHEREOF, Entrada Networks, Inc. has caused this Certificate
to be executed this day of , 2002.
ENTRADA NETWORKS, INC.
By:
------------------------
Xxxxxxxx Xxxxx, Ph.D.,
Chief Financial Officer
10
EXHIBIT B
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "Agreement") is made as of the
day of , 2002 by and between Entrada Networks Inc., a Delaware corporation
("ESAN"), having an address at 00 Xxxxxx, Xxxxxx, Xxxxxxxxxx 00000 and HandsOn
Ventures, LLC., a Delaware limited liability company ("HOV"), having an address
at 0000 Xxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxx Xxxxxx, Xxxxxxxxxx 00000.
RECITALS
WHEREAS, in connection with Merger Agreement and Plan of Merger by and
between the parties hereto dated as of August 12, 2002 (the "Merger Agreement)
(i) ESAN has issued to HOV five thousand (5,000) shares of ESAN's Series B
Convertible Preferred Stock, par value $.001 per share, having an aggregate
liquidation value of $5,000,000 (the "Preferred Stock"), which are convertible
into shares of ESAN's common stock, par value $.001 per share (the "Common
Stock") (as converted, the "Conversion Shares) and (ii) ESAN has agreed to
deliver upon the terms and subject to the conditions of the Merger Agreement,
shares of the Common Stock having an aggregate Value (as that term is defined in
the Merger Agreement) of $1,000,000 (the "Merger Consideration Common Stock");
and
WHEREAS, to induce HOV to execute and deliver the Merger Agreement,
ESAN has agreed to provide certain registration rights under the Securities Act
of 1933, as amended, and applicable state securities laws.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions. The following terms shall have the meanings assigned
thereto:
(a) The term "1933 Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder, or any similar successor statute.
(b) The term "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) The term "Affiliate" means a person or entity that directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with such entity or person.
(d) The term "Registrable Securities" means (i) the Conversion Shares
issued or issuable upon conversion of the Preferred Stock, (ii) the Purchase
Price Common Stock issuable as part of the Purchase Price, (iii) shares of the
Common Stock issuable as a result of dividends payable on the Preferred Stock,
and (iv) any shares of capital stock issued or issuable with
respect to any of the foregoing shares as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise.
(e) The number of shares of "Registrable Securities then outstanding"
shall be the number of shares of Common Stock outstanding which have been issued
pursuant to the exercise, redemption or conversion of securities which were, and
the number of shares of Common Stock which are issuable pursuant to then
exercisable, redeemable or convertible securities which are, Registrable
Securities.
(f) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 3(a) hereof, and, for purposes of this Agreement, includes HOV.
(g) The term "Form S-3" means such form under the 1933 Act as in effect
on the date hereof or any registration form under the 1933 Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by ESAN with the SEC.
(h) The term "SEC" means the Securities and Exchange Commission.
2. Registration.
(a) Demand Registration. The Holder shall have the right, after either
(i) ESAN has made any issuance of the Merger Consideration due to HOV in Common
Stock, or (ii) the Holder has converted all or a portion of its Preferred Stock
into Common Stock, or (iii) ESAN has issued shares of the Common Stock as a
result of dividends payable on the Preferred Stock, to require that ESAN effect
up to two registrations within any twelve (12) month period, until such time as
the Holder's rights under this Agreement have terminated, in accordance with the
provisions of the 1933 Act, of the offering and sale of some or all of the
Registrable Securities held by such Holder. Subject to the last sentence of this
section 2(a), upon receipt of such demand, ESAN shall prepare, and, as soon as
practicable but not later than forty-five (45) days of ESAN's receipt of the
Holder's demand, file with the SEC a Registration Statement on Form S-3 covering
the resale of all of the Registrable Securities. In the event that Form S-3 is
unavailable for such a registration, ESAN shall use such other form as is
available for such a registration, subject to the provisions of Section 2(d).
ESAN shall use its best efforts to have the Registration Statement declared
effective by the SEC within a reasonable period after the date such Registration
Statement is first filed. ESAN shall, once during each twelve (12) month period
in which a demand for registration is made, have the right to delay filing such
Registration Statement for a period of not more than 120 days in such year.
(b) Piggyback Registration. If ESAN at any time proposes to register
any of its securities under the 1933 Act, whether or not for sale for its own
account, on Form S-1 or any other form of registration statement (other than
Form S-4 or Form S-8) then available for the registration of ESAN securities
under the 1933 Act, it shall each such time give at least thirty
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(30) days' prior written notice to the Holder of its intention to do so (which
notice shall include a list of any jurisdictions in which ESAN intends to
attempt to qualify such securities under the applicable Blue Sky or other state
securities laws). Upon the written request of the Holder (a "Requesting Holder")
made as promptly as practicable and in any event within twenty (20) days after
the receipt of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such Requesting Holder and the intended
methods of such disposition), ESAN in each instance shall use its best efforts
to effect the registration under the 1933 Act of all Registrable Securities
which ESAN has been so requested to register by the Requesting Holder thereof
under the 1933 Act and registered or qualified under any applicable state
securities laws, all to the extent required to permit the sale or other
disposition (in accordance with such intended methods thereof) of the
Registrable Securities so to be registered; provided that (i) if such
registration involves an underwritten offering to the public, all holders of
Registrable Securities requesting to be included in ESAN's registration must
sell their Registrable Securities to the underwriters selected by ESAN on the
same terms and conditions as apply to ESAN and (ii) if, at any time after giving
notice of its intention to register any securities pursuant to this Section 2(b)
and prior to the effective date of the Registration Statement filed in
connection with such registration, ESAN shall determine for any reason not to
register such securities, ESAN shall give written notice to all holders of
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration without
prejudice. No registration effected under this Section 2(b) shall relieve ESAN
of its obligation to effect the registration(s) required under Section 2(a).
(c) Priority in Piggyback Registration. If, in connection with the
first underwritten public offering undertaken after the date hereof, the
managing underwriter of such underwritten offering (after determining in good
faith and for valid business or marketing reasons) shall inform ESAN by letter
of its opinion that the number of Registrable Securities requested to be
included in such registration would, in its opinion, have a material adverse
effect on the marketability of the offering or the price at which such
securities can be sold, and ESAN has so advised the Requesting Holders in
writing, then ESAN shall include in such registration, to the extent of the
number which ESAN is so advised can be sold in (or during the time of) such
offering, all securities proposed by ESAN as so advised can be sold for its own
account and all Registrable Securities requested to be included in such
registration pursuant to this Section 2, allocated pro rata among ESAN and such
Requesting Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities requested to be included in such registration.
In any underwritten public offering that is undertaken subsequent to the
aforementioned first underwritten public offering, the Holder shall be permitted
to include a minimum of 25% of its holdings of Registrable Securities in
such subsequently underwritten public offering.
(d) Obligations of ESAN. Whenever required under this Section 2 to
effect the registration of any Registrable Securities, ESAN shall, as
expeditiously as reasonably possible do each of the following:
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(i) Prepare and file with the SEC, as soon as practicable, but
in any event within 45 days after the date of a request for a Demand
Registration or other registration under Sections 2.2(a) and 2.2(b),
respectively, a Registration Statement (which in case of a Demand Registration
shall be on a form designated by the underwriters or the Holder), and use its
commercially reasonable efforts to cause such Registration Statement to become
effective and to remain continuously effective for up to 180 days, or such
shorter period as will terminate when all Registrable Securities covered by such
Registration Statement have been sold (the "Registration Period").
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of ESAN covered by the Registration Statement until such time as all
of such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement.
(iii) ESAN shall permit a single firm of counsel designated by
the Holder to review the Registration Statement and all amendments and
supplements thereto for a reasonable period of time (but not less than three
business days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects.
(iv) Furnish to the Holders such numbers of copies of a
prospectus and any amendments thereto, and such other documents and information
as they or the underwriters may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(v) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that ESAN shall not be required in connection therewith or as
a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(vi) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(vii) As promptly as practicable after becoming aware of such
event, notify Holder of the happening of any event of which ESAN has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which they were made, not
misleading, and use its reasonable efforts promptly to prepare a supplement or
amendment to the
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Registration Statement or other appropriate filing with the SEC to correct such
untrue statement or omission, and deliver a number of copies of such supplement
or amendment to Holder as Holder may reasonably request.
(viii) As promptly as practicable after becoming aware of such
event, notify Holder, if its Registrable Securities are being sold or, in the
event of an underwritten offering, the managing underwriters of the issuance by
the SEC of any notice of effectiveness or any stop order or other suspension of
the effectiveness of the Registration Statement or post-effective amendment
thereto at the earliest possible time and make reasonable efforts to obtain the
withdrawal of any such order suspending the effectiveness of the Registration
Statement or post-effective amendment thereto.
(ix) Use its reasonable efforts to obtain legal opinions of
counsel to ESAN dated on the date such opinions are addressed to Holder if its
Registrable Securities are included in the Registration Statement, in customary
form and covering such matters of the type customarily covered by such opinions.
Delivery of any such opinion shall be subject to the recipient furnishing such
written representations or acknowledgments as are customarily provided by
selling stockholders who receive such opinions.
(x) Cooperate with the Holder, if its Registrable Securities
are being offered, to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts, as the case may be, as the
Holder may reasonably request and, within five business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, ESAN shall deliver, and shall cause legal counsel selected
by ESAN to deliver, to the transfer agent for the Registrable Securities (with
copies to the Holder if its Registrable Securities are included in such
Registration Statement) an appropriate instruction and opinion of such counsel.
(xi) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or quotation system on which
similar securities issued by ESAN are then listed or quoted.
(xii) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder, in each case not later
than the effective date of such registration.
(xiii) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Holder of the Registrable Securities pursuant
to the Registration Statement.
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(e) Furnish Information.
It shall be a condition precedent to the obligations of ESAN
to take any action pursuant to this Section 2 with respect to the Registrable
Securities of any selling Holder that such Holder shall, following reasonable
notice from ESAN as provided in Section 2, furnish to ESAN such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be reasonably required to effect the
registration of such Holder's Registrable Securities.
(f) Expenses of ESAN Registration.
ESAN shall bear and pay all expenses incurred in connection with any
registration, filing or qualification of Registrable Securities with respect to
the registration pursuant to Section 2(a) and Section 2(b) hereof for each
Holder, including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto, and "cold comfort" letters, expenses of underwriters (excluding
underwriting discounts and commissions but including the reasonable fees and
expenses of any necessary special experts) and excluding stock transfer taxes
relating to Registrable Securities. In addition, ESAN shall bear the reasonable
expenses of counsel to Holder incurred in connection with registrations, filings
or qualifications in connection herewith.
(g) Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
(h) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 2:
(i) To the extent permitted by law, ESAN will indemnify and
hold harmless each Holder, each director and officer of each Holder, any
underwriter (as defined in the 0000 Xxx) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933 Act
or the 1934 Act against any losses, claims, damages, liabilities or expenses
(joint or several) to which they may become subject or they may incur under the
1933 Act, or the 1934 Act, insofar as such losses, claims, damages, or
liabilities (or actions or proceedings, whether commenced or threatened in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (a) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments (including post-effective amendments) or supplements
thereto, (b) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, or (c) any violation or alleged violation by ESAN of the 1933 Act,
the 1934 Act, state securities laws or any rule or regulation promulgated under
the 1933 Act, the 1934 Act, or state securities laws; and ESAN will pay to each
such Holder, underwriter or controlling person any legal or other reasonable
expenses promptly as such
6
expenses are incurred and are due and payable in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 2(h)(i) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of ESAN
(which consent shall not be unreasonably withheld), nor shall ESAN be liable in
any such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(ii) To the extent permitted by law, each selling Holder will
indemnify and hold harmless ESAN, each of its directors, each of its officers
who has signed the registration statement, each person, if any, who controls
ESAN within the meaning of the 1933 Act, any underwriter, any other Holder
selling securities in such registration statement and any controlling person of
any such underwriter or other Holder, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons may become
subject, under the 1933 Act, or the 1934 Act, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent that such Violation occurs
in reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 2(h)(ii), in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 2(h)(ii) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided, that, in no event shall any indemnity under this subsection 2(h)(ii)
exceed the net proceeds from the offering received by such Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 2(h)(iii) notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2(h), deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding, including without limitation another indemnified
party. The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 2(h), but the
7
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Section 2(h).
(iv) To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 2(h) to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section2(h)(i); (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 0000
Xxx) shall be entitled to contribution from any seller of Registrable Securities
who was not guilty of such fraudulent misrepresentation; and (c) contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
(v) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(j) Reports Under the 1934 Act. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the 1933 Act and any other
rule or regulation of the SEC that may at any time permit a Holder to sell
securities of ESAN to the public without registration or pursuant to a
registration on Form S-3, ESAN agrees to:
(i) make and keep public information available, as that term
is used in Rule 144 under the 1933 Act or in any successor to such rule
(collectively, "Rule 144");
(ii) file with the SEC in a timely manner all reports and
other documents required of ESAN under the 1933 Act and the 1934 Act; and
(iii) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (A) a written statement by ESAN
that it has complied with the reporting requirements of Rule 144, the 1933 Act
and the 1934 Act, or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (B) a copy of
the most recent annual or quarterly report of ESAN and such other reports and
documents so filed by ESAN, and (C) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
k. Termination of Registration Rights. The registration rights granted
to the Holder pursuant to this Agreement shall terminate upon the date that is
the later to occur of (i) the date that is five (5) years after the first date
upon which ESAN effects an underwritten public offering of its Common Stock
following the effective date of this Agreement, or (ii) the date on which the
8
Holder can, within ninety (90) days from such date, sell the Purchase Price
Common Stock, the Conversion Shares and any shares of the Common Stock issued as
a result of dividends payable on the Preferred Stock , without registration
under Rule 144.
l. Limitations on the Grant of Registration Rights to Others. ESAN
agrees that, from and after the date hereof, it shall not grant any registration
rights relating to any of ESAN's equity securities to any other party (i) that
are senior in priority or pari passu to the registration rights granted under
this Agreement or (ii) if the grant of such registration rights would result in
a registration statement for such equity securities being declared effective
during (i) any ninety (90) day period immediately preceding or following an
Automatic Conversion Event or a Mandatory Redemption Event (as those terms are
defined in the Certificate of Designation of the Preferred Stock), or (ii)
during any ninety (90) day period immediately following the date upon which the
Holder has delivered to ESAN a notice effecting the conversion of its Preferred
Stock into Common Stock.
3. Board of Directors. From and after the date of this Agreement, as long as at
least 20% of the Preferred Stock is outstanding, Holder shall have the right to
designate two (2) members of ESAN's Board of Directors and ESAN will take all
necessary and desirable actions within its control in order to cause the
nomination and election to ESAN's Board of Directors of such two individuals
nominated by Holder. Without limiting or derogating the foregoing, the Holders
at all times shall have the right to nominate (and ESAN will take all necessary
and desirable actions within its control, in order to cause the nomination and
election of) at least 40% of the total number of Directors comprising ESAN's
Board of Directors as long as at least 20% of the Preferred Stock is
outstanding. In the event any representative designated hereunder for any reason
ceases to serve as a member of the Board during his or her term of office, the
resulting vacancy on the Board shall be filled by a representative designated as
provided in this Section 3 by Holder pursuant to the terms hereof.
4. Miscellaneous.
(a) Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
(b) Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
the Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof.
9
(c) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
(f) Expenses. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
(g) Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of ESAN and the Holders. Any amendment or waiver
effected in accordance with this Section 3(g) shall be binding upon each holder
of any Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and ESAN.
(h) Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
(i) Aggregation of Stock. All shares of Registrable Securities held or
acquired by Affiliates shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
(j) Entire Agreement; Amendment; Waiver. This Agreement (including the
Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
(k) Assignment of Rights. Except for the transfer or assignment
(without any limitation whatsoever) of the registration rights of HOV under this
Agreement to any Affiliate of HOV, HOV may not transfer or assign the
registration rights of HOV under this Agreement to a third party without the
prior written consent of ESAN, which consent shall not be unreasonably withheld.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ENTRADA NETWORKS, INC.
By:
-----------------------------
Xxxxxxxx Xxxxx, Ph.D.
Chief Financial Officer
HANDSON VENTURES, LLC.:
By:
-----------------------------
Xxxx Xxxxx
Partner
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