EXHIBIT 99.1
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
BY AND AMONG
SAFLINK CORPORATION
AND
JOTTER TECHNOLOGIES INC.
AND
CERTAIN SHAREHOLDERS OF JOTTER TECHNOLOGIES INC.
DATED SEPTEMBER 20, 2000
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS............................................................................................1
1.1. Certain Definitions......................................................................................1
1.2 Other Definitions........................................................................................7
ARTICLE II THE MERGER AND RELATED TRANSACTIONS...................................................................7
2.1. Effective Time of the Merger.............................................................................7
2.2 Effects of the Merger....................................................................................7
2.3. Effects of Merger on Jotter Common Stock.................................................................7
2.4. Issuance and Exchange of Certificates....................................................................9
2.5 No Further Ownership Rights in Stock....................................................................10
2.6 Exemption from Registration.............................................................................10
2.7 Alberta and British Columbia Residents..................................................................11
2.8 Board of Directors; Officers............................................................................11
2.9 Tax Treatment...........................................................................................12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF JOTTER AND THE SIGNING HOLDERS.....................................12
3.1 Organization............................................................................................12
3.2 Capital Structure.......................................................................................13
3.3 Equity Investments......................................................................................15
3.4 Authority...............................................................................................15
3.5 Financial Statements....................................................................................16
3.6 Business Changes........................................................................................16
3.7 Properties..............................................................................................18
3.8 Accounts Receivable.....................................................................................20
I
3.9 Taxes...................................................................................................20
3.10 Employees...............................................................................................21
3.11 Compliance with Law.....................................................................................22
3.12 Year 2000 Compliance....................................................................................22
3.13 Litigation..............................................................................................22
3.14 Contracts...............................................................................................23
3.15 No Default..............................................................................................25
3.16 Customers...............................................................................................25
3.17 Proprietary Rights......................................................................................25
3.18 Insurance...............................................................................................28
3.19 Bank Accounts...........................................................................................28
3.20 Brokers or Finders......................................................................................29
3.21 Certain Advances........................................................................................29
3.22 Related Parties.........................................................................................29
3.23 Employee Benefit Plans; ERISA...........................................................................29
3.24 Customers and Other Relationships.......................................................................31
3.25 Underlying Documents....................................................................................31
3.26 Full Disclosure.........................................................................................32
3.27 Status of Shareholders..................................................................................32
3.28 Reporting Status........................................................................................32
3.29 Knowledge...............................................................................................32
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SAFLINK............................................................33
4.1 Organization............................................................................................33
4.2 Acquisition Corporation Capital Structure...............................................................33
4.3 Authority...............................................................................................33
II
4.4 Capital Structure.......................................................................................34
4.5 SEC Documents...........................................................................................35
4.6 No Conflict.............................................................................................35
4.7 Shares of Common Stock..................................................................................35
4.8 Brokers or Finders......................................................................................36
4.9 Information Provided....................................................................................36
4.10 Sophistication of Buyer.................................................................................36
4.11 False and Misleading Statements.........................................................................36
ARTICLE V COVENANT RELATING TO CONDUCT OF BUSINESS..............................................................36
5.1 Ordinary Course.........................................................................................36
5.2 Dividends; Changes in Stock.............................................................................37
5.3 Issuance of Securities..................................................................................37
5.4 Governing Documents.....................................................................................37
5.5 No Other Bids or Contacts...............................................................................37
5.6 No Acquisitions.........................................................................................38
5.7 No Dispositions.........................................................................................38
5.8 Indebtedness............................................................................................38
5.9 Benefit Plans, Etc......................................................................................38
5.10 Other Actions...........................................................................................39
5.11 Advice of Changes; Government Filings...................................................................40
5.12 Accounting Methods......................................................................................40
5.13 Intellectual Property Matters...........................................................................40
ARTICLE VI ADDDITIONAL AGREEMENTS................................................................................41
6.1 Access to Information...................................................................................41
6.2 Legal Conditions to the Merger and Related Transactions.................................................41
III
6.3 Communications; Confidentiality.........................................................................42
6.4 Update to Disclosures...................................................................................42
6.5 Certain Notifications...................................................................................42
6.6 Treatment of Plans, Agreements and Options..............................................................42
6.7 Agreements to Vote Shares...............................................................................43
6.8 Agreements by Affiliated Stockholders...................................................................43
6.9 Employees...............................................................................................43
6.10 Treatment of Merger as Qualifying Reorganization........................................................44
6.11 Treatment of Merger as Foreign Merger...................................................................44
6.12 Takeover Statutes.......................................................................................44
6.13 Joint Proxy Statement; Shareholder Vote.................................................................44
6.14 Termination of Agreements
6.15 Certificate Pursuant to Section 116 of the Income Tax Act (Canada) 46
6.16 MindQuake Agreements....................................................................................47
ARTICLE VII CONDITIONS PRECEDENT................................................................................47
7.1 Conditions to Obligations of SAFLINK, Acquisition Corporation, Jotter and Signing Holders...............47
7.2 Conditions to Obligations of SAFLINK and Acquisition Corporation........................................49
7.3 Conditions to Obligations of Jotter.....................................................................52
ARTICLE VIII CLOSING............................................................................................53
8.1 Closing Date............................................................................................53
8.2 Filing Date.............................................................................................53
8.3 Best Efforts............................................................................................54
ARTICLE IX INDEMNIFICATION AND ESCROW...........................................................................54
9.1 Survival of Jotter Representations and Warranties.......................................................54
9.2 Indemnification by Jotter and the Signing Holders.......................................................54
IV
9.3 Escrow Fund.............................................................................................56
9.4 Indemnification by SAFLINK..............................................................................57
9.5 Notice and Defense of Third Party Claims................................................................57
9.6 No Contribution.........................................................................................58
ARTICLE X PAYMENT OF EXPENSES...................................................................................58
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER....................................................................59
11.1 Termination.............................................................................................59
11.2 Effect of Termination...................................................................................60
11.3 Amendment...............................................................................................61
11.4 Extension; Waiver.......................................................................................61
ARTICLE XII GENERAL.............................................................................................61
12.1 Notices.................................................................................................61
12.2 Headings; Construction..................................................................................62
12.3 Counterparts............................................................................................62
12.4 Binding Effect; Parties in Interest.....................................................................62
12.5 Entire Agreement; Assignment............................................................................63
12.6 Schedules and Exhibits..................................................................................63
12.7 Applicable Law; Venue; Waiver of Jury Trial.............................................................63
12.8 Severability............................................................................................64
12.9 Remedies Cumulative.....................................................................................64
12.10 Specific Performance....................................................................................64
12.11 Commercially Reasonable Efforts; Further Assurances.....................................................64
V
EXHIBITS
--------
Exhibit 2.1 ...................................................................................Plan of Merger
Exhibit 2.2(b)......................Surviving Corporation's Amended and Restated Certificate of Incorporation
Exhibit 2.2(c).................................................................Surviving Corporation's Bylaws
Exhibit 6.7(a)........................................................................Jotter Voting Agreement
Exhibit 6.7(b).......................................................................SAFLINK Voting Agreement
Exhibit 6.8........................................................................Jotter Affiliate Agreement
Exhibit 6.14............................................................................Termination Agreement
Exhibit 6.16..............................................................................MindQuake Agreement
Exhibit 7.1(f)..................................................................Registration Rights Agreement
Exhibit 7.1(i)...............................................................................Escrow Agreement
Exhibit 7.1(r).......................................................................Holder Lock Up Agreement
Exhibit 7.1(s).....................................................................Employee Lock Up Agreement
Exhibit 7.2(e)..............................................Form of Opinion of Xxxxx, Xxxxxxxxx & Xxxxx, P.C.
Exhibit 7.2(p).........................................................................Non-Compete Agreements
Exhibit 7.3(f)............................................................Form of Opinion of Xxxxx & XxXxxxxx
SCHEDULES
----------
Schedule 2.3(c)(ii)(A)...................................................................Indemnifying Holders
Schedule 2.6(a)...........................................................................U.S. Holders Legend
Schedule 2.6(b)........................................................................Non-U.S.Holders Legend
Schedule 3.1 (a)...........................................Qualified Jurisdictions of Jotter and Subsidiaries
Schedule 3.2(a)(i)..........................................................Signing Holders' Number of Shares
Schedule 3.2(a)(ii)..................................................................Restrictions on Transfer
Schedule 3.2 (b)(i)...............................................Jotter Common Stock subject to Restrictions
Schedule 3.2 (b)(ii)...............................Jotter Subsidiaries' capital stock subject to Restrictions
Schedule 3.2(c)......................................................................Jotter Equity Securities
Schedule 3.2(d)....................................................Jotter's and its Subsidiaries Shareholders
Schedule 3.2(e).........................................................Jotter Equity-Related Incentive Plans
Schedule 3.2(f)(ii)....................................... Accelerated Vesting of Jotter Options and Warrants
Schedule 3.2(g)......................................................................Jotter Voting Agreements
Schedule 3.2(h).....................................................................Prior Securities Issuance
Schedule 3.3...............................................................................Equity Investments
Schedule 3.4................................................................................Required Consents
Schedule 3.5...........................................................Jotter Financial Statements Exceptions
Schedule 3.6.................................................................................Business Changes
Schedule 3.7(a)......................................................Assets and Properties without Good Title
Schedule 3.7(b)................................................................Leased/Option to Purchase Real
Property Schedule 3.7 (e)............................................Required Permits, Consents and Approvals
Schedule 3.10(a)..............................................Directors, Officers, Employees, and Consultants
Schedule 3.10(b).........................................................................Employment Contracts
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Schedule 3.10(c)................................................................Employment Laws and Practices
Schedule 3.11.............................................................................Compliance with Law
Schedule 3.13......................................................................................Litigation
Schedule 3.14.......................................................................................Contracts
Schedule 3.15(a).........................................................................Contracts in Default
Schedule 3.15(b)................................................................Contracts in Material Default
Schedule 3.16.......................................................................................Customers
Schedule 3.17................................................................Intellectual Property Disclosure
Schedule 3.18.......................................................................................Insurance
Schedule 3.19...................................................................................Bank Accounts
Schedule 3.21................................................................................Certain Advances
Schedule 3.22.................................................................................Related Parties
Schedule 3.23(a).......................................................................Employee Benefit Plans
Schedule 3.23(d)........................................................................Benefits Arrangements
Schedule 4.4............................................................SAFLINK Capital Structure Obligations
Schedule 5.9....................................................................................New Employees
Schedule 6.6.......................................................Treatment of Plans, Agreements and Options
Schedule 6.7(a)..................................................................Jotter Majority Shareholders
Schedule 6.7 (b)................................................................SAFLINK Majority Shareholders
Schedule 6.8.......................................................................................Affiliates
Schedule 6.14.....................................................................Agreements to be Terminated
Schedule 6.16......................................................................... MindQuake Shareholders
Schedule 7.1(s)................................................List of Employees Subject to Lock Up Agreement
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THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the "Agreement"),
dated as of September 20, 2000, is made by and among SAFLINK Corporation, a
Delaware corporation ("SAFLINK"); Jotter Technologies Inc., a Delaware
Corporation ("Jotter"); and the shareholders of Jotter listed on the signature
pages hereto (collectively, the "Signing Holders").
WITNESSETH:
WHEREAS, subject to the terms and conditions of this Agreement, on the
date provided for in Article VIII hereof (the "Closing Date"), a Delaware
corporation and wholly owned subsidiary of SAFLINK to be formed prior to the
Closing Date ("Acquisition Corporation") and Jotter shall execute the
Certificate of Merger (the "Plan of Merger") in substantially the form attached
hereto as Exhibit 2.1, which provides for the merger (the "Merger") of
Acquisition Corporation into Jotter at the Effective Time;
WHEREAS, the Merger is intended to qualify as a "reorganization" under
the provisions of Section 368 of the Internal Revenue Code of 1986, as amended
(the "Code");
WHEREAS, the Merger is intended to qualify as a "foreign merger" within
the meaning of subsections 87(8) and 87(8.1) of the Income Tax Act (Canada);
WHEREAS, following the Merger in accordance with the terms of this
Agreement, Jotter shall be a wholly owned subsidiary of SAFLINK, and all shares
of Common Stock, $.01 par value per share, of Jotter ("Jotter Common Stock"),
issued and outstanding will be converted into shares of Common Stock, $0.01 par
value per share, of SAFLINK ("SAFLINK Common Stock") in accordance with this
Agreement; and
WHEREAS, the parties hereto desire to enter into this Agreement for the
purpose of setting forth certain representations, warranties and covenants made
by each to the other as an inducement to the execution and delivery of this
Agreement and the conditions precedent to the consummation of the Merger and the
transactions related thereto;
NOW, THEREFORE, it is agreed as follows by all of the parties,
acknowledging the receipt and sufficiency of the consideration exchanged herein
and intending to be legally bound hereby:
ARTICLE IDEFINITIONS
1.1. Certain Definitions. The terms defined in this Section 1.1 shall,
for all purposes of this Agreement, have the meanings herein specified:
"Acquisition Corporation" is defined in the Recitals.
"Acquisition Corporation Common Stock" is defined in Section 4.2.
"Acquisition Transaction" is defined in Section 5.5.
"Affiliate" is defined in Section 6.8.
"Alberta Holders" is defined in Section 2.7.
"Agreement" is defined in the Recitals.
"Benefit Arrangements" is defined in Section 3.23(d).
"B.C. Holders" is defined in Section 2.7.
"Certificates" is defined in Section 2.4(b).
"Closing" is defined in Section 8.1.
"Closing Balance Sheet" is defined in Section 3.5.
"Closing Date" is defined in Section 8.1.
"Closing Stock Price" is defined in Section 2.3(e).
"Code" is defined in the Recitals.
"Consent" is defined in Section 3.4.
"Dissenting Share" is defined in Section 2.3(f).
"Dissenting Shareholder" is defined in Section 2.3(f).
"Effective Time" is defined in Section 2.1.
"Employee" is defined in Section 7.1(s).
"Employee Plans" is defined in Section 3.23(a).
"ERISA" is defined in Section 3.23(a).
"ERISA Affiliate" is defined in Section 3.23(b).
"Escrow Agent" is defined in Section 9.3(a).
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"Escrow Agreement" is defined in Section 9.3(a).
"Escrow Fund" is defined in Section 9.3(a).
"Escrow Shares" is defined in Section 2.3(c)(ii).
"Excess Expenses" is defined in Section 10.
"Exchange Ratio" is defined in Section 2.3(c)(ii)(A).
"Expiration Date" is defined in Section 9.1.
"Filing Date" is defined in Section 8.2.
"Filing Fees" is defined in Section 10.
"GAAP" is defined in Section 3.5.
"Governmental Entity" shall mean any court, administrative agency or commission
or other governmental body, authority or instrumentality and shall include
securities commissions or regulatory authorities of each province or territory
of Canada.
"Hazardous Substances" is defined in Section 3.7(c).
"Holders" is defined in Section 2.3(c)(ii).
"Holders' Representative" shall mean Xxxxx Xxxxxxxxxxx or such successor as may
be agreed upon by Holders owning 51% or more of the Shares on deposit from time
to time with the Escrow Agent and identified to Jotter by such Holders in
writing.
"Indemnifiable Damages" is defined in Section 9.2(a).
"Indemnifying Holder" is defined in Section 2.3(c)(ii).
"Indemnitee" is defined in Section 9.5.
"Indemnitor" is defined in Section 9.5.
"Indemnitors" is defined in Section 9.2(a).
"Intellectual Property Disclosure Schedule" is defined in Section 3.17(a).
"Jotter" is defined in the Preamble.
"Jotter Balance Sheet" is defined in Section 3.5.
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"Jotter Balance Sheet Date" is defined in Section 3.5.
"Jotter Financial Statements" is defined in Section 3.5.
"Jotter Indemnitees" is defined in Section 9.4.
"Jotter Indemnitors" is defined in Section 9.2(a).
"Jotter Material Adverse Effect" shall mean a materially adverse effect on the
condition (financial or otherwise), business, net worth, assets, properties,
prospects or operations of Jotter or any of its Subsidiaries.
"Jotter Common Stock" is defined in the Recitals.
"Jotter Preferred Stock" is defined in Section 2.3(b).
"Jotter Options" is defined in Section 3.2(b).
"Jotter Representatives" is defined in Section 6.1(b).
"Jotter Required Shareholder Vote" is defined in Section 3.4.
"Jotter Source Code" is defined in Section 3.17(k).
"Jotter Voting Agreements" is defined in Section 6.7(a).
"Jotter Warrants" is defined in Section 3.2(b).
"Legal Requirements" shall mean any law, statute, constitution, principle of
common law, ordinance, code, decree, rule, regulation, ruling or requirement
issued, enacted, adopted, promulgated, implemented or otherwise put into effect
by or under the authority of any court or other Governmental Entity.
"List of Shares" is defined in Section 2.3(c)(ii)(A).
"Merger" is defined in the Recitals.
"Merger Shares" is defined in Section 2.3(c)(ii).
"MindQuake" is defined in Section 3.2.
"Nasdaq" shall mean the Nasdaq Stock Market.
"Non-U.S. Holders" is defined in Section 2.6(b).
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The term "patent" shall mean any and all patents and patent applications,
including any divisions, substitutions, continuations, continuations-in-part,
reissues, reexaminations, or extensions thereof, and all corresponding foreign
patents and patent applications filed or issued in any country which are based
upon or derived from such patents or patent applications.
"Permits" is defined in Section 3.11.
"Person" or "person" shall mean any natural person, corporation, trust, limited
liability company, partnership, Governmental Entity or other entity.
"Plan of Merger" is defined in the Recitals.
"Proprietary Rights" is defined in Section 3.17(b).
"Proxy Statement" is defined in Section 6.13(a)(i).
"Regulation D Investment Letter" is defined in Section 6.13(a)(ii).
"Regulation D Status Letter" is defined in Section 6.13(a)(ii).
"Regulation S Investment Letter" is defined in Section 6.13(a)(ii).
"Regulation S Status Letter" is defined in Section 6.13(a)(ii).
"Related Parties" is defined in Section 3.22.
"Representatives" is defined in Section 5.5.
"Rule 145" is defined in Section 6.8.
"Rule 501" is defined in Section 6.13(a)(ii).
"Rule 502" is defined in Section 6.13(a)(ii).
"Rule 903" is defined in Section 6.13(a)(ii).
"SAFLINK" is defined in the Preamble.
"SAFLINK Common Stock" is defined in the Recitals.
"SAFLINK Indemnitees" is defined in Section 9.2(a).
"SAFLINK Preferred Stock" is defined in Section 4.4.
"SAFLINK Options" is defined in Section 4.4.
5
"SAFLINK Representatives" is defined in Section 6.1(a).
"SAFLINK Required Shareholder Vote" is defined in Section 4.3.
"SAFLINK SEC Documents" is defined in Section 4.5.
"SAFLINK Voting Agreements" is defined in Section 6.7(b).
"SAFLINK Warrants" is defined in Section 4.4.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" is defined in Section 2.6(a).
"Signing Holders" is defined in the Preamble.
"Stock" is defined in Section 2.3(c)(ii).
"Subsidiary" of a specified entity means a corporation whose voting securities
are owned directly or indirectly by the specified entity in such amounts as are
sufficient to elect at least a majority of the Board of Directors.
"Surviving Corporation" is defined in Section 2.2.
"Tax" is defined in Section 3.9.
"Tax Return" is defined in Section 3.9.
"Taxes" is defined in Section 3.9.
"Termination Agreements" is defined in Section 6.14.
"Termination Amount" is defined in Section 11.2(b).
"Termination Date" is defined in Section 11.1(b).
"Third Party Expenses" is defined in Section 10.
"U.S. Holders" is defined in Section 2.6(a).
"U.S. person" is defined in Section 3.27(b).
"Year 2000 Compliant" is defined in Section 3.12.
The terms "contract" and "agreement" include every contract, agreement,
commitment, understanding and promise, whether written or oral.
6
1.2 Other Definitions. In addition to the terms defined in Section 1.1,
certain other terms are defined elsewhere in this Agreement, and, whenever such
terms are used in this Agreement, they shall have their respective defined
meanings, unless the context expressly or by necessary implication otherwise
requires.
ARTICLE II
THE MERGER AND RELATED TRANSACTIONS
2.1. Effective Time of the Merger. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the Plan of
Merger in substantially the form attached hereto as Exhibit 2.1 shall be duly
prepared, executed and acknowledged by Jotter and Acquisition Corporation and
thereafter delivered to the Secretary of State of Delaware for filing in
accordance with the Delaware General Corporation Law. The Merger shall become
effective upon the later to occur of the acceptance of such filing by the
Secretary of State of Delaware or such time thereafter as is provided by the
Plan of Merger (the "Effective Time").
2.2 Effects of the Merger. At the Effective Time, (a) the separate
existence of Acquisition Corporation shall cease and Acquisition Corporation
shall be merged with and into Jotter as the surviving corporation (the
"Surviving Corporation"); (b) the amended and restated Certificate of
Incorporation of Jotter, in the form attached hereto as Exhibit 2.2(b), shall be
the Certificate of Incorporation of the Surviving Corporation; (c) the Bylaws of
Jotter, in the form attached hereto as Exhibit 2.2(c), shall be the Bylaws of
the Surviving Corporation; (d) the directors of the Surviving Corporation shall
be as set forth in Section 2.8 herein; (e) the officers of the Surviving
Corporation shall be as set forth in Section 2.8 herein; and (f) the Merger
shall, from and after the Effective Time, have all the effects provided by
applicable law.
2.3. Effects of Merger on Jotter Common Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of any shares of the issued and outstanding shares of Jotter Common Stock:
(a) Capital Stock of Acquisition Corporation. All issued and
outstanding shares of capital stock of Acquisition Corporation shall be
converted into 100 shares of Common Stock of the Surviving Corporation. Each
stock certificate of Acquisition Corporation evidencing ownership of any such
shares shall continue to evidence ownership of such shares of capital stock of
the Surviving Corporation.
(b) Cancellation of Jotter Owned and SAFLINK Owned Stock. All shares of
Jotter Common Stock and all shares of Preferred Stock, $.01 par value per share
of Jotter ("Jotter Preferred Stock"), if any, that are owned directly or
indirectly by Jotter, and all shares of Jotter Common Stock and Jotter Preferred
Stock, if any, that are owned directly or indirectly by SAFLINK or any of its
Subsidiaries, shall be canceled, and no stock of SAFLINK or other consideration
shall be delivered in exchange therefor.
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(c) Consideration; Conversion of the Stock; Escrow Shares.
(i) In consideration of the Merger, SAFLINK shall issue
10,600,000 shares of SAFLINK Common Stock, which shares shall be allocated to
the Holders on a pro-rata basis in accordance with Section 2.3(c)(ii).
(ii) Except for shares to be canceled pursuant to Section
2.3(b) hereof and Dissenting Shares as provided in Section 2.3(f), and subject
to adjustment pursuant to Section 2.3(d), each share of Jotter Common Stock
issued and outstanding (all shares of Jotter Common Stock not so excepted, the
"Stock"), shall cease to be outstanding and shall be converted by virtue of the
Merger and without any action on the part of the holders thereof (collectively,
the "Holders") into the following respective number of shares of SAFLINK Common
Stock and collectively, the "Merger Shares") as follows:
(A) in the case of each such share of Jotter Common Stock
constituting the Stock, a fraction (the "Exchange Ratio") of shares of SAFLINK
Common Stock, which Exchange Ratio shall equal a number, the numerator of which
shall be 10,600,000, and the denominator of which shall be equal to the
aggregate number of shares of Jotter Common Stock issued and outstanding as of
the Closing Date, which aggregate number shall be set forth on a definitive list
of shares of Jotter Common Stock and shall include any Jotter Common Stock
issuable upon the conversion of the shares of capital stock of MindQuake ("List
of Shares") to be delivered by Jotter to SAFLINK no later than ten (10) days
after the date of this Agreement.
Of the Merger Shares, a portion (the "Escrow Shares") in
number equal to 100% of the Merger Shares issued to certain Holders identifying
in Schedule 2.3(c)(ii)(A) ("Indemnifying Holders") shall be issued in accordance
with and subject to the terms of the Escrow Agreement in the names of
Indemnifying Holders, but shall be delivered at the Effective Time to the Escrow
Agent to be held and distributed in accordance with the provisions of Article IX
hereof and the Escrow Agreement and subject to claims for indemnification
pursuant to Article IX hereof.
(d) Adjustment of Exchange Ratio or Allocation. If, between the date of
this Agreement and the Effective Time, the outstanding shares of SAFLINK Common
Stock shall have been changed into a different number of shares or a different
class by reason of any reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, the number of shares of SAFLINK
Common Stock to be delivered pursuant to this Agreement shall be correspondingly
adjusted. No adjustment shall be made in the Exchange Ratio or the number of
shares of SAFLINK Common Stock issued in the Merger as a result of any
consideration (in any form whatsoever) received by Jotter from the date the List
of Shares is delivered to SAFLINK to the Effective Time as a result of any
exercise, conversion or exchange of Jotter Options, Jotter Warrants, Jotter
Preferred Stock, or convertible notes of Jotter.
(e) Fractional Shares. No fractional shares of SAFLINK Common Stock
shall be issued, but in lieu thereof each Holder who would otherwise be entitled
to receive a fraction of a share of SAFLINK Common Stock (after aggregating all
fractional shares of SAFLINK Common Stock to be received by such Holder) shall
receive from SAFLINK an amount of cash
8
(rounded up to the nearest whole cent) equal to the product of (i) the fraction
of a share of SAFLINK Common Stock to which such Holder would otherwise be
entitled, times (ii) the Closing Stock Price. The "Closing Stock Price" shall
mean the average closing price of the SAFLINK Common Stock on the Nasdaq
SmallCap Market for the ten (10) trading day period ending two (2) trading days
before the Closing Date.
(f) Dissenting Shares; Dissenting Shareholders. Notwithstanding
anything in this Agreement to the contrary, no share of Jotter Common Stock, the
holder of which (a "Dissenting Shareholder") has properly exercised and
perfected dissenters' rights under Section 262 of the Delaware General
Corporation Law (a "Dissenting Share"), shall be converted into the right to
receive any Merger Shares or cash in lieu of fractional Merger Shares, but such
Dissenting Shareholder shall be entitled to receive such consideration as shall
be determined pursuant to Section 262 of the Delaware General Corporation Law
with respect to such Dissenting Share; provided that if any such Dissenting
Shareholder shall fail to perfect or shall have effectively withdrawn or
otherwise lost his, her or its rights to dissent to the Merger under the
Delaware General Corporation Law, each of such Dissenting Shareholder's
Dissenting Shares shall thereupon be deemed to have been converted into the
number of Merger Shares (including cash in lieu of fractional shares, as
provided in Section 2.3(e)) applicable thereto as if such Dissenting Share had
not been a Dissenting Share at the Effective Time, without any interest thereon,
and such share shall no longer be a Dissenting Share. Jotter shall give SAFLINK
(i) prompt notice of any written demands for the exercise of dissenters' rights
in respect of any shares of Jotter Common Stock, withdrawals of such demands,
and any other instruments served pursuant to Delaware law (including without
limitation instruments concerning appraisal or dissenters' rights and received
by Jotter and (ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands, Jotter shall not, except with the
prior written consent of SAFLINK, voluntarily make any payment with respect to
any demands for the exercise of dissenters' rights in respect of any shares of
Jotter Common Stock or offer to settle or settle any such demands.
2.4. Issuance and Exchange of Certificates.
(a) SAFLINK to Make Common Stock Available. Promptly after the
Effective Time, but in no event later than ten (10) days thereafter, SAFLINK
shall make available for exchange in accordance with this Agreement, through
such reasonable procedures as SAFLINK may adopt, the shares of SAFLINK Common
Stock issuable to the Holders pursuant to Section 2.3(c) in exchange for the
Stock. In no event shall SAFLINK make any payment in excess of the number of
shares of SAFLINK Common Stock specified in Section 2.3.
(b) Exchange Procedures. As soon as practicable after the Effective
Time, but in no event later than ten (10) days thereafter, SAFLINK shall mail to
each holder of record of a certificate or certificates which immediately prior
to the Effective Time represented outstanding shares of Jotter Common Stock
(collectively, the "Certificates") whose shares are being converted into SAFLINK
Common Stock pursuant to Section 2.3, instructions for use in effecting the
surrender of the Certificates in exchange for SAFLINK Common Stock. Upon
surrender of a Certificate for cancellation to SAFLINK, the holder of such
Certificate shall be entitled to receive (or, in the case of the Indemnifying
Holders, shall be entitled to have
9
deposited with the Escrow Agent) in exchange therefor the certificates
representing the number of shares of SAFLINK Common Stock and payments in lieu
of fractional shares to which such Holder is entitled pursuant to Section 2.3
and is represented by the Certificate so surrendered. The Certificates so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of Jotter Common Stock which is not registered in the transfer records of
Jotter, the stock certificates representing shares of SAFLINK Common Stock may
be delivered to a transferee (or, in the case of the Indemnifying Holders to the
Escrow Agent for the benefit of such holder) if the Certificate representing the
right to receive such SAFLINK Common Stock is presented to SAFLINK and
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid. SAFLINK
shall follow the same procedure with respect to lost, stolen or mutilated Jotter
Certificates as it follows with respect to lost, stolen or mutilated SAFLINK
certificates. Unless and until any such Certificate shall be so surrendered, or
such procedures respecting lost, stolen or mutilated Certificates are followed,
the holders of the Certificate shall not be entitled to receive certificates for
the SAFLINK Common Stock or cash for any fractional share of SAFLINK Common
Stock and any dividends paid or other distributions made to holders of record of
SAFLINK Common Stock after the Effective Time shall be paid to and retained by
SAFLINK and paid over to such holder when such Certificate is surrendered or
such procedures are implemented in accordance with this Section 2.4(b). Neither
SAFLINK nor the Surviving Corporation shall have any liability to any holder or
former holder of capital stock of Jotter for any shares of SAFLINK Common Stock
(or dividends or distributions with respect thereto), or for any cash amounts,
delivered to any public official pursuant to any applicable abandoned property,
escheat or similar law.
(c) Affiliates. Notwithstanding anything herein to the contrary,
Certificates formerly representing the Stock surrendered for exchange for
SAFLINK Common Stock by any "affiliate" (as determined pursuant to Section 6.8)
of Jotter shall not be exchanged for certificates representing SAFLINK Common
Stock until SAFLINK has received a written Affiliate Agreement for such person
as provided in Section 6.8 hereof.
2.5 No Further Ownership Rights in Stock. All SAFLINK Common Stock
delivered (including SAFLINK Common Stock delivered to the Escrow Agent) upon
the surrender for exchange of shares of Jotter Common Stock in accordance with
the terms hereof (including any cash in lieu of fractional shares) shall be
deemed to have been delivered in full satisfaction of all rights pertaining to
such shares of stock. There shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Jotter Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
SAFLINK, they shall be canceled and exchanged as provided in this Article II.
2.6 Exemption from Registration.
(a) U.S. Holders. The Merger Shares to be issued pursuant to Section
2.3 in connection with the Merger will be issued to Holders located in the
United States ("U.S. Holders") in a transaction exempt from registration (i)
under the Securities Act of 1933, as amended (the "Securities Act"), by reason
of Section 4(2) thereof and the rules and regulations
10
promulgated thereunder by the SEC, and (ii) under applicable state securities
laws, if not preempted by federal law. Each certificate representing such shares
shall, until such time that such shares are not "restricted securities" within
the meaning of Rule 144 under the Securities Act, bear a legend identical or
similar in effect to the legend set forth in Schedule 2.6(a) hereto (together
with any other legend or legends required by applicable Legal Requirements or
under this Agreement).
(b) Non-U.S. Holders. The Merger Shares to be issued pursuant to
Section 2.3 in connection with the Merger will be issued to Holders located
outside of the United States ("Non-U.S. Holders") in a transaction exempt from
registration (i) under the Securities Act, by reason of Regulation S promulgated
thereunder by the SEC, and (ii) under applicable state and provincial securities
laws, if not preempted by federal law. Each certificate representing such shares
shall bear a legend identical or similar in effect to the legend set forth in
Schedule 2.6(b) hereto (together with any other legend or legends required by
applicable Legal Requirements or under this Agreement).
(c) No Exemption Available. In the event that SAFLINK, in its sole
discretion, determines that the exemptions from registration under the
Securities Act by reason of Section 4(2) or Regulation S (as described in
Sections 2.6(a) and 2.6(b) above) are not available with respect to the issuance
of Merger Shares to U.S. Holders and Non-U.S. Holders, respectively, SAFLINK
shall cause the Merger Shares to be registered and issued pursuant to a
registration statement in accordance with the Securities Act and the rules and
regulations promulgated thereunder by the SEC, and SAFLINK and Jotter shall not
be required to enter into the Registration Rights Agreement, in the form
attached hereto as Exhibit 7.1(f).
2.7 Alberta and British Columbia Resident Holders. The Merger Shares to
be issued pursuant to Section 2.3 in connection with the Merger will be issued
to Holders resident in Alberta ("Alberta Holders") and British Columbia ("B.C.
Holders") pursuant to an exemption from applicable registration and prospectus
requirements in reliance on sections 65(1)(p) and 107(1)(I) of the Securities
Act (Alberta) and section 45(2)(9) and 74(1)(8) of the Securities Act (British
Columbia). Subject to certain exceptions, the resale of the Merger Shares by
Alberta Holders and B.C. Holders is subject to restrictions which restrictions
may be set out as a legend on the certificates representing the Merger Shares.
2.8 Board of Directors; Officers. Upon the Effective Time:
(a) The directors and officers of the Surviving Corporation shall be as
named in the Plan of Merger and each shall remain a director or officer from the
Effective Time until his or her successor shall have been elected or appointed
and shall qualify, or as otherwise provided in the Bylaws of the Surviving
Corporation.
(b) If at the Effective Time a vacancy shall exist in the Board of
Directors or in any of the offices of the Surviving Corporation, such vacancy
may thereafter be filled in the manner provided in the Bylaws of the Surviving
Corporation. Additionally, Xxxxx Xxxxxxxxxxx and Xxxxxx Xxxxxxx shall be named
and appointed as directors to the Board of Directors of SAFLINK immediately
after the Effective Time.
11
2.9 Tax Treatment. The parties intend that the transactions
contemplated hereby will be (i) a reorganization within the meaning of the Code,
and (ii) a "foreign merger" within the meaning of subsection 87(8) and 87(8.1)
of the Income Tax Act (Canada).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF JOTTER
AND THE SIGNING HOLDERS
Jotter and each of the Signing Holders jointly and severally represent
and warrant to SAFLINK and Acquisition Corporation as of the date hereof (each
such representation and warranty being a material inducement to the execution of
this Agreement by SAFLINK and Acquisition Corporation) as of the Closing Date as
follows:
3.1 Organization. Jotter is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Jotter's
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of their respective states or provinces of
incorporation. Schedule 3.1(a) contains a complete and accurate list of the
jurisdictions in which Jotter and its Subsidiaries are qualified to do business.
Jotter and its Subsidiaries have all requisite power and authority to own, lease
and operate their properties and to carry on their respective businesses as now
being conducted. Jotter and its Subsidiaries have delivered or made available to
SAFLINK true, complete and correct copies of their respective (i) Certificate of
Incorporation and Bylaws or other constituent documents, including all
amendments thereto, (ii) minutes of all meetings of directors, shareholders and
Board committees and copies of actions by written consent of the foregoing, all
of which are complete and accurate as of the date hereof, (iii) stock
certificate books and all other records that collectively correctly set forth
the record ownership of all outstanding shares of their respective capital stock
and all rights to purchase capital stock, and (iv) form of stock certificates,
option agreements and rights to purchase shares of their respective capital
stock. There have been no formal meetings or other proceedings of the
shareholders of Jotter or its Subsidiaries, the Board of Directors of Jotter or
its Subsidiaries or any committee of the Board of Directors of Jotter or its
Subsidiaries that are not fully reflected in such minutes or other records.
There has not been any violation of any of the provisions of Jotter's or its
Subsidiaries' Certificate of Incorporation or Bylaws or other constituent
documents, and neither Jotter nor its Subsidiaries have taken any action that is
inconsistent in any material respect with any resolution adopted by Jotter's or
its Subsidiaries' shareholders, Jotter's or its Subsidiaries' Board of Directors
or any committee of Jotter's or its Subsidiaries' Board of Directors. The books
of account, stock records and other records of Jotter and its Subsidiaries are
accurate, up-to-date and complete in all material respects, and have been
maintained in accordance with prudent business practices.
12
3.2 Capital Structure.
(a) As of June 30, 2000, the authorized capital stock of Jotter
consisted of 50,000,000 shares of Jotter Common Stock, and 10,000,000 shares of
Jotter Preferred Stock, of which 13,917,034 shares of Jotter Common Stock and
204,950 shares of Jotter Preferred Stock were issued and outstanding. As of the
date hereof, each outstanding share of Jotter Preferred Stock is convertible and
prior to the Effective Time each such share of Preferred Stock shall have been
converted into Jotter Common Stock. Each Signing Holder severally represents
that such holder (i) owns the number of issued and outstanding shares of Jotter
Common Stock set forth opposite such Signing Holder's name in Schedule
3.2(a)(i), and (ii) has good and valid title to his, her or its shares of Jotter
Common Stock, free and clear of all liens, encumbrances, rights of first
refusal, restrictions and adverse claims, except for rights of first refusal and
transfer restrictions provided for in the agreements listed on Schedule
3.2(a)(ii).
The authorized capital stock of Jotter Corporation, a Subsidiary of
Jotter, consists of 100,000,000 shares of common stock, and 1,000,0000 shares of
preferred stock.. There are no outstanding shares of capital stock of Jotter
Corporation.
As of February 8, 2000, the authorized capital stock of MindQuake
Interactive Inc. ("MindQuake"), a Subsidiary of Jotter, consisted of unlimited
shares of common stock, of which 1,286, 833 shares of common stock were issued
and outstanding.
(b) All of the outstanding shares of Jotter Common Stock and Jotter
Preferred Stock, all of the outstanding options to purchase shares of Jotter
Common Stock, whether or not vested (collectively, the "Jotter Options") and all
of the outstanding warrants to purchase shares of Jotter Common Stock, whether
or not vested (collectively, "Jotter Warrants") were issued in compliance with
applicable federal, provincial and state securities laws and all requirements
set forth in applicable contracts. All of the outstanding shares of Jotter
Common Stock and Jotter Preferred Stock are duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights created by
statute, Jotter's Certificate of Incorporation or Bylaws or any agreement to
which Jotter is a party or by which it is bound, except as expressly provided on
Schedule 3.2(b)(i).
All of the shares of capital stock issued by each of Jotter's
Subsidiaries, all of the options and warrants to purchase shares of capital
stock of each of Jotter's Subsidiaries were issued in compliance with applicable
federal, provincial and state securities laws and all requirements set forth in
applicable contracts. All of the outstanding shares of capital stock of each of
Jotter's Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, Jotter
Subsidiaries' Certificate of Incorporation or Bylaws or any agreement to which
Jotter's Subsidiaries are a party or by which they are respectively bound,
except as expressly provided on Schedule 3.2(b)(ii).
(c) Except as set forth in Schedule 3.2(c), there are no equity
securities of any class of Jotter or any Jotter Subsidiary, or any security
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding, and there are no options, warrants, calls, rights,
commitments or agreements of any character to which Jotter or any of its
13
Subsidiaries is a party or by which they are bound obligating Jotter or any of
its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of Jotter or any of its Subsidiaries or
obligating Jotter or any of its Subsidiaries to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement.
(d) Schedule 3.2(d) contains complete and accurate lists of, and the
number of shares (identified by class or series) owned of record by, the holders
of outstanding Jotter Common Stock and Jotter Preferred Stock and the holders of
outstanding capital stock of Jotter's Subsidiaries and the number of shares
subject to options and warrants, and the holders of outstanding options to
purchase Jotter Common Stock, or capital stock of any of Jotter's Subsidiaries
including in each case the domicile or resident addresses of such holders and in
the case of a trustee, the domicile or resident address of the beneficial owner.
Schedule 3.2(d) is complete and accurate on the date hereof and, if required, an
updated Schedule 3.2(d) to be attached hereto will be complete and accurate as
of the Closing Date. Schedule 3.2(d) identifies the vesting schedule, applicable
legends, and repurchase rights or other risks of forfeiture of any outstanding
option or warrant or other security of Jotter or any of its Subsidiaries, and
identifies whether each Jotter Option has been designated an "incentive stock
option" as defined in Section 422 of the Code.
(e) Schedule 3.2(e) contains a complete and accurate list of each stock
option plan, stock purchase plan, stock appreciation rights or other
equity-related incentive plan of Jotter or its Subsidiaries.
(f) Except as set forth in Schedule 3.2(a)(ii) and except for any
restrictions imposed by applicable state, provincial and federal securities
laws, to the knowledge of Jotter and the Signing Holders there is no (i) right
of first refusal, co-sale right, right of participation, right of first offer,
option or other restriction on transfer applicable to any shares of Jotter
Common Stock or Jotter Preferred Stock or any shares of capital stock of any of
Jotter's Subsidiaries, or (ii) condition or circumstance that may give rise to
or provide a reasonable basis for the assertion of a claim by any Person to the
effect that such Person is entitled to acquire or receive any shares of capital
stock or other securities of Jotter or any of its Subsidiaries. Except as set
forth in Schedule 3.2(f)(ii) the vesting of any Jotter Option and/or vesting of
any Jotter Warrant shall not be accelerated, in whole or in part, as the result
of or in connection with the Merger.
(g) Except as set forth in Schedule 3.2(g) and except for the Jotter
Voting Agreements, neither Jotter nor any Signing Holder is a party or subject
to any agreement or understanding, and there is no voting trust, proxy, or other
agreement or understanding between or among any persons, that affects or is
related to the voting or giving of written consent with respect to any
outstanding security of Jotter or any of its Subsidiaries, the election of
directors, the appointment of officers or other actions of Jotter's Board of
Directors or the management of Jotter or any of its Subsidiaries. Except as set
forth in Schedule 3.2(g), to Jotter's and the Signing Holders' knowledge, no
other Holder is a party or subject to any such agreement or understanding.
(h) Except as set forth in Schedule 3.2(h), all of the outstanding
shares of Jotter Common Stock and Jotter Preferred Stock, all of the outstanding
Jotter Options and Jotter
14
Warrants, and all of the outstanding shares of capital stock of any of Jotter's
Subsidiaries and all outstanding options and warrants to purchase capital stock
of any of Jotter's Subsidiaries were issued in transactions that either were
registered or qualified for an exemption from registration requirements and
otherwise complied with all applicable laws.
3.3 Equity Investments. Jotter and its Subsidiaries do not own any
equity interest, directly or indirectly, in any corporation, partnership,
limited liability company, joint venture, firm or other entity, except as
disclosed on Schedule 3.3 hereto.
3.4 Authority. Jotter has all requisite corporate power and authority
to enter into this Agreement and the Plan of Merger and, subject to satisfaction
of the conditions set forth herein, to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the Plan of
Merger and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of
Jotter and the Holders except that this Agreement and the transactions
contemplated hereby are subject to approval by the holders of a majority of the
Jotter Common Stock, assuming the conversion of Jotter Preferred Stock and
convertible notes of Jotter and the exercise of Jotter Options and Jotter
Warrants into Jotter Common Stock (the "Jotter Required Shareholder Vote"). This
Agreement has been duly executed and delivered by Jotter and the Signing Holders
and the Plan of Merger will be duly executed and delivered by Jotter, and
constitutes or in the case of the Plan of Merger when executed will constitute
valid and binding obligations of Jotter and the Signing Holders, enforceable in
accordance with their terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar federal, provincial or
state laws affecting the rights of creditors and the effect or availability of
rules of law governing specific performance, injunctive relief or other
equitable remedies (regardless of whether any such remedy is considered in a
proceeding at law or in equity). Provided the conditions set forth in Article
VII are satisfied, the execution and delivery of this Agreement and the Plan of
Merger do not or will not, and the consummation of the transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a material benefit under (a) any provision of the Certificate of
Incorporation or Bylaws of Jotter or (b) any agreement or instrument, permit,
franchise, license, judgment or order, applicable to Jotter, the Signing Holders
and their respective properties or assets, other than any such conflicts,
violations, defaults, terminations, cancellations or accelerations which
individually or in the aggregate would not have a Jotter Material Adverse
Effect.
Except for the Jotter Required Shareholder Vote and except as set forth
in Schedule 3.4, no consent, waiver, authorization or approval (each, a
"Consent") of any Person is required to be obtained by Jotter in connection with
the execution and delivery of this Agreement or the Plan of Merger by Jotter and
the performance of Jotter's obligations hereunder or thereunder, except for such
Consents as have been obtained. Jotter will use its best efforts to obtain all
such Consents prior to the Closing Date. Without limiting the generality of the
foregoing, no consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Jotter in connection with the execution and delivery of this
Agreement or the Plan of Merger by Jotter or the consummation by Jotter of the
transactions contemplated hereby or thereby, except for (a) the filing of the
Plan of Merger and related
15
certificates with the Secretary of the State of Delaware, and (b) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal, provincial and state securities laws
in connection with the transactions contemplated hereby.
3.5 Financial Statements. (a) Jotter has furnished to SAFLINK its
consolidated audited statement of operations, statement of stockholders' equity
and statement of cash flows for the fiscal year ended December 31, 1999, and its
unaudited statement of operations, statement of stockholders' equity and
statement of cash flows for the six (6) months ended June 30, 2000. Jotter shall
furnish monthly unaudited unconsolidated financial statements to SAFLINK for
each month after June 30, 2000 until the Closing Date. The balance sheet at June
30, 2000 is hereinafter referred to as the "Jotter Balance Sheet," and all such
financial statements are hereinafter referred to collectively as the "Jotter
Financial Statements." Except as set forth in Schedule 3.5, the Jotter Financial
Statements are and will be complete and accurate in all material respects, have
been and will be prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved, are and will be in accordance with Jotter's books and records, and
fairly present or will fairly present the financial position of Jotter and the
results of its operations as of the date and for the periods indicated thereon,
subject in the case of the unaudited portion of the Jotter Financial Statements
to normal year-end audit adjustments which will not be material individually and
in the aggregate. At the date of the Jotter Balance Sheet (the "Jotter Balance
Sheet Date") and as of the Closing Date, Jotter had and will have no liabilities
or obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise and whether or not required to be reflected on the Balance Sheet under
GAAP) not reflected on the Jotter Balance Sheet or the accompanying notes
thereto, except for (i) liabilities incurred in the ordinary course of business
since the Jotter Balance Sheet Date which are usual and normal in amount and
(ii) Third Party Expenses of up to $50,000 and other liabilities incurred in
connection with the Merger and the transactions related thereto (the contracts
giving rise to such liabilities being set forth in Schedule 3.5 or Schedule 3.14
hereto). Jotter maintains and will continue to maintain a standard system of
accounting established and administered in accordance with GAAP.
(b) Jotter will prepare a balance sheet ("Closing Balance Sheet") in
accordance with GAAP, applied on a consistent basis, two (2) days before the
Closing Date. Such Closing Balance Sheet shall be delivered at Closing and
notwithstanding the exceptions set forth in the penultimate sentence in Section
3.5(a), the Closing Balance Sheet shall not reflect liabilities (including
accounting and legal expenses relating to the transactions contemplated hereby
not to exceed $100,000) in excess of $125,000 in the aggregate.
3.6 Business Changes. Since the Jotter Balance Sheet Date, except as
otherwise contemplated by this Agreement or set forth in Schedule 3.6 (in each
case, in a paragraph thereof corresponding to the applicable paragraph of this
Section 3.6), Jotter and its Subsidiaries have conducted its business only in
the ordinary and usual course and, without limiting the generality of the
foregoing:
(a) There has been no change, event or condition of any character
(whether or not covered by insurance), except general economic conditions
affecting the industry of Jotter or the
16
economy as a whole, which, in the aggregate, has had or may be reasonably
expected to have a Jotter Material Adverse Effect.
(b) Neither Jotter nor any of its Subsidiaries has issued, or
authorized for issuance, or entered into any commitment to issue, any equity
security, bond, note or other security of Jotter or such Subsidiary.
(c) Jotter and its Subsidiaries have not incurred additional debt for
borrowed money, nor incurred any obligation or liability except in the ordinary
and usual course of business and in any event not in excess of $50,000 for any
single occurrence, and except for legal and accounting fees incurred in
connection with the transactions contemplated by this Agreement (which shall not
exceed $100,000).
(d) Jotter and its Subsidiaries have not paid any obligation or
liability, or discharged, settled or satisfied any claim, lien or encumbrance,
except for current liabilities in the ordinary and usual course of business and
in any event not in excess of $50,000 for any single occurrence.
(e) Jotter has not declared or made any dividend, payment or other
distribution on or with respect to any share of capital stock of Jotter.
(f) Jotter and its Subsidiaries have not purchased, redeemed or
otherwise acquired or committed themselves to acquire, directly or indirectly,
any share or shares of capital stock of Jotter.
(g) Jotter and its Subsidiaries have not mortgaged, pledged, or
otherwise, voluntarily or involuntarily, encumbered any of their assets or
properties, except for liens for current taxes which are not yet delinquent and
purchase-money liens arising out of the purchase or sale of services or products
made in the ordinary and usual course of business and in any event not in excess
of $50,000 for any single item or $100,000 in the aggregate.
(h) Jotter and its Subsidiaries have not disposed of, or agreed to
dispose of, by sale, lease, license or otherwise, any asset or property,
tangible or intangible, except in the ordinary and usual course of business, and
in each case for a consideration believed to be at least equal to the fair value
of such asset or property and in any event not in excess of $50,000 for any
single item or $100,000 in the aggregate.
(i) Jotter and its Subsidiaries have not purchased or agreed to
purchase or otherwise acquire any securities of any corporation, partnership,
joint venture, firm or other entity.
(j) Jotter and its Subsidiaries have not made any expenditure or
commitment for the purchase, acquisition, construction or improvement of a
capital asset, except in the ordinary and usual course of business and in any
event not in excess of $50,000 for any single item or $100,000 in the aggregate.
17
(k) Jotter and its Subsidiaries have not sold, assigned, licensed,
transferred or conveyed, or committed themselves to sell, assign, license,
transfer or convey, any Proprietary Rights.
(l) Jotter and its Subsidiaries have not paid or committed themselves
to pay to or for the benefit of any of their directors, officers, employees or
shareholders any compensation of any kind other than wages, salaries and
benefits at times and rates in effect on the Jotter Balance Sheet Date, adopted
or amended any bonus, incentive, profit-sharing, stock option, stock purchase,
pension, retirement, deferred-compensation, severance, life insurance, medical
or other benefit plan, agreement, trust, fund or arrangement for the benefit of
employees of any kind whatsoever, nor entered into or amended any agreement
relating to employment, services as an independent contractor or consultant, or
severance or termination pay, nor agreed to do any of the foregoing.
(m) Jotter and its Subsidiaries have not effected or agreed to effect
any change in their directors, officers or key employees.
(n) Neither Jotter nor any of its Subsidiaries has effected or
committed itself to effect any amendment or modification in their Certificate of
Incorporation or Bylaws, except as contemplated in this Agreement or the Plan of
Merger.
(o) Neither Jotter nor any of its Subsidiaries has entered into any
transaction or contract, or made any commitment to do the same, except in the
ordinary and usual course of business.
(p) To the knowledge of Jotter and the Signing Holders, no statute has
been enacted nor has any rule or regulation been adopted by any state or any
federal or provincial agency or authority which may reasonably be expected to
have a Jotter Material Adverse Effect.
This Section 3.6 shall not modify or limit the requirements of Section
3.5(b) and compliance with the terms of this Section 3.6 will not be deemed to
cure any failure to comply with Section 3.5(b).
3.7 Properties.
(a) Jotter does not own and has never owned any real property. The
Jotter Balance Sheet reflects all of the real and personal property used by
Jotter in its business or otherwise held by Jotter except for (i) property
acquired or disposed of in the ordinary and usual course of the business of
Jotter since the date of such balance sheet, and (ii) real and personal property
not required under GAAP to be reflected thereon. Except as set forth in Schedule
3.7(a), Jotter has good title to all assets and properties listed on the Jotter
Balance Sheet and thereafter acquired, and to all assets referred to in
Schedules 3.7 and the Intellectual Property Disclosure Schedule , free and clear
of any imperfections of title, lien, claim, encumbrance, restriction, charge or
equity of any nature whatsoever, except for the lien of current Taxes not yet
delinquent. All of the fixed assets and properties reflected on the Jotter
Balance Sheet or thereafter acquired are in good condition and repair for the
requirements of the business as presently conducted by Jotter.
18
(b) Schedule 3.7(b) sets forth a full and complete list of all real
property leased by Jotter or any of its Subsidiaries or under option to purchase
by Jotter or any of its Subsidiaries. All such property leased by Jotter or its
Subsidiaries is held under valid, subsisting and enforceable leases, except to
the extent that enforceability may be limited by laws of eminent domain and
condemnation and laws of similar effect. To the knowledge of Jotter and the
Signing Holders, neither any real property leased by Jotter or its Subsidiaries
nor the operations of Jotter or its Subsidiaries thereon violate any applicable
material building code, zoning requirement or classification, or pollution
control ordinance or statute relating to the property or to such operations, and
such non-violation is not dependent, in any instance, on so-called
non-conforming use exemptions.
(c) To the knowledge of Jotter and the Signing Holders, there are no
Hazardous Substances in, under or about the soil, sediment, surface water or
groundwater on, under or around any properties at any time owned, leased or
occupied by Jotter or its Subsidiaries. Jotter and its Subsidiaries have not
disposed of any Hazardous Substances on or about such property. Jotter and its
Subsidiaries have not disposed of any materials at any site being investigated
or remediated for contamination or possible contamination of the environment.
"Hazardous Substances" shall mean any pollutant, contaminant, material,
substance or waste regulated, restricted or prohibited by any law, regulation or
ordinance or designated by any governmental agency to be hazardous, toxic,
radioactive, biohazardous or otherwise a danger to health or the environment,
including but not limited to "hazardous substances" as defined under the Federal
Comprehensive Environmental Responsibility, Cleanup and Liability Act of 1980 or
any "hazardous wastes" as defined under the Federal Resource Conservation
Recovery Act of 1976.
(d) Jotter, its Subsidiaries and its predecessor entities have
conducted their business in accordance with all applicable laws, regulations,
orders and other requirements of governmental authorities relating to Hazardous
Substances and the use, storage, treatment, disposal, transport, generation,
release thereof and exposure of others to Hazardous Substances. There have been
no judicial or administrative proceedings or other investigations and there are
no judicial or administrative proceedings or other investigations pending or, to
the knowledge of Jotter and the Signing Holders, threatened alleging violation
by Jotter, its Subsidiaries or any of its predecessor entities of any local,
state, provincial or federal laws respecting land use, pollution or protection
of the environment including, without limitation, laws regulating the use,
storage, transportation or disposal of Hazardous Substances, and neither Jotter,
its Subsidiaries, nor any predecessor entity has received any notice of any
investigation, claim or proceeding against Jotter, its Subsidiaries, or any
predecessor entity relating to Hazardous Substances. Neither Jotter nor any
Signing Holder has any knowledge of any fact or circumstance which could
reasonably be expected to involve Jotter, its Subsidiaries, or any predecessor
entity in any environmental litigation, proceeding, investigation or claim or
impose any environmental liability upon Jotter, its Subsidiaries, or any
predecessor entity.
(e) To the knowledge of Jotter and the Signing Holders, Schedule 3.7(e)
sets forth a complete list of all permits, consents and approvals which Jotter
and its Subsidiaries are required to have under local, state, provincial or
federal laws respecting land use, pollution or protection of the environment for
the construction or occupation of its facilities and the operation of their
19
business. Jotter and its Subsidiaries have obtained all such permits, consents
and approvals and are, and at all times have been, in compliance with every term
and condition thereof. All of the permits, consents and approvals listed on
Schedule 3.7(e) are in full force and effect, none have been modified, and there
is no proceeding pending which may result in the reversal, rescission,
termination, modification or suspension of any such permit, consent or approval.
(f) Jotter and its Subsidiaries have kept all records and made all
filings that they are required to keep or make by all applicable local, state,
provincial and federal laws relating to land use, pollution and protection of
the environment with respect to all exposures, emissions, discharges and
releases into the environment and the proper use, storage, transportation and
disposal of all Hazardous Substances.
3.8 Accounts Receivable. All of the accounts receivable of Jotter and
its Subsidiaries shown on the Jotter Balance Sheet or thereafter arose in the
ordinary and usual course of its business. The values at which accounts
receivable are carried reflect the accounts receivable valuation policy of
Jotter which is consistent with past practice and in accordance with GAAP
applied on a consistent basis.
3.9 Taxes. Each of Jotter and its Subsidiaries has prepared in good
faith and duly and timely filed (taking into account any extensions of time
within which to file) all Tax Returns required to be filed by it and each member
of its affiliated group, and all such Filed Tax Returns are true, complete and
accurate. Each of Jotter and its Subsidiaries has paid all Taxes that are shown
as due on such filed Tax Returns, or that it is required to withhold from
amounts owing to any employee, creditor or third party. Each of Jotter and its
Subsidiaries has collected all Taxes required to be collected and has remitted
such Taxes to the proper authorities as required. There are not pending nor, to
the knowledge of Jotter or any Signing Holder, threatened any audits, actions,
suits, proceedings, investigations, examinations or other proceedings in respect
of Taxes or Tax Holders, there are no unresolved questions or claims concerning
the Tax liability of Jotter or any of its Subsidiaries. Neither Jotter nor any
of its Subsidiaries has any liability with respect to Taxes in excess of the
amounts accrued in respect thereof and reflected in the Jotter Balance Sheet for
all periods up to and including the Jotter Balance Sheet Date. All taxes for
which Jotter is or will become liable after the Jotter Balance Sheet Date and
ending on or prior to the Closing Date (whether or not the period ends for Tax
purposes on the Closing Date) have been or will be paid when due or adequately
reserved against on the books of Jotter or its respective Subsidiaries on or
prior to the Closing Date. Jotter has never been a member of a consolidated,
combined or unitary group. Jotter is not a party to any tax sharing, tax
allocation, tax indemnity or other similar agreement. No extension of the
statute of limitations for the assessment of Taxes has been granted by Jotter or
any of its Subsidiaries and is currently in effect. Jotter is not required to
file a Tax Return in any jurisdiction where it does not currently file a Tax
Return. Neither Jotter nor any of its assets or properties are subject to any
liens for Taxes, other than liens for property Taxes not yet delinquent and for
which adequate reserves have been established. No payments made or to be made to
any officers and employees of Jotter as a result of or in connection with the
Merger will be subject to the deduction limitations under Section 280G of the
Code.
20
As used in this Agreement: (i) the term "Tax" (including, with
correlative meaning, the term "Taxes") includes all federal, state, provincial,
local and foreign income, profits, franchise, gross receipts, environmental,
customs duty, capital stock, severance, stamp, payroll, sales, employment,
unemployment, Canada Pension, Quebec Pension, health, workers compensation,
disability, use, property, withholding, excise, production, value added, goods
and services, occupancy and other taxes, duties, imposts or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts and any interest in respect of such penalties and
additions; and (ii) the term "Tax Return" includes all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority relating to
Taxes.
3.10 Employees
(a) Schedule 3.10(a) sets forth a full and complete list of all
directors, officers, employees or consultants of Jotter and its Subsidiaries as
of the date hereof, specifying their names and job designations, their dates of
hire, the total annual amount currently payable as wages, salaries or other
forms of direct compensation, the basis of such compensation, whether fixed or
commission or a combination thereof, together with a description of any written
or oral employment contracts, commitments, consulting or termination agreements
to which Jotter or any of its Subsidiaries is a party.
(b) Except as set forth in Schedule 3.10(b), (i) neither Jotter nor any
of its Subsidiaries have any employment contract with any officer or employee or
any other consultant or person which is not terminable by Jotter or its
Subsidiaries at will without liability, except as the right of Jotter or its
Subsidiaries to terminate its employees at will may be limited by applicable
federal, provincial or state law, (ii) neither Jotter nor its Subsidiaries have
any bonus plan or obligations to pay any bonuses, (iii) there are no amounts
(whether currently payable or payable in the future) payable as a result of a
change in control of Jotter to which current or former officers, directors or
employees of Jotter or its Subsidiaries are entitled or would become entitled
after the Merger and (iv) the consummation of the transactions contemplated by
this Agreement will not result in any payment in the nature of severance pay or
in any cost or benefit accelerating, becoming due or accruing with respect to
any director, officer, employee or consultant of Jotter or its Subsidiaries.
(c) The employee relations of Jotter and its Subsidiaries are good and
there is no pending or threatened labor dispute. None of the employees of Jotter
or its Subsidiaries is represented by any union or is a party to any collective
bargaining arrangement to which Jotter or any of its Subsidiaries is a party,
and to the best knowledge of Jotter and the Signing Holders no attempts are
being made to organize or unionize any of the employees of Jotter or any of its
Subsidiaries. To the best knowledge of Jotter and the Signing Holders, except as
set forth on Schedule 3.10(c), Jotter and its Subsidiaries have complied with
all applicable foreign, state, provincial and federal equal employment
opportunity and other laws and regulations related to employment practices,
terms and conditions or employment and wages and hours.
(d) To the knowledge of Jotter and the Signing Holders, no employee of
Jotter or its Subsidiaries has been injured in the workplace or in the course of
his or her employment, except
21
for injuries that are covered by insurance or for which a claim has been made
under worker's compensation or similar laws. Except as disclosed on Schedule
3.10(d), no employees of Jotter or its Subsidiaries are absent from active
employment on account of illness or injury, other than those employees whose
absence has lasted less than four weeks as of the date hereof.
3.11 Compliance with Law. Schedule 3.11 sets forth all material
licenses, franchises, permits, clearances, consents, certificates and other
evidences of authority of Jotter and its Subsidiaries which, to the knowledge of
Jotter and the Signing Holders, are necessary to the conduct of Jotter's
business as conducted during the two (2) years prior to the Closing Date
("Permits"). All such Permits are in full force and effect and neither Jotter
nor any of its Subsidiaries is in violation of any Permit except for violations
which would not, singly or in the aggregate, have a Jotter Material Adverse
Effect. Except for possible exceptions, the curing or non-curing of which would
not have a Jotter Material Adverse Effect, the business of Jotter has been
conducted in accordance with all applicable laws, regulations, orders and other
requirements of governmental authorities, employment practices and procedures,
the health and safety of employees and export controls.
3.12 Year 2000 Compliance. All computer software and hardware products
that are licensed, sold or otherwise distributed to others by Jotter and its
Subsidiaries and, to Jotter's knowledge, all computer software and hardware
products that are owned by Jotter or its Subsidiaries, exclusively licensed to
Jotter or are otherwise required for the conduct of its business, are Year 2000
Compliant. As used herein, "Year 2000 Compliant" shall mean, with respect to any
such software or hardware, the ability of such software or hardware to perform
the following date-related functions:
(a) consistently handle date information before, during and after
January 1, 2000, including, but not limited to, accepting date input, providing
date output and performing calculations on dates or portions of dates;
(b) function accurately in accordance with the documentation relating
to the applicable software or hardware and without interruption before, during
and after January 1, 2000, without any change in operations associated with the
advent of the century;
(c) respond to two-digit date input in a way that resolves any
ambiguity as to the century;
(d) store and provide output of date information in ways that are
unambiguous as to century; and
(e) recognize the year 2000 as a leap year.
3.13 Litigation. Schedule 3.13 sets forth each claim, dispute, action,
proceeding, notice, order, suit, appeal or investigation, at law or in equity,
pending against Jotter or its Subsidiaries, or involving any of its assets or
properties, before any court, agency, authority, arbitration panel or other
tribunal (other than those, if any, with respect to which service of process or
similar notice has not yet been made on Jotter or the Signing Holders), and to
the knowledge of the Signing Holders and of Jotter none have been threatened.
The Signing Holders and Jotter have no knowledge of facts which, if known to
shareholders, customers, governmental
22
authorities or other persons, would result in any such claim, dispute, action,
proceeding, suit or appeal or investigation which would have a Jotter Material
Adverse Effect. Neither Jotter nor its Subsidiaries is subject to any order,
writ, injunction or decree of any court, agency, authority, arbitration panel or
other tribunal, nor is Jotter or any of its Subsidiaries in default with respect
to any notice, order, writ, injunction or decree.
3.14 Contracts. Schedule 3.14 sets forth a complete list of each oral
or written contract and agreement in the following categories to which Jotter or
its Subsidiaries is a party, or by which it is bound in any respect:
(a) agreements for the purchase, sale, lease or other disposition of
equipment, goods, materials, research and development, intellectual property,
supplies, studies or capital assets, or for the performance of services, in any
case involving more than $50,000;
(b) contracts or agreements relating to the grant of rights to develop,
manufacture, produce, assemble, license, distribute, market or sell Jotter's or
any of its Subsidiaries' products to any person or otherwise affecting Jotter's
or any of its Subsidiaries' exclusive right to develop, manufacture, produce,
assemble, license, distribute, market or sell its products;
(c) contracts or agreements for the joint performance of work or
services or the sharing of revenues, profits, losses, costs or liabilities, and
all other joint venture and partnership agreements;
(d) management or employment contracts, consulting contracts,
independent contractor contracts, collective bargaining contracts, termination
and severance agreements;
(e) notes, mortgages, deeds of trust, loan agreements, security
agreements, guarantees, debentures, indentures, credit agreements and other
evidences of indebtedness;
(f) contracts or agreements with agents, brokers, consignees, sales
representatives or distributors;
(g) contracts or agreements with any director, officer, employee,
consultant or shareholder or other Related Party;
(h) pension, retirement, profit-sharing, deferred compensation, bonus,
incentive, life insurance, hospitalization or other employee benefit plans or
arrangements (including, without limitation, any contracts or agreements with
trustees, insurance companies or others relating to any such employee benefit
plan or arrangement);
(i) stock option, stock purchase, warrant, repurchase or other
contracts or agreements relating to any shares of capital stock of Jotter;
(j) powers of attorney or similar authorization granted by Jotter or
any of its Subsidiaries to third parties;
23
(k) licenses, sublicenses, royalty agreements, development agreements
and other contracts or agreements to which Jotter or any of its Subsidiaries is
a party, or otherwise subject, relating to technical assistance, technology
development or Proprietary Rights ;
(l) any agreement pursuant to which Jotter or any of its Subsidiaries
has granted or may grant in the future, to any party, a source code license or
option or other right to use or acquire source code;
(m) each contract or agreement providing for payments or rights that
are triggered or accelerated upon a change in control of Jotter or any of its
Subsidiaries;
(n) each contract relating to the creation of any lien, pledge, charge
or other encumbrance with respect to any material asset of Jotter or its
Subsidiaries;
(o) each contract involving or incorporating any guaranty, any pledge,
any performance or completion bond, any indemnity or any surety arrangement;
(p) each contract with or relating to a Governmental Entity;
(q) any other contract that was entered into outside the ordinary
course of business or was inconsistent with past practices of Jotter or its
Subsidiaries;
(r) any other contract that has a term of more than 60 days (other than
contracts under which the only obligation of Jotter or any of its Subsidiaries
following such 60-day period is a non-disclosure obligation) and that may not be
terminated by Jotter or any of its Subsidiaries (without penalty) within 60 days
after the delivery of a termination notice by Jotter or any of its Subsidiaries;
(s) any other contract that contemplates or involves (A) the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $50,000 in the aggregate, or (B) the performance of services having a value
in excess of $50,000 in the aggregate; and
(t) other material contracts.
Except as set forth in Schedule 3.14, neither Jotter nor any of its
Subsidiaries have entered into (i) any contract containing covenants limiting
the right of Jotter or any of its Subsidiaries to use, license and develop its
Proprietary Rights or to compete in any business, in any market or geographic
region or with any person or (ii) any agreement or arrangement relating to the
issuance, sale or transfer of any capital stock of Jotter or any of its
Subsidiaries or of a significant portion of its stock or assets or relating to
any merger, consolidation or other business combination with a third party.
Neither Jotter nor any of its Subsidiaries have given any warranties or
indemnities relating to products or technology sold or services rendered by
Jotter or its Subsidiaries, except (i) as set forth in Schedule 3.14, (ii)
warranties given by Jotter or its Subsidiaries in connection with the sale or
licensing of Jotter's products in the ordinary course of business that have not
been breached nor subject to any demand by a customer, (iii) warranties implied
by law, and (iv) warranties given in agreements entered into after the date
hereof that do not violate Section 5.10 hereof.
24
3.15 No Default.
(a) Except as set forth in Schedule 3.15(a), each of the contracts,
agreements and other instruments referred to in Section 3.14 and Section 3.17 of
this Agreement and each of the customer agreements of Jotter and its
Subsidiaries is valid, binding and in full force and effect, and is enforceable
by Jotter or its Subsidiaries in accordance with its terms. To the knowledge of
the Signing Holders and Jotter, no party with whom Jotter or its Subsidiaries
has an agreement or contract is in default thereunder or has breached any terms
or provisions thereof.
(b) Except as set forth in Schedule 3.15(b), Jotter and its
Subsidiaries in all material respects have performed, or are now performing, the
obligations of, and Jotter and its Subsidiaries are not in material default (or
would by the lapse of time and/or the giving of notice be in material default)
in respect of, any contract, agreement or commitment binding upon it, its assets
or its properties. No third party has raised any claim, dispute or controversy
with respect to any executory contract of Jotter or its Subsidiaries, nor has
Jotter or its Subsidiaries received notice, warning or other communication of
actual, alleged or potential nonperformance, delay in delivery or other
noncompliance by Jotter or its Subsidiaries with respect to its obligations
under any contract, nor, to the knowledge of Jotter and the Signing Holders, are
there any facts which exist indicating that any contract may be totally or
partially terminated or suspended by the other party or parties thereto.
3.16 Customers. Schedule 3.16 sets forth all customers of Jotter or its
Subsidiaries from whom more than $50,000 in revenues are expected to be received
in the twelve (12) months following the Closing Date indicating fiscal 1999 and
first, second and third quarter fiscal 2000 revenues, estimated total fiscal
2000 revenues and the expiration date of any agreement. Jotter and the Signing
Holders have no knowledge of any circumstances likely to result in termination
or failure to renew any customer contract.
3.17 Proprietary Rights.
(a) Schedule 3.17 (the "Intellectual Property Disclosure Schedule")
sets forth in paragraph (a) thereof a complete and accurate list of all patents,
patent applications, copyrights, trademarks, trade names, service marks or logos
owned or used by Jotter or in which it has any rights or licenses, and all
applications therefor and registrations and registration applications thereof.
Such list specifies, as applicable: (i) the title of the patent, trademark,
trade name, service xxxx, copyright or application therefor or registration
thereof; (ii) the jurisdiction by or in which such patent, trademark, trade
name, service xxxx or copyright has been issued or registered or in which an
application has been filed, including the registration or application numbers;
and (iii) material licenses, sublicenses and similar agreements to which Jotter
or its Subsidiaries are a party or pursuant to which any other party is
authorized to use, exercise or receive any benefit from any Proprietary Rights
of Jotter or any of its Subsidiaries. The Intellectual Property Disclosure
Schedule sets forth a compete and accurate description of all agreements of
Jotter and its Subsidiaries with each officer, employee, shareholder, director,
contractor or consultant of Jotter or its Subsidiaries providing Jotter or its
Subsidiaries with title and ownership to patents, patent applications, trade
secrets and inventions developed or used by Jotter or its Subsidiaries in their
business, all of which agreements are valid, enforceable and
25
legally binding (subject to the effect or availability of rules of law governing
specific performance, injunctive relief or other equitable remedies).
(b) Jotter or its Subsidiaries own or possess valid and enforceable
licenses or other rights to use all computer software and hardware, source code,
patents, patent applications, trademarks, trademark applications, trade secrets,
service marks, trade names, logos, trade dress, copyrights, inventions, business
and marketing plans, industrial property rights, copyrights, trademarks, trade
names, logos and service marks (and all goodwill associated therewith,
including, without limitation, the right to the names Jotter, Jotter
Technologies, MindQuake and applications therefor, and all technical
information, customer lists, management information systems, drawings, designs,
processes and quality control data and all similar materials recording or
evidencing proprietary expertise or information, or other rights with respect
thereto (collectively referred to as "Proprietary Rights"), used or currently
proposed to be used in the business of Jotter, and the same are sufficient to
conduct the business of Jotter and its Subsidiaries as it has been and is now
being conducted or as it is currently proposed to be conducted. Except as set
forth in paragraph (b) of the Intellectual Property Disclosure Schedule, Jotter
or a Subsidiary of Jotter is the owner of all right, title, and interest in and
to each of the Proprietary Rights, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims, and has
the right to use, sell, license, sublicense, assign and dispose, in each case
without payment to a third party, all of the Proprietary Rights and the
products, processes and materials covered thereby. Except as set forth in
paragraph (b) of the Intellectual Property Disclosure Schedule, there is no
contract with Jotter pursuant to which any Person has any right (whether or not
currently exercisable) to use, license or otherwise exploit any Proprietary
Right.
(c) The operations of Jotter and its Subsidiaries as currently and
formerly conducted and as planned to be conducted do not conflict with or
infringe, and, to the knowledge of Jotter and the Signing Holders, no person or
entity has asserted to Jotter or any of its Subsidiaries that such operations or
past operations conflict with or infringe, any Proprietary Rights, owned,
possessed or used by any third party. There are no claims, disputes, actions,
proceedings, suits or appeals pending against Jotter or its Subsidiaries with
respect to any Proprietary Rights, and, to the knowledge of Jotter and the
Signing Holders, none has been threatened against Jotter or its Subsidiaries.
There are no facts or facts overtly alleged to Jotter which would reasonably
serve as a basis for any claim that Jotter or its Subsidiaries do not have the
right to use and to transfer the right to use, free of any rights or claims of
others, all Proprietary Rights in the development, manufacture, use, sale or
other disposition of any or all products or services presently being used,
furnished or sold in the conduct of the business of Jotter as it has been and is
now being conducted. The Proprietary Rights referred to in the preceding
sentence are free of any unresolved ownership disputes with respect to any third
party and there is no unauthorized use, infringement or misappropriation of any
of such Proprietary Rights by any third party, including any employee or former
employee of Jotter or its Subsidiaries, nor is there any breach of any license,
sublicense or other agreement authorizing another party to use such Proprietary
Rights. Neither Jotter nor any of its Subsidiaries nor any Signing Holder has
entered into any agreement (i) granting any third party the right to bring
infringement actions with respect to, otherwise to enforce rights with respect
to, any such Proprietary Rights, or (ii) agreeing to indemnify anyone or any
entity for or against any interference, infringement, misappropriation or other
conflict with respect to any Proprietary Right.
26
(d) Paragraph (d) of the Intellectual Property Disclosure Schedule
contains a complete and accurate list of any proceedings before any patent or
trademark authority to which Jotter or its Subsidiaries are a party, a
description of the subject matter of each proceeding, and the current status of
each proceeding, including, without limitation, interferences, priority
contests, opposition, and protests. Such list includes any pending applications
for reissue or reexamination of a patent. Jotter or its Subsidiaries have the
exclusive right to file, prosecute and maintain any such applications for
patents, copyrights or trademarks and the patents and registrations that issue
therefrom.
(e) All patents and registered trademarks, service marks, and other
company, product or service identifiers and registered copyrights held by Jotter
or its Subsidiaries are valid and enforceable, are currently in compliance with
formal legal requirements and are not subject to any maintenance or renewal fees
or taxes or actions falling due within ninety (90) days after the date of
Closing.
(f) All fees to maintain the rights of Jotter or any of its
Subsidiaries in the Proprietary Rights, including, without limitation, patent
and trademark registration and prosecution fees and all professional fees in
connection therewith, which have been presented for payment, have been paid by
Jotter or its Subsidiaries or will be paid by Jotter or its Subsidiaries before
the Closing Date.
(g) Except as set forth in paragraph (g) of the Intellectual Property
Disclosure Schedule, all disclosures of trade secrets of Jotter or any of its
Subsidiaries to third parties have been pursuant to non-disclosure agreements
pursuant to which the confidentiality and use of such information has been
protected. Jotter and its Subsidiaries have taken reasonable measures and
precautions to maintain the secrecy and confidentiality of the Proprietary
Rights used or proposed to be used in the conduct of its business, the value of
which to Jotter and its Subsidiaries is contingent upon maintenance of the
confidentiality thereof.
(h) Except as set forth in paragraph (h) of the Intellectual Property
Disclosure Schedule, Jotter and its Subsidiaries have secured valid and binding
written assignments from all persons who, in any capacity (including current and
former consultants, independent contractors, directors, officers and employees)
contributed to the creation or development of Jotter's Proprietary Rights of all
right, title and interest to such contributions that Jotter or its Subsidiaries
do not already own by operation of law. No current or former employee, officer,
director, shareholder, consultant or independent contractor of or to Jotter or
its Subsidiaries has any right, claim or interest in or with respect to any
Proprietary Right.
(i) Except as set forth in paragraph (g) of the Intellectual Property
Disclosure Schedule, each current and former employee and officer of and
consultant and independent contractor to Jotter or its Subsidiaries has executed
a written confidentiality agreement and a written assignment of inventions
agreement that assign to Jotter or its Subsidiaries all rights to any
inventions, improvements, discoveries, or information relating to the business
conducted or to be conducted by Jotter or its Subsidiaries, and all such
agreements are in the forms provided to SAFLINK with no exceptions or
exclusions. To the knowledge of Jotter and the Signing Holders, no employee,
consultant or contractor of Jotter or its Subsidiaries is in violation of any
term of any employment contract, proprietary information agreement, inventions
agreement,
27
non-competition agreement, consulting agreement, or any other contract or
agreement relating to the relationship of any such employee with Jotter or its
Subsidiaries or any previous employer. To the knowledge of Jotter and the
Signing Holders, no employee of Jotter or its Subsidiaries has entered into any
contract that restricts or limits in any way the scope or type of work in which
the employee may be engaged to anyone other than Jotter or its Subsidiaries or
requires the employee to transfer, assign, or disclose information concerning
his work to anyone other than Jotter or its Subsidiaries.
(j) No internally developed product, system, program or software module
designed, developed, sold, licensed or otherwise made available by Jotter or its
Subsidiaries to any person, and to the knowledge of Jotter and the Signing
Holders, no third-party product, system, program or software module sold,
licensed or otherwise made available by Jotter or its Subsidiaries to any
person, contains any "back door," "time bomb," "Trojan horse," "worm," "drop
dead device," "virus" or other software routine or hardware component designed
to permit unauthorized access or to disable or erase software, hardware or data
without the consent of the user.
(k) Except as set forth in paragraph (k) of the Intellectual Property
Disclosure Schedule, neither Jotter nor any of its Subsidiaries has disclosed or
delivered to any Person, or permitted the disclosure or delivery to any escrow
agent or other Person, of any Jotter Source Code. No event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or could reasonably be expected to, result in the disclosure or delivery
to any Person of any Jotter Source Code. Paragraph (k) of the Intellectual
Property Disclosure Schedule identifies each contract pursuant to which Jotter
or its Subsidiaries have deposited or are required to deposit with an
escrowholder or any other Person any Jotter Source Code, and further describes
whether the execution of this Agreement or the consummation of any of the
transactions contemplated hereby could reasonably be expected to result in the
release or disclosure of any Jotter Source Code. "Jotter Source Code" means any
source code, or portion, aspect or segment of any source code, relating to any
Proprietary Right owned by or licensed to Jotter or otherwise used by Jotter.
3.18 Insurance. Schedule 3.18 sets forth a complete list of all
policies of insurance to which Jotter or any of its Subsidiaries is a party or
is a beneficiary or named insured. Jotter has in full force and effect, with all
premiums due thereon paid, the policies of insurance set forth therein. There
were no claims in excess of $5,000 asserted under any of the insurance policies
of Jotter in respect of all motor vehicle, general liability, professional
liability, errors and omissions, and worker's compensation, and medical claims
for the period from January 1, 1998 to the date of this Agreement. Neither
Jotter nor any of its Subsidiaries has received any notice or other
communication regarding any actual or possible (i) cancellation or invalidation
of any insurance policy, (ii) refusal of any coverage or rejection of any claim
under any insurance policy or (iii) material adjustment in the amount of the
premiums payable with respect to any insurance policy.
3.19 Bank Accounts. Schedule 3.19 sets forth a true and correct list of
the names and addresses of all banks, other institutions and state governmental
departments at which each of Jotter or any of its Subsidiaries has accounts,
deposits or safety deposit boxes, or special deposits required to be held by
such state governmental departments with the nature of such account and
28
the names of all persons authorized to draw on or give instructions with respect
to such accounts or deposits, or to have access thereto, and the names and
addresses of all persons, if any, holding a power-of-attorney on behalf of
Jotter or any of its Subsidiaries. All cash in such accounts is held in demand
deposits and is not subject to any restriction or limitation as to withdrawal.
3.20 Brokers or Finders. Neither Jotter nor any of its officers,
directors or employees nor any of Jotter's Subsidiaries or any of their
officers, directors or employees has engaged any broker or finder or incurred,
or will incur directly or indirectly, any liability for any brokerage, financial
advisory or finder's fees, agent's commissions or similar charges in connection
with the transactions contemplated by this Agreement.
3.21 Certain Advances. Except as set forth in Schedule 3.21, there are
no receivables of Jotter or any of its Subsidiaries owing from directors,
officers, employees, consultants or shareholders of Jotter or any of its
Subsidiaries, or owing by any affiliate of any director or officer of Jotter or
any of its Subsidiaries, other than advances in the ordinary and usual course of
business to officers and employees for reimbursable business expenses which are
not in excess of $5,000 for any one individual.
3.22 Related Parties. Except as listed on Schedule 3.22, no officer,
director or greater than 10% shareholder of Jotter or any of its Subsidiaries,
or to the knowledge of Jotter or any of its Subsidiaries and the Signing Holders
any relative or affiliate of any such person, or any trust or other person in
which any of the foregoing persons holds, beneficially or otherwise, a material
voting or equity interest (collectively, the foregoing are referred to as
"Related Parties"), has, either directly or indirectly, (a) an interest in any
person which furnishes or sells services or products which are similar to those
furnished or sold by Jotter or any of its Subsidiaries or which competes or
potentially will compete, directly or indirectly, with Jotter or any of its
Subsidiaries, (b) a beneficial interest in any contract to which Jotter or any
of its Subsidiaries is a party or by which Jotter or any of its Subsidiaries may
be bound or (c) any claim or right against Jotter or any of its Subsidiaries
(other than rights to receive compensation for services performed as an employee
of Jotter or any of its Subsidiaries or for reimbursement of travel or business
expenses incurred in the ordinary course of business or the rights to receive
Jotter Common Stock pursuant to the exercise of any Jotter Option or any Jotter
Warrant disclosed on Schedule 3.2). For purposes of this Section 3.22, there
shall be disregarded any interest which arose solely from the ownership of less
than a five percent (5%) equity interest in a corporation whose stock is
regularly traded on any national securities exchange or on Nasdaq.
3.23 Employee Benefit Plans; ERISA.
(a) Schedule 3.23(a) sets forth each "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and all other benefit, bonus, profit sharing, retirement,
income, dental, medical, disability, health, or other plans, programs, policies
agreements, or arrangements involving direct or indirect compensation (excluding
workers' compensation, unemployment compensation and similar government-mandated
programs) currently or previously maintained, contributed to or entered into by
Jotter or its Subsidiaries for the benefit of any employee or former employee of
Jotter or its Subsidiaries under which Jotter or any of its Subsidiaries has any
present or future obligation
29
or liability (collectively, the "Employee Plans"). Copies of all Employee Plans
(and, if applicable, related trust agreements, insurance contracts or other
funding related agreements, the most recent funding, financial or information
return or statements, and material correspondence, including without limitation,
correspondence with Governmental Entities and internal memoranda relating to the
plans) and all amendments thereto and material written interpretations thereof
have been provided to SAFLINK. Neither Jotter nor any of its Subsidiaries has
any Employee Plan which, individually or collectively, constitute(s) (i) an
"employee pension benefit plan," as defined in Section 3(2) of ERISA, that is
subject to Title IV of ERISA or (ii) a "multiemployer plan," as defined in
Section 3(37) of ERISA, or as defined under applicable pension law; or (iii) a
"registered pension plan", or "retirement compensation arrangement" both as
defined in the Income Tax Act (Canada).
(b) No other entity ("ERISA Affiliate") that is a member of a
"controlled group of corporations" with or under "common control" with Jotter,
as defined in Section 414(b) or 414(c) of the Code currently or previously
maintained, contributed or entered into an employee benefit plan, as defined in
Section 3(3) of ERISA.
(c) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to the date of this Agreement.
(d) Schedule 3.23(d) sets forth each severance or other similar
contract, arrangement or policy and each plan, agreement, policy or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements),vacation benefits, disability benefits, early retirement benefits,
death benefits, hospitalization benefits, health, medical or dental treatments
or expenses, supplementary employment insurance retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock purchase, phantom
stock, stock appreciation or other forms of compensation or post-retirement
benefits that (i) is not an Employee Plan, (ii) is entered into, maintained or
contributed to, as the case may be, by Jotter or its Subsidiaries and (iii)
covers any employee or former employee of Jotter or any of its Subsidiaries.
Such contracts, plans and arrangements as are described in this Section are
herein referred to collectively as the "Benefit Arrangements." Each Benefit
Arrangement has been maintained in substantial and material compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations that are applicable to such Benefit Arrangements.
(e) Except for continued "COBRA" health coverage required pursuant to
Code Section 4980B, neither Jotter nor any of its Subsidiaries is a party to any
Employee Plan, Benefit Arrangement or other agreement, contract, arrangement or
policy, written or unwritten, that requires Jotter or any of its Subsidiaries to
provide, at any cost to Jotter or any of its Subsidiaries, any health or life
insurance coverage to any former employee of Jotter or any of its Subsidiaries.
(f) Except as described in Schedule 3.23, neither Jotter nor any of its
Subsidiaries is a party to any contract, instrument, agreement or arrangement
with a "disqualified individual" (as defined in Section 280G(c) of the Code)
that could result in a disallowance of the deduction for
30
any "excess parachute payment" (as defined in Section 280G(b)(i) of the Code) or
subject any such disqualified individual to the excise tax imposed under Section
4999 of the Code.
(g) Each Employee Plan and Benefit Arrangement complies in all material
respects with all applicable requirements of (i) the Age Discrimination in
Employment Act of 1967, as amended, and the regulations thereunder, (ii) Title
VII of the Civil Rights Act of 1964, as amended, and the regulations thereunder,
(iii) any applicable provisions of the Code, including Section 4980B thereof,
and (iv) any other applicable law.
(h) There is no pending or, to the knowledge of Jotter and the Signing
Holders, threatened litigation, investigation, proceeding, grievance,
arbitration, or claim relating to any Employee Plan or Benefit Arrangement. All
contributions, premiums or other amounts due under each Employee Plan or Benefit
Arrangement have been paid or accrued on the books of Jotter and have been duly
made in accordance with the terms of the Employee Plans or Benefit Arrangement
and applicable laws. Each Employee Plans or Benefit Arrangement is fully funded
or fully insured and no unfunded liability or other deficit exists thereunder.
(i) Each of the Employee Plans and Benefit Arrangements and each fund
established thereunder has been established, operated, administered, and
invested in all material respects in accordance with its terms and with the
requirements of all applicable laws and each of the Employee Plans or Benefit
Arrangements is in good standing under, has been duly registered where required
by, or is qualified in accordance with, such laws. No fact or circumstance
exists that could adversely affect the tax-exempt status of any Employee Plan or
Benefit Arrangement.
(j) All obligations regarding the Employee Plans or Benefit
Arrangements have been satisfied and there are no accrued or pending obligations
of the Employee Plans or Benefit Arrangements out of the ordinary course of
business consistent with past practice. There are no outstanding material
defaults or violations by any person relating to any Employee Plan or Benefit
Arrangement, and no Tax is owing or exigible under any of the Employee Plans.
(k) There exists no undertaking or commitment whether legally binding
or not, to create any additional Employee Plan or Benefit Arrangement or to
change any existing Employee Plan or Benefit Arrangement that would affect any
employee or former employee or their dependents or beneficiaries.
3.24 Customers and Other Relationships. To the knowledge of the Signing
Holders and Jotter, no licensor or customer of Jotter or any of its Subsidiaries
intends to cancel or refrain from renewing any license, order, contract or
arrangement with Jotter.
3.25 Underlying Documents. Copies of any underlying documents listed or
described as having been disclosed to SAFLINK pursuant to this Agreement, if
requested by SAFLINK, have been furnished to SAFLINK. All such documents
furnished to SAFLINK are true and correct copies, and there are no amendments or
modifications thereto, that have not been disclosed to SAFLINK.
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3.26 Full Disclosure.
(a) Any information furnished by or on behalf of Jotter and the Signing
Holders to SAFLINK in writing pursuant to this Agreement as of the date such
information is required by this Agreement to be so furnished, and any
information contained in the Schedules referred to in this Agreement at any time
prior to the Effective Time, does not and will not contain any untrue statement
of a material fact and does not and will not omit to state any material fact
necessary to make any statement, in light of the circumstances under which such
statement is made, not misleading.
(b) The information supplied by Jotter for inclusion in the Proxy
Statement will not, as of the date the Jotter Required Shareholder Vote is
obtained, (i) contain any statement that is inaccurate or misleading with
respect to any material fact, or (ii) omit to state any material fact necessary
in order to make such information (in light of the circumstances under which it
is provided) not false or misleading.
3.27 Status of Shareholders.
(a) U.S. Holders. To the knowledge of Jotter, after reasonable
investigation, (i) no more than 35 of the U.S. Holders do not qualify as an
"accredited investor" (as such term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act) and (ii) each U.S. Holder who is not an
accredited investor either along or with a "purchaser representative" that may
be designated by such U.S. Holder in connection with the transactions
contemplated by this Agreement has such knowledge and experience in financial
and business matters that such person is capable of evaluating the merits and
risk of the issuance of shares of SAFLINK Common Stock to such person in
connection with the Merger.
(b) Non-U.S. Holders. To the knowledge of Jotter, after reasonable
investigation, (i) each Non-U.S. Holder is not a "U.S. person" (as defined in
Rule 902(k) under the Securities Act) and was located outside of the United
States at the time the offer to purchase the shares of SAFLINK Common Stock was
made to the Non-U.S. Holder and at the time the purchase order for the shares of
SAFLINK Common Stock was originated, and (ii) each Non-U.S. Holder intends to
purchase the shares of SAFLINK Common Stock for their own account or for the
account of one or more other non-U.S. persons located outside of the United
States at the time the offer to purchase the shares of SAFLINK Common Stock was
made to the Non-U.S. Holder and at the time the purchase order for the shares of
SAFLINK Common Stock was originated.
3.28 Reporting Status. Neither Jotter nor any of its Subsidiaries is,
or is under any obligation to become, a reporting issuer or the equivalent in
any Canadian territory or province.
3.29 Knowledge. For purposes of this Agreement, the phrase "to the
knowledge of" shall mean the actual knowledge of such Person.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SAFLINK
Except as contemplated by this Agreement, SAFLINK represents and
warrants to Jotter and the Signing Holders as of the date hereof (each such
representation and warranty being a material inducement to the execution of this
Agreement by Jotter and the Signing Holders) and as of the Closing Date as
follows:
4.1 Organization. SAFLINK is and, on or before the Closing Date,
Acquisition Corporation will be a corporation duly incorporated, validly
existing and in good standing under the laws of its state of incorporation.
SAFLINK is and Acquisition Corporation will be duly qualified to do business and
is in good standing in its state of incorporation and in each of the other
jurisdictions in which it owns or leases property or conducts business, except
where the failure to be so qualified would not have a material adverse effect on
the business of SAFLINK. SAFLINK has and Acquisition Corporation will have all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, and possesses all licenses,
franchises, rights and privileges material to the conduct of its respective
business.
4.2 Acquisition Corporation Capital Structure. On or before the Closing
Date, the authorized capital stock of Acquisition Corporation will consist of
3,000 shares of Common Stock, $.01 par value ("Acquisition Corporation Common
Stock"). On or before the Closing Date, 1,000 shares of Acquisition Corporation
Common Stock will be validly issued and outstanding and will be held by SAFLINK
of record and beneficially.
4.3 Authority. SAFLINK has and Acquisition Corporation will have all
requisite corporate power and authority to enter into this Agreement, the Plan
and Merger and the related agreements contemplated herein and therein and,
subject to satisfaction of the conditions set forth herein, to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and (when executed and delivered) the Plan of the Merger and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of SAFLINK and will be so
authorized by Acquisition Corporation, except that this Agreement and the
transactions contemplated hereby are subject to approval by the holders of a
majority of the SAFLINK Common Stock (the "SAFLINK Required Shareholder Vote").
This Agreement has been duly executed and delivered by SAFLINK and the Plan of
Merger will be duly executed and delivered by SAFLINK and Acquisition
Corporation, and constitutes (and in the case of the Plan of Merger when
executed as to Acquisition Corporation will constitute) valid and binding
obligations of SAFLINK and Acquisition Corporation, enforceable in accordance
with their terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar federal or
state laws affecting the rights of creditors and the effect or availability of
rules of law governing specific performance, injunctive relief or other
equitable remedies (regardless of whether any such remedy is considered in a
proceeding at law or in equity). Provided the conditions set forth in Article
VII are satisfied, the execution and delivery of this Agreement and the Plan of
Merger do not, and the consummation of the transactions contemplated hereby and
33
thereby will not, conflict with, or result in any violation of or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under (a) any provision of the Certificate of Incorporation or
Bylaws of SAFLINK, (b) any provision of the Certificate of Incorporation or
Bylaws of Acquisition Corporation or (c) any agreement or instrument, permit,
license, judgment, order, statute, law, ordinance, rule or regulation applicable
to SAFLINK or Acquisition Corporation or their respective properties or assets,
other than any such conflicts, violations, defaults, terminations, cancellations
or accelerations which individually or in the aggregate would not have a
material adverse affect on SAFLINK and Acquisition Corporation taken as a whole.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to SAFLINK or Acquisition Corporation in connection with the execution
and delivery of this Agreement or the Plan of Merger by SAFLINK and Acquisition
Corporation or the consummation by SAFLINK and Acquisition Corporation of the
transactions contemplated hereby or thereby, except for (i) filings to be
effected in connection with the organization of Acquisition Corporation, (ii)
the filing of the Plan of Merger and related certificates with the Secretary of
State of Delaware, and appropriate documents with the relevant Governmental
Entities of other states in which Acquisition Corporation is qualified to do
business, (iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state or provincial
securities laws in connection with the transactions set forth herein, (iv)
filings required pursuant to the HSR Act and (v) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not have a material adverse effect on SAFLINK and Acquisition
Corporation taken as a whole.
4.4 Capital Structure. The authorized capital stock of SAFLINK consists
of 50,000,000 shares of SAFLINK Common Stock and 1,000,000 shares of Preferred
Stock, $0.01 par value ("SAFLINK Preferred Stock"). At the close of business on
June 30, 2000, assuming conversion of all shares of SAFLINK Preferred Stock to
SAFLINK Common Stock: (i) 25,914,292 shares of SAFLINK Common Stock were issued
and outstanding (including Series A and Series D Preferred Stock converted into
SAFLINK Common Stock); (ii) 3,273,717 shares of SAFLINK Common Stock were
reserved for issuance upon exercise of options (the "SAFLINK Options") under
SAFLINK's Stock Incentive Plan, of which options to purchase 2,783,180 shares
were outstanding; (iii) 414,248 shares of SAFLINK Common Stock were reserved for
issuance upon exercise of options outside of SAFLINK's Stock Incentive Plan; and
(iv) 808,604 shares were reserved for issuance upon exercise of warrants
("SAFLINK Warrants").
Except for the SAFLINK Options and SAFLINK Warrants and the employee
benefit plans set forth above, employment agreements between SAFLINK and certain
of its employees, or as otherwise disclosed in Schedule 4.4, there are no
options, warrants, calls, rights, commitments or agreements of any character to
which SAFLINK is a party or by which it is bound obligating SAFLINK to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of SAFLINK or obligating SAFLINK to grant, extend or enter into
any such option, warrant, call, right, commitment or agreement, and there are no
voting
34
trusts, proxies or other agreements or understandings with respect to the shares
of capital stock of SAFLINK.
All of the outstanding shares of SAFLINK's Common Stock are, and any
shares of SAFLINK Common Stock issuable upon exercise of any SAFLINK Option,
when issued pursuant to such exercise, will be duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights created by
statute, SAFLINK Certificate of Incorporation or Bylaws or any agreement to
which SAFLINK is a party or by which it is bound.
4.5 SEC Documents. SAFLINK has made available to Jotter a true and
complete copy of SAFLINK's Form 10-K for the year ended December 31, 1999 and
any other statement report, registration statement or definitive proxy statement
filed by SAFLINK with the SEC since January 1, 2000 to the Effective Time (the
"SAFLINK SEC Documents"). As of their respective filing dates, the SAFLINK SEC
Documents comply or will comply in all material respects with the requirements
of the Securities Exchange Act of 1934, as amended, or the Securities Act, and
none of the SAFLINK SEC Documents contain or will contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading, except to the
extent corrected by a subsequently filed SAFLINK SEC Document. Without limiting
the foregoing, each of the consolidated balance sheets included in or
incorporated by reference into the SAFLINK SEC Documents fairly presented the
consolidated financial position of SAFLINK and its subsidiaries as of its date
and each of the consolidated statements of income, stockholders' equity and cash
flows included in or incorporated by reference into the SAFLINK SEC Documents
fairly presented the results of operations, stockholders' equity and cash flows
of SAFLINK and its subsidiaries for the period set forth there (subject, in the
case of unaudited statements, to normal year-end audit adjustments which would
not be material and the absence of certain footnote disclosures), in each case
in accordance with generally accepted accounting principles consistently applied
during the periods involved.
4.6 No Conflict. The execution and delivery of this Agreement and the
Plan of Merger by SAFLINK and Acquisition Corporation and the performance of
their respective obligations hereunder or thereunder, (i) are not in violation
or breach of, and will not conflict with or constitute a default under, any of
the terms of the Certificate of Incorporation or Bylaws of SAFLINK, or any
contract, agreement or commitment binding upon SAFLINK or any of its assets or
properties, other than violations, breaches, conflicts, or defaults which
individually or in the aggregate would not have a material adverse effect on
SAFLINK; (ii) will not result in the creation or imposition of any lien,
encumbrance, equity or restriction in favor of any third party upon any of the
assets or properties of SAFLINK; and (iii) will not to the actual knowledge of
SAFLINK conflict with or violate any applicable law, rule, regulation, judgment,
order or decree of any government, governmental instrumentality or court having
jurisdiction over SAFLINK or any of its assets or properties.
4.7 Shares of Common Stock. The Merger Shares will, when issued and
delivered to the Holders in accordance with this Agreement, be duly authorized,
validly issued, fully paid and nonassesable.
35
4.8 Brokers or Finders. SAFLINK has not dealt with any broker or finder
in connection with the transactions contemplated by this Agreement in a manner
which will cause Jotter or any of the Signing Holders to incur, directly or
indirectly, any liability to such broker or finder for any brokerage, financial
advisory or finders' fees, agent's commissions or similar charges.
4.9 Information Provided. SAFLINK has received and read, and is
familiar with all documents provided to SAFLINK from Jotter. SAFLINK
acknowledges that SAFLINK has had an opportunity to ask questions of and receive
answers from Jotter's officers and representatives concerning the affairs of
Jotter.
4.10 Sophistication of Buyer. SAFLINK acknowledges that SAFLINK is
sophisticated and experienced and has sufficient knowledge and experience to:
(a) review and comprehend all of Jotter's records, financial and otherwise and
(b) evaluate the merits and the risk of its purchase of Jotter. SAFLINK
acknowledges and agrees that it is not relying on any particular knowledge,
skill or expertise of Jotter and that SAFLINK has had the opportunity to make
its own independent inspection and investigation of Jotter. SAFLINK further
acknowledges that it has, in fact, independently inspected or caused to be
undertaken an independent inspection of matters concerning Jotter.
4.11 False and Misleading Statements. None of the written information
furnished by SAFLINK to Jotter in connection with the transaction contemplated
by this Agreement is false or misleading in any material respect or contains any
misstatement of material fact, or omits to state any material facts required to
be stated in order to make the statements therein not false or misleading in
light of the circumstances in which they were made.
The information supplied by SAFLINK for inclusion in the Proxy
Statement will not, as of the date the SAFLINK Required Shareholder Vote is
obtained, (i) contain any statement that is inaccurate or misleading with
respect to any material fact, or (ii) omit to state any material fact necessary
in order to make such information (in light of the circumstances under which it
is provided) not false or misleading.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
During the period from the date of this Agreement and continuing until
the Effective Time, Jotter agrees to act as follows (except as expressly
contemplated by this Agreement or to the extent that SAFLINK shall otherwise
consent in writing), and each of the Signing Holders agrees to use their best
efforts to cause Jotter to act as follows:
5.1 Ordinary Course. Subject to any express limitation contained
herein, Jotter shall carry on its business and cause each of its Subsidiaries to
carry on its business in the usual, regular and ordinary course, including the
payment when due of all taxes, debts and obligations, in substantially the same
manner as heretofore conducted and, without making any commitment
36
outside of the usual, regular and ordinary course on behalf of or which would be
binding upon SAFLINK (other than commitments made by Jotter or its Subsidiaries
in the usual, regular and ordinary course), shall use its best efforts to
preserve and cause each of its Subsidiaries to preserve intact its present
business organization and shall use its best efforts to keep available to
SAFLINK the services of its present officers and employees and preserve its
relationships with present and potential customers, licensors, licensees,
supplies, system integrators, service providers and others having business
dealings with them, to the end that its goodwill and ongoing business shall be
unimpaired at the Effective Time.
5.2 Dividends; Changes in Stock. Except as may be contemplated to carry
out this Agreement, neither Jotter nor any of its Subsidiaries shall or shall
propose to, directly or indirectly, (a) make, declare or pay any dividends or
other distribution on or in respect of any of its capital stock (other than the
accrual of dividends on shares of Jotter Preferred Stock pursuant to the terms
of Jotter's Certificate of Incorporation), (b) 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 capital stock of
Jotter or any of its Subsidiaries (other than the issuance of shares of Jotter
Common Stock upon conversion of Jotter Preferred Stock), or (c) repurchase,
redeem or otherwise acquire any shares of its capital stock, options, warrants
or rights to acquire any shares of its capital stock.
5.3 Issuance of Securities. Except for the issuance of Jotter Common
Stock to raise funds to pay existing liabilities, the issuance of Jotter Common
Stock upon the exercise of presently outstanding Jotter Options and Jotter
Warrants disclosed on Schedule 3.2 in accordance with the terms thereof and the
issuance of shares of Jotter Common Stock upon the conversion of presently
outstanding Jotter Preferred Stock or convertible notes, neither Jotter nor any
of its Subsidiaries shall issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, or purchase or propose the purchase of, any
shares of its capital stock of any class or securities convertible into, or
rights, warrants or options to acquire, any such shares or other convertible
securities, or enter into any agreement, understanding or arrangement with
respect to the sale or voting of any of its capital stock.
5.4 Governing Documents. Neither Jotter nor any of its Subsidiaries
shall cause or permit any amendment of their respective Certificate of
Incorporation or Bylaws.
5.5 No Other Bids or Contacts. Until the earlier of the Effective Time
and the termination of this Agreement pursuant to Section 11.1 hereof, neither
the Signing Holders nor Jotter will (nor will Jotter permit any of its
directors, officers, agents, affiliates or representatives, including investment
bankers, financial advisors, attorneys and accountants (collectively, Jotter's
"Representatives")) to, directly or indirectly, take any of the following
actions: (i) solicit, initiate, facilitate or encourage, or furnish information
with respect to Jotter or its Subsidiaries in connection with, any inquiry,
proposal or offer with respect to any merger, consolidation or other business
combination or acquisition involving Jotter or any of its Subsidiaries or the
acquisition of all or a substantial portion of the assets of, or any securities,
of Jotter or any of its Subsidiaries (an "Acquisition Transaction"); (ii)
negotiate, discuss, explore or otherwise communicate or cooperate in any way
with any third party with respect to any Acquisition Transaction; (iii) enter
into any agreement, arrangement or understanding with respect to an Acquisition
Transaction or
37
requiring Jotter to abandon, terminate or refrain from consummating a
transaction with SAFLINK; or (iv) make or authorize any statement,
recommendation or solicitation in support of any Acquisition Transaction.
Neither Jotter nor any Signing Holder nor any Jotter Representative is
engaged, directly or indirectly, in any activities, discussions or negotiations
with any person relating to a potential Acquisition Transaction. Each Signing
Holder and Jotter shall, and Jotter shall use its best efforts to cause its
Representatives to, notify SAFLINK orally and in writing immediately upon
receipt of any inquiry, offer or proposal with respect to an Acquisition
Transaction, including information as to the identity of the party or offeror
making such inquiry, offer or proposal and stating the terms thereof, and shall
provide SAFLINK with (i) copies of all written materials relating thereto and
(ii) such other information related thereto as SAFLINK may reasonably request.
Jotter will not terminate or amend any agreement, arrangement or understanding
to which it is a party, to the extent that it governs the right of another party
or such party's affiliates or agents to use or disclose nonpublic information
relating to Jotter and Jotter will use its best efforts to enforce such
agreements, arrangements and understandings.
Unless such terms have been previously made public by SAFLINK or its
Affiliates or agents or are required to be disclosed by a regulatory body, court
or governmental order, demand or decree, disclosure by Jotter or any Signing
Holder of the terms hereof (other than the prohibition of this Section 5.5)
shall be deemed to be a violation of this Section 5.5.
5.6 No Acquisitions. Neither Jotter nor any of its Subsidiaries shall
(a) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division there of (b) otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to Jotter except in
the ordinary course of business consistent with past practice, or (c) enter into
any strategic alliance, joint venture, or joint development, manufacturing or
marketing agreement.
5.7 No Dispositions. Neither Jotter nor any of its Subsidiaries shall
sell, lease, encumber, pledge or otherwise dispose of any of its assets or
properties, except (a) in the ordinary course of business consistent with prior
practice and in any event not in excess of $15,000 in the aggregate, and (b) for
sales of inventory and licenses in the ordinary course of business consistent
with prior practice.
5.8 Indebtedness. Neither Jotter nor any of its Subsidiaries shall
assume, incur or guarantee any indebtedness, enter into, extend or renew any
credit agreement, line of credit or similar arrangement, issue or sell any debt
securities or warrants or rights to purchase debt securities, enter into, extend
or renew any lease, or enter into, extend or renew any indemnity agreement or
agreement to maintain the financial condition of another person or entity.
5.9 Benefit Plans, Etc. Jotter shall not (i) adopt or amend in any
material respect any Employee Plan, Benefit Arrangement or any other agreement
with any employee or employees, (ii) hire any employees other than as set forth
on Schedule 5.9, (iii) increase in any manner the compensation or benefits for
its employees, directors, officers or consultants, (iv) grant any stock
38
option, stock appreciation right or other equity-related compensation right, or
(v) pay or accrue any benefit not required by existing policies, plans and
agreements that are described on Schedule 5.9. Jotter shall not take any action
with respect to (a) the grant of any severance pay, termination pay or any
payment or right triggered upon a change in control of Jotter, (b) any increase
of benefits payable under its severance pay, termination pay or change in
control arrangements in effect as of the date hereof or (c) accelerating the
vesting schedule of any outstanding options, warrants or stock purchase
agreements of Jotter.
5.10 Other Actions. Without limiting the generality of the foregoing,
except as expressly contemplated by this Agreement, or with the prior written
approval of SAFLINK, neither Jotter nor any of its Subsidiaries shall, and the
Signing Holders shall use their best efforts to cause Jotter and its
Subsidiaries not to:
(a) Enter into any material commitment or transaction not in the
ordinary course of business consistent with past practice;
(b) Transfer to any person or entity any material rights to the
Proprietary Rights, other than pursuant to licenses in the ordinary course of
business consistent with past practice;
(c) Enter into any material agreements (or material amendments thereto)
pursuant to which any third party is granted marketing, distribution,
manufacturing or similar rights of any type or scope with respect to any
products or services or Proprietary Rights of Jotter other than in the ordinary
course of business consistent with past practice;
(d) Amend or otherwise modify or extend, except in the ordinary course
of business consistent with past practice, or violate the terms of, any of the
agreements set forth or described in the Schedules to this Agreement (including,
without limitation, modifying the policies regarding pricing or royalties set or
charged by Jotter or its Subsidiaries to its customers or licensees or agreeing
to a material change in pricing or royalties set or charged by persons who have
licensed any intellectual property to Jotter or its Subsidiaries);
(e) Commence or settle any litigation;
(f) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable, other
than in the ordinary course of business consistent with past practice;
(g) Pay, discharge or satisfy, in an amount in excess of $25,000 (in
any one case) or $50,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Jotter Financial Statements or
that arose in the ordinary course of business subsequent to June 30, 2000;
(h) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or
39
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(i) Enter into any contract with a Related Party except as expressly
permitted by this Agreement;
(j) Enter into any marketing or licensing contract, without the prior
consent of SAFLINK, whose consent shall not be unreasonably withheld; or
(k) Take, or commit or agree to take, any of the actions described in
this Section or any other action that would prevent Jotter from performing or
cause Jotter not to perform its covenants hereunder, or that would or reasonably
would be expected to result in any of its, his or her representations and
warranties set forth in this Agreement being or becoming untrue in any material
respect or in any of the conditions set forth in Article VII not being
satisfied.
5.11 Advice of Changes; Government Filings. Jotter shall confer on a
regular and frequent basis with SAFLINK, report to SAFLINK on operational
matters and promptly advise orally and in writing of any change or event having,
or, insofar as can reasonably be foreseen, could have, a Jotter Material Adverse
Effect or which would cause or constitute a material breach of any of the
representations, warranties or covenants of Jotter or any Signing Holder
contained herein. Jotter and the Signing Holders shall consult with SAFLINK
before filing, and shall promptly provide SAFLINK (or its counsel) with copies
of, any filings made by Jotter, any of its Subsidiaries or any Signing Holder
with any Governmental Entity in connection with this Agreement or the
transactions contemplated hereby. No such information provided to SAFLINK (or
its counsel) shall be deemed for any purpose to modify or limit the
representations, warranties and covenants of Jotter and the Signing Holders
hereunder, or the SAFLINK Indemnitees' rights and remedies hereunder.
5.12 Accounting Methods. Jotter shall not change its methods of
accounting in effect at the Jotter Balance Sheet Date, except as required by
changes in GAAP as concurred in by Jotter's independent auditors. Jotter shall
notify SAFLINK immediately of any such change and shall provide all details
thereof. Jotter shall not take any action, which reasonably would be expected to
jeopardize the tax-free nature of the reorganization hereunder.
5.13 Intellectual Property Matters. Without limiting the generality of
the foregoing agreements, Jotter shall use its best efforts to preserve its and
its Subsidiaries' Proprietary Rights free and clear of any liens, claims or
encumbrances and to assert, contest and prosecute any infringement of any issued
patent, trademark, service xxxx, tradename or copyright that is part of the
Proprietary Rights or any misappropriation or disclosure of any trade secret,
know-how or confidential information that is part of the Proprietary Rights.
40
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Information.
(a) Jotter shall afford to SAFLINK and shall cause its attorneys and
independent accountants to afford to SAFLINK, and its directors, officers,
agents, affiliates or representatives, including investment bankers, financial
advisors, attorneys and accountants ("SAFLINK Representatives"), reasonable
access during normal business hours during the period prior to the Effective
Time, to the properties, books, contracts, commitments, tax returns and records
and documents related to Jotter and its Subsidiaries and their respective
businesses, properties and assets, and to the audit work papers and other
records of the internal and external accountants of Jotter and its Subsidiaries.
Jotter shall provide SAFLINK and SAFLINK Representatives with copies of the
foregoing upon request by SAFLINK. During the foregoing period, Jotter shall
furnish promptly to SAFLINK all other information concerning the business,
finances, properties and personnel of Jotter and its Subsidiaries as SAFLINK may
reasonably request, including such financial statements (including audited
financial statements) as may be required by SAFLINK to comply with its financial
reporting obligations, including requirements under applicable securities laws.
During the foregoing period, Jotter shall cooperate in all respects with SAFLINK
and SAFLINK Representatives in connection with any audit of the Jotter Balance
Sheet.
(b) SAFLINK shall afford to Jotter and shall cause its attorneys and
independent accountants to afford to Jotter and the Jotter Representatives
reasonable access during normal business hours during the period prior to the
Effective Time, to SAFLINK's properties, books, contracts, commitments, tax
returns and records and documents related to SAFLINK and its business,
properties and assets, and to the audit work papers and other records of
SAFLINK's internal and external accountants. SAFLINK shall provide Jotter and
Jotter Representatives with copies of the foregoing upon request by Jotter.
During the foregoing period, SAFLINK shall furnish promptly to Jotter all other
information concerning the business, finances, properties and personnel of
SAFLINK as Jotter may reasonably request, including such financial statements
(including audited financial statements) as may be required by Jotter to comply
with its financial reporting obligations, including requirements under
applicable securities laws.
6.2 Legal Conditions to the Merger and Related Transactions. Each party
will take all reasonable actions necessary to comply promptly with all Legal
Requirements which may be imposed on such party with respect to the Merger and
will promptly cooperate with and furnish information to the other party in
connection with any such requirements imposed upon such other party in
connection with the Merger. Each party will take all reasonable actions to
obtain any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity, or other third party required to be obtained or made by
such party in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement. Notwithstanding the generality of the
foregoing, SAFLINK shall take all necessary actions to incorporate Acquisition
Corporation under the laws of the State of Delaware and to cause it to take all
necessary corporate action required by this Agreement.
41
6.3 Communications; Confidentiality. Each of the parties hereto hereby
agrees to and affirms the terms and provisions of the Mutual Nondisclosure
Agreement between SAFLINK and Jotter dated as of July 26, 2000, except to the
extent expressly modified hereby. Between the date hereof and the Effective
Time, neither Jotter, on the one hand, nor SAFLINK, on the other hand, will
furnish any communication to its shareholders (other than communications
required pursuant to Section 6.2) or to the public generally if the subject
matter thereof related to the other party or to the transactions contemplated by
this Agreement without the prior approval of the other party as to the content
thereof, which approval shall not be unreasonably withheld, and subject to each
party's compliance with applicable law. Notwithstanding the foregoing, SAFLINK
may make a public announcement concerning the existence of this Agreement
following the execution thereof subject to Jotter's prior approval, which shall
not be unreasonably conditioned, withheld or delayed.
6.4 Update to Disclosures.
(a) Without limiting or modifying Jotter's or the Signing Holders'
representations or warranties or SAFLINK's right to rely thereon and without
limiting the rights and remedies available to the SAFLINK Indemnitees hereunder,
Jotter shall provide SAFLINK with updates to the disclosures previously provided
or made available to SAFLINK, as to material facts which arise between the date
of this Agreement and the Closing Date and which, had they occurred and been
known prior to the date of this Agreement, would have been required to have been
disclosed in order to make the representations and warranties contained in
Article III true and correct as of the date of this Agreement.
(b) Without limiting or modifying SAFLINK's representations or
warranties or Jotter's right to rely thereon and without limiting the rights and
remedies available to the Jotter Indemnitees hereunder, SAFLINK shall provide
Jotter with updates to the disclosures previously provided or made available to
Jotter, as to material facts which arise between the date of this Agreement and
the Closing Date and which, had they occurred and been known prior to the date
of this Agreement, would have been required to have been disclosed in order to
make the representations and warranties contained in Article IV true and correct
as of the date of this Agreement.
6.5 Certain Notifications. At all times from the date hereof and prior
to the Effective Time, each party shall promptly notify the other parties in
writing of the occurrence of any event known to such party which will or is
likely to result in the failure to satisfy any of the conditions specified in
Article VII hereof.
6.6 Treatment of Plans, Agreements and Options. The Board of Directors
of Jotter shall take all actions necessary to terminate, effective as of the
Effective Time, the plans and agreements of Jotter listed on Schedule 6.6
hereof. Jotter shall obtain all necessary consents or releases from holders of
options and warrants to purchase Jotter Common Stock and take all such other
lawful actions as may be necessary to give effect to the transactions
contemplated hereby with respect to such options and warrants. Without limiting
the generality of the foregoing, prior to the Closing Date, the Board of
Directors of Jotter shall take all action
42
necessary to terminate or cause to be terminated each Employee Plan that
contains a cash or deferred arrangement subject to Section 401(k) of the Code
and each Employee Plan or Benefit Arrangement that is a defined contribution
retirement plan or employee stock purchase plan. After the Closing Date, SAFLINK
may (in its sole discretion) cause each terminated Employee Plan to be filed
with the Internal Revenue Service for a favorable determination letter and shall
take such other steps as it deems necessary in its sole discretion with respect
to each terminated Employee Plan.
6.7 Agreements to Vote Shares.
(a) Jotter Voting Agreements. Each Signing Holder represents that such
Signing Holder has entered into a Jotter Voting Agreement (including the
attached irrevocable proxy) among such securityholder, Jotter and SAFLINK in the
form set forth as Exhibit 6.7(a), and confirms that such securityholder will
comply with such agreement in accordance with its terms through and including
the Effective Time. Jotter and the Signing Holders agree to use their best
efforts to assure that all of the Jotter Voting Agreements (including attached
proxies) (collectively, the "Jotter Voting Agreements") executed by the
securityholders of Jotter listed on Schedule 6.7(a) remain in full force and
effect without modification through and including the Effective Time.
(b) SAFLINK Voting Agreements. SAFLINK represents Home Shopping Network
Inc. and RMS Limited Partnership have each entered into a SAFLINK Voting
Agreement among such securityholder, Jotter and SAFLINK in the form set forth as
Exhibit 6.7(b). SAFLINK agrees to use its best efforts to assure that all of the
SAFLINK Voting Agreements (collectively, the "SAFLINK Voting Agreements")
executed by the securityholders of SAFLINK listed on Schedule 6.7(b) remain in
full force and effect without modification through and including the Effective
Time.
6.8 Agreements by Affiliated Stockholders. Schedule 6.8 lists the names
and addresses of those persons who are, in Jotter's reasonable judgment,
"affiliates" of Jotter within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act ("Rule 145") (each such person,
an "Affiliate"). Jotter shall provide SAFLINK such information and documents as
SAFLINK shall reasonably request for purposes of reviewing such list. Jotter
shall use its best efforts to deliver or cause to be delivered to SAFLINK, on or
prior to the tenth (10th) day after the date hereof, from each of the Affiliates
of Jotter identified in the foregoing list, a written Affiliate Agreement in the
form attached hereto as Exhibit 6.8. SAFLINK shall be entitled to place legends
as specified in such Affiliate Agreements on the certificates evidencing any
SAFLINK Common Stock to be received by such Affiliates pursuant to the terms of
this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the SAFLINK Common Stock, consistent with the terms of such
agreements.
6.9 Employees. Consistent with SAFLINK's employee benefit plans, all
Jotter employees who become employees of SAFLINK or a subsidiary of SAFLINK as
of the Effective Time shall receive benefits that are generally made available
to SAFLINK employees and, to the extent not prohibited by law, shall receive
service credit (other than for benefit accrual under a defined benefit pension
plan) that includes their employment by Jotter or any of its Subsidiaries
43
prior to the Effective Time. Any such employment of such former employees of
Jotter or any of its Subsidiaries shall not affect the "at will" employment
status of any such employee or limit any right of SAFLINK or its applicable
subsidiary to terminate any employee with or without cause following the
Effective Time. Jotter employees who become employees of SAFLINK or a subsidiary
of SAFLINK as of the Effective Time shall be permitted to transfer their accrued
vacation balance to their employment at SAFLINK and shall thereafter accrue
vacation pursuant to SAFLINK's policies.
6.10 Treatment of Merger as Qualifying Reorganization. Each of Jotter
and SAFLINK shall (a) treat the Merger as a qualified reorganization under
Section 368 of the Code, (b) report the Merger and all related transactions
consistently therewith, (c) take such actions as may be reasonably required to
cause the Merger to be treated as a qualifying reorganization, and (d) take no
action which could disqualify the Merger from reorganization status under
Section 368 of the Code.
6.11 Treatment of Merger as Foreign Merger. Each of Jotter and SAFLINK
shall take such actions as may be reasonably required to cause the Merger to be
treated as a "foreign merger" within the meaning of subsections 87(8) and
87(8.1) of the Income Tax Act (Canada) and take no action that could disqualify
the Merger from "foreign merger" status under subsections 87(8) and 87(8.1) of
the Income Tax Act (Canada).
6.12 Takeover Statutes. If any federal, state or provincial takeover
law shall become applicable to the transactions contemplated by this Agreement,
SAFLINK and its Board of Directors or Jotter and its Board of Directors, as the
case may be, shall use their reasonable best efforts to obtain such approvals
and take such actions as are necessary so that the transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement.
6.13 Joint Proxy Statement; Shareholder Vote.
(a) Joint Proxy Statement. As promptly as practicable after the
execution of this Agreement,
(i) SAFLINK and Jotter shall prepare and file with the SEC a
joint proxy statement (together with any amendments thereof or supplements
thereto, the "Proxy Statement") relating to the meetings of Jotter's
shareholders and SAFLINK's shareholders to be held to consider the approval and
adoption of this Agreement and the Merger by Jotter's shareholders and SAFLINK's
shareholders.
(ii) SAFLINK and Jotter shall cause the Proxy Statement to
comply with the information requirements of Rule 502 of Regulation D ("Rule
502") and Rule 903 under Regulation S ("Rule 903") promulgated under the
Securities Act. SAFLINK shall promptly furnish to Jotter information concerning
SAFLINK that may be required to satisfy the information requirements of Rule 502
and Rule 903 in connection with any action contemplated by this Section 6.13. If
any event relating to any party hereto occurs, or if any party hereto becomes
aware of any information, in either case that should be disclosed in an
amendment or
44
supplement to the Proxy Statement, then such party shall promptly inform the
others thereof and SAFLINK and Jotter shall prepare and distribute such
amendment or supplement to the shareholders of Jotter and SAFLINK. Each party
shall take all actions necessary or advisable to exempt the issuance of the
SAFLINK Common Stock to be issued in the Merger under Rule 506 of Regulation D
and under Rule 903 of Regulation S promulgated under the Securities Act. In
connection with the distribution of the Proxy Statement to U.S. Holders of
Jotter, Jotter shall include, and shall use its best efforts to cause each U.S.
Holder to complete and return, (i) an investor status questionnaire in a form
provided by SAFLINK (the " Regulation D Status Letter"), which form will require
each Jotter shareholder who is not an "accredited investor" (as defined in Rule
501 of Regulation D promulgated under the Securities Act ("Rule 501")) to agree
to be represented by a "purchaser representative" (as defined in Rule 501)
reasonably satisfactory to SAFLINK in connection with evaluating the merits and
risks of investing in SAFLINK Common Stock, and (ii) an investment
representation letter in customary form to be provided by SAFLINK (the
"Regulation D Investment Letter"). In connection with the distribution of the
Proxy Statement to Non-U.S. Holders of Jotter, Jotter shall and shall use its
best efforts to cause each Non-U.S. Holder to complete and return, (i) an
investor status questionnaire in a form provided by SAFLINK (the "Regulation S
Status Letter"), which form will require each Non-U.S. Holder to provide certain
information as SAFLINK may reasonably request to ensure that the issuance of
SAFLINK Common Stock to the Non-U.S. Holders shall be exempt from registration
under the Securities Act pursuant to Rule 903 of Regulation S, and (ii) an
investment representation letter in customary form to be provided by SAFLINK
(the "Regulation S Investment Letter").
(b) Prior to the Effective Time, SAFLINK and Jotter shall use
reasonable efforts to obtain all regulatory approvals and other information
(including obtaining properly completed Status Letters from each Jotter
shareholder) needed to ensure that the SAFLINK Common Stock to be issued in the
Merger will be registered or qualified under the securities law of every
jurisdiction of the United States and Canada in which any registered holder or
beneficial holder of capital stock of Jotter has an address of record on the
record date for determining the shareholders entitled to notice of and to vote
on the principal terms of this Agreement and the Merger; provided, however,
that, in connection with the issuance of SAFLINK Common Stock, SAFLINK shall not
be required (i) to qualify to do business as a foreign corporation in any
jurisdiction in which it is not now qualified, or (ii) to file a general consent
to service of process in any jurisdiction.
(c) Jotter shall take all action necessary under all applicable Legal
Requirements to solicit the vote of the shareholders of Jotter entitled to vote
upon the principal terms of this Agreement, the Plan of Merger and the Merger
and will, as promptly as practicable, mail to each holder of capital stock of
Jotter a copy of the Proxy Statement, a form of proxy, a Regulation D or
Regulation S Status Letter, a Regulation D or Regulation S Investment Letter and
such other documents as SAFLINK deems are necessary to comply with applicable
law or are otherwise reasonably appropriate. Jotter shall use its best efforts
to ensure that the Jotter Required Shareholder Vote will be obtained as promptly
as practicable after the Proxy Statement is first sent to the shareholders of
Jotter. Jotter shall ensure that the Jotter Required Shareholder Vote is
obtained in compliance with all applicable Legal Requirements.
45
(d) The Board of Directors of Jotter shall take all action necessary
under all applicable Legal Requirements to solicit the vote of the shareholders
of Jotter to recommend (subject to no conditions or qualifications) that
Jotter's shareholders approve the principal terms of this Agreement, the Plan of
Merger and the Merger. The Proxy Statement shall include a statement to such
effect. Neither the Board of Directors of Jotter nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify,
in a manner adverse to SAFLINK, the recommendation of the Board of Directors of
Jotter that Jotter's shareholders approve the principal terms of this Agreement,
the Plan of Merger and the Merger.
(e) SAFLINK shall take all action necessary under all applicable Legal
Requirements to solicit the vote of the shareholders of SAFLINK entitled to vote
upon the principal terms of this Agreement, the Plan of Merger and the Merger
and will, as promptly as practicable, mail to each holder of capital stock of
SAFLINK a copy of the Proxy Statement, a form of proxy, and such other documents
as Jotter deems are necessary to comply with applicable law or are otherwise
reasonably appropriate. SAFLINK shall use its best efforts to ensure that the
SAFLINK Required Shareholder Vote will be obtained as promptly as practicable
after the Proxy Statement is first sent to the shareholders of SAFLINK. SAFLINK
shall ensure that the SAFLINK Required Shareholder Vote is obtained in
compliance with all applicable Legal Requirements.
6.14 Termination of Agreements. Prior to the Closing, all parties to
the agreements listed in Schedule 6.14 hereto shall enter into agreements
(collectively, the "Termination Agreements"), in the form set forth as Exhibit
6.14 (and conditioned and effective upon the Closing), terminating all of such
parties' rights under such listed agreements on the date set forth on Schedule
6.14.
6.15 Certificate Pursuant to Section 116 of the Income Tax Act (Canada)
(a) Jotter shall provide to SAFLINK a certificate issued pursuant to
either subsection 116(2) or 116(4) of the Income Tax Act (Canada) with respect
to the disposition of the shares of MindQuake and, in the case of a certificate
issued under subsection 116(2) of the Income Tax Act (Canada) having as the
"Certificate Limit" as defined in subsection 116(2) of the Income Tax Act
(Canada), an amount no less than fair market value of the shares of MindQuake as
agreed between SAFLINK, Jotter and Acquisition Corporation. In the alternative,
the certificate issued under either subsection 116(2) or 116(4) shall indicate
that any gain arising on the transfer of the shares of MindQuake is exempt from
tax under the Income Tax Act (Canada) under the Canada-U.S. Tax Convention.
(b) In the event that Jotter fails to deliver the certificate described
above at or before the Effective Time, SAFLINK shall be entitled to deduct and
withhold such amounts of SAFLINK Common Stock otherwise issuable to the Holders
pursuant to Section 2.3(c) on account of amounts required to be remitted to the
Receiver General of Canada under section 116 of the Income Tax Act (Canada)
provided that no amount shall be remitted prior to the date such amount is
required under the Income Tax Act (Canada) to be remitted and where such
certificate is delivered prior to the remittance date, such withheld SAFLINK
Common Stock shall be
46
released to the Holders. To the extent that SAFLINK Common Stock is so withheld,
such withheld SAFLINK Common Stock shall be treated for all purposes hereof as
having been issued to the Holders. SAFLINK is hereby authorized to sell or
otherwise dispose of such portion of the SAFLINK Common Stock as is necessary to
provide sufficient funds to comply with the requirements of section 116 of the
Income Tax Act (Canada) and SAFLINK shall notify the Holders and remit to the
Holders any unapplied balance of the net proceeds of such sale. The Holders
shall bear all reasonable costs and expenses associated with any sale by SAFLINK
pursuant to this paragraph.
6.16 MindQuake Agreements. Jotter covenants and agrees that prior to
the Closing Date each holder of capital stock of MindQuake, other than Jotter,
will have entered into an agreement between such holder and Jotter to convert
such holder's shares of capital stock of MindQuake directly on the basis of the
Exchange Ratio into shares of SAFLINK Common Stock, in the form set forth as
Exhibit 6.16, and confirms that such holders will comply with such agreement in
accordance with its terms through and including the Effective Time. Jotter shall
use its best efforts to assure that all such agreements (collectively, the
"MindQuake Agreements") executed by the holders of MindQuake capital stock ,
other than Jotter, listed on Schedule 6.16 remain in full force and effect
without modification through and including the Effective Time.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Obligations of SAFLINK, Acquisition Corporation,
Jotter and Signing Holders. The obligations of SAFLINK, Acquisition Corporation,
Jotter and the Signing Holders to effect the Merger shall be subject to the
satisfaction on or prior to the Closing Date of the following conditions unless
waived by all of SAFLINK, Acquisition Corporation and Jotter.
(a) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any federal, provincial or state court and
remain in effect, and no litigation seeking the issuance of such an order or
injunction, shall be pending which, in the good faith judgment of Jotter or
SAFLINK, has a reasonable probability of resulting in such order, injunction or
damages. In the event any such order or injunction shall have been issued, each
party agrees to use its reasonable efforts to have any such injunction lifted.
(b) Statutes. There shall not be in effect any statute, rule or
regulation which would (i) make the consummation of the Merger illegal, (ii)
prohibit SAFLINK's or Surviving Corporation's ownership or operation of all or a
material portion of the business or assets of Jotter, or compel SAFLINK or
Surviving Corporation to dispose of or hold separate all or a material portion
of the business or assets of Jotter, as a result of the Merger, or (iii) render
SAFLINK, Jotter or Acquisition Corporation unable to consummate the Merger,
except for any waiting period provisions.
47
(c) SAFLINK Shareholder Approval. The shareholders of SAFLINK shall
have duly approved this Agreement, the Plan of Merger, and the transaction
contemplated hereby and thereby by the SAFLINK Required Shareholder Vote.
(d) Jotter Shareholder Approval. The shareholders of Jotter shall have
duly approved this Agreement, the Plan of Merger and the transactions
contemplated hereby and thereby by the Jotter Required Shareholder Vote.
(e) Dissenting Shares. Not more than 15,000 shares of Jotter Common
Stock in the aggregate, shall be Dissenting Shares.
(f) Registration Rights Agreement. The Registration Rights Agreement in
the form attached hereto as Exhibit 7.1(f) shall have been executed and
delivered by SAFLINK and Jotter.
(g) Tax-Free Reorganization. The Merger shall be a tax-free
reorganization with the meaning of Section 368 of the Code.
(h) Foreign Merger. The Merger shall be a "foreign merger" within the
meaning of subsections 87(8) and 87(8.1) of the Income Tax Act (Canada).
(i) Escrow Agreement. The Escrow Agent shall have executed and
delivered the Escrow Agreement in the form attached hereto as Exhibit 7.1(i).
(j) Canadian Securities Filings. To the extent required, SAFLINK has
received discretionary relief or consents from applicable securities regulatory
authorities in respect of the distribution of the Merger Shares to Alberta
Holders and B.C. Holders.
(k) Conversion of Jotter Convertible Debt. Jotter shall have caused any
convertible notes outstanding prior to the date hereof to be converted into
shares of Jotter Common Stock prior to the Closing Date, which Jotter Common
Stock shall cease to be outstanding and shall be converted by virtue of the
Merger under the Exchange Ratio pursuant to Section 2.3(c)(ii).
(l) Conversion of Jotter Preferred Stock. Jotter shall have caused all
of the holders of Jotter Preferred Stock to cancel such shares or convert such
shares into shares of Jotter Common Stock prior to the Closing Date, which
Jotter Common Stock shall cease to be outstanding and shall be converted by
virtue of the Merger under the Exchange Ratio pursuant to Section 2.3(c)(ii).
(m) Exercise of Jotter Options. Jotter shall have caused all of the
holders of Jotter Options to cancel such options or to exercise such options
into shares of Jotter Common Stock prior to the Closing Date, which Jotter
Common Stock shall cease to be outstanding and shall be converted by virtue of
the Merger under the Exchange Ratio pursuant to Section 2.3(c)(ii).
(n) Exercise of Jotter Warrants. Jotter shall have caused the holders
of Jotter Warrants to cancel such warrants or to exercise such warrants into
shares of Jotter Common Stock prior to the Closing Date, which Jotter Common
Stock shall cease to be outstanding and
48
shall be converted by virtue of the Merger under the Exchange Ratio pursuant to
Section 2.3(c)(ii).
(o) Conversion of Rights to Jotter Common Stock. Jotter shall have
caused the holders of any calls, rights, commitments or agreements of any
character to which Jotter is a party or by which it is bound obligating Jotter
to issue, deliver or sell, or cause to be issued, delivered or sold additional
shares of Jotter Common Stock to exercise their rights to receive Jotter Common
Stock prior to the Closing Date, which Jotter Common Stock shall cease to be
outstanding and shall be converted by virtue of the Merger under the Exchange
Ratio pursuant to Section 2.3(c)(ii).
(p) Exercise of Rights of MindQuake Stock. Jotter or its successor
shall cause the holders of shares of MindQuake capital stock, other than Jotter,
to convert such shares into shares of SAFLINK Common Stock at the Closing Date,
which MindQuake capital stock shall cease to be outstanding and shall be
converted using the Exchange Ratio pursuant to Section 2.2(c)(ii), and Jotter
shall own 100% of MindQuake.
(q) Closing Balance Sheet. Jotter shall have prepared the Closing
Balance Sheet in accordance with GAAP, applied on a consistent basis, two (2)
days before the Closing Date. Such Closing Balance Sheet shall have been
delivered at Closing and notwithstanding the exceptions set forth in the
penultimate sentence in Section 3.5(a), the Closing Balance Sheet shall not
reflect liabilities (including accounting and legal expenses relating to the
transactions contemplated hereby not to exceed $100,000) in excess of $125,000
in the aggregate.
(r) Holder Lock Up Agreements. Each Holder (other than the Indemnifying
Holders and the Employees) shall have executed and delivered to SAFLINK a
lock-up letter, in the form attached hereto as Exhibit 7.1(r).
(s) Employee Lock Up Agreements. Each employee listed on Schedule
7.1(s) ("Employee") shall have executed and delivered to SAFLINK a lock-up
letter, in the form attached hereto as Exhibit 7.1(s).
(t) Conversion of SAFLINK Preferred Stock. SAFLINK shall have caused
all of the holders of SAFLINK Series A and Series D Preferred Stock to convert
such shares into shares of SAFLINK Common Stock prior to the Closing Date.
7.2 Conditions to Obligations of SAFLINK and Acquisition Corporation.
The obligations of SAFLINK and Acquisition Corporation to effect the Merger are
subject to the satisfaction on or prior to the Closing Date of the following
additional conditions, unless waived by SAFLINK:
(a) Representations and Warranties. The representations and warranties
of Jotter and the Signing Holders set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and on and as
of the Closing Date (except for representations and warranties expressed as of a
specified date, which shall be true and correct as of such date), with the same
force and effect as if made on and as of the Closing, and SAFLINK shall have
49
received certificates signed by the chief executive officer and chief financial
officer of Jotter, and by the Signing Holders, respectively, to such effect.
(b) Performance of Obligations of Jotter. Jotter shall have performed
in all material respects all obligations required to be performed by it under
this Agreement prior to the Closing Date, and SAFLINK shall have received a
certificate signed by the chief executive officer and chief financial officer of
Jotter to such effect. The Signing Holders shall have performed in all material
respects all obligations required to be performed by them under this Agreement
prior to the Closing Date and shall have delivered certificates to such effect
to SAFLINK.
(c) Certificate of Secretary of Jotter. SAFLINK shall have received a
certificate, validly executed by the Secretary of Jotter, certifying as to (i)
the terms and effectiveness of the Certificate of Incorporation and the Bylaws
of Jotter, (ii) the valid adoption of resolutions of the Board of Directors of
Jotter and the shareholders of Jotter approving this Agreement and the Plan of
Merger and consummation of the transactions contemplated hereby and thereby and
(iii) such other matters as SAFLINK or its counsel shall reasonably request.
(d) Agreements Regarding Equity Securities. Jotter shall not be bound
by any options, warrants, rights or agreements which would entitle any person,
other than SAFLINK, to own any capital stock of Jotter or any subsidiary of
Jotter or to receive any payment in respect thereof.
(e) Opinions of Counsel. SAFLINK shall have received an opinion dated
the Closing Date of Xxxxx, Xxxxxxxxx & Xxxxx, P.C., counsel to Jotter, in the
form of Exhibit 7.2(e).
(f) Receipt of Consents. SAFLINK shall have been furnished with
evidence satisfactory to it that (i) Jotter has obtained the Consents, approvals
and waivers set forth in Schedule 3.4 and that such Consents do not alter
materially the terms of Jotter's obligations under the related licenses, permits
or agreements under which such Consent, approval or waiver is sought, and (ii)
all authorizations, consents, orders or approvals of, or declarations or filings
with, any Governmental Entity including the Secretary of State of Delaware and
applicable federal, provincial or state securities law regulatory bodies, and
all Consents of any other third party under contracts or otherwise, in each case
deemed necessary or appropriate by SAFLINK for the consummation of the Merger
and the other transactions contemplated by this Agreement or which is material
to the business of Jotter, shall have been filed, occurred or been obtained (in
each case subject to no term, condition or restriction unacceptable to SAFLINK).
(g) No Material Adverse Change. Since the date of this Agreement there
shall have been no changes in the condition (financial or otherwise), business,
prospects, employees, operations, obligations or liabilities of Jotter which,
individually or in the aggregate, have had or may be reasonably expected to have
a Jotter Material Adverse Effect.
(h) Change in Laws or Regulations. Since the date of this Agreement, no
statute shall have been enacted and no rule or regulation shall have been
adopted by the State of Delaware or any federal or provincial agency or
authority which has had or may reasonably be expected to have a Jotter Material
Adverse Effect.
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(i) Voting and Affiliate Agreements. The Jotter Voting Agreements and
Affiliate Agreements described herein shall have been executed and delivered to
SAFLINK by the Closing Date and the date specified in Section 6.8, respectively,
and shall be in full force and effect.
(j) Resignations. Each individual who serves as a member of the Board
of Directors or as an officer of Jotter shall have resigned from the Board of
Directors or from such office effective on or prior to the Effective Time.
(k) Good Standing Certificate. SAFLINK shall have received certificates
of Jotter's good standing in the State of Delaware and in such other states as
SAFLINK may reasonably request, each dated as of a recent date.
(l) Escrow Agreement. Jotter, certain Holders and the Holders'
Representative shall have executed and delivered the Escrow Agreement in the
form attached hereto as Exhibit 7.1(i).
(m) Rule 506 Exemption. Each U.S. Holder shall have in a timely manner
provided SAFLINK with such representations, warranties, certifications and
additional information (including the Regulation D Investment Letter) as SAFLINK
may reasonably request to ensure that the issuance of SAFLINK Common Stock to
the U.S. Holders shall be exempt from registration under the Securities Act
pursuant to Rule 506 of Regulation D promulgated under the Securities Act.
SAFLINK shall be reasonably satisfied as to the availability of such exemption,
including as to the representation of each U.S. Holder who is not an "accredited
investor" (as such term is defined in Rule 501) at all pertinent times by a
"purchaser representative" (as such term is defined in Rule 501). Without
limiting the generality of the foregoing, no more than 35 shareholders of Jotter
shall be determined by SAFLINK in its reasonable judgment not to be "accredited
investors" as defined in Rule 501, and all U.S. Holders who are so determined
not to be accredited investors shall have agreed to be represented by a
purchaser representative (whose qualifications to serve as such representative
under Rule 506 of Regulation D shall be reasonably satisfactory to SAFLINK) in
connection with such U.S. Holder's consideration of the Merger.
(n) Regulation S Exemption. Each Non-U.S. Holder shall have in a timely
manner provided SAFLINK with such representations, warranties, certifications
and additional information (including the Regulation S Investment Letter) as
SAFLINK may reasonably request to ensure that the issuance of SAFLINK Common
Stock to the Non-U.S. Holders shall be exempt from registration under the
Securities Act pursuant to Rule 903 of Regulation S promulgated under the
Securities Act.
(o) Other Documents and Actions. The Termination Agreements described
in Section 6.14 shall have been executed by all parties thereto and delivered to
SAFLINK and shall be in full force and effect.
(p) Non-Compete Agreements. Signing Holders shall have executed and
delivered to SAFLINK an Agreement Not to Compete in the form attached hereto as
Exhibit 7.2(p), respectively.
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(q) Fairness Opinion. SAFLINK shall have received an opinion from X.X.
Xxxxxxxxxx & Co., Inc. to the effect that the terms of the transactions
contemplated herein are fair from a financial point of view to the shareholders
of SAFLINK.
(r) Due Diligence. SAFLINK and the SAFLINK Representatives shall have
received all information concerning the business, finances, properties and
personnel of Jotter and its Subsidiaries reasonably requested by it and SAFLINK
shall have determined to its sole satisfaction that the business, financial,
legal, and technical aspects of Jotter are as represented by Jotter and no
adverse fact or circumstance as determined in SAFLINK's sole discretion relating
to the business, financial condition or operations of Jotter shall have come to
the attention of SAFLINK as a result of such investigation.
(s) Effective Registration Statement. If pursuant to Section 2.6(c),
SAFLINK causes the Merger Shares to be registered and issued pursuant to a
registration statement in accordance with the Securities Act and the rules and
regulations promulgated thereunder by the SEC, such registration statement shall
have been declared effective by the SEC.
7.3 Conditions to Obligations of Jotter. The obligations of Jotter and
the Signing Holders to effect the Merger are subject to the satisfaction on or
prior to the Closing Date of the following additional conditions unless waived
by Jotter:
(a) Representations and Warranties. The representations and warranties
of SAFLINK and Acquisition Corporation set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and on as
of the Closing Date (except for representations and warranties expressed as of a
specified date, which shall be true and correct as of such date), with the same
force and effect as if made on and as of the Closing, and Jotter shall have
received a certificate signed by the Chief Executive Officer and Chief Financial
Officer of SAFLINK to such effect.
(b) Performance of Obligations of SAFLINK and Acquisition Corporation.
SAFLINK and Acquisition Corporation shall have performed in all material
respects all obligations required to be performed by them under this Agreement
prior to the Closing Date, and Jotter shall have received a certificate signed
by the Chief Executive Officer and Chief Financial Officer of SAFLINK to such
effect.
(c) Certificate of Secretary of SAFLINK. Jotter shall have received a
certificate, validly executed by the Secretary of SAFLINK, certifying as to (i)
the terms and effectiveness of the Certificate of Incorporation and the Bylaws
of SAFLINK, (ii) the valid adoption of resolutions of the Board of Directors of
SAFLINK and the shareholders of SAFLINK approving this Agreement and the Plan of
Merger and consummation of the transactions contemplated hereby and thereby and
(iii) such other matters as Jotter or its counsel shall reasonably request.
(d) Escrow Agreement. SAFLINK shall have executed and delivered the
Escrow Agreement in the form attached hereto as Exhibit 7.1(i).
(e) Voting Agreements. The SAFLINK Voting Agreements described herein
shall have been executed and delivered to Jotter by the Closing Date and the
date specified in Section 6.8, and shall be in full force and effect.
52
(f) Opinion of Counsel. Jotter shall have received an opinion dated the
Closing Date of Xxxxx & XxXxxxxx, counsel to SAFLINK, in the form of Exhibit
7.3(f).
(g) Receipt of Consents. Jotter shall have been furnished with evidence
satisfactory to it that (i) all authorizations, consents, orders or approvals
of, or declarations or filings with, any Governmental Entity including the
Secretary of State of Delaware and applicable federal, provincial or state
securities law regulatory bodies, and all Consents of any other third party
under contracts or otherwise, in each case deemed necessary or appropriate by
Jotter for the consummation of the Merger and the other transactions
contemplated by this Agreement or which is material to the business of SAFLINK,
shall have been filed, occurred or been obtained (in each case subject to no
term, condition or restriction unacceptable to Jotter).
(h) No Material Adverse Change. Since the date of this Agreement there
shall have been no changes in the condition (financial or otherwise), business,
prospects, employees, operations, obligations or liabilities of SAFLINK which,
individually or in the aggregate, have had or may be reasonably expected to have
a SAFLINK Material Adverse Effect.
(i) Change in Laws or Regulations. Since the date of this Agreement, no
statute shall have been enacted and no rule or regulation shall have been
adopted by the State of Delaware or any federal or provincial agency or
authority which has had or may reasonably be expected to have a SAFLINK Material
Adverse Effect.
(j) Good Standing Certificate. Jotter shall have received certificates
of Jotter's good standing in the State of Delaware and in such other states as
Jotter may reasonably request, each dated as of a recent date.
ARTICLE VIII
CLOSING
-------
8.1 Closing Date. The Closing under this Agreement (the "Closing")
shall be held not more than two (2) business days following the satisfaction of
all conditions precedent to the Merger specified in this Agreement (other than
the deliver of the documents and other items required by this Agreement to be
delivered at the Closing), unless duly waived by the party entitled to
satisfaction thereof. In any event, if the Closing has not occurred on or before
the Termination Date, this Agreement may be terminated as provided in Section
11.1(b). Such date on which the Closing is to be held is herein referred to as
the "Closing Date." The Closing shall be held at the offices of Xxxxx &
XxXxxxxx, 000 Xxxxxxxxxxx Xxxxxx, XX, Xxxxxxxxxx, X.X., at 10:00 A.M. on such
date, or at such other time and place as SAFLINK and Jotter may agree upon in
writing.
8.2 Filing Date. Subject to the provisions of this Agreement, on the
Closing Date fully executed and acknowledged copies of the Plan of Merger, along
with required related certificates of Jotter and Acquisition Corporation,
meeting the requirements of the Delaware General Corporation Law, shall be filed
with the Secretary of State of Delaware, all in accordance with the provisions
of this Agreement (the date on which the later of these filings occurs is
referred to as the "Filing Date").
53
8.3 Best Efforts. All the parties hereto shall use all commercially
reasonable efforts (subject to any limitations stated herein) to cause the
Closing Date and Filing date to be not later than the Termination Date.
ARTICLE IX
INDEMNIFICATION AND ESCROW
--------------------------
9.1 Survival of Jotter Representations and Warranties. All of Jotter
and the Signing Holders' representations and warranties in this Agreement or in
any agreement, instrument or document delivered pursuant to this Agreement (i)
shall survive the Merger and continue until 5:00 p.m., Pacific time, on the date
which is twenty-four (24) months after the Closing Date (the "Expiration Date"),
except that (a) the representations and warranties contained in Section 3.2
(Capital Structure) shall survive without limitation, (b) the representations
and warranties contained in Sections 3.7 (Properties), 3.9 (Taxes), 3.11
(Compliance with Law), and 3.17 (Intellectual Property) shall survive and
continue until the expiration of the applicable statute of limitations, and (c)
if at any time prior to the Expiration Date, any SAFLINK Indemnitee (acting in
good faith) delivers to the Holders' Representative a written notice asserting a
claim for recovery under Section 9.2 hereof, then the claim asserted in such
notice shall survive the Expiration Date until such time as such claim is fully
and finally resolved; and (ii) shall not be affected by any investigation
conducted for or on behalf of SAFLINK with respect thereto or any knowledge
acquired by SAFLINK or its officers, directors, employees, stockholders or
agents as to the accuracy or inaccuracy of any such representation or warranty.
All representations and warranties of SAFLINK and Acquisition Corporation in
this Agreement or in any agreement, instrument or document delivered pursuant to
this Agreement shall survive the Merger and expire at the expiration of the
Escrow Period, and any liability of SAFLINK or Acquisition Corporation with
respect thereto shall cease at such time. If at any time prior to the Expiration
Date, any Jotter Indemnitee (acting in good faith) delivers to SAFLINK a written
notice asserting a claim for recovery, then the claim asserted in such notice
shall survive the Expiration Date until such time as such claim is fully and
finally resolved; and (ii) shall not be affected by any investigation conducted
for or on behalf of Jotter with respect thereto or any knowledge acquired by
Jotter or its officers, directors, employees, stockholders or agents as to the
accuracy or inaccuracy of any such representation or warranty. The waiver of any
condition based on the accuracy of any representation or warranty, or the
performance or compliance of any covenant or obligation, will not affect the
right to indemnification set forth in this Article IX or the right to any other
remedy.
9.2 Indemnification by Jotter and the Signing Holders.
(a) Subject to the limitations set forth herein, the Signing Holders
(and, if the Merger is not consummated, Jotter) (collectively, the
"Indemnitors") jointly and severally agree to defend and indemnify Acquisition
Corporation and SAFLINK (and, after the Closing, the Surviving Corporation), and
their respective affiliates, directors, officers, shareholders, successors and
assigns (collectively, the "SAFLINK Indemnitees"), against and hold each of them
harmless from any and all losses, liabilities, Taxes, claims, suits,
proceedings, demands, judgments, damages, expenses and costs, including, without
limitation, reasonable counsel fees,
54
costs and expenses incurred in the investigation, defense or settlement of any
claims covered by this indemnity (net of any insurance recovery) (in this
Article IX, collectively, "Indemnifiable Damages") which any such SAFLINK
Indemnitee may suffer or incur by reason of (i) the inaccuracy or breach of any
of the representations, warranties or covenants of Jotter or the Signing Holders
contained in this Agreement or any document, certificate or agreement delivered
pursuant hereto, or (ii) any claim by any person or entity relating to or
arising out of transactions, events, acts or omissions of or by Jotter or any of
its Subsidiaries prior to the Effective Time that is not adequately accrued or
otherwise reflected on the Jotter Balance Sheet and that is not expressly and
specifically disclosed (including the nature and amount of the related
liability) in the Schedules delivered to SAFLINK on the date hereof (but
excluding claims relating to pending or threatened litigation), other than
liabilities incurred after the date of the Jotter Balance Sheet in the ordinary
course of business of Jotter and its Subsidiaries and which are usual and normal
in amount, or (iii) any other claim by a Person (including any stockholder or
former stockholder) seeking to assert, or based upon, (a) ownership or rights to
ownership of any shares of capital stock of Jotter or any of its Subsidiaries,
(b) any rights of a stockholder (other than rights to receive the Merger Shares
or cash in lieu of fractional shares pursuant to this Agreement or dissenter's
rights under the Delaware General Corporation Law), including any option,
preemptive right or right to notice or to vote, (c) any rights under the
Certificate of Incorporation or Bylaws of Jotter, or (d) any claim that such
Person's shares were wrongfully repurchased by Jotter. SAFLINK, Jotter and the
Signing Holders each acknowledge that such Indemnifiable Damages would relate to
unresolved contingencies existing at the Effective Time, which if resolved at
the Effective Time would have led to a reduction in the aggregate Merger
consideration. Notwithstanding the generality of the foregoing, the full amount
of the Escrow Fund shall be available as security for the satisfaction of all
Indemnifiable Damages which any SAFLINK Indemnitee may suffer or incur. Jotter
(if the Merger is not consummated) or the Signing Holders, as the case may be,
are hereinafter referred to as the "Jotter Indemnitors." Notwithstanding the
foregoing, the SAFLINK Indemnitees may not recover any Indemnifiable Damages
unless and until the aggregate Indemnifiable Damages recovered or recoverable
from all of the Jotter Indemnitors hereunder by all SAFLINK Indemnitees
cumulatively exceeds one hundred thousand ($100,000) (in which event the Jotter
Indemnitors shall be liable for the full amount of Indemnifiable Damages,
including the first one hundred thousand ($100,000)); provided, however, that
for purposes of determining whether the foregoing one hundred thousand
($100,000) threshold has been exceeded, any materiality limitations expressly
stated in the representations, warranties and covenants of Jotter and the
Signing Holders herein shall not be taken into account.
(b) Without limiting the generality of the foregoing, with respect to
the measurement of Indemnifiable Damages, SAFLINK Indemnities or Jotter
Indemnities, as the case may be, and the affiliates of any of them shall have
the right to be put in the same financial position as they would have been in
had each of the representations, warranties and covenants of Jotter Indemnities
or SAFLINK Indemnities, as the case may be, been true and accurate or the same
said parties had not breached any such covenants or had any of the events,
claims or liabilities referred to in clause (a) of this Section 9.2 not occurred
or been made or incurred. In determining whether any party has breached a
covenant, representation or warranty, the knowledge of the Indemnitee prior to
the Closing of any inaccuracy in such representation, covenant or warranty shall
not be considered and it shall not be a defense to any claim for
55
indemnification hereunder that any Indemnitee knew or should have known prior to
the Closing of the facts giving rise to such claim for indemnification. No
Indemnitee shall have any express or implied obligation hereunder to inform any
Indemnitor as to any inaccuracy in any representation, covenant or warranty,
which is discovered by any Indemnitee or any of its officers, directors,
employees or agents prior to the Closing.
(c) Except for the limitation that SAFLINK proceed solely against the
Escrow Fund, each of the Indemnitors (A) waives any right to require any
Indemnitee to (i) proceed against any person or entity, or (ii) pursue any other
remedy in its power, and (B) waives any defense arising by reason of any
inability of any other obligor to pay or any defense based on bankruptcy or
insolvency or other similar limitations on creditors' remedies with respect to
any other person. Until any claims which have been asserted have been settled
and indefeasibly paid in full, each Indemnitor shall have no right of
subrogation and each Indemnitor waives any right to enforce any remedy which any
Indemnitee now has or may hereafter have against any other person and waives any
benefit or any right to participate in any collateral or security whatsoever now
or hereafter held by any Indemnitee.
9.3 Escrow Fund.
(a) As sole security for the indemnity provided for in Section 9.2 of
this Agreement, the Escrow Shares (defined in Section 2.3 hereof) shall be
registered in the names of the Indemnifying Holders but shall be deposited
(together with assignments in blank executed by the Indemnifying Holders) with
Chase Manhattan Trust Company, National Association (or other institution
selected by SAFLINK with the reasonable consent of the Holders' Representative)
as escrow agent (the "Escrow Agent"), such deposit to constitute an escrow fund
("the Escrow Fund") to be governed by the terms set forth herein and in an
Escrow Agreement among SAFLINK, the Escrow Agent and the Indemnifying Holders
(the "Escrow Agreement") substantially in the form attached hereto as Exhibit
7.1(i). Subject to the terms of Section 9.3(b) of this Agreement, SAFLINK's
compliance with the terms hereof and the terms of the Escrow Agreement the
SAFLINK Indemnitees shall be entitled to obtain indemnification from the Escrow
Fund for all Indemnifiable Damages covered by the indemnity provided for in
Section 9.2 of this Agreement (it being understood that each Jotter Indemnitor's
liability under this Agreement shall be limited to the Escrow Fund). The
adoption and approval of this Agreement by Jotter's shareholders shall
constitute approval of the Escrow Agreement and of all of the arrangements
relating thereto, including without limitation the placement of the Escrow
Shares in escrow, and the appointment of the Holders' Representative to act for
and on behalf of all of the Indemnifying Holders, as the attorney-in-fact and
agent of such persons, to give and receive notices and communications, to
authorize delivery of any shares of SAFLINK Common Stock from the Escrow Fund in
satisfaction of claims by SAFLINK Indemnitees, to object to such deliveries, to
agree to, negotiate and enter into settlements and compromises of, and comply
with orders and decrees with respect to such claims, and to take all actions
necessary or appropriate in the judgment of such representative for the
accomplishment of the foregoing. A decision, act, consent or instruction of the
Holders' Representative shall constitute a decision of all of the Indemnifying
Holders and shall be final, binding and conclusive upon each of the Indemnifying
Holders. The Escrow Agent, SAFLINK and Acquisition Corporation may rely upon any
decision, act,
56
consent or instruction of the Holders' Representative as being the decision,
act, consent or instruction of each and all of the Signing Holders. The Escrow
Agent and SAFLINK and Acquisition Corporation are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Holders' Representation.
(b) At any time until the earlier of the expiration of the Escrow
Period or the termination of the Escrow Agreement as provided therein, if any
SAFLINK Indemnitee makes a claim for Indemnifiable Damages and is entitled to
indemnification pursuant to Section 9.2 hereof, the Escrow Agent shall, upon
compliance with the procedures set forth in the Escrow Agreement, release to
SAFLINK (or other applicable SAFLINK Indemnitee) such amount from the Escrow
Fund which is equal in value to such Indemnifiable Damages. Escrow Shares so
released shall be valued at the closing price on the Closing Date of the SAFLINK
Common Stock, as reported by the Nasdaq SmallCap Market. Upon a distribution by
the Escrow Agent to SAFLINK (or other applicable SAFLINK Indemnitee) pursuant to
this Section, the Escrow Fund will be correspondingly reduced.
9.4 Indemnification by SAFLINK. Subject to the limitations set forth
herein, SAFLINK shall, as to those representations and warranties which are
herein made by SAFLINK and Acquisition Corporation, indemnify and hold harmless
each Holder immediately prior to the Effective Time and (prior to the Closing
Date) Jotter and its affiliates, directors, officers, employees, agents,
successors and assigns (collectively, the "Jotter Indemnitees"), against and
hold each of them harmless (net of any insurance recovery) from any and all
Indemnifiable Damages which any of the Jotter Indemnitees may suffer or incur by
reason of the inaccuracy or breach of any of the representations, warranties or
covenants of SAFLINK and Acquisition Corporation contained in this Agreement.
SAFLINK shall be obligated to indemnify the Jotter Indemnitees for Indemnifiable
Damages pursuant to this Section 9.4 only if a claim for indemnification is made
by the Jotter Indemnitees within the period ending at the end of the Escrow
Period. Notwithstanding the foregoing, the Jotter Indemnitees may not recover
any Indemnifiable Damages unless and until the aggregate Indemnifiable Damages
recovered or recoverable from SAFLINK hereunder by all Jotter Indemnitees
cumulatively exceeds one hundred thousand ($100,000) (in which event SAFLINK
shall be liable for the full amount of Indemnifiable Damages, including the
first one hundred thousand ($100,000); provided, however, that for purposes of
determining whether the foregoing one hundred thousand ($100,000) threshold has
been exceeded, any materiality limitations expressly stated in the
representations, warranties and covenants of Acquisition Corporation shall not
be taken into account.
9.5 Notice and Defense of Third Party Claims. A party seeking
indemnification under this Article IX (the "Indemnitee") shall give prompt
written notice to the party from whom indemnification is sought (the
"Indemnitor") of the assertion of a claim for indemnification, and the
Indemnitor shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnitee and the payment of all expenses;
except that any delay or failure to so notify the Indemnitor shall relieve the
Indemnifying Person of its obligations hereunder only to the extent, if at all,
that it is prejudiced by reason of such delay or failure. The Indemnitee shall
have the right to employ separate counsel in any of the foregoing actions,
claims or proceedings and to participate in the defense thereof, but the fees
and expenses of such
57
counsel shall be at the expense of the Indemnitee unless both the Indemnitee and
the Indemnitor are named parties and the Indemnitee shall in good faith
determine that representation by the same counsel is inappropriate. In the event
that the Indemnitor, within ten days after notice of any such action or claim,
fails to assume the defense thereof, the Indemnitee shall have the right to
undertake the defense, compromise or settlement of such action, claim or
proceeding for the account of the Indemnitor. Anything in this Article IX to the
contrary notwithstanding, the Indemnitor shall not, without the Indemnitee's
prior written consent, settle or compromise any action or claim or consent to
the entry of any judgment with respect to any action, claim or proceeding for
anything other than money damages paid by the Indemnitor. The Indemnitor may,
without the Indemnitee's prior written consent, settle or compromise any such
action, claim or proceeding or consent to entry of any judgment with respect to
any such action or claim that requires solely the payment of money damages by
the Indemnitor and that includes as an unconditional term thereof the release by
the claimant or the plaintiff against the Indemnitee from all liability in
respect of such action, claim or proceeding.
9.6 No Contribution. No stockholder of Jotter shall have any right of
contribution, right of indemnity or other right or remedy against Acquisition
Corporation, SAFLINK or the Surviving Corporation in connection with any
indemnification obligation or any other liability to which he, she or it may
become subject under or in connection with this Agreement.
ARTICLE X
PAYMENT OF EXPENSES
Except as provided in Section 2.3, 9, 11.1 or 11.2 or as set forth
below, SAFLINK, Jotter and the Signing Holders shall each pay its own fees and
expenses incurred incident to the preparation and carrying out of the
transactions herein contemplated (including legal, accounting and travel fees
and expenses, and fees and expenses incurred in preparing the Proxy Statement).
Notwithstanding the foregoing, (i) SAFLINK and Jotter shall share equally all
government filing fees paid to any federal, provincial and state securities
commission and the Secretary of State of Delaware (collectively, the "Filing
Fees"), and each party shall promptly advance on request or reimburse such
party's portion of the Filing Fees; (ii) SAFLINK shall pay the fees imposed by
the Escrow Agent pursuant to the Escrow Agreement (iii) if the Merger is
consummated, SAFLINK agrees to pay all fees and expenses of up to $100,000
incurred by Jotter (but not by any Signing Holder or other Holder) in connection
with the Merger as of the Closing Date, including Jotter's legal, financial
advisory and accounting expenses ("Third Party Expenses"); provided, however,
that SAFLINK will have no obligation to pay such Third Party Expenses to the
extent that the contract or arrangement providing therefor has not been
disclosed on Schedule 3.5 or 3.14 hereto, and provided, further that SAFLINK
will have full recourse to the Escrow Fund for payment of Third Party Expenses
in excess of $100,000 whether such Third Party Expenses have been paid by
Jotter, accrued by Jotter or incurred (and not accrued or paid) by Jotter
("Excess Expenses"), and the Holders' Representative agrees not to dispute or
assert any defense with respect to, and will cooperate with SAFLINK to ensure
full satisfaction of, any claim made by SAFLINK against the Escrow Fund for such
Excess Expenses.
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ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination.
(a) This Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of matters presented in connection with
the Merger by the Holders, by mutual written consent of the parties hereto.
(b) This Agreement may be terminated at any time prior to the Effective
Time by either Jotter or SAFLINK if (i) the Effective Time shall not have
occurred on or before a date which shall be no more than 180 days from the date
hereof (the "Termination Date"), whether such date is before or after approval
of matters presented in connection with the Merger by the Holders, or (ii) any
order, decree or injunction of a federal or state or provincial court preventing
or restraining consummation of the Merger shall have become final and
non-appealable, whether before or after approval of matters presented in
connection with the Merger by the Holders, or (iii) there shall be any action
taken, or any Legal Requirement enacted, promulgated or issued or deemed
applicable to the Merger, by any Governmental Entity which would (x) make
consummation of the Merger illegal, (y) prohibit SAFLINK's or Jotter's ownership
or operation of all or a material portion of the business or assets of Jotter or
SAFLINK, or compel SAFLINK or Jotter to dispose of or hold separate all or a
material portion of the business or assets of Jotter or SAFLINK, as a result of
the Merger or (z) render SAFLINK or Jotter unable to consummate the Merger; or
(iv) the Jotter Required Shareholder Vote or the SAFLINK Required Vote shall not
have been obtained pursuant to Section 6.13 hereof; provided, that the right to
terminate this Agreement shall not be available to any party hereto that has
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the failure of the Merger to
be consummated (including without limitation the failure of the Jotter Required
Shareholder Vote to have been obtained), and provided, further, that Jotter's
right to terminate this Agreement under clause (iv) of this paragraph shall not
be available to Jotter where the failure to obtain the Jotter Required
Shareholder Vote has been caused by a breach of any of the Jotter Voting
Agreements.
(c) This Agreement may be terminated at any time prior to the Effective
Time by SAFLINK if there has been a willful and material breach of any
representation or warranty, or a material breach of any covenant or agreement,
contained in this Agreement on the part of Jotter or any Signing Holder and, if
such breach is curable through the exercise of commercially reasonable efforts,
such breach has not been promptly cured after written notice of such breach; or
(d) This Agreement may be terminated at any time prior to the Effective
Time by Jotter if there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
SAFLINK and, if such breach is curable through the exercise of commercially
reasonable efforts, such breach has not been promptly cured after written notice
of such breach; or
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(e) This Agreement may be terminated at any time prior to the Effective
Time by SAFLINK if (i) the Board of Directors of Jotter shall have withdrawn or
adversely modified its approval or recommendation of this Agreement (or any of
its terms), the Plan of Merger or the Merger (or disclosed an intention to do
so) or failed to reconfirm such recommendation within seven business days after
a written request by SAFLINK to do so; or (ii) Jotter or its Board of Directors
shall make any recommendation or proposal with respect to an Acquisition
Transaction (including making a statement of inability to make a recommendation)
other than a recommendation against such Acquisition Transaction; or (iii) in
the event that Jotter or any Signing Holder supplements or amends the Schedules
to this Agreement pursuant to the terms hereof and such supplements and
amendments contain disclosures which collectively would or would reasonably be
expected to have a Jotter Material Adverse Effect; or (iv) SAFLINK shall have
concluded, in its sole discretiion, that Jotter will not be able to satisfy the
condition to closing set forth in Section 7.2(r).
11.2 Effect of Termination.
(a) In the event of termination of this Agreement by Jotter or SAFLINK
as provided in Section 11.1, this Agreement and the Plan of Merger shall
forthwith become void and there shall be no liability or obligation on the part
of the parties hereto or their respective officers or directors, except as set
forth in Article IX and Article X; provided, however, that no such termination
will relieve any party from liability resulting from (i) the willful breach by a
party hereto of any of its representations or warranties, or (ii) a breach by a
party hereto of its covenants or agreements set forth in this Agreement, or
(iii) in the case of Jotter, any obligation of Jotter to pay the amounts payable
pursuant to Section 11.2(b).
(b) In the event that (i) this Agreement is terminated by SAFLINK
pursuant to Section 11.1(b)(iv), Section 11.1(c), Section 11.1(e)(i) or Section
11.1(e)(ii), then Jotter shall pay promptly (but in no event later than two
business days after the date of such termination) a termination payment equal to
the Termination Amount, which amount shall be exclusive of any expenses payable
pursuant to Article X (Payment of Expenses) and shall be payable by wire
transfer of same-day U.S. funds. The "Termination Amount" shall mean ten percent
(10%) of the value that the Merger Shares (which include the Escrow Shares)
would have had if the Effective Time had occurred on the date of such
termination. For this purpose, the value of each Merger Share shall be deemed to
equal the closing price on Nasdaq SmallCap Market of one share of SAFLINK Common
Stock on the trading day prior to such termination. Jotter acknowledges that the
agreements contained in this Section 11.2(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
SAFLINK would not enter into this Agreement; accordingly, if Jotter fails
promptly to pay any amount due pursuant to this Section 11.2(b), and, in order
to obtain such payment, SAFLINK commences a suit which results in a judgment
against Jotter for the payment set forth in this Section 11.2(b), Jotter shall
pay to SAFLINK all of SAFLINK's costs and expenses (including attorneys' fees)
in connection with such suit, together with interest on the amount due from each
date for payment until the day of such payment at the prime rate published in
the Wall Street Journal in effect on the date such payment was required to be
made plus two percent (2%).
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(c) In the event that SAFLINK unilaterally terminates this Agreement
and such termination constitutes a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
SAFLINK, SAFLINK shall pay promptly (but in no event later than two business
days after the date of such termination) a termination payment equal to $250,000
plus any expenses payable pursuant to Article X and shall be payable by wire
transfer of same-day U.S. funds.
(d) The obligations of the parties under the Mutual Nondisclosure
Agreement (other than paragraph 10 thereof) shall survive any termination of
this Agreement.
11.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties hereto. After approval
of this Agreement and the transactions contemplated hereby by the shareholders
of Jotter, no amendment hereto shall be made which by law requires the further
approval of shareholders without obtaining such further approval.
11.4 Extension; Waiver. At any time prior to the Effective Time,
SAFLINK or Jotter, by such corporate action as shall be appropriate, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to SAFLINK, Jotter or
the Signing Holders contained herein or in any document delivered pursuant
hereto and (iii) waive compliance with any of the agreements or conditions for
the benefit thereof contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE XII
GENERAL
12.1 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy, or by
courier service, as follows:
If to SAFLINK:
SAFLINK Corporation
00000 X.X. 00xx Xxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attention: Chief Financial Officer
Fax: 000-000-0000
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with a copy to:
Xxxxx & XxXxxxxx
000 Xxxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxx, Xx., Esq.
Fax: 000-000-0000
and if to Jotter or the Signing Holders:
Jotter Technologies Inc.
000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxxxxx
Fax: 000-000-0000
with a copy to:
Xxxxx, Xxxxxxxxx & Xxxxx, P.C.
0000 Xxxxx Xxxxxxxxxx Xxxx
Xxxxx X000
Xxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid.
12.2 Headings; Construction. The descriptive headings of the several
sections of this Agreement are inserted for convenience of reference only and
are not intended to affect the meaning or interpretation of this Agreement. The
parties hereto agree that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not be applied
in the construction or interpretation of this Agreement.
12.3 Counterparts. This Agreement may be executed in counterparts, and
when so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
12.4 Binding Effect; Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto and nothing in
this Agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement; provided, however, that the provisions of Article IX shall be for the
benefit of, and enforceable by, the SAFLINK Indemnitees.
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12.5 Entire Agreement; Assignment. This Agreement along with each of
the exhibits and schedules hereto and the Mutual Nondisclosure Agreement dated
July 26, 2000 between Jotter and SAFLINK (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
other prior agreements and understandings, both written and oral, among the
parties or any of them with respect to the subject matter hereof and (b) may not
be assigned by operation of law or otherwise.
12.6 Schedules and Exhibits. All Exhibits and Schedules attached hereto
are by this reference incorporated herein and made a part hereof for all
purposes as if fully set forth herein, and each disclosure in any Schedule shall
be deemed to be a representation and warranty made by the disclosing party. The
disclosures in any Schedule must relate only to the representations and
warranties in the Section of this Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement. In the event of
any inconsistency between the statements in the body of this Agreement and those
in the Schedules hereto (other than an exception expressly set forth as such in
the Schedules with respect to a specifically identified representation or
warranty), the statement in the body of this Agreement will control.
12.7 Applicable Law; Venue; Waiver of Jury Trial. This Agreement shall
be governed by, construed and enforced in accordance with the laws of the State
of Delaware as applied to contracts entered into solely between residents of,
and to be performed entirely in, such state. The parties hereto do hereby
irrevocably submit to the jurisdiction of any state or federal court located in
the State of Delaware, solely in respect of the interpretation and enforcement
of the provisions of this Agreement and in respect of the transactions
contemplated hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for the interpretation or enforcement hereof, that is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement may not be enforced in or by such courts, and the parties
hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a state or federal court. The
parties hereby consent to and grant any such court jurisdiction over the person
of such parties and over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 12.1 (Notices) hereof, or in such
other manner as may be permitted by law, shall be valid and sufficient service
thereof.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND WITH THE ADVICE OF COUNSEL HAS CONSIDERED THE
63
IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER
VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCTED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
12.8 Severability. If for any reason whatsoever, any one or more of the
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all cases, such
circumstances shall not have the effect of rendering such provision invalid in
any other case or of rendering any of the other provisions of this Agreement
inoperative, unenforceable or invalid.
12.9 Remedies Cumulative. The rights and remedies of the parties to
this Agreement are cumulative and not alternative. Neither the failure nor any
delay by any party in exercising any right, power or privilege under this
Agreement or the document referred to herein will operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of any other
right, power or privilege. Without limiting the generality of the foregoing, (i)
neither the SAFLINK Indemnitees' exercise nor their failure to exercise their
right to make a claim against the Escrow Fund shall constitute an election of
remedies or limit the SAFLINK Indemnitees in any manner in the enforcement of
any remedies that may be available to them under this Agreement or otherwise,
and (ii) each party's right of termination under Section 11.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not constitute an election of remedies.
12.10 Specific Performance. The parties hereto agree and acknowledge
that, in the event of a breach of any provision of this Agreement, the aggrieved
party may be without an adequate remedy at law. The parties therefore agree that
in the event of a breach of any provision of this Agreement the aggrieved party
may elect to institute and prosecute proceedings in any court of competent
jurisdiction to obtain specific performance or to enjoin the continuing breach
of such provision, as well as to obtain damages for breach of this Agreement and
to obtain reasonable attorneys' fees. By seeking or obtaining any such relief,
the aggrieved party will not be precluded from seeking or obtaining any other
relief to which it may be entitled.
12.11 Commercially Reasonable Efforts; Further Assurances. Subject to
the terms and conditions of this Agreement, each party shall use all
commercially reasonable efforts to take, or cause to be taken, all action and to
do or cause to be done all things necessary, proper or advisable consistent with
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as promptly as possible, to obtain
all necessary approvals of any Governmental Entity in a manner that does not
materially alter the underlying obligations of the parties and to effect any
required filings, registrations and notifications. Subject to the terms and
conditions of this Agreement, the parties hereto shall do and perform or cause
to be done and performed all such further actions and things and shall execute
and deliver all such other agreements, certificates, instruments or documents as
any other party hereby may reasonably request in order to carry out the intent
and purposes of this Agreement and the consummation of the transactions
contemplated hereby, and each party hereto shall use commercially reasonable
efforts to cause the conditions set forth in Article VII to be satisfied.
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Notwithstanding the foregoing, neither SAFLINK nor Acquisition Corporation shall
be required to agree to any divestiture by SAFLINK or Jotter or any of their
respective subsidiaries or affiliates of shares of capital stock or of any
business, assets or property of SAFLINK or Jotter or their respective
subsidiaries or affiliates, or to the imposition of any material limitation on
the ability of any of SAFLINK or Jotter or their respective subsidiaries and
affiliates to conduct their businesses or to own or exercise control of such
assets, properties and stock.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
SAFLINK CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxx
------------------------------
Xxxxxxx X. Xxxxxxx
Chief Executive Officer
JOTTER TECHNOLOGIES INC.
By: /s/ Xxxxx Xxxxxxxxxxx
------------------------------
Xxxxx Xxxxxxxxxxx, President
SIGNING HOLDERS
/s/ Xxxxx Xxxxxxxxxxx
---------------------------------
Xxxxx Xxxxxxxxxxx, An Individual
/s/ Xxxxxx Xxxxxxx
---------------------------------
Xxxxxx Xxxxxxx, An Individual
/s/ Xxxxx Xxxxxxx
---------------------------------
Xxxxx Xxxxxxx, An Individual
/s/ Xxxxxxx X. Xxxxxx
---------------------------------
Xxxxxxx X. Xxxxxx, An Individual
/s/ Xxxx Xxxxxx
---------------------------------
Xxxx Xxxxxx, An Individual
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Virgin Technologies Inc.
By: /s/ Xxxxxx Xxxxxxx
-------------------------------------
Name: Xxxxxx Xxxxxxx
Its President
K & J Wilton Limited Partnership
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxx, President, XX Xxxxxx Inc.
Its General Partner
KJWILTON, INC.
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxx
Its President
Xxx and Xxxx Xxxxxx XX XXX
By: /s/ Xxxxxxx X. Xxxxxx and Xxxx Xxxxxx
-------------------------------------
Name:
Its
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