Agreement and Plan of Merger - XImage Corp. and ImageWare Software Inc.
AGREEMENT AND PLAN OF MERGER
DATED
NOVEMBER 12,1997
STATUTORY REVERSE TRAINGULAR MERGER
BY AN AMONG
XIMAGE CORPORATION
AND
IMAGEWARE SOFTWARE, INC. AND
IMAGEWARE ACQUISITION, INC.
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Merger Agreement") is entered
into as of Novermber 12, 1997, by and among XImage Corporation, a California
corporation ("XImage"), ImageWare Software, Inc., a California corporation
("ImageWare"), and ImageWare Acquisition, Inc., a California corporation
("IAI").
PLAN OF MERGER
ImageWare proposes to acquire XImage in a statutory reverse triangular
merger wherein (1) IAI will be merged with and into XImage; (2) IAI's
corporate existence will cease and disappear; (3) the capital stock of XImage
will be canceled in exchange for $2,000,000 in cash, subject to adjustment,
together with Warrants to purchase 325,000 shares of ImageWare Common Stock;
and (4) the Common Stock of IAI, owned by ImageWare, will be converted into
Common Stock of XImage and XImage will become a wholly-owned subsidairy of
ImageWare (the "Merger").
MERGER AGREEMENT
Now, Therefore, in consideration of the mutual agreements contained
herein, and subject to the terms and conditions hereof, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
SECTION 1-THE MERGER
SECTION 1.1 MERGER OF IAI INTO XIMAGE. Upon the terms and subject to
the conditions set forth in this Merger Agreement, and in accordance with the
California General Corporation Law ("California GCL"), at the Effective Time
of the Merger (defined in Section 1.2), IAI shall be merged with and into
Ximage, the seperate existence of IAI shall thereupon cease. XImage shall
continue its corporate existence as the surviving corporation of the Merger
as a wholly-owned subsidiary of ImageWare under the laws of the State of
California under the name "XImage Corporation" and XImage shall succeed to
and assume all the rights and obligations of IAI in accordance with the
California GCL.
SECTION 1.2 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Merger Agreement, as soon as practicable after the Closing Date (defined
in Section 3.1), the parties shall file with the Secretary of State of the
State of California, a short form Agreement of Merger together with Officers'
Certificates from the Constituent Corporations ("Merger Documents"), executed
in accordance with Section 1103 of the California GCL, and shall make all
other filings or recordings required under the California GCL. The Merger
shall become effective at such
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time as the Merger Documents are duly filed with the California Secretary of
State ("Effective Time of the Merger").
Section 1.3 Effects of the Merger. At the Effective Time of the Merger:
(a) Merger of IAI with and into XImage. IAI shall be merged
with and into XImage, which shall be the surviving corporation, and all of
the assets of IAI shall become the property of XImage as the surviving
corporation of the Merger, subject to the liabilities of IAI as of the
Effective Time of the Merger, and the seperate corporate existence of IAI
shall cease.
(b) Articles of Incorporation. The Articles of Incorporation
of XImage, as in effect immediately prior to the Effective Time of the
Merger, shall be the Articles of Incorporation of the surviving corporation.
(c) By-Laws. The By-Laws of XImage, as in effective
immediately prior to the Effective Time of the Merger, shall be the By-Laws
of the surviving corporation.
(d) Directors. The directors of IAI immediately prior to the
Effective Time of the Merger (S., James Miller, Jr. and Wayne Wetherell)
shall be the directors of XImage, such directors to hold office until the
next annual Shareholders' meeting of XImage or until their successors are
elected and duly qualified in accordance with the terms of the Articles and
Bylaws of XImage.
(e) Officers. The officers of XImage commencing at the
Effective Time of the Merger shall be S. James Miller Jr., President, and
Wayne Wetherell, Chief Financial Officer and Secretary, such officers to hold
office at the pleasure of the board of directors of XImage.
(f) Effects of Merger. The Merger shall have the effects set
forth in Section 1107 of the California GCL.
Section 2 -- Effect of Merger on the Capital Stock of the Constituent
Corporations
Section 2.1 Conversion of XImage Common Stock
(a) Certain Definitions. the following definitions relate to
terms used in this Section 2 as well as other sections in this Merger
Agreement.
(i) "Merger Warrants" means warrants to purchase 325,000
shares of ImageWare Common Stock ("325,000 Merger Warrants") at any time
during the four year period commencing on the Closing of the Merger, at a
per share price equal to the same per share price at which ImageWare sells
its Common Stock to obtain the funds necessary to consummate the Merger (or
the equivalent per share price if other equity securities, e.g., preferred
stock, are sold to obtain the funds necessary to consummate the Merger). Such
Merger Warrant price will
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be memorialized in an agreement to be entered into by ImageWare and XImage
prior to the Closing.
(ii) "Cash Merger Value" means $2,000,000 increased or decreased
based upon the amount of XImage's Net Worth at October 31, 1997, as follows:
In the event that the Net Worth of XImage at October 31, 1997 (determined in
accordance with subparagraph (A) below) is greater than - $1,225,000 or less
than - $1,275,000, then the Cash Merger Value shall be $2,000,000 increased
or decreased by the difference between the Net Worth so computed and
$1,250,000. In the event that the Net Worth of Ximage at October 31, 1997 so
determined is between - $1,225,000 and -$1,275,000, then no adjustment will
be made in the amount of the Cash Merger VAlue. For example, if the Net Worth
of XImage at October 31, 1997 is computed to be -$1,100,000, then the Cash
Merger Value shall be $2,150,000 ($2,000,000 plus $150,000). Similarly, if
the Net Worth of XImage at October 31, 1997 is computed to be -$1,230,000),
then the Cash Merger Value shall be $2,000,000 (no adjustment).
(A) A calculation of the Net Worth of XImage at October 31,
1997 shall be made on or before Wednesday November 12, 1997 by XImage (who
may use calculation) and upon completion shall immediately be provided to
ImageWare for review and approval. On or before Monday November 17, 1997,
ImageWare shall advise XImage in writing that if either approves or
disapproves such Net Worth calculation, provided that if ImageWare fails to
so advise XImage, then it shall be deemed to have disapproved such Net Worth
computation. On or before Wednesday November 19, 1997, ImageWare and XImage
shall meet to resolve their differences regarding such Net Worth calculation
and if they are unable to agree upon the amount of the Net Worth of XImage at
October 31, 1997, then the calculation of the Net Worth of XImage, together
with ImageWare's notice of the items in the computation with which it
disagrees, shall be submitted to a mutually acceptable independent public
accounting firm (the "CPA") who, at ImageWare's cost, shall determine the Net
Worth of XImage at October 31, 1997. The determination of the Net Worth of
XImage so made by the CPA shall be final and binding upon XImage and
ImageWare. The CPA shall be directed to make such Net Worth determination as
soon as feasible.
(B) In the event that ImageWare does no agree with the
computation of XImage's Net Worth at October 31, 1997 and ImageWare and
XImage are unable to agree upon the amount of such Net Worth, then, if the
disagreement involves an aggregate amount of not more than $100,000, (1) the
Merger shall close; (2) the amount in dispute will be deposited in
the Holdback Escrow; and (3) such amount will subsequently be distributed by
the Escrow Holder to ImageWare and/or XImage based upon the determination of
XImage's Net Worth at October 31, 1997, as determined by the CPA.
(iii) "Merger Consideration" means the sum or combination of the
Merger Warrants and the Cash Merger Value.
(iv) "Net Worth of XImage" means the assets of XImage reduced by
the liabilities of XImage as of the computation date (a negative amount at
September 30 1997).
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The computation of the Net Worth of XImage at October 31, 1997 shall be made
consistent with the method of accounting used by XImage in preparing its
September 30, 1997 financial statements. Such Net Worth computation at
October 31, 1997 shall in all material respects conform to GAAP and shall
include as a liability, the fees, costs and expenses incurred by XImage in
consummating the Merger.
(v) "Optionees" means holders of options to purchase shares of
XImage common Stock.
(vi) "Option Exercise Notice" means the document in which an
Optionee communicates to Ximage its exercise of an XImage option.
(vii) "XImage Stock Options" means XImage options that are
exercised subsequent to the date of this Merger Agreement solely for the
purpose of participating in the Merger.
(viii) "XImage Common Stock Outstanding" means the total number of
shares of XImage Common Stock outstanding at the Closing of the Merger,
including shares covered by the XImage Stock Options.
(b) Optionees that May Participate in the Merger. All Optionees
holding options to purchase shares of XImage Common Stock, to the extent
vested (including options for which XImage has accelerated vesting), which
are outstanding at the date of this Merger Agreement, may participate in the
Merger and shall be entitled to receive a portion of the Merger
Consideration, provided that prior to the consummation of he Merger they
exercised their options, by the execution and delivery to XImage of an Option
Exercise Notice (as described in subsection (c) below) and either (i) pay the
exercise price on XImage in purchase of the underlying shares of XImage
Common Stock, or (ii) advise XImage that their exercise of their options is
conditioned on the consummation of the Merger and that they are effective a
"net exercise of their options wherein the cash component of the Merger
payable to them will be reduced by the per share exercise price of the option
plus their pro rata share of any Merger expenses payable by the XImage
Shareholders. Solely to determine the net Merger Consideration receivable
upon consummation of the Merger by an Optionee who conditionally exercises
his or her option and to determine such Optionee's obligations resulting from
the Merger, the number of shares of XImage Common Stock issuable upon the
exercise of XImage Stock Options shall be considered to be shares of Ximage
Common Stock Outstanding at the Effective Time of the Merger and the holders
of XImage Stock Options shall be considered to be XImage Shareholders.
(c) Notice to XImage Shareholders and Holders of XImage Options. Prior
to the closing of the Merger, ImageWare shall prepare a Disclosure Statement
relating to the proposed issuance of the Merger Warrants to Shareholders and
Optionees of XImage and XImage shall transmit such Disclosure Statement
together with a notice to each holder of record of a certificate representing
XImage Common Stock ("XImage Stock Certificate") or a stock option agreement
representing XImage Stock Options, containing instructions with respect to
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their delivery of the XImage Stock Certificate or the Option Exercise Notices
to the Shareholder Representative for delivery by them to the Escrow referred
to in subsection (f)(i) below.
(D) CONVERSION; MERGER CONSIDERATION. At the Effective Time of the
Merger, the holders of all outstanding shares of XImage Common Stock
immediately prior to the Effective Time of the Merger, including shares of
Common Stock represented by XImage Stock Options exercised conditionally upon
the Closing of the Merger, shall, by virtue of the Merger, and without any
action on the part of the holders thereof, be converted into the right to
receive their proportionate share of the Merger Consideration, which shall be
deliverable/payable as provided herein upon the surrender of the XImage Stock
Certificates formerly representing such shares of XImage Common Stock or
Option Exercise Notices representing XImage Stock Options.
(I) SCHEDULE OF MERGER CONSIDERATION PAYABLE TO THE XIMAGE
SHAREHOLDERS. XImage shall prepare and deliver to the Escrow Holder of the
Closing Escrow, a Schedule as of the date of the Closing the contains (1) a
list of the Shareholders of XImage and the holders of XImage Stock Options;
(2) the number of shares of XImage Common Stock and XImage Stock Options
owned by each of such XImage Shareholders and Optionees, respectively; and
(3) the number of Merger Warrants and the amount of the Cash Merger Value
distributable to each of them through the Closing Escrow or that has been
deposited in the Indemnification Escrow on their behalf. Such Schedule shall
also reflect the number of Merger Warrants distributable to Business
Development Advisors.
(E) FRACTIONAL MERGER WARRANTS. No Merger Warrants to purchase
fractional shares of ImageWare Common Stock will be issued to XImage
Shareholders or Business Development Advisors as a result of the Merger. The
number of share of ImageWare Common Stock purchasable under such Merger
Warrants, when distributed to the XImage Shareholders, shall be rounded to
the nearest whole number of Merger Warrants to which each XImage Shareholder
and Business Development Advisors is entitled, such that Merger Warrants to
purchase exactly 325,000 shares of ImageWare Common Stock will be issued and
distributed to the XImage Shareholders and Business Development Advisors.
(F) SURRENDER OF CERTIFICATES AND RECEIPT OF CONSIDERATION.
(I) ESCROWS. At or prior to the Closing, ImageWare andXImage
shall enter into an Escrow Agreement with First Trust of California, as
Escrow Agent (the "Holdback Escrow"), and XImage shall enter into an Escrow
Agreement with First Trust of California, as Escrow Holder (the "Closing
Escrow").
(II) HOLDBACK ESCROW. At the Closing, ImageWare shall deliver
$250,000 of the Cash Merger Value (the "Indemnification Fund") to the Escrow
Holder of the Holdback Escrow to be held for the purposes set forth in
Subsection (iii) below. The Escrow Agent shall hold the Indemnification Fund
in accordance with the terms of the Holdback Escrow Agreement and this Merger
Agreement for the purpose of providing a fund that can be drawn upon to
indemnify ImageWare pursuant to Section 8.2 hereof. The Indemnification Fund,
including interest thereon, shall be ehld for the account of the XImage
Shareholders and, to the
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extent not so used to indemnify ImageWare, shall be distributed to the XImage
Shareholders in accordance with their interests as reflected in the Schedule
delivered to the Escrow Holder of the Closing Escrow pursuant to Section
2.1(d)(i) hereof, upon termination of the Holdback Escrow.
(III) CLOSING ESCROW; SURRENDER OF XIMAGE STOCK CERTIFICATES
AND OPTION EXERCISE AGREEMENTS. At the Closing ImageWare shall deliver the
Merger Warrants and Cash Merger Value (less the Indemnification Fund) to the
Escrow Holder of the Closing Escrow who shall receive XImage Stock
Certificates, representing share of XImage Common Stock, or Option Exercise
Notices, representing XImage Stock Options in exchange for the number of
Merger Warrants to purchase whole shares of ImageWare Common Stock to which
the holder of the XImage Common Stock of XImage Stock Options is entitled
pursuant to Section 2.1(d)(i), plus that portion of the Cash Merger Value
which such holder has the right to received pursuant to Section 2.1(d)(i),
after giving effect to any required tax withholding, and the XImage Stock
Certificates and Option Exercise Notices so surrendered shall forthwith be
canceled. In the event that an XImage Shareholder, including an Optionee of
an XImage Stock Option, fails to deliver to the Escrow Holder his or her
XImage Stock Certificate of Option Exercise Notice, then the Escrow Holder
shall hold the Merger Consideration for such XImage Shareholders until they
deliver to them such XImage Stock Certificate or Option Exercise Notice or an
acceptable substitute therefor, e.g., a notice of lost certificate and
indemnification with respect thereto. The Escrow Holder shall deliver such
XImage Stock Certificates or Option Exercise Notices to ImageWare concurrent
with their delivering the Merger Consideration to the XImage Shareholders.
(IV) LIMITATIONS. Notwithstanding any other provision of
this Merger Agreement, until holders of Ximage Stock Certificates or Option
Exercise Notices have surrendered them, or an acceptable substitute therefor,
for exchange as provided herein, that portion of the Merger Consideration
attributable to such XImage Shareholders shall not be paid or distributed to
such XImage Shareholder. Any interest earned on the funds so held in the
Closing Escrow shall be held for the benefit of the XImage Shareholders and
shall be distributed to them upon termination of the Closing Escrow.
(G) CANCELLATION OF THE XIMAGE COMMON STOCK. At the Effective
Time of the Merger, all of the authorized and outstanding shares of XImage
Common Stock shall be canceled and cease to represent any interest in XImage
and the holders of such XImage Common Stock shall cease to have any right of
a shareholder of XImage. From and after the Effective Time of the Merger, the
holders of the shares of XImage Common Stock Outstanding immediately prior to
the Effective Time of the Merger, as such holders, shall be entitled to
receive only the Merger Consideration.
(I) The holders of XImage Stock Options that are exercised
conditionally upon the Closing of the Merger shall not be required to
purchase the shares of XImage Common Stock underlying the XImage Stock
Options, but such shares shall be taken into consideration in determining
the amount of the Cash Merger Value payable to the holders of such XImage
Stock Options. Thus, the per share Cash Merger Value payable to a holder of
an XImage Stock Option shall be an amount equal to the excess of the per
share Cash Merger Value
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over the exercise price of such XImage Stock Option, provided that if there
is no excess, then the holder of such XImage Stock Option shall pay to XImage
the amount by which the exercise price of the XImage Stock Option exceeds the
per share Cash Merger Value, and such amount shall increase the Cash Merger
Value.
(ii) The Cash Merger Value ($2,000,000, subject to adjustment)
shall be increased by the exercise price of the XImage Stock Options that are
exercised conditionally upon the Closing of the Merger and then divided by
the number of shares of Common Stock outstanding, including the shares that
would ordinarily be issued upon the exercise of such XImage Stock Options.
This will yield the amount of cash per share payable to the XImage
Shareholders, except that the amount of cash per share payable to the holders
of XImage Stock Options will be reduced by the exercise price of their price
of their XImage Stock Options.
(iii) The number of Merger Warrants issuable each of to the
Shareholders of XImage Common Stock and the holders of XImage Stock Options,
shall be determined by dividing the 325,000 Merger Warrants, reduced by
the number of Merger Warrants distributable to Business Development Advisors,
by the number of shares of XImage Common Stock Outstanding at the Effective
Time of the Merger and multiplying such amount by the number of shares of
XImage Common Stock Outstanding owned by each XImage Shareholder.
(h) CANCELLATION OF OPTIONS. At the Effective Time of the Merger,
all unexercised XImage options shall be canceled.
SECTION 2.2 CONVERSION OF IAI COMMON STOCK. At the Effective Time of the
Merger, each share of IAI Common Stock outstanding immediately prior to the
Effective Time of the Merger shall by virtue of the Merger and without any
action on the part of the holder thereof be converted into one share of a
newly-created class of $.01 par value common stock of the Surviving
Corporation.
SECTION 2.3 WITHHOLDING TAX. The right of any XImage Shareholder to
receive the Merger Consideration shall be subject to any required tax
withholding obligation.
SECTION 3--THE CLOSING
SECTION 3.1 CLOSING; CLOSING DATE. On or before November 26, 1997
(unless this Merger Agreement shall have been terminated and the Merger
abandoned pursuant to the provisions of Section 11 hereof), a closing
("Closing") shall take place at the offices of ImageWare, 15373 Innovative
Drive, Suite 120, San Diego, California 92128, at 10:00 A.M., California
time, provided that if it is not feasible to Close the Merger on such date,
then such Closing shall take place at such other time, or at such other place
as may be agreed upon in writing by the parties hereto ("Closing Date"). The
Merger Documents shall be filed with the California Secretary of State on the
Closing Date and, the Effective Date and the Closing Date shall be the same.
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SECTION 4--REPRESENTATIONS AND WARRANTIES OF XIMAGE
Except as otherwise disclosed to ImageWare in a Schedule attached hereto
(which Schedule shall contain appropriate references to identify the
representations and warranties herein to which the information is such
Schedule relates) ("XImage Disclosure Schedule"), XImage represents and
warrants to ImageWare as follows:
SECTION 4.1 ORGANIZATION. XImage is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Cal;ifornia and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being
conducted. XImage is duly qualified or authorized and in good standing to do
business in each jurisdiction in which the property owned, leased, or operated
by it or the nature of the business conducted by it makes such qualification
necessary, except for jurisdictions in which failure to be so qualified or
authorized would not have a material adverse effect on the assets,
properties, business or financial condition of XImage taken as a whole (the
"Business").
SECTION 4.2 CAPITALIZATION. The authorized capital stock of XImage
consists of 5,000,000 shares of Common Stock, no par value. As of the date
hereof, (a) 1,629,665 shares of Common Stock are issued and outstanding, and
(b) options to purchase 2,197,688 shares of issued and outstanding shares of
XImage Common Stock are validly issued, fully paid and nonassessable and free
of preemptive rights. Except as set forth above, as of the date of this
Merger Agreement, there are no shares of capital stock of XImage issued or
outstanding or any options, warrants, subscriptions, calls, rights,
convertible securities or other agreements of commitments obligating XImage
is issue, transfer, sell, redeem, repurchase or otherwise acquire any shares
of this capital stock or securities. After the Effective Time of the Merger,
XImage will have no obligation to issue, transfer or sell any shares of its
capital stock pursuant to any employee benefit plan or otherwise.
SECTION 4.3 AUTHORITY RELATIVE TO THIS MERGER AGREEMENT. XImage has
all requisite corporate power and authority to enter into this Merger
Agreement and subject to approval of this Merger Agreement and the Merger by
XImage Shareholders and to the consents and approvals set forth in Section
4.4 below, to consummate the Merger. The execution, delivery and performance
of this Merger Agreement by XImage and the consummation by XImage of the
Merger have been duly authorized by all necessary corporate action on the
part of XImage, including the approval of the Board of Directors of XImage,
and no other corporate proceedings on the part of XImage are necessary to
authorize this Merger Agreement or the Merger (except for the approval by the
XImage Shareholders). This Merger Agreement has been duly and validly
executed and delivered by XImage and, subject to approval by the XImage
Shareholders, constitutes a valid and binding agreement of XImage, enforceable
against XImage in accordance with its terms, except that such enforceability
may be subject to (a) bankruptcy, insolvency, reorganization or other similar
laws relating to enforcement of creditor's rights generally, and (b) general
equitable principles of law.
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SECTION 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
applicable requirements of the Securities Act of 1933, as amended
("Securities Act"), state laws relating to takeovers, if applicable, state
securities or blue sky laws, state and local laws and regulations relating to
licensing and the filing of the Documents of Merger as required by the
California GCL, no filing with, and no permit, authorization, consent or
approval of, any court or tribunal or administrative, governmental or
regulatory body, agency or authority (except state and local authorities who
have entered into contracts with XImage) is necessary for the execution,
delivery and performance of this Merger Agreement by XImage or the Merger.
Neither the execution, delivery nor performance of this Merger Agreement by
XImage, nor the consummation by XImage of the Merger, nor compliance by
XImage with any of the provisions hereof, will (a) conflict with or result in
any breach of any provisions of the Articles of Incorporation or By-Laws of
XImage, (b) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, acceleration, vesting, payment, exercise,
suspension or revocation) under, any of the terms, conditions or provisions
of any note, deed of trust, security interest, license, contract, agreement,
plan or other instrument or obligation to which XImage is a part or by which
it or any of its properties or assets may be bound or affected, (c) violate
any order, writ, injunction, decree, statute, rule or regulation applicable
to XImage or any of its properties or assets, or (d) cause the suspension or
revocation of any registration, licenses, permits and other consents or
approvals of governmental agencies for violations, breaches, defaults,
terminations, cancellations, accelerations, suspensions or revocations which
would not individually or in the aggregate have a material adverse effect on
the Business of XImage.
SECTION 4.5 XIMAGE FINANCIAL STATEMENTS. XImage has delivered to
ImageWare true and complete copies of its unaudited financial statements
(including related notes) for the Fiscal Year ended December 31, 1996 and the
Nine Month Period ended September 30, 1997 ("XImage Financial Statements").
The XImage Financial Statements have been prepared from the books and records
of XImage and fairly present, in conformity with GAAP applied on a consistent
basis (except as may be indicated in the notes thereto), in all material
respects, the financial position of XImage as of their dates and the results
of operations and cash flows for the periods then ended (subject to normal
year-end adjustments in the case of any unaudited interim financial
statements).
SECTION 4.6 ABSENCE OF MATERIAL ADVERSE AND OTHER CHANGES. Except as
contemplated by this Merger Agreement, and except as set forth in Section 4.6
of the XImage Disclosure Schedule, since September 30, 1997, XImage has
conducted its business in the ordinary course, consistent with past
practices, and there has not been: (a) any event or occurrence that has
materially adversely affected XImage or its Business, (b) any declaration or
payment of any dividend in respect of its capital stock, (c) any increase in
the regular compensation of any of the officers or employees of XImage,
except such increases as have been granted in the ordinary course of business
in accordance with its customary practices (which shall include normal
periodic performance reviews, promotions and related compensation increases),
(d) any incurrence, assumption or guarantee by XImage of any indebtedness for
borrowed money other than in the ordinary course of business consistent with
past practices, (e) any transaction or commitment made, or any contract or
agreement entered into, by XImage
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(including the acquisition or disposition of any assets) or any
relinquishment by XImage of any contract or other right, in either case,
material to XImage's Business taken as a whole, other than transactions and
commitments in the ordinary course of business consistent with past practices
and those contemplated by this Merger Agreement, (f) any change in any method
of accounting practice by XImage, (g) any loss or damage to the properties or
assets of XImage which has materially adversely affected, or is reasonably
likely to materially adversely affect XImage, or (h) any agreement or any
commitment to take any of the actions described in this Section 4.6.
SECTION 4.7 ACCOUNTS RECEIVABLE. The accounts receivable of XImage
reflected in the Net Worth of XImage calculated as of the Closing pursuant to
Section 2.1(b)(iii) hereof shall be collected within twelve months following
the Closing, without resort to litigation and without offset, discount,
return, or allowance, in the aggregate face amounts thereof, as reflected in
such Net Worth calculation.
SECTION 4.8 LITIGATION. Except for litigation disclosed in Section 4.8
of the XImage Disclosure Schedule, there is no suit, action or proceeding
pending or, to the best knowledge of XImage, threatened against or affecting
XImage, the outcome of which, in the reasonable judgment of XImage is likely
individually or in the aggregate to have a material adverse affect on the
Business of XImage.
SECTION 4.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities
or obligations which (i) are accrued or reserved against in the XImage
Financial Statements (or reflected in the notes thereto); or (ii) which were
incurred after September 30, 1997 in the ordinary course of business and
consistent with past practices; or (iii) which in the aggregate would not
have a material adverse effect on the Business of XImage. XImage does not
have an liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of a nature required by GAAP to be reflected in its September 30,
1997 Balance Sheet (or in the notes thereto).
SECTION 4.10 PROPERTIES, LIENS, ETC. XImage owns all of its tangible and
intangible property shown on its September 30, 1997 Balance Sheet or used in
operating its business, real and personal, free and clear of any liens,
except for liens for current taxes not yet delinquent.
SECTION 4.11 TAXES. XImage has (a) timely filed all material tax
returns, including income, sales, payroll and property tax returns, required
by applicable law to be filed by it for tax years ended prior to the date of
this Merger Agreement and all such tax returns are true, complete and correct
in all materials respects, and (b) paid all taxes due or has properly accrued
for or reserved for all such taxes for periods subsequent to the periods
covered by such tax returns.
SECTION 4.12 BENEFIT PLANS.
(a) LIST OF PLANS. Section 4.12 of the XImage Disclosure
Schedule lists each XImage Employee Benefit Plan. Each of the XImage Employee
Benefit Plans has been operated and administered in all material respects in
accordance with the terms and with all applicable laws, and XImage has no
liability (contingent or otherwise) for any funding of such Employee Benefit
Plans.
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(b) COMPLIANCE. For purposes of this Section 4.12, "Employee
Benefit Plan" means any deferred compensation, retirement, severance, health
or other plan or program constituting an "employee benefit plan" as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended, and all regulations and published interpretations promulgated
thereunder, as in effect from time to time.
SECTION 4.13 EMPLOYMENT MATTERS; LABOR RELATIONS.
(a) COMPENSATION OF KEY EMPLOYEES. Section 4.13 of the XImage
Disclosure Schedule sets forth a true and complete list of the names,
classifications, dates of hire and base compensation for the year ending
December 31, 1997, of each employee of XImage whose base compensation exceeds
$50,000 per annum.
(b) RELATIONS WITH EMPLOYEE. XImage has no adverse labor
matters pending or to XImage's knowledge, threatended and to XImage's
knowledge, its relations with its employees are good.
SECTION 4.14 INTELLECTUAL PROPERTY. Except as set forth in Section 4.14
of the XImage Disclosure Schedule, and expect to the extent that the
inaccuracy of any of the following (or the circumstances giving rise to such
inaccuracy), individually and in the aggregate, would not have a material
adverse effect on the Business of XImage:
(a) OWNERSHIP OF INTELLECTUAL PROPERTY. XImage owns, or is
licensed or otherwise has the right to use all Intellectual Property (as
defined below) that in any material respect is used in the business of XImage.
(b) NO CLAIMS OF INFRINGEMENT, ETC. No claims are pending, or
to the knowledge of XImage, threatened that XImage is infringing on or
otherwise violating the rights of any person with regard to any Intellectual
Property owned by and/or licensed to XImage.
(c) NO INFRINGEMENT OF XIMAGE INTELLECTUAL PROPERTY. To the
knowledge of XImage, no person is infringing or otherwise violating any right
of XImage with respect to any Intellectual Property owned by and/or licensed
to XImage, PROVIDED, that the foregoing representation is qualified to the
extent of publicly known problems of general applicability with respect to
software piracy and copyright protection.
(d) NO CLAIMS OF OWNERSHIP. None of the former or current
members of management or key personnel of XImage, including all former and
current employees, agents, consultants and contractors who have contributed
to or participated in the conception and development of designs, computer
software or other Intellectual Property of XImage, has asserts in writing any
claim against XImage in connection with the involvement of such persons in
the conception and development of any design, computer software or other
Intellectual Property, and no such claim, to the knowledge of XImage, has
been threatened.
(e) DEFINITION OF INTELLECTUAL PROPERTY. For purposes of this
Merger Agreement, "Intellectual Property" means (i) trademarks (registered or
unregistered), service
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marks, trade names and other indications of origin, the goodwill associated
with the foregoing and registrations in any jurisdiction of, and applications
in any jurisdiction to register, the foregoing, including any extension,
modification or renewal of any such registration or application; (i)
inventions, discoveries and ideas, whether patented or patentable; (iii)
nonpublic information, trade secrets, know-how and confidential information
and rights in any jurisdiction to limit the use or disclosure thereof by any
person; (iv) writings and other works, whether copyrighted or copyrightable;
(v) registration or applications for registration of copyrights in any
jurisdiction, and any renewals or extensions thereof; (vi) computer programs
and software (including source code, object code and data); and (vii)
licenses, covenants not to sue and the like relating to the foregoing. XImage
has not assigned any of its claims or causes of action arising out of or
related to any infringement or misappropriation of any of the foregoing, if
any.
(f) REGISTRATIONS. Except for the name "XImage" and the XImage
logo, there are no (i) material domestic and foreign registered trademarks or
registered copyrights and applications for registration of any of the
foregoing; (ii) material trade names, service marks or service names which
are owned by XImage and that are used or proposed to be used in the business
of XImage as currently conducted; or (iii) material licenses and other
agreements to which XImage is a party and pursuant to which XImage is
authorized to use any Intellectual Property. TO the knowledge of XImage, all
registered Intellectual Property has been validly issued or registered and is
subsisting. To the knowledge of XImage, XImage has not taken or omitted to
take any act, which act or omission might have the effect of waiving or
impairing any of the rights of XImage to practice and enforce any patent, or
to use and enforce any trademark or copyright listed in Section 4.14 of the
XImage Disclosure Schedule.
SECTION 4.15 INSURANCE. Section 4.15 of the XImage Disclosure Schedule
contains a complete and correct list and accurate summary description of all
insurance policies maintained by or on behalf of or covering XImage, its
assets or operations or the conduct of its business. All such policies are in
full force and effect, no notices of cancellation or nonrenewal have been
received with respect thereto and all premiums due thereon have been paid.
XImage has complied in all material respects with the provisions of such
policies. Such policies are of the type and in amounts customarily carried by
persons conducting businesses similar to the business conducted by XImage.
SECTION 4.16. COMPLIANCE WITH APPLICABLE LAW. To XImage's knowledge,
XImage is not in violation of, or to XImage's knowledge, is not under
investigation with respect to nor has it been threatened to be charged without
given notice of any violation of, any applicable laws, ordinances, rules and
regulations of any court, administrative agency or commission or other
governmental authority or instrumentality applicable to XImage, except for
such violations, if any, that, in the aggregate, have not had and would not,
in the reasonable judgment of XImage, be likely to have a material adverse
effect on its Business.
SECTION 4.17 CERTAIN CONTRACTS AND ARRANGEMENTS. All material agreements
to which XImage is a party are valid and binding upon XImage, and to XImage's
knowledge, enforceable in accordance with their terms, and neither XImage nor
to XImage's knowledge any other party to such agreements is in default under
any of such agreements, nor, to the knowledge
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of XImage, has any event or circumstance occurred that, with notice of lapse
of time or both, would constitute any event of default by XImage or any other
party thereto other than with respect to any defaults that would not,
individually or in the aggregate, have a material adverse effect on the
Business of XImage. To XImage's knowledge, none of the parties to the
agreements identified in this Section 4.17 have terminated, or have
expressed an intent to reduce materially or terminate in the future, such
agreements. None of the material agreements to which XImage is a party,
including XImage's contract to provide and maintain a booking software system
to the New York City Police Department, require the other contracting
party(s) to such agreements to consent to the Merger.
SECTION 4.18 PROHIBITED PAYMENTS. XImage has not with respect to the
opportunities, business or operation of XImage, (a) entered into any
understanding, agreement or arrangement, written or oral, under or pursuant
to which bribes, kickbacks, rebates, payoffs or other forms of illegal
payments have been or will be made, either directly or indirectly, through
agents, brokers or other intermediaries, (b) made any illegal payment or
contribution of moneys, services or property to any political party,
candidate or elected official, directly or indirectly, for any purpose, or
(c) directly or indirectly engaged in any activity prohibited by the Foreign
Corrupt Practices of 1977.
SECTION 4.19 ENVIRONMENTAL MATTERS. XImage holds, and is in substantial
compliance with, all environmental permits and all applicable environmental
laws related to the operation of its business, except where the failure to
hold such permits or to be in compliance would not have a material adverse
effect on the Business XImage.
SECTION 4.20 BOARD APPROVAL. The Board of Directors of XImage has
approved the Merger.
SECTION 4.21 BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's fee or commission payable by XImage in
connection with the transactions contemplated by this Merger Agreement based
upon arrangements made by or on behalf of XImage, except Business Development
Advisers.
SECTION 4.22 DISCLOSURE. No representation or warranty by XImage in
this Merger Agreement or any certificates delivered pursuant to the terms
hereof, contains or will contain an untrue statement of a material fact, or
omits or will omit to a state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which they were
made, not misleading.
SECTION 5 -- REPRESENTATIONS AND WARRANTIES OF IMAGEWARE
Except as otherwise disclosed to XImage in a Schedule delivered to it
prior to the execution hereof (which Schedule shall contain appropriate
references to identify the
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representations and warranties herein to which the information in such
Schedule relates) ("ImageWare Disclosure Schedule"), ImageWare represents and
warrants to XImage as follows:
SECTION 5.1 ORGANIZATION. Each of ImageWare and IAI is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now
being conducted. Each of ImageWare and IAI is duly qualified or licensed and
in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary.
SECTION 5.2 CAPITALIZATION. The authorized capital stock of ImageWare
consists of 50,000,000 shares of Common Stock, par value $.001 per share, and
4,000,000 shares of preferred stock, par value $.001 per share. As of the
date hereof, (a) 4,272,875 shares of Common Stock are issued and outstanding,
(b) options to purchase 657,500 shares of Common Stock are outstanding under
all stock option plans of ImageWare, (c) 342,500 shares of Common Stock are
reserved for issuance pursuant to stock options not yet granted under
ImageWare's stock option plans; (d) 524,500 shares are issuable upon the
exercise of outstanding warrants; (e) 327,219 shares are issuable upon the
conversion of convertible debentures and notes; and (f) there are 341,000
shares of ImageWare Preferred Stock outstanding. In addition, Atlus, Ltd. has
the right at the end of each calendar quarter prior to the time that
ImageWare "goes public," to purchase a five year warrant to purchase at $4
per share that number of shares of Common Stock as will make Atlus the owner
of one-third of ImageWare's outstanding Capital Stock as of the end of such
quarter. All of the issued and outstanding shares of Common Stock and
Preferred Stock are validly issued, fully paid and nonassessable and free of
preemptive rights. All of the Common Stock reserved for issuance upon the
exercise of the Warrants issuable to XImage Shareholders at the Effective Time
of the Merger in accordance with this Merger Agreement will be, when so
issued, duly authorized, validly issued, fully paid and non-assessable. The
authorized capital stock of IAI consists of 100 shares of IAI Common Stock,
par value $.01 per share, all of which shares are validly issued and
outstanding, fully paid and nonassessable and are owned by ImageWare.
SECTION 5.3 AUTHORITY RELATIVE TO THIS MERGER AGREEMENT. Each of
ImageWare and IAI has all requisite corporate power and authority to enter
into this Merger Agreement and subject, in the case of this Merger Agreement,
to the consents and approvals set forth in Section 5.4 below, to consummate
the transactions contemplated hereby. The execution, delivery and performance
of this Merger Agreement by ImageWare and IAI and the consummation by
ImageWare and IAI of the Merger have been duly authorized by all necessary
corporate action on the part of ImageWare and IAI, including the approval of
their respective Boards of Directors and sole shareholder of IAI, and no
other corporate proceedings on the part of ImageWare or IAI are necessary to
authorize this Merger Agreement or the Merger. This Merger Agreement has been
duly and validly executed and delivered by ImageWare and IAI and constitutes
a valid and binding agreement of each of them, enforceable against each of
them in accordance with its terms, except that such enforceability may be
subject to (a) bankruptcy, insolvency,
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reorganization or other similar laws relating to enforcement of creditors'
rights generally, and (b) general equitable principles.
SECTION 5.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for the
applicable requirements of the Securities Act, state or foreign laws relating
to takeovers, if applicable, state securities or blue sky laws, state and
local laws and regulations relating to licensing and the filing of the
Documents of Merger as required by the California GCL, no filing with, and no
permit, authorization, consent or approval of, any government entity is
necessary for the execution, delivery and performance of this Merger
Agreement by ImageWare and IAI or the Merger. Neither the execution, delivery
nor performance of this Merger Agreement by Image Ware and IAI, nor the
consummation by ImageWare and IAI of the Merger, nor compliance by ImageWare
and IAI with any of the provisions hereof, will (a) conflict with or result
in any breach of any provisions of the Articles of Incorporation or By-Laws
of ImageWare or IAI, (b) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, cancellation, acceleration, vesting, payment,
exercise, suspension or revocation) under, any of the terms, conditions or
provisions of any note, deed of trust, security interest, license, contract,
agreement, plan or other instrument or obligation to which ImageWare is a
party or by which it or any of its properties or assets may be bound or
affected, (c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to ImageWare or any of its properties or assets, or (d)
cause the suspension or revocation of any registrations, licenses, permits
and other consents or approvals of governmental agencies for violations,
breaches, defaults, terminations, cancellations, accelerations, suspensions
or revocations which would not individually or in the aggregate have a
material adverse effect on the Business of ImageWare.
SECTION 5.5 FINANCIAL STATEMENTS. ImageWare has delivered to XImage
true and complete copies of its audited financial statements of (including
related notes) for the Fiscal Years Ended December 31, 1995 and December 31,
1996, and unaudited interim financial statements of the Six Month Period
Ended June 30, 1997 ("ImageWare Financial Statements"). The ImageWare
Financial Statements fairly present, in conformity with GAAP applied on a
consistent basis (except as may be indicated in the notes thereto), the
financial position of ImageWare as of their dates and the results of
operations and cash flows for the periods then ended (subject to normal
year-end adjustments in the case of any unaudited interim financial
statements).
SECTION 5.6 INFORMATION SUPPLIED. None of the information supplied or
to be supplied by ImageWare to XImage for inclusion in its Proxy Statement to
its Shareholders seeking approval of the Merger, will, at the time of the
mailing of the Proxy Statement and any amendment or supplement thereto, and
at the time of any meeting of Shareholders of XImage to vote upon this Merger
Agreement and the transactions contemplated hereby, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they are made, not misleading.
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SECTION 5.7 BOARD APPROVALS. The Board of Directors of ImageWare and
IAI have approved the Merger.
SECTION 5.8 LITIGATION. There is no suit, action or proceeding pending
or, to the best knowledge of ImageWare, threatened against or affecting
ImageWare, the outcome of which, in the reasonable judgment of ImageWare,
is likely individually or in the aggregate to have a material adverse affect
on the financial condition, properties or business of ImageWare.
SECTION 5.9 BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's fee or commission payable by ImageWare in
connection with the transactions contemplated by this Merger Agreement based
upon arrangements made by or on behalf of ImageWare.
SECTION 5.10 DISCLOSURE. No representation or warranty by ImageWare in
this Merger Agreement, the schedules hereto or any certificates delivered
pursuant to the terms hereof, contains or will contain an untrue statement of
a material fact, or omits or will omit to state a material fact necessary to
make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading.
SECTION 6--PRE CLOSING COVENANTS
SECTION 6.1 COVENANTS OF ALL PARTIES. During the period from the date
of this Merger Agreement until the earlier of the termination of this Merger
Agreement or the Effective Time of the Merger, each of the parties hereto
covenants and agrees as follows:
(a) ADVISE OF CHANGES. Each party hereto shall promptly advise
each of the other parties in writing of any event occurring subsequent to the
date of this Merger Agreement that would render any representation or
warranty of such party contained in this Merger Agreement, if made on or as
of the date of such event or the Closing Date, untrue or inaccurate in any
material respect. Such advisement shall constitute an amendment or
supplement to such party's Disclosure Schedule if, and only if, consented to
by the other party. In such event, for all purposes of this Merger
Agreement, a party's Disclosure Schedule shall be deemed to be such
Disclosure Schedule, as amended or supplemented. In the event that ImageWare
seeks to amend or supplement its Disclosure Schedule pursuant to this Section
6.1(a), but XImage does not consent to such amendment or supplement, or vice
versa, XImage seeks to amend or supplement its Disclosure Schedule pursuant
to this Section 6.1(a), but ImageWare does not consent to such amendment or
supplement, then this Merger Agreement shall be deemed terminated by mutual
consent as provided in Section 11.1(a) hereof.
(b) CONFIDENTIALITY. Each party shall hold in confidence all
nonpublic information obtained from the other until such time as such
information is otherwise publicly available and, if this Merger Agreement is
terminated, each party will deliver to the other all documents, work papers
and other materials (including copies) obtained by such party or on its
behalf from the other party as a result of this Merger Agreement or in
connection herewith,
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whether so obtained before or after the execution hereof. Each party shall
continue to abide by the terms of those certain confidentiality agreements dated
July 10, 1997 and August 4, 1997 between ImageWare and XImage and IAI agrees to
be bound by these confidentiality agreements as well.
(c) BEST EFFORTS. Upon the terms and subject to the conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take or cause to be taken all actions, to do or cause to be done, and to assist
and cooperate with the other party hereto in doing, all things necessary, proper
or advisable under applicable laws and regulations, to consummate and make
effective, in the most expeditious manner practicable, the Merger contemplated
by this Merger Agreement, including (i) using all reasonable efforts to obtain
all necessary waivers, consents and approvals from third parties, (ii) executing
and delivering such instruments, and taking such other actions as the other
party hereto may reasonably require in order to carry out the intent of this
Merger Agreement.
SECTION 6.2 COVENANTS OF XIMAGE. During the period from the date of this
Merger Agreement until the earlier of the termination of this Merger Agreement
or the Effective Time of the Merger, XImage agrees (except as expressly
contemplated by this Merger Agreement or with the prior written consent of
ImageWare) that:
(a) CONDUCT OF BUSINESS PENDING MERGER.
(i) ORDINARY COURSE. XImage shall carry on its businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such businesses, use
all reasonable efforts to preserve intact its present business organization,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers and others having business dealings
with XImage. XImage shall promptly notify ImageWare of any event or occurrence
or emergency not in the ordinary course of business of XImage, which is
material and adverse to the Business. Specifically, XImage shall not (except
with the prior written consent of ImageWare) grant any severance or termination
pay to any officer or director or, except in the ordinary course of business
consistent with past practices, to any employee of XImage.
(ii) DIVIDENDS; CHANGES IN STOCK. XImage shall not (A)
declare or pay any dividends on, or make other capital distributions in respect
of, any of its capital stock, (B) authorize or propose the issuance of any
securities in respect of, in lieu of, or in substitution for, shares of its
capital stock, except exercises of options by current Optionees, or (C)
repurchase, redeem or otherwise acquire, any shares of its capital stock.
(iii) ISSUANCES OF SECURITIES. XImage shall not authorize or
issue, deliver or sell any shares of its capital stock or any securities
convertible into such shares, or any rights, warrants, calls, subscriptions or
options to acquire any such shares or convertible securities, or any other
ownership interests in such capital stock, except exercises of options by
current Optionees.
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(iv) GOVERNING DOCUMENTS. XImage shall not amend its Articles
of Incorporation or By-Laws.
(v) NO ACQUISITIONS. XImage shall not acquire, or agree to
acquire a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof.
(vi) NO DISPOSITIONS. XImage shall not sell, lease, license,
encumber or otherwise dispose of any of its assets, except for sales or
licenses of products or technology in the ordinary course of business
consistent with prior practice.
(vii) INDEBTEDNESS. XImage shall not incur any indebtedness for
borrowed money or guarantee any such indebtedness or sell any debt securities
or warrants or rights to acquire any debt securities, except in the ordinary
course of business consistent with past practices.
(viii) EMPLOYEE BENEFIT PLANS. XImage shall not adopt or amend
in any material respect any XImage Employee Benefit Plan or pay any amount
with respect thereto not required by any existing XImage Employee Benefit Plan.
(ix) COMPENSATION. Other than pursuant to scheduled reviews
under XImage's normal compensation review cycle, in all cases consistent with
existing policies and past practice, XImage shall not enter into any employment
contracts, pay any special bonuses or special remuneration to officers,
directors or employees, or increase the salaries, wage rates or fringe benefits
of (1) any of its officers or employees whose compensation exceeded $50,000
during the fiscal year ending December 31, 1996, or (2) any of its other
officers and employees.
(x) TAX MATTERS. XImage shall not make any tax election that
would have a material adverse effect on the Business of XImage.
(xi) DISCHARGE OF LIABILITIES. XImage shall not pay,
discharge, settle or satisfy any claims, liabilities or obligations, except in
the ordinary course of business.
(b) SHAREHOLDER'S MEETING OR WRITTEN CONSENT. XImage shall hold a
meeting of its Shareholders at the earliest practicable date to submit this
Merger Agreement and the Merger for their consideration and approval, which
approval shall be recommended by XImage's Board of Directors, or in the
alternative, shall obtain Shareholder approval of the Merger by their written
consent.
(c) BOARD APPROVAL. The Board of Directors of XImage shall approve
the Merger at a meeting duly held or by unanimous written consent.
(d) DUE DILIGENCE--IMAGEWARE. XImage shall afford to ImageWare and
to ImageWare's legal counsel, accountants, financing sources and other
authorized representatives, access from the date hereof through October 31,
1997 during normal business hours, to its books,
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records, properties, offices and personnel, to conduct a due diligence review
thereof, provided that such due diligence shall be conducted upon advance
notice in a manner which will cause a minimum of disruption to XImage's
operations.
(e) DUE DILIGENCE--XIMAGE. ImageWare shall afford to XImage and
to XImage's legal counsel, accountants and other authorized representatives,
access from the date hereof through October 31, 1997 during normal business
hours, to its books, records, properties, offices and personnel, to conduct a
due diligence review thereof, provided that such due diligence shall be
conducted upon advance notice in a manner which will cause a minimum of
disruption to ImageWare's operations.
(f) ACQUISITION PROPOSALS. From the date hereof until the earlier
of the termination of this Agreement or the consummation of this Merger,
XImage will not, and will cause its officers, directors, employees, agents
and representatives not to, directly or indirectly, encourage, solicit,
accept, initiate or conduct discussions or negotiations with, provide any
information to, or enter into any agreement with, any corporation,
partnership, limited liability company, person or other entity or group
concerning the acquisition of all or a substantial part of the assets,
business or capital stock of XImage, whether through purchase, merger,
consolidation, exchange or any other business combination.
SECTION 6.3 COVENANTS OF IMAGEWARE. Prior to the Effective Time of the
Merger, ImageWare agrees that:
(a) BOARD APPROVAL OF IMAGEWARE. The Board of Directors of ImageWare
shall approve the Merger at a meeting duly held or by unanimous written consent.
(b) BOARD AND SHAREHOLDER APPROVAL OF IAI. The Board of Directors of
IAI, and ImageWare, as the sole shareholder of IAI, shall approve the Merger at
meetings duly held or by unanimous written consent.
SECTION 7--CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 CONDITIONS TO OBLIGATIONS OF XIMAGE. The obligations of
XImage to effect the Merger shall be subject to the satisfaction or waiver at
or prior to the Effective Time of the Merger of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of ImageWare contained in this Merger Agreement
shall be deemed to have been made again at and as of the Closing with respect
to the stated facts then existing and shall be true in all material respects.
(b) COVENANTS PERFORMED. All of the obligations of ImageWare and IAI
to be performed at or before the Closing pursuant to the terms of this Merger
Agreement shall have been duly performed.
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(c) CERTIFICATE. At the Closing, XImage shall have received a
Certificate signed by the President of ImageWare to the effect that each of
the conditions set forth in subsections (a) and (b) above have been satisfied.
(d) RESOLUTIONS. At the Closing, XImage shall have received a
certified copy of the resolutions duly adopted by each of the Boards of
Directors of ImageWare and IAI authorizing the execution of this Merger
Agreement and the consummation of the Merger.
(e) MATERIAL ADVERSE CHANGES. There shall have been no material
adverse changes in the Business of ImageWare between the date of this Merger
Agreement and the Closing Date.
(f) CASH POSITION OF IMAGEWARE AT THE CLOSING. ImageWare shall have
cash on hand immediately following the Closing (after payment of the Merger
Consideration) in excess of its liabilities, excluding current liabilities, of
not less than $2,000,000.
(g) OPINION OF COUNSEL. Nossaman, Guthner, Knox & Elliott, LLP,
counsel to ImageWare and IAI, shall have issued an opinion to XImage, dated
the Effective Time of the Merger, in form and substance reasonably
satisfactory to XImage, to the effect that:
(i) Each of ImageWare and IAI is a corporation validly
existing and in good standing under the laws of the State of California and has
all requisite corporate power to own, operate and lease its properties and to
carry on its business as it is now being conducted;
(ii) ImageWare and IAI have full corporate power to enter into
this Merger Agreement and to carry out the Merger;
(iii) All corporate action required to be taken on the part of
ImageWare and IAI to authorize it to execute and deliver this Merger Agreement
and to consummate the Merger have been duly and validly taken; and
(iv) This Merger Agreement has been duly and validly
authorized, executed and delivered by ImageWare and IAI and, assuming due
authorization, execution, delivery and performance by XImage, constitutes the
valid and binding obligation of ImageWare and IAI, enforceable in accordance
with its terms, except as such enforceability may be limited by bankruptcy or
other laws relating to or affecting creditors' rights generally and by
equitable principles.
In giving such opinions, such counsel shall be entitled to rely upon
certificates of officers of ImageWare and public officials with respect to
factual matters upon which its opinions may be based, provided that the
extent of such reliance is set forth in such opinion and it is reasonable for
XImage to rely thereon.
(h) EMPLOYMENT CONTRACTS. At the Closing, Employment Agreements, in
mutually acceptable form, shall have been entered into between XImage and/or
ImageWare and Messrs. Fields and Narasimhan.
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(i) COVENANT NOT TO COMPETE AGREEMENTS. At the Closing, Covenant Not
to Compete Agreements, in mutually acceptable form, shall have been entered
into between XImage and/or ImageWare and Messrs. Fields and Narasimhan and the
$50,000 consideration payable to each of them for agreeing not to compete with
XImage or ImageWare shall have been paid.
(j) APPROVAL OF SHAREHOLDERS. This Merger Agreement and the Merger
shall have been approved by the XImage Shareholders.
(k) ESCROWS. The Escrow Agreements creating the Holdback Escrow and
the Closing Escrow referred to in Section 2.1(f)(i) shall have been entered
into by XImage and ImageWare.
(l) PAYMENT OF MERGER CONSIDERATION. The Merger Consideration shall
have been deposited in the Closing Escrow (pursuant to Section 2.1(f)(iii)
hereof) or deposited in the Holdback Escrow (pursuant to Section 2.1(f)(ii)
hereof).
(m) MERGER DOCUMENTS. The Merger Documents shall have been filed
with the Secretary of State of the State of California, as required by law.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF IMAGEWARE AND IAI. The
obligations of ImageWare and IAI to effect the Merger shall be subject to the
satisfaction or waiver at or prior to the Effective Time of the Merger of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties contained in this Merger Agreement of XImage
shall be deemed to have been made again at and as of the Closing with respect
to the stated facts then existing and shall be true in all material respects.
(b) COVENANTS PERFORMED. All of the obligations of XImage to be
performed at or before the Closing pursuant to the terms of this Merger
Agreement shall have been duly performed.
(c) CERTIFICATE. At the Closing, XImage shall have received a
Certificate signed by the Vice President of XImage to the effect that each of
the conditions set forth in subsections (a) and (b) above have been satisfied.
(d) RESOLUTIONS. At the Closing, ImageWare shall have received a
certified copy of the resolutions duly adopted by the Board of Directors of
XImage and its shareholders authorizing or approving the execution of this
Merger Agreement and the consummation of the Merger.
(e) MATERIAL ADVERSE CHANGES. There shall have been no material
adverse change in the Business of XImage between the date of this Merger
Agreement and the date of the Closing.
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(f) CONSENTS. Other than the filing of the Merger Documents as
contemplated in Section 1.2, the parties shall have made such filings, and
obtained all consents of governmental entities or other persons, required to
consummate the Merger.
(g) NO LITIGATION. There shall not be pending any action,
proceeding or other application before any court or government entity brought
by any government entity (i) challenging or seeking to restrain or prohibit the
consummation of the transactions contemplated by this Merger Agreement, or
seeking to obtain any material damages, or (ii) seeking to prohibit or impose
any material limitations on ImageWare's ownership or operation of all or any
portion of the combined business of ImageWare and XImage.
(h) OPINION OF COUNSEL. Morrison & Foerster, counsel to XImage,
shall have issued an opinion of counsel to ImageWare, dated the Effective Time
of the Merger, in form and substance reasonably satisfactory to ImageWare, to
the effect that:
(i) XImage is a corporation validly existing and in good
standing under the laws of the State of California and has all requisite
corporate power to own, operate and lease its properties and to carry on its
business as it is now being conducted;
(ii) XImage has full corporate power to enter into this Merger
Agreement and to carry out the Merger; and
(iii) All corporate action required to be taken on the part of
XImage to authorize it to execute and deliver this Merger Agreement and to
consummate the Merger have been duly and validly taken.
In giving such opinions, such counsel shall be entitled to rely upon
certificates of officers of XImage and public officials with respect to factual
matters upon which their opinions may be based, provided that the extent of
such reliance is set forth in such opinion and it is reasonable for ImageWare
to rely thereon.
(i) EMPLOYMENT CONTRACTS. At the Closing, Employment Agreements, in
mutually acceptable form, shall have been entered into between XImage and/or
ImageWare and Messrs. Fields and Narasimhan.
(j) COVENANT NOT TO COMPETE AGREEMENTS. At the Closing, Covenant
Not to Compete Agreements, in mutually acceptable form, shall have been entered
into between XImage and/or ImageWare and Messrs. Fields and Narasimhan and the
$50,000 in consideration payable to each of them for agreeing not to compete
with XImage or ImageWare shall have been paid to them in cash.
(k) APPROVAL OF SHAREHOLDERS. This Merger Agreement and the Merger
shall have been approved by the XImage Shareholders.
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(l) ESCROWS. The Escrow Agreements creating the Holdback
Escrow and the Closing Escrow referred to in Section 2.1(f)(i) shall have
been entered into by XImage and ImageWare.
(m) PAYMENT OF MERGER CONSIDERATION. The Merger
Consideration shall have been deposited in the Closing Escrow (pursuant to
Section 2.1(f)(iii) hereof) or deposited in the Holdback Escrow (pursuant to
Section 2.1(f)(ii) hereof).
(n) MERGER DOCUMENTS. The Merger Documents shall have been
filed with the Secretary of State of the State of California, as required by
law.
SECTION 8--INDEMNIFICATION
SECTION 8.1 NATURE OF STATEMENTS, ETC.; SURVIVAL OF REPRESENTATIONS
AND WARRANTIES. Each statement, representation, warranty, covenant,
agreement or indemnity made by XImage or ImageWare or IAI in this Agreement or
in any document, certificate or other instrument delivered by or on its
behalf pursuant to this Agreement or in connection herewith shall be deemed
the statement, representation, warranty, covenant, agreement or indemnity of
XImage, ImageWare or IAI, respectively. All statements, representations,
warranties, covenants, agreements or indemnities made by the parties hereto
shall survive the Closing and thereafter expire one year from the Closing
Date; and all claims for indemnification shall be made within 30 days after
such statements, representations, warranties, covenants, agreements or
indemnities expire.
SECTION 8.2 INDEMNIFICATION OF IMAGEWARE BY XIMAGE SHAREHOLDERS. The
XImage Shareholders, by virtue of receiving cash and Warrants to purchase
Common Stock of ImageWare, severally and not jointly, shall indemnify and
hold ImageWare harmless from, against and in respect of (and shall on demand
reimburse ImageWare for) any and all loss, liability, damage or expense
suffered or incurred by ImageWare by reason of any untrue representation,
breach of warranty or nonfulfillment of any agreement requiring performance
after the Closing or of any covenant contained herein or in any certificate,
document or instrument delivered to ImageWare pursuant hereto or in
connection herewith. In addition, since the amount of the cash component of
the Merger Consideration is based upon the Net Worth of XImage at October 31,
1997, the XImage Shareholders shall indemnify ImageWare for liability based
on the IBM Assistance Agreement which is referred to in the XImage Disclosure
Schedule but will not be shown as a liability in computing XImage's Net Worth
at October 31, 1997. The liability of the XImage Shareholders under this
Section 8.2 shall be up to a maximum liability of $1,000,000 in the
aggregate, provided that in the event of fraud, the maximum liability shall
be the total Merger Consideration.
(a) AGREED CLAIM. If ImageWare makes a claim against the
XImage Shareholders for indemnification pursuant to this Section 8, and the
XImage Shareholders agree
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that ImageWare is entitled to indemnification, then ImageWare may obtain
indemnification through the Holdback Escrow created pursuant to Section
2.1(f)(i).
(b) DISPUTED CLAIM. If ImageWare makes a claim against the
XImage Shareholders for indemnification pursuant to this Section 8 and the
XImage Shareholders do not agree that ImageWare is entitled to
indemnification, or with the amount of the claim for indemnification, then
ImageWare may provide the Escrow Holder of the Holdback Escrow created
pursuant to Section 2.1(e)(ii) with written notification of its claim for
indemnification in which event Escrow Holder shall place a hold on the
Escrowed Funds to the extent of the claim and such Escrowed Funds shall
continue to be held in this Escrow until such claim for indemnification is
resolved by the XImage Shareholders and ImageWare.
(c) ASSIGNMENT OF RECEIVABLES. In the event that the XImage
Shareholders indemnify ImageWare for the failure of XImage to collect any of
its accounts receivable (which were represented to be collectible under
Section 4.7 hereof), then such uncollected receivables shall be assigned by
XImage and/or ImageWare to the XImage Shareholders, without recourse, and the
subsequent collection of such accounts receivable shall be for the account of
the XImage Shareholders. Specifically, if any check or other form of payment
of such accounts receivable is made payable or delivered to XImage or
ImageWare, XImage or ImageWare shall immediately deliver such funds to the
Shareholder Representatives.
SECTION 8.3 INDEMNIFICATION OF XIMAGE SHAREHOLDERS BY IMAGEWARE.
ImageWare hereby agrees to indemnify and hold the XImage Shareholders
harmless from, against and in respect of (and shall on demand reimburse the
XImage Shareholders for) any and all loss, liability, damage or expense
suffered or incurred by such XImage Shareholders by reason of any untrue
representation, breach of warranty or nonfulfillment of any agreement
requiring performance after the Closing or of any covenant contained herein
or in any certificate, document or instrument delivered to XImage pursuant
hereto or in connection herewith.
SECTION 8.4 NOTICE RE INDEMNIFICATION. Promptly after receipt by an
indemnified party of notice of the commencement of any action against such
indemnified party with respect to a claim which the indemnified party
believes is covered by this Section 8, the indemnified party shall notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than as to the
particular item as to which indemnification is then being sought solely
pursuant to this Section 8. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to
the extent that it may wish, jointly with any other indemnifying party
similarly notified, reasonably assume the defense thereof, subject to the
provisions herein stated, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have
the right to
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employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party. The
indemnifying party shall have the right to settle any action against an
indemnified party for which the indemnifying party is liable.
SECTION 8.5 LIMITATIONS ON INDEMNIFICATION. Any provision herein to the
contrary notwithstanding:
(a) An indemnifying party shall have no obligation to indemnify the
indemnified party unless and until the aggregate amount of the claims or
liabilities for which the indemnifying party is liable exceeds $20,000.
(b) In determining the amount of any indemnity, there shall be taken
into account any tax benefit, insurance proceeds or other similar recovery or
offset realized, directly or indirectly, by the party to be indemnified.
(c) ImageWare and XImage each acknowledges and agrees that is shall
have no right pursuant to this Section 8 with respect to any breach or failure
by an XImage Shareholder to fully perform his or her obligation under such
XImage Shareholder's Covenant Not To Compete or Employment Agreement, as
applicable, and that any cause of action arising as a result of such breach or
failure to perform shall be asserted only against such XImage Shareholder in a
separate action by ImageWare or XImage that is independent of this Article 8.
SECTION 8.6 RECOVERY OF COSTS. In the event any party seeks to enforce
its rights hereunder against any other party, then, in addition to all
damages and other remedies to which the prevailing party is or becomes
entitled by reason of such default, the losing party shall promptly pay to
the prevailing party an amount equal to all costs and expenses (including
reasonable attorneys' fees) paid or incurred by the prevailing party in
connection with such enforcement proceeding.
SECTION 9--DISPUTES
SECTION 9.1 Mediation and Last Offer Arbitration. XImage and ImageWare
have agreed on the following mechanisms in order to obtain prompt, expeditious
and equitable resolution of disputes between them which may arise subsequent to
the Closing if they are unable to resolve such issues amicably:
(a) GOOD FAITH NEGOTIATIONS. In the event of any dispute (the
"Dispute") between the parties arising out of or relating to this Agreement or
the performance or breach of this Agreement by either of them, the parties
shall negotiate and try to resolve the Dispute in good faith.
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(b) MEDIATION. In the event that either party determines in its sole
discretion that any Dispute will not be resolved promptly pursuant to Section
9.1(a) above, such party may invoke the mediation process set forth in this
Section 9.1(b) by sending to the other party a written demand for mediation (the
"Demand for Mediation"). Within fifteen days after receipt of the Demand for
Mediation, the parties shall agree on a neutral person to serve as mediator
("Mediator"). In the event that the parties cannot agree on the Mediator
within said fifteen day period, then the San Diego office of JAMS/Endispute
shall, within five days after receiving a request by either party, appoint a
neutral person as the Mediator. The first Mediation session shall be held in
San Diego, California, and shall be requested to be convened no later than
thirty days after the appointment of the Mediator.
(c) LAST OFFER ARBITRATION. In the event that the Mediator, in his
or her sole judgment, determines that the parties are unable to resolve the
Dispute through the Mediation process, but in any event no later than twenty
one days after the first mediation session, then the parties agree to submit
the Dispute for resolution by the Mediator who shall request a last offer (the
"Last Offer") for resolution of the Dispute from each party. Within five days
of receipt of such request, each party shall submit a Last Offer to the Mediator
who, after receiving the Last Offers from both parties, will communicate the
Last Offer made by each party to the other party. If the Dispute is not
resolved through the exchange of the Last Offers, then the Mediator shall, with
ten days of receiving the Last Offers, render his or her award (the "Award") in
writing by selecting one of the last offers. The Mediator shall have no
alternative other than to select one of the Last Offers. The Award shall
include a decision on the costs and expenses in accordance with Section 9.1(d)
below.
(d) COSTS. The cost of the mediation shall initially be borne
equally by the XImage Shareholders and ImageWare, but the prevailing party in
such proceeding shall be entitled to recover, in addition to reasonable
attorneys' fees and all other costs, its contribution for the reasonable costs
of the Mediator as an item of damage or recoverable costs or both. If the
XImage Shareholders or ImageWare refuses to pay its share of the costs at the
time(s) required, the other may do so, in which event that party will be
entitled to recover (or offset) the amount advanced, with interest, even if
that party is not the prevailing party. The Mediator shall include such costs
in any award.
(e) CONFIDENTIALITY. The Mediation and Arbitration proceedings
conducted pursuant to this Section 9 and any information disclosed therein
shall be kept confidential by the parties and not disclosed to third persons,
except for disclosure to accountants in connection with preparing financial
statements or tax returns for the parties, or as required by law.
SECTION 9.2 ENTRY OF JUDGMENT. Any decision by a Mediator shall be
binding on the XImage Shareholders and ImageWare, and judgment thereon may be
entered in the Superior Court for the County of San Diego or any other court
having jurisdiction thereof.
SECTION 9.3 COOPERATION. The XImage Shareholders and ImageWare shall
diligently cooperate with one another to resolve a dispute, and shall perform
such acts as may be necessary to obtain a prompt and expeditious resolution of
the dispute. If the XImage Shareholders or
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ImageWare refuse to cooperate diligently, and another party, after first
giving notice of its intent to rely on the provisions of this Section 9,
incurs additional expenses or attorneys' fees wholly or partly as a result of
such failure to cooperate diligently, then the Mediator may award such
additional expenses and attorneys' fees to the party giving such notice, even
if the party is not the prevailing party in the dispute.
SECTION 10--ADDITIONAL AGREEMENTS
SECTION 10.1 PUBLIC ANNOUNCEMENTS. ImageWare, IAI and XImage agree that
they will not issue any press release or otherwise make any public statement or
respond to any press inquiry with respect to this Merger Agreement or the Merger
without the prior approval of the other party (which approval will not be
unreasonably withheld).
SECTION 10.2 FUNDING XIMAGE; PAYMENT OF CERTAIN DEBTS. Following the
Merger, ImageWare shall provide XImage with funds necessary to pay the debts and
obligations of XImage, in existence at the Effective Time of the Merger, as
they come due and specifically to cause XImage to pay in full, within 30 days
following the Closing, all employee obligations, including accrued vacation
expense, and promissory notes to the XImage Shareholders and former employees
reflected in the computation of XImage's Net Worth at October 31, 1997.
SECTION 10.3 ADDITIONAL MERGER AGREEMENTS. In case at any time after the
Effective Time of the Merger any further action is reasonably necessary or
desirable to vest the Surviving Corporation with full title to all properties,
assets, rights, approvals and franchises of either of the constituent
corporations, the proper officers and directors of each corporation which is a
party to this Merger Agreement shall take all such necessary corporate action.
SECTION 10.4 PAYMENT FOR ACCRUED VACATION. Any employee of XImage that
has accrued vacation which is included as a liability in computing the Net Worth
of XImage at October 31, 1997, shall have the right, within thirty days
following the Closing, to elect to be paid for such vacation in cash, and in
the event of such election, ImageWare shall cause XImage to pay such accrued
vacation in the pay period in which such election is made.
SECTION 10.5 XIMAGE TAX RETURNS. The XImage Shareholders shall file or
cause to be filed the state and federal income tax returns of XImage for the
short taxable period ending on the Effective Date. The cost of preparing and
filing such returns shall be paid 50% by the XImage Shareholders (through an
offset of the Indemnification Fund) and 50% by ImageWare. All tax returns of
XImage for all taxable periods ending after the effective date shall be
prepared and filed by XImage, at its expense and not at the expense of the
XImage Shareholders. After the Closing, each party hereto shall provide to
each of the other parties hereto such cooperation and information as any of
them reasonably request in filing any tax return or claim for refund,
determining a liability for taxes or a right to refund of taxes or in
conducting any audit or other proceeding in respect of taxes and will preserve
such information, records and documents until the expiration of any applicable
statute of limitations or extensions thereof.
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SECTION 10.6 USE OF NAME. Without limiting the right of ImageWare to
conduct its business in such manner as it deems appropriate, ImageWare intends,
following the Closing Date, and for the foreseeable future thereafter, to
maintain XImage as a separate subsidiary operating under its existing name.
SECTION 10.7 SHAREHOLDER REPRESENTATIVES. Kenneth D. Fields and Don
Dehaan shall each be a "Shareholder Representative" of the XImage Shareholders
during the period commencing on the Closing of the Merger and continuing until
termination of the Escrow (the "Escrow Period"). The Shareholder
Representatives, acting jointly, are authorized to take any action deemed by
them to be appropriate or necessary to carry out the provisions of, and to
determine the rights of the Shareholders under this Merger Agreement. The
Shareholder Representatives shall serve as the agent of the XImage Shareholders
for all purposes related to this Merger Agreement and the Escrow Agreement,
including without limitation, service of process upon the Shareholders. The
authorization and designation of the Shareholder Representatives under this
Merger Agreement shall be binding upon the successors and assigns of each
XImage Shareholder. ImageWare and the Escrow Holder shall be entitled to rely
upon such authorization and designation of the Shareholder Representatives and
the action they take on behalf of the XImage Shareholders, and shall have no
duty to inquire into authority of any person reasonably believed by either of
them to be a Shareholder Representative.
(a) REPLACEMENT OF A SHAREHOLDER REPRESENTATIVE. In the event
that a Shareholder Representative shall resign or otherwise terminate his or
her status as such, his or her successor shall be any of the other XImage
Shareholders appointed by the remaining Shareholder Representative, or where
such Shareholder Representative fails to appoint a successor after a vacancy
has been created, elected by the vote or written consent of a majority in
interest of the XImage Shareholders. All decisions of the Shareholder
Representatives shall be binding upon all XImage Shareholders. The
Shareholder Representatives shall keep the XImage Shareholders reasonably
informed of their action or decisions of a material nature. The Shareholder
Representatives shall not be entitled to any compensation for their services
as such.
(b) LIABILITY OF SHAREHOLDER REPRESENTATIVES. The Shareholder
Representatives shall (i) not be liable to any of the XImage Shareholder for any
error of judgment, act done or omitted in good faith, or mistake of fact or law
unless caused by his or her own gross negligence or willful misconduct; (ii) be
entitled to treat as genuine any letter or other document furnished to him or
her by ImageWare or the XImage Shareholders, and believed by him or her to be
genuine and to have been signed and presented by the proper party or parties;
and (iii) be reimbursed from any proceeds otherwise immediately deliverable to
the XImage Shareholders from the Escrow Funds for counsel fees and other
out-of-pocket expenses incurred by the Shareholder Representatives in connection
with this Merger Agreement. The Escrow Agent and ImageWare shall be entitled to
rely upon instructions of the Shareholder Representatives with regard to such
reimbursement for counsel fees and other out-of-pocket expenses.
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SECTION 11 -- TERMINATION
SECTION 11.1 TERMINATION. This Merger Agreement may be terminated at
any time prior to the Effective Time of the Merger, whether before or after
the approval by the XImage Shareholders ("Shareholder Approval") has been
obtained.
(a) MUTUAL CONSENT. By mutual written consent of ImageWare and
XImage;
(b) FAILURE TO CLOSE ON TIME, RECEIVE SHAREHOLDER APPROVAL OR
ORDER PREVENTING MERGER. By either XImage or ImageWare if (i) if without the
fault of the terminating party, the Merger shall not have been consummated
before November 26, 1997; (ii) Shareholder Approval of the Merger Agreement
and the Merger shall not be obtained by reason of XImage Shareholders holding
a majority of XImage's Common Stock failing to vote in favor of approval of
this Merger Agreement at a meeting of the XImage Shareholders; or (iii) a
governmental entity of competent jurisdiction shall have issued an order,
decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling
or other action shall have become final and nonappealable.
(c) BREACH BY XIMAGE. By ImageWare if there has been a breach by
XImage of any representation, warranty, covenant or other agreement in this
Merger Agreement which has a material adverse effect on the Business of
XImage, and such breach has not been included in an updated XImage Disclosure
Schedule or cured, or XImage has not commenced reasonable efforts to cure
such breach within ten days after written notice of such breach is given by
ImageWare to XImage;
(d) BREACH BY IMAGEWARE OR IAI. By XImage if there has been a breach
by ImageWare or IAI of any material representation, warranty, covenant or
other agreement, which has a material adverse effect on the Business of
ImageWare, and such breach has not been included in an updated ImageWare
Disclosure Schedule or cured, or ImageWare and IAI have not commenced
reasonable efforts to cure such breach, within ten days after written notice
of such breach is given by XImage to Imageware.
(e) FAILURE TO FULFILL CONDITIONS. By XImage if any of the
conditions set forth in Section 7.1 hereof shall not have been fulfilled on
or prior to the date specified for fulfillment thereof, or shall have become
impossible to fulfill for reasons beyond the control of XImage, and such
condition shall not have been waived.
(f) FAILURE TO FULFILL CONDITIONS. By ImageWare if any of the
conditions set forth in Section 7.2 hereof shall not have been fulfilled on
or prior to the date specified for fulfillment thereof, or shall have become
impossible to fulfill for reasons beyond the control of ImageWare, and such
condition shall not have been waived.
Where action is taken to terminate this Merger Agreement pursuant to this
Section 11, it shall be sufficient for such action to be authorized by the
Board of Directors of the party taking such
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action, and in the case of XImage, without any requirement to submit such
action to its Shareholders.
SECTION 11.2 EFFECT OF TERMINATION AND ABANDONMENT. In the event of
termination of the Merger Agreement by either XImage or ImageWare as
permitted in Section 11, then this Merger Agreement shall forthwith become
void and have no effect, and there shall be no liability or obligation on the
part of XImage, ImageWare or IAI, or their respective officers and directors,
except that (a) the provisions of Section 6.1(b) and this Section 11.2 shall
survive any such termination, and (b) no party whose breach of its
representations, warranties, covenants or agreements set forth in this Merger
Agreement was the basis of the other party's termination of this Merger
Agreement (under Section 11.1(c) or (d)) shall be relieved from liability for
damages occasioned by such breach, including any expenses incurred by the
other party in connection with this Merger Agreement and the Merger.
SECTION 11.3 AMENDMENT. This Merger Agreement may be amended by the
parties hereto by action taken by their respective Boards of Directors at
any time before or after Shareholder Approval, but after Shareholder
Approval, no amendment shall be made which by law requires the further
approval of the XImage Shareholders without first obtaining such approval.
This Merger Agreement may not be amended, except by an instrument in writing
signed on behalf of each of the parties hereto.
SECTION 11.4 EXTENSION; WAIVER. At any time prior to the Effective
Time of the Merger, any party hereto, by action taken by its Board of
Directors may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, or (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (c) waive
compliance with any of the agreements, covenants or conditions for the
benefit of such party 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. The failure of any
party to this Merger Agreement to assert any of its rights under this Merger
Agreement shall not constitute a waiver of these rights.
SECTION 12--MISCELLANEOUS
SECTION 12.1 ASSIGNMENT. This Merger Agreement shall be binding upon,
and shall inure to the benefit of, the parties to it and their respective
successors and assigns, but neither this Merger Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties hereto.
SECTION 12.2 FEES AND EXPENSES. Each of the parties shall pay its own
fees, costs and expenses (including, without limitation, brokers fees and
legal and accounting expenses) incurred, or to be incurred, by each of them
in negotiating and preparing this Merger Agreement and in closing and
carrying out the Merger. In the case of XImage, these expenses, to the extent
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not listed as a liability in the computation of XImage's Net Worth at
October 31, 1997, shall be paid out of the funds deposited in the Closing
Escrow.
SECTION 12.3 NOTICES. All notices, requests, demands and other
communications under this Merger Agreement shall be in writing and shall be
deemed to have been duly given (a) on the date of service if served
personally; (b) on the date of receipt by the party to whom notice is to be
given if transmitted by an overnight commercial carrier; (c) on the date sent
by facsimile to the party to whom notice is to be given where the fax
transmitting device records verification of receipt of the fax and the date
and time of transmission, receipt and the telephone number of the other fax
machine; or (d) on the third business day after deposit in the U.S. Mail, if
mailed to the party on whom notice is to be given, by certified mail, postage
prepaid, and properly addressed as follows:
If to ImageWare and IAI:
ImageWare Software, Inc.
15373 Innovation Drive, Suite 120
San Diego, California 92128
Attention: S. James Miller, Jr., President
Facsimile: (619) 673-0291
Confirmation: (619) 673-8600
with a copy to:
Nossaman, Guthner, Knox & Elliott, LLP
445 South Figueroa Street, 31st Floor
Los Angeles, CA 90071-1602
Attention: William E. Guthner, Jr.
Facsimile: (213) 612-7814
Confirmation: (213) 612-7800
If to XImage:
XImage Corporation
1050 North Fifth Street
San Jose, California 95112
Attention: Kenneth D. Fields, Vice President
Facsimile: (408) 993-1050
Confirmation: (408) 288-8800
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If to the Shareholder Representatives
Kenneth D. Fields and Don Dehaan
XImage Corporation
1050 North Fifth Street
San Jose, California 95112
Facsimile: (408) 993-1050
Confirmation: (408) 288-8800
with a copy to:
Morrison & Foerster
755 Page Mill Road
Palo Alto, California 94304
Attention: Suzanne S. Graeser
Facsimile: 415-494-0792
Confirmation: 415-813-5750
Any party may change its address for purposes of this Section by giving the
other party written notice of the new address in the manner set forth above.
SECTION 12.4 GOVERNING LAW. This Merger Agreement shall be construed
in accordance with, and governed by, the laws of the State of California,
without giving effect to provisions thereof relating to conflicts of law.
SECTION 12.5 FURTHER ACTION. Each of the parties hereto shall use its
best efforts to take such action as may be necessary or reasonably requested
by another party hereto to carry out and consummate the Merger.
SECTION 12.6 NO THIRD PARTY BENEFICIARY. Nothing herein is intended to
create rights in any third party.
SECTION 12.7 EFFECT OF HEADINGS. The subject headings of the Sections
of this Merger Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
SECTION 12.8 SEVERABILITY. If any term of this Merger Agreement or
application thereof shall be invalid or unenforceable, the remainder of this
Merger Agreement shall remain in full force and effect.
SECTION 12.9 COUNTERPARTS. This Merger Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
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SECTION 12.10 SCHEDULES. Any disclosure included in any section of the
XImage Disclosure Schedule or the ImageWare Disclosure Schedule shall be
considered to have been made for purposes of each and every section of this
Merger Agreement, if appropriate or relevant. All such Schedules are
incorporated herein by this reference.
SECTION 12.11 ENTIRE MERGER AGREEMENT; MODIFICATION; WAIVER. This
Merger Agreement constitutes the entire agreement among the parties
pertaining to the subject matter contained herein and supersedes all prior
and contemporaneous agreements, representations and undertakings of the
parties. No supplement, modification or amendment of this Merger Agreement
shall be binding unless executed in writing by all the parties. No waiver of
any of the provisions of this Merger Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by any party making the waiver.
In Witness Whereof, the parties to this Merger Agreement have duly
executed it on the day and year first above written.
ImageWare Software, Inc., a California corporation
by /s/ S. James Miller, Jr.
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S. James Miller, Jr., President
by /s/ Wayne Wetherell
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Wayne Wetherell, Chief Financial Officer
ImageWare Acquisition, Inc., a California corporation
by /s/ S. James Miller, Jr.
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S. James Miller, Jr., President
by /s/ Wayne Wetherell
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Wayne Wetherell, Secretary
XImage Corporation, a California corporation
by /s/ Kenneth D. Fields
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Kenneth D. Fields, Vice President
by /s/ Don Dehaan
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Don Dehaan, Vice President
33