AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered into
this 14th day of April, 2004 by and among (a) I.Q. Biometrix, Inc., a Delaware
corporation ("IQB"), and Wherify Acquisition, Inc., a newly-formed wholly-owned
subsidiary of IQB established under the laws of the state of California (the
"Merger Sub"), on the one hand, and (b) Wherify Wireless, Inc., a California
corporation ("Wherify"), on the other hand (each a "Party" and collectively, the
"Parties").
RECITALS:
WHEREAS, the Board of Directors of IQB, Wherify and Merger Sub deem it
advisable and in the best interests of each corporation and its stockholders or
shareholders that IQB combine with Wherify in order to advance the long-term
business interests of IQB and Wherify;
WHEREAS, the business combination of IQB and Wherify shall be effected
through a merger (the "Merger") of the Merger Sub with and into Wherify in
accordance with the terms of this Agreement, and the California Corporations
Code (the "CCC"), as a result of which Wherify shall become a wholly owned
subsidiary of IQB;
WHEREAS, concurrently with the execution and delivery of this Agreement or
within 48 hours thereafter, and as a condition and inducement to IQB's
willingness to enter into this Agreement, the shareholders of Wherify listed on
Schedule A have entered into Shareholder Agreements, dated as of the date of
this Agreement, in the form attached hereto as Exhibit A (the "Wherify
Shareholder Agreements"), pursuant to which such shareholders have, among other
things, agreed to give IQB a proxy to vote all of the shares of capital stock of
Wherify that such shareholders own in connection with the Merger;
WHEREAS, concurrently with the execution and delivery of this Agreement or
within 48 hours thereafter, and as a condition and inducement to Wherify's
willingness to enter into this Agreement, the stockholders of IQB listed on
Schedule B have entered into Stockholder Agreements, dated as of the date of
this Agreement, in the form attached hereto as Exhibit B (the "IQB Stockholder
Agreements"), pursuant to which such stockholders have, among other things,
agreed to give Wherify a proxy to vote all of the shares of capital stock of IQB
that such shareholders own in connection with the Merger; and;
WHEREAS, for United States federal income tax purposes, it is intended
that the Merger shall qualify as a reorganization within the meaning of Section
368(a) of the United States Internal Revenue Code of 1986, as amended (the
"Code").
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties set forth herein and other valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
"Acquisition Proposal" means (i) any inquiry, proposal or offer for (A)
the dissolution or liquidation of IQB or any of its Subsidiaries or (B) a
merger, consolidation, tender offer, recapitalization, share exchange or other
business combination involving 25% or more of IQB's equity securities, (ii) any
proposal for the issuance by IQB of over 25% of its equity securities or (iii)
any proposal or offer to acquire in any manner, directly or indirectly, over 25%
of the equity securities or consolidated total assets of IQB, in each case other
than the Merger contemplated by this Agreement.
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"Action" shall mean any action, order, writ, injunction, judgment or
decree outstanding or suit, litigation, proceeding, arbitration, audit or
investigation by or before any Governmental Entity.
"Affiliate" shall mean, with respect to any Person, any other Person that
directly, or through one or more intermediaries, controls or is controlled by or
is under common control with such Person.
"Ancillary Agreements" shall mean the Certificate of Merger, each Wherify
Shareholder Agreement, each IQB Stockholder Agreement, the Lock-up Agreement,
the officers' certificates delivered pursuant to Sections 12.2(a) and 12.3(a),
and each employment agreement provided for in Section 10.3.
"Assets" shall mean, with respect to any Person, the right, title and
interest of such Person, in their properties, assets and rights of any kind,
whether tangible or intangible, real or personal, including without limitation
the right, title and interest in the following:
(a) all Contracts;
(b) all Fixtures and Equipment;
(c) all Facilities;
(d) all inventory;
(e) all Books and Records;
(f) all Intellectual Property;
(g) all Permits;
(h) all return and other rights under or pursuant to all warranties,
representations and guarantees made by suppliers and other third
parties in connection with the Assets or services furnished to such
Person;
(i) all cash, accounts receivable, deposits and prepaid expenses; and
(j) all goodwill.
"Benefit Arrangement" shall mean any employment, consulting or severance
arrangement or policy and each plan, arrangement, program, agreement or
commitment providing for insurance coverage, workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, life, health, disability or accident benefits or for deferred
compensation, profit-sharing bonuses, stock options, stock appreciation rights,
stock purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (a) is not a Welfare Plan, Pension
Plan or Multiemployer Plan, (b) is or has been entered into, maintained,
contributed to or required to be contributed to by a Party or an ERISA Affiliate
of a Party or under which a Party or any ERISA Affiliate of a Party may incur
any liability or obligation, and (c) covers any employee, former employee,
consultant or director of a Party or any ERISA Affiliate of a Party (with
respect to their relationship with such entities).
"Books and Records" shall mean, with respect to any Person, (a) all
product, business and marketing plans, sales and promotional literature and
artwork relating to the Assets or the business of such Person and (b) all books,
records, lists, ledgers, financial data, files, reports, product and design
manuals, plans, drawings, technical manuals and operating records of every kind
relating to the Assets or the business of such Person, in each case whether
maintained as hard copy or stored in computer memory.
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"California Securities Law" shall mean the California Corporate Securities
Law of 1968, as amended.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. 9601, et seq., as amended.
"Certificate" shall mean an outstanding certificate or certificates which
immediately prior to the Effective Time represented shares of Wherify Capital
Stock.
"CCC" shall mean the California Corporations Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor law.
"Contracts" means, with respect to any Person, all agreements, contracts,
obligations, binding commitments and binding arrangements (a) to which such
Person is a party, (b) under which such Person has any rights, (c) under which
such Person has any Liability or (d) by which such Person or any Asset of such
Person is bound, including, in each case, all amendments, modifications and
supplements thereto.
"Daily Per Share Price" shall mean, for any trading day, the last reported
sale price per share of IQB Common Stock as reported on the Over-the-Counter
Bulletin Board (or such successor reporting agency that reports trading in IQB
Common Stock) for that day.
"DGCL" shall mean the Delaware General Corporation Law.
"Employee Plans" shall mean all Benefit Arrangements, Multiemployer Plans,
Pension Plans, Welfare Plans and Employment Agreements.
"Encumbrances" shall mean any lien, pledge, option, right of first
refusal, charge, easement, security interest, deed of trust, mortgage,
right-of-way, covenant, condition, restriction or encumbrance of third parties.
"Environmental Laws" shall mean any federal, state or local law, statute,
ordinance, order, decree, rule or regulation relating to: (a) the preservation
or reclamation of natural resources, (b) releases, discharges, emissions or
disposals to air, water, land or groundwater of Hazardous Materials; (c) the
use, handling or disposal of polychlorinated biphenyls, asbestos or urea
formaldehyde or any other Hazardous Material; (d) the treatment, storage,
disposal or management of Hazardous Materials; (e) exposure to toxic, hazardous
or other controlled, prohibited or regulated substances; or (f) the
transportation, release or any other use of Hazardous Materials, including
CERCLA, EPCRA, HTMA, RCRA, TSCA, the Occupational, Safety and Health Act, 29
U.S.C. 651, et seq., the Clean Air Act, 42 U.S.C. 7401, et seq., the Federal
Water Pollution Control Act, 33 U.S.C. 1251, et seq., and the Safe Drinking
Xxxxx Xxx, 00 X.X.X. 000x, et seq., and other comparable state and local laws
and all rules and regulations promulgated pursuant thereto or published
thereunder.
"EPCRA" shall mean the Emergency Planning and Community Right to Xxxx Xxx,
00 X.X.X. 00000, et seq., as amended.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA Affiliate" shall mean, with respect to a party, any entity which is
(or at any relevant time was) a member of a "controlled group of corporations"
with, under "common control" with, or a member of "affiliated service group"
with, the party as defined in Section 414(b) or (c) of the Code or, solely for
the purposes of potential liability under Section 302(c)(11) of ERISA and
Section 412(c)(11) of the Code and the lien created under Section 302(f) of
ERISA and Section 412(n) of the Code, as defined in Section 414(m) or (o) of the
Code.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Ratio" shall mean a fraction (expressed as a decimal and rounded
to the nearest ten-thousandth of a share), determined by dividing:
(a) the number of Issuable IQB Shares; by
(b) the fully diluted number of shares of Wherify Common Stock
outstanding immediately prior to the Merger after giving effect to the
conversion of all outstanding Wherify Preferred Stock into Wherify Common Stock
and after giving effect to the conversion of all outstanding warrants and other
rights to acquire Wherify Capital Stock into shares of Wherify Capital Stock and
the subsequent conversion of such Wherify Capital Stock into Wherify Common
Stock, if applicable, but excluding and not giving effect to the exercise of all
outstanding options to acquire Wherify Common Stock held by individuals who are
employees and members of the Board of Directors of Wherify immediately prior to
the Effective Time.
"Facilities" shall mean, as to any Person, all plants, offices,
manufacturing facilities, stores, warehouses, administration buildings and all
real property and related facilities owned, leased or used by such Person.
"Financing Shares" shall mean shares of IQB Common Stock issued after the
date of this Agreement to one or more bona fide third party purchasers in an
equity financing pursuant to which IQB sells shares of its Common Stock with the
principal purpose of raising capital and with a minimum per share purchase price
of $1.00.
"Fixtures and Equipment" shall mean, with respect to any Person, all of
the furniture, fixtures, furnishings, machinery and equipment owned, leased or
used by such Person and located in, at or upon the Facilities of such Person.
"GAAP" shall mean generally accepted accounting principles in the United
States of America, as in effect from time to time, consistently applied.
"Governmental Entity" shall mean any court, regulatory or administrative
agency, commission or other governmental authority, body or instrumentality,
domestic or foreign.
"Hazardous Materials" shall mean each and every element, compound,
chemical mixture, contaminant, pollutant, material, waste or other substance
which is defined, determined or identified as hazardous or toxic under
applicable Environmental Laws or the release of which is regulated under
applicable Environmental Laws. Without limiting the generality of the foregoing,
the term includes: "hazardous substances" as defined in CERCLA; "extremely
hazardous substances" as defined in EPCRA; "hazardous waste" as defined in RCRA;
"hazardous materials" as defined in HMTA; a "chemical substance or mixture" as
defined in TSCA; crude oil or petroleum products; radioactive materials,
including source, byproduct or special nuclear materials; asbestos or
asbestos-containing materials; chlorinated fluorocarbons; and radon.
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"HTMA" shall mean the Hazardous Materials Transportation Act, 49 U.S.C.
1802 et seq., as amended.
"IQB Common Stock" shall mean the Common Stock, par value $0.01 per share,
of IQB.
"Intellectual Property" shall mean all (a) U.S. and foreign patents,
patent applications, patent disclosures and improvements thereto, including
xxxxx patents and utility models and applications therefor, (b) U.S. and foreign
trademarks, service marks, trade dress, logos, trade names and corporate names
and the goodwill associated therewith and registrations and applications,
extensions or renewals for registration thereof, (c) U.S. and foreign copyrights
and registrations and applications, extensions or renewals for registration
thereof, (d) U.S. and foreign mask work rights and registrations and
applications, extensions or renewals for registration thereof, (e) trade
secrets, (f) inventions, formulae, tools, methods, processes, designs, know-how
or other data or information, (g) works of authorship including, without
limitation, computer programs, source code and executable code, whether embodied
in software, firmware or otherwise, documentation, designs, files, net lists,
records, data and mask works; (h) World Wide Web addresses, domain names and
sites; (i) copies and tangible embodiments of any of the items described in the
foregoing (a) through (g); and (j) licenses of any rights with respect to any of
the items described in the foregoing (a) through (i).
"IRS" shall mean the United States Internal Revenue Service or any
successor agency.
"Issuable IQB Shares" shall mean a number of shares of IQB Common Stock
equal to four multiplied by the sum of (i) shares of IQB Common Stock issued and
outstanding immediately prior to the Effective Time; and (ii) shares of IQB
Common Stock issuable upon exercise of warrants and conversion of debentures and
other rights to acquire shares of IQB Common Stock outstanding immediately prior
to the Effective Time, excluding (A) shares of IQB Common Stock issuable upon
exercise of stock options outstanding immediately prior to the Effective Time
and held by individuals who are employees of IQB immediately prior to the
Effective Time; and (B) the Financing Shares.
"Knowledge" shall mean with respect to any Person, the actual knowledge of
such Person after the due inquiry of a prudent individual in similar
circumstances. Wherify shall be deemed to have "Knowledge" of a particular fact
or other matter if any of its directors, officers or employees has Knowledge of
such fact or other matter. IQB shall be deemed to have "Knowledge" of a
particular fact or other matter if any of its directors, officers or employees
has Knowledge of such fact or other matter.
"Liability" shall mean any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any Person of any type, whether accrued, absolute, contingent, matured,
unmatured or other.
"Material Adverse Effect" shall mean, with respect to a Person, any event,
fact or circumstance that has substantial adverse effect or substantial adverse
change in the assets, liabilities, business, operations, results of operations
or condition (financial or otherwise) of such Person, taken as a whole, or, if
such Person is a Party, on the ability of such Person to consummate the
transactions contemplated hereby; provided, however, that any adverse change,
event, circumstance or development with respect to, or effect resulting from (A)
general economic conditions or conditions generally affecting the Party's
industry, except in either case to the extent such Party is materially
disproportionately affected thereby, (B) the announcement or pendency of the
Merger or any other transactions expressly contemplated hereby, (C) compliance
with the terms and conditions of this Agreement, (D) a change in the stock price
or trading volume of IQB Common Stock, provided that clause (D) shall not
exclude any underlying effect which may have caused such change in stock price
or trading volume or failure to meet published revenue or earnings projections,
(E) any change in accounting requirements or principles or any change in
applicable laws, rules or regulations or the interpretation thereof or (F) the
continued incurrence of losses by IQB shall not in and of itself constitute, or
otherwise be considered in determining whether there exists, a Material Adverse
Effect.
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"Multiemployer Plan" shall mean any "multiemployer plan," as defined in
Section 3(37) of ERISA, (a) which the Company or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or, after September
25, 1980, maintained, administered, contributed to or was required to contribute
to, or under which the Company or any ERISA Affiliate may incur any liability or
obligation and (b) which covers any employee or former employee of the Company
or any ERISA Affiliate (with respect to their relationship with such entities).
"Party Contract" with respect to a party shall mean the following
Contracts:
(a) all written management, compensation, employment or other
Contracts entered into with any executive officer, director or key employee of
such party;
(b) all Contracts which provide for Liability to the party in excess
of $25,000.00, which are not terminable by such party on less than 30 days
notice;
(c) all contracts under which such party has any outstanding
indebtedness, obligation or liability for borrowed money or the deferred
purchase price of property or has the right or obligation to incur any such
indebtedness, obligation or liability, in each case in an amount greater than
$25,000.00 and in the aggregate more than $50,000.00;
(d) all Contracts providing for indemnification of any Person with
respect to Liabilities relating to any current or former business of such party,
other than customary indemnification provisions contained in Contracts for the
purchase of supplies or the sale of inventory in the ordinary course of
business, in an individual amount or potential amount greater than $25,000.00 or
in the aggregate more than $50,000.00;
(e) all Contracts under which such party has directly or indirectly
guaranteed any Liabilities of any Person in an individual amount or potential
amount greater than $25,000.00 or in the aggregate more than $50,000.00;
(f) all Contracts which limit the ability of such party to compete
in any line of business or with any Person or in any geographic area or which
limit the ability of such party with respect to the development, manufacture,
marketing, sale or distribution of, or other rights with respect to, any
products or services;
(g) all Contracts concerning a partnership, joint venture or joint
development;
(h) all Contracts relating to acquisitions or dispositions of any
business or product line;
(i) all material Contracts pursuant to which such party has agreed
to pay a rebate other than any such Contracts entered in the ordinary course of
business consistent with past practice;
(j) all material Contracts pursuant to which such party has licensed
from or to a third party any Intellectual Property (except any such agreements
relating to commercially available off the shelf software);
6
(k) all Contracts providing for or granting an Encumbrance upon any
material Asset of such party (other than a Permitted Encumbrance);
(l) all Contracts providing for or containing confidentiality and
non-disclosure obligations (other than standard non-disclosure forms signed by
employees generally); and
(m) all other material Contracts.
"Pension Plan" shall mean any "employee pension benefit plan" as defined
in Section 3(2) of ERISA (other than a Multiemployer Plan) (a) which a Party or
any ERISA Affiliate of a Party maintains, administers, contributes to or is
required to contribute to, or has been maintained, administered or contributed
to or required to be contributed to, or under which a Party or any ERISA
Affiliate of a Party may incur any liability and (b) which covers any employee
or former employee of a Party or any ERISA Affiliate of a Party (with respect to
their relationship with such entities).
"Permits" means all consents, licenses, permits, certificates, variances,
exemptions, franchises and other approvals issued, granted, given, or otherwise
made available by any Governmental Entity.
"Permitted Encumbrances" shall mean (a) those Encumbrances that result
from all statutory or other liens for Taxes or assessments (1) which are not yet
due and payable or (2) the validity of which is being contested in good faith by
appropriate proceedings and for which adequate reserves are being maintained in
accordance with GAAP; (b) those Encumbrances that result from any cashiers',
landlords', workers', mechanics', carriers', materialmen's, suppliers' or
repairers' lien and other similar Encumbrances imposed by law or incurred in the
ordinary course of business in respect of obligations which are not overdue; (c)
those Encumbrances imposed by any law, rule, regulation, ordinance or
restriction promulgated by any Governmental Entity, other than those created by
agreement with a Governmental Entity; (d) those Encumbrances that result from
all leases, subleases or licenses to which Wherify or IQB is a party; (e) any
title exception set forth Section 1(a) of the Wherify or IQB Disclosure
Schedule; and (f) all other Encumbrances which, individually, or in the
aggregate, do not detract from or interfere with or impair the use, value or
marketability of the Asset subject thereto or affected thereby or the conduct of
the Company's business.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, governmental agency or instrumentality, or any
other entity.
"Prohibited Transaction" means a transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA, respectively.
"Qualifying Proposal" means a Superior Proposal or an Acquisition Proposal
that constitutes or, in the good faith judgment of the Board of Directors of
IQB, after consultation with outside counsel and its independent financial
advisor, would reasonably be expected to result in a Superior Proposal.
"RCRA" shall mean the Resource Conservation and Recovery Act, 42 U.S.C.
6901, et seq., as amended.
"Representative" shall mean, with respect to any Person, that Person's
officers, directors, employees, financial advisors, agents or other
representatives.
"SEC" shall mean the Securities and Exchange Commission.
7
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Stock Price" shall mean the average of the Daily Per Share Prices for the
ten consecutive trading days ending on the trading day two days prior to the
date on which such price is to be determined.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership, limited liability company, joint venture, association or other
entity, of which (a) such Person directly or indirectly owns or controls at
least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the board of directors or others
performing similar functions; (b) such Person is a general partner, manager or
managing member or (c) such Person holds a majority of the equity economic
interest.
"Superior Proposal" means any unsolicited, bona fide written proposal made
by a third party to acquire all or substantially all of the equity securities or
assets of IQB, pursuant to a tender or exchange offer, a merger, a consolidation
or a sale of its assets, on terms which the IQB Board determines in its good
faith judgment to be more favorable from a financial point of view to the
stockholders of IQB than the transactions contemplated by this Agreement (after
consultation with respect thereto with its independent financial advisor),
taking into account all the terms and conditions of such proposal and this
Agreement (including any proposal by either party to amend the terms of this
Agreement.
"Tax" or "Taxes" shall mean any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security, unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TSCA" shall mean the Toxic Substances Control Act, 15 U.S.C. 2601, et
seq., as amended.
"Wherify Capital Stock" shall mean the Wherify Common Stock, Wherify
Series A Preferred Stock, Wherify Series B Preferred Stock and the Wherify
Series C Preferred Stock.
"Wherify Common Stock" shall mean the common shares, no par value, of
Wherify.
"Wherify Series A Preferred Stock" shall mean the Series A Preferred
Stock, no par value, of Wherify.
"Wherify Series B Preferred Stock" shall mean Series B Preferred Stock, no
par value, of Wherify.
"Wherify Series C Preferred Stock" shall mean the Series C Preferred
Stock, no par value, of Wherify.
"Wherify Shareholders" mean the holders of Capital Stock of Wherify
immediately prior to the Effective Time and the holders of outstanding rights to
acquire Wherify Capital Stock pursuant to the exercise of outstanding warrants
and other rights to acquire Wherify Capital Stock but excluding the holders of
rights to acquire Wherify Capital Stock upon exercise of outstanding stock
options pursuant to the 1999 Stock Plan.
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"Welfare Plan" shall mean any "employee welfare benefit plan" as defined
in Section 3(1) of ERISA, (a) which Wherify or IQB or any ERISA Affiliate of
Wherify or IQB maintains, administers, contributes to or is required to
contribute to, or under which Wherify or IQB or any ERISA Affiliate of Wherify
or IQB may incur any liability or obligation and (b) which covers any employee
or former employee, consultant or director of Wherify or IQB or any ERISA
Affiliate of Wherify or IQB (with respect to their relationship with such
entities).
Table of Other Defined Terms
Cross Reference
Terms in Agreement
1999 Stock Option Plan Section 5.2
Agreement Preamble
Alternative Acquisition Agreement Section 10.1(b)
Certificate of Merger Section 2.2
Closing Section 2.4
Closing Date Section 2.4
Combined Company Section 2.1
Confidentiality Agreement Section 10.9
Constituent Corporations Section 2.1
Department Section 10.12(b)
Dissenting Shares Section 4.1
Effective Time Section 2.2
Expenses Section 10.11
Fairness Hearing Section 10.12(b)
Governmental Approvals Section 10.16(a)
IQB Disclosure Schedule Article VII
IQB Indemnified Party Section 9.4
IQB Insurance Policies Section 7.16(a)
IQB Leased Real Property Section 7.7(f)
IQB Occupancy Agreements Section 7.7(e)
IQB Owned Real Property Section 7.7(e)
IQB Reference Balance Sheet Section 7.6
IQB SEC Report Section 7.5
IQB Stockholders Meeting Section 5.8(d)
Lockup Agreement Section 8.7
Lost Stock Affidavit Section 3.5(c)
Merger Recitals
Merger Sub Preamble
Merger Sub Disclosure Schedule Article VI
Non-Competition Agreement Section 6.14
Notifying Party Section 10.16(b)
Party or Parties Preamble
Permit Section 10.13(b)
Permit Application Section 10.13(b)
Proceeding Section 10.10
Proxy Statement/Prospectus Section 2.7(d)
Reference Balance Sheet Section 5.8
Registration Statement Section 2.7(d)
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Rule 145 Affiliate Section 8.4
Specified Time Section 10.1
Surviving Corporation Section 2.1
Wherify Balance Sheet Section 5.8
Wherify Disclosure Schedule Article V
Wherify Financial Statements Section 5.8
Wherify Indemnified Party Section 8.5
Wherify Insurance Policies Section 5.19
Wherify Leased Real Property Section 5.12(f)
Wherify Owned Real Property Section 5.12(e)
Wherify Reference Balance Sheet Section 5.8
Wherify Shareholders Meeting Section 5.8(d)
Wherify Stock Options Section 5.2
Wherify Voting Proposal Section 5.5
ARTICLE II
THE MERGER
2.1 THE MERGER. In accordance with the provisions of this Agreement, at
the Effective Time (as hereinafter defined), the Merger Sub shall be merged with
and into Wherify, which shall be the surviving corporation and shall continue
its corporate existence under the laws of the State of California (the
"Surviving Corporation") unimpaired and unaffected by the Merger and the
separate existence of the Merger Sub shall cease. Wherify and the Merger Sub are
sometimes hereinafter collectively referred to as the "Constituent
Corporations." Wherify and IQB after the Merger are sometimes hereinafter
referred to as the "Combined Company." At the Effective Time, the name of IQB
shall be changed to "Wherify, Inc."
2.2 EFFECTIVE TIME. The Merger shall become effective at the time of the
effective filing of a Certificate of Merger, attached hereto as Exhibit E (the
"Certificate of Merger"), with the Secretary of State of California in
accordance with the provisions of the CCC, or at such later time as is
established by IQB and Wherify and set forth in the Certificate of Merger (the
"Effective Time"). Wherify and the Merger Sub agree to file the aforementioned
Certificate of Merger at the time of the Closing, as hereinafter defined or as
soon as practicable thereafter.
2.3 EFFECT OF THE MERGER.
(a) At the Effective Time, the Surviving Corporation shall, without
transfer, thereupon and thereafter possess all assets and property of every
description, and every interest therein, wherever located, and the rights
privileges, immunities, powers, franchises and authority, of a public as well as
of a private nature, and be subject to all of the restrictions, disabilities,
and duties of each of the Constituent Corporations, and all obligations of, or
belonging to, or due to, either of the Constituent Corporations, shall be vested
in the Surviving Corporation without further act or deed; all assets and
property of every description, and every interest therein, wherever located, and
the rights, privileges, immunities, powers, franchises, and authority shall
thereafter be the property of the Surviving Corporation as effectively as when
they were the property of the Constituent Corporations, and the title to any
real estate or any interest therein vested in either of the Constituent
Corporations shall not revert or in any way be impaired by reason of the Merger;
all rights of creditors and all liens upon any property of the Constituent
Corporations existing as of the Effective Time shall be preserved unimpaired;
and all debts, liabilities, and duties of the Constituent Corporations shall
thenceforth attach to the Surviving Corporation and may be enforced against it
to the same extent as if such debts, liabilities, and duties had been incurred
for or by it; and any action or proceeding, whether civil, criminal, or
administrative, pending by or against either Constituent Corporation shall be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in any such action or proceeding.
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(b) All corporate acts, plans, policies, contracts, approvals, and
authorizations of Wherify and its shareholders, Board of Directors, committees
elected or appointed by its Board of Directors, officers, and agents that were
valid and effective immediately prior to the Effective Time shall be taken for
all purposes as the acts, plans, policies, contracts, approvals, and
authorizations of the Surviving Corporation and shall be effective and binding
thereon as the same were with respect to Wherify.
2.4 CLOSING. The Closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on a date to be specified by IQB and
Wherify (the "Closing Date"), which shall be no later than the second business
day after satisfaction or waiver of the conditions set forth in Article XII
(other than delivery of items to be delivered at the Closing and other than
satisfaction of those conditions that by their nature are to be satisfied at the
Closing, it being understood that the occurrence of the Closing shall remain
subject to the delivery of such items and the satisfaction or waiver of such
conditions at the Closing) at the offices of Xxxxx Xxxxxxx Xxxx Xxxxxx & Xxxxxxx
LLP, 000 Xxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx or at such other place and on
such other date as IQB, the Merger Sub and Wherify may mutually agree in
writing.
2.5 ARTICLES OF INCORPORATION, BYLAWS.
(a) The Articles of Incorporation attached hereto as Exhibit C shall
be the Articles of Incorporation of the Surviving Corporation until amended as
provided by law.
(b) The Bylaws attached hereto as Exhibit D shall be the Bylaws of
the Surviving Corporation until amended as provided by law.
2.6 DIRECTORS AND OFFICERS. The directors and officers of Merger Sub
immediately prior to the Effective Time shall be the initial directors and
officers, respectively, of the Surviving Corporation from and after the
Effective Time, each to hold office in accordance with the Articles of
Incorporation and the Bylaws of the Surviving Corporation until their successors
are elected or appointed and qualified or until their resignation or removal.
2.7 SHAREHOLDER AND DIRECTOR APPROVALS.
(a) W, IQB and the Merger Sub shall each submit the Merger and all
other actions contemplated by this Agreement that require approval and adoption
by their respective shareholders or stockholders, for consideration, approval
and adoption at Special Meetings of Shareholders or Stockholders, as the case
may be, convened as soon after the date hereof as is possible (or if feasible,
by means of written consent in lieu of a Special Meeting), as set forth in
Section 10.14 below, and, with respect to IQB, subject to the receipt of a
fairness opinion by the IQB Board of Directors from a reputable financial
services firm or other entity, reasonably acceptable to the Board of Directors
of IQB stating to the effect that, as of such date, the consideration to be
received by the holders of IQB Common Stock pursuant to the Merger is fair to
such holders from a financial point of view.
(b) In submitting the Merger to its shareholders, Wherify agrees to
furnish its shareholders with copies of IQB's Annual Report on Form 10-KSB for
its fiscal year ended June 30, 2003, as amended and copies of all of IQB's other
filings with the SEC made thereafter. Wherify agrees to use its commercially
reasonable efforts to procure from each of its shareholders such information and
documentation (in form reasonably acceptable to IQB) as IQB may request and that
is required by the Securities Act and the SEC to prepare and file the
Registration Statement with the SEC.
(c) The Merger Sub shall submit, for consideration, approval and
adoption at a Special Meeting of Directors convened as soon prior to the Closing
as is possible after the date here, the Merger and all other actions
contemplated by this Agreement that require approval and adoption by the Board
of Directors of the Merger Sub.
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(d) Subject to Section 10.13(b) and Section 2.7(a) above, as
promptly as practicable after the execution of this Agreement, IQB, in
cooperation with Wherify, shall prepare and file with the SEC a Registration
Statement on Form S-4 pursuant to which the IQB Common Stock issued in
connection with the Merger shall be registered under the Securities Act (the
"Registration Statement"), in which the proxy statement/prospectus to be sent to
the stockholders of IQB in connection with the meeting of IQB's stockholders to
consider and approve the Merger (the "Proxy Statement/Prospectus") shall be
included as a prospectus.
(e) IQB and Wherify shall promptly make all necessary filings with
respect to the Merger under the Securities Act, the Exchange Act, applicable
state blue sky laws and the rules and regulations thereunder.
ARTICLE III
CONVERSION OF SHARES
3.1 CONVERSION. At the Effective Time, by virtue of the Merger and without
any action on the part of the holders thereof:
(a) Each share of the common stock of the Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into and
become one fully paid and nonassessable share of common stock, US $.01 par value
per share, of the Surviving Corporation. Each certificate of Merger Sub
evidencing ownership of any such shares shall evidence ownership of a like
number of shares of capital stock of the Surviving Corporation. The party's
estimate of the post-Closing capitalization of the Combined Company shall be as
set forth in Schedule 3.1 of the parties' Disclosure Schedules.
(b) Each share of Wherify Capital Stock issued and outstanding
immediately prior to the Effective Time (except for shares of Wherify Capital
Stock held as treasury shares of Wherify or by any wholly owned subsidiary of
Wherify and any shares of Wherify Capital Stock owned by IQB, the Merger Sub or
any other wholly owned subsidiary of IQB, all of which shall be retired and
cancelled) shall automatically be converted into and represent the right to
receive that number of validly issued, fully paid and nonassessable shares of
IQB Common Stock, which is equal to the Exchange Ratio. Wherify shall use its
best efforts to cause the conversion of all outstanding shares of Wherify Series
A Preferred Stock, Wherify Series B Preferred Stock and Wherify Series C
Preferred Stock, into Wherify Common Stock prior to the Effective Time. As of
the Effective Time, the shares of Wherify Capital Stock converted into IQB
Common Stock pursuant to this Section 3.1(b) shall no longer be outstanding and
shall automatically be cancelled and shall cease to exist, and each holder of a
certificate representing any such shares of Wherify Capital Stock shall cease to
have any rights with respect thereto, except the right to receive the IQB Common
Stock pursuant to this Section 3.1(b), any cash in lieu of fractional IQB Common
Stock to be issued or paid in consideration therefor and any dividends or
distributions payable pursuant to Section 3.7 upon the surrender of such
certificate in accordance with Section 3.5, without interest.
For the purpose of clarity, the parties intend that immediately
after the Effective Time, the Persons who were holders of Wherify Capital Stock
immediately prior to the Effective Time shall hold approximately 80% of the
total shares of IQB Common Stock issued and outstanding on a fully diluted basis
immediately following the Effective Time, including IQB Common Stock issuable
upon exercise of warrants and conversion of debentures and other rights to
acquire shares of IQB Common Stock, but excluding (A) shares of IQB Common Stock
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issuable upon exercise of stock options outstanding immediately prior to the
Effective Time and held by individuals who are employees of IQB immediately
prior to the Effective Time, (B) shares of IQB Common Stock issuable upon
exercise of stock options assumed pursuant to Section 3.2 and held by
individuals who are employees or members of the Board of Directors of Wherify
immediately prior to the Effective Time, and (C) the Financing Shares. .
3.2 STOCK OPTIONS. Each option to purchase shares of Wherify Common Stock
(each a "Wherify Stock Option") outstanding immediately prior to the Effective
Time shall be assumed by IQB and each Wherify Stock Option shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Wherify Stock Option immediately prior to the Effective
Time a number of shares of IQB Common Stock into which each share of Wherify
Common Stock outstanding immediately prior to the Effective Time was converted
at the Effective Time (rounded down to the nearest whole share) at a price per
share (rounded up to the nearest whole cent) equal to (i) the aggregate exercise
price of the Wherify Common Stock purchasable pursuant to such Wherify Stock
Option immediately prior to the Effective Time divided by (ii) the number of
full shares of IQB Common Stock purchasable pursuant to the Assumed Option.
3.3 FRACTIONAL SHARES. IQB shall not issue fractional shares of IQB Common
Stock pursuant to the provisions of 3.1(b) immediately above, but, in lieu
thereof, shall make a cash payment equal to the product of the Stock Price
multiplied by the fraction of a whole share represented by the fractional share.
3.4 ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be adjusted to
reflect fully the effect of any reclassification, stock split, consolidation,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into IQB Common Stock or Wherify Capital Stock),
reorganization, capital redemption or repayment, bonus issue, recapitalization
or other like change with respect to IQB Common Stock or Wherify Capital Stock
occurring (or for which a record date is established) after the date hereof and
prior to the Effective Time.
3.5 EXCHANGE OF CERTIFICATES.
(a) If the Merger is approved by the shareholders of both Wherify
and the Merger Sub and the stockholders of IQB, after the Effective Time, each
holder of an outstanding Certificate or Certificates may, but is not required
to, surrender such Certificate or Certificates to Wherify along with such other
documents as may be deemed necessary by Wherify, the Surviving Corporation or
IQB effectively to surrender and exchange such Certificate or Certificates. From
and after the Effective Time and until Certificates are surrendered for exchange
or registration of transfer, all Certificates shall be deemed for all purposes
to represent and evidence the number of shares of IQB Common Stock into which
they were so converted under the terms of Section 3.1(b) of this Agreement.
(b) After the Effective Time, whenever Certificates are presented
for exchange or registration of transfer, IQB shall cause to be issued in
respect thereof certificates representing the number of shares of IQB Common
Stock into which the surrendered shares of Wherify Capital Stock were so
converted under the terms of Section 3.1(b) of this Agreement. If certificates
for IQB Common Stock are to be delivered to or in the name of a person other
than the person in whose name a surrendered Certificate is registered, the
surrendered Certificate shall be properly endorsed or otherwise be in proper
form for transfer and the person requesting the transfer shall pay to IQB all
transfer or other taxes required by reason of the change in ownership or
establish to IQB's satisfaction that such taxes have been or are not required to
be paid.
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(c) If any Certificate shall have been lost, stolen, or destroyed,
upon the making of an affidavit in form and substance satisfactory to IQB of
that fact by the person claiming the certificate to be lost, stolen or destroyed
("Lost Stock Affidavit") and subject to such other conditions as IQB may
reasonably impose, IQB shall issue in exchange for the lost, stolen or destroyed
certificate a certificate representing the number of shares of IQB Common Stock
into which the shares of Wherify Capital Stock represented by the lost, stolen,
or destroyed certificate were so converted under the terms of Section 3.1(b) of
this Agreement. When authorizing the issuance of the shares of IQB Common Stock
in exchange therefore, IQB may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such a certificate to give IQB a
bond or other indemnity in any amount reasonably satisfactory to IQB against any
claim arising against IQB with respect to the stolen or destroyed certificate.
3.6 FULL SATISFACTION. All shares of IQB Common Stock into which Wherify
Capital Stock shall have been converted pursuant to this Article III shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
converted shares and shall, when issued pursuant to the provisions hereof, be
validly issued, fully paid, and nonassessable.
3.7 DIVIDENDS AND DISTRIBUTIONS. No dividends or other distributions
declared or made after the Effective Time with respect to IQB Common Stock with
a record date after the Effective Time shall be paid to the holder of any
unsurrendered Wherify Certificate until the holder of record of such Wherify
Certificate shall surrender such Wherify Certificate or Lost Stock Affidavit and
comply with such other conditions that IQB may impose with respect to such Lost
Stock Affidavit. Subject to the effect of applicable laws, following surrender
of any such Wherify Certificate, or Lost Stock Affidavit and compliance with
such other conditions that IQB may impose with respect to such Lost Stock
Affidavit, there shall be issued and paid to the record holder of the Wherify
Certificate, at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time previously paid with
respect to such whole IQB Common Stock, without interest, and, at the
appropriate payment date, the amount of dividends or other distributions having
a record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender that are payable with respect to such whole IQB Common
Stock.
ARTICLE IV
DISSENTING SHAREHOLDERS
4.1 WHERIFY DISSENTING SHARES. Notwithstanding any provision of this
Agreement to the contrary, any shares of Wherify Capital Stock which are
"dissenting shares" (as defined in Section 1300(b) of the CCC) ("Dissenting
Shares"), shall not be converted into or represent a right to receive IQB Common
Stock pursuant to Article III, but the holder thereof shall only be entitled to
such rights as are granted by the CCC. Each holder of Dissenting Shares who
becomes entitled to payment therefor pursuant to the CCC shall receive payment
from Wherify in accordance with the CCC; provided, however, that (i) if any such
holder of Dissenting Shares shall have failed to establish his entitlement to
appraisal rights as provided in the CCC, (ii) if any such holder of Dissenting
Shares shall have effectively withdrawn his demand for appraisal thereof or lost
his right to appraisal and payment therefor under the CCC or (iii) if neither
any holder of Dissenting Shares which are shares of Wherify Capital Stock shall
have filed a petition demanding a determination of the fair value of all
Dissenting Shares of Wherify Capital Stock within the time provided in the CCC,
such holder or holders (as the case may be) of Wherify Capital Stock shall
forfeit the right to appraisal of such shares of Wherify Capital Stock.
4.2 LOSS OF APPRAISAL RIGHTS. Notwithstanding the provisions of Section
4.1, if any holder of shares of Wherify Capital Stock who demands appraisal of
such shares under the CCC shall effectively withdraw or lose (through failure to
perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive IQB
Common Stock and cash for any fractional shares as provided in Article III,
without interest thereon, upon surrender of the certificate representing such
shares.
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4.3 NOTICE OF APPRAISAL RIGHTS. Wherify shall give IQB prompt notice of
any written demands for appraisal of any shares of Wherify Capital Stock,
withdrawals of such demands, and any other instruments served pursuant to the
CCC and received by Wherify. Wherify shall give IQB the opportunity to
participate in all negotiations and proceedings with respect to such demands.
Wherify shall not, except with the prior written consent of IQB, voluntarily
make any payment with respect to any such demands or offer to settle or settle
any such demands.
4.4 IQB DISSENTING SHARES. Notwithstanding any provision of this Agreement
to the contrary, any shares of IQB Common Stock which are "dissenting shares"
(as defined in Section 1300(b) of the CCC) ("IQB Dissenting Shares") and who
becomes entitled to payment therefor pursuant to the CCC shall receive payment
from IQB in accordance with the CCC; provided, however, that (i) if any such
holder of IQB Dissenting Shares shall have failed to establish his entitlement
to appraisal rights as provided in the CCC, (ii) if any such holder of IQB
Dissenting Shares shall have effectively withdrawn his demand for appraisal
thereof or lost his right to appraisal and payment therefor under the CCC, or
(iii) if neither any holder of IQB Dissenting Shares which shall have filed a
petition demanding a determination of the fair value of all IQB Dissenting
Shares within the time provided in the CCC, such holder or holders (as the case
may be) of IQB Common Stock shall forfeit the right to appraisal of such shares
of IQB Common Stock.
4.5 NOTICE OF IQB APPRAISAL RIGHTS. IQB shall give Wherify prompt notice
of any written demands for appraisal of any shares of IQB Common Stock,
withdrawals of such demands, and any other instruments served pursuant to the
CCC and received by IQB. IQB shall give Wherify the opportunity to participate
in all negotiations and proceedings with respect to such demands. IQB shall not,
except with the prior written consent of Wherify, voluntarily make any payment
with respect to any such demands or offer to settle or settle any such demands.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF W
Wherify represents and warrants to IQB and the Merger Sub that the
statements contained in this Article V are true and correct, except as expressly
set forth herein or in the disclosure schedule delivered by Wherify to IQB on or
before the date of this Agreement (the "Wherify Disclosure Schedule"). The
Wherify Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article V and the disclosure
in any paragraph shall qualify the corresponding paragraph in this Article V
where such disclosure would be appropriate and for which the relevance of such
disclosure is reasonably apparent based upon its nature and substance.
5.1 ORGANIZATION AND STANDING OF WHERIFY. Wherify is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California. Wherify has full requisite corporate power and authority to carry on
its business as it is now being conducted and as proposed to be conducted, and
to own, operate, and lease the properties now owned, operated, or leased by it.
Wherify is duly authorized and qualified to carry on its business in the manner
as now conducted and as proposed to be conducted in each state in which
authorization and qualification is required. Section 5.1 of the Wherify
Disclosure Schedule sets forth a list of the jurisdictions in which Wherify is
qualified to transact business. Wherify has made available to IQB and its
representatives as requested true, correct and complete copies of the contents
of Wherify's minute book, which are accurate in all material respects and set
forth fully and fairly all of the Wherify's transactions. Wherify has delivered
to IQB complete and accurate copies of the Articles of Incorporation and Bylaws
of Wherify each as amended to date.
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5.2 CAPITALIZATION OF WHERIFY. The authorized Wherify Capital Stock
consists of 10 million shares of common stock, 2,945,726 of which were issued
and outstanding prior to the Effective Time, and 5,000,000 shares of preferred
stock, 1,140,423 of which have been designated Series A Preferred Stock, all of
which were issued and outstanding prior to the Effective Time, 555,383 of which
have been designated Series B Preferred Stock, 555,382 of which were issued and
outstanding prior to the Effective Time, and 2,500,000 of which have been
designated Series C Preferred Stock, all of which were issued and outstanding
prior to the Effective Time. The shares of Wherify Capital Stock issued and
outstanding prior to the Effective Time are, and all shares of Wherify Capital
Stock subject to issuance as specified in this Section 5.2 will be, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, duly and validly authorized and issued, fully paid and
non-assessable, and were not or will not be issued in violation of the
pre-emptive rights of any current or former shareholder. The rights, privileges
and preferences of the Wherify Preferred Stock are as stated in the Articles of
Incorporation of Wherify and the Merger does not and will not constitute a
"Liquidity Event" under the Articles of Incorporation of Wherify. The shares of
Wherify Capital Stock issued and outstanding prior to the consummation of the
Merger were issued, and all secondary transfers of such shares permitted by
Wherify were made, in compliance with all applicable law (including, without
limitation, available exemptions from the securities offering registration
requirements of federal and state law). Except for (i) reservation of a
sufficient number of shares of Wherify Common Stock issuable upon conversion of
the outstanding shares of Wherify Preferred Stock, (ii) 689,334 shares of
Wherify Common Stock issuable upon the exercise of outstanding options ("Wherify
Stock Options") and (iii) no shares reserved for future issuance pursuant to
Wherify's 1999 Stock Option Plan, no warrant, call, subscription, convertible
security, or commitment of any kind obligating Wherify to issue any Wherify
Capital Stock exists. There is not any compensation plan applicable to any of
the officers, directors, or employees of Wherify under which compensation
accrued or payable is determined, in whole or in part, by reference to Wherify
Capital Stock. There are no agreements or commitments obligating Wherify to
repurchase or otherwise acquire any Wherify Capital Stock. Wherify has no rights
of repurchase or redemption right or right of first refusal with respect to any
shares of Wherify Capital Stock. The vesting of any Wherify Stock Options will
not be accelerated in any way by the transactions contemplated by this Agreement
or by the termination of employment or engagement or change in position of any
holder thereof following consummation of the Merger. Wherify has provided to IQB
accurate and complete copies of the Wherify 1999 Stock Plan and the forms of all
stock option agreements evidencing Wherify Stock Options.
5.3 SUBSIDIARIES AND OTHER VENTURES. Wherify has no subsidiaries or
affiliated corporations, and owns no capital stock, bond, or other security of,
or has any equity or proprietary interest in, any corporation, partnership,
joint venture, trust, or unincorporated association.
5.4 OWNERSHIP OF STOCK. All Wherify Capital Stock is and all shares of
Wherify Capital Stock subject to issuance as specified in Section 5.2 above,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be, owned free and clear of any Encumbrances
other than those Encumbrances created by or imposed upon the holders by parties
other than Wherify. None of the outstanding shares of Wherify Capital Stock is
subject to any voting trust, voting agreement, or other agreement or
understanding with respect to the voting thereof, nor is any proxy in existence
with respect to any such shares.
5.5 CAPACITY TO ENTER INTO AGREEMENT. Wherify has all requisite corporate
power and authority to enter into this Agreement, the Ancillary Agreements to
which Wherify is a party, and all other agreements, documents and instruments to
be executed in connection herewith and, subject only to the adoption of this
Agreement and the approval of the Merger (the "Wherify Voting Proposal") by
Wherify's shareholders under the CCC, to consummate the transactions
contemplated by this Agreement. The execution and delivery by Wherify of this
Agreement, the Ancillary Agreements to which Wherify is a party, and all other
agreements, documents and instruments to be executed by Wherify in connection
herewith have been authorized by all necessary corporate action by Wherify,
16
other than for the approval of the shareholders of Wherify, which will be sought
pursuant to this Agreement. When this Agreement, the Ancillary Agreements to
which Wherify is a party, and all other agreements, documents and instruments to
be executed by Wherify in connection herewith have been executed by Wherify and
delivered to IQB and the Merger Sub, this Agreement, the Ancillary Agreements to
which Wherify is a party, and such other agreements, documents and instruments
will constitute the valid and binding agreements of Wherify enforceable against
Wherify in accordance with their respective terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
5.6 CONFLICTS. Except as set forth on Schedule 5.6 hereto, the execution
and delivery of this Agreement and the Ancillary Agreements, the performance by
Wherify of its obligations hereunder and thereunder, and the consummation of the
transactions contemplated by this Agreement hereby or thereby will not (a)
violate, conflict with or result in (with or without notice or lapse of time, or
both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit) under, require a
consent or waiver under, constitute a change in control under, require the
payment of a penalty under or result in the imposition of any lien on Wherify's
material Assets under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license or other agreement, instrument or
obligation to which Wherify is a party or by which it or any of its properties
or material Assets may be bound or affected, (b) violate any statute, law,
ordinance, rule, regulation or judgment, decree or order of any Governmental
Entity, applicable to Wherify or any of its material Assets, (c) result in the
creation of any Encumbrance upon any material Assets or business of Wherify
pursuant to the terms of any Contract, permit, authorization, or any order,
judgment or decree to which Wherify is a party or by which Wherify or any of its
Assets are bound or encumbered, or (d) violate any provision in the charter
documents, bylaws or any other agreement affecting the governance and control of
Wherify.
5.7 CONSENTS. Except as set forth on Schedule 5.7 hereto, no consent,
approval, license, permit, order or authorization of, or registration,
declaration, notice or filing with, any Governmental Entity or any other person,
which has not been obtained, is necessary in connection with the execution,
delivery, or performance of this Agreement by Wherify, other than for the
approval of the shareholders of Wherify, which will be sought pursuant to this
Agreement.
5.8 WHERIFY FINANCIAL STATEMENTS. Wherify has delivered to IQB or its
representatives copies of the following financial statements (including, in each
case, any related notes and schedules) (hereinafter collectively referred to as
the "Wherify Financial Statements"): the (a) unaudited balance sheet as of June
30, 2003 (the "Wherify Balance Sheet") and the unaudited statement of income and
cash flows for the twelve months ending June 30, 2003 and its (b) unaudited
balance sheet of Wherify at February 29, 2004 (the "Wherify Reference Balance
Sheet") and the related unaudited statements of income and retained earnings and
cash flows of Wherify as of such date, for the eight month period then ended,
excluding the notes thereto. Except as set forth on Section 5.8 of the Wherify
Disclosure Schedule hereto,
(a) The Financial Statements are complete and correct in all
material respects, present fairly the financial condition of Wherify as at the
respective dates thereof, and the results of operations for the respective
periods covered thereby, complied or will comply as to form in all material
respects with applicable accounting requirements and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, subject to year-end adjustments and except that unaudited financial
statements do not contain all required footnotes.
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(b) There is no basis for the assertion of any liabilities or
obligations, either accrued, absolute, contingent, or otherwise, which might
have a Material Adverse Effect on the value, use, operation or enjoyment of the
assets or business of IQB, which liabilities or obligations are not expressly
set forth on the Wherify Balance Sheet or the Wherify Reference Balance Sheet;
(c) Wherify is not a party to or bound either absolutely or on a
contingent basis by any agreement of guarantee, indemnification, assumption or
endorsement or any like commitment of the obligations, liabilities or
indebtedness of any other person (whether accrued, absolute, contingent or
otherwise); and
(d) The information to be supplied by or on behalf of Wherify for
inclusion or incorporation by reference in the Registration Statement, shall not
at the time the Registration Statement is filed with the SEC, at any time it is
amended or supplemented, or at the time the Registration Statement is declared
effective by the SEC, as applicable, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The
information to be supplied by or on behalf of Wherify for inclusion in the Proxy
Statement/Prospectus to be sent to the stockholders of IQB in connection with
the meeting of IQB's stockholders to consider and approve the Merger (the "IQB
Stockholders Meeting") (which shall be deemed to include all information about
or relating to IQB, Wherify's Voting Proposal and information in connection with
the meeting of Wherify's shareholders to consider and approve the Merger (the
"Wherify Shareholders Meeting"), shall not, on the date the Proxy
Statement/Prospectus is first mailed to stockholders of IQB, or at the time of
the IQB Stockholders Meeting or at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements made in the Proxy
Statement/Prospectus not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the IQB Stockholders Meeting which has become
false or misleading. If at any time prior to the Effective Time any fact or
event relating to Wherify which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus should
be discovered by Wherify or should occur, Wherify shall promptly inform IQB of
such fact or event.
5.9 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth on Schedule
5.9 hereto, since the date of the Wherify Reference Balance Sheet, there has not
been:
(a) Any material adverse change in the financial condition,
operations, business, employee relations, customer relations, assets,
liabilities (accrued, absolute, contingent, or otherwise) or income of Wherify,
or the business of Wherify, from that shown on the Financial Statements;
(b) Any declaration, setting aside, or payment of any distribution
in respect of the equity interests in Wherify, or any direct or indirect
redemption, purchase, or any other acquisition of any such interests, except for
Wherify's repurchase of Wherify Common Stock from individuals following
termination of their employment with Wherify pursuant to the terms of stock
option or stock purchase agreements;
(c) Any borrowing of, or agreement to borrow any funds or any debt,
obligation, or liability (absolute or contingent) incurred by Wherify (whether
or not presently outstanding) except current liabilities incurred, and
obligations under agreements entered into in the ordinary course of business;
(d) Any creation or assumption by Wherify of any Encumbrance, other
than a Permitted Encumbrance, on any material Asset;
18
(e) Any sale, assignment, or transfer of Wherify's assets, except in
the ordinary course of business, any cancellation of any debts or claims owed to
Wherify, any capital expenditures or commitments therefore exceeding in the
aggregate $15,000, any damage, destruction or casualty loss exceeding in the
aggregate $15,000 (whether or not covered by insurance), or any charitable
contributions or pledges;
(f) Any amendment or termination of any Contracts to which Wherify
is or was a party or to which any Assets of Wherify are or were subject, which
amendment or termination has had, or may be reasonably expected to have, a
Material Adverse Effect on Wherify; or
(g) any split, combination, reclassification or other amendment of
any material term of any outstanding security of Wherify;
(h) any making of any material loan, advance or capital contribution
to any Person;
(i) any compromise, relinquishment, settlement or waiver by Wherify
of a valuable right or material debt owed to it in excess of $5,000;
(j) any resignation or termination of employment of any key employee
or executive officer of Wherify and, Wherify has not received written notice of
any such pending resignation or termination;
t 12 (k) except for regularly scheduled increases in compensation or
bonuses for non-professional level employees, in each case in the ordinary
course of business consistent with past practice, any material change in the
rate of compensation, commission, bonus or other direct or indirect remuneration
payable or to become payable to any director, officer or employees or agreement
or binding promise (orally or otherwise) to pay, conditionally or otherwise, any
bonus or extra compensation or other employee benefit to any of such directors,
officers or employees or severance;
(l) any employment or severance agreement with or for the benefit of
any director, officer or employee of Wherify;
(m) any change in accounting methods, principles or practices of
Wherify affecting its Assets, Liabilities or business, except immaterial changes
permitted by GAAP;
(n) any claim of wrongful discharge or other unlawful labor practice
or action with respect to Wherify;
(o) any material revaluation by Wherify of any of its Assets;
(p) any material change or modification of any of the credit,
collection or payment policies, procedures or practices of Wherify, including
acceleration of collections of receivables, failure to make or delay in making
collections of receivables, acceleration of payment of payables or other
Liabilities or failure to pay or delay in payment of payables or other
Liabilities;
(q) any material discount activity with customers of Wherify that
has accelerated or would accelerate to pre-Closing periods sales that would
otherwise in the ordinary course of business consistent with past practices be
expected to occur in post-Closing periods;
(r) any settlement or compromise of any Action involving in excess
of $50,000;
(s) Any other material transaction by Wherify outside the ordinary
course of business or any other event or condition pertaining to, and that has
or reasonably would be expected to have a Material Adverse Effect on Wherify; or
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(t) any agreement by Wherify or any officer or employees thereof to
do any of the things described in the preceding clauses (a) through (s) (other
than negotiations with IQB and its representatives regarding the transactions
contemplated by this Agreement).
5.10 ASSETS. Except as set forth on Schedule 5.10 hereto,
(a) Wherify has good and valid title to all of its material Assets,
free and clear of all Encumbrances other than Permitted Encumbrances;
(b) All of Wherify's machinery, equipment, appliances, motor
vehicles and fixtures are in good operating condition and repair, subject only
to ordinary wear and tear and routine maintenance items;
(c) All of the inventories of Wherify (including, without
limitation, raw materials, spare parts and supplies, work-in-process, finished
goods) consist of items of a quality, condition and quantity useable and
saleable in the normal course of business;
(d) All of the accounts receivable of Wherify are valid, subsisting,
and genuine, arose out of bona fide transactions and are current and
collectible, subject to reserves reflected on the Wherify Reference Balance
Sheet;
(e) Real Property. Section 5.10(e) of the Wherify Disclosure
Schedule sets forth a list of all real properties owned by Wherify (the "Wherify
Owned Real Property"). Wherify has good and valid fee title to, and enjoys
peaceful and undisturbed possession of, the Wherify Owned Real Property free and
clear of any and all Encumbrances other than any Permitted Encumbrances. Except
as set forth in Section 5.10(e) of the Wherify Disclosure Schedule, Wherify has
not received written notice of any pending or threatened special assessment
relating to the Wherify Owned Real Property. Section 5.10(e) of the Wherify
Disclosure Schedule sets forth a list of all leases, licenses or other occupancy
rights affecting the Wherify Owned Real Property ("Occupancy Agreements"). The
Occupancy Agreements are in full force and effect and there has been no material
default under such Occupancy Agreements by Wherify, or to the Knowledge of
Wherify, by any other party thereto, and, to the Knowledge of Wherify, there is
no existing event or circumstance that with the passage of time or the giving of
notice, or both, would constitute a default under such Occupancy Agreements;
(f) Leased Real Property. Section 5.10(c) of Wherify Disclosure
Schedule sets forth a list of all material leased real property used by Wherify
(the "Wherify Leased Real Property"). Wherify has good and valid leasehold title
to, and enjoys peaceful and undisturbed possession of, all of Wherify Leased
Real Property, free and clear of any and all Encumbrances other than any
Permitted Encumbrances. There has been no material default under any lease
relating to Wherify Leased Real Property by Wherify or, to the Knowledge of
Wherify, by any other party and, to the Knowledge of Wherify, there is no
existing event or circumstance that with the passage of time or the giving of
notice, or both, would constitute a default under such lease. Except as set
forth in Section 5.10(c) of the Wherify Disclosure Schedule, Wherify has not
received written notice of any pending or threatened special assessment relating
to Wherify Leased Real Property; and
(g) There are no restrictions imposed by any Contract which preclude
or restrict in any material respect the ability of Wherify to use any of Wherify
Owned Real Property or Wherify Leased Real Property for the purposes for which
it is currently being used.
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5.11 WHERIFY PARTY CONTRACTS. Section 5.11 of the Wherify Disclosure
Schedule sets forth a list of the Party Contracts of Wherify.
(a) Except as set forth on Section 5.11(a) of the Wherify Disclosure
Schedule, each Wherify Party Contract is in full force and effect and is legal,
valid, binding and enforceable in accordance with its terms against Wherify and,
to the Knowledge of Wherify, against all other parties thereto; and
(b) There is not, under any such Party Contract of Wherify any
existing or prospective default or event of default by Wherify or to the
Knowledge of Wherify, any other Person, or event which with notice or lapse of
time, or both would constitute a default or give Wherify or any other Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity of, or to cancel, terminate or modify, any right, obligation or remedy
under any Party Contract of Wherify, except where such violation, breach,
default, exercise, acceleration, cancellation, termination or modification would
not reasonably be expected to have a Material Adverse Effect on Wherify, and in
respect to which Wherify has not taken adequate steps to prevent a default from
occurring.
5.12 PERMITS. Section 5.12 of the Wherify Disclosure Schedule contains a
complete and accurate list of all material Permits that are held by Wherify. All
material Permits of Wherify are validly held by Wherify and are in full force
and effect. Except as set forth on Schedule 5.12 hereto,
(a) the Permits listed on Section 5.12 of the Wherify Disclosure
Schedule, constitute all material Permits that are necessary for Wherify to
carry on its business and to own and use its assets in compliance with all Laws
applicable to such operation, ownership and use, and all such licenses, permits
and authorizations are in good standing;
(b) Wherify is in full compliance with and not in default or
violation with respect to any term or provision of any of its material Permits;
(c) No notice of pending, threatened, or possible violation or
investigation in connection with, or loss of, any Permit of Wherify, has been
received by Wherify;
(d) Wherify has no knowledge that the issuance of such a notice is
being considered or of any facts or circumstances which form the basis for the
issuance of such a notice; and
(e) Except as set forth on Section 5.12 of the Wherify Disclosure
Schedule, no material Permits of Wherify will be subject to suspension,
modification, revocation, cancellation, termination or nonrenewal as a result of
the execution, delivery or performance of this Agreement or any Ancillary
Agreement or the consummation by Wherify of the transactions contemplated by
this Agreement or any Ancillary Agreement. Wherify has complied in all material
respects with all of the terms and requirements of the material Permits of
Wherify.
5.13 INTELLECTUAL PROPERTY.
(a) Schedule 5.13 sets forth a complete and correct list of all
Intellectual Property that is owned by Wherify and primarily related to, used
in, held for use in connection with, or necessary for the conduct of, or
otherwise material to the business of Wherify other than (i) inventions, trade
secrets, processes, formulas, compositions, designs and confidential business
and technical information, and (ii) Intellectual Property that is both not
registered or subject to application for registration and not material to the
business of Wherify. Wherify owns or has the exclusive right to use pursuant to
license, sublicense, agreement or permission all Intellectual Property, free
from any Encumbrances other than other than those Permitted Encumbrances set
21
forth in clauses (a), (b), (c) and (e) of the definition of Permitted
Encumbrances set forth in Article IQB hereof and free from any requirement of
any past, present or future royalty payments, license fees, charges or other
payments, or conditions or restrictions whatsoever. The Intellectual Property
comprise all of the Intellectual Property necessary for IQB to conduct and
operate the business as now being conducted by Wherify.
(b) Immediately after the Closing, Wherify will own all of the
Intellectual Property and will have a right to use all other Intellectual
Property Assets, free from any Liens and on the same terms and conditions as in
effect prior to the Closing.
(c) The conduct of Wherify's business does not infringe or otherwise
conflict with any rights of any Person in respect of any Intellectual Property.
None of the Intellectual Property is being infringed or otherwise used or
available for use, by any other Person. As of the date of this Agreement, after
due inquiry, none of the Intellectual Property is being used or enforced in a
manner that would reasonably be expected to result in the abandonment,
cancellation or unenforceability of such Intellectual Property rights.
(d) Schedule 5.13 sets forth all agreements, arrangements or laws
(i) pursuant to which Wherify has licensed Intellectual Property to, or the use
of Intellectual Property is otherwise permitted (through non-assertion,
settlement or similar agreements or otherwise) by, any other Person, and (ii)
pursuant to which Wherify has had Intellectual Property licensed to it, or has
otherwise been permitted to use Intellectual Property (through non-assertion,
settlement or similar agreements or otherwise). All of the agreements or
arrangements set forth on Schedule 5.13 (x) are in full force and effect in
accordance with their terms and no default exists thereunder by Wherify, or by
any other party thereto, (y) are free and clear of all Encumbrances other than
other than those Permitted Encumbrances set forth in clauses (a), (b), (c) and
(e) of the definition of Permitted Encumbrances set forth in Article IQB hereof
, and (z) do not contain any change in control or other terms or conditions that
will become applicable or inapplicable as a result of the consummation of the
transactions contemplated by this Agreement. Wherify has delivered to IQB true
and complete copies of all licenses and arrangements (including amendments) set
forth on Schedule 5.13. All royalties, license fees, charges and other amounts
payable by, on behalf of, to, or for the account of, Wherify in respect of any
Intellectual Property are disclosed in the Financial Statements.
(e) No claim or demand of any Person has been made nor is there any
proceeding that is pending, or threatened, nor is there a reasonable basis
therefor, which (i) challenges the rights of Wherify in respect of any
Intellectual Property, (ii) asserts that Wherify is infringing or otherwise in
conflict with, or is, except as set forth on Schedule 5.13, required to pay any
royalty, license fee, charge or other amount with regard to, any Intellectual
Property, (iii) claims that any default exists under any agreement or
arrangement listed on Schedule 5.13, or (iv) asserts that any Intellectual
Property is being used or enforced in a manner that would reasonably be expected
to result in the abandonment, cancellation or unenforceability of such
Intellectual Property right. None of the Intellectual Property is subject to any
outstanding order, ruling, decree, judgment or stipulation by or with any court,
arbitrator, or other Governmental Authority, or has been the subject of any
litigation, whether or not resolved in favor of Wherify.
(f) The Intellectual Property of Wherify has been duly registered
with, filed in or issued by, as the case may be, the United States Patent and
Trademark Office, United States Copyright Office or such other filing offices,
domestic or foreign, and Wherify has taken such other actions, to ensure full
protection under any applicable laws or regulations, and such registrations,
filings, issuances and other actions remain in full force and effect, in each
case to the extent material to the business of Wherify.
(g) There are, and immediately after the Closing will be, no
contractual restriction or limitations pursuant to any orders, decisions,
injunctions, judgments, awards or decrees of any Governmental Authority on IQB's
right to use the name and marks of the business of Wherify as presently carried
on by Wherify or as such business may be extended by IQB.
22
(h) There are no defects in any software embodied in the
Intellectual Property that would prevent such software from performing in all
material respects the tasks and functions that it was intended to perform. All
of the commercially available software that is incorporated into the Owned
Software can be replaced by other widely-available and similarly priced
alternative commercially available software.
(i) Neither Wherify or any predecessors in interest, made a sale or
offer to sell of (i) the invention claimed in any patent application listed on
Schedule 5.13, (ii) any substantial equivalent of such inventions, or (iii) any
product or service derived therefrom such invention or substantial equivalent.
The invention claimed in the patent application listed on Schedule 5.13 was not
in public use before January 1, 2000.
(j) Except as set forth in Section 5.13(j) of the Wherify Disclosure
Schedule, all employees of Wherify have entered into a valid and binding written
agreement with Wherify sufficient to vest title in Wherify of all Intellectual
Property created by such employee in the scope of his or her employment with
Wherify.
5.14 EMPLOYEES. Except as set forth on Schedule 5.14 hereto,
(a) Wherify is not a party as an employer to any employment
contract, agreement or understanding which is not terminable at will without any
penalty, liquidated damages or other required payment;
(b) Wherify has satisfied all salaries, wages, unemployment
insurance premiums, worker compensation payments, income tax, FICA and other
deductions and any like payments required by law; and
(c) Wherify's employees are not unionized and there have not been,
to the Knowledge of Wherify, attempts to unionize them.
5.15 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule 5.15 hereto,
(a) Neither Wherify nor any of its ERISA Affiliates sponsors or has
ever sponsored, maintained, contributed to, or incurred an obligation to
contribute to, any Employee Plan;
(b) No individual shall accrue or receive additional benefits,
service or accelerated rights to payments of benefits under any Employee Plan
including the right to receive any parachute payment, as defined in Section 280G
of the Code, or become entitled to severance, termination allowance or similar
payments as a direct result of the transactions contemplated by this Agreement;
(c) No Employee Plan has participated in, engaged in or been a party
to any non-exempt Prohibited Transaction, and neither Wherify nor any of its
ERISA Affiliates has had asserted against it any claim for taxes under Chapter
43 of Subtitle D of the Code and Sections 4971 et. seq. of the Code, or for
penalties under ERISA Section 502(c), (i) or (1) with respect to any Employee
Plan nor, to the knowledge of IQB, Shareholders, is there a basis for any such
claim. No officer, director or employee of Wherify has committed a breach of any
material responsibility or obligation imposed upon fiduciaries by Title IQB of
ERISA with respect to any Employee Plan;
23
(d) Other than routine claims for benefits, there is no claim
pending or threatened, involving any Employee Plan by any person against such
plan or Wherify or any ERISA Affiliate. There is no pending or threatened
proceeding involving any Employee Plan before the IRS, the U.S. Department of
Labor or any other Governmental Entity;
(e) There is no material violation of any reporting or disclosure
requirement imposed by ERISA or the Code with respect to any Employee Plan;
(f) Each Employee Plan has at all times prior hereto been maintained
in all material respects, by its terms and in operation, in accordance with
ERISA and the Code. Wherify and its ERISA Affiliates have made full and timely
payment of all amounts required to be contributed under the terms of each
Employee Plan and applicable law or required to be paid as expenses under such
Employee Plan. Each Employer Plan intended to be qualified under Code Section
401(a) has received a determination letter to that effect from the Internal
Revenue Service and no event has occurred and no amendment has been made that
would adversely affect such qualified status;
(g) With respect to any group health plans maintained by Wherify or
its ERISA Affiliates, whether or not for the benefit of Wherify's employees,
Wherify and its ERISA Affiliate have complied in all material respects with the
provisions of Part 6 of Title IQB of ERISA and 4980B of the Code. Wherify is not
obligated to provide health care benefits of any kind to its retired employees
pursuant to any Employee Plan, including without limitation any group health
plan, or pursuant to any agreement or understanding; and
(h) Wherify has made available to IQB a copy of the three (3) most
recently filed federal Form 5500 series and accountant's opinion, if applicable,
for each Employee Plan and all applicable IRS determination letters.
5.16 LITIGATION. Except as set forth on Schedule 5.16 hereto,
(a) There are no Actions instituted, pending or to the Knowledge of
Wherify, threatened, against Wherify, nor are there any outstanding judgments,
decrees or injunctions against Wherify or any of its Assets or any rule or order
of any Governmental Entity applicable to Wherify, in each case which,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect on Wherify.; and
(b) There is no action, suit, proceeding, or claim pending or, to
the Knowledge of Wherify, threatened against Wherify by persons not a party to
this Agreement wherein an unfavorable decision, ruling, or finding would render
unlawful or otherwise materially adversely affect the consummation of the
transactions contemplated by this Agreement, nor is there any basis therefor.
5.17 COMPLIANCE WITH LAW. Except as set forth on Schedule 5.17 hereto,
(a) Wherify is not in violation of, or in default with respect to,
or in alleged violation of or alleged default with respect to, any applicable
law, rule, regulation, permit, or any writ or decree of any Governmental Entity,
including without limitation, any laws, ordinances, rules, regulations, Permits,
or orders relating to the business of Wherify, or the business operations and
practices, health and safety, and employment practices of Wherify except where
such violation or default would not have a Material Adverse Effect on Wherify;
(b) Wherify is not delinquent with respect to any report required to
be filed with any Governmental Entity that has in the past certified or endorsed
the business of Wherify except where such delinquency would not have a Material
Adverse Effect on Wherify ; and
24
(c) Wherify is not delinquent with respect to any reports required
by private covenants or agreements to which it is a party except where such
delinquency would not have a Material Adverse Effect on Wherify.
5.18 TAXES. Wherify has delivered to IQB or its representatives as
requested true, correct and complete copies of all federal, state, and other
appropriate jurisdictional Tax Returns, reports, and estimates regarding
Wherify. Except as set forth on Schedule 5.18 hereto,
(a) Each of the Tax Returns is complete, proper and accurate and has
been filed with appropriate governmental agencies by Wherify for each period for
which such Tax Return was due;
(b) All Taxes shown by the Tax Returns to be due and payable have
been timely paid;
(c) The unpaid Taxes of Wherify for Tax periods through the date of
the Wherify Reference Balance Sheet do not exceed the accruals and reserves for
Taxes set forth on the Wherify Reference Balance Sheet exclusive of any accruals
and reserves for "deferred taxes" or similar items that reflect timing
differences between Tax and financial accounting principles. All Taxes
attributable to the period from and after the date of the Wherify Reference
Balance Sheet and continuing through the Closing Date are attributable to the
conduct by Wherify of its operations in the ordinary course of business and are
consistent both as to type and amount with Taxes attributable to such comparable
period in the immediately preceding year. All Taxes that Wherify is or was
required by law to withhold or collect have been duly withheld or collected and,
to the extent required, have been paid to the proper Governmental Entity.
(d) Wherify has not given or been requested to give, or executed,
any extension of time or waiver of any statute of limitations with respect to
federal, state, or other political subdivision income or other tax for any
period;
(e) Wherify has not received any notice of deficiency or assessment
issued or proposed deficiency or assessment by the IRS or any other taxing
authority, nor is there any basis therefor; and
(f) The income Tax Returns of Wherify have been audited by the
applicable Governmental Entity or are closed by the applicable statute of
limitations for all taxable years through the taxable year specified in Section
5.18(f) of the Wherify Disclosure Schedule. No examination, audit or other
dispute with respect to any material Tax Return of Wherify by any Governmental
Entity is currently in progress or threatened or contemplated. Wherify has not
been informed by any Governmental Entity that the Governmental Entity believes
that Wherify was required to file any material Tax Return that was not filed.
Wherify has not waived any statute of limitations with respect to Taxes or
agreed to an extension of time with respect to a Tax assessment or deficiency.
(g) W: (i) has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (ii) has
not made any payments, is not obligated to make any payments, or is a not party
to any agreement that could obligate it to make any payments that may be treated
as an "excess parachute payment" under Section 280G of the Code (without regard
to Section 280G(b)(4)); (iii) has no actual or potential liability for any Taxes
of any person (other than Wherify) under Treasury Regulation Section 1.1502-6
(or any similar provision of law in any jurisdiction), or as a transferee or
successor, by contract, or otherwise; or (iv) is or has been required to make a
basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b). Wherify has provided to IQB the information
necessary to accurately calculate any excise tax due under Section 4999 of the
Code as a result of the transactions contemplated by this Agreement for which
Wherify or IQB may directly or indirectly become liable and the amount of
deductions that may be disallowed under Section 280G of the Code as a result of
the transactions contemplated by this Agreement.
25
5.19 INSURANCE. Except as set forth on Schedule 5.19 hereto,
(a) All insurance policies either maintained by Wherify or
maintained by any other person which relates to Wherify or its assets in any
manner as of the date hereof (collectively, the "Wherify Insurance Policies")
are still in full force and effect, and all premiums due thereon have been paid;
(b) Wherify has complied in all material respects with the
provisions of all Wherify Insurance Policies;
(c) No claim is pending under any of the Wherify Insurance Policies;
(d) There are no outstanding requirements or recommendations by any
insurance company that issued any of the Wherify Insurance Policies or by any
Board of Fire Underwriters or other similar body exercising similar functions or
by any Governmental Entity exercising similar functions which requires or
recommends any changes in the conduct of the business of, or any repairs or
other work to be done on or with respect to any of the properties or Assets of,
Wherify; and
(e) Wherify has not received any notice or other communication from
any such insurance company within the one (1) year preceding the date hereof
canceling or materially amending or materially increasing the annual or other
premiums payable under any of the Wherify Insurance Policies, and no such
cancellation, amendment or increase of premiums is threatened.
5.20 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.20 hereto,
(a) Wherify is in compliance with all applicable federal, state and
local laws and regulations relating to pollution control and environmental
contamination including, but not limited to, all laws and regulations governing
the generation, use, collection, treatment, storage, transportation, recovery,
removal, discharge or disposal of Hazardous Materials (and all laws and
regulations with regard to record keeping, notification and reporting
requirements respecting Hazardous Materials;
(b) Wherify has not received any notice from any Governmental Entity
with respect to any alleged violation by it of any applicable federal, state or
local environmental or health and safety statutes and regulations in connection
with Wherify's operations, nor is there any basis therefor;
(c) Wherify has not been alleged to be in violation of, or has been
subject to any administrative or judicial proceeding pursuant to, such laws and
regulations, either now or at any time during the past five years;
(d) There are no permits, licenses, consents, filings or other
approvals necessary or required to be obtained or made by laws and regulations
relating to Hazardous Material, pollution controls and environmental
contamination in connection with Wherify's business;
(e) Wherify is not a party to any contract or other agreement
relating to the storage, transportation, treatment or disposal of Hazardous
Materials;
(f) There are no claims or facts or circumstances that Wherify
reasonably believes could form the basis for the assertion of any claim relating
to environmental matters involving Wherify, including, but not limited to, any
claim arising from past or present practices of the business of Wherify, or with
respect to properties now or previously owned or leased, as asserted under
CERCLA, or RCRA, or any other federal, state or local environmental statute, or
the generation, use, treatment, disposal, discharge, ownership, operation,
transportation, storage of Hazardous Materials, or any other related act or
omission of Wherify;
26
(g) Wherify is not subject to any remedial obligation under
applicable law or administrative order or decree pertaining to environmental,
health or safety statutes or regulations, including, without limitation, CERLA,
RCRA or any similar state statute;
(h) To Wherify's Knowledge, no Hazardous Material or other
substances known or suspected to pose a threat to health or the environmental
have been disposed of or otherwise released on or near any real property or
improvements of Wherify, and there are no off-site locations where Hazardous
Materials associated in any way with Wherify have been generated, used,
collected, treated, stored, transported, recycled, discharged or disposed of.
5.21 TRANSACTIONS WITH AFFILIATED PARTIES. Except as set forth on Schedule
5.21 hereto,
(a) There are no transactions currently engaged in between Wherify
and any party affiliated with Wherify (other than transactions inherent in the
normal capacities of shareholders, officers, directors, or employees);
(b) Except for the ownership of non-controlling interests in
securities of corporations the shares of which are publicly traded, no party
affiliated with Wherify has any investment or ownership interest, directly,
indirectly, or beneficially, in any competitor or potential competitor, major
supplier, or customer of Wherify; and
(c) There are no agreements to which Wherify is a party under which
the transactions contemplated by this Agreement (i) will require payment by
Wherify or any consent or waiver from any shareholder, officer, director,
employee, consultant or agent of Wherify, or (ii) will result in any change in
the nature of any rights of any shareholder, officer, director, employee,
consultant or agent of Wherify under any such agreement.
5.22 FINDER'S FEES; CERTAIN EXPENSES. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on by
Wherify and its counsel directly with IQB and its counsel, without the
intervention of any other person as the result of any act of any of them,
without the intervention of any other person in such manner as to give rise to
any valid claim against any of the parties hereto for a brokerage commission,
finder's fee, or any similar payment.
5.23 CUSTOMERS AND SUPPLIERS. Section 5.23 of the Wherify Disclosure
Schedule accurately identifies, and provides an accurate and complete breakdown
of Wherify's ten largest customers in terms of revenue of Wherify and each
Person, including each reseller, with whom Wherify is currently negotiating or
in discussions with a business relationship in connection with the current or
future purchase, distribution or resale of Wherify's products or services (each
a "Potential Customer") including projected orders from such customers and
Potential Customers; provided, however, that Wherify makes no representation or
warranty with respect to such order projections, other than that the projections
were based on information provided to Wherify by such customers and Potential
Customers, and the projections were prepared in good faith. Except as disclosed
in Section 5.23 of the Wherify Disclosure Schedule, no such customer has ceased
or materially reduced its purchases from Wherify or has threatened to cease or
materially reduce such purchases after the date hereof. Except as disclosed in
Section 5.23 of the Wherify Disclosure Schedule, no Potential Customer has
ceased or threatened to cease negotiations or discussions with Wherify. To the
Knowledge of Wherify, no such customer or Potential Customer is threatened with
bankruptcy or insolvency.
27
5.24 UNTRUE STATEMENTS. This Agreement, the schedules and exhibits hereto,
and all other documents and information furnished by Wherify, or any of its
respective representatives pursuant hereto or in connection herewith, do not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made herein and therein not misleading.
ARTICLE VI
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS
OF THE SUBSIDIARY
IQB and Merger Sub hereby represent, warrant, and agree that the
statements contained in this Article VI are true and correct, except as
expressly set forth herein or in the disclosure schedule delivered by Merger Sub
to Wherify on or before the date of this Agreement (the "Merger Sub Disclosure
Schedule"). The Merger Sub Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
VI and the disclosure in any paragraph shall qualify the corresponding paragraph
in this Article VI where such disclosure would be appropriate and for which the
relevance of such disclosure is reasonably apparent based upon its nature and
substance.
6.1. ORGANIZATION AND STANDING OF THE MERGER SUB. The Merger Sub is a
corporation duly and validly existing, organized and in good standing under the
laws of the state of California The Merger Sub has full requisite power and
authority to carry on its business as it is now being conducted, and to own,
operate, and lease the properties now owned, operated, or leased by it.
6.2 CAPACITY TO ENTER INTO AGREEMENT. Merger Sub has all requisite
corporate power and authority to enter into this Agreement, the Ancillary
Agreements and all other agreements, documents and instruments to be executed in
connection herewith and, subject only to the adoption of this Agreement and the
approval of the Merger by the sole stockholder of the Merger Sub. The execution
and delivery by Merger Sub of this Agreement, the Ancillary Agreements and all
other agreements, documents and instruments to be executed by Merger Sub in
connection herewith have been authorized by all necessary corporate action by
Merger Sub, other than for the approval of the sole stockholder of Merger Sub,
which will be sought pursuant to this Agreement. When this Agreement, the
Ancillary Agreements and all other agreements, documents and instruments to be
executed by Merger Sub in connection herewith have been executed by Merger Sub
and delivered to Wherify, this Agreement, the Ancillary Agreements and such
other agreements, documents and instruments will constitute the valid and
binding agreements of Merger Sub enforceable against Merger Sub in accordance
with their respective terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
6.3 CONFLICTS. Except as set forth on Schedule 6.3 hereto, the execution
and delivery of this Agreement and the Ancillary Agreements, the performance by
Merger Sub of its obligations hereunder and thereunder, and the consummation of
the transactions contemplated by this Agreement hereby or thereby will not (a)
violate, conflict with or result in (with or without notice or lapse of time, or
both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit) under, require a
consent or waiver under, constitute a change in control under, require the
payment of a penalty under or result in the imposition of any lien on Merger
Sub's Assets under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license or other agreement, instrument or
obligation to which Merger Sub is a party or by which it or any of its
properties or assets may be bound or affected, (b) violate any statute, law,
ordinance, rule, regulation or judgment, decree or order of any Governmental
Entity, applicable to Merger Sub or any of its Assets, (c) result in the
creation of any Encumbrance upon any Assets or business of Merger Sub pursuant
to the terms of any Merger Sub Contract, permit, authorization, or any order,
judgment or decree to which Merger Sub is a party or by which Merger Sub or any
of its Assets are bound or encumbered, or (d) violate any provision in the
charter documents, bylaws or any other agreement affecting the governance and
control of Merger Sub.
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6.4 CONSENTS. Except as set forth on Schedule 6.4 hereto, no consent,
waiver, approval, license, permit, order or authorization of, or registration,
declaration, notice or filing with, any Governmental Entity or any other person,
which has not been obtained, is necessary in connection with the execution,
delivery, or performance of this Agreement by Merger Sub, other than for the
approval of the sole stockholder of Wherify, which will be sought pursuant to
this Agreement.
6.5 FINDER'S FEES. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Merger Sub and its
counsel directly with Wherify and their counsel, without the intervention of any
other person as the result of any act by the Merger Sub, and so far as is known
to the Merger Sub, without the intervention of any other person in such manner
as to give rise to any valid claim against any of the parties hereto for a
brokerage commission, finders' fee, or any similar payment.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF IQB
IQB hereby represents, warrants, and agrees that the statements contained
in this Article VII are true and correct, except as expressly set forth herein
or in the disclosure schedule delivered by IQB to Wherify on or before the date
of this Agreement (the "IQB Disclosure Schedule"). The IQB Disclosure Schedule
shall be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article VII and the disclosure in any paragraph
shall qualify the corresponding paragraph in this Article VII where such
disclosure would be appropriate and for which the relevance of such disclosure
is reasonably apparent based upon its nature and substance.
7.1. ORGANIZATION AND STANDING OF IQB. IQB is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. IQB has full requisite corporate power and authority to carry on its
business as it is now being conducted and as proposed to be conducted, and to
own, operate, and lease the properties now owned, operated, or leased by it. IQB
is duly authorized and qualified to carry on its business in the manner as now
conducted and as proposed to be conducted in each state in which authorization
and qualification is required. Section 7.1 of the IQB Disclosure Schedule sets
forth a list of the jurisdictions in which IQB is qualified to transact
business. IQB has made available to Wherify and its representatives as requested
true, correct and complete copies of the contents of IQB's minute book, which
are accurate in all material respects and set forth fully and fairly all of the
IQB's transactions since March 2002. IQB has delivered to Wherify complete and
accurate copies of the Certificate of Incorporation and Bylaws of IQB each as
amended to date.
7.2 CAPACITY TO ENTER INTO AGREEMENT. IQB has all requisite corporate
power and authority to enter into this Agreement, the Ancillary Agreements to
which IQB is a party, and all other agreements, documents and instruments to be
executed in connection herewith and, subject only to the adoption of this
Agreement and the approval of the Merger (the "IQB Voting Proposal") by IQB's
stockholders under the DGCL, to consummate the transactions contemplated by this
Agreement. The execution and delivery by IQB of this Agreement, the Ancillary
Agreements to which IQB is a party, and all other agreements, documents and
instruments to be executed by IQB in connection herewith have been authorized by
all necessary action by IQB, other than for the approval of the Stockholders of
IQB, which will be sought pursuant to this Agreement. When this Agreement, the
Ancillary Agreements to which IQB is a party, and all other agreements,
documents and instruments to be executed by IQB in connection herewith are
approved and are executed by IQB and delivered to Wherify, this Agreement, the
Ancillary Agreements to which IQB is a party, and such other agreements,
documents and instruments will constitute the valid and binding agreements of
IQB, enforceable against IQB in accordance with their respective terms subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
29
7.3 CAPITALIZATION OF IQB. The authorized IQB Capital Stock consists of 50
million shares of common stock, 23,110,411 of which were issued and outstanding
as of February 29, 2004, and 10,000,000 shares of preferred stock, none of which
have been issued as of the date hereof. The shares of IQB Common Stock issued
and outstanding prior to the Effective Time are, and all shares of IQB Common
Stock subject to issuance as specified in this Section 7.2 will be, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, duly and validly authorized and issued, fully paid and
non-assessable, and were not or will not be issued in violation of the
pre-emptive rights of any current or former stockholder. The shares of IQB
Capital Stock issued and outstanding as of the date hereof were issued, and all
secondary transfers of such shares permitted by IQB as of the date hereof were
made, in compliance with all applicable law (including, without limitation,
available exemptions from the securities offering registration requirements of
federal and state law). Except for (i) 3,040,429 shares of IQB Common Stock
issuable upon the exercise of outstanding options ("IQB Stock Options") and (ii)
7,404,950 shares issuable upon conversion of outstanding debentures, warrants
and other rights to acquire IQB Common Stock, no warrant, call, subscription,
convertible security, or commitment of any kind obligating IQB to issue any IQB
Common Stock exists. There is not any compensation plan applicable to any of the
officers, directors, or employees of IQB under which compensation accrued or
payable is determined, in whole or in part, by reference to IQB Common Stock.
There are no agreements or commitments obligating IQB to repurchase or otherwise
acquire any IQB Capital Stock. IQB has no rights of repurchase or redemption
right or right of first refusal with respect to any shares of IQB Common Stock.
The vesting of any IQB Stock Options will not be accelerated in any way by the
transactions contemplated by this Agreement or by the termination of employment
or engagement or change in position of any holder thereof following consummation
of the Merger. IQB has provided to Wherify accurate and complete copies of all
agreements evidencing IQB Stock Options, debentures and warrants convertible
into or exercisable for IQB Common Stock.
7.4 SUBSIDIARIES AND OTHER VENTURES. Except as set forth in Section 7.4 of
the IQB Disclosure Schedule, IQB has no subsidiaries or affiliated corporations,
and owns no capital stock, bond, or other security of, or has any equity or
proprietary interest in, any corporation, partnership, joint venture, trust, or
unincorporated association.
7.5 CONFLICTS. Except as set forth on Schedule 7.5 of the IQB Disclosure
Schedule, the execution and delivery of this Agreement and the Ancillary
Agreements, the performance by IQB of its obligations hereunder and thereunder,
and the consummation of the transactions contemplated by this Agreement hereby
or thereby will not (a) violate, conflict with or result in (with or without
notice or lapse of time, or both) a default (or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
material benefit) under, require a consent or waiver under, constitute a change
in control under, require the payment of a penalty under or result in the
imposition of any lien on IQB's material Assets under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license
or other agreement, instrument or obligation to which IQB is a party or by which
it or any of its properties or material Assets may be bound or affected, (b)
violate any statute, law, ordinance, rule, regulation or judgment, decree or
order of any Governmental Entity, applicable to IQB or any of its material
Assets, (c) result in the creation of any Encumbrance upon any material Assets
or business of IQB pursuant to the terms of any Contract, permit, authorization,
or any order, judgment or decree to which IQB is a party or by which IQB or any
of its Assets are bound or encumbered, or (d) violate any provision in the
charter documents, bylaws or any other agreement affecting the governance and
control of IQB.
30
7.6 CONSENTS. Except as set forth on Schedule 7.6 of the IQB Disclosure
Schedule, no consent, approval, license, permit, order or authorization of, or
registration, declaration, notice or filing with, any Governmental Entity or any
other person, which has not been obtained, is necessary in connection with the
execution, delivery, or performance of this Agreement by IQB, other than for (i)
the filing and having declared effective, the Registration Statement with the
SEC in accordance with the Securities Act; (ii) the filing of the Joint Proxy
Statement/Prospectus with the SEC in accordance with the Exchange Act, (iii) the
filing of such reports, schedules or materials under Section 13 of or Rule
14a-12 under the Exchange Act and materials under Rule 165 and Rule 425 under
the Securities Act as may be required in connection with this Agreement and the
transactions contemplated hereby, and (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws.
7.7 SEC FILINGS; FINANCIAL STATEMENTS. IQB has filed all registration
statements, forms, reports and other documents required to be filed by the
Company with the SEC since March 31, 2002, and has made available to Wherify
copies of all registration statements, forms, reports and other documents filed
by IQB with the SEC since such date, all of which are publicly available on the
SEC's XXXXX system without redaction. All such registration statements, forms,
reports and other documents are referred to herein as the "IQB SEC Reports." The
IQB SEC Reports (i) were at the time filed, prepared in compliance in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such IQB SEC Reports and (ii) did not at the time they
were filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such IQB SEC Reports or necessary in
order to make the statements in such IQB SEC Reports, in the light of the
circumstances under which they were made, not misleading. Each of the
consolidated financial statements (including, in each case, any related notes
and schedules) contained or to be contained in the IQB SEC Reports at the time
filed (i) complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, (ii) were prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements or, in the case of unaudited interim
financial statements, as permitted by the SEC on Form 10-QSB under the Exchange
Act) and (iii) fairly presented in all material respects the consolidated
financial position of IQB as of the dates indicated and the consolidated results
of its operations and cash flows for the periods indicated, consistent with the
books and records of IQB, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were not
or are not expected to be material in amount.
7.8 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth on Schedule
7.8 hereto, since the unaudited balance sheet of IQB at December 31, 2003, (the
"IQB Reference Balance Sheet"), there has not been:
(a) Any material adverse change in the financial condition,
operations, business, employee relations, customer relations, assets,
liabilities (accrued, absolute, contingent, or otherwise) or income of IQB, or
the business of IQB, from that shown on the IQB Reference Balance Sheet;
(b) Any declaration, setting aside, or payment of any distribution
in respect of the equity interests in IQB, or any direct or indirect redemption,
purchase, or any other acquisition of any such interests, except for IQB's
repurchase of IQB Common Stock from individuals following termination of their
employment with IQB pursuant to the terms of stock option or stock purchase
agreements;
31
(c) Any borrowing of, or agreement to borrow any funds or any debt,
obligation, or liability (absolute or contingent) incurred by IQB (whether or
not presently outstanding) except current liabilities incurred, and obligations
under agreements entered into in the ordinary course of business;
(d) Any creation or assumption by IQB of any Encumbrance, other than
a Permitted Encumbrance, on any material Asset;
(e) Any sale, assignment, or transfer of IQB's assets, except in the
ordinary course of business, any cancellation of any debts or claims owed to
IQB, any capital expenditures or commitments therefore exceeding in the
aggregate $15,000, any damage, destruction or casualty loss exceeding in the
aggregate $15,000 (whether or not covered by insurance), or any charitable
contributions or pledges;
(f) Any amendment or termination of any Contracts which IQB is or
was a party or to which any assets of IQB are or were subject, which amendment
or termination has had, or may be reasonably expected to have, a Material
Adverse Effect on IQB;
(g) any split, combination, reclassification or other amendment of
any material term of any outstanding security of IQB;
(h) any making of any material loan, advance or capital contribution
to any Person;
(i) any compromise, relinquishment, settlement or waiver by IQB of a
valuable right or material debt owed to it in excess of $5,000;
(j) any resignation or termination of employment of any key employee
or executive officer of IQB and, IQB has not received written notice of any such
pending resignation or termination;
(k) except for regularly scheduled increases in compensation or
bonuses for non-professional level employees, in each case in the ordinary
course of business consistent with past practice, any material change in the
rate of compensation, commission, bonus or other direct or indirect remuneration
payable or to become payable to any director, officer or employees or agreement
or binding promise (orally or otherwise) to pay, conditionally or otherwise, any
bonus or extra compensation or other employee benefit to any of such directors,
officers or employees or severance;
(l) any employment or severance agreement with or for the benefit of
any director, officer or employee of IQB;
(m) any change in accounting methods, principles or practices of IQB
affecting its Assets, Liabilities or business, except immaterial changes
permitted by GAAP;
(n) any claim of wrongful discharge or other unlawful labor practice
or action with respect to IQB;
(o) any material revaluation by IQB of any of its Assets;
(p) any material change or modification of any of the credit,
collection or payment policies, procedures or practices of IQB, including
acceleration of collections of receivables, failure to make or delay in making
collections of receivables, acceleration of payment of payables or other
Liabilities or failure to pay or delay in payment of payables or other
Liabilities;
(q) any material discount activity with customers of IQB that has
accelerated or would accelerate to pre-Closing periods sales that would
otherwise in the ordinary course of business consistent with past practices be
expected to occur in post-Closing periods;
32
(r) any settlement or compromise of any Action involving in excess
of $50,000;
(s) Any other material transaction by IQB outside the ordinary
course of business or any other event or condition pertaining to, and that has
or reasonably would be expected to have a Material Adverse Effect on IQB; or
(t) any agreement by IQB or any officer or employees thereof to do
any of the things described in the preceding clauses (a) through (s) (other than
negotiations with Wherify and its representatives regarding the transactions
contemplated by this Agreement).
7.9 ASSETS. Except as set forth on Schedule 7.9 hereto,
(a) IQB has good and valid title to all of its material Assets, free
and clear of all Encumbrances other than Permitted Encumbrances;
(b) All of IQB's machinery, equipment, appliances, motor vehicles
and fixtures are in good operating condition and repair, subject only to
ordinary wear and tear and routine maintenance items;
(c) All of the inventories of IQB (including, without limitation,
raw materials, spare parts and supplies, work-in-process, finished goods)
consist of items of a quality, condition and quantity useable and saleable in
the normal course of business; and
(d) All of the accounts receivable of IQB are valid, subsisting, and
genuine, arose out of bona fide transactions and are current and collectible,
subject to reserves reflected on the IQB Reference Balance Sheet.
(e) Section 7.9(e) of the IQB Disclosure Schedule sets forth a list
of all real properties owned by IQB (the "IQB Owned Real Property"). IQB has
good and valid fee title to, and enjoys peaceful and undisturbed possession of,
the IQB Owned Real Property free and clear of any and all Encumbrances other
than any Permitted Encumbrances. Except as set forth in Section 7.9(e) of the
IQB Disclosure Schedule, IQB has not received written notice of any pending or
threatened special assessment relating to the IQB Owned Real Property. Section
7.9(e) of the IQB Disclosure Schedule sets forth a list of all leases, licenses
or other occupancy rights affecting the IQB Owned Real Property ("IQB Occupancy
Agreements"). The Occupancy Agreements are in full force and effect and there
has been no material default under such Occupancy Agreements by IQB, or to the
Knowledge of IQB, by any other party thereto, and, to the Knowledge of IQB,
there is no existing event or circumstance that with the passage of time or the
giving of notice, or both, would constitute a default under such Occupancy
Agreements.
(f) Section 7.9(f) of IQB Disclosure Schedule sets forth a list of
all material leased real property used by IQB (the "IQB Leased Real Property").
IQB has good and valid leasehold title to, and enjoys peaceful and undisturbed
possession of, all of IQB Leased Real Property, free and clear of any and all
Encumbrances other than any Permitted Encumbrances. There has been no material
default under any lease relating to IQB Leased Real Property by IQB or, to the
Knowledge of IQB, by any other party and, to the Knowledge of IQB, there is no
existing event or circumstance that with the passage of time or the giving of
notice, or both, would constitute a default under such lease. Except as set
forth in Section 7.9(f) of the IQB Disclosure Schedule, IQB has not received
written notice of any pending or threatened special assessment relating to IQB
Leased Real Property; and.
33
(g) There are no restrictions imposed by any Contract which preclude
or restrict in any material respect the ability of IQB to use any of IQB Owned
Real Property or IQB Leased Real Property for the purposes for which it is
currently being used.
7.10 CONTRACTS. Section 7.10 of the IQB Disclosure Schedule sets forth a
list of the Party Contracts of IQB.
(a) Except as set forth on Schedule 7.10 of the IQB Disclosure
Schedule, each Party Contract of IQB is in full force and effect and is legal,
valid, binding and enforceable in accordance with its terms against IQB and, to
the Knowledge of IQB, against all other parties thereto; and
(b) There is not, under any such Party Contract of IQB any existing
or prospective default or event of default by IQB or to the Knowledge of IQB,
any other Person, or event which with notice or lapse of time, or both would
constitute a default or give IQB or any other Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity of, or to
cancel, terminate or modify, any right, obligation or remedy under any Party
Contract of IQB, except where such violation, breach, default, exercise,
acceleration, cancellation, termination or modification would not reasonably be
expected to have a Material Adverse Effect on IQB, and in respect to which IQB
has not taken adequate steps to prevent a default from occurring.
7.11 PERMITS. Section 7.11 of the IQB Disclosure Schedule contains a
complete and accurate list of all material Permits that are held by IQB. All
material Permits of IQB are validly held by IQB and are in full force and
effect. Except as set forth on Schedule 7.11 hereto,
(a) the Permits listed on Section 7.11 of the IQB Disclosure
Schedule, constitute all material Permits that are necessary for IQB to carry on
its business and to own and use its assets in compliance with all laws
applicable to such operation, ownership and use, and all such licenses, permits
and authorizations are in good standing;
(b) IQB is in full compliance with and not in default or violation
with respect to any term or provision of any of its material Permits;
(c) No notice of pending, threatened, or possible violation or
investigation in connection with, or loss of, any Permit of IQB, has been
received by IQB;
(d) IQB has no knowledge that the issuance of such a notice is being
considered or of any facts or circumstances which form the basis for the
issuance of such a notice; and
(e) no material Permits of IQB will be subject to suspension,
modification, revocation, cancellation, termination or nonrenewal as a result of
the execution, delivery or performance of this Agreement or any Ancillary
Agreement or the consummation by IQB of the transactions contemplated by this
Agreement or any Ancillary Agreement. IQB has complied in all material respects
with all of the terms and requirements of the material Permits of IQB.
7.12 INTELLECTUAL PROPERTY.
(a) Schedule 7.12 sets forth a complete and correct list of all
Intellectual Property that is owned by IQB and primarily related to, used in,
held for use in connection with, or necessary for the conduct of, or otherwise
material to the business of IQB other than (i) inventions, trade secrets,
processes, formulas, compositions, designs and confidential business and
34
technical information, and (ii) Intellectual Property that is both not
registered or subject to application for registration and not material to the
business of IQB. IQB owns or has the exclusive right to use pursuant to license,
sublicense, agreement or permission all Intellectual Property, free from any
Encumbrances other than other than those Permitted Encumbrances set forth in
clauses (a), (b), (c) and (e) of the definition of Permitted Encumbrances set
forth in Article IQB hereof and free from any requirement of any past, present
or future royalty payments, license fees, charges or other payments, or
conditions or restrictions whatsoever. The Intellectual Property comprise all of
the Intellectual Property necessary for IQB to conduct and operate the business
as now being conducted by IQB.
(b) Immediately after the Closing, IQB will own all of the
Intellectual Property and will have a right to use all other Intellectual
Property Assets, free from any Liens and on the same terms and conditions as in
effect prior to the Closing.
(c) The conduct of IQB's business does not infringe or otherwise
conflict with any rights of any Person in respect of any Intellectual Property.
None of the Intellectual Property is being infringed or otherwise used or
available for use, by any other Person. As of the date of this Agreement, after
due inquiry, none of the Intellectual Property is being used or enforced in a
manner that would reasonably be expected to result in the abandonment,
cancellation or unenforceability of such Intellectual Property rights.
(d) Schedule 7.12 sets forth all agreements, arrangements or laws
(i) pursuant to which IQB has licensed Intellectual Property to, or the use of
Intellectual Property is otherwise permitted (through non-assertion, settlement
or similar agreements or otherwise) by, any other Person, and (ii) pursuant to
which IQB has had Intellectual Property licensed to it, or has otherwise been
permitted to use Intellectual Property (through non-assertion, settlement or
similar agreements or otherwise). All of the agreements or arrangements set
forth on Schedule 7.12 (x) are in full force and effect in accordance with their
terms and no default exists thereunder by IQB, or by any other party thereto,
(y) are free and clear of all Encumbrances other than other than those Permitted
Encumbrances set forth in clauses (a), (b), (c) and (e) of the definition of
Permitted Encumbrances set forth in Article IQB hereof , and (z) do not contain
any change in control or other terms or conditions that will become applicable
or inapplicable as a result of the consummation of the transactions contemplated
by this Agreement. IQB has delivered to Wherify true and complete copies of all
licenses and arrangements (including amendments) set forth on Schedule 7.12. All
royalties, license fees, charges and other amounts payable by, on behalf of, to,
or for the account of, IQB in respect of any Intellectual Property are disclosed
in the IQB Reference Balance Sheet.
(e) No claim or demand of any Person has been made nor is there any
proceeding that is pending, or threatened, nor is there a reasonable basis
therefor, which (i) challenges the rights of IQB in respect of any Intellectual
Property, (ii) asserts that IQB is infringing or otherwise in conflict with, or
is, except as set forth on Schedule 7.12, required to pay any royalty, license
fee, charge or other amount with regard to, any Intellectual Property, (iii)
claims that any default exists under any agreement or arrangement listed on
Schedule 7.12, or (iv) asserts that any Intellectual Property is being used or
enforced in a manner that would reasonably be expected to result in the
abandonment, cancellation or unenforceability of such Intellectual Property
right. None of the Intellectual Property is subject to any outstanding order,
ruling, decree, judgment or stipulation by or with any court, arbitrator, or
other Governmental Authority, or has been the subject of any litigation, whether
or not resolved in favor of IQB.
(f) The Intellectual Property of IQB has been duly registered with,
filed in or issued by, as the case may be, the United States Patent and
Trademark Office, United States Copyright Office or such other filing offices,
domestic or foreign, and IQB has taken such other actions, to ensure full
protection under any applicable laws or regulations, and such registrations,
filings, issuances and other actions remain in full force and effect, in each
case to the extent material to the business of IQB.
(g) There are, and immediately after the Closing will be, no
contractual restriction or limitations pursuant to any orders, decisions,
injunctions, judgments, awards or decrees of any Governmental Authority on IQB's
right to use the name and marks of the business of IQB as presently carried on
by IQB or as such business may be extended by IQB.
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(h) There are no defects in any software embodied in the
Intellectual Property that would prevent such software from performing in all
material respects the tasks and functions that it was intended to perform. All
of the commercially available software that is incorporated into the Owned
Software can be replaced by other widely-available and similarly priced
alternative commercially available software.
(i) Neither IQB or any predecessors in interest, made a sale or
offer to sell of (i) the invention claimed in any patent application listed on
Schedule 7.12, (ii) any substantial equivalent of such inventions, or (iii) any
product or service derived therefrom such invention or substantial equivalent.
The invention claimed in the patent application listed on Schedule 7.12 was not
in public use before January 1, 2000.
(j) Except as set forth in Section 7.12(j) of the Wherify Disclosure
Schedule, all employees of IQB have entered into a valid and binding written
agreement with IQB sufficient to vest title in IQB of all Intellectual Property,
created by such employee in the scope of his or her employment with IQB.
7.13 EMPLOYEES. Except as set forth on Schedule 7.13 hereto,
(a) IQB is not a party as an employer to any employment contract,
agreement or understanding which is not terminable at will without any penalty,
liquidated damages or other required payment;
(b) IQB has satisfied all salaries, wages, unemployment insurance
premiums, worker compensation payments, income tax, FICA and other deductions
and any like payments required by law; and
(c) Wherify's employees are not unionized and there have not been,
to the Knowledge of IQB, attempts to unionize them.
7.14 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule 7.14 hereto,
(a) Neither IQB nor any of its ERISA Affiliates sponsors or has ever
sponsored, maintained, contributed to, or incurred an obligation to contribute
to, any Employee Plan;
(b) No individual shall accrue or receive additional benefits,
service or accelerated rights to payments of benefits under any Employee Plan
including the right to receive any parachute payment, as defined in Section 280G
of the Code, or become entitled to severance, termination allowance or similar
payments as a direct result of the transactions contemplated by this Agreement;
(c) No Employee Plan has participated in, engaged in or been a party
to any non-exempt Prohibited Transaction, and neither IQB nor any of its ERISA
Affiliates has had asserted against it any claim for taxes under Chapter 43 of
Subtitle D of the Code and Sections 4971 et. seq. of the Code, or for penalties
under ERISA Section 502(c), (i) or (1) with respect to any Employee Plan nor, to
the knowledge of IQB, Shareholders, is there a basis for any such claim. No
officer, director or employee of IQB has committed a breach of any material
responsibility or obligation imposed upon fiduciaries by Title IQB of ERISA with
respect to any Employee Plan;
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(d) Other than routine claims for benefits, there is no claim
pending or threatened, involving any Employee Plan by any person against such
plan or IQB or any ERISA Affiliate. There is no pending or threatened proceeding
involving any Employee Plan before the IRS, the U.S. Department of Labor or any
other Governmental Entity;
(e) There is no material violation of any reporting or disclosure
requirement imposed by ERISA or the Code with respect to any Employee Plan;
(f) Each Employee Plan has at all times prior hereto been maintained
in all material respects, by its terms and in operation, in accordance with
ERISA and the Code. IQB and its ERISA Affiliates have made full and timely
payment of all amounts required to be contributed under the terms of each
Employee Plan and applicable law or required to be paid as expenses under such
Employee Plan. Each Employer Plan intended to be qualified under Code Section
401(a) has received a determination letter to that effect from the Internal
Revenue Service and no event has occurred and no amendment has been made that
would adversely affect such qualified status;
(g) With respect to any group health plans maintained by IQB or its
ERISA Affiliates, whether or not for the benefit of IQB's employees, IQB and its
ERISA Affiliate have complied in all material respects with the provisions of
Part 6 of Title IQB of ERISA and 4980B of the Code. IQB is not obligated to
provide health care benefits of any kind to its retired employees pursuant to
any Employee Plan, including without limitation any group health plan, or
pursuant to any agreement or understanding; and
(h) IQB has made available to Wherify a copy of the three (3) most
recently filed federal Form 5500 series and accountant's opinion, if applicable,
for each Employee Plan and all applicable IRS determination letters.
7.15 LITIGATION. Except as set forth on Schedule 7.15 hereto,
(a) There are no Actions instituted, pending or to the Knowledge of
IQB, threatened, against IQB, nor are there any outstanding judgments, decrees
or injunctions against IQB or any of its Assets or any rule or order of any
Governmental Entity applicable to IQB, in each case which, individually or in
the aggregate, could reasonably be expected to result in a Material Adverse
Effect on IQB; and
(b) There is no action, suit, proceeding, or claim pending or
threatened against IQB by persons not a party to this Agreement wherein an
unfavorable decision, ruling, or finding would render unlawful or otherwise
adversely affect the consummation of the transactions contemplated by this
Agreement, nor is there any basis therefor.
7.16 COMPLIANCE WITH LAW. Except as set forth on Schedule 7.16 hereto,
(a) IQB is not in violation of, or in default with respect to, or in
alleged violation of or alleged default with respect to, any applicable law,
rule, regulation, permit, or any writ or decree of any Governmental Entity,
including without limitation, any laws, ordinances, rules, regulations, Permits,
or orders relating to the business of IQB, or the business operations and
practices, health and safety, and employment practices of IQB except where such
violation or default would not have a Material Adverse Effect on IQB;
(b) IQB is not delinquent with respect to any report required to be
filed with any Governmental Entity that has in the past certified or endorsed
the business of IQB, except where such delinquency would not have a Material
Adverse Effect on IQB; and
37
(c) IQB is not delinquent with respect to any reports required by
private covenants or agreements to which it is a party, except where such
delinquency would not have a Material Adverse Effect on IQB.
7.17 TAXES. IQB has delivered to Wherify or its representatives as
requested true, correct and complete copies of all federal, state, and other
appropriate jurisdictional Tax Returns, reports, and estimates regarding IQB.
Except as set forth on Schedule 7.17 hereto,
(a) Each of the Tax Returns is complete, proper and accurate and has
been filed with appropriate governmental agencies by IQB for each period for
which such Tax Return was due;
(b) All Taxes shown by the Tax Returns to be due and payable have
been timely paid;
(c) The unpaid Taxes of IQB for Tax periods through the date of the
IQB Reference Balance Sheet do not exceed the accruals and reserves for Taxes
set forth on the IQB Reference Balance Sheet exclusive of any accruals and
reserves for "deferred taxes" or similar items that reflect timing differences
between Tax and financial accounting principles. All Taxes attributable to the
period from and after the date of the IQB Reference Balance Sheet and continuing
through the Closing Date are attributable to the conduct by IQB of its
operations in the ordinary course of business and are consistent both as to type
and amount with Taxes attributable to such comparable period in the immediately
preceding year. All Taxes that IQB is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity.
(d) IQB has not given or been requested to give, or executed, any
extension of time or waiver of any statute of limitations with respect to
federal, state, or other political subdivision income or other tax for any
period;
(e) IQB has not received any notice of deficiency or assessment
issued or proposed deficiency or assessment by the IRS or any other taxing
authority, nor is there any basis therefor; and
(f) The income Tax Returns of IQB have been audited by the
applicable Governmental Entity or are closed by the applicable statute of
limitations for all taxable years through the taxable year specified in Section
7.17(f) of the IQB Disclosure Schedule. No examination, audit or other dispute
with respect to any material Tax Return of IQB by any Governmental Entity is
currently in progress or threatened or contemplated. IQB has not been informed
by any Governmental Entity that the Governmental Entity believes that IQB was
required to file any material Tax Return that was not filed. IQB has not waived
any statute of limitations with respect to Taxes or agreed to an extension of
time with respect to a Tax assessment or deficiency.
(g) I: (i) has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (ii) has
not made any payments, is not obligated to make any payments, or is a not party
to any agreement that could obligate it to make any payments that may be treated
as an "excess parachute payment" under Section 280G of the Code (without regard
to Section 280G(b)(4)); (iii) has no actual or potential liability for any Taxes
of any person (other than Wherify) under Treasury Regulation Section 1.1502-6
(or any similar provision of law in any jurisdiction), or as a transferee or
successor, by contract, or otherwise; or (iv) is or has been required to make a
basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b). IQB has provided to Wherify the information
necessary to accurately calculate any excise tax due under Section 4999 of the
Code as a result of the transactions contemplated by this Agreement for which
IQB or Wherify may directly or indirectly become liable and the amount of
deductions that may be disallowed under Section 280G of the Code as a result of
the transactions contemplated by this Agreement.
38
7.18 INSURANCE. Except as set forth on Schedule 7.18 hereto,
(a) All insurance policies either maintained by IQB or maintained by
any other person which relates to IQB or its assets in any manner as of the date
hereof (collectively, the "IQB Insurance Policies") are still in full force and
effect, and all premiums due thereon have been paid;
(b) IQB has complied in all material respects with the provisions of
all IQB Insurance Policies;
(c) No claim is pending under any of the IQB Insurance Policies;
(d) There are no outstanding requirements or recommendations by any
insurance company that issued any of the IQB Insurance Policies or by any Board
of Fire Underwriters or other similar body exercising similar functions or by
any Governmental Entity exercising similar functions which requires or
recommends any changes in the conduct of the business of, or any repairs or
other work to be done on or with respect to any of the properties or Assets of,
IQB; and
(e) IQB has not received any notice or other communication from any
such insurance company within the one (1) year preceding the date hereof
canceling or materially amending or materially increasing the annual or other
premiums payable under any of the IQB Insurance Policies, and no such
cancellation, amendment or increase of premiums is threatened.
7.19 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 7.19 hereto,
(a) IQB is in compliance with all applicable federal, state and
local laws and regulations relating to pollution control and environmental
contamination including, but not limited to, all laws and regulations governing
the generation, use, collection, treatment, storage, transportation, recovery,
removal, discharge or disposal of Hazardous Materials (and all laws and
regulations with regard to record keeping, notification and reporting
requirements respecting Hazardous Materials;
(b) IQB has not received any notice from any Governmental Entity
with respect to any alleged violation by it of any applicable federal, state or
local environmental or health and safety statutes and regulations in connection
with IQB's operations, nor is there any basis therefor;
(c) IQB has not been alleged to be in violation of, or has been
subject to any administrative or judicial proceeding pursuant to, such laws and
regulations, either now or at any time during the past five years;
(d) There are no permits, licenses, consents, filings or other
approvals necessary or required to be obtained or made by laws and regulations
relating to Hazardous Material, pollution controls and environmental
contamination in connection with IQB's business;
(e) IQB is not a party to any contract or other agreement relating
to the storage, transportation, treatment or disposal of Hazardous Materials;
(f) There are no claims or facts or circumstances that IQB
reasonably believes could form the basis for the assertion of any claim relating
to environmental matters involving IQB, including, but not limited to, any claim
arising from past or present practices of the business of IQB, or with respect
to properties now or previously owned or leased, as asserted under CERCLA, or
RCRA, or any other federal, state or local environmental statute, or the
generation, use, treatment, disposal, discharge, ownership, operation,
transportation, storage of Hazardous Materials, or any other related act or
omission of IQB;
39
(g) IQB is not subject to any remedial obligation under applicable
law or administrative order or decree pertaining to environmental, health or
safety statutes or regulations, including, without limitation, CERCLA, RCRA or
any similar state statute;
(h) To IQB's Knowledge, no Hazardous Material or other substances
known or suspected to pose a threat to health or the environmental have been
disposed of or otherwise released on or near any real property or improvements
of IQB, and there are no off-site locations where Hazardous Materials associated
in any way with IQB have been generated, used, collected, treated, stored,
transported, recycled, discharged or disposed of.
7.20 TRANSACTIONS WITH AFFILIATED PARTIES. Except as set forth on Schedule
7.20 hereto,
(a) There are no transactions currently engaged in between IQB and
any party affiliated with IQB (other than transactions inherent in the normal
capacities of stockholders, officers, directors, or employees);
(b) Except for the ownership of non-controlling interests in
securities of corporations the shares of which are publicly traded, no party
affiliated with IQB has any investment or ownership interest, directly,
indirectly, or beneficially, in any competitor or potential competitor, major
supplier, or customer of IQB; and
(c) There are no agreements to which IQB is a party under which the
transactions contemplated by this Agreement (i) will require payment by IQB or
any consent or waiver from any stockholder, officer, director, employee,
consultant or agent of IQB, or (ii) will result in any change in the nature of
any rights of any stockholder, officer, director, employee, consultant or agent
of IQB under any such agreement.
7.21 FINDER'S FEES. Except as set forth in Section 7.21 of the IQB
Disclosure Schedule, All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by IQB and its counsel
directly with Wherify and its counsel, without the intervention of any other
person as the result of any act by IQB, and so far as is known to IQB, without
the intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finders'
fee, or any similar payment.
7.22 VALID ISSUANCE. Each share of IQB Common Stock to be issued to the
shareholders of Wherify in connection with the Merger shall (when issued in
accordance with this Agreement) be duly authorized, validly issued, fully paid
and non-assessable and not subject to or issued in violation of any preemptive
right under IQB's Certificate of Incorporation or any agreement to which IQB is
a party or is otherwise bound.
7.23 UNTRUE STATEMENTS. This Agreement, the schedules and exhibits hereto,
and all other documents and information furnished by IQB, or any of its
respective representatives pursuant hereto or in connection herewith, do not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made herein and therein not misleading.
40
ARTICLE VIII
COVENANTS OF W
8.1 CONDUCT OF BUSINESS OF WHERIFY. Except as contemplated by this
Agreement, during the period from the date hereof to the Effective Time or the
termination of this Agreement, unless otherwise agreed to in writing by IQB,
Wherify shall conduct its business in the ordinary course consistent with past
practice, pay its debts and Taxes and perform its other obligations when due
(subject to good faith disputes over such debts, Taxes or obligations), comply
with all applicable laws, rules and regulations, keep its assets in good repair
and working order except for ordinary wear and tear, maintain any existing
insurance on the assets, and use commercially reasonable efforts, consistent
with past practices, to maintain and preserve its present business organization,
assets and properties, keep available the services of its present officers and
employees and preserve its advantageous business relationships with customers,
strategic partners, suppliers, distributors and others having business dealings
with it. Without limiting the generality of the foregoing, after the date hereof
and until the Effective Time or the termination of this Agreement, Wherify shall
not without the prior written consent of IQB, which consent shall not be
unreasonably withheld or delayed:
(a) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect of, any
of its capital stock except for repurchases of Wherify Common Stock from
individuals following termination of their employment with Wherify pursuant to
the terms of stock option or stock purchase agreements;
(b) split, combine or reclassify any of its capital stock (other
than the conversion of Wherify Preferred Stock into Wherify Common Stock as part
of this transaction) or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock or
any of its other securities;
(c) purchase, redeem or otherwise acquire any shares of its capital
stock or any other of its securities or any rights, warrants or options to
acquire any such shares or other securities; provided, however, that nothing in
this Section 8.1 shall prohibit Wherify from exercising contractual rights of
repurchase of any shares of Wherify Capital Stock under any employee, consultant
or director plan or agreement as in effect on the date hereof and disclosed on
Section 5.2(b) of the Wherify Disclosure Schedule, copies of which have been
provided to IQB;
(d) make any acquisition, by means of a merger or otherwise, of a
material amount of assets or securities, other than acquisitions in the ordinary
course consistent with past practice;
(e) agree to any sale, lease, encumbrance or other disposition of a
material amount of assets or securities or any material change in its
capitalization, other than sales or other dispositions in the ordinary course
consistent with past practice;
(f) enter into any material contract other than in the ordinary
course of business or agree to any release or relinquishment of any material
contract rights;
(g) incur any long-term debt or short-term debt for borrowed money except
for debt incurred in the ordinary course consistent with past practice;
(h) issue, deliver, sell, grant, pledge or otherwise dispose of or
encumber any shares of Wherify Capital Stock, options, warrants, convertible
debt or other security convertible or exercisable into Wherify Capital Stock,
except (i) the sale and issuance of shares of Series C Preferred Stock of
Wherify authorized as of the date of this Agreement on the same or better terms
and conditions with respect to Wherify as such shares were sold by Wherify prior
to the date of this Agreement; and (ii) issuance of stock options to individuals
reasonably acceptable to IQB, hired by Wherify after the date of this
Agreement,;
41
(i) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents, except as expressly provided by
this Agreement;
(j) make any capital expenditures or other expenditures with respect
to property, plant or equipment in excess of US $5,000 in the aggregate;
(k) make any changes in accounting methods, principles or practices,
except insofar as may have been required by a change in GAAP or, except as so
required, change any assumption underlying, or method of calculating, any bad
debt, contingency or other reserve; except as required to comply with applicable
law or agreements, plans or arrangements existing on the date hereof;
(l) (A) enter into or adopt any employment or similar agreement with
any person whose annual rate of cash compensation exceeds U.S. $100,000 per year
pursuant to such employment agreement, (B) take any action with respect to,
adopt, enter into, terminate or amend any employment, severance or similar
agreement or benefit plan for the benefit or welfare of any current or former
director, officer, employee or consultant or any collective bargaining
agreement, (C) increase in any material respect the compensation or fringe
benefits of, or pay any bonus to, any director, officer, employee or consultant
(except for annual increases of the salaries of non-officer employees in the
ordinary course of business), (D) amend or accelerate the payment, right to
payment or vesting of any compensation or benefits, including any outstanding
options or restricted stock awards, (E) pay any material benefit not provided
for as of the date of this Agreement under any benefit plan, (F) grant any
awards under any bonus, incentive, performance or other compensation plan or
arrangement or benefit plan, including the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance units or
restricted stock, or the removal of existing restrictions in any benefit plans
or agreements or awards made thereunder, or (G) take any action other than in
the ordinary course of business to fund or in any other way secure the payment
of compensation or benefits under any employee plan, agreement, contract or
arrangement or benefit plan;
(m) make or rescind any material Tax election, make any material
settlement or material compromise to any Tax liability or make any material
amendments to any Tax Return;
(n) fail to pay when due any trade payable, except in the ordinary
course of business consistent with past practice; or
(o) agree in writing or otherwise to take any of the foregoing
actions or any action which would prevent or materially impair the satisfaction
of any conditions in Article XII hereof.
8.2 ACCESS TO INFORMATION. Between the date hereof and the Effective Time,
Wherify shall (a) give IQB and its authorized representatives such access during
regular business hours to Wherify's books, records, properties, personnel and to
such other information as IQB reasonably request and shall instruct Wherify's
independent public accountants to provide access to their work papers and such
other information as IQB may reasonably request, and (b) cause its officers to
furnish IQB with such financial and operating data and other information with
respect to the business and properties of Wherify as IQB may reasonably request.
8.3 INDEMNIFICATION. At all times after the Effective Date, Wherify shall,
and IQB shall cause Wherify to, indemnify the officers, directors, employees or
agents of Wherify (each a "Wherify Indemnified Party") to the fullest extent
permitted by applicable law with respect to all acts and omissions arising out
of such individuals' services as officers, directors, employees or agents of
Wherify or any of its subsidiaries, or as trustees or fiduciaries of any plan
for the benefit of employees, occurring at or prior to the Effective Time,
including, without limitation, the transactions contemplated by this Agreement.
42
Without limiting the foregoing, at all times after the Effective Time, in the
event any such Wherify Indemnified Party is or becomes involved in any capacity
in any action, complaint, petition, investigation, suit, audit, arbitration,
litigation or other proceeding, whether civil or criminal, in law or in equity,
before any arbitrator or governmental entity in connection with any matter,
including, without limitation, the transactions contemplated by this Agreement,
occurring at or prior to, and including, the Effective Time, Wherify shall pay
as incurred such Wherify Indemnified Party's legal and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith
so long as such party shall enter into an undertaking with Wherify to reimburse
Wherify, to the extent required by applicable law, for all amounts advanced if a
court of competent jurisdiction shall ultimately determine, in a judgment that
is not subject to appeal or review, that indemnification of such Wherify
Indemnified Party is prohibited by applicable law. At all times after the
Effective Date, Wherify shall pay all expenses, including reasonable attorneys'
fees, that may be incurred by any Indemnified Party in enforcing the indemnity
and other obligations provided for in this Section 8.3. Moreover, for six years
after the Effective Time, Wherify shall cause to be maintained in effect in its
certificate of incorporation and bylaws, and shall not eliminate or modify,
Wherify's current provisions regarding the elimination of liability of directors
and the indemnification of officers, directors and employees and advancement of
expenses. The obligations of Wherify under this Section 8.3 shall not be
terminated or modified in such a manner as to adversely affect any Wherify
Indemnified Party without the consent of such Indemnified Party (it being
expressly agreed that Wherify Indemnified Parties shall be third party
beneficiaries of this Section 8.3).
8.4 AFFILIATE LEGENDS. Section 8.4 of the Wherify Disclosure Schedule sets
forth a list of those persons who are, in Wherify's reasonable judgment,
"affiliates" of Wherify within the meaning of Rule 145 promulgated under the
Securities Act ("Rule 145 Affiliates"). Wherify shall notify IQB in writing
regarding any change in the identity of its Rule 145 Affiliates prior to the
Closing Date. IQB shall be entitled to place appropriate legends on the
certificates representing the IQB Common Stock to be received by Rule 145
Affiliates of Wherify pursuant to the Merger reflecting the restrictions set
forth in Rule 145 promulgated under the Securities Act and to issue appropriate
stop transfer instructions to the transfer agent for IQB Common Stock (provided
that such legends or stop transfer instructions shall be removed one year after
the Effective Time, upon the request of any holder of IQB Common Stock issued
pursuant to the Merger if such holder is not then a Rule 145 Affiliate of IQB).
8.5 LOCKUP AGREEMENT. On or before the Closing, Wherify shall use its best
efforts to cause each Wherify Shareholder shall enter into a lockup agreement
with respect to the IQB Common Shares received or receivable by each Wherify
Shareholder pursuant to this transaction, in the form attached hereto as Exhibit
F (the "Lockup Agreement")
ARTICLE IX
COVENANTS OF IQB
9.1 CONDUCT OF BUSINESS OF IQB. Except as contemplated by this Agreement,
during the period from the date hereof to the Effective Time or the termination
of this Agreement, unless otherwise agreed to in writing by Wherify, IQB shall
conduct its business in the ordinary course consistent with past practice and
shall use reasonable efforts to keep its assets in good repair and working order
except for ordinary wear and tear, maintain any existing insurance on the
assets, and preserve intact IQB's business. Without limiting the generality of
the foregoing, after the date hereof and until the Effective Time or the
termination of this Agreement, IQB shall not:
(a) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect of, any
of its capital stock, except (i) the sale and issuance of the Financing Shares,
and (ii) issuance of stock options to employees in the ordinary course of
business;
43
(b) except as contemplated by this Agreement, split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or any of its other securities;
(c) purchase, redeem or otherwise acquire any shares of its capital
stock or any other of its securities or any rights, warrants or options to
acquire any such shares or other securities; provided, however, that nothing in
this Section 9.1 shall prohibit IQB from exercising contractual rights of
repurchase of any shares of IQB Common Stock under any employee, consultant or
director plan or agreement as in effect on the date hereof;
(d) Except as set forth in Section 9.1(d) of the IQB Disclosure
Schedule, make any acquisition, by means of a merger or otherwise, of a material
amount of assets or securities, other than acquisitions in the ordinary course
consistent with past practice;
(e) agree to any sale, lease, encumbrance or other disposition of a
material amount of assets or securities or any material change in its
capitalization, other than sales or other dispositions in the ordinary course
consistent with past practice;
(f) enter into any material contract other than in the ordinary
course of business or agree to any release or relinquishment of any material
contract rights;
(g) incur any long-term debt or short-term debt for borrowed money
except for debt incurred in the ordinary course consistent with past practice;
(h) Except as set forth in Section 9.1(h) of the IQB Disclosure
Schedule, issue, deliver, sell, grant, pledge or otherwise dispose of or
encumber any shares of IQB Common Stock, options, warrants, convertible debt or
other security convertible or exercisable into IQB Common Stock;
(i) Except as contemplated by this Agreement, amend its certificate
of incorporation, by-laws or other comparable charter or organizational
documents;
(j) make any capital expenditures or other expenditures with respect
to property, plant or equipment in excess of US $5,000 in the aggregate;
(k) make any changes in accounting methods, principles or practices,
except insofar as may have been required by a change in GAAP or, except as so
required, change any assumption underlying, or method of calculating, any bad
debt, contingency or other reserve; except as required to comply with applicable
law or agreements, plans or arrangements existing on the date hereof;
(l) (A) enter into or adopt any employment or similar agreement with
any person whose annual rate of cash compensation exceeds U.S. $100,000 per year
pursuant to such employment agreement, (B) take any action with respect to,
adopt, enter into, terminate or amend any employment, severance or similar
agreement or benefit plan for the benefit or welfare of any current or former
director, officer, employee or consultant or any collective bargaining
agreement, (C) increase in any material respect the compensation or fringe
benefits of, or pay any bonus to, any director, officer, employee or consultant
(except for annual increases of the salaries of non-officer employees in the
ordinary course of business), (D) amend or accelerate the payment, right to
payment or vesting of any compensation or benefits, including any outstanding
44
options or restricted stock awards, (E) pay any material benefit not provided
for as of the date of this Agreement under any benefit plan, (F) grant any
awards under any bonus, incentive, performance or other compensation plan or
arrangement or benefit plan, including the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance units or
restricted stock, or the removal of existing restrictions in any benefit plans
or agreements or awards made thereunder, or (G) take any action other than in
the ordinary course of business to fund or in any other way secure the payment
of compensation or benefits under any employee plan, agreement, contract or
arrangement or benefit plan;
(m) make or rescind any material Tax election, make any material
settlement or material compromise to any Tax liability or make any material
amendments to any Tax Return;
(n) fail to pay when due any trade payable, except in the ordinary
course of business consistent with past practice; or
(o) agree in writing or otherwise to take any of the foregoing
actions or any action which would prevent or materially impair the satisfaction
of any conditions in Article XII hereof.
9.2 ACCESS TO INFORMATION. Between the date hereof and the Effective Time,
IQB shall (a) give Wherify and its authorized representatives such access during
regular business hours to IQB's books, records, properties, personnel and to
such other information as Wherify reasonably requests and shall instruct IQB's
independent public accountants to provide access to their work papers and such
other information as Wherify may reasonably request, and (b) cause its officers
to furnish Wherify with such financial and operating data and other information
with respect to the business and properties of IQB as Wherify may reasonably
request.
9.3 ASSURANCES. Upon the terms and subject to the conditions hereof, all
of the parties hereto agree to use their commercially reasonable efforts to
take, or cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement and to cooperate in connection
with the foregoing, including using commercially reasonable efforts (a) to
obtain any necessary waivers, consents and approvals from other parties to
material notes, licenses, agreements, and other instruments and obligations; (b)
to obtain any material consents, approvals, authorizations and permits required
to be obtained under any federal, state or local statute, rule or regulation;
(c) to defend all lawsuits or other legal proceedings challenging this Agreement
or the consummation of the transactions contemplated hereby; and (d) promptly to
effect all necessary filings and notifications, subject to the terms of this
Agreement. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of the Surviving Corporation shall take all such action
on behalf of IQB and the Merger Sub.
9.4 INDEMNIFICATION. At all times after the Effective Date, IQB shall
indemnify all the officers, directors, employees or agents of IQB (each an "IQB
Indemnified Party") to the fullest extent permitted by applicable law with
respect to all acts and omissions arising out of such individuals' services as
officers, directors, employees or agents of IQB or any of its subsidiaries, or
as trustees or fiduciaries of any plan for the benefit of employees, occurring
at or prior to the Effective Time, including, without limitation, the
transactions contemplated by this Agreement. Without limiting the foregoing, at
all times after the Effective Date, in the event any such IQB Indemnified Party
is or becomes involved in any capacity in any action, complaint, petition,
investigation, suit, audit, arbitration, litigation or other proceeding, whether
civil or criminal, in law or in equity, before any arbitrator or governmental
entity in connection with any matter, including, without limitation, the
transactions contemplated by this Agreement, occurring at or prior to, and
including, the Effective Time, IQB shall pay as incurred such IQB Indemnified
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Party's legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith so long as such party shall enter
into an undertaking with new IQB to reimburse new IQB, to the extent required by
applicable law, for all amounts advanced if a court of competent jurisdiction
shall ultimately determine, in a judgment that is not subject to appeal or
review, that indemnification of such IQB Indemnified Party is prohibited by
applicable law. At all times after the Effective Date, IQB shall pay all
expenses, including reasonable attorneys' fees, that may be incurred by any IQB
Indemnified Party in enforcing the indemnity and other obligations provided for
in this Section 9.4. Moreover, for six years after the Effective Time, IQB shall
cause to be maintained in effect in its certificate of incorporation and bylaws,
and shall not eliminate or modify, Wherify's current provisions regarding the
elimination of liability of directors and the indemnification of officers,
directors and employees and advancement of expenses. The obligations of IQB
under this Section 9.4 shall not be terminated or modified in such a manner as
to adversely affect any IQB Indemnified Party without the consent of such IQB
Indemnified Party (it being expressly agreed that Indemnified Parties shall be
third party beneficiaries of this Section 9.4).
ARTICLE X
ADDITIONAL AGREEMENTS
10.1 ACQUISITION PROPOSALS.
(a) Each of IQB and Wherify agrees that it shall not, directly or
indirectly, and shall instruct its officers, directors, employees, agents or
advisors or other representatives or consultants not to, directly or indirectly,
until the Effective Time or the termination of this Agreement, solicit or
initiate any proposals or offers from any person relating to any acquisition,
purchase or sale of all or a material amount of the assets of, or any securities
of, or any merger, consolidation or business combination with, IQB or Wherify.
Notwithstanding the foregoing, prior to the adoption of this Agreement at the
IQB Stockholders Meeting (the "Specified Time"), IQB may, to the extent required
by the fiduciary obligations of the IQB Board, as determined in good faith by
the IQB Board, after consultation with outside counsel, in response to a
Qualifying Proposal that did not result from a breach by IQB Company of this
Section 10.1, (x) furnish information with respect to IQB to the person making
such Qualifying Proposal and its representatives pursuant to a confidentiality
agreement not less restrictive of the other party than the Confidentiality
Agreement and (y) participate in discussions or negotiations with such person
and its representatives regarding such Qualifying Proposal.
(b) Neither the Board of Directors of IQB or Wherify, nor any
committee thereof, shall, except as set forth in this Section 10.1:
(i) withdraw or modify, or publicly propose to withdraw or
modify, in a manner adverse to the other party the approval or recommendation by
the Wherify or IQB Board of Directors or any such committee of this Agreement or
the Merger.
(ii) cause or permit Wherify or IQB to enter into any letter
of intent, memorandum of understanding, agreement in principle, acquisition
agreement, merger agreement or similar agreement (an "Alternative Acquisition
Agreement") constituting or relating to any Acquisition Proposal (other than a
confidentiality agreement referred to in Section 10.1(a) entered into in the
circumstances referred to in Section 10.1(a)); or
(iii) adopt, approve or recommend, or propose to adopt,
approve or recommend, any Acquisition Proposal.
Notwithstanding the foregoing, the Board of Directors of IQB may, in response to
a Superior Proposal that did not result from a breach by IQB of this Section
10.1, withdraw or modify the recommendation by the Board of Directors of IQB or
any committee thereof of this Agreement and the Merger, if the Board of
Directors determines in good faith (after consultation with outside counsel)
that such actions are required by its fiduciary obligations, but only at a time
that is prior to the Specified Time and is after the third business day
following receipt by Wherify of written notice advising it that the Board of
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Directors of IQB desires to withdraw or modify the recommendation due to the
existence of a Superior Proposal, specifying the material terms and conditions
of such Superior Proposal and identifying the person making such Superior
Proposal. Nothing in this Section 10.1 (other than Section 10.1(d)) shall be
deemed to limit IQB's obligation to call, give notice of, convene and hold the
Wherify Stockholders Meeting, regardless of whether the Board of Directors of
IQB has withdrawn or modified its recommendation of this Agreement and the
Merger.
(c) IQB shall promptly advise Wherify orally, with written
confirmation to follow promptly (and in any event within 24 hours), of IQB or
any of its officers, directors, investment bankers, financial advisors or
attorneys attaining knowledge of any Acquisition Proposal or any request for
nonpublic information in connection with any Acquisition Proposal, or of any
inquiry with respect to, or that could reasonably be expected to lead to, any
Acquisition Proposal, the material terms and conditions of any such Acquisition
Proposal or inquiry and the identity of the person making any such Acquisition
Proposal or inquiry. IQB shall not provide any information to or participate in
discussions or negotiations with the person or entity making any Qualifying
Proposal until three business days after IQB has first notified Wherify of such
Qualifying Proposal as required by the preceding sentence. IQB shall (i) keep
Wherify fully informed, on a prompt basis (and in any event within 24 hours), of
the status and any material change to the terms of any such Acquisition Proposal
or inquiry, (ii) provide to Wherify as promptly as practicable after receipt or
delivery thereof copies of all correspondence and other written material sent or
provided to IQB from any third party describing the terms of any Acquisition
Proposal, and (iii) if Wherify shall make a counterproposal, consider and cause
its financial and legal advisors to negotiate on its behalf in good faith with
respect to the terms of such counterproposal. Contemporaneously with providing
any information to a third party in connection with any such Qualifying
Proposal, IQB shall furnish a copy of such information to Wherify.
(d) Nothing contained in this Section 10.1 or in Section 10.13 shall
be deemed to prohibit IQB from taking and disclosing to its stockholders a
position with respect to a tender offer contemplated by Rule 14e-2(a)
promulgated under the Exchange Act if, in the good faith judgment of the Board
of Directors of IQB, after consultation with outside counsel, failure to so
disclose would be inconsistent with its obligations under applicable law;
provided, however, that, except as set forth in Section 10.1(b), in no event
shall the Board of Directors of IQB or any committee thereof withdraw or modify
or propose to withdraw or modify, in a manner adverse to Wherify, the approval
or recommendation by the IQB or such committee of the Merger or this Agreement.
10.2 BOARD OF DIRECTORS. Subject to full compliance with all applicable
laws, rules and regulations (including, without limitation, Section 14(f) of and
Rule 14f-1 under the Exchange Act), as soon as possible after the Effective
Time, IQB shall take all action necessary before the Closing to cause the IQB
Board of Directors immediately after the Effective Time, to consist of five
persons, who shall be Xxxxxxx Xxxxx, Xxxxxxx Xxxxxxxxx, Xxxx Xxx and Xxxx
XxXxxxxx and one individual nominated by Xxxxxxx Xxxxx and acceptable to the
remaining board members. If at any time after the Effective Time, Xx. XxXxxxxx
is unable to serve on the Board of Directors of IQB, then IQB shall take all
action necessary to cause a person nominated by Xxxxxxx Xxxxxxxxx and acceptable
to the remaining board members, to be appointed to the Board of Directors of
IQB.
10.3 OFFICERS OF IQB. At the Effective Time, Xxxxxxx Xxxxxxxxx will be
appointed the Chairman of the Board of IQB as set forth in the employment
contract between IQB and Xx. Xxxxxxxxx. Xxxxxxx Xxxxx will be appointed the
Chief Executive Officer of IQB as set forth in the employment contract between
IQB and Xx. Xxxxx.
10.4 EMPLOYMENT AGREEMENTS. Prior to Closing the employment agreement
between IQB and Xxxxxxx Xxxxxxxxx shall be amended to, among other things,
change Xx. Xxxxxxxxx'x scope of responsibility to include responsibility for the
Combined Company's government sales in form and substance satisfactory to
Wherify. Prior to Closing the employment agreement between Wherify and Xxxxxxx
Xxxxx shall be amended to, among other things, reflect Xx. Xxxxx'x role in the
Combined Company in form and substance satisfactory to IQB.
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10.5 PRESS RELEASES. IQB, the Merger Sub and Wherify will seek to consult
with each other before issuing any press release or otherwise making any public
statement with respect to the transactions contemplated hereby.
10.6 SECTION 368(A) REORGANIZATION. IQB and Wherify shall not take any
action that would, or fail to take any action the omission of which would be
reasonably likely to, prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code. The parties
hereto hereby adopt this Agreement as a plan of reorganization.
10.7 IQB CHANGE OF NAME; REVERSE STOCK SPLIT; INCREASE IN AUTHORIZED
SHARES. Subject to the terms hereof, at the IQB Stockholders' Meeting IQB shall
propose and recommend that its Certificate of Incorporation be amended at the
Effective Time to change its name to "Wherify Wireless, Inc." In addition,
subject to the terms hereof, at the IQB Stockholders' Meeting IQB shall propose
and recommend that its Certificate of Incorporation be amended to effect a one
for four reverse stock split or, alternatively, to increase the authorized
number of shares of Common Stock thereunder to 200 million shares.
10.8 CONVERSION OF WHERIFY PREFERRED STOCK. Subject to the terms hereof,
at the Wherify Shareholders' Meeting Wherify shall propose and recommend that
its Articles of Incorporation be amended at the Effective Time to cause the
conversion of all shares of Wherify Preferred Stock into shares of Wherify
Common Stock.
10.9 COMMERCIALLY REASONABLE EFFORTS. Upon the terms and subject to the
conditions hereof, all of the parties hereto agree to use their commercially
reasonable efforts to take, or cause to be taken, all appropriate action, and to
do, or cause to be done, all things necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement and to
cooperate in connection with the foregoing, including using commercially
reasonable efforts (a) to obtain any necessary waivers, consents and approvals
from other parties to material notes, licenses, agreements, and other
instruments and obligations; (b) to obtain any material consents, approvals,
authorizations and permits required to be obtained under any federal, state or
local statute, rule or regulation; (c) to defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby; and (d) promptly to effect all necessary filings and
notifications. In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and directors of the Surviving Corporation shall take all such
action on behalf of Wherify and the Merger Sub. Notwithstanding the foregoing,
Wherify agrees to use its best efforts to provide to IQB as promptly as possible
after the date of this Agreement its audited balance sheets as of June 30, 2002
and June 30, 2003 and its audited statements of income and cash flows for the
twelve months ending June 30, 2002 and June 30, 2003.
10.10 INDEMNIFICATION. From and after the Effective Time, IQB will and
will cause the Surviving Corporation to fulfill and honor in all respects the
obligations of IQB and Wherify pursuant to any indemnification agreements
between IQB and Wherify and its directors and officers existing prior to the
date hereof. The Articles of Incorporation and Bylaws of the Surviving
Corporation will contain the provisions with respect to indemnification set
forth in the Articles of Incorporation and Bylaws of Wherify, which provisions
will not be amended, repealed or otherwise modified for a period of six years
from the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who, immediately prior to the Effective Time, were
directors, officers, employees or agents of Wherify, unless such modification is
required by law.
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10.11 CONFIDENTIALITY. The parties acknowledge that IQB and Wherify have
previously executed a confidentiality agreement, dated as of December [28], 2003
(the "Confidentiality Agreement"), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms, except as
expressly modified herein, Notwithstanding anything herein to the contrary, any
party to this Agreement (and any employee, representative, shareholder,
stockholder or other agent of any party to this Agreement) may disclose to any
and all Persons, without limitation of any kind, the tax treatment and tax
structure of the proposed transactions contemplated by this Agreement and all
materials of any kind (including opinions or other tax analyses) that are
provided to it relating to such tax treatment and tax structure; provided,
however, that such disclosure may not be made to the extent such disclosure
would reasonably be expected to violate any applicable federal or state
securities laws. For the purposes of the foregoing sentence: (a) the "tax
treatment" of a transaction means the purported or claimed federal income tax
treatment of the transaction; and (b) the "tax structure" of a transaction means
any fact that may be relevant to understanding the purported or claimed federal
income tax treatment of the transaction.
10.12 EXPENSES. Except as otherwise expressly provided for herein, whether
or not the Merger is consummated, all fees and expenses incurred in connection
with the Merger including all legal, accounting, financial advisory, consulting
and all other fees and expenses of (including the fees and expenses of third
parties) ("Expenses") incurred by a Party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be for the account of the respective Party incurring
such fees and expenses.
10.13 REGISTRATION STATEMENT AND/OR FAIRNESS HEARING 3(A)(10) EXEMPTION.
(a) As promptly as practicable after the execution of this
Agreement, IQB, in cooperation with Wherify, shall prepare and file with the SEC
the Registration Statement, in which the Joint Proxy Statement/Prospectus shall
be included as a prospectus. Each of IQB and Wherify shall respond to any
comments of the SEC and shall use its respective commercially reasonable efforts
to have the Registration Statement declared effective under the Securities Act
as promptly as practicable after such filings, and IQB and Wherify shall cause
the Joint Proxy Statement/Prospectus to be mailed to each of its stockholders or
shareholders, as the case may be at the earliest practicable time after the
Registration Statement is declared effective under the Securities Act. Each of
IQB and Wherify shall notify the other promptly upon the receipt of any comments
from the SEC or its staff or any other government officials and of any request
by the SEC or its staff or any other government officials for amendments or
supplements to the Registration Statement or the Joint Proxy
Statement/Prospectus or for additional information and shall supply the other
with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Joint Proxy Statement/Prospectus or the Merger. Each of IQB and
Wherify shall use its commercially reasonable efforts to cause all documents
that it is responsible for filing with the SEC or other regulatory authorities
under this Section 10.13 to comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Joint Proxy Statement/Prospectus or the Registration
Statement, IQB or Wherify shall promptly inform the other of such occurrence and
cooperate in filing with the SEC or its staff or any other government officials,
and/or mailing to stockholders or shareholders of IQB or Wherify, such amendment
or supplement. All of the costs, fees and expenses related to the Registration
Statement, including, without limitation, the legal fees of one counsel to the
Wherify Shareholders (which fees shall not exceed $25,000), shall be for the
account of IQB.
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(b) Notwithstanding the provisions of Section 10.13(a) above,
alternatively, the Parties may determine that the issuance of the shares of IQB
Common Stock to be issued in the Merger be qualified by a permit (the "Permit")
to be issued under Sections 25121 and 25142 of the California Securities Law,
after a fairness hearing (the "Fairness Hearing") before the California
Commissioner of Corporations pursuant to Section 25142 of the California
Securities Law, with the intent that the issuance of the shares of IQB Common
Stock in the Merger will, to the extent permitted by applicable law, thereby be
exempt under Section 3(a)(10) of the Securities Act from the registration
requirements of the Securities Act. In this event, as promptly as practicable
after the date of this Agreement, IQB (with Wherify's full and prompt best
efforts cooperation) will prepare and file with the California Department of
Corporations (the "Department") an application for qualification of the shares
of IQB Common Stock to be issued in the Merger and an application for the
Fairness Hearing to be held in connection therewith (collectively, the "Permit
Application"), and any other documents required by the California Securities Law
in connection with the Merger, in each case with Wherify's full and prompt
cooperation. IQB and Wherify will use their respective commercially reasonable
best efforts to have the Permit issued under the California Law as promptly as
practicable after such filing. IQB and Wherify shall also take any action
required to be taken under any applicable state securities or "blue sky" laws in
connection with the issuance of the shares of IQB Common Stock in the Merger.
Each of IQB and Wherify shall timely furnish to the other all information
concerning IQB or Wherify, as the case may be, its financial condition, its
officers, directors, shareholders, option holders and other security holders, as
may be reasonably requested in connection with any action contemplated by this
Section 10.13. IQB will pay all expenses incurred with respect to the Permit
Application or the Fairness Hearing, including, without limitation, (i) any
filing fees or other fees payable to the Department with respect to the Permit
Application and the Fairness Hearing and (ii) the costs of any court reporter or
stenographer selected by IQB's counsel incurred in connection with the Permit
Application and the Fairness Hearing; provided, however, IQB shall not pay any
expenses incurred by Wherify, other than legal fees of one counsel to the
Wherify Shareholders (which fees shall not exceed $25,000).
(c) Each Party shall indemnify the other Party, each of its
directors, officers, employees and agents, and each Person who controls a Party
within the meaning of Section 15 of the Securities Act against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in the Registration Statement or Joint Proxy/Prospectus, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the indemnified Party, and such indemnified Party's directors,
officers, employees, agents, or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in the Registration Statement or Joint
Proxy/Prospectus in reliance upon and in conformity with information furnished
by such Party.
10.14 STOCKHOLDER AND SHAREHOLDER MEETINGS.
(a) W, acting through the Board of Directors of Wherify, shall take
all actions in accordance with the CCC, its Articles of Incorporation and
By-laws to promptly and duly call, give notice of, convene and hold as promptly
as practicable, and within 45 days after the declaration of the effectiveness of
the Registration Statement or the Permit, as the case may be, the Wherify
Shareholders Meeting for the purpose of considering and voting upon the Wherify
Voting Proposal. The Board of Directors of Wherify shall recommend approval and
adoption of the Wherify Voting Proposal by the shareholders of Wherify and
include such recommendation in the Joint Proxy Statement/Prospectus, and (ii)
neither the Board of Directors of Wherify nor any committee thereof shall
withdraw or modify, or propose or resolve to withdraw or modify in a manner
adverse to IQB or Merger Sub, the approval or recommendation of the Wherify
Board that the Wherify shareholders vote in favor of the Wherify Voting
Proposal. Wherify shall take all action that is both reasonable and lawful to
solicit from its shareholders proxies in favor of the Wherify Voting Proposal
and shall take all other action necessary or advisable to secure the vote or
consent of the shareholders of Wherify required by the CCC. Notwithstanding
anything to the contrary contained in this Agreement, Wherify, after
consultation with IQB, may adjourn or postpone the Wherify Shareholders Meeting
to the extent necessary to ensure that any required supplement or amendment to
the Joint Proxy Statement/Prospectus is provided to Wherify's shareholders or,
if as of the time for which the Wherify Shareholders Meeting is originally
scheduled (as set forth in the Joint Proxy Statement/Prospectus) there are
insufficient shares of Wherify Capital Stock represented (either in person or by
proxy) to constitute a quorum necessary to conduct the business of the Wherify
Shareholders Meeting.
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(b) Subject to the receipt of a fairness opinion, as set forth in
Section 2.7(a) and subject to Section 10.1(b), IQB, acting through the Board of
Directors of IQB, shall take all actions in accordance with applicable law, its
Certificate of Incorporation and the DGCL to promptly and duly call, give notice
of, convene and hold as promptly as practicable, and within 45 days after the
declaration of effectiveness of the Registration Statement or the Permit, as the
case may be, the IQB Stockholders Meeting for the purpose of considering and
voting upon the IQB Voting Proposal. The Board of Directors of IQB shall
recommend approval and adoption of IQB Voting Proposal by the stockholders of
IQB and include such recommendation in the Joint Proxy Statement/Prospectus, and
(ii) neither the Board of Directors of IQB nor any committee thereof shall
withdraw or modify, or propose or resolve to withdraw or modify in a manner
adverse to Wherify, the recommendation of the Board of Directors of IQB or such
committee that IQB's stockholders vote in favor of the IQB Voting Proposal.
Notwithstanding anything to the contrary contained in this Agreement, IQB, after
consultation with Wherify, may adjourn or postpone the IQB Stockholders Meeting
to the extent necessary to ensure that any required supplement or amendment to
the Joint Proxy Statement/Prospectus is provided to IQB's stockholders or, if as
of the time for which IQB Stockholders Meeting is originally scheduled (as set
forth in the Joint Proxy Statement/Prospectus) there are insufficient shares of
IQB Common Stock represented (either in person or by proxy) to constitute a
quorum necessary to conduct the business of the IQB Stockholders Meeting.
10.15 FORM S-8. IQB shall file a registration statement on Form S-8 with
the SEC covering the shares of IQB Common Stock issuable with respect to assumed
Wherify Stock Options as promptly as practicable, and in any event within thirty
(30) days, after the Closing Date and will use all commercially reasonable
efforts to maintain the effectiveness of such registration statement thereafter
for so long as any of such Wherify Stock Options remain outstanding.
10.16 TAX MATTERS. The Wherify Shareholders shall be responsible for
timely filing all federal and state income tax returns of Wherify for taxable
periods ending on or prior to the Effective Time of the Merger and have paid or
will pay all income taxes attributable to the income of Wherify for such
periods. Such returns will be prepared and filed in accordance with applicable
law and in a manner consistent with past practices. IQB and Wherify, on the one
hand, and the Wherify Shareholders, on the other hand, will make available to
the other, as reasonably requested, all information, records or documents
relating to the liability for Taxes of Wherify for all periods ending on or
prior to the Effective Time and will preserve such information, records or
documents until the expiration of any applicable statute of limitations or
extensions thereof.
10.17 RULE 16B-3 EXEMPTION. The Board of Directors of IQB, upon approving
the Merger but prior to the consummation of the Merger, shall approve, in such
form as is required by Rule 16b-3 promulgated by the SEC under the Exchange Act,
the deemed acquisition of shares of IQB Common Stock issued in connection with
the Merger by the directors or officers of Wherify, if any, who will be (a)
exchanging Wherify Capital Stock for IQB Common Stock, and (b) functioning as
directors or officers of IQB following the Merger.
10.18 REORGANIZATION MATTERS.
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(a) The Parties intend the Merger to qualify as a reorganization
under Section 368(a) of the Code. Each of Wherify, the Wherify Shareholders and
IQB shall not take any action and shall not fail to take any action which action
or failure to act could reasonably be expected to prevent the Merger from
qualifying, as a reorganization under Section 368(a) of the Code.
(b) Each of Wherify, the Wherify Shareholders and IQB shall report
the Merger as a reorganization within the meaning of Section 368 of the Code,
unless otherwise required pursuant to a "determination" within the meaning of
Section 1313(a) of the Code.
10.19 GOVERNMENTAL APPROVALS.
(a) The Parties shall cooperate with each other and use their
commercially reasonable efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits and authorizations of all third
parties and Governmental Entities which are necessary to consummate the
transactions contemplated by this Agreement ("Governmental Approvals"), and to
comply with the terms and conditions of all such Governmental Approvals. Each of
the Parties shall use their commercially reasonable efforts to, and shall use
their commercially reasonable efforts to cause their respective Representatives
and other Affiliates to, file within 20 days after the date hereof, and in all
events shall file within 60 days after the date hereof, all required initial
applications and documents in connection with obtaining the Governmental
Approvals and shall act reasonably and promptly thereafter in responding to
additional requests in connection therewith. Without limiting the foregoing,
within 20 days from the date hereof, if required, Wherify and IQB shall make
their respective filings under the HSR Act with respect to the Merger and
thereafter shall promptly make any other required submissions under the HSR Act.
The filing fee that is required to be submitted with Wherify's and IQB's filing
under the HSR Act in connection with the Merger shall be split evenly, by IQB
and Wherify. IQB and Wherify shall have the right to review in advance, and to
the extent practicable, each will consult the other on, in each case subject to
applicable laws relating to the exchange of information, all the information
relating to IQB and Wherify, as the case may be, and any of IQB's subsidiaries,
directors, officers and stockholders which appear in any filing made with, or
written materials submitted to, any third party or any Governmental Entity in
connection with the transactions contemplated by this Agreement. Without
limiting the foregoing, each of IQB and Wherify (the "Notifying Party") will
notify the other promptly of the receipt of comments or requests from
Governmental Entities relating to Governmental Approvals, and will supply the
other Party with copies of all correspondence between the Notifying Party or any
of its Representatives and Governmental Entities with respect to Governmental
Approvals.
(b) IQB and Wherify shall promptly advise each other upon receiving
any communication from any Governmental Entity whose consent or approval is
required for consummation of the transactions contemplated by this Agreement
which causes such Party to believe that there is a reasonable likelihood that
any approval needed from a Governmental Entity will not be obtained or that the
receipt of any such approval will be materially delayed. IQB and Wherify shall
take any and all actions reasonably necessary to vigorously defend, lift,
mitigate and rescind the effect of any litigation or administrative proceeding
adversely affecting this Agreement or the transactions contemplated hereby or
thereby, including, without limitation, promptly appealing any adverse court or
administrative order or injunction to the extent reasonably necessary for the
foregoing purposes.
(c) Notwithstanding the foregoing or any other provision of this
Agreement, IQB shall have no obligation or affirmative duty under this Section
10.19 to cease or refrain from the ownership of any Assets, or the association
with any Person which association is material to the operations of IQB, whether
on the date hereof or at any time in the future.
ARTICLE XI
INDEMNIFICATION
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11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties of Wherify, IQB and the Merger Sub contained in
this Agreement or in any instrument delivered pursuant to this Agreement shall
expire with, and be terminated and extinguished upon, the Effective Time. This
Section 11.1 shall have no effect upon any other obligations of the parties
hereto, whether to be performed before or after the consummation of the Merger.
11.2 INDEMNIFICATION BY WHERIFY. Wherify shall protect, indemnify and hold
harmless IQB, and its respective officers, directors, stockholders, attorneys,
accountants, employees, affiliates, heirs, beneficiaries, legal representatives,
successors and assigns, from any and all demands, claims, actions, causes of
actions, lawsuits, proceedings, judgments, losses, damages, injuries,
liabilities, obligations, expenses and costs (including costs of litigation and
attorneys' fees), arising from any breach of any agreement, representation or
warranty made by Wherify in this Agreement.
11.3 INDEMNIFICATION BY IQB. IQB shall protect, indemnify and hold
harmless Wherify, and their respective officers, directors, shareholders,
attorneys, accountants, employees, affiliates, heirs, beneficiaries, legal
representatives, successors and assigns, from any and all demands, claims,
actions, causes of actions, lawsuits, proceedings, judgments, losses, damages,
injuries, liabilities, obligations, expenses and costs (including costs of
litigation and attorneys' fees), arising from any breach of any agreement,
representation or warranty made by IQB in this Agreement.
ARTICLE XII
CONDITIONS TO CLOSING
12.1 CONDITIONS TO THE PARTIES' OBLIGATIONS TO CLOSE. The respective
obligations of Wherify, the Merger Sub and IQB to enter into the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the Merger shall have been authorized and
approved by the requisite vote of the shareholders of Wherify under applicable
law and Wherify's Articles of Incorporation and Bylaws and by the requisite vote
of the stockholders of IQB under applicable law and IQB's Certificate of
Incorporation and Bylaws;
(b) As of the Effective Time, no action, suit or proceeding shall
have been instituted or, to the knowledge of the parties, be pending or
threatened before any court or other governmental body by any public agency or
governmental authority seeking to restrain, enjoin or prohibit the consummation
of the transactions contemplated hereby or to seek damages or other relief in
connection therewith against any officer or director of Wherify, the Merger Sub
or IQB;
(c) Other than the filing of the Certificate of Merger, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity in
connection with the Merger and the consummation of the other transactions
contemplated by this Agreement shall have been filed, been obtained or occurred
on terms and conditions which would not reasonably be likely to have a Material
Adverse Effect on IQB or Wherify;
(d) All third party and other consents required for the Merger shall
have been obtained;
53
(e) Wherify shall use its best efforts to limit the outstanding
shares of Wherify Capital Stock that either have failed to vote on the Wherify
Voting Proposal or have voted against the Wherify Voting Proposal to no more
than three percent (3%) of the outstanding shares of Wherify Capital Stock; and
(f) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that
purpose, and no similar proceeding with respect to the Joint Proxy
Statement/Prospectus, shall have been initiated or threatened in writing by the
SEC or its staff.
12.2 FURTHER CONDITIONS TO WHERIFY'S OBLIGATIONS TO CLOSE. The obligations
of Wherify to enter into the Merger are further subject to the satisfaction at
or prior to the Effective Time of the following conditions:
(a) Each of the representations and warranties of IQB and the Merger
Sub contained in this Agreement shall be true and correct in all material
respects at and as of the Closing as if each such representation and warranty
were made at and as of the Closing (except in each case (i) to the extent such
representations and warranties are specifically made as of a particular date, in
which case such representations and warranties shall be true and correct as of
such date; (ii) for changes contemplated by this Agreement and (iii) where the
failure to be true and correct individually or in the aggregate has not had a
Material Adverse Effect on IQB, and IQB and the Merger Sub shall have performed
in all material respects all agreements and covenants required by this Agreement
to be performed by them separately or collectively prior to or at the Closing,
and at the Closing there shall be delivered to Wherify customary bring-down
certificates (each dated as of the Closing, signed by IQB and the Merger Sub) to
the foregoing effects;
(b) IQB shall have at least $4 million in cash or cash equivalents
on its most recently regularly prepared balance sheet, and any shares of IQB's
Common Stock issued in connection with a capital raising transaction after the
date of this Agreement shall not have been sold at less than $1.00 per share (as
adjusted for stock splits, stock dividends and similar events); and
(c) Since the date of this Agreement there shall not have been any
change, event, circumstance, development or effect that individually or in the
aggregate has had a Material Adverse Effect on IQB and its subsidiaries.
12.3 FURTHER CONDITIONS TO THE MERGER SUB'S AND IQB OBLIGATIONS TO CLOSE.
The obligations of the Merger Sub and IQB to enter into the Merger are further
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Each of the representations and warranties of Wherify contained
in this Agreement shall be true and correct in all material respects at and as
of the Closing as if each such representation and warranty were made at and as
of the Closing, (except in each case (i) to the extent such representations and
warranties are specifically made as of a particular date, in which case such
representations and warranties shall be true and correct as of such date; (ii)
for changes contemplated by this Agreement and (iii) where the failure to be
true and correct individually or in the aggregate has not had a Material Adverse
Effect on Wherify, and Wherify shall have performed in all material respects all
agreements and covenants required by this Agreement to be performed by them
separately or collectively prior to or at the Closing, and at the Closing there
shall be delivered to IQB and the Merger Sub customary bring-down certificates
(each dated as of the Closing, signed by Wherify) to the foregoing effects;
(b) Since the date of this Agreement there shall not have been any
change, event, circumstance, development or effect that individually or in the
aggregate has had a Material Adverse Effect on Wherify;
54
(c) Wherify shall have entered into a reseller, distribution or
similar agreement with Radio Shack, Black and Decker, Lear, Sprint, AT&T or such
other nationally recognized company acceptable to IQB on terms and conditions,
including potential revenue opportunity, reasonably satisfactory to IQB and
substantially as previously represented in writing by Wherify to IQB;
(d) IQB shall have received an opinion of counsel from Wherify's IP
counsel as to the intellectual property of Wherify used or to be used in
Wherify's current and proposed business operations (including all licensed
intellectual property), which shall address such matters as ownership of
intellectual property rights, chain of title, validity, freedom to operate
(based upon W's current and proposed business operations), and appropriate
barriers to entry consistent with Wherify's current and proposed business
operations and which shall include such documents and representations of
Wherify, the inventors, and other parties as to the matters listed above as are
necessary for the opinion to be provided by counsel, in form and substance
reasonably satisfactory to IQB in its reasonable discretion; and
(e) Wherify shall have obtained signed Lock-Up Agreements from 90%
of those Wherify shareholders who hold .5% or more of Wherify Capital Stock.
ARTICLE XIII
ABANDONMENT OF MERGER
13.1 TERMINATION. Notwithstanding anything contained in this Agreement to
the contrary, this Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time, whether before or after adoption and approval
of this Agreement by the shareholders of Wherify or the stockholders of IQB:
(a) By mutual consent of the Boards of Directors of Wherify, the
Merger Sub and IQB;
(b) by IQB, if there has been a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of Wherify set forth
in this Agreement, which breach or failure to perform (i) would cause the
conditions set forth in Sections 12.3(a) or 12.3(b) not to be satisfied, and
(ii) if curable, shall not have been cured within 20 days following receipt by
Wherify of written notice of such breach or failure to perform from IQB;
(c) by Wherify, if there has been a breach of or failure to perform
any representation, warranty, covenant or agreement on the part of IQB or the
Merger Sub set forth in this Agreement, which breach or failure to perform (i)
would cause the conditions set forth in Sections 12.2(a) or 12.2(b) not to be
satisfied, and (ii) if curable, shall not have been cured within 20 days
following receipt by IQB of written notice of such breach or failure to perform
from Wherify;
(d) by either IQB or Wherify if a Governmental Entity of competent
jurisdiction shall have issued a nonappealable final order, decree or ruling or
taken any other nonappealable final action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger;
(e) by either IQB or Wherify if at the Wherify Shareholders Meeting
(including any adjournment or postponement thereof permitted by this Agreement)
at which a vote on the Wherify Voting Proposal is taken, the requisite vote of
the shareholders of Wherify in favor of the Wherify Voting Proposal shall not
have been obtained (provided that the right to terminate this Agreement under
this Section 13.1(e) shall not be available to any party seeking termination if,
at such time, such party is in material breach of or has failed to fulfill any
of its material obligations under this Agreement and such breach or failure has
been a principal cause of the inability to obtain the requisite vote of such
shareholders);
55
(f) by either IQB or Wherify if at the IQB Stockholders Meeting
(including any adjournment or postponement thereof permitted by this Agreement)
at which a vote on the IQB Voting Proposal is taken, the requisite vote of the
stockholders of IQB in favor of the IQB Voting Proposal shall not have been
obtained (provided the right to terminate this Agreement under this Section
13.1(f) shall not be available to any party seeking termination if, at such
time, such party is in material breach of or has failed to fulfill any of its
material obligations under this Agreement and such breach or failure has been a
principal cause of the inability to obtain the requisite vote of such
stockholders);
(g) by IQB, if: (i) the Wherify Board (or any committee thereof)
shall have failed to recommend approval of the Wherify Voting Proposal in its
proxy or information statement; (ii) the Wherify Board shall have withdrawn or
modified its recommendation of the Wherify Voting Proposal; (iii) Wherify shall
have materially breached its obligations under Sections 10.1 or 10.14; or (iv)
for any reason Wherify shall have failed to hold the Wherify Shareholders
Meeting and submit the Wherify Voting Proposal to the Wherify's shareholders by
the date which is sixty business days after the date the Registration Statement
or the Permit, as the case may be, has been declared effective or issued; or
(h) by Wherify, if: (i) the IQB Board (or any committee thereof)
shall have failed to recommend approval of the IQB Voting Proposal in its proxy
or information statement; (ii) the IQB Board shall have withdrawn or modified
its recommendation of the IQB Voting Proposal; (iii) IQB shall have materially
breached its obligations under Sections 10.1 or 10.14; or (iv) for any reason
IQB shall have failed to hold the IQB Stockholders Meeting and submit the IQB
Voting Proposal to the IQB's stockholders by the date which is sixty business
days after the date the Registration Statement or the Permit, as the case may
be, has been declared effective or issued.
13.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 13.1, this Agreement shall immediately become void and
there shall be no liability or obligation on the part of IQB, Wherify, the
Merger Sub or their respective officers, directors, stockholders or Affiliates;
provided that (i) any such termination shall not relieve any party from
liability for any willful breach of this Agreement (which includes, without
limitation, the making of any representation or warranty by a party in this
Agreement that the party knew was not true and accurate when made) and (ii) the
provisions of Sections 5.22, 7.21, 10.11 and 13.3 and Article XIV of this
Agreement and the Confidentiality Agreement, as amended hereby, shall remain in
full force and effect and survive any termination of this Agreement.
13.3 FEES AND EXPENSES.
(a) Except as set forth in this Section 13.3, All fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such fees and expenses, whether or
not the Merger is consummated.
(b) Wherify shall pay IQB a termination fee of US $500,000 in the
event of the termination of this Agreement:
(i) by IQB or Wherify pursuant to Section 13.1(e) if, at the
time of such termination, Wherify is in willful breach of any of its obligations
under Article VIII or X of this Agreement and such breach has been the principal
cause of the inability to consummate the Merger or the failure to obtain the
requisite vote of the shareholders of Wherify in favor of the Wherify Voting
Proposal; or
(ii) by IQB pursuant to Section 13.1(g).
56
(c) IQB shall pay Wherify a termination fee of US $500,000 in the
event of the termination of this Agreement:
(i) by IQB or Wherify pursuant to Section 13.1(f) if, at the
time of such termination, IQB is in willful breach of any of its obligations
under Article IX or X of this Agreement and such breach has been the principal
cause of the inability to consummate the Merger or the failure to obtain the
requisite vote of the stockholders of IQB in favor of the IQB Voting Proposal;
or
(ii) by Wherify pursuant to Section 13.1(h), unless (A) at or
prior to the time of such failure, there shall have been publicly announced a
Qualifying Proposal which shall not have been absolutely and unconditionally
withdrawn and abandoned and (B) on or before the date 6 months following the
date of such termination of this Agreement, IQB consummates a Superior Proposal.
Any fee due under this Section 13.3 shall be paid by wire transfer of
same-day funds within one business day after the date of termination of this
Agreement, in the case of a payment pursuant to clause (i) or (ii) above.
(d) Each party acknowledges that the agreements contained in this
Section 13.3 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the parties would not enter into
this Agreement. If any party fails to promptly pay any expense reimbursement or
fee due hereunder, such party shall pay the costs and expenses (including legal
fees and expenses) in connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment, together with interest
on the amount of any unpaid fee at the publicly announced prime rate of Fleet
Bank, N.A. plus five percent per annum, compounded quarterly, from the date such
expense reimbursement or fee was required to be paid. Payment of the fees and
expenses described in this Section 13.3 shall not be in lieu of damages incurred
in the event of a breach of this Agreement described in clause (i) of Section
13.2.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 COMPLETE AGREEMENT. This Agreement contains a complete and exclusive
statement of the agreement of the parties with respect to the subject matter
hereof, and all prior negotiations and agreements between the parties are
superseded by this Agreement.
14.2 WAIVER AND AMENDMENT. Any representation, warranty, covenant, term or
condition of this Agreement which may legally be waived, may be waived, or the
time of performance thereof extended, at any time by the party entitled to the
benefit thereof, and any term, condition or covenant hereof (including, without
limitation, the period during which any condition is to be satisfied or any
obligation performed) may be amended by the parties at any time. Any waiver,
extension or amendment shall be evidenced by any instrument in writing executed
on behalf of the appropriate party or parties or on its behalf by its Chairman
or President who has been authorized by its Board of Directors to execute
waivers, extensions or amendments on its behalf.
14.3 ASSIGNMENT; BINDING EFFECT. This Agreement may not be assigned by
either party without the written consent of the other party. This Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns.
57
14.4 NOTICES. Any notice, demand, claim or other communication under this
Agreement shall be in writing and shall be deemed duly delivered (i) four
business days after being sent by registered or certified mail, return receipt
requested, postage prepaid, (ii) one business day after being sent for next
business day delivery, fees prepaid, via a reputable nationwide overnight
courier service, or (iii) on the date of confirmation of receipt (or, the first
business day following such receipt if the date of such receipt is not a
business day) of transmission by facsimile in each case to the intended
recipient as set forth below:
(a) if to IQB or Merger Sub, to
IQ Biometrix, Inc.
00000 Xxxxx Xxxxx Xxxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxx, Chief Financial Officer
Facsimile: (000) 000-0000
with a copy to:
The Xxxxx Law Group
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxx
Attention: Xxxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
(b) if to Wherify, to
Wherify Wireless, Inc.
0000 Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx Xxxxxx, XX 00000
Attention: Xxxxxxx Xxxxx, Chief Executive Officer
Facsimile: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxx Xxxx Xxxxxx & Xxxxxxx LLP
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
Any party to this Agreement may give any notice or other communication hereunder
using any other means (including personal delivery, messenger service, telecopy,
telex, ordinary mail or electronic mail), but no such notice or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any party to this
Agreement may change the address to which notices and other communications
hereunder are to be delivered by giving the other parties to this Agreement
notice in the manner herein set forth.
14.6 GOVERNING LAW. AS TO ALL MATTERS OF LAW, THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH CALIFORNIA LAW, REGARDLESS OF THE
LAWS THAT MIGHT OTHERWISE BE APPLICABLE UNDER PRINCIPLES OF CONFLICTS OF LAW.
58
14.7 SUBMISSION TO JURISDICTION. Each of the parties to this Agreement (a)
consents to submit itself to the personal jurisdiction of any state or federal
court sitting in the State of California, County of San Mateo in any action or
proceeding arising out of or relating to this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that all claims in
respect of such action or proceeding may be heard and determined in any such
court, (c) agrees that it shall not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (d)
agrees not to bring any action or proceeding arising out of or relating to this
Agreement or any of the transaction contemplated by this Agreement in any other
court.
14.8 HEADINGS. Any headings in this Agreement are solely for convenience
of reference and shall not affect its interpretation.
14.9 EXECUTION OF COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
14.10 SEVERABILITY. If any provision of this Agreement is held or deemed
to be, or in fact is, invalid, inoperative or unenforceable for any reason, this
Agreement shall be construed as though such invalid, inoperative or
unenforceable provision had never been contained in this Agreement.
59
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
"IQB" "WHERIFY"
I. Q. BIOMETRIX, INC., WHERIFY WIRELESS, INC.,
a Delaware corporation a California corporation
By: /s/ Xxxxxxx X.X. Xxxxxxxxx By: /s/ Xxxxxxx X. Xxxxx
-------------------------------- ---------------------------------
Name: Xxxxxxx X.X. Xxxxxxxxx Name: Xxxxxxx X. Xxxxx
------------------------------ -------------------------------
Title: President and CEO Title: President
----------------------------- -------------------------------
"MERGER SUB"
WHERIFY ACQUISITION, INC.,
a California corporation
By: /s/ Xxxxxxx X.X. Xxxxxxxxx
--------------------------------
Name: Xxxxxxx X.X. Xxxxxxxxx
------------------------------
Title: President and CEO
-----------------------------
60
Exhibit A
Wherify Wireless, Inc.
Shareholder Agreement
Schedule A
Wherify Wireless, Inc.
List of Shareholders:
Xxxxxxx Xxxxx
Xxxxxxxx Xxxxxx
Xxxxxx Xxxxxx
61
Exhibit B
I.Q.Biometrix, Inc.
Stockholder Agreement
Schedule B
I.Q. Biometrix, Inc.
List of Stockholders:
Xxxxxxx Xxxxxxxxx
Xxxx Xxxxx
Xxxxxx XxXxxxxx
62
Exhibit C
Articles of Incorporation
63
Exhibit D
Bylaws
64
Exhibit E
Certificate of Merger
65
Exhibit F
Lockup Agreement
66
