EXHIBIT I
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
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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
vii
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.
viii
SCHEDULES
[COMMENT1]
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
ix
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
x
INDEX OF TERMS
[COMMENT2]
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. 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,
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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");
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(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
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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.
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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
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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
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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.
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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
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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.
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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.
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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") substantially 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.
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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,
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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.
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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,
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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
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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
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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
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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
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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
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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
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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
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(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
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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
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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
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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)
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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
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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;
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(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
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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
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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
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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
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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.
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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
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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
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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
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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,
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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
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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
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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.
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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 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.
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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
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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.
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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
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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
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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,
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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.
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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
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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
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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.
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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
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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,
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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
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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
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(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
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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
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(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
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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
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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
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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
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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
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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
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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
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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
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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
Name: Xxxxx X. Xxxxxx
By: XXXXX X. XXXXXXXXX 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, LTD. DYNAMOTION MERGER CORP.
By: XXXX XXXXX By: XXXXX X. XXXXXX
Name: Xxxx Xxxxx Name: Xxxxx X. Xxxxxx
Title:US Rep. for Royal Title: Chief Financial Officer
Miles, Ltd.
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XXXXXX X. XXXXXX
Xxxxxx X. Xxxxxx
XXXXXXX XXXXXX
Xxxxxxx Xxxxxx
XXXXXX XXXXXXX
Xxxxxx Xxxxxxx
XXXXXXX X. XXXXXXX, TRUSTEE
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
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XXXXX X. XXXXXX
Xxxxx X. Xxxxxx
XXXXX XXXXXX
Xxxxx Xxxxxx
XXXXXXXX XXX
Xxxxxxxx Xxx
XXXX X. XXXXXX
Xxxx X. Xxxxxx
XXXXX X. XXXXX/XXXXXX
Xxxxx X. Xxxxx/Xxxxxx
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