Exhibit 7.3
AGREEMENT
OF
REORGANIZATION AND MERGER
among
Electro Scientific Industries, Inc.,
an Oregon corporation,
Dynamotion/ATI Corp.,
a New York corporation,
Dynamotion Merger Corp.,
a New York corporation,
and
Certain Key Shareholders of
Dynamotion/ATI Corp.
January 24, 1997
TABLE OF CONTENTS
ARTICLE I
THE MERGER
1.1 The Merger..............................................................2
1.2 Effect of Merger........................................................2
1.3 Merger Consideration....................................................3
1.3.1 Dynamotion Stock................................................4
1.3.2 Merger Corp. Stock..............................................4
1.3.3 Options.........................................................4
1.4 Surrender and Cancellation of Certificates..............................6
1.4.1 Surrender of Certificates.......................................6
1.4.2 Option Agreements...............................................7
1.4.3 No Fractional Shares............................................7
1.4.4 Cancellation....................................................8
1.4.5 Treasury Shares.................................................8
1.4.6 Escheat.........................................................8
1.4.7 Withholding Rights..............................................9
1.5 Dissenters' Rights......................................................9
1.5.1 Notice..........................................................9
1.5.2 Rights of Dissenting Shares.....................................9
1.6 Stock Transfer Books...................................................10
1.7 Closing................................................................11
1.8 Subsequent Actions.....................................................11
ARTICLE II
FURTHER AGREEMENTS
2.1 Employee Agreements....................................................12
2.2 Pledge and Escrow Agreement............................................12
2.3 Noncompetition Agreement of Certain Dynamotion Executive Officers......12
2.4 Standstill Agreements..................................................13
2.5 Affiliate Representation Letters.......................................13
2.6 Voting Agreement.......................................................13
2.7 Exercise of Class B Warrants...........................................13
2.8 Termination of Agreement Relating to Z Warrants........................13
2.9 Termination of Underwriters' Warrants..................................14
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Dynamotion...........................14
3.1.1 Organization and Status........................................14
ii
3.1.2 Capitalization.................................................15
3.1.2.1 Capital Structure.....................................15
3.1.2.2 Dynamotion Outstanding Securities Holders.............16
3.1.2.3 Redemption of Z Warrants..............................16
3.1.2.4 Convertible Debt......................................17
3.1.3 Corporate Authority............................................17
3.1.4 Section 368(a)(2)(D) Asset Requirement.........................17
3.1.5 Governmental Filings...........................................18
3.1.6 Investments; Subsidiaries......................................18
3.1.7 No Adverse Consequences........................................18
3.1.8 Financial Statements...........................................19
3.1.9 Undisclosed Liabilities........................................20
3.1.10 Absence of Certain Changes or Events...........................20
3.1.10.1 Absence of Changes or Events Since December 31,
1995.................................................20
3.1.10.2 Absence of Changes or Events Since September 30,
1996.................................................21
3.1.11 Prohibited Payments............................................23
3.1.12 Litigation.....................................................23
3.1.13 Compliance with Laws; Judgments................................24
3.1.14 Employment Matters.............................................24
3.1.14.1 Labor Matters........................................24
3.1.14.2 Employee Benefits....................................25
3.1.14.3 Employment Agreements................................27
3.1.14.4 Compensation.........................................27
3.1.14.5 Confidentiality and Inventions Agreements............28
3.1.15 Title to and Condition of Real Property........................28
3.1.16 Title to and Condition of Fixed Assets.........................29
3.1.17 Intellectual Property..........................................29
3.1.18 Certain Contracts and Arrangements.............................30
3.1.19 Status of Contracts............................................31
3.1.20 Insurance......................................................32
3.1.21 Permits and Licenses...........................................33
3.1.22 Taxes..........................................................34
3.1.22.1 Returns..............................................34
3.1.22.2 Taxes Paid or Reserved...............................35
3.1.22.3 Net Operating Losses.................................36
3.1.22.4 Definition...........................................36
3.1.23 Related Party Interests........................................36
3.1.24 No Powers of Attorney or Restrictions..........................37
3.1.25 Environmental Conditions.......................................37
3.1.25.1 Compliance...........................................37
3.1.25.2 Hazardous Substances.................................38
3.1.25.3 Filings and Notices..................................39
3.1.25.4 Definitions..........................................39
3.1.26 Consents and Approvals.........................................40
iii
3.1.27 Records........................................................40
3.1.28 Receivables....................................................40
3.1.29 Bank Accounts..................................................41
3.1.30 Product Warranties.............................................41
3.1.31 Inventories....................................................42
3.1.32 Product Liability..............................................42
3.1.33 Customer Information...........................................42
3.1.34 Accounting Controls............................................43
3.1.35 Liabilities Incurred in Ordinary Course........................43
3.1.36 Continuity of Business Enterprise..............................43
3.1.37 Fair Market Value of Dynamotion Assets.........................43
3.1.38 No Chapter 11 Proceedings......................................44
3.1.39 Not an Investment Company......................................44
3.1.40 Not a Real Property Holding Company............................44
3.1.41 Proxy Statement/Prospectus.....................................44
3.1.42 Dynamotion SEC Reports.........................................44
3.1.43 Compliance of Conversion Proposal, Etc.........................45
3.1.44 Brokers and Finders............................................46
3.1.45 Accuracy of Representations and Warranties.....................46
3.2 Representations and Warranties of Key Shareholders.....................46
3.2.1 Authority......................................................46
3.2.2 Filings........................................................47
3.2.3 Proxy Statement/Prospectus.....................................47
3.3 Representations and Warranties of ESI..................................48
3.3.1 Organization and Status........................................48
3.3.2 Capitalization.................................................48
3.3.3 Corporate Authority............................................49
3.3.4 Control of Merger Corp Before Merger...........................49
3.3.5 Control of Merger Corp After Merger............................49
3.3.6 Continuation of Dynamotion's Business..........................49
3.3.7 No Plan to Reacquire Merger Consideration......................49
3.3.8 No Plan to Liquidate or Merge Merger Corp......................50
3.3.9 Governmental Filings...........................................50
3.3.10 ESI SEC Reports................................................50
3.3.11 Litigation.....................................................51
3.3.12 No Adverse Consequences........................................51
3.3.13 Not Investment Companies.......................................52
3.3.14 Proxy Statement/Prospectus.....................................52
3.3.15 Brokers and Finders............................................52
3.4 Representations and Warranties Relating to Merger Corp.................52
3.4.1 Organization and Status........................................52
3.4.2 Capitalization.................................................53
3.4.3 Corporate Authority............................................53
3.4.4 Governmental Filings...........................................53
iv
3.4.5 Litigation.....................................................54
3.4.6 No Operations..................................................54
3.4.7 No Change of Control...........................................54
3.4.8 Continuation of Dynamotion's Business..........................54
ARTICLE IV
COVENANTS
4.1 Mutual Covenants.......................................................54
4.1.1 Consents and Approvals.........................................54
4.1.2 Reasonable Efforts.............................................54
4.1.3 Publicity......................................................55
4.1.4 Confidentiality................................................55
4.2 Covenants of Dynamotion................................................55
4.2.1 Conduct of Business............................................55
4.2.2 Acquisition Proposals..........................................58
4.2.3 Investigations and Customer Visits.............................59
4.2.4 Dynamotion Shareholders Meeting................................59
4.2.5 Information for Proxy Statement/Prospectus and Registration
Statement......................................................60
4.2.6 Conversion, Exercise, Redemption, or Termination of
Dynamotion Common Stock Equivalent Securities..................60
4.2.7 Compliance With Convertible Debt Obligations...................61
4.2.8 Consents.......................................................62
4.3 Covenants of ESI.......................................................62
4.3.1 Registration Statement.........................................62
4.3.2 Listing of ESI Common Stock....................................62
4.3.3 Issuance of Certificates.......................................63
4.3.4 Registration and Reservation of Option Shares..................63
4.3.5 Indemnification Provisions of Merger Corp.'s Certificate.......63
4.4 Covenants of Merger Corp...............................................63
ARTICLE V
CONDITIONS
5.1 Conditions to the Obligations of All Parties...........................64
5.1.1 Regulatory Approvals...........................................64
5.1.2 Litigation.....................................................64
5.1.3 Registration of Securities; Listing............................65
5.2 Conditions to the Obligations of Dynamotion and the Key Shareholders...65
5.2.1 Representations, Warranties and Covenants......................65
5.2.2 No Material Adverse Change.....................................66
5.2.3 Opinion of Counsel.............................................66
5.2.4 Dynamotion Shareholder Approval, Etc...........................66
5.3 Conditions to the Obligations of ESI and Merger Corp...................67
v
5.3.1 Representations, Warranties and Covenants......................67
5.3.2 Opinions of Counsel............................................68
5.3.3 Consents and Approvals.........................................68
5.3.4 No Material Adverse Change.....................................68
5.3.5 Other Agreements...............................................68
5.3.6 Related Party and Other Agreements.............................69
5.3.7 Updated Financial and Other Information........................69
5.3.8 Environmental Report...........................................69
5.3.9 Dynamotion Shareholder Approval, Etc...........................70
5.3.10 Dynamotion Dissenters..........................................70
5.3.11 Conditions Relating to Z Warrants and Convertible Debt.........70
5.3.12 Xxxxxx Xxxxxxxx LLP Analysis of In-Process Research and
Development....................................................70
5.3.13 Consent of Underwriters........................................71
5.3.14 Governmental Entity Consents...................................71
5.3.15 Dynamotion Revised Schedules...................................71
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.1 Survival...............................................................71
6.1.1 Survival of Representations and Warranties.....................71
6.1.2 Survival of Article IV Covenants...............................72
6.2 Indemnification........................................................72
6.3 Escrow.................................................................73
6.4 Threshold for Indemnity Claims.........................................73
6.5 Claim Procedure for Indemnification....................................73
6.5.1 Notice.........................................................74
6.5.2 Response to Third Party Claim..................................74
6.5.3 Diligent Conduct...............................................74
ARTICLE VII
TERMINATION
7.1 Termination by Mutual Consent..........................................75
7.2 Termination Under Certain Other Conditions.............................75
7.2.1 Automatic Termination..........................................75
7.2.2 Termination by ESI or Dynamotion...............................75
7.3 Effect of Termination and Abandonment..................................76
7.4 Termination Fee........................................................76
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1 Payment of Expenses....................................................77
vi
8.2 Entire Agreement.......................................................77
8.3 Assignment.............................................................77
8.4 Binding Effect; No Third Party Benefit.................................77
8.5 Amendment and Modification.............................................78
8.6 Waiver of Conditions...................................................78
8.7 Counterparts...........................................................78
8.8 Captions...............................................................78
8.9 Subsidiary.............................................................78
8.10 Notices................................................................79
8.11 Choice of Law..........................................................80
8.12 Attorneys' Fees........................................................80
8.13 Separability...........................................................80
8.14 Reliance on Dynamotion and Key Shareholder Representations and
Warranties.............................................................81
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EXHIBITS
A - Plan of Merger
B1 - Form of California ESI Confidentiality and Inventions Agreement
B2 - Form of Standard ESI Confidentiality and Inventions Agreement
C - Form of Pledge and Escrow Agreement
D - Form of Noncompetition Agreement
E - Form of Standstill Agreement
F - Form of Affiliate Representation Letter
G - Form of Voting Agreement
H - Form of Dynamotion Confidentiality and Inventions Agreement
I - Form of Amendments to Dynamotion Certificate of Incorporation
J - Form of Counsel Opinion for ESI
K - Form of Counsel Opinion for Dynamotion
L - Form of Counsel Opinion for Dynamotion Investment L.L.C.
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SCHEDULES
Schedule Page
-------- ----
A Key Shareholders.................................................1
1.3.3 Schedule of Non-Plan Stock Option Agreements
Between Dynamotion and Certain Dynamotion
Officers and Directors...........................................4
2.3 Schedule of Shareholders Signing Noncompetition
Agreement.....................................................12
2.5 Schedule of Affiliates Signing Affiliate Representation
Letter........................................................13
2.6 Schedule of Shareholders Signing Voting Agreements..............13
3.1-K Reference of Knowledge of Dynamotion............................16
3.1.2.1 Dynamotion Capital Structure....................................15
3.1.2.2 Dynamotion Securities Holders...................................16
3.1.2.3(a) Outstanding Z Warrants..........................................16
3.1.2.3(b) Steps Required to Redeem Z Warrants.............................17
3.1.2.4 Issuers of Convertible Debt.....................................17
3.1.5 Dynamotion Governmental Filings.................................18
3.1.6(a) Dynamotion Investments..........................................18
3.1.6(b) Previous Subsidiaries...........................................18
3.1.7 Adverse Consequences............................................19
3.1.9 Undisclosed Dynamotion Liabilities..............................20
3.1.10.1 Changes Since December 31, 1995.................................20
3.1.10.2 Changes Since September 30, 1996................................21
3.1.12 Pending Litigation..............................................23
3.1.14.2 Employee Benefits...............................................25
3.1.14.3 Employment Manuals..............................................27
3.1.14.4 Compensation....................................................27
3.1.15 Leased and Previously Leased Real Property......................28
3.1.16 Tangible Personal Property......................................29
3.1.17(a) Intellectual Property...........................................29
3.1.17(b) Intellectual Property Claims and Encumbrances...................29
3.1.18 Contracts and Arrangements......................................30
3.1.19 Status of Contracts.............................................32
3.1.20 Insurance Policies..............................................32
3.1.21(a) Permits.........................................................33
3.1.21(b) List of Permits for Which Consent to Merger Is Needed...........33
3.1.22.1 Tax Matters.....................................................35
3.1.23 Related Party Interests and Agreements..........................36
3.1.24 Powers of Attorney and Restrictions.............................37
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Schedule Page
-------- ----
3.1.25.2 Disclosure Concerning Hazardous Substances and
Underground Tanks.............................................39
3.1.28(a) Disclosures Concerning Collectibility of Receivables............40
3.1.28(b) Schedule of Accounts Payable Balances...........................40
3.1.29 Bank Accounts...................................................41
3.1.30 Product Warranty................................................41
3.1.31 Inventory.......................................................42
3.1.32 Product Liability...............................................42
3.1.33 Customer Information............................................42
3.1.42 Late or Omitted Dynamotion SEC Filings..........................45
3.2 Key Shareholder Disclosure Schedule.............................46
3.3 ESI Disclosure Schedule.........................................48
4.2.1 Changes in Dynamotion's Conduct of Business.....................55
5.3.6 Additional Agreements of Dynamotion To Be Terminated............69
5.3.12 In-Process Research Valuation...................................71
6.3 Schedule of Shares of ESI Common Stock To Be Withheld
and Deposited into Escrow.....................................73
8.10 Key Shareholder Representatives.................................80
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INDEX OF TERMS
Term Section Page
---- ------- ----
Acquisition Transaction Section 4.2.2 58
Agreement Preamble 1
Adjusted Dynamotion Common Stock Total Section 3.1.2.1 15
Affiliate Representation Letter Section 2.5 13
Average Sale Price Section 1.3(a) 3
Bylaws Section 3.1.1 14
California ESI Confidentiality Agreement Section 2.1 12
Certificate of Incorporation Section 3.1.1 14
Claim Notice Section 6.5.1 74
Claim Threshold Section 6.4 73
Class A Stock Section 1.3(b) 4
Class B Additional Warrant Agreement Section 2.8 14
Class B Stock Section 1.4.1 6
Class B Warrants Section 2.7 13
Closing Section 1.7 11
Closing Date Section 1.7 11
Code Recital B 1
Common Stock Equivalents Section 3.1.2.1 15
Condition Completion Date Section 1.7 11
Confidentiality Agreement Section 4.1.4 55
Contracts Section 3.1.19 31
Conversion Proposal Section 4.2.6 61
Conversion Ratio Section 1.3 3
Conversion Ratio Denominator Section 1.3(b) 4
Conversion Ratio Numerator Section 1.3(a) 3
Convertible Debt Section 3.1.2.4 17
Current Balance Sheet Section 3.1.8 19
Damages Section 6.2 72
DB Plan Section 3.1.14.2 27
Dissenters' Rights Section 1.5.1 9
Dissenting Shareholder Section 1.5.2 10
Dissenting Shares Section 1.5.2 10
Dynamotion Preamble 1
Dynamotion Common Stock Section 1.1 2
Dynamotion Common Stock
Equivalent Securities Section 3.1.2.1 15
Dynamotion Option Plans Section 1.3.3 5
Dynamotion Outstanding Securities Section 3.1.2.1 15
Dynamotion SEC Reports Section 3.1.42 45
xi
Term Section Page
---- ------- ----
Effective Time Section 1.1 2
Environmental Law Section 3.1.25.4(a) 39
ERISA Section 3.1.14.2 00
XXXXX Xxxxx Xxxxxxx 3.1.14.2 26
Escrow Agreement Section 2.2 12
Escrowed Property Section 6.3 73
ESI Preamble 1
ESI Common Stock Section 1.1 2
ESI Disclosure Schedule Section 3.3 48
ESI SEC Reports Section 3.3.10 50
Financial Statements Section 3.1.8 19
Governmental Entity Section 3.1.5 18
Hazardous Substance Section 3.1.25.4(b) 40
Holders Section 3.1.2 16
Indemnified Parties Section 6.2 72
Intellectual Property Section 3.1.17 29
Key Shareholder(s) Preamble 1
Key Shareholder Disclosure Schedule Section 3.2 46
Key Shareholder Representatives Section 8.10 80
Knowledge of Dynamotion Section 3.1.2.2 16
Leased Real Property Section 3.1.15 28
Litigation Reserves Section 3.1.12 23
Merger Section 1.1 2
Merger Consideration Section 1.3 3
Merger Corp. Preamble 1
Merger Corp. Certificate Section 4.3.5 63
Noncompetition Agreement Section 2.3 12
NYBCL Section 1.2 2
Options Section 1.3.3 5
Past CGL Policies Section 3.1.20 33
Permits Section 3.1.21 33
Plan of Merger Section 1.1 2
Policies Section 3.1.20 32
Previous Subsidiaries Section 3.1.6 18
Previously Leased Real Property Section 3.1.15 28
Proxy Statement/Prospectus Section 4.2.4 59
Returns Section 3.1.22.1 34
SEC Section 3.1.42 19
Special Meeting Section 1.5.1 9
Standard ESI Confidentiality Agreement Section 2.1 12
Standstill Agreement Section 2.4 13
Subsidiary Section 8.9 78
xii
Term Section Page
---- ------- ----
Tangible Personal Property Section 3.1.16 29
Taxes Section 3.1.22.3 36
Termination Fee Section 7.4 76
Third Party Claim Section 6.5.2 74
Underwriters Section 4.2.6 61
Underwriters' Warrants Section 2.9 14
Updated Financial Statements Section 5.3.7 69
Voting Agreement Section 2.6 13
Voting Dynamotion Securities Section 4.2.4 60
Warrant Agent Section 4.2.6 61
Z Warrants Section 1.3(b) 4
xiii
AGREEMENT
OF
REORGANIZATION AND MERGER
THIS AGREEMENT OF REORGANIZATION AND MERGER (this "Agreement") is entered
into as of January 24, 1997 among Electro Scientific Industries, Inc., an
Oregon corporation ("ESI"), Dynamotion/ATI Corp., a New York corporation
("Dynamotion"), Dynamotion Merger Corp., a New York corporation ("Merger
Corp."), and the shareholders of Dynamotion listed on Schedule A (each, a "Key
Shareholder" and together, the "Key Shareholders").
RECITALS
A. The Boards of Directors of ESI and Dynamotion have determined that it
is in the best interests of their respective shareholders for ESI to acquire
Dynamotion upon the terms and subject to the conditions set forth in this
Agreement.
B. It is intended that the Merger (as defined below) qualify as a
reorganization under the provisions of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code").
C. It is further intended that certain rights relating to the acquisition
of, or conversion of securities into, the common stock or other capital stock
of Dynamotion (including certain warrants and convertible preferred stock) will
be exercised, converted, or redeemed according to their respective terms, or
will be terminated, before the consummation of the Merger.
AGREEMENT
In consideration of the representations, warranties, covenants,
agreements and conditions contained herein, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Pursuant to the laws of the State of New York, and subject
to and in accordance with the terms and conditions of this Agreement and the
Plan of Merger in the form attached hereto as Exhibit A (the "Plan of Merger"),
Dynamotion will be merged with and into Merger Corp., and all shares of Common
Stock of Dynamotion, $0.04 per share par value (the "Dynamotion Common Stock"),
outstanding immediately before the Effective Time (as defined below), excluding
Dissenting Shares (as defined in Section 1.5.2), will be converted into the
right to receive shares of Common Stock of ESI, without par value (the "ESI
Common Stock"), or cash, as provided in Section 1.3. Dynamotion and Merger
Corp. will execute a Certificate of Merger to be filed by the Department of
State of the State of New York on the Closing Date (as defined in Section 1.7)
or as soon thereafter as practicable. The merger of Dynamotion with and into
Merger Corp. (the "Merger") will take effect (the "Effective Time") at the time
when the Certificate of Merger is duly filed by the Department of State of the
State of New York or at such other time as the parties may agree upon in
writing pursuant to applicable law.
1.2 Effect of Merger. At the Effective Time, Dynamotion will be merged
with and into Merger Corp. in the manner and with the effect provided by the
New York Business Corporation Law (the "NYBCL"), the separate corporate
existence of Dynamotion will cease,
2
and Merger Corp. will be the surviving corporation. From and after the
Effective Time, the Certificate of Incorporation, Bylaws, Board of Directors,
and officers of Merger Corp. in effect or in office, as the case may be,
immediately before the Effective Time will be the Certificate of Incorporation,
Bylaws, Board of Directors, and officers of the surviving corporation;
provided, however, that the Certificate of Incorporation of the surviving
corporation will be amended to effect the name change described in this Section
1.2. The outstanding shares of Dynamotion Common Stock will be converted into
the right to receive shares of ESI Common Stock or cash on the basis, terms and
conditions described in Section 1.3. At the Effective Time, the name of the
surviving corporation will become Dynamotion, Inc.
1.3 Merger Consideration. Each share of Dynamotion Common Stock
outstanding immediately before the Effective Time (excluding each Dissenting
Share) will be converted into the right to receive a fraction of a share of ESI
Common Stock (or cash in lieu of certain fractional shares as provided in
Section 1.4.3) (such ESI Common Stock and/or cash, the "Merger Consideration")
that equals the ratio (the "Conversion Ratio," which will be rounded to the
nearest .0001 of a share) determined by dividing the Conversion Ratio Numerator
by the Conversion Ratio Denominator where:
(a) the "Conversion Ratio Numerator" will be the quotient of
$13,000,000 divided by the per-share price for ESI Common Stock equal to the
average of the high and low sales prices for ESI Common Stock on each of the
five trading days immediately preceding the day before the Closing Date as
reported in The Wall Street Journal (such price, the "Average Sale Price");
3
(b) the "Conversion Ratio Denominator" will be equal to the number of
shares of Dynamotion Common Stock outstanding immediately before the Effective
Time (including all shares of Dynamotion Common Stock deemed to be outstanding
upon the effectiveness of the conversion contemplated by the Conversion
Proposal (as that term is defined in Section 4.2.6) immediately before the
Effective Time) plus the number of shares of Dynamotion Common Stock that are
issuable upon the exercise of Z Warrants for which holders of Z Warrants have
given exercise notices by 5:00 p.m., New York time, on the Closing Date (which
date will also be the "Redemption Date," as that term is defined in the Z
Warrants). As used herein, the term "Z Warrants" means all warrants to purchase
shares of Dynamotion Common Stock issued upon the conversion of Class A
Non-Cumulative Redeemable Convertible Preferred Shares of Dynamotion, $0.01 per
share par value (such shares, the "Class A Stock").
1.3.1 Dynamotion Stock. Each share of Dynamotion Common Stock that is
outstanding immediately before the Effective Time and that is not a Dissenting
Share will, by virtue of the Merger and without any action on the part of the
holder thereof, cease to exist and be converted into the right to receive the
Merger Consideration.
1.3.2 Merger Corp. Stock. Each share of Common Stock of Merger Corp.
issued and outstanding immediately before the Effective Time will remain
outstanding without change by virtue of the Merger.
1.3.3 Options. Dynamotion's 1991 Stock Option Plan, Dynamotion's 1993
Stock Option Plan, Dynamotion's 1995 Comprehensive Stock Option Plan,
Dynamotion's 1995 Executive Stock Option Plan, and the stock option agreements
listed on Schedule 1.3.3 between Dynamotion and certain current and former
officers and directors of Dynamotion are referred
4
to herein together as the "Dynamotion Option Plans." Except as otherwise
provided in this Section 1.3.3, the terms and provisions of the stock options
held by those Dynamotion option holders identified in Schedule 3.1.2.2 under
the Dynamotion Option Plans (the "Options") will continue in full force and
effect following the Merger. By virtue of the Merger and at the Effective Time,
and without any further action on the part of any holder thereof, each Option
will be converted into an option to purchase the number of shares of ESI Common
Stock equal to the product (rounded to the nearest whole number) of (x) the
number of shares of Dynamotion Common Stock for which such Option will be
exercisable immediately before the Effective Time multiplied by (y) the
Conversion Ratio. The exercise price per share for each Option after the
Effective Time will be determined by dividing the per share exercise price for
such Option immediately before the Effective Time by the Conversion Ratio. The
term, exercisability, vesting schedule, status as an incentive stock option
under Section 422 of the Code, if applicable, and all other terms and
conditions of each Option will to the extent permitted by law and otherwise
reasonably practicable be unchanged. Notwithstanding the foregoing, the terms
of each Option that is an incentive stock option under Section 422 of the Code
will be adjusted in accordance with the requirements of Section 425(a) of the
Code so as not to constitute a modification, renewal, or extension of such
Option within the meaning of Section 424 of the Code. An optionee's continuous
employment with Dynamotion before the Effective Time will be given credit for
purposes of the vesting of the number of shares of ESI Common Stock subject to
exercise under such optionee's converted Option after the Effective Time.
5
1.4 Surrender and Cancellation of Certificates.
1.4.1 Surrender of Certificates. After the Effective Time, each
holder of shares of Dynamotion Common Stock outstanding immediately before the
Effective Time (other than Dissenting Shares), upon surrender to ESI or its
agent designated for such purpose of a certificate or certificates formerly
representing such shares (or a certificate for shares of Class A Stock or Class
B Cumulative Convertible Preferred Shares of Dynamotion, $0.01 per share par
value ("Class B Stock"), that have been converted into shares of Dynamotion
Common Stock pursuant to the Conversion Proposal) will be entitled to receive
(a) a certificate representing the number of shares of ESI Common Stock into
which such shares of Dynamotion Common Stock have been converted pursuant to
the provisions of Section 1.3 less, in the case of each Key Shareholder, the
number of such shares determined to be Escrowed Property (as defined in Section
6.3) and (b) subject to Section 6.3 and the provisions of the Escrow Agreement
(as defined in Section 2.2), a certificate representing the shares of ESI
Common Stock determined to be Escrowed Property. If any certificate for shares
of ESI Common Stock is to be issued in a name other than that in which the
certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the certificate so surrendered be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange pay to ESI or its agent designated for such purpose
any transfer or other taxes required or establish to the reasonable
satisfaction of ESI or its agent that such tax has been paid or is not payable.
If any holder of shares of Dynamotion Common Stock canceled and retired in
accordance with this Agreement is unable to deliver a certificate or
certificates representing such shares, ESI, in the absence of actual notice
that any shares theretofore represented by any such
6
certificate have been acquired by a bona fide purchaser, will deliver to such
holder the number of shares of ESI Common Stock to which such holder is
entitled in accordance with the provisions of this Agreement upon the
presentation of the following: (i) evidence reasonably satisfactory to ESI (1)
that such person is the owner of the shares theretofore represented by each
certificate claimed by him or her to be lost, wrongfully taken, or destroyed
and (2) that he or she is the person who would be entitled to present such
certificate for exchange pursuant to this Agreement; and (ii) such security or
indemnity as may be reasonably requested by ESI to indemnify and hold ESI and
its transfer agent harmless with respect to such exchange.
1.4.2 Option Agreements. After the Effective Time, each holder of an
Option outstanding immediately before the Effective Time will be deemed to hold
an option exercisable for ESI Common Stock in accordance with the provisions of
Section 1.3.3.
1.4.3 No Fractional Shares. No certificates or scrip evidencing
fractional shares of ESI Common Stock will be issued in the Merger, and such
fractional share interests will not entitle the owner thereof to any rights as
a shareholder of ESI. In lieu of a fractional share, ESI will pay any holder of
shares of Dynamotion Common Stock who would otherwise have been entitled to a
fraction of a share of ESI Common Stock upon surrender of the certificates
therefor an amount of cash (without interest) determined by multiplying (a) the
Average Sale Price by (b) the fractional share interest in ESI Common Stock to
which such holder would otherwise be entitled. The provisions of this Section
1.4.3 will apply to the aggregate number of shares of Dynamotion Common Stock
held by each holder thereof and each such holder will be required to
simultaneously surrender all certificates relating to shares of
7
Dynamotion Common Stock held by such holder in accordance with the provisions
of Section 1.4 in order to surrender any such certificate.
1.4.4 Cancellation. At the Effective Time all shares of Dynamotion
Common Stock will no longer be outstanding and will automatically be canceled
and retired and will cease to exist, and each certificate previously evidencing
any such shares of Dynamotion Common Stock (and each certificate representing
shares of Class A Stock or Class B Stock that have been converted into shares
of Dynamotion Common Stock) will thereafter represent only the right to receive
the Merger Consideration in accordance with the terms of this Agreement;
provided, however, that in the case of Dissenting Shares, such certificates
will thereafter represent only the right to receive such consideration as may
be determined to be due under the NYBCL. The holders of such certificates
previously evidencing such shares of Dynamotion Common Stock outstanding
immediately before the Effective Time will cease to have any rights with
respect to such shares of Dynamotion Common Stock, except as provided in this
Agreement.
1.4.5 Treasury Shares. At the Effective Time, each share of
Dynamotion Common Stock or other Dynamotion capital stock held in the treasury
of Dynamotion immediately before the Effective Time will be canceled and
extinguished without any conversion thereof and no payment will be made with
respect thereto.
1.4.6 Escheat. Neither ESI nor Merger Corp. will be liable to any
holder of shares of Dynamotion Common Stock for any shares of ESI Common Stock
(or dividends or distributions with respect thereto) or cash delivered to a
public official pursuant to any applicable abandoned property, escheat, or
similar law.
8
1.4.7 Withholding Rights. ESI will be entitled to deduct and withhold
from the aggregate Merger Consideration deliverable to any Dynamotion
shareholder such amounts as ESI may be required to deduct and withhold with
respect to the making of such delivery under the Code or any applicable
provision of state, local, or foreign tax law. To the extent that amounts are
so withheld by ESI, such withheld amounts will be treated for all purposes of
this Agreement as having been delivered to the holder of the shares of
Dynamotion Common Stock in respect of which such deduction and withholding was
made by ESI.
1.5 Dissenters' Rights.
1.5.1 Notice. Dynamotion shareholders desiring to dissent from the
Merger and obtain payment of the fair value of their shares of Dynamotion
Common Stock (such fair value to be determined as of the day before the special
meeting of Dynamotion shareholders called in accordance with Section 4.2.4 to
approve the Merger and related transactions (the "Special Meeting")) in lieu of
the Merger Consideration may exercise their dissenters' rights under the
provisions of Sections 910 and 623 of the NYBCL ("Dissenters' Rights"). The
Proxy Statement/ Prospectus (as that term is defined in Section 4.2.4) sent by
Dynamotion to its shareholders in accordance with Section 4.2.4 will include a
notice complying with the provisions of Section 605 of the NYBCL concerning the
rights of shareholders to exercise Dissenters' Rights and a copy of the
provisions of Section 623 of the NYBCL. The notice of Dissenters' Rights will
state that written objection to the Merger must be received by Dynamotion at or
before the Special Meeting as provided in Section 623(a) of the NYBCL.
1.5.2 Rights of Dissenting Shares. Shares of Dynamotion Common Stock
that are issued and outstanding as of the Effective Time and held by any
shareholder who has, in
9
accordance with Sections 910 and 623 of the NYBCL, delivered a written notice
of objection and payment demand accompanied by the required certification
("Dissenting Shares") will not be converted as described in Section 1.3 but
will from and after the Effective Time represent only the right to receive such
consideration as may be determined to be due under the NYBCL. Dynamotion will
give ESI prompt notice upon receipt by Dynamotion of any payment demand from
any such shareholder of Dynamotion (a "Dissenting Shareholder"). Dynamotion
will not, before the Effective Time, except with the prior written consent of
ESI (which consent will not unreasonably be withheld), voluntarily make any
payment with respect to, or settle or offer to settle, any request pursuant to
the exercise of Dissenters' Rights. Each Dissenting Shareholder who becomes
entitled, pursuant to the NYBCL, to payment for his, her, or its Dissenting
Shares will receive payment therefor in accordance with the NYBCL.
Notwithstanding the foregoing, if any Dissenting Shareholder rescinds, fails to
perfect, or otherwise loses Dissenters' Rights either before or after the
Effective Time, such shareholder's shares of Dynamotion Common Stock will be
converted into the right to receive ESI Common Stock or cash, as of the
Effective Time, in accordance with the provisions of this Agreement.
1.6 Stock Transfer Books. At the Effective Time, the stock transfer books
of Dynamotion will be closed and there will be no further registration of
transfers of Dynamotion capital stock or other securities thereafter on the
records of Dynamotion. At or after the Effective Time, any certificates for
Dynamotion Common Stock, Class A Stock, or Class B Stock (other than Dissenting
Shares) presented to ESI or its agent for any reason will be converted into the
right to receive the Merger Consideration in accordance with the provisions of
this Agreement.
10
1.7 Closing. The closing of the Merger (the "Closing") will take place at
the offices of Stoel Rives LLP, 000 XX Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxx,
Xxxxxx 00000 on the Condition Completion Date (as hereinafter defined), or on
such other date and/or at such other place and time as Dynamotion, ESI and
Merger Corp. may agree (the "Closing Date"). The "Condition Completion Date"
will be the day on which the last of the conditions set forth in Article V has
been fulfilled or waived (other than those conditions that, by their terms, are
to be satisfied at the Closing).
1.8 Subsequent Actions. If, at any time after the Effective Time, Merger
Corp. considers or is advised that any deeds, bills of sale, assignments,
assurances, or any other actions or things are necessary or desirable to vest,
perfect, or confirm of record or otherwise in Merger Corp. its right, title, or
interest in, to, or under any of the rights, properties, or assets of
Dynamotion acquired or to be acquired by Merger Corp. as a result of, or in
connection with, the Merger or otherwise to carry out this Agreement, the
officers and directors of Merger Corp. will be authorized to execute and
deliver, in the name and on behalf of Dynamotion, or otherwise, all such deeds,
bills of sale, assignments, and assurances, and to take and do, in the name and
on behalf of Dynamotion, or otherwise, all such other actions and things as may
be necessary or desirable to vest, perfect, or confirm any and all right,
title, and interest in, to, and under such rights, properties, or assets in
Merger Corp. or otherwise to carry out the purposes of this Agreement.
11
ARTICLE II
FURTHER AGREEMENTS
2.1 Employee Agreements. At or before the Closing, Dynamotion will use all
reasonable efforts to cause each of its employees located in California who
will become an employee of Merger Corp. to sign a confidentiality and
inventions assignment agreement substantially in the form attached as Exhibit
B1 (the "California ESI Confidentiality Agreement") and each of its employees
located outside of California who will become an employee of Merger Corp. to
sign a confidentiality, noncompete, and inventions assignment agreement
substantially in the form attached as Exhibit B2 (the "Standard ESI
Confidentiality Agreement").
2.2 Pledge and Escrow Agreement. At or before the Closing, ESI, the Key
Shareholders, and the Key Shareholder Representatives (as such term is defined
in Section 8.10) will execute and deliver a Pledge and Escrow Agreement (the
"Escrow Agreement") substan tially in the form attached as Exhibit C, together
with stock powers endorsed to ESI relating to the shares of ESI Common Stock
delivered into escrow, and will cause the Escrow Agent (as such term is defined
in the Escrow Agreement) to execute the Escrow Agreement.
2.3 Noncompetition Agreement of Certain Dynamotion Executive Officers.
Dynamotion will use all reasonable efforts to cause the shareholders who are
executive officers of Dynamotion and are listed on Schedule 2.3 to execute and
deliver, at or before the Closing, a Noncompetition Agreement in the form
attached as Exhibit D (the "Noncompetition Agreement") providing for certain
post-employment noncompetition and noninterference obligations.
12
2.4 Standstill Agreements. The Key Shareholders will execute and deliver,
at or before the Closing, the Standstill Agreement in the form attached as
Exhibit E (the "Standstill Agreement") providing for, in addition to the terms
of the Escrow Agreement, restrictions on the resale of shares of ESI Common
Stock received by the Key Shareholders as Merger Consideration.
2.5 Affiliate Representation Letters. Dynamotion will use all reasonable
efforts to cause the affiliates of Dynamotion, as listed on Schedule 2.5, to
execute and deliver, at or before the Closing, an Affiliate Representation
Letter in the form attached as Exhibit F (the "Affiliate Representation
Letter") providing for certain tax and securities representations by affiliates
of Dynamotion.
2.6 Voting Agreement. Each of the Key Shareholders listed on Schedule 2.6
will execute and deliver, concurrently with the execution of this Agreement, a
Voting Agreement in the form attached as Exhibit G (the "Voting Agreement").
Each Voting Agreement provides that the signing holder will vote all of the
shares of Dynamotion Common Stock, Class A Stock, and/or Class B Stock that
such holder is entitled to vote at the Special Meeting in favor of the
Conversion Proposal and the Merger.
2.7 Exercise of Class B Warrants. The Key Shareholders who own shares of
Class B Stock and who hold warrants to purchase shares of Dynamotion Common
Stock (such warrants, the "Class B Warrants") will exercise the Class B
Warrants before the record date for the Special Meeting.
2.8 Termination of Agreement Relating to Z Warrants. At or before the
Closing, Dynamotion and the Key Shareholders who are parties to a letter
agreement dated March 29,
13
1996 relating to the exercise of Z Warrants (the "Class B Additional Warrant
Agreement") will terminate the Class B Additional Warrant Agreement.
2.9 Termination of Underwriters' Warrants. Dynamotion will use its best
efforts to cause, at or before Closing, the termination of all outstanding
warrants to purchase shares of Class A Stock or shares of Dynamotion Common
Stock other than Z Warrants (the "Underwriters' Warrants").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Dynamotion. Dynamotion hereby
represents and warrants to ESI and Merger Corp as follows:
3.1.1 Organization and Status. Dynamotion is a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified and in good standing as a
foreign corporation in each jurisdiction where its properties (whether owned,
leased, or operated) or its business conducted require such qualification,
except where the failure to so qualify or be in good standing, when taken
together with all such failures, would not have a material adverse effect on
Dynamotion. Dynamotion has all requisite corporate power and authority to own,
operate, and lease its property and to carry on its businesses as they are now
being conducted. Dynamotion has delivered to ESI complete and accurate copies
of the Certificate of Incorporation ("Certificate of Incorporation") and the
Bylaws of Dynamotion ("Bylaws"), each as amended to the date hereof.
14
3.1.2 Capitalization.
3.1.2.1 Capital Structure. The capital structure of Dynamotion
as of January 15, 1997 is as stated on Schedule 3.1.2.1. Schedule 3.1.2.1
shows: (a) the number of shares of Dynamotion Common Stock, (b) the number of
shares of Class A Stock, (c) the number of shares of Class B Stock, and (d) all
other rights of any character relating to the acquisition of, or conversion of
securities into, Dynamotion Common Stock (including all warrants, options, and
convertible debt), in each case outstanding as of January 15, 1997 (the items
described in (b), (c), and (d) are referred to herein together as the
"Dynamotion Common Stock Equivalent Securities," and all Dynamotion Common
Stock and Dynamotion Common Stock Equivalent Securities are referred to herein
together as the "Dynamotion Outstanding Securities"). Schedule 3.1.2.1 also
shows as of January 15, 1997 the corresponding "Common Stock Equivalent," which
is the total number of shares of Dynamotion Common Stock that would be
outstanding if all outstanding Dynamotion Common Stock Equivalent Securities of
that type were converted or exercised according to their terms, for each type
of Dynamotion Common Stock Equivalent Security listed on Schedule 3.1.2.1. The
"Adjusted Dynamotion Common Stock Total," which is the sum of all outstanding
Dynamotion Common Stock plus all Common Stock Equivalents combined is
11,170,848. All of the Dynamotion Outstanding Securities have been duly
authorized and are validly issued, fully paid, and nonassessable, and no such
securities were issued in violation of preemptive or similar rights of any
shareholder or in violation of any applicable securities laws. Except as set
forth on Schedule 3.1.2.1, there are no shares of capital stock of Dynamotion
authorized, issued, or outstanding, and, except for Options granted pursuant to
the Dynamotion Option Plans and as set forth on Schedule 3.1.2.1,
15
there are no preemptive rights or any outstanding subscriptions, options,
warrants, phantom stock, stock appreciation or similar rights, convertible
securities, or any other rights, agreements, or commitments of Dynamotion of
any character relating to the issued or unissued capital stock or other
securities of Dynamotion. Except as set forth on Schedule 3.1.2.1, there are no
outstanding obligations of Dynamotion to repurchase, redeem, or otherwise
acquire any Dynamotion Outstanding Securities.
3.1.2.2 Dynamotion Outstanding Securities Holders. Schedule
3.1.2.2 sets forth a complete and accurate list of each shareholder who, to the
Knowledge of Dynamotion, owns (beneficially or of record) five percent or more
of the voting power of any class of Dynamotion capital stock, as well as all
warrant holders (other than holders of publicly-traded Z Warrants) and Option
holders (collectively, "Holders") as of the date hereof, indicating the number
of Dynamotion Outstanding Securities (and their respective Common Stock
Equivalents) held by each Holder. As used in this Agreement, the term "to the
Knowledge of Dynamotion" means to the knowledge, after due inquiry, of the
individuals listed on Schedule 3.1-K
3.1.2.3 Redemption of Z Warrants. Schedule 3.1.2.3(a) states the
number of Z Warrants outstanding. Each Z Warrant is exercisable for .6941 of a
share of Dynamotion Common Stock at an exercise price of $4.37 per share. Upon
the effectiveness of the conversion contemplated by the Conversion Proposal
(following the approval of the Conversion Proposal by holders of the requisite
percentages of Dynamotion Common Stock, Class A Stock, and Class B Stock), the
Z Warrants will be redeemable, without any further
16
action required (other than payment of the redemption price) at a redemption
price of $0.05 per Z Warrant, provided that the actions listed in Schedule
3.1.2.3(b) have been taken.
3.1.2.4 Convertible Debt. The convertible debt of Dynamotion
outstanding pursuant to notes issued to the parties listed on Schedule 3.1.2.4
(the "Convertible Debt") is convertible into shares of Dynamotion Common Stock
only upon Dynamotion's default with respect to the Convertible Debt. Dynamotion
is not in default with respect to the Convertible Debt except where the holder
of the Convertible Debt has signed a written agreement not to convert until at
least 10 business days after the Effective Time or until this Agreement has
been terminated, whichever occurs first.
3.1.3 Corporate Authority. Dynamotion has the corporate power and
authority and has taken all corporate action necessary to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized by the Dynamotion Board of
Directors and validly executed and delivered by Dynamotion. This Agreement
constitutes the valid and binding obligation of Dynamotion, enforceable in
accordance with its terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding may be brought.
3.1.4 Section 368(a)(2)(D) Asset Requirement. Merger Corp. will
acquire at least 90 percent of the fair market value of the net assets and at
least 70 percent of the fair market value of the gross assets held by
Dynamotion immediately before the Merger. For
17
purposes of this representation, amounts, if any, paid by Dynamotion to
Dissenting Shareholders, amounts paid by Dynamotion to shareholders who receive
cash or other property, Dynamotion assets used to pay its reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by Dynamotion immediately preceding the Effective Time will be
included as assets of Dynamotion held immediately before the Merger.
3.1.5 Governmental Filings. Other than the filing of (a) the
Certificate of Merger contemplated by Article I, (b) the Proxy
Statement/Prospectus described in Section 4.2.4, and (c) a Certificate of
Amendment to Dynamotion's Certificate of Incorporation relating to the
Conversion Proposal, no notices, reports or other filings are required to be
made by Dynamotion with, nor, except as set forth on Schedule 3.1.5 are any
consents, registrations, approvals, permits, or authorizations required to be
obtained by Dynamotion from, any domestic or foreign governmental or regulatory
authority, agency, court, commission or other entity ("Governmental Entity") in
connection with the execution and delivery of this Agreement by Dynamotion and
the consummation by Dynamotion of the transactions contemplated hereby.
3.1.6 Investments; Subsidiaries. All direct or indirect investments
of Dynamotion in any corporation, partnership, association, joint venture or
other entity are listed in Schedule 3.1.6(a). Dynamotion has no subsidiaries.
All previously existing subsidiaries of Dynamotion or any predecessor (each, a
"Previous Subsidiary and together, the "Previous Subsidiaries") are listed on
Schedule 3.1.6(b).
3.1.7 No Adverse Consequences. Neither the execution and delivery of
this Agreement by Dynamotion nor the consummation of the transactions
contemplated by this Agreement will (a) result in the creation or imposition of
any lien, charge, encumbrance or
18
restriction on any of the assets or properties of Dynamotion, (b) violate any
provision of the Certificate of Incorporation or Bylaws of Dynamotion, (c)
violate any statute, judgment, order, injunction, decree, rule, regulation or
ruling of any Governmental Entity applicable to Dynamotion, or (d) except as
set forth on Schedule 3.1.7, either alone or with the giving of notice or the
passage of time or both, conflict with, constitute grounds for termination of,
accelerate the performance required by, accelerate the maturity of any
indebtedness or obligation under, result in the breach of the terms, conditions
or provisions of, or constitute a default under any mortgage, deed of trust,
indenture, note, bond, lease, license, permit, or other agreement, instrument,
or obligation to which Dynamotion is a party or by which it is bound.
3.1.8 Financial Statements. Dynamotion has furnished to ESI an
audited balance sheet of Dynamotion as of December 31, 1995, and the related
statements of operations, shareholders' equity, and cash flows or the period
then ended, and the unaudited balance sheet of Dynamotion as of September 30,
1996 (the "Current Balance Sheet") and the related statements of operations,
shareholders' equity, and cash flows for the nine months then ended, and the
Updated Financial Statements delivered at or before the Closing pursuant to
Section 5.3.7 (all such balance sheets and statements collectively, the
"Financial Statements"). The Financial Statements are (or will be, in the case
of the Updated Financial Statements) complete and accurate in all material
respects and present fairly the financial position and operating results of
Dynamotion as of the dates and for the periods indicated therein, and have been
(or will be, in the case of the Updated Financial Statements) prepared in
accordance with generally accepted accounting principles and applicable
accounting rules and regulations of the Securities and Exchange Commission (the
"SEC"). The Financial Statements (including notes
19
and schedules) are (or will be, in the case of the Updated Financial
Statements) in accordance with the books and records of the Company.
3.1.9 Undisclosed Liabilities. Except for current liabilities
incurred after September 30, 1996 in the ordinary course of business and of a
type and in an amount consistent with past practices and not more in the
aggregate than $150,000, Dynamotion has no liability or obligation (whether
absolute, accrued, contingent or otherwise, and whether due or to become due)
that is not accrued, reserved against, or identified on the Current Balance
Sheet. Except as set forth on Schedule 3.1.9, there are no rights of return or
other agreements between Dynamotion and any customer that would cause any sales
reflected in the Financial Statements to fail to qualify as sales in accordance
with generally accepted accounting principles, applicable accounting rules and
regulations of the SEC, and Dynamotion's revenue recognition policy as
reflected in the Financial Statements. Notwithstanding the foregoing, as to any
subject matter covered by a specific representation and warranty of Dynamotion
elsewhere in this Agreement, no fact or occurrence that would not breach
Dynamotion's specific representation and warranty covering that subject matter
will be deemed to be a breach of the representation and warranty contained in
this Section 3.1.9.
3.1.10 Absence of Certain Changes or Events.
3.1.10.1 Absence of Changes or Events Since December 31, 1995.
Since December 31, 1995, except as set forth on Schedule 3.1.10.1, there has
not been:
(a) Any direct or indirect declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock, property
or any
20
combination thereof) in respect of any Dynamotion Outstanding Securities, or
any direct or indirect repurchase, redemption or other acquisition by
Dynamotion of any of its securities; or
(b) Any change by Dynamotion in accounting methods,
principles or practices.
3.1.10.2 Absence of Changes or Events Since September 30, 1996.
Since September 30, 1996, except as set forth on Schedule 3.1.10.2, there has
not been:
(a) Any material adverse change in the business, results of
operations, financial condition, properties, or assets of Dynamotion;
(b) Any material damage, destruction, requisition, taking
or casualty loss, whether or not covered by insurance, of or to any of the
assets or properties of Dynamotion;
(c) Other than as disclosed pursuant to Section 3.1.14.4,
any increase in the rate or terms of compensation payable or to become payable
by Dynamotion to its directors, officers, or employees; any change in the rate
or terms of any bonus, insurance, pension, or other employee benefit plan,
payment or arrangement made to, for, or with any employees of Dynamotion; any
special bonus or remuneration paid; any written employment contract executed or
amended; or any change in personnel policies;
(d) Any entry into any agreement, commitment, or
transaction (including, without limitation, any license of intellectual
property, any borrowing, capital expenditure or capital financing, any
purchase, acquisition, sale, or other disposition of assets (other than
inventory in the ordinary course of business), any lease or sublease, any
guaranty, assumption, or endorsement of payment or performance of any loan or
obligation of
21
another, or any amendment, modification or termination of any existing
agreement, commitment or transaction) by Dynamotion except as contemplated in
this Agreement and except for such agreements, commitments, and transactions as
do not exceed $50,000 singly;
(e) Any issuance or sale of any stock of Dynamotion (other
than issuances pursuant to the exercise of Options) or any issuance, granting,
or creation of any option, warrant, phantom stock, stock appreciation or
similar rights, or any other right to purchase any stock of Dynamotion or any
commitment to do any of the foregoing;
(f) Any amendment to the Certificate of Incorporation or
Bylaws of Dynamotion, except as provided in Section 4.2.6 with respect to the
Conversion Proposal;
(g) Any conduct of business that is outside the ordinary
course of business or not substantially in the manner that Dynamotion
previously conducted its business;
(h) Any encumbrance or consent to encumbrance of any
property or assets;
(i) Any pending or, to the Knowledge of Dynamotion,
threatened labor disputes, organizational activities or disturbances;
(j) Any communication to Dynamotion from any customer of
Dynamotion that purchased $100,000 or more of products or services from
Dynamotion in the year ended December 31, 1995 that such customer intends to,
is desirous of, or is actively considering terminating or materially reducing
its purchases from Dynamotion for any reason; or
22
(k) Any change not described above in the assets,
liabilities, licenses, permits, or franchises of Dynamotion, or in any
agreement to which Dynamotion is a party or by which it is bound, that, either
individually or in the aggregate, has had or is reasonably likely to have a
material adverse effect on the business, results of operations, financial
condition, properties, or assets of Dynamotion.
3.1.11 Prohibited Payments. To the Knowledge of Dynamotion, neither
Dynamotion nor any shareholder, officer, director, or other person or entity
has, directly or indirectly, on behalf of or with respect to the business or
operations of Dynamotion or any Previous Subsidiary, (a) made any payment
outside the ordinary course of business to any purchasing or selling agent or
other person charged with similar duties of any entity to which Dynamotion
sells or from which Dynamotion buys products, for the purpose of influencing
such agent or person to buy products from or sell products to Dynamotion which
payment was not legal to make or receive under any applicable law or regulation
of the United States or any other country or territory; or (b) engaged in any
transaction, maintained any bank account, or used any corporate funds or assets
except for transactions, bank accounts, funds, and assets that have been and
are reflected in the normally maintained books and records of Dynamotion.
3.1.12 Litigation. Except as listed on Schedule 3.1.12, no
litigation, proceeding, or governmental investigation is pending or, to the
Knowledge of Dynamotion, threatened against or relating to Dynamotion, its
officers, or directors in their capacities as such, or any of Dynamotion's
properties or businesses. No pending litigation or proceeding listed on
Schedule 3.1.12 seeks injunctive relief against Dynamotion. For the purposes of
this Section 3.1.12, the term "Litigation Reserves" means the amounts specified
on Schedule 3.1.12
23
as such. The pending litigation and proceedings listed on Schedule 3.1.12 will
not, if settled, decided, or otherwise resolved in favor of the opposing party
or parties, result in any payment obligations of Dynamotion (including without
limitation damages and attorneys' fees) greater, in the aggregate, than the
Litigation Reserves.
3.1.13 Compliance with Laws; Judgments. Dynamotion and each Previous
Subsidiary has at all relevant times conducted its business in compliance with
(a) the provisions of its Certificate or Articles of Incorporation, Bylaws, and
(b) all applicable laws, regulations, and standards, including without
limitation the United States Export Control Act and all applicable regulations
promulgated by the U.S. Department of Health and Human Services and the Federal
Communications Commission and foreign counterparts to such laws and
regulations, other than violations that individually or in the aggregate do
not, and, with the passage of time will not, have a material adverse effect on
its business, financial condition, results of operations, properties, or
assets. Dynamotion is not subject to any outstanding judgment, order, writ,
injunction, or decree and has not been charged with, or, to the Knowledge of
Dynamotion, threatened with a charge of, a violation of any provision of any
applicable law or regulation.
3.1.14 Employment Matters.
3.1.14.1 Labor Matters. Dynamotion is not a party or otherwise
subject to any collective bargaining agreement governing the wages, hours, or
terms of employment of its employees. Dynamotion is, and Dynamotion and each
Previous Subsidiary has been, in compliance with all applicable laws regarding
employment and employment practices, terms and conditions of employment, wages,
and hours and is not and has not been engaged in any unfair labor practice.
There is no (a) unfair labor practice complaint against
24
Dynamotion pending before the National Labor Relations Board or any other
Governmental Entity; (b) labor strike, slowdown or work stoppage actually
occurring or, to the Knowledge of Dynamotion, threatened against Dynamotion;
(c) representation petition respecting the employees of Dynamotion pending
before the National Labor Relations Board or similar agency; or (d) grievance
or any arbitration proceeding pending arising out of or under collective
bargaining agreements applicable to Dynamotion. Dynamotion has not experienced
any primary work stoppage or other organized work stoppage involving its
employees in the past two years. To the Knowledge of Dynamotion, there is no
labor strike, slowdown, or work stoppage occurring or threatened against any of
its principal suppliers that is reasonably likely to have a material adverse
effect on the business, financial condition, results of operations, properties,
or assets of Dynamotion.
3.1.14.2 Employee Benefits. Schedule 3.1.14.2 lists all pension,
retirement, profit sharing, deferred compensation, bonus, commission, incentive
compensation (including cash, stock, and option plans or arrangements), life
insurance, health and disability insurance, hospitalization, and all other
employee benefit plans or arrangements (including, without limitation, any
contracts or agreements with trustees, insurance companies or others relating
to any such employee benefit plans or arrangements) established or maintained
by Dynamotion, and Dynamotion has provided ESI with complete and accurate
copies of: (a) all such plans or arrangements; (b) Dynamotion's most recent
annual report (Form 5500 series) filed with the Internal Revenue Service; (c)
the most recent actuarial reports; and (d) all governmental rulings,
determinations, and opinions (and pending requests for governmental rulings,
determinations, and opinions). The employee welfare benefit plans (within the
meaning
25
of Section 3(1) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) and the employee pension benefit plans (within the meaning
of Section 3(2) of the ERISA) established and maintained by Dynamotion (the
"ERISA Plans") are listed separately as ERISA Plans on Schedule 3.1.14.2. The
ERISA Plans comply in all material respects with the applicable requirements of
ERISA. Dynamotion has received from the Internal Revenue Service a favorable
determination for each of the ERISA Plans and their related trusts that each of
the ERISA Plans that is an employee pension benefit plan is qualified under
Section 401(a) of the Code and the related trust is tax-exempt under Section
501(a) of the Code. There has been no event subsequent to that determination
that has adversely affected the tax qualified status of the ERISA Plans or the
exemption of the related trusts other than changes in the Code that are not
effective as of the Closing Date. None of the ERISA Plans, its related trusts
or any trustee, investment manager or administrator thereof has engaged in a
nonexempt "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code. There are not and have not been any excess
deferrals or excess contributions under any ERISA Plan. Each ERISA Plan is and
has been operated and administered in conformity with the requirements of all
applicable laws and regulations, whether or not the ERISA Plan documents have
been amended to reflect such requirements. Except as set forth on Schedule
3.1.14.2, Dynamotion has no obligation of any kind (whether under the terms of
the ERISA Plans or under any understanding with employees) to make payments
under, or to pay contributions to, any plan, agreement or other arrangement for
deferred compensation of employees, whether or not tax qualified, including,
without limitation, a single employer tax qualified plan, a tax qualified plan
of a controlled group of corporations, a multiemployer pension plan, a "defined
26
benefit" plan, a nonqualified deferred compensation plan, an individual
employment or compensation agreement or a commitment to provide medical
benefits to retirees. Dynamotion has never adopted, maintained, or contributed
to any plan or arrangement that is or was subject to Section 412 of the Code or
Title IV of ERISA (a "DB Plan"), nor has Dynamotion ever been a member of a
controlled group of corporations, group of trades or businesses, or affiliated
service group (within the meaning of Sections 414(b), (c), and (m) of the Code)
that has adopted, maintained, or contributed to a DB Plan.
3.1.14.3 Employment Agreements. There are no employment or other
agreements or understandings of any kind between Dynamotion and any of its
employees, including without limitation any agreements or understandings
regarding compensation or commissions of any nature, severance payments, or
retirement benefits, except as reflected in the items listed in Schedules
3.1.14.2, 3.1.14.3, and 3.1.14.4 and except for standard Dynamotion
confidentiality and assignment agreements as described in Section 3.1.14.5.
Schedule 3.1.14.3 lists all Dynamotion's employment or supervisory manuals,
employment or supervisory policies, and written information generally provided
to employees (such as applications or notices), and complete and accurate
copies of those manuals, policies, and written information have been provided
to ESI.
3.1.14.4 Compensation. Schedule 3.1.14.4 contains a complete and
accurate list of all current directors, officers, employees, or consultants of
Dynamotion, specifying their names and job designations, the total annual
amount paid or payable as cash and noncash compensation to each such person,
and the basis of such compensation, whether fixed or commission or a
combination thereof, and the total amount of accrued benefits (including
27
without limitation vacation, sick, or wellness pay, if any) for such persons as
of December 31, 1995 and as of November 30, 1996. Dynamotion has not made any
commitment entitling any employee to any payment in the event of termination or
resignation that would constitute a "parachute payment" within the meaning of
Section 280G of the Code or that would in the aggregate exceed 100 percent of
such person's annual base cash compensation. Dynamotion has no discretionary
bonus plans. The provisions for wages and salaries accrued on the Current
Balance Sheet are adequate for salaries and wages accrued as of the date
thereof, including accrued vacation pay and sick or wellness pay, if any, and
Dynamotion has accrued on its books and records all obligations for wages and
salaries and other compensation to its employees, including but not limited to,
vacation pay and sick or wellness pay, if any, and all commissions and other
fees payable to agents, salesmen, and representatives.
3.1.14.5 Confidentiality and Inventions Agreements. The
employees and consultants of Dynamotion listed on Schedule 3.1.14.5 have
previously signed a confidentiality and invention agreement substantially in
the form or forms attached hereto as Exhibit H.
3.1.15 Title to and Condition of Real Property. Neither Dynamotion
nor any Previous Subsidiary has ever owned any real property, and Dynamotion
does not now own any real property. Schedule 3.1.15 contains a list of all real
property currently leased, occupied, or used by Dynamotion (the "Leased Real
Property"), including the dates of and parties to all leases and any amendments
thereof. All real property previously leased, occupied, or used by Dynamotion,
any predecessor company, or any Previous Subsidiary is referred to herein as
the "Previously Leased Real Property." All Leased Real Property (including
improvements thereon)
28
is in the same condition (ordinary wear and tear excepted) as it was when
Dynamotion's lease(s), occupancy, or use began, and is available for immediate
use in the conduct of Dynamotion's business. Neither the operations of
Dynamotion on any Leased Real Property, nor any improvements on the Leased Real
Property, violates any applicable building or zoning code or regulation of any
Governmental Entity having jurisdiction. The Leased Real Property includes all
such property necessary to conduct the business of Dynamotion. None of the
Leased Real Property has been condemned or otherwise taken by public authority
and no such condemnation or taking is, to the Knowledge of Dynamotion,
threatened or contemplated.
3.1.16 Title to and Condition of Fixed Assets. Schedule 3.1.16
contains a complete and accurate list of all tangible personal property
(excluding inventory) owned or leased by Dynamotion (the "Tangible Personal
Property"), including the dates of and parties to all leases and any amendments
thereof. Except as noted on Schedule 3.1.16, Dynamotion has good and marketable
title to all of the Tangible Personal Property listed in Schedule 3.1.16, free
and clear of all liens, mortgages, pledges, leases, restrictions and other
claims and encumbrances of any nature whatsoever. The Tangible Personal
Property is in good operating condition and repair (ordinary wear and tear
excepted), is performing satisfactorily, and is adequate for the conduct of the
business of Dynamotion. All Tangible Personal Property and the state of
maintenance thereof are in compliance with all applicable laws and regulations.
3.1.17 Intellectual Property. Dynamotion owns, or has a valid license
to use, all patents, trademarks, service marks, trade names, copyrights, trade
secrets, technology, know- how and other intellectual property (the
"Intellectual Property") used in the conduct of the business of Dynamotion as
now conducted. Schedule 3.1.17(a) contains a complete and accurate
29
list of all patents, patent applications, trademarks, and service marks and
related applications, trade names, and copyrights owned by or licensed to
Dynamotion. Schedule 3.1.17(a) also contains a description of all agreements or
licenses relating to the acquisition by or license to Dynamotion of such
Intellectual Property or under which Dynamotion has sold or granted a right to
use any Intellectual Property. Except as set forth on Schedule 3.1.17(b), all
Intellectual Property owned by Dynamotion is owned by it free and clear of all
liens, claims, encumbrances or adverse claims of any third party. The conduct
of Dynamotion's business does not conflict with or infringe upon any
Intellectual Property rights of any other person and no claims of conflict or
infringement are pending or, to the Knowledge of Dynamotion, threatened against
Dynamotion. Dynamotion has made all necessary filings and recordations and has
paid all required fees and Taxes to maintain its ownership of its Intellectual
Property that is patented or registered in the United States Patent and
Trademark Office and has made all necessary filings and recordations and has
paid all required fees and Taxes to maintain its ownership of its Intellectual
Property that is patented or registered with applicable foreign agencies.
3.1.18 Certain Contracts and Arrangements. Schedule 3.1.18, which is
organized by type of agreement, contains a complete and accurate list of each
of the following types of agreements or arrangements, including any amendments
thereto, to which Dynamotion is a party or by which it is bound:
(a) any mortgage, note, or other instrument or agreement
relating to the borrowing of money or the incurrence of indebtedness or the
guaranty of any obligation for the borrowing of money;
30
(b) any contract, agreement, purchase order, or acknowledgment
form for the purchase, sale, lease or other disposition of equipment, products,
materials or capital assets, or for the performance of services (including
without limitation consulting services), with respect to which the annual
aggregate dollar amount either due to or payable by Dynamotion exceeds
$100,000;
(c) contracts or agreements for the joint performance of work or
services, and all other joint venture agreements;
(d) contracts or agreements with agents, brokers, consignees,
sales representatives, or distributors relating to the sale of products or
services;
(e) confidentiality or inventions assignment agreements with
parties other than employees of Dynamotion; and
(f) any other contract, instrument, agreement, or obligation not
described in any other Schedule that contains unfulfilled obligations, is not
terminable without payment of premium or penalty upon 30 days' notice or less
and the annual amount either due to or payable by Dynamotion exceeds $100,000
for any single contract.
3.1.19 Status of Contracts. Each of the contracts, agreements,
commitments and instruments listed on Schedules 3.1.15, 3.1.16, 3.1.17, and
3.1.18 and the agreements described in Section 3.1.14.5 (collectively, the
"Contracts") is in full force and effect and is valid, binding and enforceable
by Dynamotion in accordance with its terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the
31
discretion of the court before which any proceeding may be brought. Except as
listed in Schedule 3.1.19, there is no existing material default or violation
by Dynamotion under any Contract and no event has occurred that (whether with
or without notice, lapse of time or both) would constitute a material default
of Dynamotion under any Contract. There is no pending or, to the Knowledge of
Dynamotion, threatened proceeding that would interfere with the quiet enjoyment
of any leasehold of which Dynamotion is lessee or sublessee. Except set forth
on Schedule 3.1.19, no consent of the other parties to the Contracts is
necessary for the consummation of the transactions contemplated by this
Agreement. Complete and accurate copies of all Contracts have been delivered to
ESI. To the Knowledge of Dynamotion, there is no default by any other party to
any Contract or any event that (whether with or without notice, lapse of time
or both) would constitute a material default by any other party with respect to
obligations of that party under any Contract, and, to the Knowledge of
Dynamotion, there are no facts that exist indicating that any of the Contracts
may be totally or partially terminated or suspended by the other parties.
Dynamotion has not granted any waiver or forbearance with respect to any of the
Contracts. Dynamotion is not a party to, or bound by, any contract or agreement
that Dynamotion can reasonably foresee will result in any material loss to
Dynamotion upon the performance thereof (including any liability for penalties
or damages, whether liquidated, direct, indirect, incidental, or
consequential).
3.1.20 Insurance. Schedule 3.1.20 contains a complete and accurate
list of all current policies of primary, excess, or umbrella comprehensive
general liability, fire, worker's compensation, or any other form of insurance
insuring Dynamotion, its officers or directors, its assets, or its operations
(the "Policies"), setting forth the applicable deductible amounts. All
32
past primary, excess, or umbrella comprehensive general liability policies or
any other policy insuring Dynamotion or any predecessor or Previous Subsidiary
against liability for third-party bodily or personal injury or property damage
are referred to herein as "Past CGL Policies". All the Policies are valid,
enforceable, and in full force and effect, all premiums with respect to the
Policies covering all periods up to and including the date as of which this
representation is being made have been paid and no notice of cancellation or
termination has been received by Dynamotion with respect to any Policy. The
Policies are sufficient for compliance with all requirements of law and
agreements to which Dynamotion is a party and provide insurance for the risks
and in the amounts and types of coverage usually obtained by persons using or
holding similar properties in similar businesses. Neither the execution of this
Agreement nor the consummation of the Merger will bar or otherwise interfere
with the rights of Merger Corp. to recover under the Policies or Past CGL
Policies for claims arising out of pre-Closing acts or omissions of Dynamotion
or any predecessors or Previous Subsidiary. There have been no claims made for
insurance payment under any of the Policies or Past CGL Policies in the three
years preceding the date of this Agreement. Complete and accurate copies of the
Policies and all endorsements thereto have been delivered to ESI. Dynamotion
has not been refused any insurance coverage and no insurance coverage has been
canceled during the three years preceding the date of this Agreement.
3.1.21 Permits and Licenses. Schedule 3.1.21(a) contains a complete
and accurate list of all governmental licenses, permits, franchises, easements,
and authorizations (collectively, "Permits") held by Dynamotion, listed by
Governmental Entity. To the Knowledge of Dynamotion, Dynamotion holds, and at
all times each of Dynamotion, its
33
predecessors, and each Previous Subsidiary has held, all Permits necessary for
the lawful conduct of its business pursuant to all applicable statutes, laws,
ordinances, rules, and regulations of all Governmental Entities and other
authorities having jurisdiction over it or any part of its operations.
Dynamotion is in compliance with each of the terms of its Permits. Complete and
accurate copies of all Permits held by Dynamotion have been delivered to ESI.
Schedule 3.1.21(b) lists all consents from any Governmental Entities that have
issued any Permits to or with respect to Dynamotion or its business that are
required for the consummation of the transactions contemplated by this
Agreement.
3.1.22 Taxes.
3.1.22.1 Returns. Except as set forth on Schedule 3.1.22.1, each
of Dynamotion and each Previous Subsidiary has filed on a timely basis all
federal, state, foreign and other returns, reports, forms, declarations, and
information returns required to be filed by it with respect to Taxes (as
defined below) that relate to the business, results of operations, financial
condition, properties, or assets of Dynamotion or any Previous Subsidiary
(collectively, the "Returns") and has paid on a timely basis all Taxes shown to
be due on the Returns. Except as set forth on Schedule 3.1.22.1, Dynamotion is
not, and neither Dynamotion nor any Previous Subsidiary has ever been, part of
an affiliated group of corporations that files or has the privilege of filing
consolidated tax returns pursuant to Section 1501 of the Code or any similar
provisions of state, local, or foreign law. Except as set forth on Schedule
3.1.22.1, Dynamotion is not, and neither Dynamotion nor any Previous Subsidiary
has ever been, a party to any tax-sharing or tax-allocation agreement.
Dynamotion does not have any liability for Taxes of any person (other than
itself), whether arising under federal, state, local, or foreign law, as a
34
transferee or successor, by contract, or otherwise. No extensions of time have
been requested for Returns that have not been filed and no statute of
limitations has been waived with respect to any Tax except as set forth on
Schedule 3.1.22.1. Except as set forth on Schedule 3.1.22.1, no Returns have
been examined by the applicable taxing authorities for all periods to and
including the fiscal year ended December 31, 1995 and, except as set forth on
Schedule 3.1.22.1, Dynamotion has not received any notice of claim or audit
from any taxing authority with respect to itself or any Previous Subsidiary and
there are no outstanding agreements or waivers extending the applicable
statutory periods of limitation for such Taxes for any period. All Returns
filed are complete and accurate in all material respects and no additional
Taxes are owed by Dynamotion or any Previous Subsidiary with respect to the
periods covered by the Returns. Dynamotion has provided ESI with complete and
accurate copies of Returns for each of Dynamotion's fiscal years 1991 through
1995 and the Forms 1139 related to any loss or credit or carryback claim for
those years.
3.1.22.2 Taxes Paid or Reserved. The reserves for Taxes
reflected on the Current Balance Sheet are adequate for payment of Taxes in
respect of periods ending on or before the date of the Current Balance Sheet.
All reserves for Taxes have been determined in accordance with generally
accepted accounting principles and applicable accounting rules and regulations
of the SEC consistently applied throughout the periods involved and with prior
periods. All Taxes that Dynamotion has been required to collect or withhold
have been withheld or collected and, to the extent required, have been paid to
the proper taxing authority. Neither Dynamotion nor any Previous Subsidiary has
elected to be treated as a consenting corporation pursuant to Section 341(f) of
the Code.
35
3.1.22.3 Net Operating Losses. Dynamotion's federal net
operating loss carry forward as of December 31, 1995 equaled $6,838,248.
3.1.22.4 Definition. The term "Tax" or "Taxes" means all
federal, state, local, or foreign taxes, charges, fees, levies, or other
assessments, including, without limitation, all net income, gross income, gross
receipts, premium, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, estimated severance, stamp,
occupation, property, or other taxes, fees, assessments, or charges of any kind
whatsoever, together with any interest and any penalties (including penalties
for failure to file in accordance with applicable information reporting
requirements), and additions to tax.
3.1.23 Related Party Interests. Except as listed in Schedule 3.1.23,
no Holder, officer, or director of Dynamotion (or any entity owned or
controlled by one or more of such parties) (a) is indebted to Dynamotion or (b)
has any other right, arrangement, or agreement binding upon Dynamotion,
including without limitation any registration rights agreement, stock purchase
agreement, or similar arrangement (other than obligations contained in
Dynamotion's Certificate of Incorporation or Bylaws). Except as listed in
Schedule 3.1.23, to the Knowledge of Dynamotion, no Holder, officer, or
director of Dynamotion (or any entity owned or controlled by one or more of
such parties) (i) has any interest in any property, real or personal, tangible
or intangible, used in or pertaining to Dynamotion's business or (ii) has any
material financial interest, direct or indirect, in any supplier or customer
of, or other outside business which has significant transactions with
Dynamotion. True and complete copies of all agreements listed on Schedule
3.1.23 have been provided to ESI. Dynamotion is not indebted to any of its
shareholders, directors, or officers (or to the Knowledge of Dynamotion any
entity owned or
36
controlled by one or more of such parties) except for amounts due under normal
salary arrangements and for reimbursement of ordinary business expenses. Except
as specifically referenced in this Agreement, the consummation of the
transactions contemplated by this Agreement will not (either alone or upon the
occurrence of any act or event, or with the lapse of time, or both) result in
any payment (severance or other) becoming due from Dynamotion to any Holder or
any of Dynamotion's, officers, directors, or employees (or, to the Knowledge of
Dynamotion, any entity owned or controlled by one or more of such parties).
3.1.24 No Powers of Attorney or Restrictions. No power of attorney or
similar authorization given by Dynamotion is presently in effect or
outstanding. Except as set forth on Schedule 3.1.24, no contract or agreement
to which Dynamotion is a party or by which it is bound or to which any of its
properties or assets is subject limits the freedom of Dynamotion to compete in
any line of business or with any person. To the Knowledge of Dynamotion, none
of the employees of Dynamotion is obligated under any contract (including
licenses, covenants, or commitments of any nature), or subject to any judgment,
decree, or order of any Governmental Entity, that would interfere with the use
of his or her best efforts to promote the interests of Dynamotion or that would
conflict with the business of Dynamotion as now conducted or proposed to be
conducted.
3.1.25 Environmental Conditions.
3.1.25.1 Compliance. The business, assets, and operations of
Dynamotion, its predecessors and all Previous Subsidiaries, including without
limitation the Leased Real Property and the Previously Leased Real Property,
are and have been in compliance with all Environmental Laws (as defined below)
and all Permits required for the operations of
37
Dynamotion, its predecessors, and the Previous Subsidiaries under any
Environmental Law. These Permits are listed separately in Schedule 3.1.21.
There are no pending or, to the Knowledge of Dynamotion, threatened claims,
actions or proceedings against Dynamotion under any Environmental Law or
related Permit. All wastes generated in connection with Dynamotion's business
are, and in the case of Dynamotion, its predecessors, and the Previous
Subsidiaries, have been transported and disposed of off-site in compliance with
all Environmental Laws, and there are no facility logs or manifests relating to
the transportation and disposal of such wastes. No wastes, including hazardous
and solid wastes, have been or are stored on, at, or under the Leased Real
Property or the Previously Leased Real Property in violation of any
Environmental Law or that could result in a remediation obligation.
3.1.25.2 Hazardous Substances. Except for ordinary household
cleaners and office supplies or as set forth on Schedule 3.1.25.2, no Hazardous
Substance (as defined below) is present on, at, or under the Leased Real
Property or the Previously Leased Real Property. Except as would neither
violate any Environmental Law nor result in any remediation obligation, no
Hazardous Substance has been disposed of, spilled, leaked, discharged, or
otherwise released on, in, under or has migrated off-site from the Leased Real
Property or the Previously Leased Real Property or has otherwise come to be
located in the soil or water (including surface and ground water) in, on,
under, or adjacent to the Leased Real Property or the Previously Leased Real
Property. Except as would neither violate any Environmental Law nor result in
any remediation obligation, none of the assets of Dynamotion or the
improvements on the Leased Real Property or the Previously Leased Real Property
have incorporated into them any asbestos, urea formaldehyde foam insulation,
polychlorinated
38
biphenyls (including in any electrical transformer or capacitor located on such
property), or any other Hazardous Substance that is prohibited, restricted, or
regulated when present in buildings, structures, fixtures, or equipment. Except
for ordinary household cleaners and office supplies or as set forth on Schedule
3.1.25.2, no Hazardous Substance is or has been generated, manufactured,
treated, stored, transported, used, or otherwise handled on the Leased Real
Property or the Previously Leased Real Property or in connection with the
business or operations of Dynamotion, its predecessors, or the Previous
Subsidiaries. Except as listed on Schedule 3.1.25.2, there are not and have
never been any above-ground or underground storage tanks (whether or not
regulated and whether or not out of service, closed, or decommissioned) on the
Leased Real Property or, during the period of occupancy or use by Dynamotion,
its predecessors, or the Previous Subsidiaries, on the Previously Leased Real
Property.
3.1.25.3 Filings and Notices. Each of Dynamotion and each
Previous Subsidiary has timely filed all required reports, obtained all
required approvals and permits, and generated and maintained all required data,
documentation, and records under all applicable Environmental Laws. All
notifications required by any Environmental Law in respect of any discharge,
release, or emission have been made within the time prescribed by such
Environmental Law, and copies of all such notifications have been provided to
ESI. No part of the Leased Real Property or the Previously Leased Real Property
is listed as a site contaminated by Hazardous Substances pursuant to any
Environmental Law.
3.1.25.4 Definitions. As used in this Agreement, (a)
"Environmental Law" means any federal, state, foreign, or local statute,
ordinance, or regulation pertaining to the protection of human health or the
environment and any applicable orders, judgments,
39
decrees, permits, licenses, or other authorizations or mandates under such
statutes, ordinances or regulations, and (b) "Hazardous Substance" means any
hazardous, toxic, radioactive, or infectious substance, material or waste as
defined, listed, or regulated under any Environmental Law, and includes without
limitation radioactive material and petroleum oil and its fractions.
3.1.26 Consents and Approvals. Except as set forth in Sections 3.1.5
and 5.2.4 and as set forth on Schedule 3.1.21(b), no consent, approval, or
authorization of, or filing or registration with, any Governmental Entity or
any other entity or person not a party to this Agreement is required to be
obtained or made by Dynamotion for the consummation of the transactions
described in this Agreement.
3.1.27 Records. The books of account, minute books, stock certificate
books, and stock transfer ledgers of Dynamotion are complete and accurate in
all respects, and there has been no transaction involving the business or stock
ownership of Dynamotion, or action of Dynamotion's Board of Directors or
shareholders, that properly should have been set forth therein and has not been
accurately so set forth. Complete and accurate copies of such books, records,
and ledgers have been made available to ESI.
3.1.28 Receivables. Each of the receivables of Dynamotion (including
notes receivable, accounts receivable, loans receivable, and advances) that is
reflected on the Current Balance Sheet, and each of the receivables that has
arisen since that date, has arisen only from bona fide transactions in the
ordinary course of Dynamotion's business and will, except as disclosed on
Schedule 3.1.28(a), be fully collected when due, or in the case of each account
receivable, within one year after the Closing Date, without resort to
litigation and without offset or counterclaim, except to the extent of (a) the
allowance for doubtful accounts with respect to
40
accounts receivable as reflected on the Current Balance Sheet, plus (b) any
reduction in the accounts payable balances listed on Schedule 3.1.28(b) that
result from negotiations with vendors. The accounts payable listed on Schedule
3.1.28(b) are included in the accounts payable on the Current Balance Sheet.
3.1.29 Bank Accounts. Schedule 3.1.29 contains a complete and
accurate list of all the banks or other financial institutions at which
Dynamotion maintains accounts or safe deposit boxes, together with numbers of
such accounts and boxes and the names of the persons authorized to draw thereon
or permitted access thereto. Except as set forth on Schedule 3.1.29, all cash
in such accounts is held in demand deposits and is not subject to any
restriction or limitation as to withdrawal.
3.1.30 Product Warranties. Schedule 3.1.30 contains Dynamotion's
standard form of product warranty, infringement indemnity, and limitation of
liability provisions and a copy of each negotiated warranty, indemnity, and
limitations provision that differs materially from the standard form. Neither
Dynamotion nor, to the Knowledge of Dynamotion, any predecessor or Previous
Subsidiary, has undertaken any performance obligations or made any warranties
or guarantees with respect to its products other than those disclosed in
Schedule 3.1.30, or sold any products or services without the limitation of
liability provisions disclosed in Schedule 3.1.30. The aggregate cost to
Dynamotion to comply with its product warranties has not exceeded four percent
(4%) of machine revenue, as reported in Dynamotion's general ledger, for each
of the last three fiscal years. Except as set forth on Schedule 3.1.30, all
products under warranty as of the date of this Agreement serviced, distributed,
or sold by
41
Dynamotion or, to the Knowledge of Dynamotion, any predecessor or Previous
Subsidiary, and the delivery thereof, have been in conformity with Dynamotion's
warranty commitments.
3.1.31 Inventories. Schedule 3.1.31 contains a true and complete list
and summary of all inventory of Dynamotion as of September 30, 1996. All
inventories, whether finished goods, work in process, or raw materials,
reflected on the Current Balance Sheet or thereafter acquired, are all items of
a quality usable or saleable in the ordinary and usual course of Dynamotion's
business, except for inventory items that have been written down to an amount
not in excess of realizable market value or for which adequate reserves or
allowances have been provided on the Current Balance Sheet. The values at which
inventories are carried reflect an inventory valuation policy consistent with
Dynamotion's past practice and in accordance with generally accepted accounting
principles and applicable accounting rules and regulations of the SEC. Except
as set forth on Schedule 3.1.31, Dynamotion has good and marketable title to
all its inventories, free and clear of all liens, mortgages, pledges, leases,
restrictions, and other claims and encumbrances of any nature whatsoever.
3.1.32 Product Liability. Except as set forth on Schedule 3.1.32,
Dynamotion has not recalled any products manufactured, serviced, distributed,
leased, or sold by Dynamotion or any predecessor or any Previous Subsidiary,
and, to the Knowledge of Dynamotion, there is no reasonable basis for any such
recall on or after the Closing Date.
3.1.33 Customer Information. Schedule 3.1.33 lists (a) every
outstanding purchase order received by Dynamotion for more than $100,000 by
customer as of November 30, 1996 and (b) the top 10 Dynamotion customers for
each of the last two fiscal years, with aggregate annual revenue for each
customer for each year.
42
3.1.34 Accounting Controls. Dynamotion maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorizations, (b) transactions are accurately and completely recorded in
Dynamotion's general ledger in a manner that facilitates the preparation of
financial statements in conformity with generally accepted accounting
principles and applicable accounting rules and regulations of the SEC and the
maintenance of accountability for assets, (c) access to assets is permitted
only in accordance with management's general or specific authorization, and (d)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.1.35 Liabilities Incurred in Ordinary Course. Except as otherwise
specifically described in this Agreement or the schedules hereto, the
liabilities of Dynamotion and the liabilities to which the assets of Dynamotion
are subject were incurred by Dynamotion in the ordinary course of its business.
3.1.36 Continuity of Business Enterprise. Dynamotion operates at
least one significant historic business line, or owns at least a significant
portion of its historic business assets, in each case within the meaning of
Regulation ss.1.368-1(d) under the Code.
3.1.37 Fair Market Value of Dynamotion Assets. The fair market value
of the assets of Dynamotion transferred to Merger Corp. pursuant to the Merger
at the Effective Time will equal or exceed the sum of the liabilities assumed
by Merger Corp., plus the amount of liabilities, if any, to which the
transferred assets are subject.
43
3.1.38 No Chapter 11 Proceedings. Dynamotion is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
3.1.39 Not an Investment Company. Dynamotion is not an investment
company as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
3.1.40 Not a Real Property Holding Company. Dynamotion has not been a
United States real property holding company within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
3.1.41 Proxy Statement/Prospectus. The information provided in
writing by Dynamotion (or its representatives) regarding Dynamotion
specifically for inclusion in the Proxy Statement/Prospectus and the
information in the Proxy Statement/Prospectus relating to Dynamotion that is
supplemented or reviewed by Dynamotion (or its representatives) without
objection before the mailing of such Proxy Statement/Prospectus, will be
correct in all material respects and will not omit any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading; provided, however, that no representation or warranty is made by
Dynamotion with respect to information supplied by ESI specifically for
inclusion therein or relating to and reviewed by ESI (or its representatives)
without objection. Dynamotion will promptly inform ESI of the happening of any
event before the Effective Time that would render such information regarding
Dynamotion incorrect in any material respect or require the amendment of the
Proxy Statement/Prospectus.
3.1.42 Dynamotion SEC Reports. Dynamotion has heretofore furnished
ESI with complete copies of all registration statements, reports, and proxy
statements, including amendments thereto, filed with the SEC since December 31,
1991 and before the date of this
44
Agreement (collectively, the "Dynamotion SEC Reports"). Except as set forth on
Schedule 3.1.42, Dynamotion has timely filed with the SEC all registration
statements, reports, proxy statements, and other filings required to be made by
it under applicable laws and regulations. Each of the Dynamotion SEC Reports,
at the time filed or at the time of its effectiveness, if later, (a) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (b) complied in all respects with the applicable requirements of
the Securities Exchange Act of 1934, as amended, the Securities Act of 1933, as
amended, and the applicable rules and regulations of the SEC thereunder.
3.1.43 Compliance of Conversion Proposal, Etc. None of: (a) the
proposal of, shareholder approval of, or implementation of transactions
contemplated by, the Conversion Proposal as described in this Agreement; (b)
the redemption of the Z Warrants as described in this Agreement after the
actions described in Schedule 3.1.2.3(b) have been taken; (c) the termination
of the Class B Additional Warrant Agreement by mutual agreement of the parties
thereto; (d) the exercise of the Class B Warrants as described in this
Agreement; or (e) the termination of the Underwriters' Warrants by mutual
agreement of the parties thereto; will violate any provision of the Certificate
of Incorporation, the Bylaws, any applicable law or regulation (including
without limitation state and federal securities laws and regulations), or the
terms of any agreement or obligation by which Dynamotion is bound.
45
3.1.44 Brokers and Finders. Dynamotion has not incurred any liability
for any brokerage or investment banking fees, commissions or finders' fees in
connection with the Merger.
3.1.45 Accuracy of Representations and Warranties. To the Knowledge
of Dynamotion, none of the representations or warranties of Dynamotion
contained in this Agreement contains or will contain any untrue statement of
any material fact or omits or misstates a material fact necessary to make the
statements contained in this Agreement not misleading. To the Knowledge of
Dynamotion, no fact that has resulted or that, in the reasonable judgment of
Dynamotion is reasonably likely to result, in any material adverse change in
Dynamotion's business, results of operation, financial condition, properties,
or assets that has not been set forth in this Agreement.
3.2 Representations and Warranties of Key Shareholders. Each Key
Shareholder, severally and not jointly, for himself, herself, or itself only,
hereby represents and warrants to ESI and Merger Corp. that, except as
specifically set forth in Schedule 3.2 (the "Key Shareholder Disclosure
Schedule") in a numbered paragraph that corresponds to the section for which
disclosure is made:
3.2.1 Authority. Such Key Shareholder has the authority and has taken
all action necessary, or, with respect to any Key Shareholder that is a
corporation, such Key Shareholder has the corporate power and authority and has
taken all corporate action necessary, to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. This Agreement has been
duly and validly authorized and validly executed and delivered by such Key
Shareholder. This Agreement constitutes the valid and binding obligation of
such Key
46
Shareholder, enforceable in accordance with its terms, except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought.
3.2.2 Filings. No notices, reports or other filings are required to
be made by such Key Shareholder with, nor are any consents, registrations,
approvals, permits, or authorizations required to be obtained by such Key
Shareholder from, any Governmental Entity or any other person not a party to
this Agreement in connection with the execution and delivery of this Agreement
by such Key Shareholder and the consummation by such Key Shareholder of the
transactions contemplated hereby.
3.2.3 Proxy Statement/Prospectus. The information provided in writing
by such Key Shareholder (or his, her, or its representative) regarding such Key
Shareholder specifically for inclusion in the Proxy Statement/Prospectus and
the information in the Proxy Statement/Prospectus regarding such Key
Shareholder that is reviewed by such Key Shareholder (or his, her, or its
representative) without objection before the mailing of such Proxy
Statement/Prospectus, will be correct in all material respects and will not
omit any material fact required to be stated therein or necessary in order to
make the statements therein not misleading; provided, however, that no
representation or warranty is made by such Key Shareholder with respect to
information supplied by ESI specifically for inclusion therein or relating to
and reviewed by ESI (or its representatives) without objection. Such Key
Shareholder will promptly inform ESI of the happening of any event before the
Effective Time that would render the
47
information regarding such Key Shareholder provided by such Key Shareholder
incorrect in any material respect or require the amendment of the Proxy
Statement/Prospectus.
3.3 Representations and Warranties of ESI. ESI hereby represents and
warrants to Dynamotion that, except as specifically set forth in Schedule 3.3
(the "ESI Disclosure Schedule") in a numbered paragraph that corresponds to the
section for which disclosure is made:
3.3.1 Organization and Status. Each of ESI and its subsidiaries is a
corporation duly organized and validly existing under the laws of its
jurisdiction of incorporation and is duly qualified and in good standing as a
foreign corporation in each jurisdiction where the properties owned, leased, or
operated, or the business conducted, by it require such qualification, except
where the failure to so qualify or be in good standing, when taken together
with all such failures, would not have a material adverse effect on ESI. Each
of ESI and its subsidiaries has all requisite corporate power and authority to
own, operate, and lease its property and to carry on its businesses as they are
now being conducted.
3.3.2 Capitalization. ESI has authorized capital stock consisting of
40,000,000 shares of Common Stock, without par value, of which 8,671,333 shares
were outstanding on November 30, 1996 and 1,000,000 shares of Preferred Stock,
of which no shares were outstanding on November 30, 1996. All of the
outstanding shares of capital stock of ESI have been duly authorized and are
validly issued, fully paid, and nonassessable, and no shares were issued in
violation of preemptive or similar rights of any shareholder. Except under the
terms of the various ESI employee or director benefit plans, or as disclosed in
the ESI SEC Reports (defined in Section 3.3.10) there are no subscriptions,
options, warrants, rights,
48
convertible securities or other agreements or commitments of any character
obligating ESI to issue any shares of capital stock.
3.3.3 Corporate Authority. ESI has the corporate power and authority
and has taken all corporate action necessary to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized by the Board of Directors of ESI
and duly and validly executed and delivered by ESI. This Agreement constitutes
the valid and binding obligation of ESI, enforceable in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought.
3.3.4 Control of Merger Corp Before Merger. Before the Effective
Time, ESI will be in control of Merger Corp. within the meaning of Section
368(c) of the Code.
3.3.5 Control of Merger Corp After Merger. ESI has no plan or intent
to cause Merger Corp. to issue additional shares of its stock following the
Merger that would result in ESI losing control of Merger Corp. within the
meaning of Section 368(c) of the Code.
3.3.6 Continuation of Dynamotion's Business. ESI intends to cause
Merger Corp. to continue the historic business of Dynamotion or use a
significant portion of Dynamotion's business assets in a business following the
Merger.
3.3.7 No Plan to Reacquire Merger Consideration. ESI has no plan or
intention to reacquire any ESI Common Stock issued as Merger Consideration.
49
3.3.8 No Plan to Liquidate or Merge Merger Corp. ESI has no plan or
intention to liquidate Merger Corp., to merge Merger Corp. with and into
another corporation, to sell or otherwise dispose of the stock of Merger Corp.,
or to cause Merger Corp. to sell or otherwise dispose of any of the assets of
Dynamotion transferred pursuant to the Merger, except for dispositions made in
the ordinary course of business or transfers described in Section 368(a)(2)(C)
of the Code.
3.3.9 Governmental Filings. Other than the filing of (a) the
Certificate of Merger contemplated by Article I and (b) the Registration
Statement described in Section 4.3.1, no notices, reports or other filings are
required to be made by ESI with, nor are any consents, registrations,
approvals, permits, or authorizations required to be obtained by ESI from, any
Governmental Entity in connection with the execution and delivery of this
Agreement by ESI and the consummation by ESI of the transactions contemplated
hereby.
3.3.10 ESI SEC Reports. ESI has heretofore furnished Dynamotion with
complete copies of all registration statements, reports, and proxy statements,
including amendments thereto, filed with SEC since May 31, 1993 and before the
date of this Agreement (collectively, the "ESI SEC Reports"). ESI has timely
filed with the SEC all registration statements, reports, proxy statements, and
other filings required to be made by it under applicable laws and regulations.
Each of the ESI SEC Reports, at the time filed or at the time of its
effectiveness, if later, (a) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (b) complied in
all respects with the applicable requirements of the Securities Exchange Act of
50
1934, as amended, the Securities Act of 1933, as amended, and the applicable
rules and regulations of the SEC thereunder. Since November 30, 1996, there has
been no material adverse change in the business, results of operations,
financial condition, properties, or assets of ESI.
3.3.11 Litigation. Except as set forth in the ESI SEC Reports, no
material litigation, proceeding, or governmental investigation is pending or,
to the knowledge of ESI, threatened against or relating to ESI, its officers or
directors in their capacities as such or any of its subsidiaries, or their
respective properties or businesses.
3.3.12 No Adverse Consequences. Neither the execution and delivery of
this Agreement by ESI nor the consummation of the transactions contemplated by
this Agreement will (a) result in the creation or imposition of any lien,
charge, encumbrance or restriction on any of the assets or properties of ESI or
any subsidiary of ESI, (b) violate any provision of the Articles of
Incorporation or Bylaws of ESI or any subsidiary of ESI, (c) violate any
statute, judgment, order, injunction, decree, rule, regulation, or ruling of
any Governmental Entity applicable to ESI or any subsidiary of ESI, or (d)
either alone or with the giving of notice or the passage of time or both,
conflict with, constitute grounds for termination of, accelerate the
performance required by, accelerate the maturity of any indebtedness or
obligation under, result in the breach of the terms, conditions, or provisions
of, or constitute a default under any mortgage, deed of trust, indenture, note,
bond, lease, license, permit, or other agreement, instrument or obligation to
which either ESI or any subsidiary of ESI is a party or by which any of them is
bound.
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3.3.13 Not Investment Companies. Neither ESI nor Merger Corp. is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code
3.3.14 Proxy Statement/Prospectus. The information regarding ESI or
Merger Corp. contained in the Proxy Statement/Prospectus will be correct in all
material respects and will not omit any material fact required to be stated
therein or necessary in order to make the statement therein not misleading;
provided, however, that no representation or warranty is made hereby with
respect to information contained in such Proxy Statement/Prospectus that is
furnished in writing by Dynamotion or any Key Shareholder (or their respective
representatives) expressly for use in such Proxy Statement/Prospectus or
information relating to Dynamotion or any Key Shareholder that is reviewed by
Dynamotion with the knowledge that it will be so used and without objecting to
such use. ESI will promptly inform Dynamotion of the happening of any event
before the Effective Time that would render the information regarding ESI or
Merger Corp. incorrect in any material respect or require the amendment of the
Proxy Statement/ Prospectus.
3.3.15 Brokers and Finders. Neither ESI nor any of its subsidiaries
has incurred any liability for any brokerage or investment banking fees,
commissions or finders' fees in connection with the Merger.
3.4 Representations and Warranties Relating to Merger Corp. ESI and Merger
Corp. hereby represent and warrant to Dynamotion that:
3.4.1 Organization and Status. Merger Corp. is a corporation duly
organized and validly existing under the laws of the State of New York. Merger
Corp. does not own any
52
properties (other than the initial cash subscription for shares) nor has it
commenced any business or operations.
3.4.2 Capitalization. Merger Corp. has an authorized capital stock
consisting of 100 shares of Common Stock, of which 100 shares were issued and
outstanding on the date of this Agreement. All of the issued and outstanding
shares of capital stock of Merger Corp. are owned by ESI.
3.4.3 Corporate Authority. Merger Corp. has the corporate power and
authority and has taken all corporate action necessary to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
Agreement has been duly and validly authorized by the Board of Directors and
sole shareholder of Merger Corp., duly and validly executed and delivered by
Merger Corp. and constitutes the valid and binding obligation of Merger Corp.,
enforceable in accordance with its terms, except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, or similar
laws affecting the enforcement of creditors' rights generally and except that
the availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought.
3.4.4 Governmental Filings. Other than the filing of the Certificate
of Merger contemplated by Article I, no notices, reports, or other filings are
required to be made by Merger Corp. with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by Merger Corp.
from, any Governmental Entity in connection with the execution and delivery of
this Agreement by Merger Corp. and the consummation by Merger Corp. of the
transactions contemplated hereby.
53
3.4.5 Litigation. No litigation, proceeding or governmental
investigation is pending or, to the knowledge of ESI or Merger Corp.,
threatened against or relating to Merger Corp. or its officers or directors in
their capacities as such.
3.4.6 No Operations. Merger Corp. has not conducted active operations
and has no assets or liabilities other than in accordance with this Agreement.
3.4.7 No Change of Control. Merger Corp. has no plan or intent to
issue additional shares of its stock following the Merger that would result in
ESI losing control of Merger Corp. within the meaning of Section 368(c) of the
Code.
3.4.8 Continuation of Dynamotion's Business. Merger Corp. intends to
continue the historic business of Dynamotion or use a significant portion of
Dynamotion's business assets in a business following the Merger.
ARTICLE IV
COVENANTS
4.1 Mutual Covenants.
4.1.1 Consents and Approvals. Each of Dynamotion and ESI will use all
reasonable efforts to secure, and ESI will cause Merger Corp. to use all
reasonable efforts to secure, all consents, approvals, licenses, or permits
that may be required in connection with the Merger, and each will cooperate
with the other to secure all such consents, approvals, licenses, or permits in
forms reasonably satisfactory to Dynamotion and ESI.
4.1.2 Reasonable Efforts. Subject to the terms of this Agreement,
each of Dynamotion and ESI will use all reasonable efforts, and ESI will cause
Merger Corp. to use all
54
reasonable efforts, to effectuate the transactions contemplated hereby and to
cause the fulfillment of the conditions to their respective obligations under
this Agreement.
4.1.3 Publicity. Except as required by law or applicable Nasdaq or
stock exchange rules, no party will issue any press releases or otherwise make
any public statements with respect to the transactions contemplated hereby
without the prior written consent of ESI and Dynamotion, in each case not to be
unreasonably withheld.
4.1.4 Confidentiality. The provisions of the Confidentiality
Agreement dated December 4, 1996 between Dynamotion and ESI (the
"Confidentiality Agreement") will apply to all "Confidential Information" (as
defined in the Confidentiality Agreement) obtained by any party pursuant to
this Agreement.
4.2 Covenants of Dynamotion.
4.2.1 Conduct of Business. From the execution of this Agreement until
the Effective Time, Dynamotion will carry on its business in the ordinary and
usual manner and will use all reasonable efforts to maintain its existing
relationships with suppliers, customers, employees, and business associates,
and will not, except as set forth on Schedule 4.2.1 or as specifically
permitted by this Agreement, without the prior written consent of ESI (which
consent will not unreasonably be withheld):
(a) amend its Certificate of Incorporation or Bylaws except as
provided in Section 4.2.6 in connection with the Conversion Proposal;
(b) enter into any new agreements with, or amend any plans or
arrangements with respect to an increase in compensation or benefits payable
to, its officers or employees, or declare, contribute, or pay any discretionary
amount relating to compensation,
55
deferred compensation, or benefits payable to its officers or employees,
including without limitation bonus, profit sharing, incentive, or ERISA Plan
contributions;
(c) split, combine, or reclassify any of the outstanding shares
of its capital stock or otherwise change its authorized capitalization;
(d) declare, set aside, or pay any dividends payable in cash,
stock or property with respect to shares of its capital stock;
(e) issue, sell, create, pledge, dispose of, or encumber any
additional shares of its capital stock of any class, or any securities
convertible into or exchangeable for, or any options, warrants, calls, stock
appreciation or similar rights, or other commitments or rights of any kind with
respect to, any shares of its capital stock of any class or any phantom stock
other than pursuant to: (i) the exercise of Options, (ii) the exercise of
outstanding Z Warrants, (iii) the conversion of outstanding Class A Stock, (iv)
the conversion of outstanding Class B Stock; (v) the exercise of the Class B
Warrants, and/or (vi) the exercise of the Underwriters' Warrants, in each case
before the Effective Time;
(f) redeem, purchase, or otherwise acquire any shares of its
capital stock, merge into or consolidate with any other corporation, permit any
other corporation to merge into or consolidate with it, liquidate, sell, or
dispose of any of its assets (other than inventory sold in the ordinary course
of business), or close any plant or business operation;
(g) except for short-term indebtedness and indebtedness incurred
pursuant to Dynamotion's revolving credit agreement and renewals, replacements,
and amendments thereof not in excess of the current maximum credit limit under
such credit
56
agreement incurred in the ordinary course of business, incur, assume, or
guarantee any indebtedness, or modify or repay any existing indebtedness;
(h) enter into any transaction, make any commitment (whether or
not subject to the approval of the Board of Directors of Dynamotion) or modify
any Contracts, except as otherwise contemplated or permitted by this Agreement
or in the ordinary course of business not exceeding 25,000 singly, or take or
omit to take any action that is reasonably likely to have a material adverse
effect on the business, properties, financial condition, or results of
operations of Dynamotion;
(i) transfer, lease, license, guarantee, sell, mortgage, pledge,
or dispose of any property or assets (including without limitation any
intellectual property), encumber any property or assets, or incur or modify any
liability, other than the sale of inventory in the ordinary course of business
or liabilities incurred in the ordinary course of business and less than
$25,000 singly;
(j) authorize capital expenditures other than in the ordinary
course of business, form any subsidiary, or make any acquisition of, or
investment in, assets or stock of any other person or entity;
(k) make any tax election;
(l) permit any insurance policy naming it as a beneficiary or a
loss payable payee to be canceled, terminated, or renewed;
(m) change its method of accounting as in effect at December 31,
1995, except as required by changes in generally accepted accounting principles
as concurred with by Dynamotion's independent auditors, or change its fiscal
year; or
57
(n) authorize or enter into an agreement to do any of the
actions referred to in paragraphs (a) through (m) above.
4.2.2 Acquisition Proposals. Unless and until this Agreement has been
terminated pursuant to Section 7.1 or Section 7.2, Dynamotion will not
directly, or indirectly through any officer, director, agent, employee, or
representative, (a) encourage, initiate, or solicit, on or after the date
hereof, any inquiries or the submission of any proposals or offers from any
person relating to any merger, consolidation, sale of all or substantially all
of its assets, or similar business transaction involving Dynamotion (each, an
"Acquisition Transaction"); (b) participate in any negotiations regarding,
furnish to any other person any information with respect to, or otherwise
assist or participate in, any attempt by any third party to propose or offer
any Acquisition Transaction; (c) enter into or execute any agreement relating
to an Acquisition Transaction; or (d) make or authorize any public statement,
recommendation, or solicitation in support of any Acquisition Transaction or
any proposal or offer relating to an Acquisition Transaction, in each case
other than with respect to the Merger. Notwithstanding the foregoing, nothing
contained herein will prohibit Dynamotion from taking the actions described
above in connection with an unsolicited third-party proposal or offer of an
Acquisition Transaction if and to the extent that (i) the Board of Directors of
Dynamotion determines in good faith, upon advice of legal counsel, that such
action is required for the directors of Dynamotion to fulfill their fiduciary
duties and obligations under New York law and (ii) before furnishing such
information to or entering into discussions or negotiations with such third
party, Dynamotion provides prompt written notice to ESI of such proposal or
offer and, to the extent not inconsistent with the fiduciary duties of
Dynamotion's officers and directors, provides
58
material information concerning such proposal or offer (including proposed
terms and the identity of the person or entity making such proposal or offer)
and thereafter continues to cooperate with ESI by informing ESI of additional
material facts as they arise and furnishing to ESI any additional information
furnished in connection with such proposal or offer.
4.2.3 Investigations and Customer Visits. Dynamotion will give ESI
and its representatives and agents reasonable access to all its premises,
books, records, agreements, and files and will cause the officers of Dynamotion
to furnish ESI with such financial and operating data and other information in
its possession with respect to its business, customers, and properties as ESI
from time to time reasonably requests. Without limitation of the foregoing,
Dynamotion will permit ESI to conduct an operations review at the plant level
during which ESI will have access to the plant managers, sales and marketing
managers, finance officers, and technology, environmental, and human resource
managers of each Dynamotion operating facility, and will make all reasonable
efforts to arrange for ESI (or its representatives or agents) to visit such
Dynamotion customers as ESI may reasonably request. Any such investigations (a)
will be conducted in such a manner as not to interfere unreasonably with the
operation of Dynamotion's business or the businesses of Dynamotion's customers;
and (b) will not diminish any of the representations and warranties contained
in this Agreement.
4.2.4 Dynamotion Shareholders Meeting. Upon receipt from ESI of a
sufficient number of copies of the Proxy Statement/Prospectus relating to this
Agreement (the "Proxy Statement/Prospectus") in the form declared effective by
the SEC, Dynamotion will immediately cause to be duly called and noticed the
Special Meeting of the holders of Dynamotion Common Stock, Class A Stock, and
Class B Stock entitled to vote on the
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Conversion Proposal and the Merger (all such voting securities, the "Voting
Dynamotion Securities") to be held within 50 days (but not less than 20
business days) after such notice for the purpose of considering and approving
the Conversion Proposal, this Agreement, the Plan of Merger, and the
transactions contemplated hereby and thereby. Subject to the fiduciary duties
of the directors of Dynamotion, Dynamotion will recommend to the shareholders
of Dynamotion the approval of the Conversion Proposal, this Agreement, the Plan
of Merger, and the transactions contemplated hereby and thereby.
4.2.5 Information for Proxy Statement/Prospectus and Registration
Statement. Dynamotion will promptly provide to ESI for inclusion in the Proxy
Statement/Prospectus and in the Registration Statement described in Section
4.3.1, in a form reasonably satisfactory to ESI, such information concerning
the Conversion Proposal, Dynamotion's operations, capitalization, technology,
and securities ownership and such other information as ESI may reasonably
request.
4.2.6 Conversion, Exercise, Redemption, or Termination of Dynamotion
Common Stock Equivalent Securities. Dynamotion will use all reasonable efforts
to cause all of the outstanding Dynamotion Common Stock Equivalent Securities
(other than the Options and the Convertible Debt) to be converted into or
exercised for shares of Dynamotion Common Stock or redeemed or terminated
before the Effective Time, including without limitation: (a) submitting in the
Proxy Statement/Prospectus a proposal to amend Dynamotion's Certificate of
Incorporation to modify the terms of the Class A Stock and Class B Stock so as
to provide for their automatic conversion into shares of Dynamotion Common
Stock immediately before the Effective Time, in accordance with the form of
Certificate of Amendment attached as Exhibit
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I (such proposal, the "Conversion Proposal"); (b) causing the proposal,
shareholder approval, and implementation of the transactions contemplated by
the Conversion Proposal: (i) to comply with its Certificate of Incorporation
and Bylaws, (ii) to comply with applicable laws and regulations (including
without limitation state and federal securities laws) or to satisfy the
requirements for exemption therefrom, and (iii) not to violate the terms of any
agreement or obligation by which Dynamotion is bound; (c) on the first business
day following shareholder approval of the Conversion Proposal delivering for
filing by the Department of State of the State of New York a Certificate of
Amendment to Dynamotion's Certificate of Incorporation substantially in the
form attached as Exhibit I (and, if necessary, using all reasonable efforts to
cause the Department of State of the State of New York to file such Certificate
of Amendment); (d) using all reasonable efforts to cause, within five business
days following the execution of this Agreement, the underwriters for the public
offering of the Class A Stock (the "Underwriters") to consent in writing to the
redemption of the Z Warrants in the manner described in this Agreement; and (e)
delivering a notice of redemption to the warrant agent for the Z Warrants (the
"Warrant Agent") and using all reasonable efforts to cause the Warrant Agent to
deliver a notice of redemption to all holders of all Z Warrants and taking such
other steps in Dynamotion's power as may be necessary or desirable to permit
all outstanding Z Warrants to be redeemed immediately after the effectiveness
of the transactions contemplated by the Conversion Proposal and immediately
before the Effective Time.
4.2.7 Compliance With Convertible Debt Obligations. Between the
execution of this Agreement and the Effective Time, Dynamotion will not default
under the terms of the Convertible Debt nor take any action or omit to take any
action that would cause the Convertible
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Debt to become entitled to convert into Dynamotion Common Stock except where
the holder of the Convertible Debt has signed a written agreement not to
convert until at least 10 business days after the Effective Time or until this
Agreement has been terminated, whichever occurs first.
4.2.8 Consents. Dynamotion will use all reasonable efforts to obtain,
on or before the Closing Date and without modification of the rights or
obligations of Dynamotion, all necessary consents of Governmental Entities with
respect to the Permits listed on Schedule 3.1.21(b) and all necessary consents
with respect to the Contracts as listed on Schedule 3.1.19.
4.3 Covenants of ESI.
4.3.1 Registration Statement. ESI, with Dynamotion's cooperation,
will promptly file with the SEC a Registration Statement on Form S-4 (including
the Proxy Statement/Prospectus) for the purposes of (a) registering the sale of
the shares of ESI Common Stock that the holders of shares of Dynamotion Common
Stock will be entitled to receive pursuant to Section 1.3 of this Agreement,
and (b) soliciting Dynamotion shareholder approval of the Conversion Proposal
and the Merger, and ESI, with Dynamotion's cooperation, will use all reasonable
efforts to cause such Registration Statement to be declared effective as
promptly as practicable.
4.3.2 Listing of ESI Common Stock. Before the Effective Time, ESI
will list the shares of ESI Common Stock that the holders of shares of
Dynamotion Common Stock will be entitled to receive pursuant to the provisions
of this Agreement on the Nasdaq National Market System.
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4.3.3 Issuance of Certificates. After the Effective Time, ESI will
issue and deliver, or will cause to be issued and delivered, in accordance with
the provisions of this Agreement, stock certificates representing the number of
shares of ESI Common Stock to be issued in the Merger.
4.3.4 Registration and Reservation of Option Shares. ESI will cause
the shares of ESI Common Stock issuable upon exercise of the Options in
accordance with Section 1.3.3 to be issued pursuant to a then-effective
Registration Statement or otherwise to be registered after the Closing Date on
a Registration Statement on Form S-8 to be filed no later than 30 days after
the Closing Date. In addition, from and after the Effective Time, ESI will
reserve and make available and will keep reserved and available for so long as
any Option remains outstanding such number of shares of ESI Common Stock as are
issuable upon the exercise of all outstanding Options.
4.3.5 Indemnification Provisions of Merger Corp.'s Certificate. ESI
will cause the Certificate of Incorporation of Merger Corp. (the "Merger Corp.
Certificate") to include provisions for the indemnification of Dynamotion's
current and former officers and directors to the fullest extent permitted by
the NYBCL, and will not, for a period of five years following the Effective
Time, cause the removal of any such provision in the Merger Corp. Certificate
or permit any such provision to be materially and adversely modified or
amended.
4.4 Covenants of Merger Corp. Merger Corp, except as is contemplated by
this Agreement, will not, before the Effective Time, (a) engage in any business
activities, (b) liquidate or merge into, or consolidate with any other
corporation, (c) permit any other corporation to merge into or consolidate with
it, (d) increase its authorized capital stock, or
63
(e) issue options, rights, or warrants to purchase any of its capital stock. In
addition, for a period of five years following the Effective Time, Merger Corp.
will not amend the Merger Corp. Certificate to remove any provision relating to
indemnification of Dynamotion's current or former officers and directors or
materially and adversely modify or amend any such provision.
ARTICLE V
CONDITIONS
5.1 Conditions to the Obligations of All Parties. The obligations of
Dynamotion, ESI and Merger Corp. to consummate the transactions contemplated by
this Agreement are subject to the fulfillment at or before the Closing of each
of the following conditions:
5.1.1 Regulatory Approvals. The parties will have made all filings
with and received all approvals of Governmental Entities of competent
jurisdiction necessary to consummate the Merger, and each of such approvals
will be in full force and effect at the Closing and not subject to any
condition that requires the taking or refraining from taking of any action that
would have a material adverse effect on Dynamotion or on ESI or its
subsidiaries.
5.1.2 Litigation. There will not be in effect any final order,
decree, or injunction of any Governmental Entity of competent jurisdiction
restraining, enjoining, or prohibiting the consummation of the transactions
contemplated by this Agreement (each party agreeing to use its best efforts,
including appeals to higher courts, to have any non-final, appealable order,
decree, or injunction of such import set aside or lifted), and there will have
been no action taken, and no statute, rule, or regulation enacted, by any state
or federal
64
government or Governmental Entity in the United States that would prevent the
consummation of the Merger.
5.1.3 Registration of Securities; Listing. The shares of ESI Common
Stock to be issued pursuant to this Agreement will have been registered under
the Securities Act of 1933, as amended, and under the securities laws of such
states as counsel for ESI deems necessary or exemptions from such state
registration or qualification will have been determined by such counsel to be
available, and will have been listed on the Nasdaq National Market System.
5.2 Conditions to the Obligations of Dynamotion and the Key Shareholders.
The obligations of Dynamotion and the Key Shareholders to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at
or before the Closing of each of the following conditions:
5.2.1 Representations, Warranties and Covenants. The representations
and warranties of ESI and Merger Corp. contained in this Agreement will be
correct (a) at the date of this Agreement and (b) as of the Closing, with the
same effect as though made on and as of such date, except for (i)
representations and warranties made as of a specific date, which
representations and warranties need only be correct as of such date and (ii)
changes specifically contemplated by this Agreement, and ESI and Merger Corp.
will have performed all of their respective covenants and obligations hereunder
to be performed as of the Closing. Dynamotion will have received at the Closing
certificates to the foregoing effect, dated the Closing Date, and executed on
behalf of ESI by an officer of ESI and on behalf of Merger Corp. by an officer
of Merger Corp. For purposes of affirming the accuracy of the representations
and warranties of
65
ESI made as of the Closing, the term "ESI SEC Reports" will be deemed to
include all registration statements, reports and proxy statements, including
all amendments thereto, filed by ESI with the SEC after the date of this
Agreement and before Closing.
5.2.2 No Material Adverse Change. Since November 30, 1996 there will
have been no material adverse change, or discovery of a condition or occurrence
of an event that has resulted or reasonably can be expected to result in a
material adverse change, in the business, properties, financial condition, or
results of operations of ESI and its subsidiaries taken as a whole.
5.2.3 Opinion of Counsel. Dynamotion will have received from Stoel
Rives LLP, counsel to ESI, an opinion dated the Closing Date with respect to
the matters described in Exhibit J.
5.2.4 Dynamotion Shareholder Approval, Etc. In accordance with the
applicable provisions of the NYBCL and the Certificate of Incorporation and
Bylaws of Dynamotion, the requisite percentages of the Voting Dynamotion
Securities will have approved the Conversion Proposal, this Agreement, the Plan
of Merger, and the transactions contemplated hereby and thereby, and amendments
of Dynamotion's Certificate of Incorporation will have been filed by the
Department of State of the State of New York effecting the Conversion Proposal
on or before the day immediately preceding the Closing Date; provided, however,
that Dynamotion may rely on this condition to avoid its obligation to
consummate the Merger and the other transactions contemplated by this Agreement
only if Dynamotion has used its best efforts to satisfy all of the conditions
contained in this Section 5.2.4.
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5.2.5 Termination of Underwriters' Warrants. The Underwriters'
Warrants will have been terminated; provided, however, that Dynamotion may rely
on this condition to avoid its obligation to consummate the Merger and the
other transactions contemplated by this Agreement only if Dynamotion has used
its best efforts to cause the termination of the Underwriter' Warrants.
5.3 Conditions to the Obligations of ESI and Merger Corp. The obligations
of ESI and Merger Corp. to consummate the transactions contemplated by this
Agreement are subject to the fulfillment at or before the Closing of each of
the following conditions:
5.3.1 Representations, Warranties and Covenants. The representations
and warranties of Dynamotion and the Key Shareholders contained in this
Agreement will be correct (a) at the date of this Agreement and (b) as of the
Closing, with the same effect as though made on and as of such date, except for
(i) representations and warranties made as of a specific date which
representations and warranties need only be correct as of such date and (ii)
changes specifically contemplated by this Agreement, and each of Dynamotion and
each Key Shareholder will have performed in all material respects all of its,
his, or her respective covenants and obligations hereunder to be performed as
of the Closing. ESI will have received at the Closing a certificate to the
foregoing effect, dated the Closing Date and executed on behalf of Dynamotion
by an officer of Dynamotion with respect to Dynamotion's representations,
warranties, and covenants, and certificates dated the Closing Date and executed
by or on behalf of each of the Key Shareholders concerning the Key
Shareholders' representations, warranties, and covenants. For purposes of
affirming the accuracy of the representations and warranties of Dynamotion made
as of the Closing, the term "Dynamotion SEC Reports" will be deemed to
67
include all registration statements, reports and proxy statements, including
all amendments thereto, filed by Dynamotion with the SEC after the date of this
Agreement and before Closing.
5.3.2 Opinions of Counsel. ESI will have received from Paul,
Hastings, Xxxxxxxx & Xxxxxx LLP, counsel to Dynamotion, an opinion dated the
Closing Date with respect to the matters described in Exhibit K with respect to
Dynamotion and the Key Shareholder specified in Exhibit K and from Xxxxxxxxxxx
& Xxxxxxxx LLP, counsel to Dynamotion Investment L.L.C., an opinion dated the
Closing Date with respect to the matters described in Exhibit L with respect to
Dynamotion Investment L.L.C.
5.3.3 Consents and Approvals. All nongovernmental consents and
approvals required to be obtained by Dynamotion for consummation of the Merger
will have been obtained, other than those that, if not obtained, would not,
either singly or in the aggregate, have a material adverse effect on
Dynamotion.
5.3.4 No Material Adverse Change. Since September 30, 1996 there will
have been no material adverse change, or discovery of a condition or occurrence
of an event that has resulted or reasonably can be expected to result in a
material adverse change, in the business, properties, financial condition, or
results of operations of Dynamotion.
5.3.5 Other Agreements. Dynamotion will have caused each of its
employees located in California to sign a California ESI Confidentiality
Agreement, and each other employee of Dynamotion to sign a Standard ESI
Confidentiality Agreement, and will have delivered such executed agreements to
ESI; the Escrow Agreement and related stock powers will have been executed and
delivered by the parties thereto other than ESI or Merger Corp; the
Noncompetition Agreement will have been executed and delivered by each party
listed on
68
Schedule 2.3; the Standstill Agreement will have been executed and delivered by
the parties thereto other than ESI or Merger Corp; an Affiliate Representation
Letter will have been executed and delivered by each party listed on Schedule
2.5; all Class B Warrants will have been exercised before the record date for
the Special Meeting; the Class B Additional Warrant Agreement will have been
terminated; and all Underwriters' Warrants will have been terminated.
5.3.6 Related Party and Other Agreements. All agreements or
arrangements described on Schedule 3.1.23 (Related Parties) and any other
agreements or arrangements listed on Schedule 5.3.6 will have been terminated
or amended to the reasonable satisfaction of ESI, if so requested by ESI.
5.3.7 Updated Financial and Other Information. ESI will have received
(a) the unaudited balance sheet of Dynamotion and the related statements of
operations, shareholders' equity, and cash flows for the fiscal year ended
December 31, 1996 (together, the "Updated Financial Statements"), and (b)
schedules of accounts and notes receivable (including an aging analysis),
liability accounts, inventories (organized by category), and backlog (by
customer and product), in each case as of immediately before the Closing Date
and accompanied by an officer's certificate as to accuracy and completeness of
such statement or schedule, and the Updated Financial Statements will not
indicate that there has been any material adverse change in the financial
condition or operating results of Dynamotion since September 30, 1996.
5.3.8 Environmental Report. ESI will have received a Phase I
environmental audit report with respect to the Leased Real Property, prepared
by an environmental audit firm selected by ESI, the results of which audit are
satisfactory to ESI in its sole discretion.
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5.3.9 Dynamotion Shareholder Approval, Etc. In accordance with
applicable provisions of the NYBCL, the Certificate of Incorporation and Bylaws
of Dynamotion, and any applicable state or federal securities laws, the
requisite percentages of the Voting Dynamotion Securities will have approved
the Conversion Proposal, this Agreement, the Plan of Merger, and the
transactions contemplated hereby and thereby, and amendments to Dynamotion's
Certificate of Incorporation will have been filed by the Department of State of
the State of New York effecting the Conversion Proposal on or before the day
immediately preceding the Closing Date. ESI and Merger Corp. will have received
a certificate dated the Closing Date and executed by an authorized officer of
Dynamotion stating that this Agreement and the transactions contemplated by it
have been duly and validly approved by the shareholders of Dynamotion.
5.3.10 Dynamotion Dissenters. Not more than 20 percent of the Voting
Dynamotion Securities will have qualified as dissenting shares pursuant to the
NYBCL.
5.3.11 Conditions Relating to Z Warrants and Convertible Debt. The Z
Warrants will have been redeemed immediately following the effectiveness of the
conversion contemplated by the Conversion Proposal and immediately before the
Effective Time. There will be no default by Dynamotion under the terms of the
Convertible Debt, and the holders of the Convertible Debt will not have become
entitled to convert the Convertible Debt into shares of Dynamotion Common Stock
or such holders will have agreed in writing to waive such right to convert
until at least 10 business days after the Effective Time or until this
Agreement has been terminated, whichever occurs first.
5.3.12 Xxxxxx Xxxxxxxx LLP Analysis of In-Process Research and
Development. ESI will have received from Xxxxxx Xxxxxxxx LLP a written opinion
that the
70
value of Dynamotion in-process research and development as of the Closing Date
is not less than the amount stated on Schedule 5.3.12.
5.3.13 Consent of Underwriters. The Underwriters will, within five
business days after the execution of this Agreement, have consented in writing
to the redemption of the Z Warrants in the manner described in this Agreement.
5.3.14 Governmental Entity Consents. Dynamotion will have obtained,
without modification of the rights or obligations of Dynamotion under any of
the listed Permits, all necessary consents of Governmental Entities with
respect to the Permits listed on Schedule 3.1.21(b).
5.3.15 Dynamotion Revised Schedules. All schedules to this Agreement
relating to Dynamotion's representations and warranties will have been revised
as necessary as of the Closing Date, and such revised schedules are
satisfactory to ESI in its sole discretion.
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.1 Survival.
6.1.1 Survival of Representations and Warranties. All representations
and warranties of any party contained in this Agreement or in any agreement,
document, or instrument delivered pursuant to or in connection with this
Agreement will survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, but will be extinguished
and be of no further force or effect 18 months after the Effective Time, except
that any claim for which a Claim Notice (as defined in Section 6.5.1) is
delivered pursuant to Section 6.5.1 before the 18-month survival period has
elapsed will survive until the
71
settlement or other final resolution of such claim. No Claim Notice will be
effective if delivered after the time period specified in this Section 6.1.1.
6.1.2 Survival of Article IV Covenants. All of the covenants of any
party contained in Article IV of this Agreement will be extinguished and be of
no further force or effect after the Effective Time, except that Sections
4.1.4, 4.3.3, 4.3.4, 4.3.5, and 4.4 will survive the Effective Time in
accordance with their respective terms.
6.2 Indemnification. (a) From and after the Effective Time and subject to
the limitations of this Article VI, the Key Shareholders will, severally and
not jointly, and only to the extent of the Escrowed Property, indemnify and
hold harmless ESI and Merger Corp. and their respective officers, directors,
and shareholders (collectively, the "Indemnified Parties") from, for, and
against any losses, costs, expenses, damages, and liabilities, including
reasonable attorneys' fees (collectively, "Damages"), incurred by an
Indemnified Party by reason of or arising out of any inaccuracy in any
representation or warranty or the breach of any covenant of Dynamotion made in
this Agreement (after taking into account any revised schedule provided
pursuant to Section 5.3.15); provided, however, that for the purposes of this
Section 6.2, the determination of whether there has been a breach of any of
Dynamotion's representations and warranties contained in (i) Section 3.1.28
will be made without regard to any disclosures contained in Schedule 3.1.28(a)
(except as noted otherwise on such schedule) and (ii) Section 3.1.25 will be
made without regard to any disclosures contained in Schedule 3.1.25.2. (b) From
and after the Effective Time and subject to the limitations of this Article VI,
each Key Shareholder will, severally and not jointly, and only to the extent of
his, her, or its Escrowed Property, indemnify and hold harmless each
Indemnified Party from, for,
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and against any Damages incurred by such Indemnified Party by reason of or
arising out of any inaccuracy in any representation or warranty or the breach
of any covenant of such Key Shareholder made in this Agreement.
6.3 Escrow. On the Closing Date, ESI will, on behalf of each of the Key
Shareholders, deliver to the Escrow Agent an aggregate of $1,500,000 worth of
the shares of ESI Common Stock to be received by the Key Shareholders pursuant
to Section 1.3 (such deposited shares, the "Escrowed Property"). The shares to
be delivered to the Escrow Agent on behalf of each Key Shareholder will be
withheld from the shares of ESI Common Stock otherwise to be received by such
Key Shareholder pursuant to Section 1.3 in the amounts set forth on Schedule
6.3. The Escrowed Property will be deposited with the Escrow Agent pursuant to
the terms of the Escrow Agreement. The escrow and the Escrow Agreement will
terminate and the Escrowed Property will be distributed to the Key Shareholders
at the time and as provided for in the Escrow Agreement.
6.4 Threshold for Indemnity Claims. No indemnification payment obligation
will arise under this Article VI unless and until the aggregate amount of
Damages claimed by all Indemnified Parties under this Article VI exceeds
$275,000 (the "Claim Threshold"); provided, however, that once the Claim
Threshold is exceeded, all Damages of the Indemnified Parties, including the
first $275,000 (in the aggregate) of Damages claimed by the Indemnified Partes,
will be subject to the indemnity provisions of this Article VI.
6.5 Claim Procedure for Indemnification. The obligations and liabilities
of the Key Shareholders in connection with claims for indemnification for
Damages by an Indemnified Party will be subject to the following terms and
conditions:
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6.5.1 Notice. The Indemnified Party must give written notice (a
"Claim Notice") to the Key Shareholder Representatives and the Escrow Agent of
its claim for indemnification as promptly as practicable whenever the
Indemnified Party has determined that there are facts or circumstances that may
entitle the Indemnified Party to indemnification under this Article VI;
provided, however, that the failure to give a timely Claim Notice (so long as
such Claim Notice is within the time period specified in Section 6.1.1) will
not diminish the indemnification obligations hereunder except to the extent
that the delay in giving such Claim Notice materially adversely affects the
ability of the Key Shareholder Representatives to mitigate Damages with respect
to any claim. The Claim Notice must set forth in reasonable detail the basis
for the claim, the nature of the Damages and the amount thereof, to the extent
known.
6.5.2 Response to Third Party Claim. If the Claim Notice states that
a claim has been asserted by a third party against the Indemnified Party (a
"Third Party Claim"), ESI will undertake, conduct, and control, through counsel
of its choosing, the good faith settlement or defense of the Third Party Claim
and the Key Shareholder Representatives will provide such assistance as is
reasonably requested by ESI in connection with such settlement or defense.
6.5.3 Diligent Conduct. If, within five days after receipt by ESI
from the Key Shareholder Representatives of written notice that ESI is not
diligently conducting the defense or attempted settlement of any Third Party
Claim in good faith, ESI does not provide reasonably sufficient evidence to the
Key Shareholder Representatives that ESI is diligently conducting such defense
or attempting such settlement in good faith, the Key Shareholder
Representatives will thereafter have the right to contest, settle or compromise
such Third Party Claim.
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ARTICLE VII
TERMINATION
7.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time before the Effective Time by the mutual
consent of Dynamotion and ESI.
7.2 Termination Under Certain Other Conditions.
7.2.1 Automatic Termination. This Agreement will automatically
terminate without any action by ESI, Dynamotion, Merger Corp., or the Key
Shareholders if the Merger has not become effective on or before June 15, 1997,
provided, however, that automatic termination of this Agreement pursuant to
this Section 7.2.1 will not limit the liability of any party whose breach of
this Agreement has been the cause of, or resulted in, the failure of the Merger
to occur on or before such date.
7.2.2 Termination by ESI or Dynamotion. This Agreement may be
terminated and the Merger may be abandoned at any time before the Effective
Time:
(a) by ESI or Dynamotion if any Governmental Entity of competent
jurisdiction in the United States or any state has issued an order, judgment,
or decree restraining, enjoining, or otherwise prohibiting the Merger and such
order, judgment, or decree has become final and nonappealable;
(b) by ESI or Dynamotion if the requisite approval of the Merger by
the shareholders of Dynamotion has not been obtained by May 31, 1997;
(c) by ESI if the Dynamotion Board of Directors has withdrawn or
modified in a manner adverse to ESI its approval of the Merger, this Agreement
or the transactions
75
contemplated hereby or if Dynamotion or any officer, director, employee, agent,
or representative of Dynamotion takes any action that violates any provision of
Section 4.2.2; or
(d) by Dynamotion if the Dynamotion Board of Directors determines in
good faith, upon advice of legal counsel, that termination of this Agreement is
required for the directors of Dynamotion to fulfill their fiduciary duties and
obligations under New York law.
7.3 Effect of Termination and Abandonment. In the event of termination of
this Agreement and abandonment of the Merger pursuant to this Article VII, this
Agreement immediately will become void and of no effect, except that Sections
4.1.4, 7.4, 8.1, 8.11, and 8.12 will survive the event of termination.
7.4 Termination Fee. Dynamotion agrees to pay ESI (provided that
Dynamotion's termination of this Agreement has not resulted from the failure of
any of the conditions to the obligations of Dynamotion and the Key Shareholders
contained in Section 5.2) by wire transfer, the sum of $1,000,000 (the
"Termination Fee") in immediately available funds if Dynamotion terminates this
Agreement (other than pursuant to Section 7.2.2(a)) and within one year after
termination of this Agreement agrees to an Acquisition Transaction with any
person other than ESI or any of its affiliates and the Acquisition Transaction
results in a change in the beneficial owners of more than fifty percent (50%)
of the voting power of the capital stock of Dynamotion. Dynamotion will pay ESI
the Termination Fee promptly upon Dynamotion's execution of an agreement
relating to any such Acquisition Transaction.
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ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1 Payment of Expenses. Each party will be responsible for the costs and
expenses incurred by it in connection with this Agreement, the Merger, and the
other transactions contemplated by this Agreement, provided that nothing in
this Agreement will limit the right, if any, of a non-breaching party to obtain
damages, including attorneys' fees, incurred as a result of a breach of this
Agreement by another party.
8.2 Entire Agreement. This Agreement, including the schedules and exhibits
hereto, and the Confidentiality Agreement constitute the entire agreement
between the parties hereto and supersede all prior agreements and
understandings, oral and written, among the parties hereto with respect to its
subject matter.
8.3 Assignment. This Agreement is not assignable by any of the parties
hereto without the prior written consent of each of ESI and Dynamotion.
8.4 Binding Effect; No Third Party Benefit. This Agreement will inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns, subject to the restrictions on assignment contained in
Section 8.3. Nothing express or implied in this Agreement is intended or will
be construed to confer upon or give to a person, firm, or corporation other
than the parties hereto any rights or remedies under or by reason of this
Agreement or any transaction contemplated hereby, except for the provisions of
Sections 4.3.5 and 4.4 concerning indemnification of current and former
officers and directors of Dynamotion under the Merger Corp. Certificate.
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8.5 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified, and supplemented at any time before or at the
Closing, whether before or after the vote of the shareholders of Dynamotion, by
written agreement executed and delivered by each of the Key Shareholders and by
the duly authorized officers of Dynamotion, ESI, and Merger Corp.
8.6 Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law; provided, however, that any waiver by a party must be in
writing.
8.7 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts will
together constitute the same agreement.
8.8 Captions. The article, section and paragraph captions used in this
Agreement are for convenience of reference only, do not constitute a part of
this Agreement and will not be deemed to limit or otherwise affect any of the
provisions hereof.
8.9 Subsidiary. When a reference is made in this Agreement to a subsidiary
of a party, the term "subsidiary" means any corporation or other organization,
whether incorporated or unincorporated, of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
subsidiaries, or by such party and one or more of its subsidiaries.
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8.10 Notices. All notices, requests, demands, waivers, and other
communications required or permitted to be given under this Agreement must be
in writing and will be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, return receipt
requested, or sent by telex, telegram, or facsimile (in each case with evidence
of confirmed transmission) as follows:
If to Dynamotion, to it at:
0000 X. Xxxxxxx Xxxxxx
Xxxxx Xxx, XX 00000
Attention: President and Chief
Executive Officer
Fax: (000) 000-0000
with copies to:
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx Xxxxx, 00xx Xxxxx
Xxxxx Xxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxxx
Fax: (000) 000-0000
If to ESI or Merger Corp., to it at:
00000 XX Xxxxxxx Xxxx Xxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: President and Chief
Executive Officer
Fax: (000) 000-0000
with copies to:
Stoel Rives LLP
000 XX Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
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If to the Key Shareholders, to the "Key Shareholder Representatives," who
are listed on Schedule 8.10, at the address specified for each Key Shareholder
Representative on Schedule 8.10. Each Key Shareholder hereby appoints each of
the Key Shareholder Representatives listed on Schedule 8.10 as his, her, or its
agent for the purpose of receiving notices and other communications relating to
this Agreement and the Escrow Agreement.
Any party may change the person or address for notices under this
Agreement by notifying all other parties in writing of such change. All
notices, requests, demands, waivers, and communications relating to this
Agreement will be deemed to have been received on the date of delivery or on
the third business day after mailing in accordance with this Section 8.10.
8.11 Choice of Law. This Agreement will be governed by and construed in
accordance with the laws of the state of Oregon, exclusive of choice of law
rules, except that the provisions of this Agreement relating to the Merger will
also be governed by the merger provisions of the NYBCL.
8.12 Attorneys' Fees. If suit or action is filed by any party to enforce
the provisions of this Agreement or otherwise with respect to the subject
matter of this Agreement, the prevailing party will be entitled to recover
reasonable attorneys' fees as fixed by final order of the trial court and, if
any appeal is taken from the decision of the trial court, reasonable attorneys'
fees as fixed by final order of the appellate court.
8.13 Separability. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
80
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, such provision will be
interpreted to be only so broad as is enforceable.
8.14 Reliance on Dynamotion and Key Shareholder Representations and
Warranties. Dynamotion and each Key Shareholder recognizes and agrees that,
notwithstanding any investigation by ESI, ESI is relying upon the
representations and warranties made by Dynamotion in this Agreement and upon
the representations and warranties made by the Key Shareholders in this
Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first
hereinabove written.
KEY SHAREHOLDERS ELECTRO SCIENTIFIC INDUSTRIES, INC.
DYNAMOTION INVESTMENT L.L.C.
By: XXXXX X. XXXXXX
--------------------------------------
By: XXXXX X. XXXXXXXXX Name: Xxxxx X. Xxxxxx
------------------------------- Title: Senior Vice President and
Name: Xxxxx X. Xxxxxxxxx Chief Financial Officer
Title: Manager
DYNAMOTION/ATI CORP.
XXXXXXXX XXXXXXXXX
---------------------------------- By: XXX X. XXXXXX
Xxxxxxxx Xxxxxxxxx -------------------------------------
Name: Xxx X. Xxxxxx
Title: President and Chief Executive
Officer
ROYAL MILES DYNAMOTION MERGER CORP.
By: XXXX XXXXX By: XXXXX X. XXXXXX
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Name: Xxxx Xxxxx Name: Xxxxx X. Xxxxxx
Title: US Rep for Royal Title: Chief Financial Officer
Miles Ltd.
81
XXXXXX X. XXXXXX
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Xxxxxx X. Xxxxxx
XXXXXXX XXXXXX
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Xxxxxxx Xxxxxx
XXXXXX XXXXXXX
----------------------------------
Xxxxxx Xxxxxxx
XXXXXXX X. XXXXXXX, TRUSTEE
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Xxxxxxx X. Xxxxxxx, Trustee
XXX XXXXXX
----------------------------------
Xxx Xxxxxx
XXXXX X. XXXXXX
----------------------------------
Xxxxx X. Xxxxxx
XXXXXXX XXXX
----------------------------------
Xxxxxxx Xxxx
XXXXX XXXXXXX
----------------------------------
Xxxxx Xxxxxxx
XXXXXX XXXXX
----------------------------------
Xxxxxx Xxxxx
XXXXXX XXXXXXX
----------------------------------
Xxxxxx Xxxxxxx
XXXXXXX X. XXXX
----------------------------------
Xxxxxxx X. Xxxx
82
XXXXX X. XXXXXX
----------------------------------
Xxxxx X. Xxxxxx
XXXXX XXXXXX
----------------------------------
Xxxxx Xxxxxx
XXXXXXXX XXX
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Xxxxxxxx Xxx
XXXX X. XXXXXX
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Xxxx X. Xxxxxx
XXXXX X. XXXXX/XXXXXX
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Xxxxx X. Xxxxx/Xxxxxx
83
