<PAGE>
As filed with the Securities and Exchange Commission on March 18, 1999
Registration No. 333-68805
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
AMENDMENT NO. 2
To
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
IDENTIX INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 7373 94-2842496
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporate or organization) Classification Code Number) Identification No.)
</TABLE>
510 North Pastoria Avenue, Sunnyvale, California 94086, (408) 731-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Randall C. Fowler, President and Chief Executive Officer
510 North Pastoria Avenue, Sunnyvale, California 94086, (408) 731-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
<TABLE>
<S> <C>
Richard A. Peers Thomas W. Kellerman
<CAPTION>
Christina L. Vail Jonathan P. Shanberge
Heller Ehrman White & McAuliffe Brobeck Phleger & Harrison LLP
525 University Avenue 2200 Geng Road
Palo Alto, California 94301 Palo Alto, CA 94303
Telephone: (650) 324-7000 Telephone: (650) 424-0160
Facsimile: (650) 324-0638 Facsimile: (650) 496-2885
</TABLE>
--------------
Commencement of proposed sale to the public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
IDT HOLDINGS, INC.
1150 Bayhill Drive, Suite 215,
San Bruno, California 94066
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1999
----------------
TO THE STOCKHOLDERS OF IDT HOLDINGS, INC.:
NOTICE IS HEREBY GIVEN that IDT Holdings, Inc. ("IDT") will hold a special
meeting of stockholders on , 1999, at IDT's principal office located
at 1150 Bayhill Drive, Suite 215, San Bruno, California 94066 (including any
adjournments or postponements thereof) for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Reorganization and Merger, dated as of November 14, 1998, as
amended on December 11, 1998 and February 3, 1999, by and among Identix
Incorporated ("Identix"), IDT, and ID Acquisition Corp., a wholly owned
subsidiary of Identix ("Merger Sub"), providing for the merger of Merger
Sub with and into IDT. As a result of the merger, IDT would be the
surviving corporation (the "Surviving Corporation") and become a wholly
owned subsidiary of Identix. Each IDT stockholder will receive
approximately [1.067] shares of Identix common stock in the merger for
each share of IDT common stock such stockholder holds. The exact exchange
ratio cannot be determined until the closing of the merger, but will be
equal to 5,050,000 divided by the number of shares of IDT capital stock
outstanding at the closing, assuming the exercise of all IDT stock
options and warrants.
2.To transact such other business as may properly come before the special
meeting.
Only the holders of record of IDT common stock as of the close of business
on the record date, , 1999, are entitled to notice of, and to vote at, the
special meeting. A list of such stockholders will be open to examination by any
IDT stockholder at the special meeting and for a period of ten days prior to
the date of the special meeting during ordinary business hours at IDT's
headquarters, located at 1150 Bayhill Drive, Suite 215, San Bruno, California
94066. The approval of the merger agreement and the merger requires the
affirmative vote of the holders of at least a majority of the shares of IDT
common stock outstanding on the record date for the special meeting.
If you attend the meeting, you may vote your shares in person, which will
revoke any previously executed proxy. Failure to return a properly executed
proxy card or to vote at the special meeting will generally have the same
effect as a vote against the merger.
By Order of the Board of Directors,
Oscar Pieper
President
San Bruno, California
, 1999
Your vote is very important. Whether or not you plan to attend the special
meeting, please complete, sign and date your proxy card and return it
promptly in the enclosed postage-prepaid envelope. Even if you give your
proxy, you may still vote in person if you attend the meeting.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IDT HOLDINGS, INC. IDENTIX INCORPORATED
PROXY STATEMENT PROSPECTUS
Common Stock
$.01 par value
The boards of directors of IDT Holdings, Inc. and Identix Incorporated have
approved the acquisition of IDT by Identix.
As a result of the merger, IDT security holders will be entitled to receive
a total of 5,050,000 shares of Identix common stock, either in the merger or
upon the exercise of IDT options and warrants assumed by Identix in the merger.
Immediately after the merger, IDT security holders will own approximately [ ]%
of the outstanding Identix common stock, assuming the exercise of all
outstanding IDT options and warrants assumed by Identix in the merger.
Each IDT stockholder will receive approximately [1.067] shares of Identix
common stock in the merger for each share of IDT common stock such stockholder
holds. The IDT stockholders will not know, at the time of vote, the exact
number of shares to be received by them in the merger.
IDT stockholders will not immediately receive and be able to sell all of the
Identix shares issuable in the merger. Shortly after the closing, each IDT
stockholder will receive 90% of the shares issuable to such stockholder in the
merger. The remaining 10% of the shares will automatically be placed in escrow
for a one-year period. Those escrowed shares may be returned to Identix to the
extent that Identix successfully makes a claim after the closing for damages or
expenses as a result of breaches or misrepresentations by IDT relating to the
merger agreement or this prospectus. Holders of shares released from escrow
will be prohibited from selling those shares until fifteen months after
closing. In addition to the 10% placed in escrow, any IDT stockholder owning
more than 1,000 IDT shares immediately prior to the merger will be prohibited
from selling at least 40% of the Identix shares received by the stockholder in
the merger for a period of fifteen months from closing.
It is expected that IDT stockholders will not be taxed solely as a result of
the exchange of Identix common stock for IDT common stock in the merger, except
to the extent they receive cash for fractional shares. See "Material Federal
Income Tax Consequences" beginning on page 31 for a discussion of the
limitations on that conclusion and the assumptions on which it is based.
The IDT board of directors has scheduled the following special meeting for
IDT stockholders to vote on the merger:
[DATE]
[TIME]
1150 Bayhill Drive, Suite 215, San Bruno, California 94066
The merger cannot be completed unless IDT stockholders approve it.
Stockholder approval of the merger is assured because Identix has received the
agreement of persons holding at least a majority of IDT common stock to vote
their IDT shares in favor of the merger. However, your vote is still very
important. Whether or not you plan to attend the IDT special meeting, please
take the time to vote by completing and mailing the enclosed proxy card to us.
The merger involves certain risks to IDT stockholders. See "Risk Factors,"
beginning on page 13.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Prospectus dated , 1999, first mailed to IDT stockholders on , 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................... 1
The companies............................................................ 1
IDT's reasons for the merger............................................. 1
The merger............................................................... 1
What IDT stockholders will receive in the merger......................... 1
What IDT option holders will receive in the merger....................... 2
Ownership of Identix following the merger................................ 2
Escrow of Identix shares in case Identix incurs damages or expenses...... 2
Fifteen-month resale restriction......................................... 2
The special meeting...................................................... 3
IDT's recommendation to IDT stockholders................................. 3
Record date; voting power................................................ 3
Votes required........................................................... 3
Voting Agreement......................................................... 3
Appraisal rights......................................................... 3
Federal income tax consequences.......................................... 3
Listing of Identix common stock.......................................... 4
Interests of IDT officers and directors in the merger.................... 4
Conditions to the merger................................................. 4
Termination of the merger agreement...................................... 4
Accounting treatment..................................................... 5
Regulatory approvals..................................................... 5
Operations following the merger.......................................... 5
Identicator, Inc......................................................... 5
Selected Historical Financial Data and Comparative Per Share Data.......... 6
Market Price and Dividend Information...................................... 11
Special Note Regarding Forward-Looking Statements.......................... 12
Risk Factors............................................................... 13
Risks Relating to the Merger............................................. 13
Risks Relating to Business of Identix and Identicator Technology......... 14
The Special Meeting........................................................ 24
Time and Place........................................................... 24
Matters to be Considered at the Special Meeting.......................... 24
Record Date and Quorum................................................... 24
Votes Required........................................................... 24
Proxies.................................................................. 25
Solicitation of Proxies and Expenses..................................... 25
The Merger................................................................. 26
Background of the Merger................................................. 26
IDT's Reasons for the Merger; Recommendation of the IDT Board............ 27
Identix's Reasons for the Merger......................................... 29
Actions Preceding the Merger............................................. 30
Operations Following the Merger.......................................... 30
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Interests of IDT Officers and Directors in the Merger.................. 31
Material Federal Income Tax Consequences............................... 31
Regulatory Approvals................................................... 34
Appraisal Rights....................................................... 34
The Merger Agreement..................................................... 39
Effective Time; Effect of Merger....................................... 39
Conversion of Securities............................................... 39
Exchange Procedures.................................................... 41
Indemnification and Escrow............................................. 41
Fifteen-Month Resale Restriction....................................... 42
Representations and Warranties......................................... 43
Conduct of Business Pending the Merger................................. 43
Exclusivity............................................................ 44
Additional Covenants................................................... 45
Conditions............................................................. 45
Termination............................................................ 46
Expenses............................................................... 47
Amendment.............................................................. 47
Affiliate's Agreements................................................. 47
Voting Agreement....................................................... 47
Employment and Noncompetition Agreements............................... 48
Comparison of Capital Stock.............................................. 49
Description of Identix Capital Stock................................... 49
Description of IDT Capital Stock....................................... 49
Comparison of Stockholder Rights....................................... 51
Unaudited Pro Forma Condensed Combined Financial Information............. 54
Business of Identicator Technology....................................... 62
Overview............................................................... 62
Technology and Products................................................ 62
Marketing and Distribution Channels.................................... 64
Proprietary Technology................................................. 66
IDT'S Management Discussion and Analysis of Financial Condition and
Results of Operations................................................... 67
Security Ownership of Certain Beneficial Owners and Management of IDT.... 72
Legal Matters............................................................ 73
Experts.................................................................. 73
Where You Can Find More Information...................................... 73
Incorporation of Certain Documents by Reference.......................... 74
IDT Index to Consolidated Financial Statements........................... F-1
Appendix A Agreement and Plan of Reorganization and Merger............... A-1
Appendix B Stockholder Voting and Proxy Agreement........................ B-1
Appendix C Escrow Agreement.............................................. C-1
Appendix D Delaware General Corporation Law Appraisal Rights............. D-1
Appendix E Chapter 13 General Corporation Law of California
Dissenters' Rights...................................................... E-1
</TABLE>
ii
<PAGE>
SUMMARY
This summary highlights selected information from this document and does not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. We have included page references to direct you to
more complete descriptions of the topics presented in this summary.
The companies
Identix Incorporated
510 North Pastoria Avenue
Sunnyvale, California 94086
(408) 731-2000
Identix is a leader in designing, developing, manufacturing and marketing
biometric products for the capture or comparison of fingerprints for security,
fraud prevention, law enforcement and other applications. "Biometrics" is the
analysis of unique biological characteristics of an individual, such as a
fingerprint, for identification or verification purposes.
Through its subsidiary ANADAC, Inc., Identix provides information technology,
engineering and management consulting services, including the installation and
integration of Identix products, to private and public sector clients.
Please see "Where You Can Find More Information" and "Incorporation of Certain
Documents by Reference" on pages 73 and 74 for additional information about
Identix.
IDT Holdings, Inc. and Identicator Technology, Inc. (page 62)
IDT Holdings, Inc. is a holding company. The business operations are conducted
through Identicator Technology, Inc., which is a wholly owned subsidiary of
IDT. Prior to completion of the merger, Identicator Technology, Inc. will be
merged with and into IDT. IDT and Identicator Technology are referred to
together in this document as "Identicator Technology."
IDT's reasons for the merger (page 27)
The IDT board of directors believes that the merger will enable IDT to benefit
from the sales and marketing, management and capital resources of Identix and
allow its stockholders to participate in a publicly traded company that is a
leader in biometric security and imaging products.
The merger (page 26)
The merger agreement is attached as Appendix A to this document. We encourage
you to read the merger agreement. It is the legal document governing the
merger.
What IDT stockholders will receive in the merger (page 39)
If you hold shares of IDT common stock, you will receive approximately [1.067]
shares of Identix common stock in the merger for each share of IDT common stock
you hold. The exact exchange ratio cannot be determined until the closing of
the merger, but will be equal to 5,050,000 divided by the number of shares of
IDT capital stock outstanding at the closing, assuming the exercise of all IDT
stock options and warrants. As of the date of this prospectus, there were
[4,732,096] shares of IDT capital
1
<PAGE>
stock outstanding (assuming exercise of all stock options and warrants).
Identix will not issue fractional shares. Instead, you will receive cash for
any fractional share of Identix common stock owed to you based on the average
of the high and low prices of Identix common stock on the trading day before
the closing of the merger.
You should not send in your stock certificates until instructed to do so after
the merger is completed.
What IDT option holders will receive in the merger (page 40)
If you hold options to purchase shares of IDT common stock, after the merger
your options will be assumed by Identix and you will have the right to purchase
Identix common stock. The number of shares issuable upon exercise of your IDT
options and the exercise price per share will be adjusted in accordance with
the same exchange ratio applied to determine the number of shares of Identix
stock to be issued per share of IDT common stock in the merger. See "What IDT
stockholders will receive in the merger" above.
Ownership of Identix following the merger
Immediately following the merger, existing IDT stockholders will own
approximately % of the outstanding Identix common stock, assuming the
exercise of all IDT stock options and warrants assumed by Identix in the
merger.
Escrow of Identix shares in case Identix incurs damages or expenses (page 41)
IDT stockholders will not immediately receive all of the Identix shares
issuable in the merger. 10% of the shares issuable to each IDT stockholder will
automatically be placed in escrow for a one-year period. Those escrowed shares
may be returned to Identix to the extent that Identix successfully makes a
claim for damages or expenses as a result of breaches or misrepresentations by
IDT relating to the merger agreement or this prospectus. Holders of shares
released from escrow will be prohibited from selling those shares until fifteen
months after closing.
A stockholder representative will be authorized to represent the IDT security
holders in all matters relating to the escrow. Harry F. Camp has been selected
by the IDT board to act as the stockholder representative. Approval by the IDT
stockholders of the merger will constitute approval of the escrow agreement and
the selection of the stockholder representative.
IDT will also ask its stock option and warrant holders to agree that 10% of
their IDT stock options and warrants (and the Identix common stock they receive
upon exercise of those options and warrants) will also be subject to the escrow
agreement and subject to cancellation if Identix successfully claims damages in
excess of the value of the shares issued into escrow at closing.
Fifteen-month resale restriction (page 42)
In addition to the shares subject to the escrow, at least 40% of the Identix
shares issued in the merger to any IDT stockholder who owns more than 1,000 IDT
shares immediately prior to the merger will automatically be subject to a
"lock-up" period for fifteen months. Shares subject to the lock-up period may
not be sold, pledged or otherwise transferred during the period, except upon
the death of a stockholder. The exact number of shares of each IDT stockholder
subject to the lock-up will be determined at closing. IDT will also ask each
holder of IDT stock options or warrants to agree that, in
2
<PAGE>
addition to the portions of their options and warrants subject to the escrow,
40% of the Identix shares issuable upon exercise of their options and warrants
will be subject to the lock-up period.
The special meeting (page 24)
The IDT special meeting will be held at IDT's principal office located at 1150
Bayhill Drive, Suite 215, San Bruno, California 94066 on [date] at [time]. At
the special meeting, you will be asked to approve and adopt the merger
agreement and approve the merger.
IDT's recommendation to IDT stockholders (page 27)
The IDT board of directors believes that the merger is fair to you and in your
best interests and unanimously recommends that you vote "for" the proposal to
approve and adopt the merger agreement and approve the merger.
Record date; voting power (page 24)
You are entitled to vote at the special meeting if you owned shares of IDT
common stock as of the close of business on , 1999, the record date for the
special meeting.
On the record date, there were outstanding [2,727,762] shares of IDT common
stock and no shares of Series A Preferred Stock. IDT stockholders will have one
vote for each share of IDT common stock they owned at the record date.
Votes required (page 24)
At least a majority of the shares of IDT common stock outstanding on the record
date must vote to approve and adopt the merger agreement and approve the
merger.
Voting agreement (page 47)
IDT stockholders who hold approximately [70%] of the shares of IDT common stock
outstanding on the record date have agreed to vote their IDT shares "for"
adoption and approval of the merger agreement and approval of the merger. The
stockholders who are parties to the voting agreement are International
Technology Concepts, Inc. and the directors of IDT.
Appraisal rights (page 34)
Under Delaware law, stockholders of IDT have rights to demand an appraisal of
the value of their shares of IDT common stock in lieu of participating in the
merger. In addition, because IDT is subject to certain California laws, IDT
stockholders are also entitled to exercise dissenters' rights under California
law.
Federal income tax consequences (page 31)
It is expected that IDT stockholders will not be taxed solely as a result of
the exchange of Identix common stock for IDT common stock in the merger, except
to the extent they receive cash for fractional shares. It is a condition to the
closing of the merger that each of IDT and Identix receive an opinion from its
outside counsel to that effect. However, tax counsel is not giving an opinion
as to any prior IDT transaction or as to the effect of the merger on prior IDT
transactions.
Tax matters are very complicated and the tax consequences of the merger to you
will depend in part on the facts of your own situation. You should consult your
tax advisors, as you deem appropriate, for a full understanding of the tax
consequences of the merger to you.
3
<PAGE>
Listing of Identix common stock
As a condition of closing, the Identix common stock issued in connection with
the merger must be approved for quotation on the AMEX.
Interests of IDT officers and directors in the merger (page 31)
In considering the merger, you should be aware that the officers and directors
of IDT have interests in the merger that are in addition to the interests of
IDT's stockholders generally. Pursuant to their terms, some of the options held
by four IDT officers and directors will vest upon the consummation of the
merger. Furthermore, Identix will enter into employment agreements and issue
additional options after the merger to four officers of IDT, three of whom who
are also directors of IDT.
In connection with the merger, Identix will enter into an agreement with
International Technology Concepts, Inc. under which International Technology
Concepts will provide administrative, research, development, testing and
production services and access to facilities to Identix. Two of the officers
and directors of IDT are also officers, directors and principal stockholders of
International Technology Concepts.
In connection with the merger, Identix will enter into an agreement with
Identicator, Inc. under which Identicator, Inc. will provide administrative
services and a trademark license to Identix. Two of the officers and directors
of IDT are also officers, directors and principal stockholders of Identicator,
Inc.
Conditions to the merger (page 45)
Identix and IDT will complete the merger only if a number of conditions are
satisfied or waived, including the following:
. the holders of at least a majority of the IDT common stock approve the
merger agreement;
. the number of "dissenting shares" of IDT does not exceed 5% of the
aggregate number of shares of Identix common stock that would be
issuable in the merger at the effective time if there were no dissenting
shares;
. no material adverse change occurs in the businesses of either
Identicator Technology or Identix;
. four officers of Identicator Technology enter into employment and
noncompete agreements with Identix and receive option grants; and
. the escrow holder, Identix and the stockholder representative enter into
an escrow agreement and holders of IDT stock options have entered into
supplemental written agreements, so that the total number of shares of
Identix common stock available to satisfy escrow claims is at least
434,300.
Termination of the merger agreement (page 46)
Identix and IDT can jointly agree to terminate the merger agreement at any time
without completing the merger. Either company can terminate the merger
agreement under various circumstances, including if:
. the other company fails to perform any material covenant in the merger
agreement; or
. the other company has not met its closing conditions by April 30, 1999
and the terminating party has not waived such conditions.
4
<PAGE>
Accounting treatment
The merger will be accounted for by Identix as a purchase in accordance with
generally accepted accounting principles. Application of the purchase method of
accounting for the merger will reduce Identix's pre-tax earnings for at least 3
years, and as many as 12 years. The reported results of operations of Identix
will include the results of IDT from and after the closing date. The assets,
including intangible assets, and liabilities of IDT will be recorded at their
fair values as of the closing date. Any excess of the purchase consideration
over the fair values of the assets and liabilities of IDT will be recorded as
goodwill. Identix will write off at closing the value of certain acquired
intangible assets referred to as in-process research and development. In
addition, other acquired intangible assets and goodwill created as a result of
the merger will be amortized by Identix over a period from 3 to 12 years.
Regulatory approvals (page 34)
The merger is not subject to the filing and waiting period requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Operations following the merger (page 30)
Following the merger, Identicator Technology will continue its operations as a
wholly-owned subsidiary of Identix. The board of directors of Identicator
Technology will consist of two continuing members, Oscar Pieper and Yuri
Khidekel, and two officers of Identix, Randall C. Fowler and James P. Scullion.
The following individuals will continue as officers of Identicator Technology
following the merger: Oscar Pieper, Yuri Khidekel, Yury Shapiro and Grant
Evans.
Identicator, Inc.
Until March 31, 1997, a predecessor of IDT was engaged in developing and
commercializing products for non-electronic, paper-based production,
development or capture of fingerprint images. On March 31, 1997, that
predecessor transferred that paper-based business to a company called
Identicator, Inc. and distributed shares in Identicator, Inc. to its
stockholders. IDT does not own any interest in Identicator, Inc., and Identix
is not acquiring Identicator, Inc. or any part of its business through the
merger.
Identicator, Inc. owns all rights to the Identicator trademark and logo, and
will grant to Identicator Technology a royalty-free, perpetual, irrevocable,
worldwide right and license to use the Identicator trademark and logo for its
business. Such license will be exclusive in Identicator Technology's line of
business.
5
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
AND COMPARATIVE PER SHARE DATA
Identix is providing the following information to aid you in your analysis
of the financial aspects of the merger. Identix derived this information from
its historical audited financial statements for the fiscal years ended June 30,
1994 through June 30, 1998, and its historical unaudited financial statements
for the six months ended December 31, 1997 and 1998 which have been prepared on
the same basis as the historical audited financial statements. In the opinion
of management, the unaudited financial statements of Identix, from which such
data have been derived, contain all adjustments, consisting only of normal
recurring accruals, necessary for the fair presentation of the results for, and
as of the end of, such periods. The operating results of Identix for the six
months ended December 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending June 30, 1999. This information is
only a summary and you should read it in conjunction with Identix's historical
consolidated financial statements, including the related notes, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the annual reports, quarterly reports and other
information on file with the Securities and Exchange Commission. See "Where You
Can Find More Information" and "Incorporation of Certain Documents by
Reference" on pages 73 and 74.
Identix Selected Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months
Ended
Fiscal Year Ended June 30, December 31,
------------------------------------------ ---------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Consolidated
Statement of Operations
Data:
Revenues................ $20,135 $27,014 $38,541 $52,543 $79,374 $38,603 $40,323
Net income (loss)....... (2,596) (715) (3,441) 518 768 951 394
Basic net income (loss)
per share.............. (0.14) (0.04) (0.15) 0.02 0.03 0.04 0.02
Diluted net income
(loss) per share....... (0.14) (0.04) (0.15) 0.02 0.03 0.04 0.02
Weighted average common
shares used in
computing basic net
income (loss) per
share.................. 18,304 19,371 23,485 24,817 25,104 25,011 25,319
Weighted average common
shares used in
computing diluted net
income (loss) per
share.................. 18,304 19,371 23,485 25,586 25,669 25,690 25,646
</TABLE>
<TABLE>
<CAPTION>
June 30,
--------------------------------------- December 31,
1994 1995 1996 1997 1998 1998
------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Historical Consolidated
Balance Sheet Data:
Cash and cash
equivalents............. $ 799 $ 3,842 $ 981 $ 2,510 $ 753 $ 2,418
Working capital.......... 3,588 9,571 14,914 15,477 18,153 19,716
Total assets............. 10,593 18,104 27,107 32,440 42,012 41,932
Long-term debt and
convertible debt........ 500 -- 127 -- -- --
Shareholders' equity..... 5,751 12,274 19,472 20,898 22,910 24,344
</TABLE>
6
<PAGE>
IDT is providing the following information to aid you in your analysis of
the financial aspects of the merger. IDT derived this information from its
historical unaudited financial statements for the fiscal years ended December
31, 1994 and 1995 and the audited financial statements for the fiscal years
ended December 31, 1996, 1997 and 1998.This information is only a summary and
you should read it in conjunction with IDT's Consolidated Financial Statements
(and related notes) beginning on page F-1 and "IDT's Management Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page
67.
IDT Selected Historical Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
-----------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Historical Consolidated Statement of
Operations Data:
Revenues.............................. $1,541 $2,088 $3,061 $3,194 $ 4,378
Net income (loss) from operations..... 424 703 453 143 (5,899)(1)
Net income (loss)..................... 81 709 459 146 (5,978)(1)
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1995 1996 1997 1998
---- ---- ---- ------ ------
Historical Consolidated Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........................ $135 $102 $474 $ 15 $ 76
Working capital (deficit)........................ 195 650 787 853 (55)
Total assets..................................... 214 893 847 1,991 1,990
Long-term debt, net of issuance costs............ -- -- -- -- 299
Total partners' capital.......................... 196 685 844 990 --
Shareholders' equity (deficit)................... -- -- -- -- (77)
</TABLE>
- --------
(1) The issuance of options to purchase IDT common stock at an exercise price
of $0.28 per share resulted in IDT recognizing stock compensation charges
of $4.6 million in the year ended December 31, 1998. See Note 9 of Notes to
IDT's Consolidated Financial Statements.
7
<PAGE>
The following table sets forth unaudited pro forma condensed combined
financial data for Identix and IDT which gives effect to the acquisition,
accounted for as a purchase, as if it had been consummated as of July 1, 1997
for the year ended June 30, 1998 statement of operations data and for the six
months ended December 31, 1998 statement of operations data. The net loss set
forth below does not include in-process research and development costs in the
amount of $10,044,000 which will be written off immediately after the
transaction is completed. The balance sheet data assumes the merger was
consummated on December 31, 1998. The pro forma data is not necessarily
indicative of the results that would have been achieved had such transaction
been consummated on such dates and should not be construed as representative of
future operations. This presentation is subject to the assumptions set forth in
the notes to the Unaudited Pro Forma Condensed Combined Financial Information
appearing elsewhere in this prospectus. The information presented should be
read in conjunction with such pro forma financial information and the notes
thereto and the historical consolidated financial statements including the
notes thereto of Identix, incorporated by reference into this prospectus and of
IDT, appearing elsewhere in this prospectus. See "Unaudited Pro Forma Condensed
Combined Financial Information" beginning on page 54, IDT's Consolidated
Financial Statements beginning on page F-1, and "Where You Can Find More
Information" and "Incorporation of Certain Documents By Reference" on pages 73
and 74.
Unaudited Selected Pro Forma Condensed Combined Financial Data
(in thousands, except per share data)
Pro Forma Combined Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
June 30, 1998 December 31, 1998
------------- -----------------
<S> <C> <C>
Revenues................................ $83,477 $42,597
Loss from operations.................... (1,447) (6,313)(1)
Loss before taxes....................... (1,616) (6,567)(1)
Net loss................................ (1,787) (6,816)(1)
Net loss per share--basic and diluted... (0.06) (0.24)
Shares used in computing net loss per
share--basic and diluted............... 28,013 28,228
</TABLE>
Pro Forma Combined Balance Sheet Data:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Current assets.......................................... $38,887
Total assets............................................ 68,472
Working capital......................................... 19,111
Current liabilities..................................... 19,776
Long-term liabilities................................... 429
Stockholders' equity.................................... 48,267
</TABLE>
- --------
(1) The issuance of options to purchase IDT common stock at an exercise price
of $0.28 per share resulted in IDT recognizing stock compensation charges
of $4.6 million in the six months ended December 31, 1998. See Note 9 of
Notes to IDT's Consolidated Financial Statements.
8
<PAGE>
Comparative Per Share Information
The following table sets forth certain earnings, dividend and book value per
share data for IDT and Identix on a historical basis and pro forma combined
basis.
The information is only a summary and you should read it in conjunction with
the "Unaudited Pro Forma Condensed Combined Financial Information" on pages 54
through 61 and the respective audited and unaudited consolidated financial
statements of Identix and IDT, including the notes thereto, incorporated by
reference or appearing elsewhere in this prospectus. See IDT's Consolidated
Financial Statements (and related notes) beginning on page F-1, "IDT's
Management Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 67, and "Where You Can Find More Information" and
"Incorporation of Certain Documents by Reference" on pages 73 and 74.
The IDT pro forma equivalent per share amounts are calculated by multiplying
the Identix pro forma per share amounts by the assumed exchange ratio of
approximately 1.067. This ratio is calculated by dividing the total number of
shares of Identix common stock to be issued in the merger and upon the exercise
of options and warrants assumed in the merger (5,050,000) by the number of
shares of IDT common stock outstanding on a fully diluted basis (4,732,096).
Prior to September 30, 1998, Identicator Technology was a partnership and
had no common shares outstanding. On September 30, 1998, ownership of
substantially all of the assets and business of the partnership was transferred
to Identicator Technology, Inc., a wholly owned subsidiary of IDT Holdings,
Inc. Identicator Technology, Inc. will be merged with and into IDT prior to the
merger. The IDT historical book value is computed by dividing partners'
capital/shareholders' equity at the end of the period by the number of shares
of IDT common stock outstanding at December 31, 1998 (2,727,762). Partners'
capital was $905,000 at June 30, 1998 and shareholders' deficit was $77,000 at
December 31, 1998. The IDT historical net income (loss) per share is computed
by dividing net income (loss) by the number of shares of IDT common stock
outstanding at December 31, 1998 (2,727,762). Options and warrants outstanding
at December 31, 1998 to acquire shares of IDT common stock (2,004,334) are
included in the computation to the extent that they are dilutive. Net income
for the year ended June 30, 1998 was $85,000. The net loss for the six month
period ended December 31, 1998 was $5,890,000. This loss includes stock
compensation charges of $4,642,000 in connection with the issuance of options
to purchase IDT common stock at an exercise price of $0.28 per share during
that six month period.
9
<PAGE>
This information is not necessarily indicative of the results of future
operations of the combined company or the actual results that would have
occurred had the merger been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
At or for the Year Ended At or for the Six Months Ended
June 30, 1998 December 31, 1998
------------------------ ------------------------------
<S> <C> <C>
Per Share of Identix
Common Stock:
Book Value:
Historical.......... $ 0.91 $ 0.96
Pro forma........... $ 1.72 $ 1.71
Net income (loss):
Historical.......... $ 0.03 $ 0.02
Pro forma........... $(0.06) $(0.24)
Per Share of IDT Common
Stock:
Book Value:
Historical.......... $ 0.34 $(0.03)
Pro forma
equivalent......... $ 1.83 $ 1.83
Net income (loss):
Historical.......... $ 0.02 $(2.24)
Pro forma
equivalent......... $(0.07) $(0.26)
</TABLE>
10
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
The shares of Identix common stock are listed and principally traded on the
AMEX and quoted under the symbol "IDX." The following table sets forth, for the
quarters indicated, the high and low closing prices of Identix common stock as
reported on the AMEX. For current price information, IDT stockholders are urged
to consult publicly available sources.
Identix Common Stock
<TABLE>
<CAPTION>
Period High Low
------ ------ -----
<S> <C> <C>
Fiscal Year ended June 30, 1997:
First Quarter............................... $13.88 $8.19
Second Quarter.............................. 10.75 7.25
Third Quarter............................... 12.75 8.38
Fourth Quarter.............................. 11.25 7.44
Fiscal Year ended June 30, 1998:
First Quarter............................... $11.81 $8.75
Second Quarter.............................. 11.63 9.31
Third Quarter............................... 10.50 8.50
Fourth Quarter.............................. 8.56 5.63
Fiscal Year ending June 30, 1999:
First Quarter............................... $ 8.38 $4.56
Second Quarter ............................. 10.00 5.00
Third Quarter (through March 16, 1999)...... 10.25 5.94
</TABLE>
There is no public market for the IDT common stock.
Dividend Information
Identix has not paid any cash dividends on its common stock during the last
five fiscal years. Identix currently intends to retain any earnings for use in
its business and does not anticipate paying any cash dividends in the
foreseeable future. In addition, Identix's bank lines of credit restrict
Identix's ability to pay cash dividends.
IDT has never paid any cash dividends on the IDT common stock, and if the
merger is not consummated, it anticipates that it will continue to retain any
earnings for the foreseeable future for use in the operation of its business.
11
<PAGE>
Recent Closing Prices
The following table sets forth the closing prices per share of Identix
common stock on the AMEX on November 13, 1998, the last trading day before
announcement of the proposed merger, and on , 1999, the latest practicable
trading day before the printing of this prospectus. The table also includes an
IDT equivalent value which is calculated by multiplying the closing price per
share of Identix common stock on the applicable date by an assumed exchange
ratio of 1.067 shares of Identix per share of IDT stock. The IDT equivalent per
share price can be used by the IDT stockholders to determine the approximate
value of one share of IDT capital stock based on the Identix common stock
trading price, without giving effect to the escrow and resale restrictions.
<TABLE>
<CAPTION>
Identix Stock IDT Equivalent
------------- --------------
<S> <C> <C>
November 13, 1998............. $7.875 $8.403
, 1999..................
</TABLE>
Because the market price of Identix common stock is subject to fluctuation,
the market value of the shares of Identix common stock that holders of IDT
securities will receive in the merger may increase or decrease prior to and
following the merger.
Stockholders are urged to obtain current quotations for the market prices of
Identix common stock. No assurance can be given as to the market price of
Identix common stock at the effective time of the merger. The number of shares
to be issued by Identix in the merger is fixed. Accordingly, the market value
of the shares of Identix common stock that holders of IDT common stock will
receive in the merger may vary significantly from the prices shown above.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains and incorporates by reference certain statements
that constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include all statements regarding the intent, belief or current expectations
regarding the matters discussed or incorporated by reference in this prospectus
(including statements as to "beliefs," "expectations," "anticipations,"
"intentions" or similar words) and all statements which are not statements of
historical fact. Actual results, performance or events may differ materially
for a variety of reasons, including the risks and uncertainties described in
"Risk Factors" or in the other SEC filings of Identix. Identix and Identicator
Technology undertake no obligation to publicly update forward-looking
statements made in this prospectus to reflect events or circumstances after the
date of this prospectus or to reflect the occurrence of unanticipated events.
12
<PAGE>
RISK FACTORS
You should consider carefully the following risk factors in evaluating
whether to approve the merger agreement and the consummation of the merger. If
any of the following risks actually occur, they could have a severe negative
impact on Identix's or Identicator Technology's financial results and stock
price.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Identix's and Identicator Technology's actual results could
differ materially from those anticipated in the forward-looking statements as
a result of certain factors, including the risks described below and elsewhere
in this prospectus.
Risks Relating to the Merger
The number of shares you will receive in the merger will be fixed even if the
Identix stock price changes. All outstanding IDT securities will be converted
into 5,050,000 shares of Identix common stock issuable in the merger or upon
exercise of options and warrants assumed by Identix in the merger. The ratio
will be fixed and will not be adjusted in the event of changes in the price of
Identix common stock. In addition, IDT may not terminate the merger agreement
solely because of a change in the stock price of Identix. Consequently, if the
market price of the Identix common stock decreases, the value of the
consideration to be received by IDT stockholders would also decrease.
Identix's results of operations will be adversely affected by write-offs and
amortization of intangible assets associated with the merger and expenses
incurred in connection with the merger. Identix expects to take a one-time
write-off related to acquired research and development of approximately
$10,044,000 in the quarter in which the merger closes. Identix will recognize
approximately $24,550,000 in core technology, assembled work force and
goodwill as a result of the merger, which Identix will be required to amortize
over periods of approximately 3-12 years. This goodwill amortization and the
amortization of core technology and assembled workforce will result in an
additional charge to pre-tax earnings of approximately $660,000 per quarter on
an ongoing basis.
In addition, Identix and IDT estimate that they will together incur direct
transaction costs, including legal, accounting, registration and printing
fees, of approximately $700,000 associated with the merger. There is a risk
that Identix may incur additional material charges in subsequent quarters to
reflect additional costs associated with the merger.
IDT stockholders risk forfeiture or a loss in value of a portion of the
Identix stock issued in the merger before such shares are received or can be
sold by the stockholders. 10% of the Identix shares issuable to IDT
stockholders in the merger will automatically be placed in escrow for one year
and are subject to the risk of forfeiture if Identix successfully makes a
claim for damages or expenses after the closing of the merger. Fifty percent
of the shares issuable in the merger, including the shares subject to the
escrow, are subject to a fifteen month lock-up period. There is a risk that
the value of the Identix shares issued in the merger subject to the fifteen
month lock-up period will decline before such shares are released from the
lock-up.
The Internal Revenue Service could successfully contend that the merger is a
13
<PAGE>
taxable transaction to the IDT stockholders or that it affects transactions
previously engaged in by Identicator Technology or its predecessors. For
example, the IRS could successfully contend that the merger causes the 1998
restructuring in which Identicator Technology, the joint venture in which the
biometrics business was previously conducted, was transferred to Identicator
Technology, Inc., if the transaction was otherwise nontaxable, to be a taxable
transaction. Counsel for Identix and IDT have not rendered and are not
rendering an opinion as to the taxability of transactions previously engaged in
by Identicator Technology or its predecessors or the impact of the merger on
such transactions. The IDT stockholders are urged to consult their own tax
advisors regarding the tax consequences of such prior transactions and the
impact of the merger on such tax consequences.
The anticipated benefits of the merger may not be achieved unless certain
operations of Identix and Identicator Technology are successfully combined,
including aspects of the two companies, research and development and marketing
operations. The transition to a combined company will require substantial
management attention and the process of coordination of the operations,
especially research and development and marketing, may be complicated by the
necessity of combining personnel in different locations with disparate business
backgrounds and corporate cultures. In addition, combining the two
organizations could cause the interruption of, or a loss of momentum in, the
activities of either or both of the companies' businesses. Any difficulties
experienced in the transition process and any loss of or interruption in
business as a result of the diversion of resources to pursue the integration of
the organizations could have an adverse effect on the combined operations.
Risks Relating to Business of Identix and Identicator Technology
All of Identix's and Identicator Technology's product revenues are derived from
the sale of biometric products and their businesses will not grow unless the
market for biometric products expands both domestically and internationally.
Biometric products have not gained widespread commercial acceptance. Neither
company can accurately predict the future growth rate, if any, or the ultimate
size of the biometric technology market.
The expansion of the market for Identix's and Identicator Technology's products
depends on a number of factors including:
. the cost, performance and reliability of their products and products of
competitors
. customers' perception of the perceived benefits of these products
. public perceptions of the intrusiveness of these products and the manner
in which firms are using the fingerprint information collected
. public perceptions regarding the confidentiality of private information
. customers' satisfaction with Identix's and Identicator Technology's
products
. marketing efforts and publicity regarding these products.
Certain groups have publicly objected to the use of biometric products for some
applications on civil liberties grounds and legislation has been proposed to
regulate the use of biometric security products.
Even if biometric markets develop, Identix's and Identicator Technology's
products may not gain wide market acceptance.
14
<PAGE>
Identix and Identicator Technology face intense competition from other
biometric identification providers as well as traditional identification and
security systems providers. A significant number of established and startup
companies are developing and marketing software and hardware for fingerprint
biometric security applications that could compete directly with Identix's and
Identicator Technology's biometric security products. Some of these companies
are developing semiconductor or optically-based direct contact fingerprint
image capture devices. Other companies are developing and marketing other
methods of biometric identification such as retinal blood vessel or iris
pattern, hand geometry, voice and facial structure. If one or more of these
approaches were widely adopted, it would significantly reduce the potential
market for Identix's and Identicator Technology's products.
Identix's and Identicator Technology's biometric security products also compete
with non-biometric technologies such as traditional key, card, surveillance
systems and passwords.
Identix's biometric imaging products face intense competition from a limited
number of competitors who are actively engaged in developing and marketing
livescan products, including Digital Biometrics, Inc., Heimann Biometric
Systems GmbH and Printrak International Inc.
Identix and Identicator Technology expect competition to increase as other
companies introduce products that are competitively priced, that may have
increased performance or functionality or that incorporate technological
advances not yet developed or implemented by Identix or Identicator Technology.
Some present and potential competitors have financial, marketing and research
resources substantially greater than those of Identix and Identicator
Technology. In order to compete effectively in this environment, Identix and
Identicator Technology must continually develop and market new and enhanced
products at competitive prices and must have the resources available to invest
in significant research and development activities.
In its services business, Identix faces substantial competition from
professional services providers of all sizes in the government marketplace.
ANADAC is increasingly being required to bid on firm fixed price and similar
contracts that result in greater performance risk to ANADAC. If ANADAC is not
able to maintain a competitive cost structure, support specialized market
niches, retain its highly qualified personnel or align with technology leaders,
Identix may lose its ability to compete successfully in the services business.
The biometrics industry is characterized by rapid technological change and
evolving industry standards which could render existing products obsolete.
Identix's and Identicator Technology's future success will depend upon their
ability to develop and introduce a variety of new products and product
enhancements to address the changing, sophisticated needs of the marketplace.
Material delays in introducing new products and enhancements or the failure to
offer innovative products at competitive prices may cause customers to forego
purchases of Identix's and Identicator Technology's products and purchase those
of their competitors.
Identix's and Identicator Technology's revenues and operating results often
vary significantly from quarter to quarter and may be negatively affected by a
number of factors, including the timing of large orders. Usually, most of each
company's revenues in a quarter come from a small number of large orders.
15
<PAGE>
Accordingly, revenues in a particular quarter depend on the timing and size of
major orders.
The following are some other reasons why Identix's or Identicator Technology's
financial results may fluctuate from quarter to quarter:
. reduced demand for products caused by a competitor's price reductions or
introduction of new or enhanced products
. changes in the mix of products and services Identix, Identicator
Technology, or their distributors sell
. cancellation, delays or amendments by government agencies relating to
contracts with Identix or Identicator Technology
. litigation costs
. expenses related to acquisitions, including the merger
. other one-time financial charges
. the lack of availability or increase in cost of key components
. economic downturns domestically or internationally.
Identix or Identicator Technology also may reduce prices or increase spending
in response to competition or to pursue new market opportunities.
Identix's products often have a lengthy sales cycle while the customer
evaluates and receives approvals for such purchase. If after expending
significant funds and effort Identix fails to receive an order, a severe
negative impact on its financial results and stock price could result. It is
difficult to predict accurately the sales cycle of any large order. If Identix
does not ship one or more large orders as forecasted for a fiscal quarter, its
total revenues and operating results for such quarter could be materially and
adversely affected.
Further, the lead time for ordering parts and materials and building Identix's
and Identicator Technology's products can be many months. As a result, Identix
and Identicator Technology must order parts and materials and build their
products based on forecasted demand. If demand for its products lags
significantly behind its forecasts, Identix or Identicator Technology may
produce more products than it can sell, which can result in cash flow problems
and write-offs or write-downs of obsolete inventory.
Identix derives a majority of its revenue from government contracts which are
often non-standard, involve competitive bidding and may be subject to
cancellation without penalty. Government contracts frequently include
provisions that are not standard in private commercial transactions. For
example, government contracts may include bonding requirements and provisions
permitting the purchasing agency to cancel the contract without penalty in
certain circumstances. As public agencies, Identix's prospective customers are
also subject to public agency contract requirements that vary from jurisdiction
to jurisdiction. Some of these requirements may be onerous or impossible to
satisfy.
In addition, public agency contracts are frequently awarded only after formal
competitive bidding processes, which have been and may continue to be
protracted, and typically impose provisions that permit cancellation in the
event that funds are unavailable to the public agency. There is a risk that
Identix may not be awarded any of the contracts for which its products are bid
or, if awarded, that substantial delays or cancellations of purchases may
follow as a result of protests initiated by losing bidders. In addition, local
16
<PAGE>
government agency contracts may be contingent upon availability of matching
funds from state or federal entities.
During fiscal 1998, Identix derived approximately 89% of its services revenue
directly from contracts relating to the Department of Defense and other U.S.
Government agencies. The loss of a material government contract due to budget
cuts or otherwise could have a severe negative impact on Identix's financial
results and stock price.
During fiscal 1998, Identix derived approximately 68% of its services revenue
from time and materials contracts and firm-fixed-price contracts. Identix
assumes certain performance risk on these contracts. If Identix fails to
estimate accurately ultimate costs or to control costs during performance of
the work, Identix's profit margins may be reduced and Identix may suffer
losses. In addition, revenues generated from government contracts are subject
to audit and subsequent adjustment by negotiation between Identix and
representatives of the government agencies. ANADAC has completed such an audit
by the Defense Contract Audit Agency for the period from July 1, 1992 to June
30, 1995. Identix believes that the results of this audit will not result in a
material adjustment of revenues, but there is a risk that significant
adjustments could be required.
Identix and Identicator Technology rely on marketing partners to distribute
their products and may be adversely affected if such parties do not actively
promote their products or pursue installations which use their equipment. A
significant portion of Identix's and all of Identicator Technology's product
revenues come from sales to marketing partners including OEMs, systems
integrators, distributors and resellers. Some of these relationships are
formalized in agreements; however, such agreements are often terminable with
little or no notice and subject to periodic amendment. Identix and Identicator
Technology cannot control the amount and timing of resources that such
marketing partners devote to their activities on behalf of Identix or
Identicator Technology.
Identix and Identicator Technology intend to continue to seek strategic
relationships to distribute and sell certain of their products. Identix and
Identicator Technology, however, may not be able to negotiate acceptable
distribution relationships in the future and cannot predict whether current or
future distribution relationships will be successful.
Loss of sole or limited source suppliers may result in delays or additional
expenses. Identix and Identicator Technology obtain certain components for
their products from a single source or a limited group of suppliers. Neither
company has long term agreements with any of its suppliers. Identix and
Identicator Technology will experience delays in manufacturing and shipping of
products to customers if they lose these sources or if supplies from these
sources are delayed.
As a result, Identix or Identicator Technology may be required to incur
additional development and other costs to establish alternative sources of
supply. It may take several months to locate alternative suppliers, if
required, or to re-tool its products to accommodate components from different
suppliers. Neither Identix nor Identicator Technology can predict if it will be
able to obtain such components within the time frames it requires at an
affordable cost, or at all. Any delays resulting from suppliers failing to
deliver components on a timely basis in sufficient quantities and of sufficient
quality or any significant increase in the price of components from existing or
alternative suppliers could
17
<PAGE>
have a severe negative impact on such company's financial results and stock
price.
The success of Identix's strategic plan to pursue sales in international
markets may be limited by risks related to international trade and marketing.
During fiscal 1998, Identix derived 18% of its net product revenues from
international sales. Identix currently has offices overseas in Australia,
Singapore, Brazil and Switzerland. There is a risk that Identix may not be able
to market, sell and deliver its products in foreign countries. Identix's net
product revenues attributable to international sales declined by 55% in the
three months ended December 31, 1998 from the three months ended December 31,
1997, mainly due to a decline in sales resulting from economic instability in
Asia.
In addition to the uncertainty as to Identix's ability to maintain and expand
its international presence, there are certain risks inherent in foreign
operations, including:
. regional economic conditions
. delays in or prohibitions on exporting products resulting from export
restrictions for certain products and technologies, including "crime
control" products and encryption technology
. fluctuations in foreign currencies and the U.S. dollar
. loss of revenue, property and equipment from expropriation,
nationalization, war, insurrection, terrorism and other political risks
. the overlap of different tax structures
. seasonal reductions in business activity
. risks of increases in taxes and other government fees
. involuntary renegotiation of contracts with foreign governments.
In addition, foreign laws treat the protection of proprietary rights
differently from laws in the United States and may not protect Identix's
proprietary rights to the same extent as U.S. laws.
Identix may need to raise additional debt or equity financing in the next
twelve months. As of December 31, 1998, Identix had $19,716,000 in working
capital, which included $2,418,000 in cash and cash equivalents. In addition,
Identix had $5,029,000 available under its bank line of credit, which expires
in December 1999. ANADAC had $4,407,000 available under its bank line of
credit, which expires in March 2000. Identix may need to raise additional debt
or equity financing in the next 12 months if current sources of capital are not
sufficient to finance its operations or if the Identix or ANADAC lines of
credit are not renewed or if Identix or ANADAC fail to obtain a waiver of any
covenant breaches under their lines of credit. Identix may not be able to
obtain additional equity or debt financing on terms that are not excessively
dilutive to existing stockholders or more costly than existing sources of debt
financing.
Identicator Technology's business may be adversely affected if it can not raise
working capital to implement its business plan. If the merger is not completed,
IDT will likely be required to raise additional working capital through equity
or debt financing in order to meet its working capital needs beyond March 2000.
Identix provided Identicator Technology's bank with a standby letter of credit
in February 1999 to secure the repayment of Identicator Technology's $1,500,000
line of credit. Identicator Technology is required to reimburse Identix for any
amounts drawn under the letter of credit and is required to use its best
18
<PAGE>
efforts to obtain a release of Identix from the letter of credit if the merger
agreement is terminated.
Although prior to entering into the merger agreement Identicator Technology was
discussing possible financings with several lenders and potential sources of
equity capital, Identicator Technology may not be able to obtain financing on
acceptable terms or in the amounts or at the time needed.
One stockholder owns a significant portion of Identix stock and may delay or
prevent a change in control or adversely affect the stock price through sales
in the open market. As of October 31, 1998, Ascom USA Inc. beneficially owned
approximately 20% of Identix's outstanding common stock. This concentration of
ownership may delay or prevent a change in control of Identix. Ascom deposited
all of its shares of Identix common stock into a voting trust which expires in
2004. Ascom has preemptive rights with respect to issuances of Identix
securities and registration rights with respect to the securities it holds.
Ascom has requested registration of approximately 1,700,000 shares. If Ascom
sells a significant number of its shares in the open market, Identix's common
stock price may be adversely affected. In addition, Identix may not be able to
obtain additional financing on favorable terms in the future because of Ascom's
preemptive rights and registration rights.
Identix may experience unanticipated expenses and other problems related to
Year 2000 issues. Year 2000 problems are caused by computer systems that only
use a two-digit year value and, accordingly, will be subject to error or
failure when the year 2000 arrives. Identix has a program for evaluating and
addressing risks related to the Year 2000 that is described under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
its most recent Form 10-Q. The Year 2000 problem is pervasive and complex and
there is a risk that Identix has not identified all of the Year 2000 issues
that may affect it or that its remedial efforts do not adequately address
identified Year 2000 problems. Identix's products are used in systems that
perform a number of critical functions. For example, the biometric security
products are used to verify individual identity in a number of high risk
situations such as prisons and airports. The biometric security products are
also used to protect computer data and to verify commercial transactions, such
as the authorization of money transfers by bank personnel. Although Identix
believes that it should not have liability for a system failure relating to the
Year 2000, such a failure in these or other cricial applications could
potentially require Identix to expend substantial resources to assist in
remediating the failure or result in litigation to ascertain liability or
recover costs.
Identicator Technology may face unanticipated expenses and other problems
related to Year 2000 issues. Identicator Technology has evaluated the products
and services it offers in an effort to determine whether it or its customers
may have exposure to Year 2000 problems. Identicator Technology's products are
not date dependent. Nevertheless, Identicator Technology's software products
run on operating systems developed and sold by Microsoft Corporation.
Identicator Technology's products are dependent upon the error-free operation
of such systems. Identicator Technology has not conducted its own tests to
determine to what extent such operating systems fail to properly recognize Year
2000 dates.
Identicator Technology has conducted a preliminary review of its internal
information technology and non-information technology systems. Identicator
Technology has not
19
<PAGE>
conducted its own tests or surveyed vendors to determine whether off-the-shelf
software that is used in its computer systems is Year 2000 compliant.
Identicator Technology does not employ non-information technology systems which
are material to its operations.
Identicator Technology is in the very early stages of assessing the readiness
of its key suppliers and customers with respect to potential Year 2000
problems. To date, Identicator Technology has made such inquiries of only one
of the four turnkey manufacturers which produce Identicator Technology hardware
and software products, International Technology Concepts, Inc. Identicator
Technology plans to survey the remainder of its key suppliers, application
vendors and other information technology suppliers to determine their readiness
with respect to Year 2000 problems. Identicator Technology will be able to
better determine what actions may be necessary to address potential problems
with key suppliers, application vendors and other information technology
suppliers after it receives responses back from these suppliers, application
vendors and other information technology suppliers.
To date, the costs for conducting Identicator Technology's Year 2000 assessment
have not been material. Identicator Technology is currently unable to predict
to what extent its business may be affected if any of its key suppliers or
customers or products operating in conjunction with third-party supplied
software or hardware experience a material Year 2000 problem. Any such problem
that affects the operation of Identicator Technology's software applications or
products could result in delay or loss of revenue, cancellation of customer
contracts, diversion of development resources, damage to Identicator
Technology's reputation, increased service and warranty costs, and litigation
costs, any of which could materially adversely affect Identicator Technology's
business, financial condition and results of operations.
The Year 2000 problem is pervasive and complex and there is a risk that
Identicator Technology has not identified all of the Year 2000 issues that may
affect it and that any remedial efforts it takes will not adequately address
any potential Year 2000 problems.
Identix's and Identicator Technology's products are complex and may contain
undetected or unresolved defects when sold or may not meet customer's
performance criteria. Performance failure may cause loss of market share, delay
in or loss of market acceptance, additional warranty expense or product recall.
The negative effects of any such failure could be exacerbated if such failure
occurred in products that provide personal security, secure sensitive computer
data, authorize significant financial transactions or perform other functions
where a security breach could have significant consequences.
If a product fails to meet performance criteria, Identix and Identicator
Technology may delay recognizing revenue associated with a product and face
higher operating expenses during the period required to correct such defects.
There is a risk that for unforseen reasons Identix or Identicator Technology
may be required to repair or replace a substantial number of products in use or
to reimburse customers for products that fail to work or meet strict
performance criteria. Identix carries product liability insurance, but existing
coverage may not be adequate to cover potential claims.
Failure by either Identix or Identicator Technology to maintain the proprietary
nature of their technology, products and manufacturing processes would
negatively impact their ability to compete effectively. Identix principally
relies upon patent, copyright,
20
<PAGE>
trade secret and contract law to establish and protect its proprietary rights.
Identicator Technology principally relies upon a combination of copyright,
trade secret, contract, and to a limited extent, patent law.
There is a risk that claims allowed on any patents held by Identix or
Identicator Technology may not be broad enough to protect their technology. In
addition, their patents may be challenged, invalidated or circumvented and each
company cannot be certain that the rights granted thereunder will provide
competitive advantages to it. Moreover, any current or future issued or
licensed patents, trade secrets or know-how may not afford sufficient
protection against competitors with similar technologies or processes, and the
possibility exists that already issued patents may infringe upon or be designed
around by others. In addition, there is a risk that others may independently
develop proprietary technologies and processes, which are the same as,
substantially equivalent or superior to those of Identix or Identicator
Technology.
There is a risk that Identix or Identicator Technology has infringed or in the
future will infringe patents owned by others, that Identix or Identicator
Technology will need to acquire licenses under patents belonging to others for
technology potentially useful or necessary to Identix or Identicator
Technology, and that such licenses will not be available to Identix or
Identicator Technology on acceptable terms, if at all.
Identix or Identicator Technology may have to litigate to enforce its patents
or to determine the scope and validity of other parties' proprietary rights.
Such litigation could be costly and divert management's attention. An adverse
outcome in any such litigation may have a severe negative impact on such
company's financial results and stock price. To determine the priority of
inventions, Identix or Identicator Technology may have to participate in
interference proceedings declared by the United States Patent and Trademark
Office or oppositions in foreign patent offices, which could result in
substantial cost to such company and limitations on the scope or validity of
its patents.
Identix and Identicator Technology also rely on trade secrets and proprietary
know-how which each of them seeks to protect by confidentiality agreements with
their employees, consultants, service providers and third parties. There is a
risk that these agreements may be breached, and that the remedies available to
Identix and Identicator Technology may not be adequate. In addition, Identix's
or Identicator Technology's trade secrets and proprietary know-how may
otherwise become known to or be independently discovered by others.
If either Identix or Identicator Technology fails to adequately manage growth
of its business, it could have a severe negative impact on that company's
financial results or stock price. Each has experienced substantial growth in
recent years and believes that in order to be successful it must continue to
grow rapidly. In order to do so, it must expand, train and manage its employee
base, particularly skilled technical, marketing and management personnel. Rapid
growth will also require an increase in the level of responsibility for both
existing and new management. In addition, Identix and Identicator Technology
will be required to implement and improve operational, financial and management
information procedures and controls. The management skills and systems
currently in place may not be adequate and either company may not be able to
manage any significant growth it experiences effectively.
Identix may encounter difficulties in acquiring and effectively integrating
complementary assets and businesses. As part of its business
21
<PAGE>
strategy, Identix intends to acquire assets and businesses principally relating
to or complementary to its current operations. In addition to the merger with
IDT, Identix acquired two companies in fiscal 1996 and one in fiscal 1998.
These and any other acquisitions by Identix will be accompanied by the risks
commonly encountered in acquisitions of companies. Such risks include, among
other things:
. potential exposure to unknown liabilities of acquired companies
. higher than anticipated acquisition costs and expenses
. effects of costs and expenses of acquiring and integrating new
businesses on its operating results and financial condition
. the difficulty and expense of assimilating the operations and personnel
of the companies
. the potential disruption of its ongoing business
. diversion of management time and attention
. failure to maximize its financial and strategic position by the
successful incorporation of acquired technology
. the maintenance of uniform standards, controls, procedures and policies
. loss of key employees and customers as a result of changes in management
. the incurrence of amortization expenses
. possible dilution to its stockholders.
In addition, geographic distances may make integration of businesses more
difficult. Identix may not be successful in overcoming these risks or any other
problems encountered in connection with such acquisitions.
Loss of current senior executives and key technical, marketing and sales
personnel would adversely affect Identix's or Identicator Technology's
business. Identix's or Identicator Technology's personnel may voluntarily
terminate their relationship with Identix or Identicator Technology at any
time, and competition for qualified personnel, especially engineers, is
intense. The process of locating additional personnel with the combination of
skills and attributes required to carry out either company's strategy could be
lengthy, costly and disruptive.
Identix is dependent on the services of Randall C. Fowler, President and CEO,
James P. Scullion, Executive Vice President and Chief Financial Officer, and
Daniel F. Maase, Vice President, Biometric Imaging Division. Mr. Fowler, the
founder of Identix, has approximately thirty years of experience in the
biometrics industry and is considered one of the industry's pioneers. Mr.
Scullion and Mr. Maase have a combined total of 20 years experience with
Identix and have a substantial amount of acquired knowledge regarding Identix
and the biometrics industry generally and play a major role in the execution by
Identix of its strategic plan. If Identix loses the services of key personnel,
it could have a severe negative impact on Identix's financial results and stock
price.
Identicator Technology receives important contributions from certain key
personnel. Specifically, Oscar Pieper, President, has approximately thirty
years of experience in the biometrics industry and is considered one of the
industry's pioneers. Grant Evans, Vice President--Sales and Marketing, has
established relationships with major companies and plays a central role in the
company's marketing strategy. In addition, both Yuri Khidekel, Vice President--
Software, and Yury Shapiro, Vice President--Hardware, serve as
22
<PAGE>
key researchers and developers for Identicator Technology and are responsible
for Identicator Technology's research and development activities. If
Identicator Technology loses the services of its key personnel, it could have a
severe negative impact on Identicator Technology's financial results.
23
<PAGE>
THE SPECIAL MEETING
This prospectus is furnished in connection with the solicitation of proxies
by IDT's board of directors from the holders of IDT common stock to be voted at
the special meeting of stockholders of IDT.
Time and Place
The special meeting will be held at IDT's principal office located at 1150
Bayhill Drive, Suite 215, San Bruno, California 94066, on , 1999, starting
at , local time.
This prospectus and the accompanying forms of proxies are first being mailed
to the IDT stockholders on or about , 1999.
Matters to be Considered at the Special Meeting
At the special meeting, stockholders of IDT will be asked to consider and
vote upon a proposal to approve and adopt the merger agreement and to approve
the merger. A copy of the merger agreement and certain related agreements are
included in this prospectus as Appendices A to C. IDT stockholders may also
consider and vote upon such other matters as may be properly brought before the
special meeting or any adjournment of the special meeting.
Record Date and Quorum
The IDT Board has fixed the close of business on , 1999 as the record
date. Only record holders of IDT common stock on the record date are entitled
to notice of and to vote at the special meeting, and any adjournments or
postponements of the special meeting. On the record date, there were
[2,727,762] shares of IDT common stock outstanding and entitled to vote at the
special meeting held by approximately [129] stockholders of record. There were
no shares of IDT Series A Preferred Stock outstanding on the record date.
Each holder of record on the record date is entitled to one vote per share
of common stock on each proposal properly submitted to a vote at the IDT
special meeting. Votes can be made either in person at the special meeting or
by proxy. The presence, in person or by proxy, of the holders of a majority of
the voting power represented by the outstanding shares of IDT common stock
entitled to vote is necessary to constitute a quorum at the special meeting.
Votes Required
Under the IDT Certificate of Incorporation and the Delaware Corporate Law,
the affirmative vote, in person or by proxy, of the holders of at least a
majority of the shares of IDT common stock outstanding on the record date is
required to approve and adopt the merger agreement and approve the merger.
Failure to vote or abstention by an IDT stockholder will have the same legal
effect as a vote against approval and adoption of the merger agreement and
against approval of the merger.
As of the record date, International Technology Concepts, Inc. and directors
of IDT together owned 1,922,181 shares of IDT common stock, or approximately
70% of the shares of IDT common
24
<PAGE>
stock outstanding. These stockholders of IDT have entered into a voting
agreement in which they have agreed, among other things, to vote all of their
shares of IDT common stock in favor of the merger. See "The Merger--Voting
Agreement."
As of the date of this prospectus, neither Identix nor any of its
subsidiaries owned any shares of IDT common stock.
Proxies
All shares of IDT common stock represented by properly executed proxies
received prior to or at the special meeting which are not revoked will be voted
in accordance with the instructions indicated in such proxies. If no
instructions are indicated on a properly executed returned proxy, such proxy
will be voted "FOR" approval and adoption of the merger agreement and approval
of the merger. A properly executed proxy marked "ABSTAIN," although counted for
purposes of determining whether there is a quorum, will not be voted.
If any other matters are properly presented at the special meeting for
consideration, including a motion to adjourn the special meeting to another
time and/or place (including for the purpose of soliciting additional proxies),
unless otherwise indicated on such solicited proxy, the person named in the
proxy and acting thereunder will have discretion to vote on such matters in
accordance with his or her best judgment.
A stockholder may revoke his or her proxy at any time prior to its use by
(1) delivering to the Secretary of IDT a signed revocation notice or a later
dated signed proxy or (2) by attending the special meeting and voting in
person. Attendance at the special meeting will not in itself constitute the
revocation of a proxy. All written revocation notices and other communications
with respect to revocation of proxies by IDT stockholders should be addressed
as follows: Identicator Technology, 1150 Bayhill Drive, Suite 215, San Bruno,
California 94066, Attention: Marie Fernandez, or hand delivered to the
Secretary or the Secretary's designated agent before the vote is taken at the
special meeting.
Solicitation of Proxies and Expenses
Identix will pay the cost of printing and mailing this prospectus. In
addition to solicitation by mail, proxies may be solicited in person by
directors, officers and employees of IDT without additional compensation, and
by telegram, facsimile, or similar method. To the extent necessary in order to
ensure sufficient representation at the special meeting, IDT may request by
telephone or telegram the return of proxies. The extent to which this will be
necessary depends entirely upon how promptly proxies are returned.
The matters to be considered at the special meeting are of great importance
to the stockholders of IDT. Accordingly, IDT stockholders are urged to read and
carefully consider the information presented in this prospectus, and to
complete, date, sign and promptly return the enclosed proxy in the enclosed
postage-paid envelope.
IDT stockholders should not send any stock certificates
with their proxy cards.
25
<PAGE>
THE MERGER
Background of the Merger
Management of Identix and Identicator Technology (including its
predecessors) have known each other and have been familiar with the products of
each company for many years.
During the summer and fall of 1997, Oscar Pieper, the current President and
Chief Executive Officer of Identicator Technology, had approximately two or
three meetings with Randall C. Fowler, the Chief Executive Officer, President
and Chairman of Identix, and James P. Scullion, the Executive Vice President
and Chief Financial Officer of Identix. During these meetings, they discussed
potential strategic relationships between the two companies and the possibility
of Identix acquiring Identicator Technology. No agreements were reached and
Identicator Technology continued to plan for its independent existence,
including the restructuring of its business from a partnership to a corporation
to enhance its competitiveness and viability as a stand-alone company.
On November 3, 1997 and November 14, 1997, Mr. Pieper and Mr. Scullion had
telephone conversations in which they discussed the companies, a possible
acquisition and the valuations the two companies considered appropriate. Mr.
Pieper and Mr. Scullion concluded that no transaction could be consummated
between the two companies at that time.
On May 7, 1998, Mr. Scullion and Mr. Pieper met so that Mr. Scullion could
present a proposal for an acquisition of Identicator Technology. Again, Mr.
Pieper and Mr. Scullion concluded that no transaction could be consummated
between the two companies at that time.
On August 5, 1998, Mr. Scullion and Mr. Pieper met so that Mr. Scullion
could present a revised proposal for an acquisition of Identicator Technology
based on recent commercial announcements by Identicator Technology. Based on
the terms presented, they decided to continue negotiations relating to an
acquisition of Identicator Technology and entered into a confidentiality
agreement to permit limited due diligence to begin.
Over the period from August 7, 1998 through September 18, 1998, Mr. Scullion
and Mr. Pieper continued to discuss the potential terms of a transaction.
On September 18, 1998, the two parties reached a general understanding as to
the economic terms that would potentially be acceptable to both parties.
In October 1998, the parties commenced negotiating definitive documentation
for the transaction and commenced full due diligence.
Through November 14, 1998, the parties, as well as their legal and
accounting advisors, had numerous meetings to negotiate the terms of the
transaction and the definitive documentation and to perform due diligence.
During this process, the parties consulted with outside investment banks,
but neither party engaged the services of an investment bank. On November 14,
1998, the parties concluded negotiations and executed the merger agreement.
The number of Identix shares to be issued in connection with the merger was
determined through arms length negotiations based on the parties' judgments of
what constitutes a fair and
26
<PAGE>
appropriate value for IDT. In making these judgments, the parties considered
numerous factors, including those discussed in the following sections entitled
"IDT's Reasons for the Merger; Recommendation of the IDT Board" and "Identix's
Reasons for the Merger." No one specific formula was employed to arrive at the
number of Identix shares to be issued in connection with the merger.
The other terms and conditions of the transaction, including the escrow and
the share lockup provisions, were also the subject of extensive arms length
negotiations. The purpose of the escrow was to provide a mechanism for Identix
to obtain redress for breaches or misrepresentations by IDT relating to the
merger agreement or this prospectus. The purpose of the share lockup was that,
given the large number of Identix shares to be issued in connection with the
merger, Identix wanted to stage the timing by which those shares could be sold
into the open market.
IDT's Reasons for the Merger; Recommendation of the IDT Board
On November 14, 1998, the board of directors of IDT unanimously determined
the merger to be fair to, and in the best interests of, IDT and its
stockholders. The IDT board unanimously approved the merger agreement and
unanimously decided to recommend that IDT stockholders approve and adopt the
merger agreement and approve the merger. In making this determination, the IDT
board considered the factors listed below:
1. Identix can provide Identicator Technology access to significantly
greater sales and marketing resources, management resources and capital
than Identicator Technology currently has available to it. These greater
resources will enhance the opportunity for increased sales and visibility
in the marketplace.
2. Identix's product offerings are complementary to Identicator
Technology's product offerings. The combination of the two companies brings
together a broad spectrum of biometric fingerprint product offerings and
technologies that will enable the combined company to provide biometric
fingerprint solutions for virtually any application in the information
technology, physical access control and law enforcement markets.
3. IDT stockholders will receive stock in a larger company that is
publicly traded, thereby allowing the IDT stockholders an opportunity to
participate in the potential growth of the combined company and also allow
them to get liquidity for their stock holdings in the public market if they
so desire.
4. Pursuant to the merger, Identicator Technology will initially operate
as a stand-alone entity and be able to continue on its current business
course.
The IDT board also considered a number of factors relating to the merger,
including, but not limited to:
. historical information concerning Identix's and Identicator Technology's
respective businesses, prospects, financial performance and condition,
operations, technology, management and competitive position, including
Identix's public reports filed with the SEC for the most recent fiscal
periods;
. Identicator Technology management's view of the financial condition,
results of operations and businesses of Identicator Technology and
Identix before and after giving effect to the merger;
27
<PAGE>
. current financial market conditions and historical market prices,
volatility and trading information with respect to Identix common stock;
. the consideration to be received by IDT stockholders in the merger;
. the belief that the terms of the merger agreement, including the
parties' representations, warranties and covenants, and the conditions
to their respective obligations, are reasonable;
. Identicator Technology management's view of the prospects of Identicator
Technology as an independent company;
. the potential for other third parties to enter into strategic
relationships with or acquire Identicator Technology;
. the potential for Identicator Technology to raise money in public or
private markets;
. the expected impact of the merger on Identicator Technology's customers
and employees; and
. reports from Identicator Technology management and legal advisors as to
the results of the due diligence investigation of Identix.
The IDT board also identified and considered a variety of potentially
negative factors in its deliberations concerning the merger, including, but not
limited to:
. the risk that the potential benefits sought in the merger might not be
fully realized;
. the possibility that the merger might not be consummated and the effect
of the public announcement of the merger on Identicator Technology's
business;
. the substantial charges to be incurred in connection with the merger,
including accounting charges and costs of integrating the businesses and
transaction expenses arising from the merger;
. the risk that despite the efforts of the combined company, key technical
and management personnel might not remain employed by the combined
company;
. foregoing the potential opportunities and benefits to Identicator
Technology from remaining independent; and
. various other risks.
The IDT board believed that the above risks were outweighed by the potential
benefits of the merger.
Prior to negotiations with Identix, IDT's focus had been on negotiating
private debt and equity financing and continuing the company as an independent
entity. Based on its review of the positive and negative factors described
above, IDT's management and board of directors concentrated on the following
considerations in choosing the merger over remaining independent or pursuing
alternative purchasers:
. a comparison of the valuation of IDT in Identix's offer to available
term sheets from private equity investors;
. the receipt of registered, publicly tradeable stock from Identix;
28
<PAGE>
. IDT's familiarity with and respect for the management of Identix;
. the synergies to be achieved in a merger with Identix;
. the capital resources available to a public company; and
. the possibility for the combined company to continue to implement, and
for the value of IDT's stockholders' investment to be influenced by,
IDT's strategic plan following the stock-for-stock merger.
While it may be possible for IDT to achieve several of these benefits by
remaining independent with private financing, IDT has no assurance that such
private financing would be available on acceptable terms, in adequate amounts
or at the times needed by IDT to achieve comparable results.
As part of this analysis, IDT consulted with various advisors, including
individuals in the investment banking business, to assess their judgments of
Identix, the stock market's reaction to a combination between Identix and
Identicator Technology and the proposed valuation of the transaction. While IDT
did not retain an investment bank in connection with the transaction, IDT
determined that it had the necessary information and the appropriate internal
and external resources to evaluate the benefits, the risks and the fairness of
the transaction without retaining the services of an investment bank.
The IDT board unanimously recommends that the holders of IDT common stock
vote "for" approval and adoption of the merger agreement and approval of the
merger.
Identix's Reasons for the Merger
On November 5, 1998, the board of directors of Identix unanimously
determined the merger to be fair to, and in the best interests of, Identix and
its stockholders. The Identix board unanimously approved the merger agreement.
In making this determination, the Identix board considered the factors listed
below:
1. The combination of the two companies brings together a broad spectrum
of biometric product offerings and technologies that will enable the
combined company to provide solutions for virtually any biometric
fingerprint application in the information technology, physical access
control and law enforcement markets.
2. Identicator Technology's management team has established a strong
reputation in the biometrics marketplace and brings valuable marketing and
engineering resources to Identix.
3. Identicator Technology has established key strategic relationships
with a number of large companies in the information technology and data
security marketplaces and has taken a leadership position for establishing
standards in the industry.
4. Identicator Technology has products and technologies that complement
Identix's products and technologies and that may be able to enhance
Identix's products.
The Identix board also considered a number of factors relating to the
merger, including, but not limited to:
. historical information concerning Identix's and Identicator Technology's
respective businesses, prospects, financial performance and condition,
operations, technology, management and competitive position;
29
<PAGE>
. Identix management's view of the financial condition, results of
operations and businesses of Identicator Technology and Identix before
and after giving effect to the merger;
. the consideration to be issued in the merger;
. the belief that the terms of the merger Agreement, including the
parties' representations, warranties and covenants, and the conditions
to their respective obligations, are reasonable;
. Identix management's view of the prospects of Identix as an independent
company;
. the expected impact of the merger on Identix's customers and employees;
and
. reports from Identix's management and legal and accounting advisors as
to the result of the due diligence investigation of Identicator
Technology.
The Identix board also identified and considered a variety of potentially
negative factors in its deliberations concerning the merger, including, but not
limited to:
. the risk that the potential benefits sought in the merger might not be
fully realized;
. the possibility that the merger might not be consummated and the effect
of the public announcement of the merger on Identix's business;
. the substantial charges to be incurred by Identix in connection with the
merger, including accounting charges and costs of integrating the
businesses and transaction expenses arising from the merger;
. the risk that despite the efforts of the combined company, key technical
and management personnel might not remain employed by the combined
company; and
. various other risks.
The Identix board believed that the above risks were outweighed by the
potential benefits of the merger.
In evaluating the transaction, Identix consulted with various investment
banks to assess their judgments of Identicator Technology, the stock market's
reaction to a combination between Identix and Identicator Technology and the
proposed valuation of the transaction. Identix, however, did not retain an
investment bank in connection with the transaction. Identix reached the
conclusion that it had the necessary information and the appropriate internal
and external resources to evaluate the benefits, the risks and the fairness of
the transaction without retaining the services of an investment bank.
Actions Preceding the Merger
Prior to the closing of the merger, Identicator Technology, Inc. will merge
with and into IDT.
Operations Following the Merger
Following the merger, Identicator Technology will continue its operations as
a wholly-owned subsidiary of Identix. The membership of the Identix board of
directors will remain unchanged as a result of the merger, and the members of
the IDT board of directors shall consist of two continuing
30
<PAGE>
members, Oscar Pieper and Yuri Khidekel, and two officers of Identix, Randall
C. Fowler, President and CEO of Identix, and James P. Scullion, Executive Vice
President and Chief Financial Officer of Identix. The following officers of IDT
shall continue as the officers of IDT after the merger: Oscar Pieper,
President; Yuri Khidekel, Vice President-Software; Yury Shapiro, Vice
President-Hardware; and Grant Evans, Vice President-Sales and Marketing. The
stockholders of IDT will become stockholders of Identix, and their rights as
stockholders will be governed by Identix's Certificate of Incorporation and
Identix's Bylaws and the laws of the State of Delaware. See "Comparison of
Capital Stock."
Interests of IDT Officers and Directors in the Merger
Four members of IDT's management, three of whom also serve on IDT's board of
directors, have interests in the merger that are in addition to their interests
as stockholders of IDT generally. The IDT board of directors was aware of these
interests and considered them, among other matters, in approving the merger
agreement.
Pursuant to their terms, the vesting of approximately [ ] shares
underlying options held by officers, directors and service providers will
accelerate upon the consummation of the merger, including approximately [ ]
shares underlying options held by four officers and directors of IDT.
Furthermore, Identix will enter into employment agreements and noncompetition
agreements with Mr. Pieper, Mr. Evans, Mr. Khidekel, and Mr. Shapiro. In
connection with the employment agreements, each of those officers will receive
an option to purchase 100,000 shares of Identix common stock at an exercise
price equal to the closing price of the Identix common stock on AMEX on the
closing date of the merger. The employment agreements provide that in the event
of any "termination other than for cause" by Identix or "resignation for good
reason" by the employee, the employee will receive severance pay of between 12
and 15 months of such employee's salary and the options will vest in full on
the date of termination. See "The Merger Agreement--Employment and
Noncompetition Agreements."
In connection with the merger, Identix will enter into an agreement with
International Technology Concepts, Inc. under which International Technology
Concepts will provide administrative, research, development, testing and
production services and access to facilities to Identix. In addition, Identix
will enter into an agreement with Identicator, Inc. under which Identicator,
Inc. will provide administrative services and a trademark license to Identix.
Identicator, Inc. will enter into an agreement with Identix under which Identix
will provide access to facilities to Identicator, Inc. Mr. Khidekel and Mr.
Shapiro are currently officers, directors and stockholders of International
Technology Concepts, Inc. Mr. Pieper and Harry F. Camp, the Chairman and a
director of IDT, are currently directors and stockholders of Identicator, Inc.
Material Federal Income Tax Consequences
The following discussion summarizes the material federal income tax
considerations of the merger generally applicable to IDT stockholders. It is a
condition to the obligation of Identix to consummate the merger that Identix
shall have received an opinion of Heller Ehrman White & McAuliffe ("HEWM"), and
it is a condition to the obligation of IDT to consummate the merger that IDT
shall have received an opinion of Brobeck, Phleger & Harrison LLP ("BPH"), in
each case
31
<PAGE>
dated as of the date upon which the merger is consummated and based on
representations made by Identix and IDT, to the effect that the merger will
constitute a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code (the "Code") and that IDT, Identix and Merger Sub will
each be a party to that reorganization within the meaning of Section 368(b) of
the Code.
The discussion below under "--Exchange of IDT Stock for Identix Common
Stock," "--Cash Received in Lieu of Fractional Shares" and "--Reporting
Requirements" represents the opinions of HEWM and BPH as to the probable
treatment of the merger. It assumes that the merger will be treated in
accordance with the opinions of HEWM and BPH to be delivered at closing.
Opinions of counsel are not binding on the IRS or the courts. There can be no
assurance that the IRS will not successfully contend that the merger is a
taxable transaction. No advance ruling from the IRS has been or will be sought.
The discussion below is based upon the Code, the applicable Treasury
Department regulations thereunder, judicial authority and current
administrative rulings and practice, all as in effect as of the date hereof.
Future legislative, judicial or administrative changes or interpretations could
alter or modify the statements and conclusions set forth herein. Any such
changes or interpretations could have retroactive effect and could affect the
federal income tax consequences to IDT stockholders.
The following discussion does not address the consequences of the merger
under state, local or foreign law, nor does the discussion address all aspects
of federal income taxation that may be important to a IDT stockholder in light
of such stockholder's particular circumstances, including, without limitation,
issues concerning stockholders that are financial institutions, insurance
companies, foreign individuals and entities, tax-exempt entities, dealers in
securities, persons who acquired IDT common stock or Series A Preferred Stock
(the "IDT Stock") pursuant to the exercise of an employee option (or otherwise
as compensation) or persons holding IDT Stock as part of an integrated
investment (including a "straddle") composed of IDT Stock and one or more other
positions. This discussion assumes that IDT stockholders hold their respective
IDT Stock as capital assets within the meaning of Section 1221 of the Code.
The discussion below does not address the taxability of any transactions
other than the merger, nor does it address the effect of the merger on the
taxation of IDT stockholders who engaged in such transactions. In particular,
the discussion below does not, and the opinions of HEWM and BPH will not,
address the tax consequences of previous corporate transactions involving
IDT or Identicator Technology, or the effect of the merger on such
transactions, including (i) the spin-off of Identicator, Inc. by Identicator
Corporation in 1997 and (ii) the reorganization in which the joint venture in
which the biometrics business was previously conducted (known as Identicator
Technology, a California partnership) was restructured into Identicator
Technology, Inc., a Delaware corporation and wholly-owned subsidiary of IDT
(the "Restructuring"). As part of the Restructuring, Identicator Corporation
was also acquired by Identicator Technology.
Exchange of IDT Stock for Identix Common Stock. Except as discussed below
under "--Cash Received in Lieu of Fractional Shares," and "--Effect of
Merger on Previous Transactions," and assuming that the merger qualifies as
a "reorganization" within the meaning of Section 368(a) of the Code, no
gain or loss will be recognized for federal income tax purposes by IDT
stockholders who exchange their IDT Stock for Identix common stock pursuant
to the merger.
32
<PAGE>
The aggregate tax basis of Identix common stock received as a result of the
merger will be the same as the stockholder's aggregate tax basis in the IDT
Stock surrendered in the exchange (reduced by any tax basis allocable to
fractional shares exchanged for cash), and the holding period of the
Identix common stock will include the period for which the stockholder has
held or is deemed to have held the IDT Stock surrendered therefor. If the
IRS were to successfully contend that the merger is a taxable transaction,
each IDT stockholder would be taxed based on the fair market value of the
Identix common stock received over his or her tax basis in the IDT Stock
surrendered.
Cash Received in Lieu of Fractional Shares. The payment of cash to an IDT
stockholder in lieu of a fractional share interest in Identix common stock
will be treated as if the fractional share had been distributed as part of
the exchange and then redeemed by Identix. The cash payment will be treated
as having been received as a distribution in payment for the Identix common
stock hypothetically redeemed as provided in Section 302 of the Code. This
generally should result in the recognition of capital gain or loss measured
by the difference between the amount of cash received and the portion of
the tax basis of the IDT Stock allocable to such fractional share interest.
In the case of an individual, capital gain recognized with respect to cash
received in lieu of fractional share interests in Identix common stock
generally will be taxable at favorable rates as long-term capital gain if
such individual held his or her IDT Stock for more than one year at the
effective time of the merger and at ordinary income rates as a short-term
capital gain if such individual held his or her IDT Stock for one year or
less at the effective time of the merger. The deductibility of capital
losses is subject to limitation.
Dissenters. Any dissenters should seek their own tax advice as to the
treatment of any amounts received or expended by them.
Reporting Requirements. Each IDT stockholder that receives Identix common
stock in the merger will be required to file with such stockholder's
federal income tax return a statement setting forth the basis of the IDT
Stock surrendered and the fair market value of the Identix common stock and
any other property received in the merger, and to retain permanent records
of these facts relating to the merger.
Effect of Merger on Previous Transactions. As noted above, this discussion
does not address, and neither HEWM nor BPH will render an opinion with
respect to, the tax consequences to IDT, or the IDT stockholders, of
transactions previously engaged in by IDT or Identicator Technology. There
is a risk that the IRS could successfully contend that the merger causes
the Restructuring, if it was otherwise a nontaxable transaction, to be a
taxable transaction.
Backup Withholding. Unless an exemption applies under applicable law and
regulations Identix is required to withhold, and will withhold, 31% of any
cash payments to an IDT stockholder in the merger unless the stockholder
provides the appropriate form as described below. Each IDT stockholder
should complete and sign the Substitute Form W-9 included as part of the
letter of transmittal so as to provide the information (including such
stockholder's taxpayer identification number) and certification necessary
to avoid backup withholding, unless an applicable exemption exists and is
proved in a manner satisfactory to Identix.
The preceding discussion does not purport to be a complete analysis or
discussion of all potential tax effects relevant to the merger. Thus, IDT
stockholders are urged to consult their
33
<PAGE>
own tax advisors as to the specific tax consequences to them of the merger,
including tax return reporting requirements, the applicability and effect of
federal, state, local and other applicable tax laws, the effect of any proposed
changes in the tax laws and the effect of the merger on the taxability of
previous corporate transactions of IDT or Identicator Technology.
Regulatory Approvals
Identix and IDT were not required to file notifications and furnish
information pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, to the Federal Trade Commission or to the federal Department of Justice.
At any time, before or after the consummation of the merger, the Department of
Justice, the Federal Trade Commission or any state or foreign governmental
authority, could take such action under the antitrust laws as it deems
necessary or desirable in the public interest. Such action could include
seeking to enjoin the consummation of the merger or seeking divestiture of
substantial assets of Identix or IDT. Private parties may also seek to take
legal action under the antitrust laws under certain circumstances.
Appraisal Rights
IDT is organized under the Delaware General Corporation Law. IDT
stockholders who do not approve the merger are entitled to exercise rights of
appraisal under Delaware Corporate Law. In addition, because IDT operates in
California and a majority of its capital stock is held by persons with
addresses in California, it is subject to certain California laws, including
dissenters' rights under the California General Corporation Law. An IDT
stockholder who does not vote in favor of the merger may exercise appraisal or
dissenters' rights under either Delaware Corporate Law or California Corporate
Law, but may only receive an award under one of the statutes. The shares of
dissenting IDT stockholders who have properly exercised their rights to an
appraisal under Delaware Corporate Law or dissenters' rights under California
Corporate Law are referred to in this document as "Dissenting Shares."
Delaware Law
Pursuant to Delaware Corporate Law, any IDT stockholders who (1) do not vote
in favor of the approval and adoption of the merger agreement (by voting
against or abstaining) and (2) have met the conditions and properly complied
with the requirements of Delaware Corporate Law will be entitled to appraisal
rights. Appraisal rights give such stockholders the right to dissent from the
merger by demanding payment in cash for their shares equal to the fair value of
such shares, excluding any appreciation or depreciation resulting from the
merger. The fair value will be determined by agreement with the corporation or
an independent appraisal. The following summary of appraisal rights under
Delaware Corporate Law should be read in conjunction with, and is qualified in
its entirety by, the full text of Section 262 of the Delaware Corporate Law,
which is attached as Appendix D to this prospectus. By failing to follow the
statutory procedures set forth in Section 262, a stockholder may terminate or
waive such holder's appraisal rights under Delaware Corporate Law.
IDT stockholders of record who wish to assert appraisal rights must submit a
written demand for such appraisal before the vote on the merger is taken. Such
written demand must be in addition to
34
<PAGE>
and separate from any proxy or vote against the merger. Merely voting against,
abstaining from voting or failing to vote on the merger will not be sufficient
to constitute a demand for appraisal within the meaning of Delaware Corporate
Law.
Within ten days after the effective time of the merger, IDT will give
written notice of the effectiveness of the merger to all IDT stockholders of
record who submitted a written demand for appraisal and who did not vote in
favor of or consent to the merger. Within 120 days after the effective time of
the merger, upon written request, IDT shall send any such stockholder a
statement setting forth the aggregate number of shares not voted in favor of
the merger for which demands for appraisal have been received, and the
aggregate number of holders of such shares.
If IDT and such stockholder do not agree upon the value of such holder's
shares of stock, either IDT or such holder may file within 120 days after the
effective time of the merger a petition in Delaware Court of Chancery demanding
a determination of the value of such stockholder's shares. In any such
proceeding, the Court shall determine the fair market value of the shares,
exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, if any, to be
paid upon the fair value of the shares. The costs of the proceeding may be
determined by the Court and assessed against the parties as the Court deems
equitable in the circumstances. In addition, the Court may, upon application of
a stockholder, order all or any part of the expenses incurred by such holder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and expenses and the fees and expenses of experts,
to be charged pro rata against the value of all the shares entitled to an
appraisal. Notwithstanding the foregoing, at any time within 60 days after the
effective time of the merger, any such stockholder shall have the right to
withdraw such holder's demands for appraisal and to accept the terms offered in
the merger.
After the effective time of the merger, any stockholder who has demanded
appraisal rights shall not be entitled to vote such holder's shares for any
purpose or be entitled to the payment of dividends or other distributions on
such shares (except any dividends or other distributions payable to
stockholders of record at a date which is prior to the effective time of the
merger) unless such holder's right to appraisal shall cease. A stockholder's
appraisal right shall terminate if (1) no petition for an appraisal is filed
within 120 days of the effective time of the merger with Delaware Court of
Chancery or (2) such holder delivers to IDT a written withdrawal of such
holder's demand for an appraisal and an acceptance of the merger, either within
60 days after the effective time of the merger or thereafter with the written
approval of IDT.
Appraisal rights are exercisable only by the holder of record, not by a
beneficial owner who does not hold the shares of record.
California Law
In addition to IDT stockholders' appraisal rights under Delaware Corporate
Law, the IDT stockholders are also entitled to dissent from the merger under
Chapter 13 of California Corporate Law. The following summary of Chapter 13
should be read in conjunction with, and is qualified in its entirety by, the
full text of Chapter 13, which is attached as Appendix E to this prospectus. By
35
<PAGE>
failing to follow the statutory procedures set forth in Chapter 13, a
stockholder may terminate or waive its dissenters' rights under California
Corporate Law.
If the merger is approved by the affirmative vote of the holders of a
majority of the outstanding shares of IDT common stock, the stockholders who
(1) do not vote their shares of IDT common stock in favor of the merger (by
abstaining or voting against the merger) and (2) have fully complied with all
applicable provisions of Chapter 13 will hold Dissenting Shares. Dissenters
rights give such stockholders the right to require IDT to purchase the shares
of IDT common stock held by them for cash equal to the fair market value of
such shares, excluding any appreciation or depreciation resulting from the
merger, determined in accordance with Chapter 13. Under California Corporate
Law, no stockholder of IDT who is entitled to exercise dissenters' rights has
any right at law or in equity to contest the validity of the merger or to have
the merger set aside or rescinded, except in an action to test whether the
number of shares required to authorize or approve the merger had legally been
voted in favor of the merger.
Within 10 days after the approval of the merger by IDT stockholders, IDT
must notify all IDT stockholders who may exercise dissenters' rights of the
approval and must offer all of such stockholders a cash price for their shares
which IDT considers to be the fair market value of the shares. The notice must
also contain a brief description of the procedure to be followed under Chapter
13 to dispute the price offered and attach a copy of the relevant provisions of
California Corporate Law in order for a stockholder to exercise the right to
have IDT purchase his or her shares.
For a holder of IDT common stock to exercise dissenters' rights under
California Corporate Law, the procedures to be followed under Chapter 13
include the following requirements:
(1) The stockholder of record must not have voted the shares in favor of
the merger. It is sufficient to abstain from voting. In addition, the
stockholder may vote part of his or her shares for the merger without
losing the right to exercise dissenters' rights as to other shares which
abstained or voted against the merger.
(2) Any such stockholder who wishes to have such shares purchased must
make a written demand to have IDT purchase those shares for cash at their
fair market value. Merely voting or delivering a proxy directing a vote
against the approval of the merger does not constitute a demand for
purchase. Such demand must:
(a) be made by the person who was the stockholder of record on the
record date (or such stockholder's duly authorized representative) and
not by someone who is merely a beneficial owner of the shares and not
by a stockholder who acquired the shares subsequent to the record date;
(b) state the number and class of dissenting shares held of record by
the dissenting stockholder;
(c) include a demand that IDT purchase the shares at the dollar
amount that the stockholder claims to be the fair market value of such
shares on the day before the terms of the merger were first announced,
excluding any appreciation or depreciation because of the proposed
merger but adjusted for any stock split, reverse stock split or share
dividend which becomes effective thereafter. IDT believes that the date
for such calculations is
36
<PAGE>
November 13, 1998. A stockholder may take the position in the written
demand that a different date is applicable. The stockholder's statement
of fair market value constitutes an offer by such dissenting
stockholder to sell the shares to IDT at such price.
The written demand must be received by IDT no later than 30 days from the
date IDT's notice respecting approval of the merger was mailed to the IDT
stockholders. A stockholder may not withdraw a demand for payment without the
consent of IDT. Under California Corporate Law, a demand by a stockholder is
not effective for any purpose unless it is received by IDT.
In addition, within 30 days after the date on which the notice of the
approval of the merger is mailed by IDT to its stockholders, the stockholder's
certificates representing any shares which the stockholder demands be
purchased, must be submitted to IDT, at its principal office, or at the office
of its transfer agent, to be stamped or endorsed with a statement that the
shares are dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed. Upon subsequent transfer of those shares,
the new certificates will be similarly stamped, together with the name of the
original dissenting stockholder.
If IDT and a holder of IDT Dissenting Shares agree that the shares held by
such stockholder are eligible for dissenters' rights and agree upon the price
of such shares, such holder of IDT dissenting shares is entitled to receive
from IDT the agreed price with interest thereon at the legal rate on judgments
from the date of such agreement. Any agreement fixing the fair market value of
dissenting shares as between IDT and the holders thereof must be filed with
Harry F. Camp of IDT at the address set forth below. Subject to certain
provisions of Section 1306 and Chapter 5 of California Corporate Law, payment
of the fair market value of IDT Dissenting Shares shall be made within 30 days
after the amount has been agreed upon or within 30 days after any statutory or
contractual conditions to the merger are satisfied, whichever is later, subject
to the surrender of the certificate therefor, unless provided otherwise by
agreement.
If IDT and a holder of IDT Dissenting Shares fail to agree on either the
fair market value of the shares or on the eligibility of the shares to be
purchased, then either such holder of IDT Dissenting Shares or IDT may file a
complaint for judicial resolution of the dispute in the superior court of the
proper county. The complaint must be filed within six months after the date on
which the respective notice of approval is mailed to the stockholders. If a
complaint is not filed within six months the shares will lose their status as
IDT dissenting shares. Two or more holders of IDT Dissenting Shares may join as
plaintiffs or be joined as defendants in such an action. If the eligibility of
the shares is at issue, the court must first decide that issue. If the fair
market value of the shares is in dispute, the court must determine, or shall
appoint one or more impartial appraisers to assist in its determination of, the
fair market value. The cost of the action will be assessed or apportioned as
the court considers equitable. If, however, the appraised value of the
dissenting shares exceeds the price offered by IDT, IDT must pay such costs.
Any demands, notices, certificates or other documents required to be
delivered to IDT may be sent to Identicator Technology, 1150 Bayhill Drive,
Suite 215, San Bruno, California 94066, Attention: Harry F. Camp.
37
<PAGE>
It is a condition of the merger agreement that the aggregate number of
Dissenting Shares not exceed five (5%) percent of the aggregate number of
shares of Identix common stock that would be issued in the merger at the
effective time of the merger if there were no Dissenting Shares. In the event
that such threshold is exceeded, then notwithstanding the percentage of
approval for the merger proposal obtained in a vote at the IDT special meeting,
Identix shall not be obligated to close the merger.
38
<PAGE>
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the merger
agreement and the other agreements to be entered into in connection with the
merger agreement. This summary is qualified in its entirety by reference to the
full text of the merger agreement and the other agreements which are attached
as Appendices A through C of this prospectus.
Closing; Effect of Merger
The merger will close as soon as all the conditions to the merger have been
satisfied or waived. The merger will become effective when a Certificate of
Merger is filed with the Secretary of State of the State of Delaware by
Identix, IDT and Merger Sub. The Certificate of Merger will be filed on the
closing date. The closing and effective time of the merger are anticipated to
be on or about , 1999.
At the effective time of the merger, (1) Merger Sub will be merged with and
into IDT, (2) the separate corporate existence of Merger Sub will cease, and
(3) IDT will be the Surviving Corporation and will be a wholly-owned subsidiary
of Identix.
Conversion of Securities
Common Stock
At the effective time of the merger, each share of IDT common stock issued
and outstanding immediately prior to the effective time (other than any IDT
Dissenting Shares) will automatically be converted into the number of shares of
Identix common stock determined by dividing:
(1) 5,050,000 (less the number of shares issuable upon conversion of
outstanding IDT Series A Preferred Stock, if any, and upon exercise of
the IDT warrants to purchase Series A Preferred Stock assumed by
Identix) by
(2) the sum of the number of shares of IDT common stock outstanding
immediately prior to the effective time plus the number of shares of
IDT common stock covered by stock options outstanding immediately prior
to the effective time (including vested and unvested options).
The quotient determined by dividing (1) by (2) is referred to as the
"Exchange Ratio." Each share of common stock of Merger Sub outstanding
immediately prior to the effective time of the merger will be converted into
one share of common stock of the Surviving Corporation.
No fractional shares will be issued in connection with the merger. In lieu
of a fraction of a share of Identix common stock, each IDT stockholder will
receive in cash the fair market value of such fractional share determined by
valuing the Identix common stock at the average of the high and low prices of
the Identix common stock on the AMEX on the trading day immediately before the
closing date as reported in the Wall Street Journal.
Preferred Stock
There are currently no shares of IDT Series A Preferred Stock issued and
outstanding, but there are outstanding IDT warrants to purchase 60,000 shares
of Series A Preferred Stock. If any of
39
<PAGE>
the IDT warrants are exercised prior to the merger and shares of Series A
Preferred Stock are outstanding at the effective time of the merger, each such
share of Series A Preferred Stock (other than any Dissenting Shares) will
automatically be converted into the number of shares of Identix common stock
equal to dividing:
(1) $9.00, by
(2) the average of the closing prices of the Identix common stock on the
AMEX over a thirty-day period ending three days prior to the closing
date or such other exchange ratio as is mutually agreed by IDT, Identix
and holders of all outstanding Series A Preferred Stock and IDT
warrants (the "Preferred Exchange Ratio").
Any IDT warrants which are not exercised prior to the effective time will be
assumed by Identix. See "--IDT Warrants."
IDT Warrants
At the effective time of the merger, all outstanding IDT warrants will be
assumed by Identix and will represent the right to receive upon exercise, a
number of shares of Identix common stock equal to the number of shares of IDT
Series A Preferred Stock covered by such warrant multiplied by the Preferred
Exchange Ratio at an exercise price equal to the quotient obtained by dividing:
(1) the exercise price per share of IDT Series A Preferred Stock, by
(2) the Preferred Exchange Ratio. The exercise price shall be rounded to
the nearest two-place decimal.
Identix will assume all IDT warrants in full.
IDT Options
At the effective time of the merger, each IDT option outstanding under IDT's
1998 Stock Option/Stock Issuance Plan or Identicator Corporation's 1995 Stock
Option Plan, will be assumed by Identix and will represent an option to
purchase that number of shares of Identix common stock equal to the product
determined by multiplying:
(1) the number of shares of IDT common stock issuable upon exercise of such
IDT option, by
(2) the Exchange Ratio.
Each assumed IDT option will be exercisable at an exercise price equal to
the quotient obtained by dividing:
(a) the exercise price per share of such IDT option, by
(b) the Exchange Ratio.
The exercise price will be rounded to the nearest two-place decimal. Any
fractional shares will be rounded to the nearest whole share of Identix common
stock. Identix will assume the IDT options in full and all of IDT's other
rights and obligations under the IDT stock option plans. The IDT options will
be exercisable after the effective time upon the same terms and conditions as
under the IDT stock option plans. Within 45 days following the effective time,
Identix will file a registration statement on Form S-8 under the Securities Act
of 1933 covering the shares of Identix common stock issuable upon exercise of
the assumed IDT options.
40
<PAGE>
Exchange Procedures
Promptly after the closing date, Identix, acting through ChaseMellon
Shareholder Services, LLC (the "Exchange Agent"), will mail to each IDT
stockholder of record immediately prior to the closing date, a transmittal
letter and instructions for surrendering IDT stock certificates. Upon surrender
to the Exchange Agent of an IDT stock certificate and an executed copy of the
transmittal letter, the holder of such IDT stock certificate will be entitled
to receive:
. a certificate for Identix common stock, subject to the issuance of 10%
of the shares into escrow (see "--Indemnification and Escrow" below) and
the legending of a portion of the shares issued to certain holders as
described under "--Fifteen-Month Resale Restriction;"
. cash in lieu of any fractional shares; and
. unpaid dividends and distributions, if any, which such holder has the
right to receive in respect of the IDT stock surrendered.
IDT stockholders should not send in their stock certificates to the Exchange
Agent until they receive a letter of transmittal.
At the effective time of the merger, each outstanding IDT option and warrant
will be assumed by Identix without any action on the part of the holder
thereof. Option, warrant and stock purchase agreements should not be
surrendered.
Indemnification and Escrow
The merger agreement provides that IDT and its stockholders will indemnify
Identix for any damages incurred by Identix in connection with:
. IDT's breach of a representation or warranty under the merger agreement;
. IDT's failure to perform any agreement or covenant under the merger
agreement; or
. any untrue or alleged untrue statement or omission of material fact in
the registration statement or prospectus which relates to Identicator
Technology and is based on information furnished by Identicator
Technology.
At the effective time of the merger, one stock certificate representing, in
the aggregate, 10% of the shares of Identix common stock issuable to the IDT
stockholders in the merger (the "Escrow Shares") will be delivered to U.S. Bank
Trust National Association, Global Escrow Depository Services (the "Escrow
Holder"). The Escrow Holder will hold and release the Escrow Shares in
accordance with the escrow agreement. A copy of the escrow agreement is
attached to this prospectus as Appendix C.
The IDT board of directors has selected Harry F. Camp to act as the
representative of the holders of the Escrow Shares (the "Stockholder
Representative") with respect to all matters under the merger agreement and
escrow agreement. Your approval of the merger agreement and the merger will
constitute approval of the terms of the escrow agreement and ratification of
the selection of the Stockholder Representative. The escrow agreement provides
a procedure for Identix to make claims for indemnification against the Escrow
Shares and for the Stockholder Representative to dispute such claims if
appropriate. All Escrow Shares which are not the subject of a claim by Identix
or a dispute
41
<PAGE>
will be distributed to the IDT stockholders one year from the closing date.
Upon distribution from escrow, the Escrow Shares may not be sold, pledged or
otherwise transferred until fifteen months after closing, except upon the death
of a stockholder.
In addition, in order to provide Identix with at least 434,300 shares of
Identix common stock for indemnification under the merger agreement, IDT will
ask each holder of IDT options or warrants to agree in writing that 10% of
their IDT options and warrants (and the Identix common stock issuable upon
exercise of such options and warrants) are subject to the provisions of the
escrow agreement. Any damages incurred by Identix which exceed the value of the
Escrow Shares will be satisfied by a pro rata cancellation of such options and
warrants (and the Identix common stock issuable upon exercise of such options
and warrants).
Any ordinary cash dividends paid with respect to the Escrow Shares while in
escrow will be paid to the IDT stockholders. Any other dividends or
distributions with respect to the Escrow Shares will be paid into escrow. The
certificate representing the Escrow Shares will be accompanied by a separate
stock power endorsed in blank by the Stockholder Representative. The holders of
the Escrow Shares will retain their voting rights with respect to the Escrow
Shares while in escrow.
The Escrow Shares and the IDT option and warrant shares discussed above
constitute the absolute limit on the obligations of IDT and the IDT
stockholders to indemnify Identix under the merger agreement. Identix may only
make claims against the escrow and IDT option and warrant shares if the amount
of damages sought by Identix exceeds $175,000 in the aggregate, in which case
Identix may make a claim for the full amount of damages including the first
$175,000.
Fifteen-Month Resale Restriction
The merger agreement provides that a total of 2,525,000 shares of Identix
common stock issuable in the merger or pursuant to the exercise of options and
warrants assumed in the merger will either be:
. subject to the escrow agreement (See "--Indemnification and Escrow") or
. subject to a "lock-up period" for fifteen months from the effective time
of the merger.
The shares subject to the lock-up period may not be sold, pledged or otherwise
transferred during such period, except upon the death of a stockholder. IDT
will ask each holder of IDT options or warrants assumed by Identix to agree in
writing to be bound by the lock-up period with respect to 40% of such holder's
shares issuable upon exercise of their IDT options and warrants. In addition, a
portion of the shares of Identix common stock issued in the merger to each IDT
stockholder who holds more than 1,000 shares of IDT common stock (a "Principal
Stockholder") will automatically be subject to the lock-up period.
In addition to the Escrow Shares, the aggregate number of shares held by the
Principal Stockholders automatically subject to the lock-up period will be
determined by subtracting from 2,525,000 the sum of:
(1) the number of Identix shares issued in the merger, or issuable upon
exercise of IDT options and warrants, subject to the escrow agreement
and
(2) the number of shares issuable by Identix upon exercise of assumed IDT
options and warrants subject to the lock-up period.
42
<PAGE>
The resulting number of shares will be automatically restricted and will be
allocated among the Principal Stockholders on a pro rata basis. The restricted
shares will bear a legend describing their restrictions. If you are a Principal
Stockholder, approval of the merger by the IDT stockholders will bind you to
the fifteen-month lock-up period for your pro rata portion of the restricted
shares. The exact portion of your shares that will be subject to the fifteen-
month lock-up period cannot be determined until the closing of the merger, but
will be at least 40% exclusive of the Escrow Shares.
Representations and Warranties
The merger agreement contains various representations and warranties of
Identix and IDT relating to, among other things:
. the corporate organization and power of Identix, Merger Sub and IDT;
. the capital structure of Identix, Merger Sub and Identicator Technology;
. the authorization and enforceability of the merger agreement and all
related agreements;
. the absence of conflicts under charter documents and any contracts, and
required consents or approvals;
. compliance with law;
. investigations and litigation;
. accuracy of financial statements and absence of undisclosed liabilities;
. absence of certain changes or events;
. absence of brokers and finders; and
. accuracy of documents and information.
IDT has made additional representations and warranties, relating to, among
other things:
. Identicator Technology's personal and real property, bank accounts,
inventories and accounts receivable;
. Identicator Technology's material contracts and insurance;
. Identicator Technology's legally enforceable rights to its intellectual
property;
. Identicator Technology's personnel, service providers, compensation and
benefits;
. taxes;
. certain payments to stockholders, directors, officers and employees of
Identicator Technology and related agreements;
. absence of environmental and tax liabilities;
. Identicator Technology's total assets and annual net sales for purposes
of the HSR Act;
. year 2000 compliance; and
. the restructuring of Identicator Technology and the spin-off of
Identicator, Inc.
In addition, Identix has made additional representations regarding the
authorization and validity of the shares of Identix common stock issued in the
merger and the timeliness and completeness of reports filed by it with the
Securities and Exchange Commission.
43
<PAGE>
Conduct of Business Pending the Merger
Prior to the closing of the merger, each of Identicator Technology and
Identix has agreed to advise the other of:
. any events which would make any representation or warranty materially
untrue or inaccurate;
. any material adverse change in condition, assets, liabilities, business
or results of operations taken as a whole; and
. any material litigation initiated by or against such party.
Identicator Technology has agreed to carry on and preserve its business and
business relationships with customers, suppliers, employees consistent with its
past practice. In addition, Identicator Technology has agreed not to take
certain actions without the consent of Identix, which include, among other
things:
. borrow money outside of its existing line of credit or incur other
liabilities outside of the ordinary course of business (other than in
connection with the merger);
. encumber or dispose of assets, except inventory in the ordinary course of
business;
. enter into any material lease or contract for the purchase or sale of
real or personal property or amend or terminate any material contract,
agreement or license, except in the ordinary course of business;
. fail to maintain equipment and assets in good condition, except for
ordinary wear and tear;
. pay any bonus, increased salary or special remuneration to any officer,
employee or transferred employee (other than in accordance with past
practice), or consultant or enter into any new agreement with such
persons (except as contemplated in the merger agreement);
. change accounting methods, make tax elections or file amended returns;
. declare or pay any cash or stock dividend or distribution or redeem any
capital stock (except pursuant to stock repurchase agreements);
. split or combine its outstanding capital stock or enter into any
recapitalization affecting its capital stock;
. make loans, other than for expenses and travel, or guarantee any
obligation, except in the ordinary course of business;
. with specific exceptions, issue stock or rights to purchase securities of
IDT and Identicator Technology, and accelerate the vesting of any
outstanding option;
. amend its charter documents;
. merge, consolidate or reorganize with any other entity (except for the
merger);
. license any intellectual property, except under nonexclusive hardware or
software licenses granted to customers in the ordinary course of
business; or
. file any patent applications, except continuations in part or foreign
applications, without first consulting Identix.
44
<PAGE>
Exclusivity
During the period prior to closing, Identicator Technology has agreed not to
solicit, or support any offer from, furnish any information to, or participate
in any negotiations with, any third party regarding:
. a public offering of Identicator Technology;
. any acquisition or merger involving Identicator Technology; or
. any acquisition of any material part of the stock or assets of
Identicator Technology (including any license of Identicator
Technology's intellectual property outside of the ordinary course of
business.)
In addition, Identicator Technology is prohibited from entering into any
agreement or arrangement regarding a third party acquisition transaction prior
to closing.
The IDT board may consider an unsolicited proposal for an acquisition
transaction in accordance with its fiduciary duties under Delaware law.
Nevertheless, IDT will remain bound by its obligations under the merger
agreement, and the parties to the voting agreement will continue to be bound by
that agreement.
Additional Covenants
The merger agreement also contains certain other covenants including,
covenants relating to the IDT special meeting, obtaining necessary consents for
the merger, cooperation of the parties with respect to any governmental filings
or applications, confidentiality of information, making public announcements
and obtaining affiliate agreements.
Conditions
The obligations of each of IDT and Identix to complete the merger are
subject to the satisfaction or waiver of the following conditions:
. the holders of at least a majority of the shares of IDT common stock
approve the merger;
. the Certificate of Merger is filed with the Secretary of State of
Delaware;
. each party's representations and warranties contained in the merger
agreement (as updated for the facts existing at the time of closing)
continue to be true in all material respects and each party performs
all of its obligations under the merger agreement;
. the shares of Identix common stock to be issued in the merger are
approved for quotation on the AMEX;
. counsel to IDT and Identix counsel deliver opinions regarding certain
aspects of the merger and certain federal income tax consequences of
the merger;
. the registration statement, of which this prospectus is a part, covering
the shares of Identix common stock issuable in the merger is effective
under the Securities Act of 1933;
. certain officers of Identicator Technology have entered into employment
agreements with Identix;
45
<PAGE>
. no material adverse change in the businesses of either Identicator
Technology or Identix occurs and each party does not determine in its
reasonable discretion that the transactions under the merger agreement
would cause a material adverse effect to such party by reason of any
instituted or threatened litigation or proceedings; and
. each party takes all actions and delivers all documentation reasonably
requested by the other party in connection with the merger.
In addition, the obligations of Identix to complete the merger are subject
to the satisfaction or waiver of each of the following additional conditions:
. the number of Dissenting Shares of IDT does not exceed 5% of the
aggregate number of shares of Identix common stock that would be issued
in the merger at the effective time of the merger if there were no
Dissenting Shares.
. Identix receives all consents, approvals and waivers of third parties or
governmental authorities in connection with the merger;
. IDT delivers to Identix executed affiliate's agreements from each person
considered to be an affiliate of IDT and the voting agreement is in
effect as of the closing date;
. certain officers of IDT execute noncompetition agreements with Identix;
. the Escrow Holder, Identix, and the Stockholder Representative enter into
the escrow agreement and the holders of IDT options and warrants enter
into supplemental written agreements, so that the total number of
shares available to satisfy indemnification obligations is at least
434,300; and
. International Technology Concepts, Inc. and Identicator, Inc. enter into
support and indemnification agreements with Identix.
The obligations of IDT to complete the merger are subject to the
satisfaction or waiver of an additional condition that Identix shall have
granted stock options covering an aggregate of 400,000 shares of Identix common
stock to the persons entering into employment agreements with Identix.
Termination
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger, before or after the
approval of the merger agreement by the stockholders of IDT:
. by the mutual consent of IDT and Identix;
. by Identix if (1) the conditions to Identix's obligations to consummate
the merger have not been satisfied or waived by April 30, 1999 or (2)
IDT fails to perform any material covenant in the merger agreement; or
. by IDT, if (1) the conditions to IDT's obligations to consummate the
merger have not been satisfied or waived by April 30, 1999 or (2)
Identix fails to perform any material covenant in the merger agreement.
46
<PAGE>
Expenses
Whether or not the merger is consummated, all costs and expenses, including
legal, accounting and investment banking fees and expenses, incurred in
connection with the merger will be paid by the party incurring such expenses.
If the merger is consummated, IDT's expenses will be borne by IDT as a wholly-
owned subsidiary of Identix.
Amendment
The merger agreement may not be amended except by an instrument in writing
signed by each of the parties to the merger agreement.
Affiliate's Agreements
Subject to the escrow provisions described under "--Indemnification and
Escrow" and the legend and transfer restriction provisions described under "--
Fifteen-Month Resale Restriction," all shares of Identix common stock received
by IDT stockholders in the merger have been registered under the Securities Act
of 1933 and will be freely transferable, except that shares of Identix common
stock received by persons who are deemed to be "affiliates," as defined under
the Securities Act, of IDT at the time of the special meeting or affiliates of
Identix after the merger may be resold by them only in transactions permitted
by the resale provisions of Rule 145 under the Securities Act or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of IDT or Identix generally include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors as well as principal stockholders of such party.
IDT must cause each of its affiliates to execute a written affiliate
agreement to the effect that such person will not offer to sell, transfer, or
otherwise dispose of any of the shares of Identix common stock issued to such
person in or pursuant to the merger such sale, transfer or other disposition is
made in conformity with Rule 145 under the Securities Act.
Voting Agreement
As of the record date, International Technology Concepts, Inc. and each IDT
director, who together own approximately 70% of the IDT common stock
outstanding as of the record date, have executed the voting agreement with
Identix. The voting agreement provides that each stockholder will vote all
shares owned or acquired by such stockholder:
(1) in favor of the merger, the merger agreement and the transactions
contemplated by the merger agreement and
(2) against any other proposal for merger, or sale of IDT or any other
action that would result in a breach of any provision in the merger
agreement or result in the conditions of the merger agreement not being
fulfilled.
In addition, each such stockholder has granted Identix and Merger Sub an
irrevocable proxy to vote such stockholder's shares as specified in the voting
agreement. A copy of the voting agreement is attached to this prospectus as
Appendix B.
47
<PAGE>
Employment and Noncompetition Agreements
Prior to the closing date, each of Mr. Pieper, Mr. Evans, Mr. Khidekel, and
Mr. Shapiro will enter into an employment agreement and a noncompetition
agreement with Identix.
Each employment agreement provides that each individual will serve as a full
time employee of Identix for the term of the agreement. The employment
agreement also provides that in the event of any "termination other than for
cause" by Identix or " resignation for good reason" by the employee, the
employee will receive severance pay of between 12 and 15 months of such
employee's salary and such employee's options granted in connection with the
employment agreement will vest. The noncompetition agreements restrict Mr.
Pieper, Mr. Evans, Mr. Shapiro and Mr. Khidekel, from working for a competitive
business for a period of three years following the effective time of the
merger. The noncompetition agreements also provide that during this three-year
period, the individual will not solicit the services of or enter into any
agreement for employment or services with any person who is known or should be
known to be employed by or have been employed by Identix or an Identix
subsidiary in the preceding six months.
48
<PAGE>
COMPARISON OF CAPITAL STOCK
Description of Identix Capital Stock
The authorized capital stock of Identix consists of 50,000,000 shares of
common stock, $.01 par value per share, and 2,000,000 shares of preferred
stock, $.01 par value per share.
Identix Common Stock
As of , 1999 there were approximately shares of Identix common
stock outstanding held by approximately stockholders of record. Identix
common stock is listed on the AMEX under the symbol IDX.
Holders of common stock are entitled to one vote per share on all matters to
be voted upon by the stockholders of Identix. Subject to any preferential
rights of the preferred stock, the holders of common stock are entitled to
receive dividends, when and if declared by the board of directors, out of
assets legally available for the payment of such dividends. In the event of any
dissolution, liquidation of winding up of Identix, the holders of the common
stock are entitled to receive all remaining assets of the corporation after
payment of liabilities, subject to any preferential amounts distributed to the
preferred stock. The Identix common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the Identix common stock.
Identix Preferred Stock
Identix has 2,000,000 shares of preferred stock authorized, none of which
are outstanding. The Identix board has the authority to provide for the
issuance of the preferred stock in one or more series, and by filing a
certificate pursuant to Delaware Corporate Law, to establish from time to time
the number of shares to be included in each series, and to fix the designation,
powers, preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The Identix board, without
stockholder approval, can issue preferred stock with voting and conversion
rights which could adversely affect the voting power or other rights of the
holders of Identix common stock and the issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in control of Identix.
Transfer Agent and Registrar
The Transfer Agent and Registrar of the Identix common stock is ChaseMellon
Shareholder Services, LLC and its telephone number is (415) 743-1444.
Description of IDT Capital Stock
The authorized capital stock of IDT consists of 12,000,000 shares of common
stock, $.001 par value per share, and 5,000,000 shares of preferred stock,
$.001 par value per share.
IDT Common Stock
As of the record date, there were approximately [2,727,762] shares of IDT
common stock outstanding held by [129] stockholders of record.
49
<PAGE>
Holders of IDT common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders of IDT. Subject to any
preferential rights of the preferred stock, the holders of IDT common stock are
entitled to receive dividends, when and if declared by the board of directors,
out of assets legally available for the payment of such dividends. In the event
of any dissolution, liquidation of winding up of IDT, the holders of the common
stock are entitled to receive all remaining assets of the corporation after
payment of liabilities, subject to any preferential amounts distributed to the
preferred stock. The IDT common stock has no redemption, preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the IDT common stock.
IDT Preferred Stock
Of the 5,000,000 shares of preferred stock authorized, 600,000 shares are
designated Series A Preferred Stock, none of which were outstanding as of the
record date. The preferred stock may be issued from time to time in one or more
series. The IDT board is authorized, within the limitations of IDT's
Certificate of Incorporation, to fix the dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, liquidation preferences
and such designation, preference and relative, participating, optional or other
special rights, qualifications, limitations or restrictions as may be desired
to the fullest extent permitted by Delaware law for any wholly unissued series
of preferred stock. The IDT board is also authorized to increase or decrease
the number of shares of any series subsequent to the issue of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series. Subject to any protective provisions of any series of preferred stock,
the rights of any additional series may be subordinate to, pari passu with, or
senior to the rights, privileges and preferences of any other series of
preferred stock or common stock.
IDT Series A Preferred Stock
No shares of Series A Preferred Stock have been issued. However IDT has
issued warrants to purchase 60,000 shares of Series A Preferred Stock, which
shares, if issued, would have terms as described in the following paragraphs.
Holders of the Series A Preferred Stock are entitled to one vote for each
share of common stock into which such holder's shares can be converted on all
matters to be voted upon by the stockholders of IDT. In addition, the consent
of at least a majority of the then outstanding Series A Preferred Stock is
required before IDT may alter or change the rights, preferences or privileges
of the Series A Preferred Stock so as to affect differentially and adversely
such shares. Subject to any preferential rights of any other series of
preferred stock, the holders of the Series A Preferred Stock are entitled to
receive dividends in preference to the holders of the common stock, when and if
declared by the board of directors, out of assets legally available for the
payment of such dividends. In the event of any dissolution, liquidation of
winding-up of IDT (including certain consolidations or mergers or sales of all
or substantially all of the assets of IDT), the holders of the Series A
Preferred Stock are entitled to receive in preference to the holders of the
common stock, after payment of liabilities of the corporation, a per share
amount equal to $9.00, plus all
50
<PAGE>
declared but unpaid dividends. If the assets of the corporation are
insufficient to permit full payment to each of the holders of Series A
Preferred Stock, the entire assets available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock in
proportion to the amount of stock owned.
Each share of Series A Preferred Stock is convertible at the option of the
holder into a number of shares of IDT common stock determined by dividing $9.00
by the conversion price in effect for the Series A Preferred Stock (subject to
antidilution adjustments). The current conversion price for the Series A
Preferred Stock is $9.00. The Series A Preferred Stock automatically converts
into common stock upon the earlier of (1) the date specified by the written
consent or agreement of a majority of the outstanding shares of Series A
Preferred Stock, or (2) the consummation of IDT's sale of its common stock in a
firm commitment underwritten public offering pursuant to a registration
statement (other than on Form S-4 or Form S-8) filed under the Securities Act.
The conversion ratio for the Series A Preferred Stock will be adjusted on a
broad based weighted average basis in the event of a dilutive issuance;
provided, however, that a dilutive issuance shall not include the sale of IDT
common stock reserved for employees, consultants and the like or shares issued
pursuant to partnering arrangements, leaselines or similar arrangements. The
Series A Preferred Stock is entitled to proportional antidilution protection
for stock splits, stock dividends and similar dilutive events.
In the event of (1) a merger or other transaction which would result in
IDT's stockholders immediately prior to the merger holding less than 50% of the
voting power of the surviving corporation or (2) a sale of all or substantially
all of the assets of the corporation, then the holders of the Series A
Preferred Stock shall be entitled to receive for each share of such stock, in
cash or in securities received from the acquiring corporation, an amount equal
to $9.00, plus all declared but unpaid dividends, and the remaining proceeds
shall be distributed to the holders of the common stock. IDT shall give each
holder of record of Series A Preferred Stock written notice of an impending
transaction not later than the earlier of 20 days prior to the stockholders'
meeting to approve the transaction or 20 days prior to the closing date of the
transaction.
The Series A Preferred Stock is not redeemable.
Comparison of Stockholder Rights
Both IDT and Identix are incorporated under the laws of Delaware and are
subject to Delaware Corporate Law. Upon completion of the merger, the
stockholders of IDT will become holders of Identix common stock, and their
rights as such will be governed by the Identix Certificate of Incorporation and
Identix Bylaws. Certain differences exist between the rights of holders of
Identix securities and IDT securities.
The following summary does not purport to be a complete statement of the
rights of IDT stockholders under the IDT Certificate of Incorporation and the
IDT Bylaws as compared with the rights of Identix stockholders under the
Identix Certificate of Incorporation and Identix Bylaws or a complete
description of the specific provisions referred to herein. The identification
of specific differences is not meant to indicate that other equally or more
significant differences do not exist. The summary is qualified in its entirety
by reference to the governing corporate instruments of Identix and IDT, to
which such stockholders are referred.
51
<PAGE>
Percentage of Voting Stock; Influence Over Affairs
Upon completion of the merger, the percentage ownership of Identix by each
former IDT stockholder will be substantially less than such stockholder's
current percentage ownership of IDT. Accordingly, former IDT stockholders will
have significantly less voting influence over the affairs of Identix than they
currently enjoy over the affairs of IDT.
Voting Rights
Each holder of Identix common stock is entitled to one vote for each share
held of record and may not cumulate votes for the election of directors. Each
holder of IDT common stock is entitled to one vote for each share held of
record and may not cumulate votes for the election of directors. The holder of
outstanding shares of IDT Series A Preferred Stock, if any, is entitled to the
number of votes equal to the number of shares of IDT common stock into which
such shares of IDT Series A Preferred Stock could be converted on the record
date for the applicable vote or written consent of stockholders, and except as
otherwise required by law, shall have voting rights and powers equal to the
voting rights and powers of holders of IDT common stock.
Liquidation Preference
In the event of any dissolution, liquidation or winding-up of the
corporation, each holder of Identix common stock is entitled to receive its pro
rata portion of all remaining assets of the corporation after payment of
liabilities, subject to any preferential rights of preferred stock, if any.
Similarly, each holder of IDT common stock is entitled to receive its pro rata
portion of all remaining assets of the corporation after payment of
liabilities, subject to any preferential rights of preferred stock, if any. In
the event of any dissolution, liquidation or winding-up of the corporation
(including certain consolidations or mergers or sales of all or substantially
all of the assets of the corporation), each holder of IDT Series A Preferred
Stock is entitled to receive, in preference to the holders of IDT common stock,
an amount per share equal to $9.00, plus all declared but unpaid dividends,
after payment of liabilities. Neither Identix nor IDT has any shares of
preferred stock outstanding as of the record date, although IDT has issued
warrants to acquire up to 60,000 shares of Series A Preferred Stock.
Amendments to Certificates of Incorporation
Identix's Certificate of Incorporation may be amended in accordance with
Delaware Corporate Law. IDT's Certificate of Incorporation may also be amended
as provided under Delaware Corporate Law; however, so long as any shares of the
IDT Series A Preferred Stock are outstanding, IDT shall not, without obtaining
the approval of the holders of not less than a majority of the outstanding
shares of the IDT Series A Preferred Stock, alter or change the rights,
preferences or privileges of the Series A Preferred Stock so as to affect
differentially and adversely such shares.
Stockholder Action by Written Consent
The Identix Certificate of Incorporation provides that any action required
or permitted to be taken by the Identix stockholders must be effected at a duly
called annual or special meeting and may not be effected by written consent.
Because the IDT Certificate of Incorporation does not prohibit or limit
stockholder actions by written consent, IDT stockholders may act by written
consent without a meeting or by vote at a meeting.
52
<PAGE>
Advance Notice of Certain Stockholder Actions
The Identix Bylaws provide that a stockholder must give timely notice of
business it wishes to bring before a stockholders meeting. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal officers of Identix no later than (1) in the case of an annual
meeting, 90 days before the anticipated date of the annual meeting, and (2) in
the case of a special meeting, 10 days prior to such meeting. The stockholder's
notice shall set forth:
. a description of the business;
. the name and address of the stockholder;
. the class and number of shares held; and
. any material interest of the stockholder in the business proposed.
The IDT Certificate of Incorporation and Bylaws require at least 10 days
advance notice of stockholder business to be brought by stockholders before any
special meeting of stockholders, but no such advance notice of the business to
be transacted is required for the annual meeting or for actions affected by
written consent.
Special Stockholder Meetings
The Identix Certificate of Incorporation provides that special meetings of
the stockholders of Identix may be called only by the Identix board of
directors, the chairman of the board or Identix's president. Stockholders do
not have the ability to call a special meeting. The IDT Bylaws provide that
special meetings of stockholders may be called by IDT's president and shall be
called by the president or secretary at the written request of a majority of
the IDT board of directors, or at the written request of stockholders owning a
majority of the issued and outstanding capital stock of IDT entitled to vote.
53
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
give effect to the acquisition by Identix of IDT in a transaction accounted for
as a purchase. The unaudited pro forma condensed combined financial statements
are based on the individual historical financial statements of Identix and IDT
for the year ended June 30, 1998 and the six months ended December 31, 1998.
The historical consolidated financial statements for Identix are incorporated
by reference into this prospectus. The historical consolidated financial
statements for IDT for the year ended June 30, 1998 and six months ended
December 31, 1998 are derived from the historical consolidated financial
statements included in this prospectus.
The following unaudited pro forma condensed combined statements of
operations are not necessarily indicative of the results of operations of the
combined company or the results of operations which would have resulted had
Identix and IDT been combined during the periods presented. In addition, the
pro forma results are not intended to be a projection of future operating
results. The unaudited pro forma condensed combined financial statements should
be read in conjunction with the historical consolidated financial statements of
Identix by reference in this prospectus and the historical consolidated
financial statements of IDT, including the notes thereto, appearing elsewhere
in this prospectus.
The unaudited pro forma condensed combined balance sheet assumes that the
acquisition took place on December 31, 1998. The unaudited pro forma condensed
combined statements of operations assume that the acquisition took place as of
July 1, 1997. The unaudited pro forma condensed combined financial statements
are based on the estimates and assumptions set forth in the notes to such
statements. The pro forma adjustments are based on a preliminary valuation of
IDT made in connection with the development of the pro forma information for
illustrative purposes to comply with the disclosure requirements of the SEC.
54
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended June 30, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Identix IDT Adjustments Combined
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................... $79,374,000 $4,103,000 $83,477,000
----------- ---------- -----------
Cost and expenses:
Cost of revenues........... 55,392,000 1,132,000 56,524,000
Research, development and
engineering............... 4,572,000 1,218,000 5,790,000
Marketing and selling...... 9,107,000 1,082,000 10,189,000
General and
administrative............ 8,474,000 590,000 $ 2,640,000 11,704,000
Reorganization costs....... 717,000 717,000
----------- ---------- ----------- -----------
Total costs and expenses.. 78,262,000 4,022,000 2,640,000 84,924,000
----------- ---------- ----------- -----------
Income (loss) from
operations.................. 1,112,000 81,000 (2,640,000) (1,447,000)
Interest and other income
(expense), net.............. 66,000 4,000 70,000
Interest expense............ (239,000) (239,000)
----------- ---------- ----------- -----------
Income (loss) before equity
interest in joint venture... 939,000 85,000 (2,640,000) (1,616,000)
Equity interest in joint
venture..................... (171,000) (171,000)
----------- ---------- ----------- -----------
Net income (loss)........... $ 768,000 $ 85,000 $(2,640,000) $(1,787,000)
=========== ========== =========== ===========
Net income (loss) per share:
Basic..................... $ 0.03 $ (0.06)
=========== ===========
Diluted................... $ 0.03 $ (0.06)
=========== ===========
Shares used in per share
calculation:
Basic..................... 25,104,000 28,013,000
=========== ===========
Diluted................... 25,669,000 28,013,000
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
55
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
Six months ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Identix IDT Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................. $40,323,000 $ 2,274,000 $42,597,000
----------- ----------- -----------
Cost and expenses:
Cost of revenues......... 28,089,000 1,365,000 29,454,000
Research, development and
engineering............. 2,804,000 796,000 3,600,000
Marketing and selling.... 5,146,000 708,000 5,854,000
General and
administrative.......... 3,466,000 574,000 $ 1,320,000 5,360,000
Stock compensation....... -- 4,642,000 -- 4,642,000
----------- ----------- ----------- -----------
Total costs and
expenses............. 39,505,000 8,085,000 1,320,000 48,910,000
----------- ----------- ----------- -----------
Income (loss) from
operations................ 818,000 (5,811,000) (1,320,000) (6,313,000)
Interest and other income
(expense), net............ 60,000 3,000 63,000
Interest expense.......... (235,000) (82,000) (317,000)
----------- ----------- ----------- -----------
Income (loss) before taxes
and equity interest in
joint venture............ 643,000 (5,890,000) (1,320,000) (6,567,000)
Provision for income
taxes..................... (90,000) (90,000)
Equity interest in joint
venture................... (159,000) (159,000)
----------- ----------- ----------- -----------
Net income (loss)......... $ 394,000 $(5,890,000) $(1,320,000) $(6,816,000)
=========== =========== =========== ===========
Net income (loss) per
share:
Basic................... $ 0.02 $ (0.24)
=========== ===========
Diluted................. $ 0.02 $ (0.24)
=========== ===========
Shares used in per share
calculation:
Basic................... 25,319,000 28,228,000
=========== ===========
Diluted................. 25,646,000 28,228,000
=========== ===========
</TABLE>
See accompanying notes to unaudited proforma condensed combined financial
statements.
56
<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Identix IDT Adjustments Combined
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents........... $ 2,418,000 $ 76,000 $ 2,494,000
Accounts receivable,
net................... 26,992,000 1,407,000 28,399,000
Inventories............ 6,857,000 102,000 6,959,000
Prepaid expenses and
other assets.......... 947,000 88,000 1,035,000
------------ ----------- ----------- ------------
Total current
assets.............. 37,214,000 1,673,000 38,887,000
Property and equipment,
net...................... 2,094,000 312,000 2,406,000
Intangibles and other
assets................... 2,624,000 5,000 $24,550,000 27,179,000
------------ ----------- ----------- ------------
Total assets......... $ 41,932,000 $ 1,990,000 $24,550,000 $ 68,472,000
============ =========== =========== ============
Current liabilities:
Notes payable to
banks................. $ 4,093,000 $ 304,000 $ 4,397,000
Accounts payable....... 9,038,000 400,000 9,438,000
Accrued liabilities.... 2,457,000 702,000 $ 550,000 3,709,000
Deferred revenue,
current portion....... 1,910,000 322,000 2,232,000
------------ ----------- ----------- ------------
Total current
liabilities......... 17,498,000 1,728,000 550,000 19,776,000
Other long-term
liabilities.............. 90,000 -- 90,000
Notes payable, net of
issuance costs........... -- 299,000 299,000
Deferred revenue, less
current portion.......... -- 40,000 -- 40,000
------------ ----------- ----------- ------------
Total liabilities.... 17,588,000 2,067,000 550,000 20,205,000
------------ ----------- ----------- ------------
Shareholders' equity
(deficit):
Common stock........... 53,567,000 11,290,000 26,300,000 87,534,000
Accumulated deficit.... (29,042,000) (1,119,000) (8,925,000) (39,086,000)
Deferred stock
compensation.......... -- (10,248,000) 6,625,000 --
Cumulative translation
adjustment............ (181,000) -- (181,000)
------------ ----------- ----------- ------------
Total shareholders'
equity (deficit).... 24,344,000 (77,000) 24,000,000 48,267,000
------------ ----------- ----------- ------------
Total liabilities and
shareholders' equity
(deficit)........... $ 41,932,000 $ 1,990,000 $24,550,000 $ 68,472,000
============ =========== =========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
57
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Note 1--Basis of Presentation:
The unaudited pro forma condensed combined balance sheet has been prepared
to reflect the acquisition of IDT by Identix as if the acquisition had occurred
on December 31, 1998.
The unaudited pro forma condensed combined statement of operations for the
year ended June 30, 1998 and the six months ended December 31, 1998 have been
prepared to reflect the acquisition of IDT by Identix as if the acquisition had
occurred on July 1, 1997.
There were no material differences in the accounting policies of Identix and
IDT for the periods presented.
Note 2--Purchase Accounting and Pro Forma Adjustments:
Purchase Price
In connection with the merger, Identix issued or will be obligated to issue
a total of 5,050,000 shares of Identix common stock. This amount is comprised
of 2,909,370 shares of common stock and options and warrants to purchase
2,140,630 shares of common stock with exercise prices of $0.26 and $8.07,
respectively. The market value of a share of common stock of $8.08 was
determined using the average quoted market price of the Identix common stock
for the two days preceding and following the announcement of the merger. All
options and warrants previously issued by IDT will be assumed by Identix and
represent options and warrants to purchase 2,073,783 and 66,847 shares of
Identix common stock, respectively, upon consummation of the merger. 10% of the
IDT options and warrants assumed in the merger (and the Identix common stock
issuable upon exercise thereof) will be subject to the escrow agreement to the
extent agreed by the holders of such IDT options and warrants. The IDT option
grants contained provisions for accelerated vesting of all or a portion of the
options in the event of a transaction resulting in a change in control of IDT.
Options vested before the merger, vesting on the merger and unvested after the
merger for directors and officers and other individuals are as follows:
<TABLE>
<CAPTION>
Identix equivalent shares at December 31, 1998
------------------------------------------------------------
Vested before Merger Vesting on Merger Unvested after Merger
-------------------- ----------------- ---------------------
<S> <C> <C> <C>
Directors and officers.. 631,464 389,861 48,128
Other................... 223,043 619,674 161,793
------- --------- -------
Total................ 854,507 1,009,535 209,921
======= ========= =======
</TABLE>
On the closing of the merger, stock compensation expense of $8,783,000 will
be recorded in IDT's financial statements as a result of the acceleration of
vesting on these options. Because the merger is being accounted for as a
purchase, this expense will not affect Identix's financial statements.
The value of the Identix options and warrants to be exchanged for vested and
unvested IDT options and warrants has been included in the determination of the
purchase price. The fair value of the options and warrants was determined using
a Black/Scholes option pricing model with the following assumptions:
<TABLE>
<S> <C>
Expected life...................................................... 2-5 years
Volatility......................................................... 52%
Risk free interest rate............................................ 5.8-6.2%
Dividend yield..................................................... 0%
</TABLE>
58
<PAGE>
The weighted average fair value of the Identix options and warrants
exchanged was $7.69.
The common stock and fair value of the options and warrants exchanged were
discounted by 15%, taking into consideration the lack of marketability of
certain shares due to the terms of the escrow agreement, the resale
restrictions and other factors. The aggregate market value of common stock and
the fair value of options and warrants issued is $33,967,000.
<TABLE>
<CAPTION>
Fair Total Fair
Shares Value Value Discounted
--------- ----- ----------- ----------
<S> <C> <C> <C> <C>
Common shares outstanding........... 2,909,370 $8.08 $23,502,000 19,977,000
Common shares issuable on exercise
of options......................... 2,073,783 $7.80 16,176,000 13,749,000
Common shares issuable on exercise
of warrants........................ 66,847 $4.25 284,000 241,000
--------- ----------- ----------
5,050,000 $39,962,000 33,967,000
========= =========== ==========
</TABLE>
In addition, Identix assumed liabilities of IDT totaling $2,067,000 and
incurred acquisition costs of $550,000, resulting in a total purchase price of
$36,584,000.
Identix will issue options to purchase 400,000 shares of common stock to
certain individuals upon the closing of the merger. These options will be
issued in connection with employment agreements and will be subject to vesting
requirements. These options have not been included in the determination of the
purchase price and will be accounted for in accordance with APB 25.
Allocation of Purchase Price.
The total purchase price of $36,584,000 was allocated to the fair value of
the assets acquired as follows:
<TABLE>
<CAPTION>
Amortization
Life
------------
<S> <C> <C>
Tangible assets.................................... $ 1,990,000 --
In-process research and development................ 10,044,000 --
Core technology.................................... 4,663,000 5
Assembled workforce................................ 202,000 3
Goodwill........................................... 19,685,000 12
-----------
Total............................................ $36,584,000
===========
</TABLE>
In-Process Research and Development.
The fair value of the purchased in-process research and development was
determined using the stage of completion method based on the future cash flows
that are projected to be generated by the products under development over a 5-
year period.
In-process research and development activities consist of hardware and
software product concept formulation, mechanical and optical design,
engineering prototyping, software code programming and testing procedure design
and development. The purchased in-process research and development is focused
on the next generations of fingerprint readers which are expected to be of
significantly reduced size and cost. Also under development is software
required to integrate and support the next generation readers, to enhance the
existing functionality of current products and to add additional capabilities.
59
<PAGE>
The important elements of the in-process projects at the time of acquisition
include product concepts and designs, software code, test specifications and
processes and pre-prototype models. The fair value of the in-process products
was determined as a whole but IDT management estimates approximately 80% of the
value is attributable to the software related products and 20% to hardware
related products. The in-process products are projected to be completed over
the next 1-3 years. Material cash inflows from significant projects are
projected to commence in 2000.
To determine the overall percentage of completion of the in-process
projects:
. Historical costs were analyzed and assigned to each project. Estimates
of the cost to complete each project were developed as well as the
time frame for completion. A percentage completion factor was then
calculated for the various projects.
. To properly weigh the projects relative to the future cash flows used
in determining the value of the in-process research and development,
the percentage completion for each project was then applied to the
projected cash flows, based on gross profits, for each project to
arrive at the weighted average cash flows. These cash flows were then
reduced by a discount factor of 30%. The discount factor of 30%
represents a premium to IDT's weighted average cost of capital to
reflect the higher risk of the under development technology and the
relatively high projected financial results compared to historical
results. The discounted cash flows weighted for the percentage
completion represented 50% of the overall discounted cash flows, based
on gross profits.
Significant assumptions utilized in determining the estimated cash flows
from in-process research and development projects are as follows:
Revenue is assumed to grow from $12.2 million in Year 1 to $75.6 million
before declining to $37.8 million in Year 5. This increase in revenue
reflects the early stage of the market and the projected acceptance and
adoption of the technology over the next few years.
Gross margin is assumed to decrease from 77% to 45% over the same five
year period. Gross margin is higher reflecting projected increased levels
of high margin software sales in the near term. The gross margin decreases
over the projection period as the in-process product mix shifts toward
lower margin hardware products which are in earlier stages of completion
compared with higher margin software products which are in more advanced
stages of completion.
Selling and marketing costs for the in-process products are assumed to
decrease from 23% to 17% over the five year period reflecting revenue
leverage from sales through IDT's distribution channel.
General and administrative costs for the in-process products are assumed
to decrease from 9% to 6% over the five year period as expenses are not
projected to increase in line with sales.
Research and development costs related to in-process products are
expected to decrease from 14% to 3% over the projection period while
sustaining engineering costs are projected to increase from $0.2 million in
Year 1 to $2.5 million in Year 5.
60
<PAGE>
In estimating the future cash flows, management of IDT used historical
information with regard to margins and expenses, and performed an assessment of
the products' acceptance in the emerging market for biometric security. The
most significant and uncertain assumption used in the valuation was the
projected revenue stream from the products under development.
The new generation of products under development are projected to sell
through sales channels and to customers which are substantially different from
its historical channels and customers. Therefore, pricing and margins will
differ from historical levels and are projected to be lower overall on
significantly higher unit volume.
Total expense levels are projected to increase with the growth of business
activity but will represent a smaller percentage of revenues due to the higher
volume of sales and the fact that the new sales channels require substantially
less support infrastructure than the channels historically used.
The projected or assumed revenues, expenses, cash flows and other financial
information described above are forward-looking statements that involve
substantial risks and uncertainties. Actual results or performance may differ
materially for a variety of reasons. The major risks with respect to the timely
completion and commercialization of the in-process projects are that
technological feasibility may not be achieved for some or all of the in-process
projects, IDT may lose key technical personnel or a competitor may develop
technology or products which compete with or replace the in-process projects.
Other risks that may affect future results or performance are described under
"Risk Factors" beginning on page 13.
Pro Forma Adjustments
The following adjustments were applied to the historical statements of
operations to arrive at the pro forma condensed combined statement of
operations:
(a) Reflects the additional amortization expense of intangible assets of
$2,640,000 and $660,000 for the year ended June 30, 1998 and six
months ended December 31, 1998, respectively, over their estimated
useful lives of 3-12 years.
(b) Shares used in the per share calculations reflect the 2,909,370
Identix common shares issued to IDT shareholders as if they were
outstanding from the beginning of each period presented. Identix
shares totaling 2,140,630 which would be issuable on the exercise of
outstanding IDT options and warrants have not been included in the
computation of the diluted per share calculation as their effect would
have been anti-dilutive.
(c) Prior to September 30, 1998, the current business of IDT was operated
as a joint venture and was not subject to income tax. Each venture
partner was individually liable for tax on its share of the joint
venture profits. For purposes of the pro forma statements of
operations for the year ended June 30, 1998 and six months ended
December 31, 1998 no amounts have been recorded for income taxes
related to IDT as the combined entity had a loss before income taxes.
61
<PAGE>
Note: In-process research and development costs in the amount of $10,044,000,
which will be written off immediately after the transaction is complete, have
been excluded from the unaudited pro forma condensed combined statements of
operations.
BUSINESS OF IDENTICATOR TECHNOLOGY
Overview
In 1991, the founders of Identicator Technology commenced development of
electronic identification systems with particular emphasis on finger imaging
for use in a broad range of applications such as data security, electronic
commerce, and physical access control, as well as in the civil and criminal
justice systems. In 1993, these efforts resulted in the formation of
Identicator Technology as a joint venture, California partnership,
headquartered in San Bruno, California and maintaining a software and hardware
development facility in Dublin, California and a sales office in Washington,
D.C. In 1998, Identicator Technology restructured the joint venture into a
Delaware corporation as the wholly owned subsidiary of the newly-formed IDT.
Identicator Technology's systems use proprietary software and hardware
technologies for positive personal identification. Identicator Technology's
systems provide a higher level of security and ease of use compared to
passwords and personal identification numbers ("PINs"), which will ultimately
result in lower systems administration costs as the need to continually change
an individual's password is eliminated. Identicator Technology's electronic
fingerprint based identification system is compact, fast, reliable, low-cost,
accurate, and user friendly, which Identicator Technology believes
differentiates it from its competition. These cost-effective systems allow
integration into a broad range of existing applications that require user
authentication such as access to personal computers ("PCs"), networks,
automatic teller machines ("ATMs"), credit card readers, and physical access
control systems. Identicator Technology believes that it has the largest PC
installed base of cold search (minutiae based) biometric systems worldwide.
Biometric Technologies
The biometrics industry is based upon the premise that a basic need exists
in commercial markets for positive personal identification. The existence of
passwords for data access, PINs for ATM and account access, identification
cards, photos and signatures on credit cards provides evidence of this need.
In the search for a solution to the authentication problem, biometrics,
which is is the measurement of unique physical characteristics, emerged as a
promising solution. There are six primary forms of biometric technology: finger
imaging, voice, eye, signature, face, and hand. Identicator Technology believes
that minutiae based finger imaging systems are the most accepted form of
biometric technology. Facial identification, however, has merit in certain
applications, and Identicator Technology is developing a facial identification
system.
Technology and Products
Identicator Technology's hardware and software products represent a complete
electronic finger imaging identification solution that can accomplish both
match (one-to-one) and search (one-to-many) of images in a database.
Identicator Technology's equipment optically scans a fingerprint,
62
<PAGE>
digitizes and processes the image, and analyzes and extracts its unique
characteristics (minutiae) ultimately reducing the fingerprint to a small piece
of digital information as small as 60 bytes. This digital information can be
stored on the magnetic stripe of a credit, debit or ATM card or driver's
license or in the memory of a smart card, which is used for positive user
authentication purposes.
Although Identicator Technology has both proprietary hardware and software,
Identicator Technology anticipates that hardware (scanners) may ultimately
become a commodity. It is Identicator Technology's strategy to continue to sell
its hardware through a contract manufacturing relationship, controlling the
intellectual property associated with the hardware and increasing revenue
growth and market share position. As the hardware becomes more of a commodity
technology product, it is Identicator Technology's intention to license its
technology to select peripheral component suppliers and to convert this revenue
stream to a royalty based model. Additionally, as this occurs, Identicator
Technology's focus will primarily be on the software development of
applications and continuous improvement of the algorithm for the core operating
system for finger imaging.
Identicator Technology's existing product line is summarized below:
Hardware--Direct Fingerprint Readers (DFR)
. DFR-200--The DFR-200 OEM fingerprint sensor is the newest product in the
DFR line and is presently in commercial use. The DFR-200 is very small
in size and is designed as an original equipment manufacturer ("OEM")
product, specifically for incorporation into mice, keyboards, monitors,
and similar products. It contains Identicator Technology's proprietary
MicroPrism, a replaceable platen. Compaq is currently selling the DFR-
200, which includes logon software, as a stand-alone peripheral for
computer security for $99.
. DFR-90--The DFR-90 is a reliable fingerprint scanning device that
electronically captures high resolution fingerprint images and passes
them via a standard RS-170 video signal to a PC. The DFR-90 meets the
American National Standards Institute/National Institute of Science and
Technology, FBI and Automated Fingerprint Identification System
requirements and is designed primarily for the enrollment of individuals
into a database. The DFR-90 is installed in many locations within the
United States, including the Georgia Department of Motor Vehicles, the
FBI and the National Security Agency, and internationally in countries
such as Spain, Argentina, and Australia.
. DFR-98--The DFR-98 is similar to the DFR-90, except that it features the
replaceable MicroPrism and it has a smaller footprint than the DFR-90.
. DFR-100--The DFR-100 has a smaller footprint, powered directly from the
PC and produces digital output. The DFR-100 is designed to perform
identification functions for day-to-day use at the point of transaction.
The DFR-100 is being phased out in favor of the DFR-200.
Software
Identicator Technology has developed a series of software technologies and
applications targeted to industry channels of distribution. All software
solutions are based on a common software
63
<PAGE>
architecture and components that facilitate ease of development and
maintenance. Identicator Technology's existing software includes:
. Software Development Toolkit--Identicator Technology's proprietary
software tools, in the form of System Developer Kits ("SDKs")
encapsulate all the logic necessary for capturing, processing, reducing,
matching, and searching finger images. Identicator Technology's SDK
products run on DOS, Windows, Windows 95, and Windows NT.
. Application Software--Identicator Technology has and continues to
develop software applications based on industry standards and protocols
targeted at the information technology industry. These applications are
designed to replace passwords, authentication systems, and PINs by
providing security identification as stand-alone solutions, as well as
in combination with existing token-based systems such as smart cards for
Windows, NT, Java, and Unix based operating systems. Currently the
product family includes:
-NT Logon.
-Windows 95 Logon.
-Screen Saver Logon.
-Fingerprint Distributed System.
. Advanced Market Applications--Identicator Technology is developing a
series of vertical applications targeted to enterprise-wide solutions
developed on the Identicator Technology proprietary algorithms. Finger
imaging is utilized as the link to solutions for markets such as
enterprise intranets, extranets, and the financial and medical
communities.
Under Development
. Application Program Interface--Identicator Technology currently has
under development a set of Application Programming Interfaces ("APIs")
that utilize a common architecture set at the user interface, resource
manager, and database management levels. The API development is focused
on utilizing common industry protocols and standards to position the
technology for the broadest industry acceptance.
. Embedded Solutions--In the future, Application Specific Integrated
Circuit ("ASIC") chips will house a significant portion of the software
required for the system operation, performing such functions as image
processing, feature extraction, single print match, and multiple print
search. Software drivers will be available for use with all Identicator
Technology ASICs in a variety of cross platforms, cross operating
systems, and localized versions. These drivers will have published APIs
so that licensees can develop their own code.
. Facial System--Identicator Technology is developing an identification
system based on facial features. Identicator Technology's initial facial
system products will be delivered in the form of a software developer's
toolkit and used for dual biometrics in civil market applications.
64
<PAGE>
Marketing and Distribution Channels
Market Overview
The biometric markets can be divided into three major segments:
. Criminal Justice Market--The criminal justice segment is the traditional
domain for fingerprint identification applications and includes
automated booking systems, probation and parole systems, prison inmate
and visitor control and release applications, and field deployable
identification systems.
. Civil Market--Identicator Technology's finger imaging systems are in use
in State Drivers License Bureaus in the U.S., in systems implemented by
major systems integrators. In addition, Identicator Technology's
products can also be used in National Identification, Voter Registration
and National Welfare programs.
. Commercial Market--The commercial market can be divided into three
categories:
- Data Security: Computer security includes all forms of information
security requiring positive user authentication and identification,
including access to internal and external computer networks and
communication links. Today, a password is the most commonly employed
method by which access to confidential data is controlled. However,
passwords have proven to be inadequate protection against a
motivated hacker, are often forgotten, are not user friendly, and
require a significant amount of administrative overhead. Unlike
passwords or tokens (smart cards), every finger image is unique and
cannot be forgotten or stolen. IT administrators want a secure, more
user-friendly system. Particularly important in data security is the
migration toward "single sign-on" systems that are made possible
through Identicator Technology's technology.
- Financial Security: This category includes all types of consumer and
commercial electronic funds transfer such as ATM and credit card
transactions, electronic commerce, and interactive and home banking.
To date, efforts to secure these transactions have been focused on
protecting the card from fraudulent use by means of PINs, passwords
and signature comparison. A much higher level of security can be
obtained by positively linking the card to the cardholder and the
account to the accountholder through finger imaging. This category
also includes government based electronic benefits transfer
applications.
- Physical Access Control: Physical access control includes access to
all types of facilities, as well as applications in time and
attendance, immigration, border control, building security, and
airport security. Also included in this category are home, hotel,
and vehicle security.
Market Focus
Identicator Technology sells its products and solutions primarily through
large systems integrators such as Unisys Corporation, Lockheed Martin
Corporation, and Polaroid Corporation, PC OEMs, such as Compaq Corporation, and
peripheral manufacturers, such as KeyTronic Corporation, together with many
smaller systems integrators and value added resellers that access intermediate
markets. Historically, sales have been primarily driven through the criminal
justice and civil markets.
65
<PAGE>
For example, Unisys has integrated the Company's hardware and software into 700
ATMs in Spain with over 1 million smart cards produced using Identicator
Technology's finger template stored in the cards specifically designed for
disbursement of government benefits. Polaroid has integrated Identicator
Technology's products in various Drivers License Bureaus, including West
Virginia and Georgia.
While the criminal justice and civil market applications have established
the capture, storage, analysis, and transmission of finger imaging as a
solution for personal identification and user authentication, Identicator
Technology believes that the commercial market potentially may become the
largest market for finger identity security due to the need for identity
security and the proliferation of technology, information, and data exchange.
Identicator Technology believes that it is well positioned to take advantage of
the commercial markets with its leading edge technology, products, and
significant installed base.
Strategy
Identicator Technology's overall strategy is to be the industry leader by
establishing strategic relationships with, and licensing and selling its
products to, established industry distribution partners and channels for
incorporation into their existing PC device product lines. Key relationships
with major PC OEMs, peripheral manufacturers, software publishers, and systems
integrators have already been established.
Proprietary Technology
Identicator Technology principally relies upon a combination of copyright,
trade secret, contract and, to a limited extent, patent law to establish and
protect its proprietary rights. In order to protect its trade secrets and
proprietary know-how, Identicator Technology enters into confidentiality
agreements with its employees, consultants, service providers, and third
parties. There is a risk that these agreements may be breached, and the
remedies available to Identicator Technology may not be adequate. In addition,
Identicator Technology's trade secrets and proprietary know-how may otherwise
become known or be independently discovered by others.
66
<PAGE>
IDT'S MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with IDT's
Consolidated Financial Statements and related notes included elsewhere in this
prospectus. The following discussion may contain predictions, estimates, and
other forward-looking statements that involve a number of risks and
uncertainties. See "Risk Factors" beginning on page 13 for a discussion of
certain factors that could cause actual results to differ from those described
in the following discussion and "Special Note Regarding Forward-Looking
Statements" on page 12.
Overview
IDT designs, develops, markets and, through subcontractors, manufactures
electronic identification systems with particular emphasis on finger imaging
for use in the civil and criminal justice systems as well as in a broad range
of commercial applications, including information technology, Internet,
physical access control, banking, data/network security, and electronic
commerce.
IDT generates revenues from sales of hardware and software products. In
addition, during a five year period which ended June 30, 1998, IDT received
significant royalty payments from one customer, Unisys. IDT expects future
revenues to include hardware and software license fees in addition to sales
from hardware and software product shipments.
Identicator Technology, a California general partnership (the "Venture"),
was a joint venture between Identicator Corporation and International
Technology Concepts, Inc. (the "partners"). On September 30, 1998, ownership of
substantially all of the assets and business of the Venture was transferred to
Identicator Technology, Inc., a wholly owned subsidiary of IDT.
IDT purchases certain inventory from International Technology Concepts, Inc.
In addition, the Venture paid commissions and fees for administrative support
to both International Technology Concepts, Inc. and Identicator, Inc.
Management of Identicator, Inc. is involved in the day to day management of
IDT.
Results of Operations
Years Ended December 31, 1998 and 1997
Revenues. Total revenues for 1998 were $4,378,000, up 37% from the revenues
of $3,194,000 for 1997.
Product sales increased 75% to $3,769,000 in 1998 versus $2,158,000 during
1997. Of the increase in revenues, $1,388,000 resulted from sales to one
customer, Key Tronic Corporation. Key Tronic purchases IDT's newest product,
the DFR-200, for integration into keyboards produced for Compaq Corporation as
well as for integration into its own products.
The increase in product sales was partially offset by a decrease in royalty
revenues, primarily from Unisys, which were $609,000 in 1998, down 41% from
$1,036,000 in 1997. Unisys has a license from Identicator Technology for the
use of its technology. The customer's initial contractual
67
<PAGE>
obligation to pay fixed quarterly royalties to IDT expired in March 1998,
accounting for the decrease. The current license provides for royalty payments
based on purchases.
Gross Margin. Total gross margins in 1998 were 54% of total revenues
compared to 79% for 1997. Gross margins for product sales declined to 46% in
1998 compared to 69% for 1997 as a result of start-up costs associated with the
launch of the DFR-200 as well as from sales of the DFR-200 which is a higher
volume, lower margin hardware product compared to IDT's other hardware
products. Sales from the DFR-200 are expected to become a larger proportion of
overall revenues, which should have the effect of lowering overall margins in
the future. The lower Unisys royalty revenue in 1998 also contributed to the
overall gross margin decline.
Research and Development. Research and development expenses consist
primarily of payments to International Technology Concepts, Inc. for salaries
and benefits of hardware and software engineers and related supporting
infrastructure. Research and development expenses increased to $1,440,000
during 1998, or 33% of total revenues, compared to $1,019,000, or 32% of total
revenues, in 1997. IDT continued to fund increasing amounts of research and
development for future hardware and software products and enhancements. In the
future, IDT expects to continue to increase its absolute dollar spending on
research and development, although not necessarily as a percentage of total
revenues.
Sales and Marketing. Sales and marketing expenses consist primarily of
payments to Identicator, Inc. for salaries and benefits of sales and marketing
personnel and related supporting infrastructure, marketing consulting services,
advertising and promotion costs. Sales and marketing expenses increased to
$1,289,000 during 1998, representing 29% of total revenues, compared to
$854,000, or 27% of total revenues, for 1997. Investments in sales and
marketing personnel to expand the customer base and open additional sales
channels primarily accounted for the higher spending level.
General and Administrative. General and administrative costs consist
primarily of payments to Identicator, Inc. for executive management salaries
and benefits and accounting and administrative services, legal services,
provisions for uncollectible accounts receivable and miscellaneous overhead
expenses. General and administrative expenditures were $889,000 in 1998, or 20%
of total revenues, up from $510,000, or 16% of total revenues, for 1997. The
increase in general and administrative expenses was primarily attributable to
additional executive management level consulting costs and to a lesser degree
payment of certain legal and other expenses associated with the reorganization
in which the Venture was restructured into Identicator Technology, Inc., a
Delaware corporation. Legal and accounting fees incurred in connection with the
proposed merger totaling $121,000 also contributed to the increase in expenses.
These increased expenses were partially offset by lower provisions for doubtful
accounts compared to 1997.
Stock Compensation. In September 1998, IDT issued options to purchase
1,944,334 shares of its common stock to current and former employees,
shareholders and consultants of Identicator Corporation and International
Technology Concepts, Inc. All options were issued to non-employee service
providers of IDT and were therefore recorded at fair value. Of the total,
options for 1,247,167 shares vest over time; therefore, IDT recorded deferred
stock compensation on the grant
68
<PAGE>
date of $7,227,000 and related amortization expense at December 31, 1998 of
$602,000. Options subject to future vesting are accounted for as variable
options and are subject to remeasurement at each balance sheet date. At
December 31, 1998 the fair value of the options subject to vesting was
remeasured at $10,850,000. The remaining 697,167 options related to options
issued in exchange for options of Identicator Corporation in connection with
the recapitalization and reorganization. Substantially all of these options
were fully vested and, accordingly, $4,040,000 was recorded as stock
compensation expense on the date of grant. There was no stock compensation
expense for the comparable period of 1997. See Note 8 to IDT's Consolidated
Financial Statements.
Years ended December 31, 1997 and 1996
Revenues. Total revenues for 1997 were $3,194,000, up 4% from the revenues
of $3,061,000 for 1996.
Product sales increased 12% to $2,158,000 in 1997 compared to $1,929,000 in
1996. The increased sales primarily resulted from higher hardware and software
product shipments. The introduction of IDT's DFR-100 product also contributed
to the sales increase.
The increase in revenues were partially offset by a decrease in royalty
revenues from Unisys which fell to $1,036,000 in 1997 from $1,132,000 in 1996,
a decline of 8%.
Gross Margin. Total gross margins increased to 79% of total revenues in 1997
from 75% of total revenues in 1996. The increase primarily resulted from an
improved product mix and higher margins from the DFR-100, which was launched
late in 1996.
Research and Development. Research and development expenses increased to
$1,019,000 in 1997, representing 32% of total revenues, compared to $792,000,
or 26% of total revenues, in 1996. The growth in expenses consisted of
additional salaries and benefits of $144,000 and facilities charges of $47,000
to further develop IDT's products, particularly the DFR-200 and related
software enhancements.
Sales and Marketing. Sales and marketing expenses increased to $854,000 in
1997, or 27% of total revenues, from $628,000, or 21% of total revenues, in
1996. Added sales and marketing resources accounted for most of the increased
spending while expanded promotional activity also contributed to the increase.
General and Administrative. General and administrative expenditures were
$510,000 in 1997, or 16% of total revenues, compared to $430,000, or 14% of
total revenues, in 1996. This increase was due to the establishment of higher
reserves for potentially doubtful accounts receivable as a result of a
comprehensive analysis of unpaid accounts and consistent with significantly
higher levels of accounts receivable in 1997 versus 1996 based on higher sales
activity. IDT continues to pursue collection of a large portion of the doubtful
accounts and accordingly has not written off these accounts to the reserves.
Taxation
No provision for income taxes has been recorded. Prior to September 30,
1998, the Venture was not a taxpaying entity as each partner was individually
liable for its own tax payments. IDT incurred a loss in the period from October
1, 1998 to December 31, 1998.
69
<PAGE>
Liquidity and Capital Resources
As of December 31, 1998, IDT's principal sources of liquidity consisted of
$76,000 in cash and a bank line of credit.
Cash used in operating activities during the year ended December 31, 1998
was $435,000, compared to cash used in operating activities of $358,000 during
the year ended December 31, 1997. During 1998, cash used in operating
activities consisted of the net loss of $5,978,000 (including $4,642,000 in
non-cash charges primarily related to stock compensation expense) and increases
in accounts receivable, partially offset by increases in deferred revenue,
accrued liabilities and accounts payable. In 1997, cash used in operating
activities consisted of net income of $146,000, offset by greater increases in
accounts receivable and inventory.
IDT used cash of $308,000 and $101,000 in investing activities for the year
ended December 31, 1998 and 1997 , respectively, consisting of purchases of
property and equipment.
IDT's financing activities during the year ended December 31, 1998 provided
cash of $500,000 from the proceeds of a Note and Warrant Purchase Agreement.
The principal on the note issued pursuant to this agreement is due June 5, 2000
and interest of 5.5% on the principal outstanding is due semi-annually.
Warrants to acquire up to 60,000 shares of IDT's Series A Preferred Stock at an
exercise price of $9.00 per share (subsequently amended to $5.00 per share)
were issued in conjunction with the issuance of this Note.
At December 31, 1998 the Company had approximately $1 million in
noncancelable purchase commitments with suppliers. The Company expects to sell
all product which it has committed to purchase from suppliers.
On December 31, 1998, IDT had a $1,000,000 bank line of credit secured by
all of its assets. Under the line of credit, amounts borrowed are limited to
80% of qualifying accounts receivable. Amounts drawn under the line of credit
bear interest at the bank's prime rate of interest (7.7% at December 31, 1998)
plus 1%. The line of credit expires in July 1999. At December 31, 1998, the
Company was not in compliance with the covenants under the line of credit;
however, the bank granted a waiver as of that date.
In February 1999, the bank line of credit was amended to increase the amount
available under the line to $1,500,000 and to remove the financial covenants.
At the same time as the amendment, Identix issued a standby letter of credit to
the bank to secure repayment of amounts drawn by IDT under the line of credit.
IDT is required to reimburse Identix for all draws on the letter of credit,
interest on any draws, and fees and expenses associated with the letter of
credit. If the merger agreement is terminated, IDT is required to use its best
efforts to obtain a release of Identix from the letter of credit.
Management of IDT believes that amounts available under the amended line of
credit will be sufficient to fund IDT's operations through March 2000. In the
event the merger is not completed as currently contemplated, IDT will likely be
required to raise additional equity or debt financing in order to meet its
working capital needs beyond March 2000 and in order to release Identix under
the standby letter of credit. IDT management has had discussions with several
lenders and believes that it will be able to obtain sufficient amounts of debt
financing. There can be no assurance, however, that IDT would be able to obtain
such financing or that the terms of such financing would be favorable to IDT.
70
<PAGE>
Year 2000 Compliance
IDT has evaluated the products and services it offers, and has begun an
assessment of its internal information technology infrastructure, in an effort
to determine whether it or its customers may have exposure to Year 2000
problems caused by computer systems that only use a two-digit year value and,
accordingly, will be subject to error or failure when the year 2000 arrives.
The Company has also begun to make inquiries of its key suppliers to determine
their readiness with respect to Year 2000 problems.
IDT's products are not date dependent. Nevertheless, IDT's software products
run on operating systems developed and sold by Microsoft Corporation. IDT's
products are dependent upon the error-free operation of such systems. IDT has
not conducted its own tests to determine to what extent such operating systems
fail to properly recognize Year 2000 dates.
IDT has conducted a preliminary review of its internal information
technology and non-information technology systems. IDT has not conducted its
own tests or surveyed vendors to determine whether off-the-shelf software that
is used in its computer systems is Year 2000 compliant. IDT does not employ
non-information technology systems which are material to its operations.
IDT is at risk of disruption to its business, cost structure and revenues if
Year 2000 problems are experienced by its key suppliers or customers. IDT is in
the very early stages of assessing the readiness of its key suppliers and
customers with respect to potential Year 2000 problems. To date, IDT has made
such inquiries of only one of the four turnkey manufacturers which produce IDT
hardware and software products, International Technology Concepts, Inc. IDT
plans to survey the remainder of its key suppliers, application vendors and
other information technology suppliers to determine their readiness with
respect to Year 2000 problems. IDT will be able to better determine what
actions may be necessary to address potential problems with key suppliers,
application vendors and other information technology suppliers after it
receives responses back from these suppliers, application vendors and other
information technology suppliers.
To date, the costs for conducting IDT's Year 2000 assessment have not been
material. IDT is currently unable to predict to what extent its business may be
affected if any of its key suppliers or customers or products operating in
conjunction with third-party supplied software or hardware experience a
material Year 2000 problem. Any such problem that affects the operation of
IDT's software applications or products could result in delay or loss of
revenue, cancellation of customer contracts, diversion of development
resources, damage to IDT's reputation, increased service and warranty costs,
and litigation costs, any of which could materially adversely affect IDT's
business, financial condition and results of operations.
The Year 2000 problem is pervasive and complex and there can be no assurance
that IDT has been or will be able identify all of the Year 2000 issues that may
affect IDT or that any remedial efforts it takes will adequately address any
potential Year 2000 problems.
71
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF IDT
The following table sets forth information regarding IDT's outstanding
shares of common stock beneficially owned as of December 31, 1998 by: (1) each
person who beneficially owns more than five percent of the outstanding common
stock; (2) all directors; (3) all named executive officers, and (4) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
Number of Percent of
Name and Address Shares Class
---------------- --------- ----------
<S> <C> <C>
International Technology Concepts, Inc.(1)........... 1,358,881 49.8%
11501 Dublin Boulevard #101
Dublin, CA 94568
Oscar Pieper(2)...................................... 562,100 18.6%
1150 Bayhill Drive, Suite 215
San Bruno, CA 94066
Grant Evans.......................................... 74,000 2.6%
Harry F. Camp........................................ 555,867 18.6%
1150 Bayhill Drive, Suite 215
San Bruno, CA 94066
Yuri Khidekel(1)..................................... 1,553,531 53.2%
11501 Dublin Boulevard #101
Dublin, CA 94568
Yury Shapiro(1)...................................... 1,518,173 52.6%
11501 Dublin Boulevard #101
Dublin, CA 94568
All directors and executive officers as a group(1)
(6 persons)......................................... 2,924,790 78.4%
</TABLE>
- --------
(1) Includes 1,358,881 shares held by International Technology Concepts, Inc.
Mr. Khidekel and Mr. Shapiro as well as Naum Pinkhasik and Michael Pruss,
are each an officer, director and principal shareholder of International
Technology Concepts, Inc., and as such have the ability to influence the
voting and disposition of the listed shares. Mr. Khidekel, Mr. Shapiro, Mr.
Pinkhasik and Mr. Pruss each disclaim beneficial ownership of shares held
by International Technology Concepts, Inc.
(2) Includes 263,100 shares held by the Pieper Family Trust dated 3/29/95.
The above table includes, for each of the persons and the group listed
below, shares subject to stock options and assumes that no other person has
exercised any outstanding warrants or options since December 31, 1998. All such
options are fully exercisable, but are subject to a right of repurchase at cost
by IDT which lapses ("vests") over 48 months from grant. In addition, options
will vest upon the closing of the merger to the extent shown below. For
purposes of the table below, the number of options that are vested within 60
days of December 31, 1998 is used as the number of options vested before the
merger.
<TABLE>
<CAPTION>
Total
Number of Portion of
Shares Options
Subject Vesting
to Upon
Options Merger
--------- ----------
<S> <C> <C>
Oscar Pieper........................................ 299,000 0
Grant Evans......................................... 74,000 27,689
Harry F. Camp....................................... 255,667 0
Yuri Khidekel....................................... 194,650 166,264
Yury Shapiro........................................ 159,292 136,062
All directors and executive officers as a group..... 1,002,609 337,499
</TABLE>
72
<PAGE>
LEGAL MATTERS
The validity of the Identix common stock to be issued to IDT stockholders
pursuant to the merger will be passed upon by Heller Ehrman White & McAuliffe,
Palo Alto, California, counsel to Identix.
Certain tax matters relating to the merger will be passed upon for Identix
by Heller Ehrman White & McAuliffe, Palo Alto, California and for Identicator
Technology by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements of Identix incorporated by reference
in this prospectus by reference to the Annual Report on Form 10-K for the year
ended June 30, 1998 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of IDT Holdings, Inc. (formerly
Identicator Technology, a California general partnership) as of December 31,
1998 and 1997 and for each of the three years in the period ended December 31,
1998 included in this prospectus have been so included in reliance of the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Identix files annual, quarterly and special reports, proxy statements and
other information with the United States Securities and Exchange Commission.
You may read and copy any document filed by Identix at the SEC's public
reference facilities. Please call the SEC at 1-800-SEC-0330 for further
information about its public reference facilities. These SEC filings are also
available to the public at the SEC's web site at "www.sec.gov." Reports, proxy
statements and other information concerning Identix can also be inspected at
the offices of the American Stock Exchange, Inc., 86 Trinity Plaza, New York,
New York 10006.
This prospectus incorporates by reference documents filed by Identix with
the SEC, which are not presented herein or delivered herewith. These documents
relating to Identix are available to any person, including any beneficial owner
to whom this prospectus is delivered, on written or oral request, without
charge, to Identix Incorporated, 510 North Pastoria Avenue, Sunnyvale,
California 94086 (telephone number (408) 731-2000), Attention: Chief Financial
Officer. In order to ensure timely delivery of the documents, any requests
should be made by , 1999.
73
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows Identix to "incorporate by reference" the information it
files with the SEC which means that Identix can disclose important information
to you by referring you to documents it has previously filed with the SEC. The
information incorporated by reference is considered to be a part of this
prospectus, and any later information that Identix files with the SEC will
automatically update and supersede this information. Identix incorporates by
reference the documents listed below, and any further filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until the offering of the securities is terminated. This prospectus is part of
a registration statement on Form S-4 filed by Identix with the SEC
(Registration No. 333-68805). The documents Identix is incorporating by
reference are:
1. Identix's Annual Report on Form 10-K for the fiscal year ended June
30, 1998;
2. Identix's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1998 and December 31, 1998;
3. Identix's Current Report on Form 8-K dated December 16, 1998; and
4. the description of Identix Common Stock in Identix's Registration
Statement (File No. 001-09641) filed pursuant to Section 12 of the
Exchange Act on April 8, 1991, and any amendment or report filed for
the purpose of updating any such description.
74
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statement of Changes in Partners' Capital...................... F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
IDT Holdings, Inc. and subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in partners' capital and
shareholders deficit and cash flows present fairly, in all material respects,
the financial position of IDT Holdings Inc. and its subsidiaries at December
31, 1997 and 1998, and the results of their operations and their cash flows for
the years ended December 31, 1996, 1997 and 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
February 26, 1999
F-2
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
---------- ------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 15,000 $ 76,000
Receivables, net of allowance for doubtful accounts
of $205,000 and $214,000 at December 31, 1997 and
1998, respectively................................. 827,000 1,407,000
Prepaid inventory from related parties.............. 211,000 87,000
Inventory........................................... -- 102,000
Prepaid expenses and other current assets........... 1,000 1,000
---------- ------------
Total current assets.............................. 1,054,000 1,673,000
Property and equipment, net........................... 132,000 312,000
Other assets.......................................... 5,000 5,000
---------- ------------
Total assets...................................... $1,191,000 $ 1,990,000
========== ============
Liabilities, Partners' Capital and Shareholders'
Deficit
Current liabilities:
Bank borrowings..................................... -- $ 304,000
Accounts payable.................................... -- 400,000
Accrued expenses and other current liabilities...... $3,000 142,000
Payable to related parties.......................... 139,000 560,000
Deferred revenue, current portion................... 59,000 322,000
---------- ------------
Total current liabilities......................... 201,000 1,728,000
Notes payable, net of issuance costs.................. -- 299,000
Deferred revenue, less current portion................ -- 40,000
---------- ------------
Total liabilities................................. 201,000 2,067,000
---------- ------------
Commitments (Note 5)
Partners' capital:
Identicator Corporation............................. 495,000 --
International Technology Concepts, Inc.............. 495,000 --
---------- ------------
Total partners' capital........................... 990,000 --
---------- ------------
Shareholders' deficit:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized;
0 shares issued and outstanding.................... -- --
Common stock, $0.001 par value; 12,000,000 shares
authorized: 2,727,762 shares issued and outstand-
ing................................................ -- 3,000
Additional paid in capital.......................... -- 11,287,000
Deferred stock compensation......................... -- (10,248,000)
Accumulated deficit................................. -- (1,119,000)
---------- ------------
Total shareholders' deficit....................... -- (77,000)
---------- ------------
Total liabilities, partners' capital and
shareholders'deficit ............................ $1,191,000 $ 1,990,000
========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Product sales............................. $1,929,000 $2,158,000 $ 3,769,000
Royalties................................. 1,132,000 1,036,000 609,000
---------- ---------- -----------
Total revenues.......................... 3,061,000 3,194,000 4,378,000
Cost of product sales....................... 758,000 668,000 2,017,000
---------- ---------- -----------
Gross profit................................ 2,303,000 2,526,000 2,361,000
Operating expenses:
Research and development.................. 792,000 1,019,000 1,440,000
Sales and marketing....................... 628,000 854,000 1,289,000
General and administrative................ 430,000 510,000 889,000
Stock compensation........................ -- -- 4,642,000
---------- ---------- -----------
Total operating expenses................ 1,850,000 2,383,000 8,260,000
---------- ---------- -----------
Operating income (loss)..................... 453,000 143,000 (5,899,000)
Interest income............................. 6,000 3,000 7,000
Interest expense............................ -- -- (86,000)
---------- ---------- -----------
Net income (loss)........................... $ 459,000 $ 146,000 $(5,978,000)
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL AND
SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
International Common Stock Additional Deferred Accumu-
Identicator Technology --------------- Paid in Stock lated
Corporation Concepts, Inc. Shares $ Capital Compensation Deficit Total
----------- -------------- --------- ----- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Partners' capital accounts,
January 1, 1996........ 343,000 342,000 -- -- -- -- -- 685,000
Net income for the year
ended December 31,
1996................... 229,000 230,000 -- -- -- -- -- 459,000
Distribution to
partners............... (150,000) (150,000) -- -- -- -- -- (300,000)
----------- ----------- --------- ----- ----------- ------------ ----------- -----------
Partners' capital
accounts, December 31,
1996................... 422,000 422,000 -- -- -- -- -- 844,000
Net income for the year
ended December
31, 1997............... 73,000 73,000 -- -- -- -- -- 146,000
----------- ----------- --------- ----- ----------- ------------ ----------- -----------
Partners' capital
accounts, December 31,
1997................... 495,000 495,000 -- -- -- -- -- 990,000
Net loss for the nine
months ended
September 30, 1998..... (2,429,000) (2,430,000) -- -- -- -- -- (4,859,000)
Deferred stock
compensation........... -- -- -- -- 11,267,000 (11,267,000) -- --
Stock compensation
expense and
amortization of
deferred stock
compensation........... -- -- -- -- -- 4,191,000 -- 4,191,000
Stock issuance in lieu
of partners' capital
accounts............... 1,934,000 1,935,000 2,727,762 3,000 (3,872,000) -- -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- 451,000 -- 451,000
Issuance of warrant to
purchase common stock.. -- -- -- -- 269,000 -- -- 269,000
Remeasurement of
deferred stock
compensation........... -- -- -- -- 3,623,000 (3,623,000) -- --
Net loss for the three
months ended
December 31, 1998...... -- -- -- -- -- -- (1,119,000) (1,119,000)
----------- ----------- --------- ----- ----------- ------------ ----------- -----------
Shareholders' equity,
December 31, 1998...... $ -- $ -- 2,727,762 3,000 $11,287,000 $(10,248,000) $(1,119,000) $ (77,000)
=========== =========== ========= ===== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 459,000 $ 146,000 $(5,978,000)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation............................. 11,000 20,000 128,000
Provisions for doubtful accounts......... 71,000 134,000 9,000
Amortization of warrants and deferred
stock compensation...................... -- -- 4,710,000
Changes in operating assets and
liabilities:
Accounts receivable.................... 340,000 (748,000) (589,000)
Prepaid inventory from related
parties............................... (103,000) (108,000) 124,000
Inventory.............................. -- -- (102,000)
Accounts payable....................... -- -- 400,000
Accrued liabilities.................... (71,000) -- 139,000
Payable to related parties............. -- 139,000 421,000
Deferred revenue....................... -- 59,000 303,000
--------- --------- -----------
Net cash provided by (used in)
operating activities................ 707,000 (358,000) (435,000)
--------- --------- -----------
Cash flows used in investing activities:
Acquisition of property and equipment...... (35,000) (96,000) (308,000)
Other assets............................... -- (5,000) --
--------- --------- -----------
Net cash used in investing activities.... (35,000) (101,000) (308,000)
--------- --------- -----------
Cash flows provided by (used in) financing
activities:
Bank borrowings............................ -- -- 304,000
Notes payable.............................. -- -- 500,000
Distributions to partners.................. (300,000) -- --
--------- --------- -----------
Net cash (used in) provided by financing
activities.............................. (300,000) -- 804,000
Net increase (decrease) in cash and cash
equivalents................................. 372,000 (459,000) 61,000
Cash and cash equivalents at beginning of
period...................................... 102,000 474,000 15,000
--------- --------- -----------
Cash and cash equivalents at end of period... $ 474,000 $ 15,000 $ 76,000
========= ========= ===========
Disclosure of non-cash items:
Issuance of warrants in connection with
borrowings................................ $ 269,000
===========
Deferred compensation related to stock
options................................... $14,890,000
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Formation and Business:
Identicator Technology, a California general partnership (the "Venture"),
was a joint venture between Identicator Corporation and International
Technology Concepts, Inc. (the "partners"). The joint venture agreement was
entered into on May 31, 1993 and amended on December 3, 1993 and was the
culmination of design and development activities started in 1991. The Venture
operated and managed its business and entered into contracts as a general
partnership. On September 30, 1998, ownership of the assets and business of the
Venture was transferred to Identicator Technology, Inc., a wholly owned
subsidiary of IDT Holdings, Inc. ("IDT" or the "Company"). See Note 9 to the
consolidated financial statements. The Company designs, develops, manufactures,
markets, sells and licenses biometric identification products and systems.
Management of the former Venture partners are involved in the day to day
management of the Company.
Management of IDT believes that sufficient working capital will be available
after the proposed merger with Identix to implement its business plan. In the
event the merger is not completed as currently contemplated, IDT will likely be
required to raise additional equity or debt financing to meet its working
capital needs beyond March 2000. IDT management has had discussions with
several lenders and believes that it will be able to obtain sufficient amounts
of debt financing. There can be no assurance, however, that IDT would be able
to obtain such financing or that the terms of such financing would be favorable
to IDT.
Note 2--Summary of Significant Accounting Policies:
Principles of consolidation
For the period from September 30, 1998 to December 31, 1998, the
consolidated financial statements include the accounts of IDT Holdings, Inc.
and its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 1997 and 1998, cash equivalents include $4,000 and $26,000, respectively,
of money market funds, the fair value of which approximates cost.
F-7
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentration of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents and accounts
receivable. Substantially all of the Company's cash and cash equivalents are
invested in high quality financial institutions.
To date, accounts receivable have been derived from revenues from customers
located primarily in the United States. The Company performs ongoing credit
evaluations of its customers' financial conditions and, generally, requires no
collateral from its customers. The Company maintains an allowance for doubtful
accounts receivable based upon the expected collectibility of accounts
receivable.
For the year ended December 31, 1997 and 1998, three customers accounted for
70% and three customers accounted for 79% of the total revenues, respectively.
At December 31, 1997 and 1998, one customer accounted for 67% and one customer
accounted for 54% of the total accounts receivable, respectively.
Prepaid inventory from related parties and inventory
At December 31, 1997, inventory consisted primarily of prepaid inventories,
for which payments had been made but no goods received, purchased from
International Technology Concepts, Inc. At December 31, 1998, inventories
consisted of prepaid inventory of $87,000 and work in progress of $102,000.
Inventories are stated at the lower of cost (determined on a first-in first-out
basis) or market.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, generally three to five years.
Long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statements of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" ("SFAS 121"). SFAS 121 requires recognition of impairment of long-
lived assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
Revenue recognition
The Company generates revenues from the sales of products and from product
license agreements. Product sales are recognized upon shipment. Product license
revenues are recognized on
F-8
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
delivery, provided other remaining obligations of the Company are not
significant and collection is probable. Royalty revenues are recognized as
earned in accordance with the terms of the license agreements.
For 1996, 1997 and 1998 royalty revenues were recognized pursuant to an
agreement under which the Company provided the licensee with technical support.
The agreement was cancelable by the licensee, subject to certain termination
penalties. Royalty revenues under this agreement have been recognized ratably
over the license term. The agreement expired in March 1998.
Deferred revenue
Deferred revenue consist primarily of advance payments related to license
contracts, evaluation units shipped to customers and revenue from product sales
which Company's obligations have not been entirely completed.
Research and development
Research and development expenditures are charged to operations as incurred.
Advertising
The Company charges advertising costs to expenses as they are incurred.
Advertising expense for 1996, 1997 and 1998 was $15,000, $33,000 and $48,000
respectively.
Accounting for stock-based compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees," and complies with the disclosure provisions of Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation."
Taxation
Prior to the transfer of the assets and business to IDT, the Venture was not
a taxpaying entity as each partner was individually liable for its own tax
payments.
IDT's income taxes are computed using the asset and liability method,
deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws.
F-9
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3--Property and Equipment:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Development equipment................... $146,000 $433,000
Furniture and fixtures.................. 27,000 48,000
-------- --------
173,000 481,000
Less: Accumulated depreciation and
amortization........................... (41,000) (169,000)
-------- --------
$132,000 $312,000
======== ========
</TABLE>
Depreciation expense was $11,000, $20,000 and $128,000 for 1996, 1997 and
1998, respectively.
Note 4--Borrowings:
Notes Payable
On June 5, 1998, the Venture entered into a Note and Warrant Purchase
Agreement which required a reorganization of the Venture into a corporation.
The Venture issued subordinated promissory notes to an independent third party
in the principal amount of $500,000 having a maturity date of June 5, 2000 and
bearing interest at 5.5%. The proceeds of the Note were used for general
working capital purposes. In connection with the subordinated promissory note,
the Venture issued warrants to acquire 60,000 shares of Series A preferred
stock exercisable for a period of five years at an exercise price of $9.00 per
share. The warrants were valued using the Black/Scholes option pricing model.
The estimated fair value of the Company's common stock was subsequently deemed
to be $4.00 per share at the date of grant of the warrants. The following
assumptions were used in determining the estimated fair value of the warrants
granted:
<TABLE>
<S> <C>
Expected life........................................................ 5 years
Volatility........................................................... 50%
Risk free interest rate.............................................. 6.2%
Dividend rate........................................................ 0%
</TABLE>
The estimated fair value of $68,000 was recorded as a debt issuance cost and
will be amortized over the term of the debt. In November 1998, the exercise
price of the warrants were reduced to $5.00 per share, increasing the estimated
fair value of the warrants to approximately $268,000. Amortization of $68,000
related to these warrants has been recorded as interest expense in the year
ended December 31, 1998. None of the warrants have been exercised as of
December 31, 1998.
Bank borrowings
In June 1998, the Company entered into a Loan and Security Agreement with a
bank, which provided for borrowings of up to $1,000,000 but limited to 80% of
the eligible accounts receivable as
F-10
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
determined by the bank. Borrowings bear interest at a rate of prime (7.7% at
December 31, 1998) plus 1.0% per annum and are collateralized by the assets of
the Company. The Loan and Security Agreement expires in July 1999. At December
31, 1998 the Company had $304,000 outstanding under the agreement. Under this
agreement, the Company was required to maintain certain financial covenants. At
December 31, 1998, the Company was not in compliance with certain financial
covenants; however, the bank granted a waiver as of such date. Subsequently, in
February 1999 the Loan and Security agreement was amended to increase the
amount available for borrowings up to $1,500,000, to remove the financial
covenants and to change the interest rate to prime plus 0.5% per annum. In
consideration for the amendment, Identix agreed to deliver to the bank a
standby letter of credit in the sum of $1,500,000, which is unconditional,
irrevocable, payable to the bank and expires on March 31, 2000. The Company has
agreed to reimburse Identix in full for all amounts drawn on the letter of
credit.
Note 5--Commitments:
Purchase commitments
At December 31, 1998 the Company had approximately $1.1 million in
noncancelable purchase commitments with suppliers. The Company expects to sell
all product which it has committed to purchase from suppliers.
Leases
The Company leases its premises in Maryland, under an operating lease
agreement which expires in October 2002. Future minimum lease payments required
under the operating lease as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999................................ 65,000
2000................................ 67,000
2001................................ 69,000
2002................................ 59,000
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
$25,000, $34,000 and $101,000, respectively.
Note 6--Recapitalization and Reorganization:
On September 30, 1998, the Venture entered into a recapitalization and
reorganization. The recapitalization and reorganization resulted in the
transfer of the assets and business of the partnership to Identicator
Technology, Inc., a wholly owned subsidiary of IDT. The recapitalization and
reorganization resulted in the issuance of a total of 2,727,762 shares to the
former Venture partners or the shareholders of the former partners.
F-11
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7--Partners' Capital:
Prior to the recapitalization and reorganization described in Note 6, the
partners shared equally in the profits and losses of the Venture. The partners
were each required to contribute operating capital as required and agreed. No
voluntary contributions were permitted and no withdrawals of capital were
permitted without the consent of the members.
Note 8--Shareholders' Equity
Preferred Stock
The Board of Directors is authorized to issue an aggregate of 5,000,000
shares of $0.001 par value Preferred Stock, which may be issued from time to
time in one or more series. To date, 600,000 shares have been designated Series
A Preferred Stock. No shares of Series A Preferred Stock have been issued.
The rights, preferences, privileges and restrictions of holders of Series A
Preferred Stock are set forth in the Company's Certificate of Incorporation,
and are summarized as follows:
Voting
The holders of Series A Preferred Stock have the right to one vote for each
share of common stock into which such Series A Preferred Stock could be
converted.
Dividends
Holders of Series A Preferred Stock are entitled to receive dividends prior
and in preference to any declaration or payment of any dividend on common
stock. Such dividends are not cumulative.
Conversion
Each share of Series A Preferred Stock is convertible at the option of the
holder at any time into shares of Common Stock based on a conversion formula.
The initial conversion rate is one share of Common Stock for each share of
Series A Preferred Stock. The initial conversion rate of Series A Preferred
Stock is subject to adjustments as provided in the Certificate of
Incorporation. Each share of Series A Preferred Stock shall automatically be
converted into shares of Common Stock upon the earlier of (i) the date
specified by agreement of the holders of a majority of the outstanding shares
of Series A Preferred Stock, voting as a separate class, or (ii) upon closing
of a firm commitment underwritten initial public offering of the Company's
Common Stock.
Liquidation, Dissolution or Winding Up
In the event of liquidation, dissolution or winding up of the Company,
holders of Series A Preferred Stock are entitled to receive, prior and in
preference to any distribution of the assets of the
F-12
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company to the holders of Common Stock, an amount equal to $9.00 per share plus
any declared but unpaid dividends. In the event that funds are insufficient to
make a complete distribution to the holders of Series A Preferred Stock as
described above, the distribution shall be distributed ratably among the
holders of Series A Preferred Stock. In the event funds are sufficient to make
a complete distribution to the holders of Series A Preferred Stock as described
above, the remaining assets will be distributed ratably among the holders of
Common Stock.
A merger of the Company with or into another corporation will result in the
holders of the Series A Preferred Stock receiving stock or cash received from
the acquiring corporation, or in combination thereof, an amount equal to the
original Series A Preferred Stock issue price plus an amount equal to the
applicable premium. In the event that proceeds of the transaction are not
sufficient to make full payment of the preferential amounts then the entire
amount shall be distributed to the holders of the Series A Preferred Stock in
proportion to the amount of such stock owned.
Common Stock
The Company's Certificate of Incorporation authorizes the Company to issue
12,000,000 shares of $0.001 par value Common Stock.
Note 9--Stock Option/Stock Issuance Plan
In September 1998, the Company adopted the 1998 Stock Option/Stock Issuance
Plan (the "Plan"). The Plan provides for the granting of stock options to
employees, non-employee Board members and consultants. The 1998 Plan is divided
in two separate equity programs: (i) the Stock Issuance Program, and (ii) an
Option Grant Program. The Company has reserved 1,500,000 shares of Common Stock
for issuance under the Plan.
Under the Stock Issuance Program eligible persons may be issued shares of
Common Stock directly, either through the purchase of those shares at fair
value or as a bonus for services rendered to the Company. The purchase price
per share shall not be less than 85% of the estimated fair value of the shares
on the date of the grant as determined by the Board of Directors, provided,
however, that the purchase price of shares of Common Stock issued to a 10%
shareholder shall not be less than 110% of the estimated fair value of the
shares on the date of the grant. Shares issued under the Plan may be fully and
immediately vested upon issuance or may vest in one or more installments over
the person's period of service or upon attainment of specified performance
objectives. To date, no shares of Common Stock have been issued under the Plan.
Options granted under the Option Grant Program may be either incentive stock
options or nonqualified stock options. Incentive stock options ("ISO") may be
granted only to Company employees. Nonqualified stock options ("NSO") may be
granted to Company employees and consultants. Options under the Plan may be
granted for periods of up to ten years and at prices no less than 85% of the
estimated fair value of the shares on the date of the grant as determined by
the Board of Directors, provided, however, that (i) the exercise price of an
ISO and NSO shall not be
F-13
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
less than 100% and 85% of the estimated fair value of the shares on the date of
grant, respectively, and (ii) the exercise price of an ISO and NSO granted to a
10% shareholder shall not be less than 110% of the estimated fair value of the
shares on the date of the grant. The maximum term of each option is 10 years.
IDT had no employees in any of the years ended December 31, 1998, 1997 and
1996. IDT contracted for substantially all of its services from two affiliated
companies, Identicator Corporation (and subsequent to its spin-off,
Identicator, Inc.) and International Technology Concepts, Inc. The following
table summarizes cumulative IDT option activity through December 31, 1998.
<TABLE>
<CAPTION>
Number Value at Value at
of Date of December 31,
Option Recipients Options Grant 1998
----------------- --------- ----------- ------------
<S> <C> <C> <C>
Employees of IDT (excluding officers and
directors)................................. -- -- --
IDT officers and directors.................. 1,002,609 $ 5,810,000 $ 6,697,000
Employees and consultants of International
Technology Concepts (excluding IDT officers
and directors)............................. 779,225 4,515,000 6,779,000
Employees of Identicator, Inc.
(excluding IDT officers and directors)..... 162,500 942,000 1,414,000
Other non-employees of IDT ................. -- -- --
--------- ----------- -----------
TOTAL 1,944,334 $11,267,000 $14,890,000
========= =========== ===========
</TABLE>
As these options were granted to non-employees, these options are subject to
the accounting prescribed by SFAS 123. In addition, 1,247,167 options subject
to future vesting requirements are accounted for as variable options in
accordance with EITF 96-18. Deferred compensation expense related to unvested
options will be recognized over the four year vesting term of the options.
Options subject to future vesting were issued in 1998 in consideration for
future research and development, selling, general and administrative services.
As part of the recapitalization and reorganization described in Note 6, the
Company assumed the obligations of Identicator Corporation under its 1995 Non-
Qualified Stock Option Plan. Each outstanding and unexercised option to
purchase Identicator Corporation common stock became an option to purchase
common stock of the Company on a one for one basis. A total of 697,167 options
were assumed.
The following summarizes stock activity under the Plan.
<TABLE>
<CAPTION>
Stocks Weighted Average
Available for Options Exercise/Issuance
Grant/Issuance Outstanding Price Per Share
-------------- ----------- -----------------
<S> <C> <C> <C>
Stocks authorized.............. 1,500,000 -- --
Options granted................ (1,247,167) 1,247,167 $0.28
Options exercised.............. -- -- --
Options canceled............... -- -- --
---------- ---------
Balance at December 31, 1998... 252,833 1,247,167 $0.28
========== =========
</TABLE>
F-14
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1998, 801,098 options were vested with a weighted average
exercise price of $0.28. The weighted average of the remaining contractual life
was 9.67 years.
The fair value of each option grant is estimated on the date of the grant
using the Black Scholes method with the following assumptions used for grants
during the year ended December 31, 1998: dividend of yield of 0%; risk-free
interest rates of 5.2%; volatility of 50% and a weighted average expected
option term ranging from two to five years. The fair value of the options
granted during 1998 was subsequently determined to be approximately $5.79. The
fair value of these options recognized as deferred compensation will be subject
to revaluation at each balance sheet date based on the fair value of the
Company's common stock at each balance sheet date. The fair value of options
recognized as deferred compensation was $8.70 at December 31, 1998.
Compensation expense of $4,040,000 was recorded in 1998 related to the fully
vested options assumed from Identicator Corporation.
Amortization of deferred compensation of $602,000 was recorded in 1998,
based on the fair value of the options as determined at date of grant. At
December 31, 1998 the Company remeasured the fair value of the options recorded
as deferred compensation to $10,850,000. The balance of deferred compensation
at December 31, 1998 was $10,248,000.
Note 10--Income taxes
No provision for income taxes has been recorded. Prior to September 30,
1998, the Venture was not a tax paying entity as each partner was individually
liable for its own tax payments. The Company incurred a loss in the period from
October 1, 1998 to December 31, 1998:
The components of the deferred tax assets are as follows:
<TABLE>
<S> <C>
December 31,
1998
------------
Net operating loss carryforwards............................. $ 71,000
Reserves..................................................... 93,000
Stock compensation........................................... 1,849,000
Deferred revenue............................................. 144,00
------------
2,157,000
Valuation allowance.......................................... (2,157,000)
------------
$ 0
============
</TABLE>
In accordance with generally accepted accounting principles, a valuation
allowance must be established for a deferred tax asset if it is uncertain that
a tax benefit may be realized from the asset in the future. The Company has
established a valuation allowance to the extent of its deferred tax assets,
since it is more likely than not that a benefit may not be realized in the
future.
F-15
<PAGE>
IDT HOLDINGS, INC.
(formerly Identicator Technology, a California general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company had federal and state net operating loss carryforwards of
approximately $192,000 and $96,000, respectively, at December 31, 1998,
available to offset future taxable income. The Company's federal and state net
operating loss carryforwards will expire by the year 2018 and 2003,
respectively, if not utilized.
Note 11--Related Party Transactions:
The Company paid fees for administrative support to International Technology
Concepts, Inc. in the amount of $106,000, $91,000, and $91,000 in 1996, 1997
and 1998, respectively and $91,000 in each year to Identicator, Inc. Management
of Identicator Inc. (a company with common ownership to Identicator
Corporation) was involved in the day to day management of the Company.
The Company recorded amounts of $115,000, $214,000 and $833,000 in 1996,
1997 and 1998, respectively, in respect of salaries and benefits for employees
of Identicator, Inc. and its predecessor Identicator Corporation who were
providing sales and marketing services to the Company. In addition, the Company
recorded $388,000, $540,000 and $748,000 in 1996, 1997 and 1998 representing
payments to International Technology Concepts, Inc. for salaries and benefits
of employees providing research and development services to the Company.
International Technology Concepts, Inc. also undertook research and
development projects on behalf of the Company. In 1996, 1997 and 1998, the
Company recorded research and development expense in the amounts of $273,000,
$291,000 and $518,000 for projects conducted by International Technology
Concepts, Inc.
Prior to 1998, payments by the Company to Identicator Inc., Identicator
Corporation and International Technology Concepts, Inc. for support services
were based on a percentage of gross profits generated by the Venture.
Thereafter, payments by the Company to Identicator, Inc., Identicator
Corporation and International Technology Concepts, Inc. for employee and
research and development services are based on actual costs incurred by these
entities. Management believes that the payments made represented reasonable
compensation for the type and level of support services, employee services and
research and development expenses provided, and approximate the costs that
would have been incurred by the Venture on a stand-alone basis.
The Company paid commissions of $97,000 and $52,000 in 1996 and 1997,
respectively, to International Technology Concepts, Inc. and $267,000 and
$261,000 in 1996 and 1997, respectively, to Identicator Corporation. No
commissions were paid in 1998.
The Company made purchases of inventory from International Technology
Concepts, Inc. in the amount of $719,000, $707,000 and $650,000 in 1996, 1997
and 1998, respectively.
F-16
<PAGE>
APPENDIX A
AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
AMONG IDENTIX INCORPORATED, IDT HOLDINGS, INC.
AND ID ACQUISITION CORP.
This Agreement and Plan of Reorganization and Merger ("Agreement") is made
as of November 14, 1998 by and among Identix Incorporated, a California
corporation , IDT Holdings, Inc., a Delaware corporation (the "Company"), and
ID Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Identix ("Acquisition Sub").
BACKGROUND
A. Identix and the Company desire that the Acquisition Sub shall be merged
with and into the Company; that the Company shall be the surviving corporation
and shall become a wholly-owned subsidiary of Identix; and that each share of
the Common Stock, $.001 par value, of the Company and of the Series A Preferred
Stock, $.001 par value, of the Company which is outstanding immediately prior
to the effective time of the merger, other than those shares which become
"dissenting shares" within the meaning of Section 1300(b) of the California
Corporations Code or for which appraisal rights have been perfected under
Section 262 of the Delaware General Corporation Law, be converted as set forth
in this Agreement into the number of shares of the Common Stock of Identix, as
is determined under Section 2.3 of this Agreement.
B. Identix and the Company intend that the merger constitute a
"reorganization" under Section 368(a) of the Internal Revenue Code of 1986, as
amended.
In consideration of the mutual premises and agreements set forth herein, THE
PARTIES AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
The terms defined in this Article I shall, for purposes of this Agreement,
have the meanings specified in this Article I unless the context expressly or
by necessary implication otherwise requires:
1.1 Affiliates Agreement. "Affiliates Agreement" shall have the meaning set
forth in Section 8.11 of this Agreement.
1.2 Balance Sheet. "Balance Sheet" shall have the meaning set forth in
Section 3.6 of this Agreement.
1.3 Balance Sheet Date. "Balance Sheet Date" shall have the meaning set
forth in Section 3.6 of this Agreement.
A-1
<PAGE>
1.4 Biometric Business. "Biometric Business" means the development, design,
manufacturing or marketing of products or services that capture or compare (on
a one-to-one or one-to-many basis) fingerprint, facial or other biometric
characteristics or are used for identification, verification or security based
on fingerprint, facial or other biometric characteristics, including, but not
limited to, biometric hardware or software products that are used for computer,
database, network or Internet security, access control or time-and-attendance
or that interface to smart cards, debit cards, credit cards and the like.
Excluded from the definition of "Biometric Business" is the business conducted
by Identicator, Inc. related to the non-electronic, paper-based production,
development or capture of fingerprint images.
1.5 Certificate of Merger. "Certificate of Merger" shall mean a certificate
of merger to be filed with the Delaware Secretary of State to effect the Merger
pursuant to Sections 103 and 251 of the DGCL.
1.6 Certificate. "Certificate" shall have the meaning set forth in Section
2.6.3 of this Agreement.
1.7 CERCLA. "CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C., Section 9601 et. seq.
1.8 Closing. "Closing" shall mean the delivery by Identix and the Company of
the various documents contemplated by this Agreement or otherwise required in
order to consummate the Merger.
1.9 Closing Date. "Closing Date" shall have the meaning set forth in Section
2.2 of this Agreement.
1.10 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.11 Company. "Company" or "IDT Holdings" shall mean IDT Holdings, Inc., a
Delaware corporation. For the purposes of Articles III and VIII, references to
the "Company" shall include both IDT Holdings and Identicator Technology.
1.12 Company Common. "Company Common" shall mean the Common Stock, $.001 par
value, of the Company.
1.13 Company Officer-Certified Disclosure Statement. "Company Officer-
Certified Disclosure Statement" shall have the meaning set forth in the first
paragraph of Article III of this Agreement.
1.14 Company Option. "Company Option" shall have the meaning set forth in
Section 2.4 of this Agreement.
1.15 Company Plans. "Company Plans" shall have the meaning set forth in
Section 2.4 of this Agreement.
1.16 Company Series A Preferred. "Company Series A Preferred" shall mean the
Series A Preferred Stock, $.001 par value, of the Company.
A-2
<PAGE>
1.17 Contract. "Contract" shall have the meaning set forth in Section 3.22.
1.18 Corporations Code. "Corporations Code" shall mean the California
Corporations Code.
1.19 DGCL. "DGCL" shall mean the Delaware General Corporation Law.
1.20 Dissenting Shares. "Dissenting Shares" shall mean all shares, if any,
of the outstanding capital stock of the Company for which dissenter's rights
shall be perfected under Section 1300 et seq. of the Corporations Code or
appraisal rights shall be perfected under Section 262 of the DGCL.
1.21. Company Warrants. "Company Warrants" shall mean the warrants to
purchase 60,000 shares of Company Series A Preferred outstanding on the date of
this Agreement.
1.22 Effective Time. "Effective Time" shall mean the time when the
Certificate of Merger is filed with the Secretary of State of the State of
Delaware and the Merger becomes effective.
1.23 Environmental Laws. "Environmental Laws" means any statutes relating to
protection of the environment, or health or safety, including without
limitation the following: (a) CERCLA; (b) the Resource Conservation and
Recovery Act, 42 U.S.C., Section 6901, et. Seq.; (c) the Clean Water Act, 33
U.S.C., Section 1251, et. seq.; (d) the Toxic Substances Control Act, 15
U.S.C., Section 2601, et. seq.; (e) the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C., Section 136, et. seq.; (f) the Clean Air Act, 42
U.S.C., Section 7401, et. seq.; (g) the Safe Drinking Water Act, 42 U.S.C.,
Section 300f, et. seq.; (h) the California Hazardous Waste Control Law, Health
& Safety Code, Section 25100, et. seq.; (i) the California Medical Waste
Management Act, Health & Safety Code, Section 117600, et. seq.; or (j) listed
as a chemical known to the State of California to cause cancer or reproductive
toxicity pursuant to Section 25249.8 of the California Health and Safety Code,
Division 20, Chapter 6.6 (Safe Drinking Water and Toxic Enforcement Act of
1986).
1.24 Escrow Agreement. "Escrow Agreement" shall mean the Agreement relating
to an escrow of certain shares of Company Common pursuant to Section 2.5 of
this Agreement, in the form attached to this Agreement as Exhibit A.
1.25 Escrow Holder. "Escrow Holder" shall mean U.S. Bank Trust National
Association, Global Escrow Depository Services.
1.26 Exchange Act. "Exchange Act" shall mean the Securities and Exchange Act
of 1934, as amended.
1.27 Exchange Agent. "Exchange Agent" shall have the meaning set forth in
Section 2.6.1 of this Agreement.
1.28 Exchange Ratio. "Exchange Ratio" shall have the meaning set forth in
Section 2.3.
A-3
<PAGE>
1.29 Hazardous Material. "Hazardous Material" means any substance, material,
contaminant, pollutant, infectious agent, or hazardous, biohazardous, or
medical waste which is defined or becomes regulated by any local government
authority, the State of California, any other state or the United States
Government, pursuant to any Environmental Laws, including any petroleum
products or asbestos.
1.30 Holders. "Holders" shall mean holders of Company Common and Company
Series A Preferred outstanding immediately prior to the Effective Time.
1.31 Identicator Corp. "Identicator Corp." shall mean Identicator
Corporation, a Nevada corporation, that was merged into Identicator Technology
on September 30, 1998 pursuant to the Restructuring.
1.32 Identicator, Inc. "Identicator, Inc." shall mean Identicator, Inc., a
Nevada corporation.
1.33 Identicator Technology. "Identicator Technology" shall mean Identicator
Technology, Inc., a Delaware corporation that is a wholly-owned subsidiary of
IDT Holdings.
1.34 Identix. "Identix" shall mean Identix Incorporated, a California
corporation ("Identix California"); provided, however that if Identix
California reincorporates in Delaware through a merger of Identix California
into Identix Incorporated, a Delaware corporation and a wholly-owned subsidiary
of Identix California ("Identix Delaware"), then "Identix" shall mean Identix
Delaware from and after the date of such merger.
1.35 Identix Common. "Identix Common" shall mean the Common Stock of
Identix.
1.36 Identix Officer-Certified Disclosure Statement. "Identix Officer-
Certified Disclosure Statement" shall have the meaning set forth in the first
paragraph of Article IV of this Agreement.
1.37 IDT Holdings. "IDT Holdings" or the "Company" shall mean IDT Holdings,
Inc., a Delaware corporation.
1.38 IT Concepts. "IT Concepts" shall mean International Technology
Concepts, Inc., a California corporation.
1.39 Joint Venture. "Joint Venture" shall mean the general partnership named
"Identicator Technology" between Identicator Corp. and IT Concepts that was
formed on May 31, 1993 and was dissolved on September 30, 1998 pursuant to the
Restructuring.
1.40 Merger. "Merger" shall mean the merger of the Acquisition Sub with and
into the Company in accordance with this Agreement, the Certificate of Merger
and applicable law.
1.41 1933 Act. "1933 Act" shall mean the Securities Act of 1933, as amended,
and the rules, regulations and forms thereunder.
1.42 Preferred Exchange Ratio. "Preferred Exchange Ratio" shall have the
meaning set forth in Section 2.3 of this Agreement.
A-4
<PAGE>
1.43 Principal Holders. "Principal Holders" shall mean holders of Company
Common who immediately prior to the Effective Time own more than 1,000 shares
of the outstanding Company Common.
1.44 Proxy Statement/Prospectus. "Proxy Statement/Prospectus" shall mean the
Proxy Statement/Prospectus to be mailed to the stockholders of the Company in
connection with the Merger.
1.45 Restructuring. "Restructuring" shall mean the series of restructuring
transactions relating to Identicator Corp. and the Joint Venture that closed on
September 30, 1998 and resulted in the transfer of the Joint Venture business
to Identicator Technology.
1.46 S-4. "S-4" shall mean the Registration Statement on Form S-4 to be
filed by Identix with the SEC in connection with the issuance of Identix Common
Stock pursuant to the Merger.
1.47 SEC. "SEC" shall mean the Securities and Exchange Commission.
1.48 Stockholder Representative. "Stockholder Representative" shall mean the
person selected by the Board of Directors of the Company and authorized by this
Agreement to act as representative of the stockholders of the Company under the
Escrow Agreement, and any substitute representative(s) selected in accordance
with the Escrow Agreement.
1.49 Spinoff. "Spinoff" shall mean the transaction that closed on March 31,
1997 pursuant to which Identicator Corp. transferred certain assets and
liabilities relating to its paper-based fingerprint business to Identicator,
Inc., then a wholly-owned subsidiary, and distributed the outstanding shares of
Identicator, Inc. to the stockholders of Identicator Corp.
1.50 Subsidiary. "Subsidiary" shall mean, with respect to a particular party
hereto, any corporation or other organization, whether incorporated or
unincorporated, of which at least a majority of the securities or interests
having by the terms thereof ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned by such party
or by one or more Subsidiaries, or by such party and one or more Subsidiaries.
1.51 Transferred Employees. "Transferred Employees" shall have the meaning
set forth in Section 8.14.
1.52 Voting Agreement. "Voting Agreement" shall have the meaning set forth
in Section 12.13 of this Agreement.
ARTICLE II
MERGER, CLOSING AND CONVERSION OF SHARES
2.1 Merger. Subject to and in accordance with the terms and conditions of
the Agreement and the Certificate of Merger, Identix, the Company and
Acquisition Sub shall execute and file the Certificate of Merger with the
Secretary of State of the State of Delaware, whereupon Acquisition Sub shall be
merged with and into the Company, the separate corporate existence of
Acquisition Sub
A-5
<PAGE>
shall cease and the Company shall continue as the surviving corporation and
shall become a wholly-owned subsidiary of Identix pursuant to Sections 251 and
259 of the DGCL. The Company as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
2.2 Closing. The Closing shall take place at the offices of Heller Ehrman
White & McAuliffe, 525 University Avenue, Palo Alto, California 94301, as soon
as practicable after all of the conditions to the parties' obligations to
consummate the Merger set forth in Articles VI and VII of this Agreement have
been satisfied or waived (the "Closing Date").
2.3 Conversion of Shares. Each share of Company Series A Preferred
outstanding immediately prior to the Effective Time (except those shares of
Company Series A Preferred which become Dissenting Shares and whose holder and
the Company do not thereafter agree in writing should be treated as Dissenting
Shares) shall, by virtue of the Merger and without any action on the part of
the holder thereof be converted, at and as of the Effective Time into a number
of shares of Identix Common that the Holder thereof is entitled to receive
pursuant to Article IV, Section D(6) of the IDT Holdings' Certificate of
Incorporation as in effect on the date hereof, or such other ratio as is
mutually agreed by IDT Holdings, Identix and the holders of all outstanding
Company Series A Preferred and Company Warrants (the "Preferred Exchange
Ratio"). Each share of Company Common outstanding immediately prior to the
Effective Time (except those shares of Company Common which become Dissenting
Shares and whose holder and the Company do not thereafter agree in writing
should not be treated as Dissenting Shares) shall, by virtue of the Merger and
without any action on the part of the holder thereof be converted, at and as of
the Effective Time into a number of shares of Identix Common determined by
dividing (a) 5,050,000 (less the number of shares of Identix Common issued or
issuable on account of the Company Series A Preferred and the Company Warrants
in accordance with the preceding sentence and Section 2.13), by (b) the sum of
the number of shares of Company Common outstanding immediately prior to the
Effective Time plus the number of shares covered by Company Options outstanding
immediately prior to the Effective Time (including both vested and unvested
options). The quotient determined by dividing (a) by (b) described in the
preceding sentence shall be referred to as the "Exchange Ratio." Holders of
Company Common and Company Series A Preferred shall receive only whole shares
of Identix Common; in lieu of any fractional share of Identix Common, Holders
shall receive in cash the fair market value of such fractional share valuing
Identix Common at the average of the high and low prices of the Identix Common
on the American Stock Exchange on the trading day immediately preceding the
Closing Date as listed in The Wall Street Journal. Each share of Acquisition
Sub outstanding prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof be converted, at and as of
the Effective Time into one share of Company Common.
2.4 Company Options. At the Effective Time, each of the outstanding options
to purchase Company Common ("Company Option") issued under the Company's 1998
Stock Option/Stock Issuance Plan or under the Identicator Corporation 1995
Stock Option Plan (collectively, the "Company Plans") shall thereafter entitle
the holder thereof to receive, upon exercise thereof, for each one share of
Company Common subject to such Company Option, a number of shares of Identix
Common equal to the Exchange Ratio at an exercise price for each full share of
Identix
A-6
<PAGE>
Common equal to the quotient obtained by dividing (a) the exercise price per
share of Company Common with respect to such Company Option, by (b) the
Exchange Ratio, which exercise price per share shall be rounded to the nearest
two-place decimal. The number of shares of Identix Common that may be purchased
by a holder on the exercise of any Company Option shall not include any
fractional share of Identix Common but shall be rounded to the nearest whole
share of Identix Common. Identix shall assume in full such Company Options and
all of the Company's other rights and obligations under the Company Plans as
provided herein. The assumption of a Company Option by Identix shall not
terminate or modify (except as required hereunder) any right of first refusal,
right of repurchase, vesting schedule, or other restriction on transferability
relating to the Company Option, except for the acceleration of vesting that
will occur as a result of the Merger under existing contractual arrangements.
Continuous employment or consulting services with the Company shall be credited
to an optionee for purposes of determining the number of shares subject to
exercise, vesting or repurchase after the Effective Time. After such
assumption, Identix shall issue, upon any partial or total exercise of any
Company Option, in lieu of shares of Company Common, the number of shares of
Identix Common to which the holder of the Company Option is entitled pursuant
to this Agreement. The assumption by Identix of Company Options shall not give
the holders of such Company Options any additional benefits which they did not
have immediately prior to the Effective Time. Identix shall file with the SEC
within 45 days following the Effective Time a registration statement on Form S-
8 under the 1933 Act covering the shares of Identix Common to be issued upon
exercise of Company Options assumed by Identix.
2.5 Escrow.
2.5.1 In order to provide indemnification in accordance with Article X of
this Agreement and with the Escrow Agreement, at the Effective Time or as soon
thereafter as possible, one stock certificate representing, in aggregate, 10%
of the whole shares of Identix Common (rounded down to the nearest whole share)
into which each Holder's shares of Company Common were converted pursuant to
Section 2.3 of this Agreement shall be delivered to the Escrow Holder. The
Stockholder Representative has been selected by the Board of Directors of the
Company and, in the event of inability or unwillingness prior to the execution
of the Escrow Agreement of such person to act as a Stockholder Representative,
a substitute Stockholder Representative shall be similarly selected. The
Stockholder Representative is authorized by this Agreement, as a specific term
and condition of the Merger, to act hereunder and under the Escrow Agreement
with the powers and authority provided for herein and therein, as
representative of the Holders and their successors. Approval of this Agreement
and the Merger at the special stockholders meeting of the Company relating to
this Agreement and the Merger shall constitute approval of the terms and
conditions of the Escrow Agreement and ratification of the selection of the
Stockholder Representative and of his authority to act hereunder and under the
Escrow Agreement on behalf of the Holders and their successors. Any rights of
the Holders to receive any shares placed in such escrow shall in no
circumstances be sold, assigned or otherwise transferred by them other than by
will or pursuant to the laws of descent and distribution. Any dividends or
other distributions paid in respect of the shares of Identix Common deposited
with the Escrow Holder in accordance with this Section 2.5 shall be paid to the
Escrow Holder in accordance with the terms of the Escrow Agreement, other than
ordinary cash dividends, if any, which shall be distributed currently to the
persons whose shares of Identix Common are being held in the Escrow. The
certificate representing securities delivered to the Escrow
A-7
<PAGE>
Holder shall be accompanied by a separate stock power endorsed in blank by the
Stockholder Representative on behalf of the Holders. Subject to the Escrow
Agreement, holders of Identix Common shall retain their voting rights with
respect to securities deposited with the Escrow Holder in accordance with this
Section 2.5.
2.5.2 In order that the total number of shares of Identix Common that
will be available to satisfy the indemnification provisions of Article X shall
be at least 434,300, some or all of the holders of Company Options, including
those identified in Section 2.5.2 of the Company Officer-Certified Disclosure
Statement, shall agree in writing that 10% of their Company Options and shares
of Identix Common issuable thereunder are subject to the provisions of the
Escrow Agreement and that the incurrence of Damages by Identix that exceed the
value of the Identix Common held under the Escrow Agreement shall be satisfied
by a pro rata cancellation of such Company Options. The Company will use its
best efforts to enter into agreements, in a form reasonably acceptable to
Identix, with the holders of Company Options identified in Section 2.5.2 of the
Company Officer-Certified Disclosure Statement to carry out the provisions of
this paragraph promptly after the execution of this Agreement. In addition, the
Company will solicit the approval of the other holders of Company Options to be
assumed by Identix to subject 10% of such Company Options and the shares
issuable thereunder to the same indemnification provisions.
2.6 Exchange of Certificates.
2.6.1 Prior to the Closing Date, Identix shall appoint ChaseMellon
Shareholder Services, or such other bank or trust company selected by Identix
as the Company may approve, to act as exchange agent (the "Exchange Agent") in
the Merger.
2.6.2 Promptly after the Closing Date, the Exchange Agent shall make
available for exchange in accordance with this Section 2.6, the shares of
Identix Common issuable pursuant to Section 2.3 in exchange for outstanding
shares of Company Common and Company Series A Preferred, subject to the
issuance of 10% of the shares issuable to each Holder into escrow pursuant to
Section 2.5 and subject to the legending requirement set forth in Section 2.10.
2.6.3 As soon as practicable after the Closing Date, the Exchange Agent
shall mail to each holder of record of a stock certificate that, immediately
prior to the Closing Date, represented outstanding shares of Company Common (a
"Certificate") whose shares are being converted into Identix Common pursuant to
Section 2.3, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Identix may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates evidencing Identix Common. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Identix, together with such letter of
transmittal, duly executed, the Holder of such Certificate shall be entitled to
receive in exchange therefor (subject to the escrow provisions of Section 2.5
and the legending provisions of Section 2.10) the number of shares of Identix
Common to which the Holder is entitled pursuant to Section 2.3 hereof and is
represented by the Certificate so surrendered. The Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of Company
Common that is not registered in the transfer records of the Company, or its
transfer agent,
A-8
<PAGE>
Identix Common may be delivered to a transferee if the Certificate representing
such Company Common is presented to the Exchange Agent and accompanied by all
documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.6.3, each Certificate shall be deemed at any
time after the Closing Date to represent the right to receive upon such
surrender such whole number of shares of Identix Common as provided by Section
2.3 and the provisions of the DGCL, subject to the escrow provisions of
Sections 2.5 and the legending provisions of Section 2.10.
2.6.4 No dividends or distributions payable to holders of record of
Identix Common after the Effective Time, or cash payable in lieu of fractional
shares, shall be paid to the holder of any unsurrendered Certificate until the
holder of the Certificate shall surrender such Certificate.
2.6.5 All Identix Common delivered upon the surrender for exchange of
shares of Company Common in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such
shares of Company Common. There shall be no further registration of transfers
on the stock transfer books of the Company or its transfer agent of the shares
of Company Common that were outstanding immediately prior to the Effective
Time. If, after the Closing Date, Certificates are presented for any reason,
they shall be canceled and exchanged as provided in this Section 2.6.
2.7 Dissenting Shares. Holders of Dissenting Shares shall have those rights,
but only those rights, of appraisal under Section 262 of the DGCL or of holders
of "dissenting shares" under Section 1300 et seq. of the Corporations Code. The
Company shall give Identix prompt notice of any demand, purported demand or
other communication received by the Company with respect to any Dissenting
Shares or shares claimed to be Dissenting Shares, and Identix shall have the
right to participate in all negotiations and proceedings with respect to such
shares. The Company agrees that, without the prior written consent of Identix,
it shall not voluntarily make any payment with respect to, or settle or offer
to settle, any demand or purported demand respecting such shares.
2.8 Registration on Form S-4. The Identix Common to be issued in the Merger
shall be registered under the 1933 Act on Form S-4. As promptly as practicable
after the date hereof, Identix shall prepare and file with the SEC the Form S-4
and any other documents required by the 1933 Act or Exchange Act in connection
with the Merger (including, without limitation the filing of Form 8-K by
Identix when appropriate). Each of Identix and the Company shall use its best
efforts to have the Form S-4 declared effective under the 1933 Act as promptly
as practicable after such filing. Identix shall also take any action required
to be taken under any applicable state securities or "blue sky" laws in
connection with the issuance of the Identix Common in the Merger. The Company
shall furnish to Identix all information concerning the Company and the holders
of Company Stock as may be reasonably requested in connection with any action
contemplated by this Section 2.8.
2.9 Tax Treatment. The parties intend to adopt this Agreement as a plan or
reorganization under, and intend to consummate the Merger in accordance with,
the provisions of Section 368(a) of the Code.
2.10 Restrictions on Identix Common. A total of 2,525,000 shares of Identix
Common issuable in the Merger or issuable upon exercise of Company Options or
Company Warrants assumed
A-9
<PAGE>
by Identix hereunder shall either be subject to the escrow provisions of
Section 2.5.1 or 2.5.2 or shall be subject to the transfer restrictions set
forth in this Section 2.10. The shares of Identix Common that are subject to
this Section 2.10 may not be sold, transferred, pledged or otherwise assigned
by the holders thereof prior to the first anniversary of the Effective Time,
other than by will or pursuant to the laws of descent and distribution.
Promptly after execution of this Agreement, the Company shall use its best
efforts to obtain the written agreement, in form reasonably satisfactory to
Identix, of the holders of Company Options identified in Section 2.5.2 of the
Company Officer-Certified Disclosure Statement to be bound by the transfer
restrictions of this Section 2.10 with respect to 40% of the shares issuable
pursuant to their Company Options. In addition, the Company will solicit the
approval of the other holders of Company Options to subject 40% of the shares
issuable thereunder to the same transfer restrictions. In order to carry out
the restriction set forth in this Section, certificates representing the shares
of Identix Common restricted by this Section 2.10 that are issued to each
Principal Holder pursuant to the Merger (excluding the shares placed in escrow)
or issued to holders of Company Options who have agreed to the provisions
hereof shall bear the following legend:
"The shares represented by this certificate may not be sold, transferred,
pledged or otherwise assigned prior to [insert date of first anniversary of
the Effective Time], other than by will or pursuant to the laws of descent
and distribution."
The aggregate number of the Principal Holders' shares of Identix Common issued
pursuant to the Merger (excluding the shares placed in escrow) that will be
subject to the foregoing restrictions shall be determined by the following
formula: 2,525,000 minus the number of shares of Identix Common subject to the
escrow provisions of Sections 2.5.1 and 2.5.2 minus the number of shares
Identix Common issuable upon exercise of assumed Company Options and Company
Warrants that are contractually bound by the restrictions of this Section 2.10.
The shares so restricted shall be apportioned ratably among the Principal
Holders. The purpose of the foregoing calculation is to ensure that 2,525,000
shares of Identix Common issuable pursuant to the Merger or issuable upon
exercise of assumed Company Options or Company Warrants are either bound by
Section 2.5.1, 2.5.2 or 2.10 and that any shortfall therefrom shall come from
the shares issued to the Principal Holders pursuant to the Merger.
2.11 Certificate of Incorporation; Bylaws. The Certificate of Incorporation
of the Company as in effect on the date hereof shall from and after the
Effective Time be and continue to be the Certificate of Incorporation of the
Surviving Corporation until changed or amended as provided by law, except that
at the Effective Time and upon filing of the Certificate of Merger, the
Certificate of Incorporation of the Company shall be amended and restated in
its entirety to read identically with the Certificate of Incorporation of
Acquisition Sub except that the name of the Surviving Corporation shall be "IDT
Holdings, Inc." From and after the Effective Time, the bylaws of Acquisition
Sub, as in effect immediately prior to the Effective Time, shall be the bylaws
of the Surviving Corporation.
2.12 Board of Directors; Officers. Oscar Pieper, Yuri Khidekel, Randall C.
Fowler and James P. Scullion shall be the directors of the Surviving
Corporation and the officers of the Company immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, in each case until
their respective successors are duly appointed or elected and qualified.
A-10
<PAGE>
2.13 Company Warrants. At the Effective Time each of the outstanding Company
Warrants shall thereafter entitle the holder thereof to receive, upon exercise
thereof, for each one share of Company Series A Preferred subject to such
Company Warrant, a number of shares of Identix Common equal to the Preferred
Exchange Ratio at an exercise price for each full share of Identix Common equal
to the quotient obtained by dividing (a) the exercise price per share of
Company Series A Preferred with respect to such Company Warrant, by (b) the
Preferred Exchange Ratio, which exercise price shall be rounded to the nearest
two-place decimal. The number of shares of Identix Common issuable on the
exercise of any Company Warrant shall not include any fractional share of
Identix Common but Identix shall pay cash in lieu of any fractional share in
accordance with the terms of the Company Warrants. Identix shall assume in full
the Company Warrants. After such assumption, Identix shall issue, upon any
partial or total exercise of any Company Warrant, in lieu of shares of Company
Series A Preferred, the number of shares of Identix Common to which the holder
of the Company Warrant is entitled pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Any disclosure delivered by the Company to Identix pursuant to this Article
shall have been delivered on or prior to the date hereof and certified by an
officer of the Company as true, accurate and complete, shall specifically refer
to this Agreement and shall identify the Section of this Agreement requiring
the delivery of such disclosure (such disclosure being referred to herein as an
"Company Officer-Certified Disclosure Statement"). For the purposes of this
Article III, references to the "Company" shall include IDT Holdings, as well as
Identicator Technology. For purposes of this Article III, any references to the
Company's "knowledge" means actual knowledge of the persons identified in
Section 3.0 of the Company Officer-Certified Disclosure Statement as well as
information contained in the files or records of IDT Holdings, Identicator
Technology, Identicator, Inc. or IT Concepts. Except as set forth in the
Company Officer-Certified Disclosure Statement, the Company represents and
warrants to Identix that:
3.1 Organization and Authority. The Company and each of its Subsidiaries:
(i) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation; (ii) has all necessary
corporate power to own and lease its properties, to carry on its business as
now being conducted and to enter into and perform this Agreement and all
agreements to which the Company is or will be a party that are exhibits to this
Agreement; and (iii) is qualified to do business in all jurisdictions in which
the failure to so qualify would have a material adverse effect on the
condition, financial or otherwise, assets, liabilities, business or results of
operations of the Company. The Company has made available to Identix for
inspection complete and correct copies of the following with respect to the
Company and each of its Subsidiaries: Certificate of Incorporation, as amended,
and Bylaws as in effect on the date hereof and a record of any and all
proceedings and actions at all meetings of, or taken by written consent by, the
Board of Directors and stockholders, from the date of inception of such
corporation.
3.2 Authority Relating to this Agreement; No Violation of Other Instruments.
3.2.1 The execution and delivery of this Agreement and all agreements to
which the Company is or will be a party that are exhibits to this Agreement and
the performance hereunder and
A-11
<PAGE>
thereunder by the Company have been duly authorized by all necessary corporate
action on the part of the Company, subject to stockholder approval, and,
assuming execution of this Agreement and such other agreements by each of the
other parties thereto, this Agreement and such other agreements will constitute
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject as to enforcement: (i) to
bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws
of general applicability relating to or affecting creditors' rights; and (ii)
to general principles of equity, whether such enforcement is considered in a
proceeding in equity or at law.
3.2.2 Neither the execution of this Agreement or any other agreement to
which the Company is or will be a party that is an exhibit to this Agreement
nor the performance of any of them by the Company will: (i) conflict with or
result in any breach or violation of the terms of any decree, judgment, order,
law or regulation of any court or other governmental body now in effect
applicable to the Company; (ii) conflict with, or result in, with or without
the passage of time or the giving of notice, any breach of any of the terms,
conditions and provisions of, or constitute a default under or otherwise give
another party the right to terminate, or result in the creation of any lien,
charge, or encumbrance upon any of the assets or properties of the Company
pursuant to, any material indenture, mortgage, lease, agreement or other
instrument to which the Company is a party or by which it or any of its assets
or properties are bound, including all Contracts (as defined in Section 3.22);
(iii) permit the acceleration of the maturity of any material indebtedness of
the Company or of any other person secured by the assets or properties of the
Company; or (iv) violate or conflict with any provision of the Company's
Articles of Incorporation, Bylaws, or similar organizational instruments.
3.2.3 No consent from any third party and no consent, approval or
authorization of, or declaration, filing or registration with, any government
or regulatory authority is required to be made or obtained by the Company in
order to permit the execution, delivery or performance of this Agreement or any
other agreement to which the Company is or will be a party that is an exhibit
to this Agreement by the Company, or the consummation of the transactions
contemplated by this Agreement and such other agreements, except as
contemplated in Sections 6.14 or 6.17 of this Agreement and except for such
consents, approvals, authorizations, declarations, filings or registrations the
failure to make or obtain would not have a material adverse effect on the
Company.
3.2.4 The board of directors of IDT Holdings has, at a meeting of such
board duly held on November 14, 1998, (i) approved this Agreement, (ii)
determined that this Agreement is fair to and in the best interests of the
stockholders of the Company, and (iii) resolved to recommend approval of this
Agreement to the stockholders of the Company.
3.3 Compliance with Law. The Company holds all licenses, permits and
authorizations necessary for the lawful conduct of the Company's business
wherever conducted pursuant to all applicable statutes, laws, ordinances, rules
and regulations of all governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over the Company or over any part of the
Company's operations, and the Company knows of no violation thereof. The
Company is not in violation of any decree, judgment, order, law or regulation
of any court or other governmental body (including, without limitation,
applicable environmental protection legislation and regulations, equal
employment and civil rights regulations, wages, hours and the payment of social
security taxes and
A-12
<PAGE>
occupational health and safety legislation), which violation could reasonably
be expected to have a material adverse effect on the condition, financial or
otherwise, assets, liabilities, business or results of operations of the
Company.
3.4 Capitalization of IDT Holdings. The authorized capital stock of IDT
Holdings is Twelve Million (12,000,000) shares of Company Common, of which Two
Million Seven Hundred Twenty Seven Thousand Seven Hundred Sixty Two (2,727,762)
shares are issued and outstanding as of the date hereof, and Five Million
(5,000,000) shares of Preferred Stock, of which Six Hundred Thousand (600,000)
are designated Company Series A Preferred, none of which are outstanding as of
the date hereof. Each share of Company Series A Preferred is convertible into
one share of Company Common. A list of all of the stockholders of IDT Holdings,
with the number of shares owned by each as of the date hereof, is contained in
Section 3.4 of the Company Officer-Certified Disclosure Statement. All such
issued and outstanding shares have been duly authorized and validly issued, and
are fully paid and non-assessable. As of the date hereof, IDT Holdings has
outstanding options to purchase 1,994,334 shares of Company Common pursuant to
the Company Plans. Section 3.4 of the Company Officer-Certified Disclosure
Statement contains a list of all outstanding Company Options, including with
respect to each outstanding Company Option, the name of the optionee, the
number of shares covered thereby, the exercise price thereof, the expiration
date, and, to the extent unvested, the vesting schedule and the vesting base
date. The Company has outstanding Company Warrants to purchase 60,000 shares of
Company Series A Preferred, which warrants have an exercise price and are held
by the persons indicated in Section 3.4 of the Company Officer-Certificate
Disclosure Statement. The Company Plans and the Company Warrants permit
assumption by Identix in accordance with the terms set forth in this Agreement
and IDT Holdings has taken all actions necessary for Identix to assume the
Company Plans and the Company Warrants upon the Effective Time. Except as set
forth in this Section, there are no outstanding warrants, options, agreements,
convertible or exchangeable securities or other commitments, obligations or
legal requirements pursuant to which IDT Holdings is or may become obligated to
issue, sell, purchase, retire or redeem any shares of capital stock or other
securities. There are no registration rights with respect to IDT Holdings'
capital stock which will survive the Closing.
3.5 Investments in Others. Section 3.5 of the Company Officer-Certified
Disclosure Statement contains a list of each corporation, association,
partnership, joint venture or other entity in which the Company, directly or
indirectly, owns an equity interest and sets forth the Company's percentage
interest by voting rights and by profits, in each such entity. Except for the
entities identified in such list, the Company does not conduct any part of its
business operations through any subsidiaries or through any other entity in
which the Company has an equity investment.
3.6 Financial Statements. The Company has delivered the following
consolidated financial statements of the Company (the "Company Financial
Statements") to Identix: (a) Audited Balance Sheets of the Company dated as of
December 31, 1996 and 1997, together with audited Statements of Operations,
Shareholders' Equity and Changes in Cash Flows for the two years ended December
31, 1996 and 1997; and (b) unaudited balance sheet of the Company (the "Balance
Sheet") dated as of September 30, 1998 (the "Balance Sheet Date"), together
with unaudited Statements of Operations, Shareholders' Equity and Changes in
Cash Flows for the nine months ended September 30, 1998. Each Company Financial
Statement together with the notes thereto is in
A-13
<PAGE>
accordance with the books and records of the Company, fairly presents the
financial position of the Company and the results of operations of the Company
for the period indicated, and has been prepared in accordance with generally
accepted accounting principles consistently applied, except that the unaudited
financial statements omit footnotes.
3.7 Absence of Undisclosed Liabilities. As of the Balance Sheet Date, the
Company had no indebtedness or liability (absolute or contingent) which is not
shown or provided for in full on the Balance Sheet. Except as set forth in the
Balance Sheet, the Company does not have outstanding any indebtedness or
liability (absolute or contingent) other than those incurred since the Balance
Sheet Date in the ordinary course of business.
3.8 Absence of Certain Changes or Events. Since the Balance Sheet Date,
except as contemplated by this Agreement, there have been no material changes
in the condition, financial or otherwise, assets, liabilities, business or the
results of operations of the Company, other than changes in the ordinary course
of business which in the aggregate have not been materially adverse. For the
purposes of this Section 3.8, all references to employees include Transferred
Employees. Without limiting the foregoing, since the Balance Sheet Date, except
as contemplated by this Agreement:
(i) the Company has not entered into any material transaction other than
in the ordinary course of business;
(ii) there have been no losses or damage to any of the assets or
properties of the Company due to fire or other casualty, whether or not
insured, amounting to more than Ten Thousand Dollars ($10,000) in the
aggregate;
(iii) there has been no increase or decrease in the rates of direct
compensation payable or to become payable by the Company to any employee, agent
or consultant (other than routine increases made in the ordinary course of
business or pursuant to a collective bargaining agreement), or any bonus,
percentage compensation, service award or other like benefit, granted, made or
accrued to or to the credit of any such employee, agent or consultant, or any
material welfare, pension, retirement or similar payment or arrangement made or
agreed to be made by the Company (other than such events occurring pursuant to
any previously existing benefit plan or collective bargaining agreement);
(iv) the Company has not executed, created, amended or terminated any
material contract except in the ordinary course of business;
(v) the Company has not declared or paid any dividend or made any
distribution on its capital stock, nor redeemed, purchased or otherwise
acquired any of its capital stock;
(vi) the Company has not received notice that there has been a
cancellation of an order for its products or a loss of a customer of the
Company, the cancellation or loss of which would materially adversely affect
the condition, financial or otherwise, assets, liabilities, business or results
of operations of the Company;
(vii) there has been no resignation or termination of employment of any
officer or key employee of the Company and the Company does not know of the
impending resignation or
A-14
<PAGE>
termination of employment of any officer or key employee of the Company, other
than the corporate secretary and assistant secretary of the Company;
(viii) there has been no material change in the contingent obligations of
the Company by way of guaranty, endorsement, indemnity, warranty or otherwise;
(ix) there have been no loans made by the Company to its employees,
officers or directors, other than travel advances and other advances made in
the ordinary course of business;
(x) there has been no waiver or compromise by the Company of a material
right or of a material debt owed to it;
(xi) the Company has not made or agreed to make any disbursements or
payments of any kind to any member or members of its Board of Directors;
(xii) there have been no capital expenditures by the Company exceeding
Twenty Five Thousand Dollars ($25,000) in any individual instance or exceeding
One Hundred Thousand Dollars ($100,000) in the aggregate;
(xiii) there has been no change in accounting methods or practices
(including without limitation, any change in depreciation or amortization
policies or rates) by the Company;
(xiv) there has been no revaluation by the Company of any of the assets
or properties of the Company;
(xv) there has been no sale or transfer of any of the assets or
properties of the Company, except in the ordinary course of business;
(xvi) there has been no loan by the Company to any person or entity other
than as permitted by (ix) or in the ordinary course of business;
(xvii) to the Company's knowledge, there has been no commencement or
notice of threat of commencement of any governmental proceeding against or
investigation of the Company or its affairs;
(xviii) to the Company's knowledge, there has been no revocation of
license or right to do business granted to the Company;
(xix) the Company has not paid any obligation or liability (fixed,
contingent or otherwise) or discharged or satisfied any lien, or settled any
liability, claim, dispute, proceeding, suit or appeal pending or threatened
against it, except for current liabilities incurred in the ordinary course of
business; and
(xx) there has been no agreement or commitment by the Company to do or
perform any of the acts described in this Section 3.8.
3.9 Inventories. The inventories shown on the Balance Sheet are of a
quantity and quality useable or saleable in the ordinary course of business,
subject to any applicable reserves. Additions and deletions from the
inventories since the Balance Sheet Date have been in the ordinary course of
A-15
<PAGE>
business. The amounts shown for inventories on the Balance Sheet have been
determined in accordance with generally accepted accounting principles on a
first-in, first-out basis and are stated at lower of cost or market.
3.10 Accounts Receivable. Subject to any reserves set forth on the Balance
Sheet, the accounts receivable shown on the Balance Sheet as of the Balance
Sheet Date, or thereafter acquired by the Company prior to the date hereof,
represent and will represent bona fide claims against debtors for sales and
other charges and are not subject to discount except for normal cash and
immaterial trade discounts. The amount carried for doubtful accounts and
allowances disclosed on the Balance Sheet as of the Balance Sheet Date is
sufficient to provide for any losses which may be sustained on realization of
the receivables shown on the Balance Sheet as of the Balance Sheet Date, or
thereafter acquired by the Company prior to the date hereof.
3.11 Taxes. Section 3.11 of the Company Officer-Certified Disclosure
Statement contains a true and complete list of all types of taxes paid by the
Company. All tax returns and reports with respect to the Company required by
law to be filed under the laws of any jurisdiction, domestic or foreign, have
been duly and timely filed and are correct in all material respects and all
taxes, fees or other governmental charges of any nature which were required to
have been paid have been paid. The Company has no knowledge of any unpaid taxes
or any actual or threatened assessment of deficiency or additional tax or other
governmental charge or a basis for such a claim against the Company. The
Company has no knowledge of any tax audit of the Company by any taxing or other
authority in connection with any of its fiscal years; the Company has no
knowledge of any such audit currently pending or threatened, and there are no
tax liens on any of the properties of the Company other than liens for taxes
not yet due and payable.
3.12 Personal Property. The Company has good title, free and clear of all
title defects, objections and liens, including without limitation, leases,
chattel mortgages, conditional sales contracts, collateral security
arrangements and other title or interest-retaining arrangements, to or with
respect to leased properties and assets valid leasehold interests in all of its
machinery, equipment, furniture, inventory and other personal property except
(i) the lien of current taxes not yet due and payable, (ii) such imperfections
of title, liens and easements as do not and will not materially detract from or
interfere with the use of the properties subject thereto or affected thereby,
or otherwise materially impair business operations involving such properties
and (iii) liens securing debt which is reflected on the Balance Sheet. All such
personal property is in good operating condition, subject to normal wear and
tear. All of the leases to personal property utilized in the business of the
Company are valid and enforceable and are not in default.
3.13 Real Property. The Company does not own any real property. Section 3.13
of the Company Officer-Certified Disclosure Statement contains a list of all
leases for real property to which the Company is a party, the square footage
leased with respect to each lease and the expiration date of each lease. All
such leases are valid and enforceable subject as to enforcement: (i) to
bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws
of general applicability relating to or affecting creditors' rights; and (ii)
to general principles of equity, whether such enforcement is considered in a
proceeding in equity or at law. The Company is not in default under any such
lease. To the Company's knowledge, the real property leased or occupied by the
Company, the improvements located thereon, and the furniture, fixtures and
equipment relating
A-16
<PAGE>
thereto (including plumbing, heating, air conditioning and electrical systems),
conform to any and all applicable health, fire, safety, zoning, land use and
building laws, ordinances and regulations. There are no outstanding contracts
made by the Company for any improvements made to the real property owned,
leased or occupied by the Company that have not been paid for or accounted for
on the Balance Sheet.
3.14 Patents, Trademarks, Trade Names and Copyrights. Section 3.14 of the
Company Officer-Certified Disclosure Statement sets forth a list of all
patents, patent applications, trademarks, registered and unregistered, and
trade names, registered and unregistered, of the Company. All patents,
trademarks, trade names, copyrights, processes, designs, formulas, inventions,
trade secrets, know-how, technology or other proprietary rights which are
necessary to the conduct of the Company's business are owned or are useable by
the Company. The conduct of any business conducted by the Company does not
infringe or constitute a misappropriation of any copyright or trade secret of
any other person or, to the Company's knowledge, any patent, trademark, trade
name or other proprietary right of any other person. No litigation is pending
or, to the knowledge of the Company, has been threatened against the Company
or, in connection with the Company, any officer, director, stockholder,
employee or agent of the Company or Transferred Employees, for the infringement
of any patents, trademarks or trade names of any other party or for the misuse
or misappropriation of any trade secret, know-how or other proprietary right
owned by any other party nor, to the knowledge of the Company, does any basis
exist for such litigation. To the Company's knowledge, there has been no
infringement or unauthorized use by any other party of any patent, trademark,
trade name, copyright, process, design, formula, invention, trade secret, know-
how, technology or other proprietary right belonging to the Company.
3.15 Warranties. The Company has made no warranties or guarantees relating
to its products other than as implied or required by law or contained in the
agreements listed in Section 3.22 of the Company Officer-Certified Disclosure
Statement. Section 3.15 of the Company Officer-Certified Disclosure Statement
contains a list of all warranty and indemnification obligations of the Company
relating to patents and other proprietary rights, other than those contained in
the agreements listed in Section 3.22 of the Company Officer-Certified
Disclosure Statement.
3.16 Litigation. Neither the Company nor, to the Company's knowledge, any
officer, director, stockholder, employee or agent of the Company or any
Transferred Employee is a party to any pending or, to the Company's knowledge,
threatened action, suit, proceeding or, to the Company's knowledge,
investigation, at law or in equity or otherwise in, for or by any court or
other governmental body which could have a material adverse effect on: (i) the
condition, financial or otherwise, assets or properties of the Company,
liabilities, business or results of operations of the Company; or (ii) the
transactions contemplated by this Agreement. The Company is not and has not
been subject to any pending or, to the Company's knowledge, threatened product
liability claim. The Company is not subject to any decree, judgment or order of
any court or other governmental body which could have a material adverse effect
on the condition, financial or otherwise, assets, liabilities, business or
results of operations of the Company or which could prevent the transactions
contemplated by this Agreement.
3.17 Protection of Intangible Property. Each employee and consultant
(including employees and consultants of Identicator, Inc. and IT Concepts) who
has worked on or contributed to
A-17
<PAGE>
the development of the Company's technology, trade secrets and other
proprietary rights, including without limitation, the Company's software,
firmware or hardware, has executed a proprietary rights and information
agreement substantially in the form attached as Exhibit 3.17 to the Company
Officer-Certified Disclosure Statement. The Company's source codes and trade
secrets have not been used, distributed or otherwise commercially exploited
under circumstances which have caused, or with the passage of time could cause,
the loss of copyright or trade secret status. The Company has set forth in
Section 3.17 of the Company Officer-Certified Disclosure Statement a list of
all persons or entities to whom the Company has disclosed its source codes.
3.18 Personnel.
(a) Section 3.18 of the Company Officer-Certified Disclosure Statement
contains a list of the names, current salary rates, bonuses paid during the
last fiscal year, and accrued vacation and sick leave for all the employees of
the Company and all of the Transferred Employees. Section 3.18 of the Company
Officer-Certified Disclosure Statement contains a list of: (i) all employment,
bonus, profit sharing, percentage compensation, commission, employee benefit
plans, incentive plans, pension or retirement plans, stock purchase and stock
option plans, oral or written contracts or agreements with directors, officers,
employees or unions, or consulting agreements, to which the Company is a party
or is subject as of the date of this Agreement or to which Identicator, Inc. or
IT Concepts is a party or is subject as of the date of this Agreement and that
relates to the Transferred Employees; and (ii) all group insurance programs in
effect for employees of the Company or the Transferred Employees. Neither the
Company, Identicator, Inc. nor IT Concepts is in default with respect to any of
the obligations so listed. The Company has delivered complete and correct
copies of all such obligations (to the extent they are in writing or written
descriptions to the extent they are oral) to Identix. The employment of each
employee of the Company and each Transferred Employees is "at will" and may be
terminated without liability. Neither the Company, Identicator, Inc. nor IT
Concepts has any union contracts or collective bargaining agreements with, or
any other obligations to, employee organizations or groups relating to the
Company's business or the Transferred Employees, nor is the Company,
Identicator, Inc. or IT Concepts currently engaged in any labor negotiations
except in minor grievances not involving any employee organization or group,
nor, to the knowledge of the Company, is the Company, Identicator, Inc. or IT
Concepts the subject of any union organization affecting the Company's
business. There is no pending or, to the Company's knowledge, threatened labor
dispute, strike or work stoppage affecting the Company's business.
(b) All plans described in Section 3.18 of the Officer-Certified Disclosure
Statement or in Section 3.18(a) above (collectively, "Employee Plans") are in
material compliance with applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and regulations issued under
ERISA in any respect relevant to the Company's business or the Transferred
Employees, and there is no unfunded liability with respect to such plans.
Section 3.18 of the Company Officer-Certified Disclosure Statement also lists
the amount payable to employees of the Company and the Transferred Employee
under other fringe benefit plans. None of the benefit plans of the Company or,
to the extent they apply to the Transferred Employees or the Company's
business, Identicator, Inc. or IT Concepts are subject to Title IV of ERISA,
and neither the Company, Identicator, Inc., IT Concepts nor any entity treated
as a single employer with the Company under Section 414(b) or (c) of the Code
(a "Company ERISA Affiliate") has maintained a plan subject to
A-18
<PAGE>
such title during the six-year period ended on the date hereof. Neither the
Company, Identicator, Inc., IT Concepts nor any Company ERISA Affiliate has any
obligation to contribute to, or has had within the six-year period ending on
the date hereof, any obligation to or has actually contributed to, any
multiemployer plan.
(c) The Company and, with respect to the Transferred Employees and the
Company's Business, Identicator, Inc. and IT Concepts are in compliance with
all federal and state wage, tax and withholding obligations for all current and
former employees, whether or not correctly characterized as employees by the
Company, Identicator, Inc. or IT Concepts, including but not limited to
personnel classified as freelancers, consultants, independent contractors, or
temporary, casual or contract employees. The Company, Identicator, Inc. and IT
Concepts are in compliance with all Employee Plans for all such personnel,
whether or not such personnel have been correctly characterized by the Company,
Identicator, Inc. or IT Concepts.
3.19 Insurance. The Company has policies of insurance of the type and in
amounts customarily carried by persons conducting business or owning assets
similar to those of the Company. Section 3.19 of the Company Officer-Certified
Disclosure Statement contains a list of all insurance policies and bonds in
force with respect to the Company showing for each such policy or bond: (i) the
owner; (ii) the coverage of such policy or bond; (iii) the amount of premium
properly allocable to such policy or bond; (iv) the name of the insurer; and
(v) the termination date of the policy or bond. Copies of all such insurance
policies and bonds have been furnished to Identix. All such insurance policies
and bonds are in full force and effect.
3.20 Certain Payments. To the knowledge of the Company, neither the Company,
nor any stockholder, director, officer, employee or agent of the Company or
Transferred Employee, has made or caused to be made, directly or indirectly,
the payment of any consideration whatsoever to any public official, candidate
for public office, political party, or other third person in connection with
the business or operations of the Company, or pertaining to the Company's
relations with any customer, supplier, or creditor, in contravention of the law
of any applicable jurisdiction.
3.21 Brokers and Finders. Neither the Company nor, to the Company's
knowledge, any stockholder, director, officer, employee or agent of the Company
or any Transferred Employee has retained any broker, finder or investment
banker in connection with the transactions contemplated by this Agreement.
3.22 Contracts. Section 3.22 of the Company Officer-Certified Disclosure
Statement lists all oral or written agreements, notes, instruments, or
contracts to which the Company is a party or by which its assets or properties
may be bound which involve the payment or receipt of more than $25,000 (on an
annual basis), or which have a term of more than one year, or which involve
intellectual property, or which are employment or consulting agreements (the
"Contracts"). The Company is not in default in performance of its obligations
under any material provisions of such Contracts. The Company has no knowledge
of any violation of any Contract by any other party thereto and has no
knowledge of any intent by any other party to a Contract not to perform its
obligations under such Contract.
A-19
<PAGE>
3.23 Stockholders and Employees. None of the stockholders, directors or
management personnel of the Company is presently a party to any transaction
with the Company, including without limitation, any contract, agreement or
other arrangement: (i) providing for the furnishing of services to or by; (ii)
providing for rental of real or personal property to or from; or (iii)
otherwise requiring payments to or from any stockholder, director or management
personnel, or any member of the family of any stockholder, director or
management personnel or any corporation, trust or other entity in which any
stockholder, director or management personnel has a substantial interest or is
an officer, director, investor or partner.
3.24 Absence of Environmental Liabilities. Excluding environmental
liabilities that, individually or in the aggregate, have not or would not
reasonably be expected to have a material adverse effect on the condition,
financial or otherwise, assets, liabilities, business or results of operations
of the Company: (a) Neither the Company nor the real property owned, leased,
operated, or occupied by the Company is in violation of any applicable federal,
state or local law, ordinance, regulation or order or any Environmental Laws or
any of its applicable permits or authorizations relating to industrial hygiene,
worker safety, public health and safety, environmental protection, or Hazardous
Materials on, under or about such real property, including, without limitation,
the soil and groundwater underlying such real property; (b) Any handling,
transportation, storage, treatment or use of Hazardous Material that has
occurred on or about or from the real property owned, leased, operated, or
occupied by the Company during the Company's ownership, tenancy, or occupancy
and prior to the Closing Date has been and will be as of the Closing Date in
compliance with all applicable laws, ordinances, regulations, orders, and all
Environmental Laws relating to Hazardous Material; (c) To the Company's
knowledge, the real property leased, operated, or occupied by the Company,
including without limitation, the soil and groundwater on or under such real
property, is free of any release, spill, disposal, or discharge (as those terms
are defined in Environmental Laws) of any Hazardous Material; (d) No
notification of release of Hazardous Material pursuant to CERCLA or the federal
Clean Water Act, or any state or local environmental law or regulatory
requirement has been received by the Company as to any of such real property;
(e) No Hazardous Materials generated by the Company or any of its affiliates in
operating the Company's business have ever been sent as wastes, directly or
indirectly, to any site listed or formally proposed for listing on the national
Priority List or Comprehensive Environmental Response, Compensation and
Liability Information System, promulgated pursuant to CERCLA or to any site
listed on any Federal or state list of hazardous substances sites requiring
investigation, remediation, or clean-up; (f) The Company has not received from
any governmental authority or third party any notice of any suit, demand,
claim, violation, citation, criminal, civil or administrative action, request
for information, demand letter, or other notification that, in connection with
the conduct of its business, it (or any of its officers, directors, or
employees) is or may be potentially responsible with respect to any
investigation or clean-up of Hazardous Material at any site; (g) To the
Company's knowledge, there currently are not and have never been any
underground storage tanks or vaults on the real property; and (h) There is no
asbestos (whether friable or not) located on or in the real property.
3.25 Power of Attorney; Suretyships. The Company has no power of attorney
outstanding, nor has any obligation or liability, either actual, accrued,
accruing or contingent, as guarantor, surety, cosigner, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any other person,
corporation, partnership, joint venture, association, organization or other
entity.
A-20
<PAGE>
3.26 Business Practices. To the Company's knowledge, the Company has not
made, offered or agreed to offer anything of value to any government official,
political party or candidate for government office nor has it taken any action
which would cause it to be in violation of the Foreign Corrupt Practices Act of
1977.
3.27 Bank Accounts. Section 3.27 of the Company Officer-Certified Disclosure
Statement contains a list of all bank accounts of the Company, identifying the
name of the bank, the account number, and the authorized signatories to the
account.
3.28 Order Backlog. Section 3.28 of the Company Officer-Certified Disclosure
Statement of the Company contains a list of the aggregate backlog of orders for
the Company's products as of September 30, 1998. All such orders have been or
will be filled by the Company in the ordinary course of business, and the
Company knows of no reason why any customer placing any such order may refuse
delivery of the ordered products or fail timely to pay for such products in
accordance with the terms of such orders.
3.29 Hart-Scott-Rodino. The "ultimate parent entity" of the Company does not
(and will not prior to the Closing) have "total assets" or "annual net sales"
in excess of $100,000,000, as those terms are defined in the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the regulations thereunder.
3.30 Officer's Certificate as to Tax Matters. The Company knows of no reason
why it will be unable to deliver to Heller Ehrman White & McAuliffe and
Brobeck, Phleger & Harrison LLP at the closing an Officer's Certificate in form
sufficient to enable each such counsel to render the opinions described in
Sections 6.6 and 7.4.
3.31 Year 2000 Compliance. All of the Company's products (including products
sold to date, products currently being sold or future products), both
individually and when operating in conjunction with all other systems or
products with which they are designed to interface, and all computer software
and hardware (including microcode, firmware, system and application programs,
files, databases, computer services, and microcontrollers, including those
embedded in computer and noncomputer equipment) contained in the Company's
products (including products sold to date, products currently being sold or
future products) are Year 2000 Compliant. "Year 2000 Compliant" means that such
hardware or software will: (a) process date data from at least the years 1900
through 2101 without error or interruption; and (b) maintain functionality with
respect to the introduction, processing, or output of records containing dates
falling on or after January 1, 2000. All of the Company's internal computer
systems are, both individually and in conjunction with all other systems with
which they interface, Year 2000 Compliant, except that the Company makes no
such representation with respect to off-the-shelf software that is used in the
Company's internal computer systems the failure or malfunctioning of which
would not have a material adverse effect on the Company. The Company has made
inquiries of its key suppliers of services and products and, to its knowledge,
the Company is not relying on the products or services of any third party whose
systems are not Year 2000 Compliant. To the Company's knowledge, the Company
does not have any material expenses or other material liabilities associated
with securing Year 2000 Compliance (as described above), or making contingency
arrangements to address Year 2000 Compliance issues, with respect to the
Company's products (including products sold to date, products currently being
A-21
<PAGE>
sold or future products), internal computer systems or the computer systems of
the Company's critical suppliers or customers.
3.32 Accuracy of Documents and Information. The copies of all instruments,
agreements, other documents and written information set forth as, or referenced
in, Schedules or Exhibits to this Agreement or specifically required to be
furnished pursuant to this Agreement by the Company to Identix, including,
without limitation, the Company Officer-Certified Disclosure Statement, are and
will be complete and correct in all material respects. All information in the
Company Officer-Certified Disclosure Statement is as of the date hereof. No
representations or warranties made by the Company in this Agreement, nor any
document, written information, statement, financial statement, certificate,
Schedule or Exhibit furnished directly to Identix pursuant to this Agreement or
in the Company Officer-Certified Disclosure Statement contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements or facts contained herein not misleading. The disclosure
contained in this Agreement, the Exhibits and Schedules hereto and the Company
Officer-Certified Disclosure Statement, taken as a whole, does not omit to
state any material information regarding the Company, its financial position,
assets, liabilities, business and results of operations.
3.33 Identicator Technology Capitalization. IDT Holdings owns all
outstanding capital stock of Identicator Technology free and clear of any
pledges, liens or encumbrances. There do not exist any warrants, obligations,
subscriptions, options, securities convertible into capital stock or other
commitments to issue capital stock of Identicator Technology.
3.34 Restructuring. The Restructuring was accomplished in compliance with
all Federal, California, Nevada, Delaware and other applicable laws. The
Restructuring resulted in the transfer in full to Identicator Technology of the
Biometric Business that had previously been conducted by the Joint Venture,
Identicator Corp. and IT Concepts and of all other assets of the Joint Venture
and Identicator Corp. The disclosures made to the stockholders of Identicator
Corp. and to IT Concepts in connection with the Restructuring were accurate and
complete in all material respects. No stockholder of Identicator Corp.
exercised dissenter or appraisal rights in connection with the Restructuring
and the deadline for exercising such rights has expired. IDT Holdings and
Identicator Technology (excluding the operations of Corp. and the Joint Venture
to which Identicator Technology succeeded by operation of the Restructuring)
did not engage in any business activities or enter into any agreements prior to
the Restructuring, other than agreements with employees and consultants
relating to the Company Options and capital stock and agreements related to
effecting the Restructuring.
3.35 Spinoff. The Spinoff was completed on March 31, 1997. Identicator
Technology, as successor-in-interest to Identicator Corp., has no liability
with respect to any failure to comply with any Federal, California, Nevada or
other applicable laws with respect to the Spinoff. Identicator Technology, as
successor-in-interest to Identicator Corp., is not currently subject to any
contractual commitments or other liabilities relating to the conduct of the
business that was spun off to Identicator, Inc. The Spinoff was not taxable
either to Identicator Corp. or its stockholders pursuant to Section 355 of the
Code.
A-22
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF IDENTIX
Any disclosure delivered by Identix to the Company pursuant to this Article
shall have been delivered on or prior to the date hereof and certified by an
officer of Identix as true, accurate and complete, shall specifically refer to
this Agreement and shall identify the Section of this Agreement requiring the
delivery of such disclosure (each such disclosure being referred to herein as
the "Identix Officer-Certified Disclosure Statement"). For purposes of this
Article IV (other than Sections 4.1 and 4.3), any references to "Identix" shall
include references to Identix's Subsidiaries. Except as set forth in the
Identix Officer-Certified Disclosure Statement, Identix represents and warrants
to the Company that:
4.1 Organization and Authority. Identix and each of its Subsidiaries: (i) is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation; (ii) has all necessary corporate
power to own and lease its properties, to carry on its business as now being
conducted and to enter into and perform this Agreement and all agreements to
which Identix is or will be a party that are exhibits to this Agreement; and
(iii) is qualified to do business in all jurisdictions in which the failure to
so qualify would have a material adverse effect on the condition, financial or
otherwise, assets, liabilities, business or results of operations of Identix.
Identix has made available to the Company for inspection complete and correct
copies of its Articles of Incorporation, as amended, and Bylaws as in effect on
the date hereof and a record of any and all proceedings and actions at all
meetings of, or taken by written consent by, its Board of Directors and
shareholders, from and after July 1, 1996.
4.2 Authority Relating to this Agreement; No Violation of Other Instruments.
4.2.1 The execution and delivery of this Agreement and all agreements to
which Identix is or will be a party that are exhibits to this Agreement and the
performance hereunder and thereunder by the Company have been duly authorized
by all necessary corporate action on the part of Identix and, assuming
execution of this Agreement and such other agreements by each of the other
parties thereto, this Agreement and such other agreements will constitute
legal, valid and binding obligations of Identix, enforceable against Identix in
accordance with their terms, subject as to enforcement: (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights; and (ii) to general
principles of equity, whether such enforcement is considered in a proceeding in
equity or at law.
4.2.2 Neither the execution of this Agreement or any other agreement to
which Identix is or will be a party that is an exhibit to this Agreement nor
the performance of any of them by Identix will: (i) conflict with or result in
any breach or violation of the terms of any decree, judgment, order, law or
regulation of any court or other governmental body now in effect applicable to
Identix; (ii) conflict with, or result in, with or without the passage of time
or the giving of notice, any breach of any of the terms, conditions and
provisions of, or constitute a default under or otherwise give another party
the right to terminate, or result in the creation of any lien, charge, or
encumbrance upon any of the assets or properties of Identix pursuant to, any
material indenture, mortgage, lease, agreement or other instrument to which
Identix is a party or by which it or any of its assets or properties are bound,
including all Contracts (as defined in Section 3.22) of Identix; (iii)
A-23
<PAGE>
permit the acceleration of the maturity of any material indebtedness of Identix
or of any other person secured by the assets or properties of Identix; or (iv)
violate or conflict with any provision of Identix's Articles of Incorporation,
Bylaws, or similar organizational instruments.
4.2.3 No consent from any third party and no consent, approval or
authorization of, or declaration, filing or registration with, any government
or regulatory authority is required to be made or obtained by Identix in order
to permit the execution, delivery or performance of this Agreement or any other
agreement to which Identix is or will be a party that is an exhibit to this
Agreement by Identix, or the consummation of the transactions contemplated by
this Agreement and such other agreements, except as contemplated in Sections
2.4, 2.8, 7.6, 7.7 and 7.8 of this Agreement and except for such consents,
approvals, authorizations, declarations, filings or registrations the failure
to make or obtain would not have a material adverse effect on Identix.
4.3 Capitalization. The authorized capital stock of Identix is Two Million
(2,000,000) shares of Preferred Stock, none of which are issued and
outstanding, and Fifty Million (50,000,000) shares of Identix Common, of which
Twenty Five Million Two Hundred Ninety Eight Thousand Four Hundred Forty Four
(25,298,444) shares are issued and outstanding on the date hereof. All such
issued and outstanding shares have been duly authorized and validly issued, and
are fully paid and non-assessable. On the date hereof, Identix has reserved a
total of 4,366,146 shares of Identix Common for issuance under its 1983
Incentive Stock Option Plan, 1992 Employee Stock Option Plan, Equity Incentive
Plan, Nonemployee Directors Stock Option Plan, Employee Stock Purchase Plan,
Foreign Subsidiary Employee Stock Purchase Plan, ANADAC, Inc. 1984 Incentive
Stock Option Plan and outstanding warrants. Of the shares reserved for issuance
as described in the preceding sentence, as of the date hereof, there are
outstanding options, warrants or other rights to acquire 2,709,018 shares of
Identix Common. Except as set forth in the preceding sentence, there are no
outstanding warrants, options, agreements, convertible or exchangeable
securities or other commitments pursuant to which Identix is or may become
obligated to issue, sell, purchase, retire or redeem any shares of capital
stock or other securities. Identix on the date hereof does not have any plan or
present intention to issue securities, except for the securities reserved for
issuance under the plans and warrants described in this Section 4.3 and for the
securities issuances specifically contemplated by this Agreement.
4.4 Financial Statements. Identix has made available to the Company its
Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (the "1998
Form 10-K"), which includes the following consolidated financial statements of
Identix (the "Identix Financial Statements"): Audited Balance Sheets of Identix
dated as of June 30, 1997 and 1998, together with audited Statements of
Operations, Shareholders' Equity and Changes in Cash Flows for the three years
ended June 30, 1996, 1997 and 1998. Each Identix Financial Statement together
with the notes thereto is in accordance with the books and records of Identix,
fairly presents the financial position of Identix and the results of operations
of Identix for the period indicated, and has been prepared in accordance with
generally accepted accounting principles consistently applied.
4.5 Absence of Undisclosed Liabilities. As of June 30, 1998, Identix had no
indebtedness or liability (absolute or contingent) which is not shown or
provided for in full in the Identix Financial Statements. Except as set forth
in the Identix Financial Statements, Identix does not have outstanding
A-24
<PAGE>
any indebtedness or liability (absolute or contingent) other than those
incurred since June 30, 1998 in the ordinary course of business.
4.6 Brokers and Finders. Neither Identix nor, to Identix's knowledge, any
shareholder, director, officer, employee or agent of Identix has retained any
broker, finder or investment banker in connection with the transactions
contemplated by this Agreement.
4.7 SEC Documents. Identix has filed with the SEC all required forms,
reports, registration statements and documents required to be filed by it with
the SEC on or after January 1, 1998 (collectively, all such forms, reports,
registration statements and documents filed on or after January 1, 1998 are
referred to herein as the "Identix SEC Reports"), all of which complied as to
form when filed in all material respects with the applicable provisions of the
1933 Act and the Exchange Act, as the case may be. As of their respective dates
the Identix SEC Reports (including all exhibits and schedules thereto and
documents incorporated by reference therein) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.8 Absence of Certain Changes or Events. Since June 30, 1998, except as
contemplated by this Agreement, there have been no material changes in the
condition, financial or otherwise, assets, liabilities, business or the results
of operations of Identix, other than changes in the ordinary course of business
which in the aggregate have not been materially adverse.
4.9 Officer's Certificate as to Tax Matters. Identix knows of no reason why
it will be unable to deliver to Heller Ehrman White & McAuliffe and Brobeck,
Phleger & Harrison LLP at the closing an Officer's Certificate in form
sufficient to enable each such counsel to render the opinions described in
Sections 6.6 and 7.4.
4.10 Shares Issued in Connection with the Merger. The shares of Identix
Common to be issued to the Holders pursuant to the Merger, when issued in
accordance with this Agreement and the Certificate of Merger, will be duly
authorized, validly issued, fully paid and non-assessable. The shares of
Identix Common to be issued to the holders of the Company Options or Company
Warrants upon exercise of the Company Options or Company Warrants after the
Merger, when issued upon exercise of the Company Options or Company Warrants in
accordance with this Agreement, the Certificate of Merger, and either the
Company Plans or the Company Warrants, will be duly authorized, validly issued,
fully paid and non-assessable.
4.11 Litigation. Neither Identix nor any officer, director, shareholder,
employee or agent of Identix is a party to any pending or, to Identix's
knowledge, threatened action, suit, proceeding or, to Identix's knowledge,
investigation, at law or in equity or otherwise in, for or by any court or
other governmental body which could have a material adverse effect on: (i) the
condition, financial or otherwise, assets or properties of the Identix,
liabilities, business or results of operations of Identix; or (ii) the
transactions contemplated by this Agreement. Identix is not and has not been
subject to any pending or, to Identix's knowledge, threatened product liability
claim. Identix is not subject to any decree, judgment or order of any court or
other governmental body which could have a material
A-25
<PAGE>
adverse effect on the condition, financial or otherwise, assets, liabilities,
business or results of operations of Identix or which could prevent the
transactions contemplated by this Agreement.
4.12 Compliance with Law. Identix holds all licenses, permits and
authorizations necessary for the lawful conduct of Identix's business wherever
conducted pursuant to all applicable statutes, laws, ordinances, rules and
regulations of all governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over Identix or over any part of Identix's
operations, and Identix knows of no violation thereof. Identix is not in
violation of any decree, judgment, order, law or regulation of any court or
other governmental body (including, without limitation, applicable
environmental protection legislation and regulations, equal employment and
civil rights regulations, wages, hours and the payment of social security taxes
and occupational health and safety legislation), which violation could
reasonably be expected to have a material adverse effect on the condition,
financial or otherwise, assets, liabilities, business or results of operations
of Identix.
4.13 Accuracy of Documents and Information. The copies of all instruments,
agreements, other documents and written information set forth as, or referenced
in, Schedules or Exhibits to this Agreement or specifically required to be
furnished pursuant to this Agreement by Identix to the Company, including,
without limitation, the Identix Officer-Certified Disclosure Statement, are and
will be complete and correct in all material respects. All information in the
Identix Officer-Certified Disclosure Statement is as of the date hereof. No
representations or warranties made by Identix in this Agreement, nor any
document, written information, statement, financial statement, certificate,
Schedule or Exhibit furnished directly to the Company pursuant to this
Agreement or in the Identix Officer-Certified Disclosure Statement contains any
untrue statement of a material fact, or omits to state a material fact
necessary to make the statements or facts contained herein not misleading. The
disclosure contained in this Agreement, the Exhibits and Schedules hereto, and
Identix's Officer-Certified Disclosure Statement, taken as a whole, does not
omit to state any material information regarding Identix, its financial
position, assets, liabilities, business and results of operations.
4.14 Identicator, Inc. and IT Concepts. Identix acknowledges and understands
that Identicator, Inc. and IT Concepts are entities separate from the Company
and its subsidiaries, are not parties to the Merger and will continue to
operate as entities separate from the Company and its subsidiaries and Identix
and its subsidiaries after consummation of the Merger.
ARTICLE V
REPRESENTATIONS AND WARRANTIES RELATING TO ACQUISITION SUB
Identix and Acquisition Sub hereby represent and warrant to the Company
that:
5.1 No Business Activities. Acquisition Sub was formed in November 1998 for
the purposes of carrying out the Merger and has not engaged in any business
activities or entered into any agreements other than as contemplated by this
Agreement.
5.2 Organization and Authority. Acquisition Sub: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (ii) has all necessary corporate power to
own and lease its properties, to carry on its business as now being
A-26
<PAGE>
conducted and to enter into and perform this Agreement and all agreements to
which Acquisition Sub is or will be a party that are exhibits to this
Agreement; and (iii) is qualified to do business in all jurisdictions in which
the failure to so qualify would have a material adverse effect on the
condition, financial or otherwise, assets, liabilities, business or results of
operations of Acquisition Sub. Acquisition Sub has made available to the
Company for inspection complete and correct copies of its Certificate of
Incorporation, as amended, and Bylaws as in effect on the date hereof and a
record of any and all proceedings and actions at all meetings of, or taken by
written consent by, its Board of Directors and stockholders, from the date of
inception.
5.3 Authority Relating to this Agreement; No Violation of Other Instruments.
5.3.1 The execution and delivery of this Agreement and all agreements to
which Acquisition Sub is or will be a party that are exhibits to this Agreement
and the performance hereunder and thereunder by the Company have been duly
authorized by all necessary corporate action on the part of Acquisition Sub
and, assuming execution of this Agreement and such other agreements by each of
the other parties thereto, this Agreement and such other agreements will
constitute legal, valid and binding obligations of Acquisition Sub, enforceable
against Acquisition Sub in accordance with their terms, subject as to
enforcement: (i) to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other laws of general applicability relating to or affecting
creditors' rights; and (ii) to general principles of equity, whether such
enforcement is considered in a proceeding in equity or at law.
5.3.2 Neither the execution of this Agreement or any other agreement to
which Acquisition Sub is or will be a party that is an exhibit to this
Agreement nor the performance of any of them by Acquisition Sub will: (i)
conflict with or result in any breach or violation of the terms of any decree,
judgment, order, law or regulation of any court or other governmental body now
in effect applicable to Acquisition Sub; or (ii) violate or conflict with any
provision of Acquisition Sub's Certificate of Incorporation, Bylaws, or similar
organizational instruments.
5.3.3 Except as contemplated in Section 7.8 of this Agreement, no consent
from any third party and no consent, approval or authorization of, or
declaration, filing or registration with, any government or regulatory
authority is required to be made or obtained by Acquisition Sub in order to
permit the execution, delivery or performance of this Agreement or any other
agreement to which Acquisition Sub is or will be a party that is an exhibit to
this Agreement by Acquisition Sub, or the consummation of the transactions
contemplated by this Agreement and such other agreements.
5.4 Capitalization. The authorized capital stock of Acquisition Sub is One
Thousand (1,000) shares of Common Stock, of which one hundred (100) shares are
issued and outstanding and held by Identix. All such issued and outstanding
shares have been duly authorized and validly issued, and are fully paid and
non-assessable. There are no outstanding warrants, options, agreements,
convertible or exchangeable securities or other commitments pursuant to which
Acquisition Sub is or may become obligated to issue, sell, purchase, retire or
redeem any shares of capital stock or other securities.
A-27
<PAGE>
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF IDENTIX AND ACQUISITION SUB
The obligations of Identix and Acquisition Sub to consummate the Merger are
subject to the fulfillment, at or before the Closing of all the following
conditions, any one or more of which may be waived by Identix.
6.1 Representations and Warranties True at Closing. The representations and
warranties of the Company contained in this Agreement shall be deemed to have
been made again at and as of the Closing with respect to the stated facts
(including the update of the Company Officer-Certified Disclosure Statement
referred to in Section 8.1 of this Agreement) then existing and shall be true
in all material respects.
6.2 Covenants Performed. All of the obligations of the Company to be
performed at or before the Closing pursuant to the terms of this Agreement
shall have been duly performed.
6.3 Certificate. At the Closing, Identix shall have received a certificate
signed by the President of the Company to the effect that the conditions set
forth in Sections 6.1 and 6.2 have been satisfied.
6.4 Stockholder Approval. This Agreement and the Certificate of Merger shall
have been duly approved by the stockholders of the Company.
6.5 Dissenting Shares. The aggregate number of Dissenting Shares shall not
exceed two percent of the aggregate of the outstanding shares of Identix Common
that would be outstanding immediately following the Merger if there were no
Dissenting Shares.
6.6 Tax Opinion. Identix shall have received the opinion of its counsel to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code, which opinion shall be substantially similar to
the opinion delivered to the Company pursuant to Section 7.4. In preparing the
tax opinion, counsel may rely upon (and to the extent reasonably required, the
parties shall make) reasonable representations relating thereto.
6.7 Opinion of Counsel to the Company. Brobeck, Phleger & Harrison LLP,
counsel to the Company, shall have issued an opinion in favor of Identix in the
form of Exhibit B.
6.8 AMEX Approval. The shares of Identix Common to be issued in the Merger
and upon exercise of the Company Options and the Company Warrants shall have
been approved for quotation on the American Stock Exchange.
6.9 Affiliates Agreements. The Company shall have delivered to Identix the
letter required by Section 8.11 naming all persons who are considered to be
"affiliates" of the Company, and each such affiliate shall have executed and
delivered an Affiliates Agreement to Identix.
6.10 S-4. The S-4 shall have become effective under the 1933 Act and shall
not be the subject of any stop order or proceedings seeking a stop order and
the Proxy Statement/Prospectus shall on the Closing Date not be subject to any
proceeding commenced or threatened by the SEC.
A-28
<PAGE>
6.11 Voting Agreement. The Voting Agreement shall remain in full force as of
the Closing Date and there shall be no amendment or other modification to such
agreements to which Identix, Acquisition Sub and all parties thereto shall not
have consented in writing.
6.12 Noncompetition Agreements. Oscar Pieper, Grant Evans, Yuri Khidekel and
Yury Shapiro shall have entered into noncompetition agreements with the Company
in the form attached hereto as Exhibit C.
6.13 Employment Agreements. Oscar Pieper, Grant Evans, Yuri Khidekel and
Yury Shapiro shall have entered into employment agreements with Identix or the
Surviving Corporation substantially in the form attached hereto as Exhibit D
and on the terms described in Section 7.9 of the Identix Officer-Certified
Disclosure Statement.
6.14 Certificate of Merger. The Certificate of Merger shall have been filed
with the Secretary of State of the State of Delaware.
6.15 Material Changes in the Business of the Company Between the Date of
this Agreement and the Closing. There shall have been no material adverse
change in the financial position, results of operations, assets, liabilities or
business of the Company and Identicator Technology, taken as a whole, since the
date of this Agreement.
6.16 No Action to Prevent Completion. Identix shall not have determined, in
the reasonable exercise of its discretion, that the transactions contemplated
by this Agreement would cause a material adverse effect to Identix by reason of
the institution or threat of institution of litigation or other proceedings
with respect to or affecting the transactions contemplated by this Agreement.
6.17 Consents. Identix shall have received in writing all consents,
approvals, and waivers required in connection with the Merger (a) from parties
to the Company's agreements, indentures, mortgages, franchises, licenses,
permits, leases, and other instruments set forth in Section 6.17 of the Company
Officer-Certified Disclosure Statement, and (b) from all necessary or required
governmental authorities.
6.18 Documentation. All actions, proceedings, instruments, resolutions,
certificates, and documents reasonably requested by Identix to be executed and
delivered to Identix in order to carry out this Agreement and to consummate the
Merger, and all of the relevant legal matters, shall be reasonably satisfactory
to Identix and its counsel.
6.19 Support and Indemnification Agreements. IT Concepts and Identicator,
Inc. shall have each entered into a Support and Indemnification Agreement with
Identix in the forms attached to the Identix Officer-Certified Disclosure
Agreement.
6.20 Escrow. The Stockholder Representative, Identix and the Company shall
have entered into the Escrow Agreement and holders of Company Options described
in Section 2.5.2 shall have entered into the agreements referred to in Section
2.5.2 so that the total number of shares of Identix Common issued at the
Effective Time and issuable upon exercise of assumed Company
A-29
<PAGE>
Options that are available to satisfy the indemnification obligations under
Article X shall be not less than 434,300.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the Merger are subject to the
fulfillment, at or before the Closing, of all of the following conditions, any
one or more of which may be waived by the Company:
7.1 Representations and Warranties True at Closing. The representations and
warranties of Identix and Acquisition Sub contained in this Agreement shall be
deemed to have been made again at and as of the Closing with respect to the
stated facts (including the update of the Identix Officer-Certified Disclosure
Statement referred to in Section 8.1 of this Agreement) then existing and shall
be true in all material respects.
7.2 Covenants Performed. All of the obligations of Identix to be performed
at or before the Closing pursuant to the terms of this Agreement shall have
been duly performed.
7.3 Certificate. At the Closing, the Company shall have received a
certificate signed by the President of Identix to the effect that the
conditions set forth in Sections 7.1 and 7.2 have been satisfied.
7.4 Tax Opinion. The Company shall have received the opinion of its counsel
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, which opinion shall be substantially
similar to the opinion delivered to Identix pursuant to Section 6.6. In
preparing the tax opinion, counsel may rely upon (and to the extent reasonably
required, the parties shall make) reasonable representations relating thereto.
7.5 Opinion of Counsel to Identix. Heller Ehrman White & McAuliffe, counsel
to Identix, shall have issued an opinion in favor of the Company in the form of
Exhibit E.
7.6 AMEX Approval. The shares of Identix Common to be issued in the Merger
and upon exercise of the Company Options and the Company Warrants shall have
been approved for quotation on the American Stock Exchange.
7.7 S-4. The S-4 shall have become effective under the 1933 Act and shall
not be the subject of any stop order or proceedings seeking a stop order and
the Proxy Statement/Prospectus shall on the Closing not be subject to any
proceeding commenced or threatened by the SEC.
7.8 Certificate of Merger. The Certificate of Merger shall have been filed
with the Secretary of State of the State of Delaware.
7.9 Employment Agreements. Identix or the Surviving Corporation shall have
entered into employment agreements with Oscar Pieper, Grant Evans, Yuri
Khidekel and Yury Shapiro substantially in the form attached hereto as Exhibit
D and on the terms described in Section 7.9 of the Identix Officer-Certified
Disclosure Statement.
A-30
<PAGE>
7.10 Option Grants. Identix shall have taken the necessary actions to grant
stock options to purchase an aggregate of 400,000 shares of Identix Common to
the employees of the Company or the Transferred Employees designated in Section
7.10 of the Identix Officer-Certified Disclosure Statement. The exercise price
of such options shall be equal to the closing price of the Identix Common on
the Closing Date and shall vest in accordance with the terms set forth in
Section 7.10 of the Identix Officer-Certified Disclosure Statement.
7.11 Material Changes in the Business of Identix Between the Date of this
Agreement and the Closing. There shall have been no material adverse change in
the financial position, results of operations, assets, liabilities or business
of Identix and its Subsidiaries, taken as a whole, since the date of this
Agreement.
7.12 No Action to Prevent Completion. The Company shall not have determined,
in the reasonable exercise of its discretion, that the transactions
contemplated by this Agreement would cause a material adverse effect to the
Company by reason of the institution or threat of institution of litigation or
other proceedings with respect to or affecting the transactions contemplated by
this Agreement.
7.13 Documentation. All actions, proceedings, instruments, resolutions,
certificates, and documents reasonably requested by the Company to be executed
and delivered to the Company in order to carry out this Agreement and to
consummate the Merger, and all of the relevant legal matters, shall be
reasonably satisfactory to the Company and its counsel.
7.14 Stockholder Approval. This Agreement and the Certificate of Merger
shall have been duly approved by the stockholders of the Company.
ARTICLE VIII
PRE-CLOSING COVENANTS
For the purposes of this Article VIII, references to the "Company" shall
include IDT Holdings, Inc., as well as Identicator Technology. During the
period from the date of this Agreement until the Effective Time, Identix and
the Company covenant and agree as follows:
8.1 Advice of Changes. Each party will promptly advise the other in writing
(i) of any event occurring subsequent to the date of this Agreement that would
render any representation or warranty of such party contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (ii) of any material adverse
change in such party's condition, financial or otherwise, assets, liabilities,
business or results of operations, taken as a whole. Not less than four days
before the Closing, each party shall deliver to the other party hereto an
update of the Officer-Certified Disclosure Statement previously delivered by
such party, showing any changes which have occurred with respect to the
information contained therein since it was originally issued and containing a
description of any representation or warranty in this Agreement which is no
longer true as of such date. Such update shall also include an update to the
representations contained in Sections 3.4 and 4.3. Such update shall be
certified by an officer of such party.
A-31
<PAGE>
8.2 Maintenance of Business. The Company will use its best efforts to carry
on and preserve its business and its relationships with customers, suppliers,
employees, Transferred Employees and others in substantially the same manner as
it has prior to the date hereof. If the Company becomes aware of a
deterioration in the relationship with any customer, supplier, key employee or
Transferred Employee, it will promptly bring such information to the attention
of Identix in writing and, if requested by Identix, will exert its best efforts
to restore the relationship.
8.3 Conduct of Business. The Company will continue to conduct its business
and maintain its business relationships in the ordinary and usual course and
will not, without the prior written consent of Identix (which consent shall not
be unreasonably withheld or delayed):
8.3.1 borrow any money, other than pursuant to the Company's line of
credit as in existence on the date hereof;
8.3.2 incur any liability except for those that may be incurred (i) in
the ordinary course of business, consistent with past practice, and are not
material in amount or (ii) in connection with the performance or consummation
of this Agreement;
8.3.3 encumber or permit to be encumbered any of its assets except in the
ordinary course of its business consistent with past practice;
8.3.4 dispose of any of its assets, except inventory in the ordinary
course of business, consistent with past practice;
8.3.5 enter into any material lease or contract for the purchase or sale
of any property, real or personal, except in the ordinary course of business,
consistent with past practice;
8.3.6 fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the date
of this Agreement, subject only to ordinary wear and tear;
8.3.7 pay any bonus, increased salary, or special remuneration to any
officer, employee (other than those paid in the ordinary course of business),
Transferred Employee or consultant or enter into any new employment or
consulting agreement with any such person, except as expressly contemplated by
this Agreement or as set forth in the Company Officer-Certified Disclosure
Statement;
8.3.8 change accounting methods, make any tax elections or file any
amended tax returns;
8.3.9 declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any of
its capital stock (except pursuant to employee stock repurchase agreements upon
termination of an employee consistent with its past practice);
8.3.10 amend or terminate any material contract, agreement or license to
which it is a party except those amended or terminated in the ordinary course
of business consistent with past practice, and which are not material in
amount;
A-32
<PAGE>
8.3.11 loan any amount to any person or entity, other than advances for
travel and expenses which are incurred in the ordinary course of business
consistent with past practice, not material in amount and documented by
receipts for the claimed amounts;
8.3.12 guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the ordinary course
of business, consistent with past practice, which are not material in amount;
8.3.13 waive or release any material right or claim except in the
ordinary course of business, consistent with past practice;
8.3.14 with respect to IDT Holdings, issue or sell any shares of its
capital stock of any class or any other of its securities, or issue or create
any warrants, obligations, subscriptions, options, convertible securities, or
other commitments to issue shares of capital stock except (a) upon exercise of
an option or warrant currently outstanding as disclosed in Section 3.4, or (b)
for a total of 300,000 shares of Company Common that are either (i) sold to
purchasers who are not granted any contractual rights that survive the Closing,
or (ii) issued or issuable under options granted after the date hereof for the
purpose of recruiting new personnel in accordance with the past practices
regarding the total number of options granted and the options awarded in
relation to the job title of the recipient;
8.3.15 accelerate the vesting of any outstanding options, other than such
acceleration that will occur as a result of the Merger under existing
contractual arrangements;
8.3.16 split or combine the outstanding shares of its capital stock of
any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other of
its securities;
8.3.17 merge, consolidate or reorganize with, or acquire any entity,
except for the Merger;
8.3.18 amend its Certificate of Incorporation or Bylaws, except as
expressly contemplated by this Agreement;
8.3.19 license any of its technology or intellectual property, except
under non exclusive hardware or software licenses granted to consumers or end
users in the ordinary course of business;
8.3.20 with respect to Identicator Technology, issue any shares of
capital stock or issue or create any warrants, obligations, subscriptions,
options, securities convertible into capital stock or other commitments to
issue capital stock;
8.3.21 file any patent applications, except for continuations in part or
foreign applications with respect to existing patents held by the Company,
without first consulting with Identix; or
8.3.22 agree to do any of the things described in the preceding clauses
8.3.1 through 8.3.21.
A-33
<PAGE>
8.4 Stockholder Meeting. The Company will use its best efforts to hold a
special meeting of its stockholders at the earliest practicable date to submit
this Agreement and related matters for their consideration and approval.
8.5 Proxy Statement/Prospectus. The Company will send to its stockholders,
for the purpose of considering and voting upon the Merger, the Proxy
Statement/Prospectus satisfying all requirements of applicable state and
federal laws. The Proxy Statement/Prospectus shall contain the unanimous
recommendation of the board of directors of the Company in favor of the
approval and adoption of the Agreement. In addition, each party shall promptly
provide to the other party all information relating to its respective business
or operations necessary for inclusion in the Proxy Statement/Prospectus to
satisfy all requirements of applicable state and federal securities laws. The
Company shall not provide to its stockholders or publish any material that
violates the 1933 Act or Exchange Act with respect to the transactions
contemplated hereby.
8.6 Regulatory Approvals. Prior to the Closing, each party hereto shall
execute and file, or join in the execution and filing, of any application or
other document that may be necessary in order to obtain the authorization,
approval or consent of any governmental body, federal, state, local or foreign
which may be reasonably required, or which the other party hereto may
reasonably request, in connection with the consummation of the transactions
contemplated by this Agreement. Each party shall use its best efforts to obtain
all such authorizations, approvals and consents.
8.7 Necessary Consents. Prior to the Closing, each party hereto will use its
best efforts to obtain such written consents and take such other actions as may
be necessary or appropriate in addition to those set forth in Section 8.6 to
allow the consummation of the transactions contemplated hereby and to allow
such party to carry on its business after the Closing.
8.8 Litigation. Prior to the Closing, each party will notify the other party
in writing promptly after learning of any material actions, suits, proceedings
or investigations by or before any court, board or governmental agency,
initiated by or against it, or known by it to be threatened against it.
8.9 Exclusivity. From the date hereof until the earlier of termination of
this Agreement or consummation of the Merger, the Company will not, directly or
indirectly, through any officer, director, employee, affiliate or agent or
otherwise, take any action to solicit, initiate, seek, entertain, encourage or
support any inquiry, proposal or offer from, furnish any information to, or
participate in any negotiations with, any third party regarding a public
offering of the Company, any acquisition of the Company, any merger or
consolidation with or involving the Company, or any acquisition of any material
portion of the stock or assets of the Company, including the grant of any
license to any intellectual property of the Company other than licenses in the
ordinary course of business related to the sale of the Company's products. The
Company will not accept or enter into any agreement, arrangement or
understanding regarding any such third party acquisition transaction during
such period. In the event the Company receives an unsolicited proposal for any
acquisition transaction, the Board of Directors shall be able to consider such
proposal in accordance with their fiduciary obligations under Delaware law;
provided however, that the Company shall remain fully obligated to carry out
its covenants and agreements under this Agreement, including those set forth in
Sections 8.4 and 8.5, and the parties to the Voting Agreement shall remain
fully bound thereunder.
A-34
<PAGE>
8.10 Satisfaction of Conditions Precedent. Each party will use its best
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Articles VI and VII, and each party will use its best efforts
to cause the transactions contemplated by this Agreement to be consummated,
and, without limiting the generality of the foregoing, to obtain all consents
and authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
8.11 Affiliates. To ensure compliance with Rule 145 of the 1933 Act, the
Company will, prior to the mailing of the Proxy Statement/Prospectus, deliver
to Identix a letter identifying all persons who are "affiliates" of the Company
at the time this Agreement is submitted for approval to the Company's
stockholders. The Company shall use its best efforts to cause each of its
affiliates to deliver to Identix, on or prior to the mailing of the Proxy
Statement/Prospectus, a written agreement (the "Affiliates Agreement"), in form
provided by counsel to Identix, providing that such person will make no
disposition of Identix Common in violation of Rule 145 of the 1933 Act.
8.12 Representations Regarding Tax Matters. Each party will make such
representations as are reasonably requested by counsel to both parties in order
that such counsel may render the tax opinions required by Sections 6.6 and 7.4
hereof.
8.13 Customers and Suppliers. The Company will use its best efforts to keep
and maintain the existing favorable business relationship with its key
customers and suppliers.
8.14 Transferred Employees. The persons identified in Section 3.18 of the
Company Officer-Certified Disclosure Statement are employees or consultants of
Identicator, Inc. and IT Concepts who perform services for Identicator
Technology. To the extent indicated in Section 3.18 of the Company Officer-
Certified Disclosure Statement, the parties intend that such personnel (the
"Transferred Employees") shall become employees of Identicator Technology or
Identix as of the Effective Time. The relationship of the Transferred Employees
with Identicator, Inc. and IT Concepts shall terminate as of the Effective
Time, subject to their becoming employees of Identix or Identicator Technology.
Identicator, Inc. and IT Concepts shall pay such personnel all obligations
accrued to them for their prior service and as a result of such termination
other than accrued personal time disclosed in Section 3.18 of the Company
Officer-Certified Disclosure Statement, which accrued personal time shall
become the responsibility of Identix. Such persons shall become employees of
Identicator Technology or Identix, subject to their signing Identix's standard
employee proprietary rights agreements and offer letters. The Company shall use
its best efforts to promote and effect the transfer of the Transferred
Employees from Identicator, Inc. and IT Concepts to Identicator Technology or
Identix. Identix agrees to provide the Transferred Employees with credit for
all service with the Company, IT Concepts and Identicator, Inc. for purposes of
vesting and eligibility under Identix's employee benefit plans to the extent
permitted by such plans. To the extent that such plans do not permit credit for
service, Identix shall use its best efforts to provide comparable value to such
Transferred Employees.
8.15 Proxy Statement/Prospectus and S-4. None of the information relating to
the Company and its Subsidiaries or their respective officers and directors
that has been or will be supplied by the Company for inclusion or incorporation
by reference in the Proxy
A-35
<PAGE>
Statement/Prospectus or the S-4 will, in the case of the Proxy
Statement/Prospectus or any amendments or supplements thereto, at the time of
the mailing of the Proxy Statement/Prospectus and any amendments or supplements
thereto, and at the time of the meeting of stockholders of the Company to vote
upon this Agreement, the Merger and related transactions, or, in the case of
the S-4, at the time it becomes effective under the 1933 Act and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event with
respect to the Company, its officers or directors should occur which is or is
required to be described in an amendment or a supplement to the Proxy
Statement/Prospectus or the S-4, such event shall be so described and such
description in such amendment or supplement of such information will not
contain any statement which, at the time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact or omit to state any material fact required to be stated therein or in the
Proxy Statement/Prospectus or the S-4 or necessary to make the statements
therein or in the S-4 or Proxy Statement/Prospectus not false or misleading.
8.16 Proxy Statement/Prospectus and S-4. None of the information relating to
Identix and its Subsidiaries or their respective officers and directors that
has been or will be supplied by Identix for inclusion or incorporation by
reference in the Proxy Statement/Prospectus or the S-4 will, in the case of the
Proxy Statement/Prospectus or any amendments or supplements thereto, at the
time of the mailing of the Proxy Statement/Prospectus and any amendments or
supplements thereto, and at the time of the meeting of stockholders of the
Company to vote upon this Agreement, the Merger and related transactions, or,
in the case of the S-4, at the time it becomes effective under the 1933 Act and
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. If at any time prior to the Effective Time any event
with respect to Identix, its officers or directors should occur which is or is
required to be described in an amendment or a supplement to the Proxy
Statement/Prospectus or the S-4, such event shall be so described and such
description in such amendment or supplement of such information will not
contain any statement which, at the time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact or omit to state any material fact required to be stated therein or in the
Proxy Statement/Prospectus or the S-4 or necessary to make the statements
therein or in the S-4 or Proxy Statement/Prospectus not false or misleading.
ARTICLE IX
CONFIDENTIALITY COVENANT AND ANNOUNCEMENTS
9.1 Confidentiality. The provisions of the Confidentiality Agreement dated
August 7, 1998 between Identix and the Company shall continue to govern the use
and confidential treatment of information exchanged between the Company and
Identix. If this Agreement is terminated for any reason whatsoever, the terms
of that Confidentiality Agreement shall govern the return or destruction of all
confidential information.
9.2 Announcements. No party to this Agreement shall issue a press release or
other public communication relating to this Agreement, the Certificate of
Merger or the Merger without the
A-36
<PAGE>
prior approval of the other party. Notwithstanding the foregoing, Identix may
make such announcements regarding the Merger as, in the judgment of its
management after consultation with legal counsel, are necessary to comply with
securities laws or American Stock Exchange regulations.
ARTICLE X
INDEMNIFICATION
10.1 Indemnification Relating to Agreement. To the extent and in the manner
set forth in the Escrow Agreement, the Company agrees, and by approval of this
Agreement and the Merger at the special stockholders' meeting of the Company,
the stockholders of the Company agree, that the amounts deposited in escrow
pursuant to Section 2.5 of this Agreement shall be used to defend, indemnify
and hold Identix harmless from and against, and to reimburse Identix with
respect to, any and all losses, damages, liabilities, claims, judgments,
settlements, costs and expenses (including reasonable attorneys' fees) of every
nature (collectively, "Damages") incurred by Identix by reason of or arising
out of or in connection with (i) any breach by the Company of any
representation or warranty of the Company contained in this Agreement or in any
certificate or other document delivered to Identix pursuant to the provisions
of this Agreement, including, without limitation, the Company Officer-Certified
Disclosure Statement, or (ii) the failure, partial or total, of the Company to
perform any agreement or covenant required by this Agreement to be performed by
it. It is expressly agreed that a diminution in the value of the business of
the Company by reason of any of the foregoing shall be deemed a "loss" for
purposes of this Article X.
10.2 Indemnification Relating to S-4. To the extent and in the manner set
forth in the Escrow Agreement, the Company agrees, and by approval of this
Agreement and the Merger at the special stockholders' meeting of the Company,
the stockholders of the Company agree, that the amounts deposited in escrow
pursuant to Section 2.5 of this Agreement shall be used to defend, indemnify
and hold harmless Identix, its officers, directors and agents, its attorneys
and accountants, and each person who controls Identix within the meaning of the
1933 Act, from and against any Damages, insofar as such Damages are incurred by
reason of or arise out of or in connection with any untrue statement or alleged
untrue statement of any material fact contained in the S-4 or in the Proxy
Statement/Prospectus or in any amendment or supplement to any of them, or are
incurred by reason of or arise out of or in connection with the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, insofar as such statement or omission
relates to the Company and is based on information furnished by the Company.
10.3 Escrow. The shares of Identix Common to be deposited in escrow in
accordance with Section 2.5.1 of this Agreement and to be subject to the
provisions of Section 2.5.2 shall constitute an absolute limit on the
obligation of the Company or its stockholders to indemnify and hold Identix
harmless under this Agreement. From and after the Effective Time, the
indemnification remedies and the related escrow contained in this Agreement,
the Escrow Agreement and the agreements referenced in Section 2.5.2, and any
statutory, common law or equitable remedies available to Identix and
Acquisition Sub for fraud, intentional misrepresentation or active concealment
shall be the sole remedies, exclusive of all other statutory or common law
remedies, Identix and Acquisition Sub may have for a breach of a
representation, warranty or covenant under this Agreement (but does not
A-37
<PAGE>
preclude Identix and Acquisition Sub from pursuing any remedies available under
other agreements attached as exhibits hereto or referred to in Section 6.19).
10.4 Limitation. Identix may only make claims under this Article X and the
Escrow Agreement and the agreements referenced in Section 2.5.2 if the amount
of Damages exceed $175,000 in the aggregate, in which case Identix may make a
claim for the full amount of such Damages, including the first $175,000.
ARTICLE XI
TERMINATION
11.1 Mutual Agreement. This Agreement may be terminated at any time prior to
the Effective Time by the unanimous consent of Identix and the Company, even if
and after the stockholders of the Company have approved this Agreement and the
Certificate of Merger.
11.2 Termination by Identix. This Agreement may be terminated by Identix
alone, by means of written notice to the Company if (a) the Company fails to
perform any material covenant of the Company contained in this Agreement, or
(b) on or before February 28, 1999, any of the conditions set forth in Article
VI of this Agreement shall not have been satisfied by the Company or waived by
Identix.
11.3 Termination by the Company. This Agreement may be terminated by the
Company alone, by means of written notice to Identix if (a) Identix fails to
perform any material covenant of Identix contained in this Agreement or (b) on
or before February 28, 1999, any of the conditions set forth in Article VII of
this Agreement shall not have been satisfied by Identix or waived by the
Company.
ARTICLE XII
MISCELLANEOUS
12.1 Expenses. Each of Identix and the Company shall pay its own costs and
expenses, including legal, accounting and investment banking fees and expenses,
relating to this Agreement, the negotiations leading up to this Agreement and
the transactions contemplated by this Agreement.
12.2 Amendment. This Agreement shall not be amended except by a writing duly
executed by both parties.
12.3 Entire Agreement. This Agreement, including the Exhibit, Schedules, and
other documents delivered pursuant to this Agreement, contains all the terms
and conditions agreed upon by the parties relating to the subject matter of
this Agreement and supersedes all prior agreements, negotiations,
correspondence, undertakings, and communications of the parties, whether oral
or written, respecting that subject matter, except the Confidentiality
Agreement between the Company and Identix dated August 7, 1998.
12.4 Governing Law. Except to the extent that the DGCL shall be applicable
to the Merger, the approval of the Merger and the other internal corporate
affairs of the parties, this Agreement shall be governed by and construed in
accordance with the laws of the State of California as applied to agreements
entered into by California residents and entirely to be performed within
California.
A-38
<PAGE>
12.5 Headings. The headings contained in this Agreement are intended for
convenience and shall not be used to determine the rights of the parties.
12.6 Mutual Contribution. The parties to this Agreement and their counsel
have mutually contributed to its drafting.
12.7 Notices. All notices, requests, demands, and other communications made
in connection with this Agreement shall be in writing and shall be deemed to
have been duly given on the date of delivery if delivered by hand delivery or
by facsimile to the persons identified below, one business day after depositing
with an overnight courier, or five days after mailing if mailed by certified or
registered mail postage prepaid return receipt requested addressed as follows:
If to Identix:
Identix Incorporated
510 N. Pastoria Ave.
Sunnyvale, CA 94086
Attn: James P. Scullion and Richard Friedman
Facsimile: (408) 739-0178
Confirmation Number: (408) 731-2000
With a copy to:
Heller, Ehrman, White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Attention: SAO File: 17506-0001
Facsimile: (650) 324-0638
Confirmation Number: (650) 324-7000
If to the Company:
IDT Holdings, Inc.
1150 Bayhill Road
San Bruno, CA 94066
Attention: President
Facsimile: (650) 873-8653
Confirmation Number: (650) 873-8650
With a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place, 2200 Geng Road
Palo Alto, CA 94303
Attention: Thomas W. Kellerman
Facsimile: (650) 496-2885
Confirmation Number: (650) 424-0160
Such addresses may be changed, from time to time by means of a notice given in
the matter provided in this section.
A-39
<PAGE>
12.8 Severability. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent.
12.9 Survival of Representation and Warranties. All representations and
warranties contained in this Agreement, including the Exhibits, Schedules and
other documents delivered pursuant to this Agreement shall survive the
Effective Time for a period of one year.
12.10 Waiver. Waiver of any term or condition of this Agreement by any party
shall not be construed as a waiver of a subsequent breach or failure of the
same term or condition, or a waiver of any other term or condition in this
Agreement.
12.11 Assignment. Except for the contemplated reincorporation of Identix as
described under the definition of "Identix" in Article I, neither party may
assign, by operation of law or otherwise, all or any portion of its rights or
duties under this Agreement without the prior written consent of the other
party, which consent may be withheld in the absolute discretion of the party
asked to give consent.
12.12 Counterparts. This Agreement may be signed in counterparts with the
same effect as if the signatures to each party were upon a single instrument.
All counterparts shall be deemed an original of this Agreement.
12.13 Voting Agreement. Concurrently with the execution of this Agreement,
IT Concepts and each director of the Company, which stockholders collectively
own approximately 70% of the shares of outstanding Company Common, shall enter
into the Stockholder Voting and Proxy Agreement in the form attached hereto as
Exhibit F, pursuant to which, among other things, they shall agree to vote all
the shares of Company capital stock held by them in favor of the Merger (the
"Voting Agreement").
12.14 Other Remedies. Except as specifically noted above, no remedies
contained in this Agreement or in any of the Exhibits or Schedules hereto shall
be in lieu of, or constitute a waiver of, any remedies at law or in equity (not
based upon negligent misrepresentation) that one party may otherwise have
against the other party hereto or against any present or former officer,
director or controlling stockholder of such party.
12.15 Continuation of Business of the Company. Identix hereby covenants and
agrees that it shall continue to operate the business of the Company as a
separate division or subsidiary for a period of at least nine months from the
Effective Time.
A-40
<PAGE>
IN WITNESS WHEREOF, Identix, Acquisition Sub and the Company have executed
this Agreement as of the date first above written.
IDENTIX INCORPORATED
By: /s/ Randall C. Fowler
----------------------------------
Title: Chairman, President and CEO
--------------------------------
ID ACQUISITION CORP.
By: /s/ Randall C. Fowler
----------------------------------
Title: President
--------------------------------
IDT HOLDINGS, INC.
By: /s/ Oscar R. Pieper
----------------------------------
Title: President
---------------------------------
List of Exhibits
<TABLE>
<C> <S>
Exhibit A Escrow Agreement
Exhibit B Opinion of Brobeck, Phleger & Harrison LLP
Exhibit C Noncompetition Agreement
Exhibit D Employment Agreement
Exhibit E Opinion of Heller Ehrman White & McAuliffe
Exhibit F Stockholder Voting and Proxy Agreement
</TABLE>
[Signature Page to the Agreement and Plan of Reorganization and Merger]
A-41
<PAGE>
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 ("Amendment") is entered into as of December 11, 1998
by and among Identix Incorporated, a California corporation, IDT Holdings, Inc,
a Delaware corporation, and ID Acquisition Corp., a Delaware corporation, and
amends the Agreement and Plan of Reorganization and Merger, dated November 14,
1998, by and among the parties hereto (the "Agreement"). Capitalized terms used
herein without definition shall have the meanings given to them in the
Agreement.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Article III. The first paragraph of Article III of the Agreement is
hereby amended and restated in its entirety effective as of the execution of
the Agreement to provide as follows:
"Any disclosure delivered by the Company to Identix pursuant to this
Article shall have been delivered on or prior to the date hereof and
certified by an officer of the Company as true, accurate and complete,
shall specifically refer to this Agreement and shall identify the Section
of this Agreement requiring the delivery of such disclosure (such
disclosure being referred to herein as an "Company Officer-Certified
Disclosure Statement"). For the purposes of this Article III, references
to the "Company" shall include IDT Holdings, as well as Identicator
Technology and Identicator Corp. For purposes of this Article III, any
references to the Company's "knowledge" means actual knowledge of the
persons identified in Section 3.0 of the Company Officer-Certified
Disclosure Statement as well as information contained in the files or
records of IDT Holdings, Identicator Technology, Identicator Corp.,
Identicator, Inc. or IT Concepts. Except as set forth in the Company
Officer-Certified Disclosure Statement, the Company represents and
warrants to Identix that:"
2. Section 3.4. The reference to "1,994,334" in the fifth sentence of
Section 3.4 of the Agreement is hereby corrected to read "1,944,334."
3. Section 6.5. Section 6.5 of the Agreement is hereby amended in its
entirety to provide as follows: "The aggregate number of Dissenting Shares
shall not exceed five percent of the aggregate number of shares of Identix
Common that would be issued pursuant to the Merger at the Effective Time if
there were no Dissenting Shares."
4. Sections 11.2 and 11.3. The references to "February 28, 1999" in Sections
11.2 and 11.3 of the Agreement are hereby amended to read "March 31, 1999."
5. Continuing Effect. The parties hereby acknowledge and agree that the
Agreement, as amended by this Amendment, continues in full force and effect.
A-42
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
IDENTIX INCORPORATED
By: /s/ James P. Scullion
----------------------------------
Title: Executive Vice President
--------------------------------
ID ACQUISITION CORP.
By: /s/ James P. Scullion
----------------------------------
Title: Vice President
--------------------------------
IDT HOLDINGS, INC.
By: /s/ Oscar Pieper
----------------------------------
Title: President
--------------------------------
A-43
<PAGE>
AMENDMENT NO. 2 TO
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 2 ("Amendment") is entered into as of February 3, 1999 by
and among Identix Incorporated, a Delaware corporation, IDT Holdings, Inc., a
Delaware corporation, and ID Acquisition Corp., a Delaware corporation, and
amends the Agreement and Plan of Reorganization and Merger, dated November 14,
1998 and amended on December 11, 1998, by and among the parties hereto (the
"Agreement"). Capitalized terms used herein without definition shall have the
meanings given to them in the Agreement.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Sections 11.2 and 11.3. The references to "March 31, 1999" in Sections
11.2 and 11.3 of the Agreement are hereby amended to read "April 30, 1999."
2. Continuing Effect. The parties hereby acknowledge and agree that the
Agreement, as amended by this Amendment, continues in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
IDENTIX INCORPORATED
/s/ Randall C. Fowler
By: _________________________________
Title: Chairman, President CEO
ID ACQUISITION CORP.
/s/ Randall C. Fowler
By: _________________________________
Title: President
IDT HOLDINGS, INC.
/s/ Oscar R. Pieper
By: _________________________________
Title: President
A-44
<PAGE>
APPENDIX B
STOCKHOLDER VOTING AND PROXY AGREEMENT
STOCKHOLDER VOTING AND PROXY AGREEMENT, dated as of November 14, 1998, (this
"Agreement") among Identix Incorporated, a California corporation ("Parent"),
ID Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and each other person and entity listed on the signature pages
hereof (each, a "Stockholder").
BACKGROUND
A. As of the date hereof, each Stockholder owns of record the number of
shares of common stock (the "Common Stock"), of IDT Holdings, Inc., a Delaware
corporation (the "Company"), set forth opposite such Stockholder's name on
Exhibit A hereto (all such shares, together with all shares of Common Stock of
the Company which are hereafter acquired by the Stockholders, being referred to
herein as the "Shares").
B. Parent, Sub and the Company have entered into an Agreement and Plan of
Reorganization and Merger dated as of the date hereof (the "Merger Agreement"),
which provides, upon the terms and subject to the conditions set forth therein,
for the merger of Sub with and into the Company (the "Merger"); and
C. As a condition to the willingness of Parent and Sub to enter into the
Merger Agreement and in furtherance of the acquisition of the Company by
Parent, Parent and Sub have required that the Stockholders agree, and in order
to induce Parent and Sub to enter into the Merger Agreement, each Stockholder
has agreed, severally and not jointly, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
TRANSFER AND VOTING OF SHARES
Section 1.1. Voting Agreement. Each Stockholder hereby agrees that from the
date hereof to the earlier to occur of the termination of the Merger Agreement
or the effective date of the Merger (in either case, the "Termination Date"),
at any meeting of the Stockholders of the Company, however called, and in any
action by consent of the Stockholders of the Company, such Stockholder shall
vote the Shares; (A) in favor of the Merger, the Merger Agreement (as amended
from time to time, provided that any amendment that could have a material
adverse effect on a Stockholder must be approved by the Stockholder in order
for this Agreement to continue to bind the Stockholder) and the transactions
contemplated by the Merger Agreement and (B) against any proposal for any
recapitalization, merger (other than the Merger), sale of assets or other
business combination between the Company and any person or entity (other than
Parent or Sub) or any other action or agreement that would result in a breach
of any covenant, representation or warranty or any other obligation or
B-1
<PAGE>
agreement of the Company under the Merger Agreement or which would result in
any of the conditions to the Merger Agreement not being fulfilled.
Section 1.2. No Disposition or Encumbrance of Shares and Options. Each
Stockholder hereby covenants and agrees that, from the date hereof to the
Termination Date, it shall not, and shall not offer or agree to, sell,
transfer, tender, assign, hypothecate or otherwise dispose of, or create or
permit to exist any pledge, lien, security interest, mortgage, charge, claim,
option, proxy, voting restriction, limitation on disposition, adverse claim of
ownership or use or encumbrance of any kind on the Shares or options to acquire
Company Common Stock owned by such Stockholder, unless such disposition or
encumbrance (a) is either (i) made subject to the written assumption of
Stockholder's obligations hereunder, or (ii) specifically required by court
order or by operation of law, and (b) does not detrimentally effect the ability
of Identix to carry out the purpose of this Agreement.
Section 1.3. Voting of Shares; Further Assurances.
(a) Each Stockholder, by this Agreement, with respect to its Shares, does
hereby constitute and appoint Sub and Parent, or any nominee of Sub and Parent,
with full power of substitution, from the date hereof to the Termination Date,
as its true and lawful attorney and proxy (its "Proxy"), for and in its name,
place and stead, to vote each of such Shares as its Proxy, at every annual,
special or adjourned meeting of the Stockholders of the Company, including the
right to sign its name (as stockholder) to any consent, certificate or other
document relating to the Company that the law of the State of Delaware may
permit or require: (i) in favor of the Merger, the Merger Agreement (as amended
from time to time, provided that any amendment that could have a material
adverse effect on a Stockholder must be approved by the Stockholder in order
for this Agreement to continue to bind the Stockholder) and the transactions
contemplated by the Merger Agreement; and (ii) against any proposal for any
recapitalization, merger (other than the Merger), sale of assets or other
business combination between the Company and any person or entity (other than
Parent or Sub) or any other action or agreement that would result in a breach
of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement or which could result in
any of the conditions to the Merger Agreement not being fulfilled.
(b) THIS POWER OF ATTORNEY IS IRREVOCABLE, IS GRANTED IN CONSIDERATION OF
PARENT AND SUB ENTERING INTO THE MERGER AGREEMENT AND IS COUPLED WITH AN
INTEREST SUFFICIENT IN LAW TO SUPPORT AN IRREVOCABLE POWER.
(c) This appointment shall revoke all prior attorneys and proxies appointed
by any Stockholder at any time with respect to the Shares and no subsequent
attorneys or proxies will be appointed by such Stockholder, or be effective,
with respect thereto during the term of the Proxy granted pursuant to this
Section 1.3.
(d) Each Stockholder shall perform such further acts and execute such
further documents and instruments as may reasonably be required to vest in Sub
and Parent the power to carry out and give effect to the provisions of this
Agreement.
B-2
<PAGE>
Section 1.4. Legends.
(a) Each Stockholder shall instruct the Company to cause each certificate of
any Stockholder evidencing the Shares to bear a legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE TERMS
AND CONDITIONS OF THE STOCKHOLDER VOTING AND PROXY AGREEMENT DATED AS OF
NOVEMBER 6, 1998, AS IT MAY BE AMENDED, AMONG IDENTIX INCORPORATED, ID
ACQUISITION CORP. AND THE REGISTERED HOLDER OF THIS CERTIFICATE, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER.
(b) In the event that the Shares shall cease to be subject to the
restrictions on transfer set forth in this Agreement, the Company shall, upon
the written request of the holder thereof, issue to such holder a new
certificate evidencing such Shares without the legend required by Section
1.4(a).
ARTICLE II
COVENANTS OF STOCKHOLDERS
Section 2.1 No Solicitation Of Transactions. Each Stockholder covenants and
agrees that in its capacity as a Stockholder of the Company it shall not during
the term of this Agreement, directly or indirectly, take any action to solicit,
initiate, seek, entertain, encourage or support any inquiry, proposal or offer
from, furnish any information to, or participate in any negotiations with, any
third party regarding a public offering of the Company, any acquisition of the
Company, any merger or consolidation with or involving the Company, or any
acquisition of any material portion of the stock or assets of the Company,
including the grant of any license to any intellectual property of the Company
other than licenses in the ordinary course of business related to the sale of
the Company's products. The Stockholder will promptly communicate to Parent any
solicitation received by it in its capacity as a Stockholder of the Company
with respect to any of the foregoing and the terms of such proposal or inquiry,
including the identity of the person and its affiliates making the same, that
it may receive in respect of any such transaction, or of any such information
requested from it or of any such negotiations or discussions being sought to be
initiated with it.
Section 2.2. Negative Covenants. Each Stockholder agrees not to prior to the
Termination Date:
(a) sell, transfer, pledge, assign or otherwise dispose of, or enter into
any contract, option or other arrangement with respect to the sale, transfer,
pledge, assignment or other disposition of, the Shares or options to acquire
Company Common Stock owned by such Stockholder to any person other than Parent
or Parent's designee; or
(b) deposit any Shares into a voting trust or grant a proxy or enter into a
voting agreement with respect to any Shares, except for this Agreement.
B-3
<PAGE>
ARTICLE III
MISCELLANEOUS
Section 3.1. Notices. All notices or other communications under this
Agreement shall be in writing and shall be given by delivery in person, by
facsimile, cable, telegram, telex or other standard form of telecommunications,
or by registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to Parent: Identix Incorporated
510 N. Pastoria Ave.
Sunnyvale, CA 94086
Attn: James P. Scullion and
Richard Friedman
Facsimile: (408) 739-0178
with a copy to: Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Attn: SAO File 17506-0001
Facsimile: (650) 324-0638
If to a Stockholder:at the address or facsimile number of such
Stockholder set forth on Exhibit A
with a copy to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place, 2200 Geng Road
Palo Alto, CA 94303
Attn: Thomas W. Kellerman
Facsimile: (650) 496-2885
(or such other address for a party as shall be specified in a notice given in
accordance with this Section 3.1) and shall be deemed to have been given one
business day after transmission by facsimile, cable, telegram, telex of other
standard form of telecommunications, one business day after deposit with a
nationally recognized overnight courier or four days after deposit in the U.S.
mail.
Section 3.2. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
Section 3.3. Entire Agreement. This Agreement and any documents delivered by
the parties in connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
B-4
<PAGE>
Section 3.4. Assignment, Binding Effect. Except as specifically permitted
herein, neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties,
except that Parent or Sub may assign all or any of their rights and obligations
hereunder to any affiliate of Parent (including by operation of law in
connection with the reincorporation of Parent in Delaware). Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Section 3.5. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
was not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any Delaware court (without the
necessity of posting a bond), this being in addition to any other remedy to
which they are entitled at law or in equity.
Section 3.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to its rules of conflict of laws.
Section 3.7. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 3.8. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
B-5
<PAGE>
IN WITNESS WHEREOF, Parent and Sub have caused this Agreement to be executed
by its officers thereunto duly authorized and each Stockholder has caused this
Agreement to be executed, or duly executed by an authorized signatory, all as
of the date first written above.
IDENTIX INCORPORATED
By: /s/ James P. Scullion
----------------------------------
Title: Executive Vice President
--------------------------------
ID ACQUISITION CORP
By: /s/ James P. Scullion
----------------------------------
Title: Executive Vice President
---------------------------------
/s/ Yuri Khidekel
---------------------------------------
By: Yuri Khidekel
/s/ Yury Shapiro
--------------------------------------
By: Yuri Shapiro
INTERNATIONAL TECHNOLOGY CONCEPTS, INC.
/s/ Yuri Khidekel
---------------------------------------
By: Yuri Khidekel
Title: Vice President
[Entity Stockholder]
By:
------------------------------------
Title:
----------------------------------
/s/ Harry F. Camp
--------------------------------------
[Individual Stockholder]
[Entity Stockholder]
By:
------------------------------------
Title:
----------------------------------
/s/ Oscar Pieper
--------------------------------------
[Individual Stockholder]
B-6
<PAGE>
Exhibit A
List of Stockholders
<TABLE>
<CAPTION>
Name and address Shares of Common Options to Purchase
of Stockholder Stock Held Common Stock Held
-------------------------------------- ---------------- -------------------
<S> <C> <C>
Harry F. Camp
1100 Sacramento St. #302
San Francisco, CA 94108 300,200 255,667
Oscar Pieper
1150 Bayhill Dr. #215
San Bruno, CA 94066 263,100 299,000
International Technology Concepts, Inc.
11501 Dublin Blvd.
Suite 101
Dublin, CA 94568 1,358,881
Yuri Khidekel
11501 Dublin Blvd.
Suite 101
Dublin, CA 94568 194,650
Yury Shapiro
11501 Dublin Blvd.
Suite 101
Dublin, CA 94568 159,292
</TABLE>
B-7
<PAGE>
APPENDIX C
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Escrow Agreement") is made as of , 1999
among Identix Incorporated, a Delaware corporation ("Identix"); Harry F. Camp
(the "Representative"); and U.S. Bank Trust National Association, Global Escrow
Depository Services ("Escrow Holder").
BACKGROUND
A. Pursuant to an Agreement and Plan of Reorganization and Merger (the
"Agreement") dated as of November , 1998, among Identix, ID Acquisition Corp,
a Delaware corporation and a wholly-owned subsidiary of Identix ("Acquisition
Corp"), and IDT Holding, Inc., a Delaware corporation (the "Company"),
Acquisition Corp will be merged with and into the Company and the Company will
be the surviving corporation and become a wholly-owned subsidiary of Identix
(the "Merger").
B. This Escrow Agreement is being entered into pursuant to Section 2.5 and
Article X of the Agreement. Execution and delivery of this Escrow Agreement is
a condition to the obligations of the parties to the Agreement to consummate
the Merger.
C. As set forth in Section 2.5.1 of the Agreement, by their approval of the
Agreement and the Merger, the holders of shares of the common stock of the
Company have authorized the Representative to act as the representative of
those persons who, immediately prior to the effective time of the Merger, are
holders (the "Former Stockholders") of shares of the common stock of the
Company (other than holders of "dissenting shares" within the meaning of
Section 1300(b) of the California Corporations Code or shares for which
appraisal rights have been perfected in accordance with Section 262 of the
Delaware General Corporation Law) under this Escrow Agreement with the powers
and authority provided herein.
D. Pursuant to the Agreement, the shares of the common stock of the Company
that are outstanding immediately prior to the effective time of the Merger,
other than dissenting shares, will be converted into shares of the common stock
of Identix.
E. Section 2.5.1 of the Agreement provides that at the effective time of the
Merger, certain of the shares of the common stock of Identix issued in the
Merger shall be delivered on behalf of the Former Stockholders to the Escrow
Holder in order to secure the indemnification obligations of the Company set
forth in Article X of the Agreement.
THE PARTIES AGREE AS FOLLOWS:
ARTICLE I DEFINITIONS
Unless otherwise defined herein, capitalized terms used herein shall have
the meanings set forth in the Agreement. In addition, for the purposes of this
Escrow Agreement, the following terms shall have the following meanings:
C-1
<PAGE>
1.1 Claim Certificate. "Claim Certificate" shall mean a certificate signed
by an officer of Identix stating (i) that an Indemnified Person has incurred or
reasonably believes it may in the future incur the amount of Damages specified
in such Claim Certificate, (ii) in reasonable detail, the facts alleged as the
basis for such claim and the section or sections of the Agreement alleged to
have been violated, and (iii) the number of Escrowed Shares to which Identix
believes the Indemnified Person is entitled with respect to such Damages.
1.2 Damages. "Damages" shall mean any and all losses, damages, liabilities,
claims, judgments, settlements, costs and expenses (including reasonable
attorneys' fees) of the type referred to in Article X of the Agreement.
1.3 Escrow Fund. "Escrow Fund" shall mean the Escrowed Shares then held by
the Escrow Holder.
1.4 Escrowed Share. An "Escrowed Share" shall mean a share of Identix Common
delivered to the Escrow Holder by the Exchange Agent on behalf of the Former
Stockholders in accordance with Section 2.5 of the Agreement, together with any
and all other shares of Identix Common, other securities of Identix or any
other issuer, other property or cash received or receivable in respect of such
share of Identix Common (other than ordinary cash dividends), including,
without limitation, any and all securities, property or cash (other than
ordinary cash dividends) to be issued or distributed in connection with any
recapitalization, reclassification, split-up, merger, consolidation, exchange,
stock dividend, stock split or similar event declared or effected with respect
to such share of Identix Common.
1.5 Indemnified Person. "Indemnified Person" shall mean Identix and any
other entity or person who is a beneficiary of the indemnification obligations
of the Company contained in Article X of the Agreement.
1.6 Value. "Value," when used with respect to an Escrowed Share, shall mean
the average closing price of the Identix common stock on the American Stock
Exchange for a period of 21 trading days commencing on the 10th trading day
before the date of this Escrow Agreement and ending on the 10th trading day
after the date of this Agreement, as adjusted for stock splits, stock
dividends, recapitalizations and the like.
ARTICLE II
CREATION OF ESCROW
2.1 Purpose. This Escrow Agreement is being executed and delivered, and the
deposit of the Escrow Fund hereunder is being made, for the purpose of securing
the indemnification obligations of the Company and the Former Stockholders set
forth in Article X of the Agreement.
2.2 Creation of Escrow Fund. At or promptly after the Effective Time, the
Representative shall instruct the Exchange Agent to deposit with the Escrow
Holder certificates representing those shares of Identix Common required to be
so deposited under Section 2.5 of the Agreement. Identix and the Former
Stockholders agree that any other securities, property or cash which thereafter
are to become part of the Escrow Fund as provided in Section 1.4 of this Escrow
C-2
<PAGE>
Agreement, shall be promptly deposited with the Escrow Holder upon receipt by
or on behalf of the Former Stockholders, and receipt by the Escrow Holder on
behalf of the Former Stockholders shall be deemed receipt by the Former
Stockholders. Certificates representing securities deposited in the Escrow Fund
shall be accompanied by separate stock powers endorsed in blank by the
Representative on behalf of the Former Stockholders.
2.3 Voting Rights. The Former Stockholders shall retain their voting rights
with respect to securities held by the Escrow Holder unless and until such
securities are delivered by the Escrow Holder to Identix in accordance with
this Agreement.
2.4 Ordinary Cash Dividends. If Identix pays an ordinary cash dividend on
the Identix Common during the term hereof, such dividends payable shall be paid
by Identix directly to the Former Stockholders and not included in the Escrow
Fund.
2.5 Income Tax Treatment. For income tax purposes, Identix and the Former
Stockholders shall treat the Escrowed Shares as if they had been constructively
received by the Former Stockholders and then placed into the Escrow Fund by the
Former Stockholders.
ARTICLE III
CLAIMS
3.1 Payment After Delivery of Claim Certificate. If Identix gives the Escrow
Holder and the Representative a Claim Certificate, then, as soon as practicable
but not earlier than 45 days after the giving of such Claim Certificate, the
Escrow Holder, subject to the requirements of Section 3.2 hereof, shall deliver
to Identix, from the Escrow Fund, on behalf of the Indemnified Person that
number of Escrowed Shares having a Value (to the extent the Escrow Fund is
sufficient for such purpose) equal to the Damages specified in such Claim
Certificate.
3.2 Disputes Respecting Claims. Unless, within 45 days after the giving of
any Claim Certificate by Identix, Identix and the Escrow Holder receive a
written notice from the Representative stating that the Representative
questions the accuracy of a matter asserted in such Claim Certificate, such
Claim Certificate shall constitute full authority to the Escrow Holder to take
the action provided for in Section 3.1 and shall be conclusive and binding on
all parties hereto and on the Former Stockholders. If, however, the
Representative timely gives such a notice, the Escrow Holder shall not make any
distribution to Identix of that portion of the Escrow Fund which the
Representative asserts in his notice should not be so distributed until (i) the
Escrow Holder receives the written consent of the Representative and Identix to
such distribution or (ii) there is a final decision of a court of competent
jurisdiction in an action between Identix and the Representative with respect
to the disputed amount. For this purpose, a final decision shall mean the final
judgment of any court of competent jurisdiction from which no appeal is then
allowed or a final decision of an arbitrator under an arrangement providing for
no appeal of such decision. The reasonable expenses, including attorneys' fees,
of all of the parties to any such lawsuit or proceeding shall be reasonably
apportioned among them, taking into consideration the outcome of the lawsuit or
proceeding and the reasonableness of the conduct of each such party in
connection with the dispute over the disposition of that portion of the Escrow
Fund which was in controversy, in light of the facts known to such party at the
time such party engaged in such conduct. Any and all amounts payable to Identix
or any
C-3
<PAGE>
other Indemnified Person pursuant to the preceding sentence shall be paid out
of the Escrow Fund as though it were an item of Damages.
3.3 Notice and Defense of Third Party Claims. No later than 15 days after
receipt by Identix of a written notice of any action, suit, audit or proceeding
commenced against Identix or the Company which might be a basis for
indemnification under Article X of the Agreement, Identix will give the
Representative written notice thereof and will afford them an opportunity to
defend such action, suit, audit or proceeding on behalf of the Former
Stockholders, at the expense of the Representative or the Former Stockholders,
provided that Identix may participate in the control of such defense. No
Indemnified Person shall settle claims subject to this Escrow Agreement without
the prior written consent of the Representative, which consent will not be
unreasonably withheld.
ARTICLE IV
DISTRIBUTION OF ESCROW FUND
4.1 Distribution of Undisputed Amounts. Subject to Section 4.2 hereof, on
the date one year after the date of this Escrow Agreement (the "Escrow
Termination Date") the Escrow Holder shall promptly distribute the entire
remaining Escrow Fund to the Representative for the benefit of the Former
Stockholders, or to the Former Stockholders if and as the Representative shall
direct, pro rata according to the number of shares of Company Common held by
the Former Stockholders at the Effective Time.
4.2 Distribution of Disputed Amounts. Notwithstanding the provisions of
Section 4.1 hereof, if, prior to the Escrow Termination Date, Identix shall
have given a Claim Certificate to the Representative and the Escrow Holder and
a dispute, in accordance with Section 3.2 hereof, respecting that Claim
Certificate or the subject matter of such Claim Certificate has not yet been
resolved in accordance with Section 3.2, then the Escrow Holder shall continue
to hold that portion of the Escrow Fund which is the subject of such dispute.
Any portion of the Escrow Fund so withheld shall continue to be held by the
Escrow Holder until it receives authorization to distribute the portion of the
Escrow Fund so withheld in accordance with the second sentence of Section 3.2.
4.3 Dispute Resolution. It is the intention of the parties that if a dispute
arises with respect to a Claim Certificate issued by Identix, that such dispute
be resolved in an expeditious manner. Accordingly, within 10 days of the
issuance by the Representative of a notice disputing a Claim Certificate, the
Representative and an executive officer of Identix shall meet to resolve the
dispute and shall use their good faith efforts to resolve the dispute over the
next 20 days. If no resolution is reached after such 20-day period, either
party may immediately request arbitration of such dispute. The parties shall
negotiate in good faith to agree on an expedited binding arbitration procedure
to resolve such dispute. If the parties in 15 days cannot agree in writing to
such a procedure, either party may cause the dispute to immediately go into
binding arbitration before one arbitrator who is a lawyer knowledgeable and
experienced with respect to the issues being arbitrated in accordance with the
commercial arbitration rules of the American Arbitration Association in San
Francisco County, San Mateo County or Santa Clara County, California. The costs
of the arbitrator and the arbitration proceeding (other than attorney's fees)
shall be apportioned among the parties inversely in accordance with the
percentage of the amount claimed in the Claim Certificate that is
C-4
<PAGE>
actually awarded to Identix by the arbitrator. Notwithstanding the foregoing
provisions, if a Claim Certificate is issued by Identix with respect to an
ongoing action, suit, audit or proceeding commenced against Identix or the
Company, then the dispute resolution mechanism set forth in this Section 4.3
shall not commence until the final adjudication or settlement of such action,
suit, audit or proceeding.
ARTICLE V
ESCROW HOLDER
The "General Provisions Regarding Corporate Escrow Agreements" attached
hereto as Exhibit A are incorporated herein by reference.
ARTICLE VI
REPRESENTATIVE
6.1 Action by Representative. The Representative shall have full power and
authority to represent all Former Stockholders with respect to all matters
arising under this Escrow Agreement and with respect to the obligations set
forth in Article X of the Agreement. All action taken by the Representative
hereunder shall be binding upon the Former Stockholders as if expressly
confirmed and ratified in writing by each of them. Without limiting the
generality of the foregoing, the Representative shall have full power and
authority on behalf of all of the Former Stockholders to interpret all the
terms and provisions of this Escrow Agreement, to give all approvals and take
any other actions with respect to the Former Stockholders in connection with
the subject matter of this Agreement and to consent to any amendment hereof.
All action to be taken by the Representative shall be conclusive and binding
upon all of the Former Stockholders. Identix may deal solely with and rely
solely upon the Representative as the representative of all the Former
Stockholders.
6.2 Successor Representative. In case of the resignation, death or inability
to act of the Representative, a successor or successors shall be named by a
majority in interest of the Former Stockholders or if any such vacancy shall
not be filled within 25 business days, by the Escrow Holder. Each such
successor Representative shall have all of the power, authority, rights and
privileges hereby conferred upon an original Representative, and the term
"Representative" as used herein shall be deemed to include each such successor
Representative.
6.3 Limitation of Liability. The Representative shall incur no liability to
the Former Stockholders except by reason of his willful misconduct or gross
negligence.
6.4 Posting Bond; Compensation. The Representative shall not be required to
post a bond for the performance of services hereunder and shall receive no
compensation for the performance of services, other than the reimbursement for
out-of-pocket expenses, attorneys fees and any costs of arbitration borne by
the Company hereunder which it may recover from the Escrow Fund (i) in an
amount up to $100,000 at any time prior to the satisfaction of any claims made
by Identix hereunder, and (ii) in any remaining amount upon the termination of
this Escrow Agreement after satisfaction of any claims made by Identix
hereunder.
C-5
<PAGE>
ARTICLE VII
MISCELLANEOUS
7.1 Notices. Except as expressly provided in this Escrow Agreement, all
notices (including any Claim Certificate) given in connection with this Escrow
Agreement shall be deemed to have been duly given on the date of delivery if
personally delivered, one business day after deposit with a nationally
recognized overnight courier or three days after mailing if mailed by certified
or registered mail, return receipt requested, addressed as follows:
If to Identix:
Identix Incorporated
510 N. Pastoria Ave.
Sunnyvale, California 94086
Attention: President and General Counsel
With a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Attention: SAO File 17506-0001
If to the Representative:
Harry F. Camp
1100 Sacramento Street, #302
San Francisco, CA 94108
With a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place, 2200 Geng Road
Palo Alto, CA 94303
Attention: Thomas W. Kellerman
If to the Escrow Holder:
U.S. Bank Trust National Association
Global Escrow Depository Services #SANF0527
One California Street, 4th Floor
San Francisco, CA 94111
Attn: Cora Murphy
Such addresses may be changed from time to time by means of a notice given in
the manner provided in this Section 7.1.
7.2 Successors and Assigns. Neither the Escrow Holder nor the Representative
may assign, by operation of law or otherwise, all or any portion of its or
their rights, obligations or
C-6
<PAGE>
liabilities under this Escrow Agreement without the prior written consent of
Identix, which consent may be withheld in the absolute discretion of Identix.
The foregoing sentence is not intended to limit the right of the Former
Stockholders to appoint a successor Representative pursuant to Section 6.2. Any
attempted assignment in violation of this Section 7.2 shall be voidable. This
Escrow Agreement and all action taken hereunder in accordance with its terms
shall be binding upon and inure to the benefit of Identix and the other
Indemnified Persons and their respective successors, assigns, heirs, executors,
administrators and legal representatives, the Former Stockholders and their
respective successors, assigns, heirs, executors, administrators and legal
representatives, the Escrow Holder and its successors and the Representative
and their successors, assigns, heirs, executors, administrators and legal
representatives.
7.3 Headings. The headings contained in this Escrow Agreement are intended
principally for convenience and shall not, by themselves, determine the rights
of the parties to this Escrow Agreement.
7.4 Waiver. Waiver of any term or condition of this Escrow Agreement by any
party shall not be construed as a waiver of a subsequent breach or failure of
the same term or condition, or a waiver of any other term or condition of this
Escrow Agreement.
7.5 Governing Law. This Escrow Agreement shall be governed by, and construed
in accordance with, the laws of the State of California as applied to
agreements entered into and entirely to be performed within the state.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be signed the day and year first above written.
IDENTIX: Identix Incorporated
By:
-----------------------------------
Title:
----------------------------------
REPRESENTATIVE:
---------------------------------------
Harry F. Camp
ESCROW HOLDER:
U.S. Bank Trust National Association
Global Escrow Depository Services
By:
-----------------------------------
Title:
----------------------------------
C-7
<PAGE>
APPENDIX D
DELAWARE GENERAL CORPORATION CODE APPRAISAL RIGHTS
SECTION 262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S)228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to (S)(S)251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national
D-1
<PAGE>
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a. b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such
notice shall be
D-2
<PAGE>
given by the surviving or resulting corporation to all such holders of any
class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholder's of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such effective date. If
no record date is fixed and the notice is given prior to the effective date,
the record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholder's. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 120 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with
D-3
<PAGE>
whom agreements as to the value of their shares have not been reached by the
surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
D-4
<PAGE>
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-5
<PAGE>
APPENDIX E
CHAPTER 13
GENERAL CORPORATION LAW OF CALIFORNIA
DISSENTERS' RIGHTS
SECTION 1300. RIGHT TO REQUIRE PURCHASE; "DISSENTING SHARES" AND
"DISSENTING SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of such corporation entitled to
vote on the transaction, and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as
defined in subdivision (b). The fair market value shall be determined as of the
day before the first announcement of the terms of the proposed reorganization
or short-form merger, excluding any appreciation or depreciation in consequence
of the proposed action, but adjusted for any stock split, reverse stock split
or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
E-1
<PAGE>
(c) As used in this chapter, "dissenting shareholder" means the record
holder of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision
(b) of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction
E-2
<PAGE>
statement, and other written statements issued therefor shall bear a like
statement, together with the name of the original dissenting holder of the
shares.
SECTION 1303. AGREED PRICE; TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within 6 months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISER'S REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
E-3
<PAGE>
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which
any dissenting shareholder who is a party, or who has intervened, is entitled
to require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections
1300,1301 and 1302 if the value awarded by the court for the shares is more
than 125 percent of the price offered by the corporation under subdivision (a)
of Section 1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
E-4
<PAGE>
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof, but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded
E-5
<PAGE>
payment of cash for such shareholder's shares pursuant to this chapter; but if
the shareholder institutes any action to attack the validity of the
reorganization or short-for merger or to have the reorganization or short-form
merger set aside or rescinded, the shareholder shall not thereafter have any
right to demand payment of cash for the shareholder's shares pursuant to this
chapter. The court in any action attacking the validity of the reorganization
or short-form merger or to have the reorganization or short-form merger set
aside or rescinded shall not restrain or enjoin the consummation of the
transaction except upon 10 days' prior notice to the corporation and upon a
determination by the court that clearly no other remedy will adequately protect
the complaining shareholder or the class of shareholders of which such
shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
E-6
<PAGE>
SUPPLEMENTAL NOTICE TO INTERNATIONAL TECHNOLOGY CONCEPTS, INC.:
As noted in the prospectus of which this Supplement is a part, neither
Heller Ehrman White & McAuliffe (Identix's tax counsel) nor Brobeck, Phleger &
Harrison LLP (Identicator Technology's tax counsel) has rendered or will render
an opinion with respect to the tax consequences to IDT or the IDT stockholders
of transactions previously engaged in by IDT or Identicator Technology. The
effect of transactions previously engaged in by IDT or Identicator Technology
is of special importance to International Technology Concepts, Inc. ("IT
Concepts") and its stockholders. Because IT Concepts transferred assets to IDT,
the tax treatment of IT Concepts could be different from the treatment of the
other IDT stockholders. IT Concepts should therefore seek its own tax counsel
as to this separate issue.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 15. Indemnification of Directors and Officers
In accordance with the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes provisions regarding the limitation of
liability and indemnification of officers and directors of the Registrant.
Articles NINTH and TENTH of the Registrant's Certificate of Incorporation
provide as follows:
NINTH. No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability: (a) for any breach of
the director's duty of loyalty to the corporation or its stockholders; (b)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (c) under Section 174 of the
Delaware General Corporation Law; or (d) for any transaction from which the
director derived any improper personal benefit. If the Delaware General
Corporation Law is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or limited
to the fullest extent permitted by the Delaware General Corporation Law, as
so amended. Any repeal or modification of this paragraph shall not
adversely affect any right or protection of a director of the corporation
existing at the time of the repeal or modification.
TENTH.
A. Right to Indemnification
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of
the fact that he or she or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or is or
was serving at the request of the corporation as a director or officer,
employee or agent of another corporation, or of a partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or
in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than that law permitted the
corporation to provide before the amendment) against all expenses,
liabilities and losses including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes and penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such person in
connection therewith. Such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure
to the benefit of his or her heirs, executors and administrators. However,
the corporation shall indemnify any such person seeking indemnity in
connection with an action, suit or proceeding (or part thereof)
II-1
<PAGE>
initiated by that person only if that action, suit or proceeding (or part
thereof) was authorized by the board of directors of the corporation. The
rights set forth in this Article TENTH shall be contract rights and shall
include the right to be paid expenses incurred in defending any such
proceeding in advance of its final disposition. However, the payment of
such expenses incurred by a director or officer of the corporation in his
or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit
plan) in advance of the final disposition of such proceeding shall be made
only upon delivery to the corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
so indemnified.
B. Right of Claimant to bring Suit
If a claim under Paragraph A of this Article TENTH is not paid in full
by the corporation within 90 days after a written claim has been received
by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim. If
successful in whole or in part, the claimant shall be entitled to be paid
the expense of prosecuting that claim. It shall be a defense to any such
action (other than an action an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to
this corporation) that the claimant has not met the standards of conduct
which make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. However,
the burden of proving such defense shall be on the corporation. Neither the
failure of the corporation (including its board of directors, independent
legal counsel or its stockholders) to have made a determination before the
commencement of such action that indemnification of the claimant is proper
in the circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its board of directors,
independent legal counsel or its stockholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the applicable
standard of conduct.
C. Non Exclusivity of Rights
The rights conferred on any person by Paragraphs A and B of this Article
TENTH shall not be exclusive of any other rights which such person may have
or hereafter may acquire under any statute, provision of the Certificate of
Incorporation, by law, agreement, vote of stockholders or of disinterested
directors, or otherwise.
D. Expenses as a Witness
To the extent that any director, officer, employee, or agent of the
corporation is by reason of such position, or a position with another
entity at the request of the corporation, a witness in any action, suit or
proceeding, he or she shall be indemnified and held harmless against all
costs and expenses actually and reasonably incurred by him or her on his or
her behalf in connection therewith.
II-2
<PAGE>
E. Indemnity Agreements
The corporation may enter into agreements with any director, officer,
employee or agent of the corporation or any person who serves at the
request of the corporation as a director, officer, employee, or agent of
another corporation or other enterprise, providing for indemnification to
the fullest extent permissible under the Delaware General Corporation Law
and the corporation's Certificate of Incorporation.
F. Effect of Repeal or Modification
Any repeal or modification of this Article TENTH shall not adversely
affect any right of indemnification or advancement of expenses of a
director or officer, employee or agent of the corporation existing at the
time of such repeal or modification with respect to any action or omission
occurring before the repeal or modification.
G. Separability
Each and every paragraph, sentence, term and provision of this Article
TENTH is separate and distinct. If any paragraph, sentence, term or
provision is held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or
enforceability of any other such paragraph, sentence, term or provision. To
the extent required in order to make any such paragraph, sentence, term or
provision of this Article TENTH valid or enforceable, the corporation
shall, and the indemnitee or potential indemnitee may, request a court of
competent jurisdiction to modify the paragraph, sentence, term or provision
in order to preserve its validity and provide the broadest possible
indemnification permitted by applicable law.
H. Insurance
The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss of the type referred to in this
Article TENTH, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under
applicable law.
I. Indemnification of Employees and Agents of the Corporation
The corporation may, to the extent authorized from time to time by the
board of directors, grant rights to indemnification, and to the advancement
of expenses to any employee or agent of the corporation to the fullest
extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of
the corporation.
II-3
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibits
No. Description
-------- -----------
<C> <S>
2.1 Agreement and Plan of Reorganization and Merger, dated November 14,
1998 and amended as of December 11, 1998 and February 3, 1999, among
Identix Incorporated, IDT Holdings, Inc. and ID Acquisition Corp.
(included as Appendix A in the Proxy Statement/Prospectus)
2.2 Stockholder Voting and Proxy Agreement, dated as of November 14,
1998, among Identix Incorporated and certain stockholders of IDT
Holdings, Inc. (included as Appendix B in the Proxy
Statement/Prospectus)
2.3 Form of Escrow Agreement among Identix Incorporated, Harry F. Camp
and U.S. Bank Trust Association, Global Escrow Depository Services
(included as Appendix C in the Proxy Statement/Prospectus)
5.1* Opinion of Heller Ehrman White & McAuliffe
8.1* Tax Opinion of Heller Ehrman White & McAuliffe
8.2* Tax Opinion of Brobeck, Phleger & Harrison LLP
23.1* Consent of Heller Ehrman White & McAuliffe (contained in opinions
filed as Exhibits 5.1 and 8.1)
23.2* Consent of Brobeck, Phleger & Harrison LLP (contained in opinion
filed as Exhibit 8.2)
23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants for
Identix
23.4 Consent of PricewaterhouseCoopers LLP, Independent Accountants for
IDT
24.1* Power of Attorney (see pages II-8 and II-9)
99.1* Form of IDT Proxy
</TABLE>
- --------
* Previously filed.
(b) Financial Statement Schedules.
The information required to be set forth herein is incorporated by reference
to Identix's Annual Report on Form 10-K for the fiscal year ended June 30,
1998.
Item 22. Undertakings
A. The undersigned registrant hereby undertakes:
(1)To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (1)(a) and (1)(b) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
II-4
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
B. That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offering herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. (1) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by person who may be deemed underwriters, in addition to
the information called for by other items of the applicable form.
(2) That every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415 will be filed as part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed a bona fide offering thereof.
D. To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.
E. To supply by means of a post-effective amendment all required information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Restated Articles of Incorporation and
Bylaws, and the California Corporations Code, the Registrant has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in a
successful defense of any action, suit or proceeding) is asserted by such
director, officer or
II-5
<PAGE>
controlling person for liabilities arising under the Act in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 2 to
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sunnyvale, California on
March 17, 1999.
IDENTIX INCORPORATED
/s/ James P. Scullion
By: _________________________________
James P. Scullion, Executive Vice
President,
Chief Financial Officer and
Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement on Form S-4 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
* Chairman, President and March 17, 1999
____________________________________ Chief Executive Officer
Randall C. Fowler (Principal Executive
Officer)
/s/ James P. Scullion Executive Vice March 17, 1999
____________________________________ President, Chief
James P. Scullion Financial Officer,
Secretary and Director
(Principal Financial
and Accounting Officer)
* Director March 17, 1999
____________________________________
Randall Hawks Jr.
* Director March 17, 1999
____________________________________
Patrick H. Morton
* Director March 17, 1999
____________________________________
Fred U. Sutter
* Director March 17, 1999
____________________________________
Charles W. Richion
* Director March 17, 1999
____________________________________
Larry J. Wells
</TABLE>
/s/ James P. Scullion
*By: __________________________
James P. Scullion
Attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization and Merger, dated November
14, 1998 and amended December 11, 1998 and February 3, 1999,
among Identix Incorporated, IDT Holdings, Inc. and ID
Acquisition Corp. (included as Appendix A in the Proxy
Statement/Prospectus)
2.2 Stockholder Voting and Proxy Agreement, dated as of November 14,
1998, among Identix Incorporated and certain stockholders of IDT
Holdings, Inc. (included as Appendix B in the Proxy
Statement/Prospectus)
2.3 Form of Escrow Agreement among Identix Incorporated, Harry F.
Camp and U.S. Bank Trust Association, Global Escrow Services
(included as Appendix C in the Proxy Statement/Prospectus)
5.1* Opinion of Heller Ehrman White & McAuliffe
8.1* Tax Opinion of Heller Ehrman White & McAuliffe
8.2* Tax Opinion of Brobeck, Phleger & Harrison LLP
23.1* Consent of Heller Ehrman White & McAuliffe (contained in
opinions filed as Exhibits 5.1 and 8.1)
23.2* Consent of Brobeck, Phleger & Harrison LLP (contained in opinion
filed as Exhibit 8.2)
23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants
for Identix
23.4 Consent of PricewaterhouseCoopers LLP, Independent Accountants
for IDT
24.1* Power of Attorney (see pages II-8 and II-9)
99.1* Form of IDT Proxy
</TABLE>
- --------
* Previously filed.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectus
constituting part of this Registration Statement on Form S-4 of Identix
Incorporated of our report dated July 28, 1998 appearing on page 33 of Identix
Incorporated's Annual Report on Form 10-K for the year ended June 30, 1998. We
also consent to the reference to us under the heading "Experts" in such
prospectus.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 17, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the prospectus constituting part of this
Registration Statement on Form S-4 of Identix Incorporated of our report dated
February 26, 1999 relating to the financial statements of IDT Holdings, Inc.
(formerly Identicator Technology, a California general partnership) which
appears in such prospectus. We also consent to the reference to us under the
heading "Experts" in such prospectus.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 12, 1999
