Securities Purchase Agreement - Identix Inc. and Motorola Inc.
IDENTIX INCORPORATED
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is entered into as of
July 6, 2000, by and between Identix Incorporated, a Delaware corporation with
principal offices at 510 N. Pastoria Avenue, Sunnyvale CA 94086 (the "Company"),
and Motorola, Inc., a Delaware corporation with principal offices at 1303 E.
Algonquin Road, Schaumburg, IL 60196 (the "Purchaser").
WHEREAS:
(A) The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission under the Securities Act.
(B) The Board of Directors of the Company has adopted the Certificate of
Designation, Preferences and Rights of Series A Preferred Stock of the Company
(the "Certificate of Designation") in the form attached hereto as Exhibit A,
which among other matters, establishes the rights, preferences and privileges of
the Company's $0.01 par value Series A Preferred Stock (the "Series A
Preferred").
(C) The Purchaser desires to purchase subject to the terms and conditions
stated in this Agreement, (i) the number of shares of the Company's Series A
Preferred determined in accordance with Section 2(b) hereof and (ii) a warrant
(the "Warrant") to purchase the number of shares of the Company's Common Stock,
$0.01 par value per share (the "Common Stock") determined in accordance with
Section 2(b) hereof.
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement:
"Bloomberg" means Bloomberg Financial Markets, or a comparable financial
reporting service of national reputation selected by the Company if Bloomberg
Financial Markets is not, at any given time, reporting the Closing Price of the
Common Stock.
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"Business Day" means any day on which the principal United States
securities exchange or trading market on which the Common Stock is listed or
traded is open for trading.
"Closing" means the closing of the sale and purchase of the Shares
contemplated by this Agreement.
"Closing Date" means the date and time of the Closing.
"Closing Price" means, as of any date, the closing price of the Common
Stock on the principal United States securities exchange or trading market on
which the Common Stock is listed or traded as reported by Bloomberg.
"Common Shares" means the shares of Common Stock issuable upon conversion
of the Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Investment Amount" means $3,750,000, which is the dollar amount to be
invested in the Company at the Closing pursuant to this Agreement by the
Purchaser.
"iTtrust Business" means the iTrust division within the Company (or any
other division, subsidiary, affiliate or other entity in which the iTrust
business or assets are conveyed, transferred or assigned, whether through
reorganization, restructuring or otherwise), which division designs, develops
and sells fully-integrated, secure-transactions management services for the
internet and wireless markets. Such services include user authentication,
validation of content delivery, content control and transaction management, and
variations thereof. As part of its integrated service solution, the iTrust
Business uses, sells, licenses and distributes core biometric finger imaging
hardware, software and algorithmic solutions developed, independently from the
iTrust division, by the IT Security division of the Company. The iTrust Business
has developed no products or technology to date.
"Market Price" means, with respect to any date of determination, the
average Closing Price during the 10 Trading Days immediately prior to such date,
in each case appropriately adjusted to reflect any stock dividend, stock split
or similar transaction during such period.
"Material Adverse Effect" means any material adverse effect on (i) the
ability of the Company to perform its obligations hereunder (including the
issuance of the Shares) or (ii) the business, operations, properties, or
financial condition of the Company and its subsidiaries, taken as a whole.
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"Rights Agreement" means the Information and Registration Rights Agreement
substantially in the form attached as Exhibit C hereto, as amended from time to
time in accordance with the terms thereof.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Shares, the Common Shares, the Warrant and the
Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Series A Preferred Stock to be issued and sold
by the Company and purchased by the Purchaser at the Closing.
"Trading Day" means a Business Day on which at least 10,000 shares of
Common Stock are traded on the principal United States securities exchange or
trading market on which such security is listed or traded as reported by
Bloomberg.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of
the Warrant.
2. PURCHASE AND SALE OF SHARES AND WARRANTS.
a. Generally. Except as otherwise provided in this Section 2 and subject
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to the satisfaction (or waiver) of the conditions set forth in Section 6 and
Section 7 below, the Purchaser shall purchase the number of Shares determined as
provided in this Section 2 and the Warrant, and the Company shall issue and sell
such number of Shares and the Warrant to the Purchaser for the Investment Amount
as provided below.
b. Closing; Number of Shares; Form of Payment; Warrant.
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(i) Subject to the satisfaction (or waiver) of the conditions set
forth in Section 6 and Section 7, the Closing Date shall be at 10:00 a.m.
Pacific Daylight Time on July 7, 2000, or such other date or time as the parties
may mutually agree. The Closing shall occur at the offices of the Company, or at
such other place as the parties may mutually agree.
(ii) On the Closing Date, the Company shall sell and the Purchaser
shall buy the number of Shares equal to the quotient of (A) the Investment
Amount divided by (B) the Market Price on the Closing Date.
(iii) On the Closing Date, the Purchaser shall pay the Company the
Investment Amount in immediately available funds by wire transfer to the
Company, in accordance with the Company's written wiring instructions against
delivery of
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certificates representing the number of Shares being purchased by the Purchaser,
and the Company shall deliver such Shares against delivery of the Investment
Amount by the Purchaser.
(iv) On the Closing Date, in consideration of the investment by the
Purchaser on the Closing Date, the Company shall issue the Purchaser a Warrant
in the form attached hereto as Exhibit B to purchase that number of shares of
Common Stock equal to the quotient of (A) $3,000,000 divided by (B) the Market
Price on the Closing Date.
3. THE PURCHASER'S REPRESENTATIONS AND WARRANTIES.
The Purchaser represents and warrants to the Company as follows:
a. Purchase for Own Account. The Purchaser is purchasing the Securities
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for the Purchaser's own account and not with a present view towards the
distribution thereof. The Purchaser understands that the Purchaser must bear the
economic risk of this investment indefinitely, unless the Securities are
registered pursuant to the Securities Act and any applicable state securities or
blue sky laws or an exemption from such registration is available.
b. Information. The Purchaser has been furnished all materials relating
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to the business, finances and operations of the Company and its subsidiaries and
materials relating to the offer and sale of the Securities which have been
requested by the Purchaser. The Purchaser has been afforded the opportunity to
ask questions of the Company and has received satisfactory answers to any such
inquiries.
c. Governmental Review. The Purchaser understands that no United States
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federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
d. Authorization; Enforcement. The Purchaser has the requisite power and
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authority to enter into and perform its obligations under this Agreement and to
purchase the Securities in accordance with the terms hereof. This Agreement has
been duly and validly authorized, executed and delivered on behalf of the
Purchaser and is a valid and binding agreement of the Purchaser enforceable
against the Purchaser in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other laws affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
e. Transfer or Resale. The Purchaser understands that (i) except as
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provided in the Rights Agreement, the Securities have not been and are not being
registered under
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the Securities Act or any state securities laws, and may not be transferred
unless (A) subsequently registered thereunder, (B) the Purchaser shall have
delivered to the Company an opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Securities to be sold or transferred may be
sold or transferred under an exemption from such registration, (C) sold under
Rule 144 promulgated under the Securities Act (or a successor rule), or (D) sold
or transferred to an affiliate of the Purchaser; and (ii) neither the Company
nor any other person is under any obligation to register such Securities under
the Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder, in each case, other than pursuant to the
Rights Agreement.
f. Legends. The Purchaser understands that the certificates for the
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Shares may bear a restrictive legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the securities
laws of any state of the United States. The securities represented hereby
may not be offered or sold in the absence of an effective registration
statement for the securities under applicable securities laws unless
offered, sold or transferred under an available exemption from the
registration requirements of those laws.
At the request of a holder of the Securities, the legend set forth above
shall be removed and the Company shall issue a certificate without such legend
to such holder if, (a) such Securities have been sold in a transaction
registered under the Securities Act, (b) such holder provides the Company with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Securities have been made in reliance upon an exemption from
registration under the Securities Act or (c) such holder provides the Company
with reasonable assurances that such Securities can be sold under Rule 144(k).
g. Accredited Investor Status. The Purchaser is an "accredited investor"
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as that term is defined in Rule 501(a) of Regulation D. The Purchaser is not
registered as a broker or dealer under Section 15(a) of the Exchange Act or a
member of the National Association of Securities Dealers (the "NASD") as defined
below.
h. Company Reliance. The Purchaser understands that the Securities are
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being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Purchaser's
compliance with, the representations, warranties, agreements, acknowledgments,
and understandings of the
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Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of the Purchaser to acquire the Securities.
i. No Tax Advice Provided By Company. The Purchaser acknowledges and
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agrees that the Company and its advisors have not provided any advice to the
Purchaser regarding the federal, state, local or foreign tax implications of the
acquisition, ownership or disposition of the Securities and that it has been
advised to consult its own tax advisor with respect to such implications.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser as follows:
a. Organization and Qualification. The Company is a corporation duly
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organized and existing under the laws of the jurisdiction in which it is
incorporated, and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where the failure so to qualify would have a
Material Adverse Effect.
b. Authorization; Enforcement. (i) The Company has the requisite
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corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrant and the Rights Agreement, to issue and sell the
Securities in accordance with the terms hereof; (ii) the execution, delivery and
performance of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including, without limitation, the
reservation for issuance and issuance of the Securities) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors or its stockholders is
required; (iii) this Agreement, the Warrant and the Rights Agreement have been
duly executed and delivered by the Company; and (iv) this Agreement, the Warrant
and the Rights Agreement constitute valid and binding obligations of the Company
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other laws affecting creditors' rights and remedies generally and
to general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity). The sale and issuance of the Securities
(including upon conversion of the Shares and/or exercise of the Warrants) will
not be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with.
c. Capitalization. The capitalization of the Company as of the date
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hereof is set forth on Schedule 4(c) attached hereto, including the authorized
capital stock, the number of shares issued and outstanding, the number of shares
issuable and reserved for
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issuance pursuant to the Company's stock option plans, the number of shares
issuable and reserved for issuance pursuant to securities exercisable for, or
convertible into or exchangeable for any shares of capital stock. All of such
outstanding shares of the Company's capital stock have been validly issued,
fully paid and nonassessable. Except as set forth on Schedule 4(c), no shares of
capital stock of the Company (including the Shares) are subject to preemptive
rights or any other similar rights of the stockholders of the Company or any
liens or encumbrances. Except for the Securities and as disclosed in Schedule
4(c), as of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company, or arrangements
by which the Company is or may become bound to issue additional shares of
capital stock of the Company, and (ii) there are no agreements or arrangements
under which the Company is obligated to register the sale of any of its
securities under the Securities Act. Except as set forth on Schedule 4(c), there
are no securities or instruments containing antidilution or similar provisions
that may be triggered by the issuance of the Securities in accordance with the
terms of this Agreement, and the holders of the securities and instruments
listed on such Schedule 4(c) have waived any rights they may have under such
antidilution or similar provisions in connection with the issuance of the
Securities in accordance with the terms of this Agreement. The Company has made
available to the Purchaser true and correct copies of the Company's Certificate
of Incorporation, as in effect on the date hereof, ("Certificate of
Incorporation"), the Certificate of Designation, the Company's By-laws as in
effect on the date hereof (the "By-laws") and all other instruments and
agreements governing securities convertible into or exercisable or exchangeable
for capital stock of the Company, except for stock options granted under any
employee benefit plan or director stock option plan of the Company.
d. Issuance of Securities. The Shares and the Warrant that are being
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purchased by the Purchaser hereunder, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement and the Rights Agreement and under applicable state and federal
securities laws. The Conversion Shares issuable on conversion of the Shares
being purchased under this Agreement have been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Company's
Certificate of Incorporation and Certificate of Designation, will be duly and
validly issued, fully paid, and nonassessable and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement and the
Rights Agreement and under applicable state and federal securities laws.
e. No Conflicts. The execution, delivery and performance of this
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Agreement, the Rights Agreement and the Warrant by the Company, and the
consummation by the
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Company of the transactions contemplated hereby and thereby (including, without
limitation, the reservation for issuance and issuance of the Securities) will
not (i) conflict with or result in a violation of the Certificate of
Incorporation or By-laws or (ii) conflict with, or constitute a default (or an
event which, with notice or lapse of time or both, would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation, Certificate of Designation, By-laws and
other organizational documents and neither the Company nor any of its
subsidiaries are in default (and no event has occurred which, with notice or
lapse of time or both, would put the Company or any of its subsidiaries in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries are a party, except for actual or possible violations,
defaults or rights as would not, individually or in the aggregate, have a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental entity, except
for actual or possible violations, if any, the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as specifically contemplated by this Agreement and as required under the
Securities Act and any applicable state securities laws, the Company is not
required to obtain any consent, approval, authorization or order of, or make any
filing or registration with, any court or governmental agency or any regulatory
or self regulatory agency in order for it to execute, deliver or perform any of
its obligations under this Agreement (including, without limitation, the
issuance and sale of the Securities as provided hereby), in each case in
accordance with the terms hereof or thereof. The Company is not in violation of
the listing requirements of the American Stock Exchange ("AMEX") and does not
reasonably anticipate that the Common Stock will be delisted by AMEX in the
foreseeable future based on its rules (and interpretations thereof) as currently
in effect.
f. SEC Documents; Financial Statements. Since June 30, 1999, the Company
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has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the Exchange Act, and has
filed all registration statements and other documents required to be filed by it
with the SEC pursuant to the Securities Act (all of the foregoing filed since
such date and prior to the date hereof, and financial statements and schedules
thereto and documents incorporated by reference
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therein, being hereinafter referred to herein as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act or the Securities Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Any statements made in any SEC Documents that are or were
required to be updated or amended under applicable law have been so updated or
amended. As of their respective dates, the financial statements of the Company
included in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
subsidiaries as of the dates thereof and the results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal and recurring year-end audit adjustments). Except as set
forth in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such SEC Documents and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under United States generally accepted accounting principles to be
reflected in such SEC Documents, which liabilities and obligations referred to
in clauses (i) and (ii), individually or in the aggregate, would not have a
Material Adverse Effect.
g. Absence of Certain Changes. Except as disclosed in the SEC Documents,
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since March 31, 2000, there has been no change or development which individually
or in the aggregate has had or could reasonably be expected to have a Material
Adverse Effect.
h. Absence of Litigation. Except as disclosed in the SEC Documents,
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there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the Company's knowledge, threatened against or affecting the
Company, or any of its subsidiaries, or any of their directors or officers in
their capacities as such which would reasonably be expected to have a Material
Adverse Effect or which would adversely affect the validity, enforceability of,
or the authority or ability of the Company to perform its obligations under this
Agreement (including the issuance of the Shares and the Warrant), the Rights
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Agreement, the Warrant (including the issuance of the Warrant Shares) or any
other agreement or document delivered pursuant hereto or thereto.
i. Intellectual Property. To the knowledge of the Company, the Company
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owns or is licensed to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted
and as proposed to be conducted. To the knowledge of the Company, the Company
is neither infringing nor in conflict with any other person with respect to any
Intangibles which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect.
Except as set forth on Schedule 4(i), the Company has not received written
notice that it is infringing upon third party Intangibles. The Company has not
entered into any consent, indemnification, forbearance to sue or settlement
agreements with respect to the validity of the Company's ownership or right to
use its Intangibles and, to the knowledge of the Company, there is no basis for
any such claim to be successful. To the knowledge of the Company, its
Intangibles are valid and enforceable, and no registration relating thereto has
lapsed, expired or been abandoned or canceled or is the subject of cancellation
or other adversarial proceedings, and all applications therefor are pending and
in good standing. The Company has complied, in all material respects, with its
contractual obligations relating to the protection of the Intangibles used
pursuant to licenses. Except as set forth on Schedule 4(i), to the Company's
knowledge, no person is infringing on or violating the Intangibles owned or used
by the Company.
j. Foreign Corrupt Practices. Neither the Company, nor to the Company's
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knowledge, any director, officer, agent, employee or other person acting on
behalf of the Company has, in the course of such person's actions for, or on
behalf of, the Company, used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the United States Foreign Corrupt Practices Act of
1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any foreign or domestic government official or
employee.
k. Environmental. To the Company's knowledge, except as disclosed in the
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SEC Documents (i) there is no environmental liability, nor factors likely to
give rise to any environmental liability, affecting any of the properties of the
Company that, individually or in the aggregate, would have a Material Adverse
Effect and (ii) the Company has not violated any environmental law applicable to
it now or previously in
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effect, other than such violations or infringements that, individually or in the
aggregate, have not had and will not have a Material Adverse Effect.
l. Title. The Company has good title in fee simple to all real property
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and good title to all personal property owned by it which is material to its
business, free and clear of all liens, encumbrances and defects except for such
defects in title that, individually or in the aggregate, could not have a
Material Adverse Effect. Any real property and facilities held under lease by
the Company is held by the Company under valid, subsisting and enforceable
leases with such exceptions which have not had and will not have a Material
Adverse Effect.
m. Insurance. The Company maintains such insurance relating to its
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business, operations, assets, directors and officers as is reasonably
appropriate to its business, assets and operations, in such amounts and against
such risks as are customarily carried and insured against by owners of
comparable businesses, assets and operations, and such insurance coverage will
be continued in full force and effect to and including the Closing Date other
than those insurance coverages in respect of which the failure to continue in
full force and effect could not reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect.
n. Disclosure. All information relating to or concerning the Company set
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forth in this Agreement and the schedules hereto is true and correct in all
material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or its
businesses, properties, operations, prospects or financial conditions, which has
not been publicly disclosed but, under applicable law, rule or regulation, would
be required to be disclosed by the Company in a registration statement filed on
the date hereof by the Company under the Securities Act with respect to a
primary issuance of the Company's securities.
o. Acknowledgment Regarding the Purchaser's Purchase of the Securities.
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The Company acknowledges and agrees that the Purchaser is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement or the transactions contemplated hereby, and the
relationship between the Company and the Purchaser is "arms length" and that any
statement made by the Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to the Purchaser's purchase
of Securities and has not been relied upon by the Company, its officers or
directors in any way. The Company further represents to the Purchaser that the
Company's decision to enter into this Agreement has been based solely on an
independent evaluation by the Company and its representatives.
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p. No Brokers. The Company has not engaged any person to which or to
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whom brokerage commissions, finder's fees, financial advisory fees or similar
payments are or will become due in connection with this Agreement or the
transactions contemplated.
q. Tax Status. The Company and each of its subsidiaries has made or
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filed (or has sought extensions for) all material federal, state and local
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company or the applicable subsidiary has set aside on its books provisions
adequate for the payment of all unpaid and unreported taxes) and has paid all
taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provisions adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes claimed to be due by the taxing authority of any jurisdiction. The
Company has not executed a waiver with respect to any statute of limitations
relating to the assessment or collection of any federal, state or local tax.
None of the Company's tax returns is being audited by any taxing authority.
r. No General Solicitation. Neither the Company nor any person
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participating on the Company's behalf in the transactions contemplated hereby
has conducted any "general solicitation" or "general advertising" as such terms
are used in Regulation D, with respect to any of the Securities being offered
hereby.
s. No Integrated Offering. Neither the Company, nor any of its
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affiliates, nor any person acting on its or their behalf, has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
t. Form S-3 Eligibility. The Company is currently eligible to register
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the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. To the Company's knowledge, after reasonable investigation,
there exist no facts or circumstances (including without limitation any required
approvals or waivers of any circumstances that may delay or prevent the
obtaining of accountant's consents) that would prohibit or delay the preparation
and filing of a registration statement on Form S-3 with respect to the
Registrable Securities (as defined in the Rights Agreement).
u. Key Employees. The Company acknowledges that each of James P.
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Scullion, Grant Evans, Yury Shapiro and Yuri Khidekel (each, a "Key Employee")
is a full-time employee of the Company. In the event that any Key Employee's
employment
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is terminated for any reason, the Company will use commercially reasonable
efforts to find a replacement for such Key Employee, with substantially similar
qualifications. Since April 26, 1999 each employee, officer, and director of the
Company and each consultant to the Company has executed a Proprietary
Information and Inventions Agreement substantially in the form or forms which
have been delivered to counsel for the Purchaser. No current employee, officer,
director, or consultant has excluded works or inventions made prior to his or
her employment or consulting relationship with the Company from his or her
assignment of inventions pursuant to such person's Proprietary Information and
Inventions Agreement.
5. COVENANTS.
a. Reasonable Commercial Efforts. The parties shall use their reasonable
-----------------------------
commercial efforts timely to satisfy each of the conditions set forth in Section
6 and Section 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to the
------
Securities as required under Regulation D and to provide a copy thereof to each
Purchaser promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Purchaser pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States or obtain exemption therefrom, and shall provide evidence of any
such action so taken to the Purchaser on or prior to the Closing Date.
c. Reporting Status. So long as the Purchaser beneficially owns any
----------------
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and shall not terminate its status as an
issuer required to file reports under the Exchange Act even if the Exchange Act
or the rules and regulations thereunder would permit such termination. The
Company's obligation in this Section 5(c) will terminate in the event of a
merger, consolidation or sale of all or substantially all of the Company's
assets, wherein the Company is not the surviving or successor entity.
d. Use of Proceeds. The Company shall use the net proceeds from the sale
---------------
of the Shares solely for the research, design, development, marketing and
manufacture of product and service solutions designed, developed and
manufactured by the iTrust Business. The net proceeds from the sale of the
Shares shall not be used by the Company for any other purpose or to retire or
redeem outstanding debt or equity, make any payments to shareholders, directors,
officers, employees or affiliates (other than reasonable salaries and other
reasonable compensation related solely to the iTrust Business in the ordinary
course of its business), or make any other distribution (by way of dividend or
otherwise).
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e. Reservation of Securities. The Company has and shall at all times
-------------------------
have authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion into Common Stock of the
Shares and exercise of the Warrant. The Company shall not reduce the number of
shares of Common Stock reserved for issuance on conversion of the Shares or
exercise of the Warrant without the written consent of the Purchasers.
f. Listing. Within 30 days following the Closing Date, the Company shall
-------
have secured the listing of the Conversion and the Warrant Shares, upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or quoted (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all shares of Common Stock from time to time
issuable thereunder. The Company will use commercially reasonable efforts to
continue the listing and trading of its Common Stock on the AMEX, the New York
Stock Exchange ("NYSE") or the Nasdaq National Market ("NASDAQ") and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws, rules, and regulations of the AMEX.
g. No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf, shall, directly or
indirectly, make any offers or sales of any security or solicit any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior or future offering of securities
of the Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
h. Board Seat. The Purchaser shall have the right to designate, within 30
----------
days following the Closing Date, one member of the Company's Board of Directors
to fill an existing vacancy (the "Board Designation Right"). In the event such
person is no longer employed by or in a business relationship or affiliation
with the Purchaser or takes another position within the Purchaser's organization
which makes his or her continuing representation undesirable in the view of the
Purchaser, the Purchaser shall be permitted to designate a new director. The
person the Purchaser shall choose to be the designated director (if any) shall
be nominated for re-election to the Corporation's Board of Directors at the
Company's 2000 Annual Meeting of Stockholders and thereafter until otherwise
decided by the Purchaser. If the Purchaser determines not to exercise its Board
Designation Right, then for 30 days following the next occurring vacancy on the
Board of Directors, the Purchaser shall have the right to designate one member
to the Company's Board of Directors on the terms described above. At any time
when a designee of the Purchaser does not hold office as a director of the
Company, the Purchaser shall be entitled to appoint one board observer to the
Company's Board of Directors solely for the purpose of monitoring all matters
relating to the iTrust Business. Notwithstanding anything to the contrary in the
governing documents of the Company, any board observer appointed by the
Purchaser shall be entitled to attend all iTrust Business portions of meetings
of the Board of Directors of the Company, in a non-voting capacity, and the
Company shall provide such board observer with notice of any meetings and such
other information related to the iTrust Business with respect to such meetings,
and any meetings of any iTrust Business committees established by the Company's
Board of Directors, as are delivered to the directors of the Company, including
copies of all written consents. The rights to designate a member to the Board of
Directors, to receive re-nominations to the Board of Directors or to appoint a
board observer as provided herein shall expire and be of no further force or
effect if the Purchaser and its affiliates shall cease to hold a majority of the
originally issued Shares.
14
<PAGE>
1. Nature of iTrust Business. So long as the Purchaser maintains
-------------------------
ownership of at least 33% of its original investment (on the Purchaser's fully
diluted basis) in the Company, the Company will not be permitted to materially
alter the business of the iTrust Business without prior written notice to the
Purchaser. The Company will be required to submit a business plan for the iTrust
Business ("Business Plan") to the Purchaser on no less than an annual basis.
Each annual Business Plan shall be revised to reflect material changes in the
strategic plan of the iTrust Business and shall be appropriately amended from
previous versions to update changes in financial
assumptions and results of the iTrust Business. Each annual Business Plan shall
require the written consent of the Purchaser prior to its finalization and
implementation, which consent shall not be unreasonably withheld. Subject to the
first sentence of this Section 5(i), the following actions by the Company in
regard to the iTrust Business will require at least ten (10) days' the prior
written notice to the Purchaser:
(i) material changes to the fundamental business of the iTrust
Business, including, but not limited to a termination of the iTrust Business;
provided, however, that a termination of the iTrust business shall require the
prior written consent of the Purchaser, which consent shall not be unreasonably
withheld;
(ii) material changes to then existing Business Plan;
(iii) except for the incurrence of indebtedness under the Company's
existing lines of credit (which lines may be secured in part by assets related
to the iTrust Business), the incurrence any indebtedness which is secured by
assets used or in any way related to the iTrust Business or payment for which
would be funded by proceeds derived from the iTrust Business;
(iv) the reorganization of the iTrust Business into another legal
entity, such as a corporation or limited liability company or any other
fundamental change in the structure of the iTrust Business as a division of the
Company; provided, however, that any reorganization of the iTrust business into
a new legal entity shall require the prior written consent of the Purchaser,
which consent shall not be unreasonably withheld;
(v) the sale, license or other disposal of any assets used in, or in
any way related to, the iTrust Business, in each case outside the ordinary
course of business including, but not limited to, the sale or license of its
intellectual property and/or technology outside the ordinary course of business
used or in any way related to the iTrust Business; provided, however, that any
such action shall require the prior written consent of the Purchaser, which
consent shall not be unreasonably withheld;
15
<PAGE>
(vi) the entering into joint ventures or partnerships in which the
Purchaser has not been presented the first opportunity to participate on at
least as favorable terms and conditions as proposed to any other party; and
(vii) the creation of material liens upon the assets and properties
of the Company used or in any way related to the iTrust Business (other than
those liens currently existing or other than equipment leasing obligations
incurred in the ordinary course of business) individually, in the aggregate or
in a series of related transactions in excess of $2,000,000.
j. The Purchaser and the Company shall use reasonable commercial efforts
to finalize within 45 days after the Closing in a manner that is mutually
satisfactory to the parties: (a) a Master OEM agreement between the Purchaser
and the Company containing terms described on Exhibit E hereto, and (b) an
amendment ("Amendment") to the Sensor Product Design Services and Manufacturing
Agreement dated April 9, 1999 between Identicator Technology, Inc. (a wholly
owned subsidiary of the Company). The parties will also discuss other potential
agreements between the parties, each such agreement identifying specific market
opportunities and other related agreements as may be necessary or appropriate
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell Shares and
Warrants to the Purchaser at the Closing hereunder is subject to the
satisfaction, at or before the Closing Date, of each of the following conditions
(provided, however, that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion):
a. The Purchaser shall have executed the signature page to this Agreement
and delivered the same to the Company.
b. The Purchaser shall have delivered to the Company the Investment
Amount in accordance with Section 2(b) above.
c. The representations and warranties of the Purchaser shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date, which representations and warranties shall be true
and correct as of such date), and the Purchaser shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to the Closing Date.
16
<PAGE>
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
e. Company and the Purchaser have entered into the Rights Agreement.
7. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE SHARES AND WARRANTS.
The obligation of the Purchaser hereunder to purchase Shares and Warrants
to be purchased by it hereunder is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions (provided that these
conditions are for the Purchaser's sole benefit and may be waived by the
Purchaser at any time in the Purchaser's sole discretion):
a. The Company shall have executed the signature pages to this Agreement
and delivered the same to the Purchaser.
b. The Company shall have delivered to the Purchaser certificates
representing the number of Shares and the Warrant as provided in Section 2(b)
above.
c. Trading in the Common Stock (or on AMEX generally) shall not have been
suspended or be under threat of suspension by the SEC or AMEX.
d. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date, which representations and warranties shall be true
and correct as of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Purchaser shall have received a
certificate, executed on behalf of the Company by its Chief Financial Officer,
dated as of the Closing Date, to the foregoing effect and attaching true and
correct copies of the resolutions adopted by the Company's Board of Directors
authorizing the execution, delivery and performance by the Company of its
obligations under this Agreement.
e. No statute, rule, regulation, executive order, decree, ruling,
injunction, action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the
17
<PAGE>
matters contemplated hereby which questions the validity of, or challenges or
prohibits the consummation of, any of the transactions contemplated by this
Agreement.
f. The Purchaser shall have received an opinion of counsel to the
Company, dated as of the Closing Date, in substantially the form of Exhibit D
attached hereto.
g. From the date of this Agreement through the Closing Date, there shall
not have occurred any Material Adverse Effect.
h. The Company and the Purchaser have entered into the Rights Agreement.
i. The Company shall have filed, and the Delaware Secretary of State
shall have accepted, the Certificate of Designation with respect to the Series A
Preferred, in substantially the form of Exhibit A attached hereto.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
----------------------------
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. All parties hereto
irrevocably consent to the jurisdiction of the United States federal courts and
the state courts located in Delaware in any suit or proceeding based on or
arising under this Agreement and irrevocably agree that all claims in respect of
such suit or proceeding shall be determined in such courts. All parties hereto
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. All parties hereto further agrees that service of
process upon such party mailed by first class mail to the address set forth in
Section 9(f) shall be deemed in every respect effective service of process upon
such party in any such suit or proceeding. Nothing herein shall affect the right
of any party hereto to serve process in any other manner permitted by law. All
parties hereto agree that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof.
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<PAGE>
c. Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments; Waiver. This Agreement and the
------------------------------------
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the Company and by the Purchaser. Any waiver
by the Purchaser, on the one hand, or the Company, on the other hand, of a
breach of any provision of this Agreement shall not operate as or be construed
to be a waiver of any other breach of such provision of or any breach of any
other provision of this Agreement. The failure of the Purchaser, on the one
hand, or the Company, on the other hand to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
f. Notices. Any notices required or permitted to be given under the
-------
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt, if delivered personally or by courier or confirmed
telecopy (such confirmation being conclusive proof of receipt or delivery), in
each case addressed to a party. The addresses for such communications shall be:
If to the Company:
Identix Incorporated
510 N. Pastoria Avenue
Sunnyvale, CA 94086
Telephone No.: (408) 731-2000
Facsimile No.: (408) 739-0178
Attention: Mark S. Molina, Vice President, General Counsel and
Secretary
19
<PAGE>
With a copy to:
Richard A. Peers
Heller Ehrman White & McAuliffe LLP
525 University Avenue, Suite 1100
Palo Alto, CA 94301-1900
Telephone No.: (650) 324-7000
Facsimile No.: (650) 324-0638
If to the Purchaser:
Motorola, Inc.
1303 E. Algonquin Road
Schaumburg, IL 60196
Telephone: (847) 435-3051
Facsimile: (847) 538 2250
Attention: Jim O'Connor, Director, Motorola Ventures
With a copy to:
Motorola Law Department
1303 E. Algonquin Road
Schaumburg, IL 60196
Telephone:
Facsimile:
Attention:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603
Telephone: (312) 782-0600
Facsimile: (312) 701-7711
Attention: Edward S. Best, Esq.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and permitted assigns.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser, unless such
assignment is made in connection with an asset sale, stock sale, merger,
consolidation or other transaction in which the stockholders of the Company
immediately prior to such asset sale, stock sale, merger, consolidation or other
transaction own less than 50% of the voting stock of the surviving or acquiring
20
<PAGE>
entity. The Purchaser may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit
-------------------------
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by any other
person.
i. Survival. The representations and warranties of the Purchasers set
--------
forth in Section 3 and of the Company set forth in Section 4 shall survive for
one year following the Closing Date, notwithstanding any due diligence
investigation conducted by or on behalf of the Company or the Purchaser,
respectively. Moreover, none of the representations and warranties made by the
Company herein shall act as a waiver of any rights or remedies the Purchaser may
have under applicable federal or state securities laws.
j. Publicity. The Company and the Purchaser shall have the right to
---------
review and comment upon the issuance of any press releases, or the filing of any
SEC, AMEX or NASD filings, or any other public statements with respect to the
transactions contemplated hereby. The Purchaser shall be provided documents to
review at least 48 hours prior to the filing or other issuance thereof except
that draft press releases shall be provided to the Purchaser at least 24 hours
prior to issuance.
k. Further Assurances. Each party shall do and perform, or cause to be
------------------
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing Date shall not have
-----------
occurred on or before July 15, 2000, unless the parties agree otherwise in
writing, this Agreement shall terminate at the close of business on such date.
Notwithstanding any termination of this Agreement, any party not in breach of
this Agreement shall preserve all rights and remedies it may have against
another party hereto for a breach of this Agreement prior to or relating to the
termination hereof; provided, however, that IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER FOR ANY INDIRECT, SPECULATIVE, SPECIAL OR CONSEQUENTIAL
DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, IN CONNECTION WITH
PERFORMANCE UNDER THIS AGREEMENT. NEITHER PARTY WILL HAVE ANY LIABILITY TO THE
OTHER BASED ON FAILURE TO ULTIMATELY CONSUMMATE THE TRANSACTIONS CONTEMPLATED
HEREIN.
m. Joint Participation in Drafting. Each party to this Agreement has
-------------------------------
participated in the negotiation and drafting of this Agreement. As such, the
language
21
<PAGE>
used herein and therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement.
n. Fees and Expenses. Each party shall bear, whether or not the
-----------------
transactions contemplated herein are consummated, its respective fees and
expenses, including without limitation attorneys' fees, auditors' fees,
investment banker fees and similar costs.
22
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
IDENTIX INCORPORATED MOTOROLA, INC.
By /s/ James P. Scullion By /s/ W.E. Holtsburg
------------------------------ ----------------------------
Name James P. Scullion Name W.E. Holtsburg
Title President Title Vice President
23
<PAGE>
SCHEDULE 4 (c) -- CAPTALIZATION TABLE
24
<PAGE>
SCHEDULE 4 (i) - NOTICES REGARDING INTANGIBLES
Digital Persona (DP) is marketing a finger print reader that contains
microprisms beneath its platen. Identix believes that the product may infringe
certain patent claims belonging to Identix such as those in U.S. Patents No.
5,732,148 and 6,069,969.
DP owns an issued patent (U.S. Patent No. 5,796,858) claiming substantially
the same invention as a pending Identix patent application. Additionally,
certain claims of the DP patent appear to be invalid in view of the above-
referenced Identix patents. DP may contend that a current Identix fingerprint
reader may infringe certain claims of the DP patent, but Identix is considering
filing an interference proceeding in the Patent & Trademark Office. As
Identix's pending patent application claims an invention that occurred prior to
the filing date of the DP patent, Identix believes that is well-positioned to
prevail in such a proceeding. If Identix prevails, Identix will obtain rights
to certain of the broader claims of the DP patent.
In a letter from DP's trademark counsel dated May 11, 2000, DP objected to
Identix's use of the phrase "one touch" in marketing materials for certain of
Identix's software products. DP owns U.S. trademark application no. 75/850853
ONE TOUCH. Identix responded that its use of "one touch" as a descriptive
phrase of elements of its products does not violate any rights alleged to be
owned by DP. In a letter dated May 30, 2000 from DP's trademark counsel, DP
informed Identix that it does not intend to take action based on Identix's
descriptive use of the phrase "one touch."
25
<PAGE>
EXHIBIT A - CERTIFICATE OF DESIGNATION
<PAGE>
EXHIBIT B - WARRANT
27
<PAGE>
EXHIBIT E - MASTER OEM AGREEMENT TERMS
The Master OEM/DEVELOPMENT Agreement for markets using biometric
fingerprint technology between Motorola and the Company shall include the
following terms and conditions, along with all the additional provisions that
are customary and normal in agreements for such transaction types. Terms not
otherwise defined in this Annex shall have the same meaning as in the Letter of
Intent dated June 10, 2000 between the parties thereto.
1. Term.
----
Five (5) year initial term (the "Initial Term"), with automatic two (2)
year renewals (each a "Renewal Term"), until and unless either party provides
notice to the other of their intent not to renew no later than ninety (90) days
prior to the end of the Initial Term or a Renewal Term (the Initial Term and all
Renewal Terms defined as the "Term"). The provisions of such MASTER
OEM/DEVELOPMENT Agreement which shall survive the expiration or termination of
such MASTER OEM/DEVELOPMENT Agreement shall be discussed by the Parties at time
of definitive agreement.
2. Sale of Services, Sale/License of Hardware Products and License of
------------------------------------------------------------------
Software.
--------
a. Services, Hardware Products, Software. During the Term of the Master
-------------------------------------
OEM Agreement, the Company shall offer to sell to Motorola, on terms and
conditions set forth in the MASTER OEM/DEVELOPMENT Agreement, all services
developed and sold by the Company in support of its Hardware Products (as
defined below) and Software (as defined below, such services hereinafter
referred to as "Services") and offer to sell all biometric finger imaging
verification hardware products ("Hardware Products") and offer to license all
biometric imaging verification software algorithms for client devices
(Software") that are designed, developed and manufactured by the Company from
time to time; provided, however, that Motorola shall be permitted to resell
Hardware Products and sublicense Software to third parties only after the
Hardware Products and Software are integrated and embedded into Motorola
products manufactured by or for Motorola (the "Motorola Devices"). Motorola
shall also be permitted to resell or lease the Services (on terms agreed to by
the parties) for use with Motorola Devices. Motorola and the Company shall
also discuss, in good faith and in the spirit of mutual cooperation,
opportunities for Motorola to purchase and/or license, certain of the Company's
biometric imaging products and software for use, integration and
commercialization by Motorola with Motorola Devices.
b. License. The Company agrees to grant Motorola a non-exclusive, non-
-------
assignable, worldwide, license under intellectual property rights of the Company
under reasonable royalty terms to be agreed upon between the parties to use the
biometric
28
<PAGE>
fingerprint Hardware Products and Software developed by the Company to develop
and have developed, reproduce and have reproduced, prepare and have prepared
derivative works of Hardware Products and Software solely for the purpose of
optimizing the functionality of Motorola Devices ("Motorola Derivative Works"),
and to make, use, sell, have made, offer to sell, , distribute and have
distributed such Motorola Derivative Works for use in or for operation with,
Motorola Devices. The parties will mutually agree as to what portions of the
Company's technology (i.e. source code, circuit designs, schematics) that the
Company will make available to Motorola to exercise the foregoing license.
Motorola shall not reverse engineer Hardware Products or Software or decompile
or otherwise dissemble any Software. The parties further agree that the
Company's pre-existing technology and solely developed derivative works shall be
solely owned by the Company; Motorola's pre-existing technology and solely
developed derivative works shall be solely owned by Motorola; and jointly
developed technology and derivative works shall be jointly owned, in each case
with duties to account and patent filing rights to be as mutually agreed in
writing by the parties. It is the intent of the parties to discuss the terms and
conditions under which Motorola would grant the Company a license, under
reasonable royalty terms to be agreed between the parties, to develop, have
developed, reproduce and have reproduced, prepare and have prepared derivative
works of Motorola Derivative Works and use, sell and commercialize such
derivative works and Motorola Derivative Works.
3. Rights of First Negotiation; First to Market Rights.
---------------------------------------------------
The Company shall not license/sell existing or new Software and/or Hardware
Products to any third party for Biometric Service Capable applications
-------------------------
("Company Products") unless and until Motorola is afforded first rights of
negotiation pursuant to this Section 3; provided, however, that the foregoing
limitation shall not restrict the Company from licensing or selling Company
Products to third parties who are addressing markets, solutions or applications
that Motorola is not then currently addressing in a material manner with
commercially available products or devices. Motorola acknowledges that the
Company is currently selling/licensing its Hardware Products and Software into
the information technology marketplace through OEM and other channel partners
and this Section 3 is not intended to, and shall not, restrict the Company's
ability to continue to market, sell and license Hardware Products and Software
without restriction into these markets and channels. The terms Biometric
---------
Service, and Biometric Service Capable are understood to mean Company Products
--------------------------------------
that provide end-to-end biometric verification, authentication, content control
or transaction management services, which services are delivered by the Company
or its designee by way of a server or like product owned and/or licensed by or
to Company. Any market lead the Company provides Motorola shall be governed by
the definitive agreement between the parties containing those terms and
conditions negotiated by the parties. If Motorola does not confirm its intent
to enter into negotiations with the Company within 10 days from the date of
initial offer by the
29
<PAGE>
Company for a particular launch of Motorola Devices using Company Products, the
Company shall be free to license/sell such Company Products to third parties.
Company acknowledges that Company will not offer Motorola any new Company
Product under this Section 3 until such time as the Company has a functioning
prototype for such product. If Motorola confirms its intent to negotiate an
agreement to launch Motorola Devices using Company Products, the parties shall
use reasonable commercial efforts, in the spirit of good faith and mutual
cooperation, to negotiate and sign a definitive agreement respecting the terms
of purchase and license by Motorola of Company Products for such launch within
45 days of the date of the Company's initial offer; provided, however, that if
the definitive agreement respecting such Company Products is not signed by the
parties on or before that date which is 60 days after the Company's initial
offer, the Company shall be free to license the relevant Company Products to
third parties. The definitive agreement respecting the launch of Motorola
Devices using Company Products shall include a restriction that the Company may
not license/sell the Company Products to certain agreed upon parties for
Biometric Service Capable applications for a period of six months after the date
of qualification of the relevant Company Products by Motorola (as defined in the
definitive agreement); provided, however, that detailed milestones for
qualification shall be identified in the definitive agreement, and the Company
shall be free to license Company Products to third parties prior to the end of
any relevant six month period if qualification milestones are not met due to the
actions or inaction of Motorola. The Company's rights and limitations to enter
into discussions with such third parties regarding the potential license/sale of
Company Products prior to the end of any applicable six month first to market
period shall be defined in the definitive agreement.
4. Minimum Purchase Requirements.
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Motorola acknowledges that any grant of first to market rights by Company
shall require some commitment by Motorola to minimum annual purchase
requirements. The scope and duration of such a commitment shall be as
negotiated by the parties from time to time.
5. Pricing; Most Favored Pricing.
-----------------------------
Pricing to Motorola for the Services, Hardware Products and Software shall
be as agreed to between the parties from time to time. Should the parties reach
agreement with respect to first to market rights that permits sales of the
Services and Hardware Products and sublicenses of Software to third parties, the
Company agrees to provide pricing to Motorola which is no less favorable than
the pricing offered to any other customer of Company purchasing
Services/Hardware Products, or licensing Software, in similar or lesser volumes
as Motorola.
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6. Manufacturing Rights.
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Motorola shall be the sole manufacturer of the Company's proprietary DFR
400 and later version fingerprint readers for use by and incorporation into
Motorola Devices (and other identified products manufactured by or for
Motorola), in each case on terms and conditions to be negotiated to the mutual
satisfaction of the parties. Motorola shall have a right of first refusal to
manufacture, on terms mutually satisfactory to the parties, the DFR 400 and
later version fingerprint readers for incorporation in third-party products.
7. Joint Development.
-----------------
Motorola and the Company may collaborate with each other in the development
of new Hardware Products for wireless applications and markets on terms and
conditions mutually satisfactory to both parties. The terms of ownership of any
jointly developed new Hardware Products will be included in the OEM/Development
Agreement.
8. Royalties/Revenue Sharing.
-------------------------
Royalties payable by Motorola to the Company and service and/or sales
proceeds received by Company from Biometric Services which Company will in part
share with Motorola shall be as mutually agreed between the parties in the
definitive agreement. The principal terms of the royalties and revenue share
to be addressed in the definitive agreement are as follows:
(A) Motorola Devices which are not Biometric Service Capable ("Non-
Biometric Service Capable Motorola Devices"). A reasonable per unit royalty will
be due to the Company from Motorola for each Company Product ordered by Motorola
for use, application or distribution with Non-Biometric Service Capable Motorola
Devices. The royalty rate for such devices shall conform to a ramp-down royalty
schedule as a function of volume.
(B) Motorola Devices incorporating Hardware Products and/or Software that
is Biometric Service Capable ("Biometric Service Capable Motorola Devices"). A
reasonable per unit royalty will be due Company from Motorola for each Company
Product ordered by Motorola for use, application or distribution with Biometric
Service Capable Motorola Devices. The royalty rate for such devices shall
conform to a ramp-down royalty schedule as a function of volume. It is the
intent of the Parties that the royalty rate for the Biometric Service Capable
Motorola Device will be lower than the royalty rate for the Non-Biometric
Service Capable Motorola Device. Company will pay Motorola a royalty rebate
equal to the royalty paid by Motorola to Company for a Biometric Service Capable
Motorola Device if said device is activated by a Biometric Service (and such
activation remains in place for a period of time agreed by the parties)
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whether licensed by Company to a Company customer and/or operated by Company or
Company's customer. Company and Motorola will discuss in good faith and the
spirit of mutual cooperation the obligation on behalf of the Company to
reimburse Motorola for the reasonable, average Motorola internal transfer price
of the Company Products (e.g. the Biometric Fingerprint Reader) that are
integrated into the activated Biometric Service Capable Motorola Device. Company
will pay Motorola fifteen percent (15%) of the net sale price and/or service
fees that Company receives from each Biometric Service providing services to
Biometric Service Capable Motorola Devices.
During negotiations of the Master OEM/Development Agreement the parties
will work cooperatively together to define a plan to jointly approach, among
other entities, wireless and internet service operators and other systems
providers respecting the purchase or lease and use by such operators and
providers of the Services. Motorola shall work diligently and in the spirit of
partnership, good faith and cooperation with the Company to sign up such
operators and providers for the purchase or lease of Services as promptly as
practicable following execution of the definitive OEM/Development Agreement
between the parties.
10. Commitment of Company Employees.
-------------------------------
The Company agrees to commit a reasonable number of full-time employees,
including, but not limited to, the Key Employees, to the iTrust Business during
the term of the OEM/Development Agreement.
11. Warranty, Payment, Other Terms.
------------------------------
Other terms of the OEM/Development Agreement, including but not limited to
warranty provisions, terms of payment of amounts due under the OEM/Development
Agreement and indemnifications, shall be negotiated between the parties.
Motorola shall have a preferred vendor position for ImageMOS and other
integrated circuits to be designed in, sourced or manufactured by the Company.
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