UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 0-18856
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DIGITAL BIOMETRICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1545069
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5600 Rowland Road, Minnetonka, Minnesota 55343 (612) 932-0888
(Address of principal executive offices) (Zip Code) (Registrant's telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate the number of shares of each of the issuer's classes of Common Stock,
as of the latest practicable date.
Common Stock, $.01 par value November 30, 1997 - 12,361,038 shares
(Class) (Outstanding)
The aggregate market value of Common Stock held by non-affiliates as of November
30, 1997: $25,301,911
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
FORM 10-K
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Page
PART I
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Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 10
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 36
PART III
Item 10. Directors and Executive Officers of the Registrant 37
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners and Management 41
Item 13. Certain Relationships and Related Transactions 42
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 43
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TENPRINTER(R), SQUID(R) and the Company's mechanical hand logo have been
registered as trademarks with the U.S. Patent and Trademark Office. The Company
has applied for registration of the TRAK-21(TM) trademark. In addition,
FC-5(TM), FC-6(TM), FC-7(TM), FC-11(TM), FC-21(TM) and FC-22(TM) are trademarks
of the Company.
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EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS FORM 10-K INCLUDE FORWARD-LOOKING STATEMENTS MADE WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AND INVOLVE RISKS AND UNCERTAINTIES WHICH ARE
DESCRIBED MORE FULLY IN THE SECTION BELOW CAPTIONED "CAUTIONARY STATEMENTS." IT
IS IMPORTANT TO NOTE THAT THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS AND THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE SUCH FORWARD-LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS
GENERAL
Digital Biometrics, Inc. (the "Company") develops, manufactures, markets
and integrates computer-based products and services for the identification of
individuals. The Company is a leading vendor of products employing "biometric"
technology, the science of the identifying individuals by measuring of
distinguishing biological characteristics. Digital Biometrics' principal product
is the TENPRINTER(R) system for "live-scan" fingerprint capture used mainly in
law-enforcement applications. The TENPRINTER is a computer-based system with
patented high-resolution optics, which captures, digitizes, prints and transmits
forensic-grade fingerprint images.
The Company also offers high-resolution single-fingerprint capture products
for commercial and governmental identification applications. To capitalize on
opportunities outside of its traditional law enforcement market, the Company
recently established a systems integration services business focused on
integrating biometric and other identification technologies into applications
for government and commercial markets.
The Company has also developed a prototype player tracking system for the
gaming industry called TRAK-21(TM). The Company has reached an agreement in
principle with Grand Casinos, Inc., to create a joint venture to carry out the
commercialization of the TRAK-21 technology. It is anticipated that the joint
venture will be responsible for marketing the resultant product.
During fiscal 1997, virtually all of the Company's revenues were derived
from sales of TENPRINTER systems and related maintenance fees. Approximately 89%
of customer accounts receivable at September 30, 1997, were from government
agencies, of which 39% was from a single customer. For the last three fiscal
years, sales to three customers in 1997 accounted for 43% of revenues, sales to
two customers in 1996 accounted for 30%, and sales to two customers in 1995
accounted for 52%. Export sales were 5%, 15% and 21% of total sales, for the
years ended September 30, 1997, 1996 and 1995, respectively.
The Company's strategy is to continue to market TENPRINTER systems to law
enforcement agencies, and also to expand the Company's product and services
offerings, as well as its served markets. The law enforcement market for
live-scan biometric products is well established. The Company believes that
there is increasing interest from other governmental and commercial markets to
use biometric identification technologies and products to improve security and
to assure proper access. Digital Biometrics intends to aggressively pursue these
emerging opportunities.
The Company was incorporated in Minnesota in 1985 under the name C.F.A.
Technologies, Inc., was reincorporated in Delaware in 1986 and changed its name
to Digital Biometrics, Inc., in 1990. The Company's offices and facilities are
located at 5600 Rowland Road, Minnetonka, Minnesota 55343, and its telephone
number is (612) 932-0888.
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BIOMETRIC TECHNOLOGIES
Digital Biometrics Inc., develops, manufactures, markets and integrates
products in the field of "biometrics," the science of identifying individuals by
measuring distinguishing biological characteristics. This field consists of a
variety of techniques at various stages of technical maturity and market
acceptance. These techniques include fingerprinting, voice recognition, retinal
and iris scanning, DNA analysis, facial and hand geometry, and handwriting
analysis. A number of these techniques have been incorporated into a variety of
computer-based hardware and software measurement technologies. The goal is that,
when used with databases of characteristics, which previously have been
positively linked to specific individuals, these products enable the positive
identification of an individual whose identity is under scrutiny. The Company
believes the quality and reliability of the various non-fingerprint techniques
range widely.
For over a century, fingerprints have been and remain the method of choice
to positively identify individuals. Forensic scientists endeavor to match latent
fingerprints lifted from crime scenes with the fingerprints of suspected
perpetrators. Criminal courts throughout the world accept the testimony of
fingerprint experts and countless convictions have been achieved on the basis of
fingerprint evidence. The computerization of fingerprint identification methods
has greatly increased the speed of criminal identification processes and has
been widely accepted in the law enforcement community. As yet, none of the other
biometric identification technologies has achieved the degree of acceptance of
fingerprints in law enforcement or any other markets.
Digital Biometrics currently offers products that employ "forensic-quality"
fingerprint capture technologies. Forensic quality refers to the resolution and
pixel gray-scale depth of the image. The Company's products have been employed
by law enforcement organizations in a number of states and foreign countries
since 1988.
LAW ENFORCEMENT AND REGULATORY AGENCY MARKETS
Fingerprint identification was the first biometric technique to achieve
widespread acceptance. Prior to the introduction of sophisticated computer-based
fingerprint capture and matching technologies, manually taken fingerprints were
manually cross-checked against collections of paper-and-ink fingerprint records
to identify individuals and to positively associate them with crime scenes. In
the United States, over 8,500,000 fingerprint cards are submitted every year to
the Federal Bureau of Investigation (FBI), and thousands are collected by state
and local law enforcement agencies. To manage these large quantities of data,
computerized databases for fingerprint classification and identification were
introduced in the 1970s. These systems, known as Automatic Fingerprint
Identification Systems (generally referred to by the acronym "AFIS"), greatly
improved the speed and efficiency of fingerprint searches. Current AFIS systems
are capable of performing several thousand comparisons of fingerprints per
second. These systems present a trained fingerprint examiner with a short list
of candidate prints from which the examiner makes a final visual determination
of whether two prints are identical.
AFIS systems are provided by a number of vendors, including NEC
Technologies, Morpho/SAGEM, Printrak, TRW and others. The Company does not
provide AFIS systems.
With the introduction of AFIS systems, it became apparent that, in
practice, the quality of fingerprints taken using the traditional paper-and-ink
method was often not adequate to meet the needs of this sophisticated
technology. An unacceptably high percentage of conventionally inked fingerprints
could not be read properly by AFIS systems because of poor image quality. In
response to this problem, Digital Biometrics and its competitors introduced
sophisticated computer-based imaging systems to capture and
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digitize fingerprints. This process yields a much higher level of so-called
"minutia" points, which are the basis for the identification techniques used by
AFIS systems.
The Company's TENPRINTER system consistently generates high quality
fingerprint data, which, at the user's option, may be transmitted over telephone
lines to AFIS sites, other databases or the FBI, or may be printed out locally
and/or at remote locations on any number of card formats. The TENPRINTER system
also permits the booking officer to review the quality of the prints as they are
being taken, enabling the officer to screen out bad prints without having to
redo the entire fingerprint card, thus improving the productivity of the booking
process.
PRODUCTS
THE TENPRINTER SYSTEM
The Company's principal product, the TENPRINTER, is designed and marketed
mainly as an input device to AFIS systems. Several large manufacturers produce
and sell AFIS systems, which are computerized central fingerprint database
systems capable of storing fingerprint information for an entire demographic
unit such as a city, county, state or country. AFIS systems are designed to
facilitate the work of a law enforcement agency's fingerprint technicians. An
AFIS system is capable of electronically comparing a given set of fingerprints
against all fingerprints in its database and producing a short list of
potentially matching candidate prints. A fingerprint technician then visually
compares the AFIS results with the fingerprints in question. Optimal use of an
AFIS system depends in part on the clarity of the fingerprint images that are
input to the AFIS. The TENPRINTER system consistently produces fingerprint
images of higher clarity than those achieved by conventional "paper-and-ink"
methods and is being marketed as a more accurate input to AFIS systems.
The TENPRINTER system is a computer-based inkless live-scan system that
electronically captures a fingerprint and creates a digital image. Fingerprints
are captured by placing the fingers of a subject on a contact surface of an
optical assembly. The optical image is converted into a digital image by an
electronic photo-imaging detector. The digital image produced by the TENPRINTER
system may be sent directly to the AFIS site by means of telecommunications or
may be printed on a law enforcement agency's fingerprint card. In the gray-scale
printing technology available with the TENPRINTER system, the printed
fingerprint includes the nuances normally seen in a conventional "paper-and-ink"
fingerprint.
While prices of AFIS systems and live-scan systems vary widely depending on
the configuration of the systems, AFIS systems cost from $500,000 to several
million dollars, while live-scan systems are priced between approximately
$30,000 and $80,000 per unit. The primary target market for the TENPRINTER is
state and local law enforcement agencies that have purchased, are purchasing, or
have access to AFIS systems. The assistance and support of the AFIS vendor is
frequently important in the sale and installation of live-scan systems.
Law enforcement agencies submit one copy of a fingerprint card to the FBI
for every suspect charged with a felony. Over 8,500,000 such cards are submitted
to the FBI each year. As a result, the FBI plays an important role in the
fingerprint identification process in the United States. The FBI has put into
place an extensive testing process for live-scan systems. When a live-scan
system passes the testing process, the FBI will accept cards produced by that
live-scan for submission to the FBI's Identification Division and for retention
in the Division files. The Company's TENPRINTER system has received
accreditation under the FBI Image Quality Standards ("IQS"). To the best of the
Company's knowledge, competitors also have received or are in process of
receiving such approval. Regulatory standards such as IQS continue to evolve and
there can be no assurance that the Company will be able, without significant
cost and expense, to comply with future requirements.
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The FBI has awarded contracts in connection with a multi-phase program of
its well-publicized fingerprint automation and revitalization project which,
when operational, will involve the paperless utilization of fingerprint data
and, ultimately, the capability to eliminate fingerprint cards at the FBI level.
The FBI has stated that 62,000 contributors currently submit fingerprint cards
to the FBI. The Company believes that when the FBI's new system becomes
operational, it may have a positive impact on demand for live-scan equipment.
ANCILLARY PRODUCTS
The Company's TENPRINTER systems are normally configured in networked
environments. Digitized TENPRINTER fingerprint records are frequently
transmitted to multiple destinations, including central sites for printing and
one or more criminal record databases, including AFIS systems. The Company has
developed several ancillary products sold in conjunction with the TENPRINTER
which facilitate central printing and remote transmission of digitized
fingerprint images. Digital Biometrics also offers various software programs,
which enhance the functionality of the TENPRINTER.
ASSEMBLY, INSTALLATION AND MAINTENANCE
The Company's TENPRINTER systems are assembled from purchased components at
its facility in Minnetonka, Minnesota. Other than prototypes, for which the
development time may vary, the time required for product delivery averages
approximately 60 days from the date a purchase order is received.
TENPRINTER systems are installed by Company employees or contractors.
Installation has frequently required implementation into customer network
configurations, many of which are complex. The Company has historically provided
these services at little or no additional charge to the customer. Management
intends to negotiate future orders requiring customers to compensate the Company
for such services, although there can be no assurance that this will be
accepted.
Digital Biometrics offers various levels of maintenance service for its
equipment, which are delivered by Company employees or third party maintenance
providers. These services have historically been provided in the aggregate,
below the Company's fully loaded cost. Management intends to change maintenance
pricing to achieve profitability, although there can be no assurance that this
effort will be successful.
SALES AND DISTRIBUTION
The Company sells TENPRINTER systems directly to end users through a direct
sales force and through partnering relationships with AFIS suppliers, including
NEC Technologies and Morpho/SAGEM. Relationships with AFIS vendors are an
important means of distribution to many customers and, consequently, are key to
the Company. Furthermore, live-scan products must deliver output to AFIS
systems, thereby requiring a technical relationship between the Digital
Biometrics and AFIS suppliers to assure proper integration of TENPRINTER
installations with the requirements of AFIS systems. See the section on
"Competition" which follows.
OTHER PRODUCTS FOR LAW ENFORCEMENT
The SQUID(TM) system is a lightweight, portable, hand-held unit designed
for use in the police patrol car. The SQUID system captures "on-the-spot"
fingerprints which can then be relayed from the patrol car to a communications
center where identification can take place. This product will permit patrol
officers to obtain positive identification without transporting suspects to the
police station. The SQUID system is being designed and manufactured to
specifications of the FBI NCIC 2000 project which is currently planned to be
operational in 1999. The SQUID system is currently being marketed on a limited
basis.
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The Company has offered software development services and
internally-developed mugshot products to a limited number of customers.
COMPETITION
The market for live-scan systems is competitive. Live-scan products are
offered by several companies including Identix and Printrak. NEC Technologies is
both a strategic partner and, in certain circumstances, a competitor. The
Company competes in the live-scan market primarily on the basis of image
quality, features, performance, service and support, and price.
Continued growth in demand for live-scan fingerprint systems may attract
additional competition. The vendors of AFIS systems are logical participants in
the live-scan market, as evidenced by the entry of Printrak into the live-scan
market and the marketing by NEC Technologies of a live-scan product, the LS-21,
which includes features and components currently sourced from Identix. Other
AFIS vendors and other potential additional competitors could enter the law
enforcement market, and may have financial and other resources significantly
greater than those of the Company.
Also see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Cautionary Statements."
SUPPLIERS
Digital Biometrics buys substantially all components of the TENPRINTER
system from outside suppliers for assembly and testing by the Company. Some of
these components are designed by the Company and/or are custom manufactured to
its specifications. The Company may specify parts used in such components. The
Company inspects and tests incoming parts and components, and conducts test and
burn-in procedures on assembled finished products. Certain components used in
manufacturing of TENPRINTER systems are currently supplied by a single vendor to
obtain volume economies. Secondary sources are available but would take several
months to bring into production. Delays in product deliveries to customers could
occur until the secondary sources are secured.
The Company provides field maintenance services directly and through
subcontract arrangements with third parties.
COMMERCIAL MARKETS
SINGLE FINGERPRINT CAPTURE DEVICES
Digital Biometrics has leveraged its expertise in forensic-quality
fingerprint capture technology to create two forensic-quality single fingerprint
capture devices, the FC-21(TM) and FC-22 (TM). The FC series single fingerprint
capture units have been marketed on a limited basis and are priced approximately
from $1,250 to $2,500 per unit.
Demand for single fingerprint capture devices for commercial applications
appears to be growing. The Company is evaluating a more aggressive marketing
effort of its FC products in commercial markets.
SYSTEMS INTEGRATION
In December 1997, the Company formed the Integrated Identification
Solutions Division ("IIS") to provide systems integration services to commercial
clients. The business objective of this division is to address what the Company
believes is growing interest in the integration of biometric identification
techniques into commercial applications which require a higher level of security
than is currently available through traditional techniques such as personal
identification numbers (PINs) and passwords. It is
<PAGE>
anticipated that this division may also provide integration services to
governmental customers including law enforcement organizations.
GAMING
The Company believes that it has a strong basis for competition in the
systems integration business due to its focus on biometric identification.
However, the systems integration business is competitive and includes many firms
with substantially greater resources then the Company.
Digital Biometrics has developed a prototype blackjack table wagering data
capture system called TRAK-21. The TRAK-21 system was developed to enable
casinos to track the wagering activity of its blackjack patrons. The Company has
derived no revenues to-date from this system. In November 1997, the Company
announced an agreement in principle with Grand Casinos, Inc., to form a joint
venture for the commercialization of this system. It is anticipated that if the
system is successfully productized that the joint ventures company will market
the system to the gaming industry.
There are a variety of companies providing blackjack player tracking
information and capabilities to the gaming industry, the most prominent of which
is Mikohn Gaming Corporation. The TRAK-21 Player Tracking System uses high-level
image processing for automatically calculating wagers, which differentiates
TRAK-21 from other systems (including Mikohn's) which use table and chip sensors
to track player wagering.
Components necessary for the manufacture of TRAK-21 systems are anticipated
to be primarily standard parts available from a variety of suppliers.
PROPRIETARY TECHNOLOGY
The Company owns federally registered trademarks for the mark TENPRINTER,
the Company's mechanical hand logo, and SQUID. The Company has applied for
trademark registration for TRAK-21.
Digital Biometrics owns several U. S. patents and has U. S. patent
applications pending which cover technology currently employed in its products.
The Company has also filed for patent protection in several foreign countries.
Although additional features of the Company's products may be patentable, the
Company has chosen to preserve these features as trade secrets rather than
applying for patent protection. The Company has obtained signed confidentiality
agreements from all employees and from independent consultants who have access
to confidential information.
The Company is in the appeals process regarding a claim of patent
infringement against a competitor. See "Item 3. Legal Proceedings."
ENGINEERING AND DEVELOPMENT
The Company incurred engineering and development expenses for new product
development and enhancements to existing products. For the fiscal years ended
September 30, 1997, 1996 and 1995 the company's engineering and development
expenses, excluding depreciation and amortization, were $2,526,000, $4,570,000,
and $2,855,000, respectively. The Company's engineering and development expenses
for fiscal years 1996 and 1995 are net of reimbursement of $87,700 and $772,500,
respectively, from a company with which there was a teaming agreement for an
international development project.
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BACKLOG
At September 30, 1997, the Company's firm backlog of orders for TENPRINTER
systems and related products was approximately $2,282,000, as compared to a
backlog of approximately $3,773,000 at September 30, 1996.
EMPLOYEES
At November 30, 1997, the Company employed 81 persons on a full-time basis,
none of whom is represented by a union. Of these persons, six have general
management responsibilities and the remainders perform sales, marketing,
engineering, customer service, assembly, or administrative functions. From time
to time to meet critical demands, the Company has utilized additional
individuals to perform services for the Company on a part-time or a consulting
basis. Personnel will be hired in the future as the Company deems necessary. The
Company believes that its employee relations are good.
All employees of the Company have executed agreements which provide for the
confidentiality of Company proprietary information and the ownership by the
Company of inventions developed using Company resources.
ITEM 2. PROPERTIES
The Company does not own any real properties. The Company's primary offices
and facilities are located in approximately 31,000 square feet of space in an
industrial park at 5600 Rowland Road, Minnetonka, Minnesota. The space is
occupied under a lease expiring on April 30, 2001, and is believed to be
adequate for the Company's current business needs.
A field service and sales office is located in Los Angeles, California, in
approximately 3,400 square feet of space in an industrial office park. This
space is occupied under a lease expiring December 1997. This lease is a
year-to-year arrangement, and is currently under negotiation for renewal.
ITEM 3. LEGAL PROCEEDINGS
On June 1, 1995, the Company filed a complaint for patent infringement
against Identix, Inc., of Sunnyvale, California, in the U.S. District Court for
the Northern District of California. The complaint alleges that Identix has
willfully and deliberately infringed a Company patent through the manufacture,
use and/or sale of competing products. The alleged infringement pertains to how
rolled fingerprint images are obtained optically and how they are mathematically
represented in storage. The Identix TP-600 and TP-900 devices are both alleged
to infringe on the DBI patent. This technology is a fundamental aspect of the
fingerprint capture task in forensic quality live-scan. The complaint seeks,
among other things, an injunction prohibiting further infringement as well as
unspecified monetary damages. Identix responded to the complaint alleging, among
other purported defenses, non-infringement and patent invalidity.
On August 27, 1996, the judge assigned to the case granted a partial
summary judgment in favor of Identix dismissing the Company's claims of patent
infringement with respect to the Identix Touchprint 600 product line. A
predecessor product, the Touchprint 900, received a similar ruling in favor of
Identix on December 20, 1996. In January 1997, the Company filed an appeal of
the court's decision of non-infringement. These appeals are decided by the
Federal Circuit which is a Court of Appeals in Washington D.C. On October 8,
1997, the appeal was argued before the Court. As of December 11, 1997, no
appellate decision has been issued. A prediction of the final outcome of the
appeal is not possible. In the event the Company does not prevail in this
litigation, its competitive position could be adversely affected.
<PAGE>
Except for the foregoing, there are no material lawsuits pending or, to the
Company's knowledge, threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders during the three
months ended September 30, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION. The Company's Common Stock is traded on The NASDAQ
National Market under the symbol "DBII." The following closing price information
is provided for quarterly periods for the past two fiscal years.
Fiscal Year ended September 30, 1997 High Low
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First Quarter $3.88 $2.13
Second Quarter 2.94 1.81
Third Quarter 2.81 1.50
Fourth Quarter 2.69 1.56
Fiscal Year ended September 30, 1996 High Low
---- ---
First Quarter $ 8.25 $ 5.25
Second Quarter 5.88 2.63
Third Quarter 8.75 3.13
Fourth Quarter 6.63 3.00
As of November 30, 1997, the Company had approximately 7,200 record holders
of its Common Stock. The closing price of its Common Stock on November 30, 1997,
as reported by the NASDAQ National Market System was $2.094.
DIVIDEND POLICY. Holders of Common Stock are entitled to such dividends as
may be declared from funds legally available for such purpose by the Board of
Directors in its sole discretion. The Company has never paid a dividend on its
Common Stock and it is not anticipated that dividends will be paid in the
foreseeable future. If and to the extent that any operating profits are
realized, the Company intends to retain such profits for operating purposes.
TRANSFER AGENT. The Transfer Agent and Registrar for the Company's Common
Stock is Norwest Bank, Minneapolis, Minnesota.
<PAGE>
SALES OF UNREGISTERED SECURITIES.
(a) Sales of Debentures and Warrants. On December 1, 1997, the Company
sold (i) $500,000 principal amount of 8% Convertible Subordinated Debentures,
(the "Debentures"), due December 1, 2000; and (ii) a Warrant dated December 1,
1997, (the "KA Warrant") for the purchase of 15,000 shares of the Company's
Common Stock. The Debenture and KA Warrant were issued to KA Investments LDC, an
accredited investor, in a private placement transaction, in reliance upon
Section 4(2) under the Securities Act of 1933, as amended (the "Act"). No public
offering or general solicitation of investors was involved in connection with
the transaction. In connection with the transaction, the Company employed the
services of Miller, Johnson & Kuehn, Incorporated ("MJK"), an investment banking
firm, as placement agent, and paid MJK commissions of $40,000, and issued to MJK
a warrant for the purchase of 125,000 shares of the Company's Common Stock (The
"MJK Warrant"). The issuance of the MJK Warrant was made in reliance upon the
exemption from registration provided in Section 4(2) of the Act. No public
offering of the MJK Warrant was involved. The Debentures are convertible into
Common Stock of the Company at the lesser of $1.96 per share ("Initial
Conversion Price") and .80 multiplied by the average price of the Company's
Common Stock for the five trading days immediately preceding the conversion
date. The KA Warrants are exercisable at $2.50 per share. The MJK Warrant is
exercisable at $2.00 per share. The Company has entered into a Convertible
Subordinated Debenture Purchase Agreement pursuant to which up to an aggregate
of $2,500,000 of the Debentures may be purchased in separate tranches, of which
the Debentures were tranch 1. The Company has agreed to register for resale
under the Act the shares of Common Stock issuable upon conversion of the
Debentures and the KA Warrants. The Company has granted incidental registration
rights under the Act to MJK pursuant to the terms of the MJK Warrant.
(b) Issuance of Warrants for Services. In consideration of services
rendered or to be rendered, the Company issued warrants to purchase its Common
Stock to the following persons or companies:
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RELATIONSHIP NUMBERS OF EXERCISE
NAME TO COMPANY SHARES PRICE DATE OF ISSUANCE
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Andcor Companies, Inc. Consultant 20,000 $2.3125 January 27, 1997
C. McKenzie Lewis III Director 8,000 2.125 March 18, 1997
Dennis Wendell Consultant 150,000 1.875 October 23, 1997
Jeffrey Whalen Consultant 50,000 1.875 October 23, 1997
Joseph VanLoy Consultant 50,000 1.875 October 23, 1997
</TABLE>
All of the foregoing warrants were issued directly by the Company in
reliance of Section 4(2) of the Act. The warrants issued to Andcor Companies,
Inc., expire on January 27, 2000, the warrant issued to Mr. Lewis expires on
March 18, 2000, and the warrants issued to Messrs. Wendell, Whalen and VanLoy
expire on August 17, 2002.
(c) Shares Issued to Non-Employee Directors. Effective September 30,
1997, the Company issued 3,000 shares of its Common Stock directly to each of
its outside directors, C. McKenzie Lewis III, George Latimer, Steven M. Slavin
and Jack A. Klingert. The issuance aggregating 12,000 shares was made in
reliance upon the exemption provided in Section 4(2) of the Act, in recognition
of services provided by the outside directors, who serve without monetary
compensation. The Common Stock was issued to the outside directors in October
1997.
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(d) Restrictions. The foregoing securities are restricted as to sale or
transfer, unless registered under the Act, and contain on certificates issued or
to be issued upon exercise, restrictive legends preventing sale, transfer or
other disposition unless registered under the Act. In addition, each of the
recipients of the warrants received or had access to material information
concerning the Company, including, but not limited to, the Company's reports on
Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company as of and for each of
the years in the five-year period ended September 30, 1997, has been derived
from financial statements audited by KPMG Peat Marwick LLP, independent
certified public accountants. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited financial statements and notes
thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 11,419,358 $ 8,327,272 $ 9,098,014 $ 8,005,390 $ 4,603,821
Cost of revenues 8,811,271 6,181,481 5,273,412 4,997,103 2,631,860
Cost of revenues - non-recurring charges 1,529,118 -- -- -- --
-----------------------------------------------------------------------------
Gross margin 1,078,969 2,145,791 3,824,602 3,008,287 1,971,961
-----------------------------------------------------------------------------
Expenses:
Sales and marketing 2,057,099 3,369,441 2,394,916 1,786,075 1,157,439
Engineering and development 2,526,346 4,569,751 2,854,592 3,618,385 2,022,521
Depreciation and amortization 319,536 1,049,584 529,687 480,981 143,310
General and administrative 2,043,954 2,753,444 1,700,017 1,296,864 972,644
Non-recurring charges 330,319 -- -- -- --
-----------------------------------------------------------------------------
Total expenses 7,277,254 11,742,220 7,479,212 7,182,305 4,295,914
-----------------------------------------------------------------------------
Loss from operations (6,198,285) (9,596,429) (3,654,610) (4,174,018) (2,323,953)
Other income (expense) (77,109) (2,090,474) 330,055 376,703 259,410
-----------------------------------------------------------------------------
Net loss $ (6,275,394) $(11,686,903) $(3,324,555) $(3,797,315) $(2,064,543)
=============================================================================
Net loss per common share $ (0.53) $ (1.24) $ (0.43) $ (0.49) $ (0.32)
=============================================================================
Weighted average common shares 11,766,220 9,451,015 7,814,144 7,696,551 6,440,341
=============================================================================
AS OF SEPTEMBER 30,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Cash and cash equivalents $ 1,891,397 $ 466,990 $ 367,866 $ 592,971 $ 4,485,606
Accounts receivable, net 5,161,356 5,676,849 4,494,301 4,575,807 1,756,128
Inventory 2,294,593 3,633,659 1,875,682 2,539,479 1,660,885
Working capital 6,131,758 5,506,587 13,493,690 11,864,794 14,048,363
Total assets 10,699,238 17,309,371 25,451,666 15,846,448 18,398,215
Long-term obligations -- 2,374,739 8,863,578 -- --
Total liabilities 3,533,990 6,853,999 12,362,412 2,077,368 1,495,057
Stockholders' equity 7,165,248 10,455,372 13,089,254 13,769,080 16,903,158
</TABLE>
The Company has paid no cash dividends on its Common Stock.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
GENERAL
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements include statements
regarding intent, belief or current expectations of the Company and its
management and are made in reliance upon the safe harbor provisions of the
Securities Litigation Reform Act of 1995. Shareholders and prospective investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve a number of risks and uncertainties that may
cause the Company's actual results to differ materially from the results
discussed in the forward-looking statements. Reference is made to "Cautionary
Statements" below.
The Company is a developer, assembler, marketer and integrator of
computer-based products and services for the identification of individuals. Most
of the Company's sales have been to state and local law enforcement agencies
and, to-date, have consisted primarily of TENPRINTER systems and related
peripheral equipment, software and services.
The law enforcement market and the government procurement process is
subject to budgetary, economic and political considerations which may vary
significantly from state to state and among different agencies. These market
characteristics, along with the recent and continuing development of and
competition within the live-scan electronic fingerprint industry, have resulted
in and are expected to continue to result in an irregular revenue cycle for the
Company; any prediction of future trends is inherently difficult.
The Company generally recognizes product sales on the date of shipment,
although recognition at some later milestone is not uncommon based on the terms
of specific customer contracts. The Company's standard terms of sale are payment
due net in thirty days, f.o.b. Digital Biometrics, Inc. Terms of sale and
shipment for certain procurements by municipal or other government agencies may,
however, be subject to negotiation which consequently may affect the Company's
timing and criteria for revenue recognition. Revenue under contracts where a
performance bond, collateral or customer acceptance is required is not
recognized until collateral requirements have been satisfied and customer
acceptance has occurred. In cases where the Company is required to purchase a
performance bond or to deposit collateral in accordance with the terms of a
contract, the Company's policy is to defer revenues under such contracts until
the amount shipped exceeds the amount of the performance collateral or until the
security is released by the bonding company.
Maintenance revenues are recognized over the life of the contract on a
straight-line basis.
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO 1996
Total revenues in 1997 increased by 37% to $11,419,000 from $8,327,000 in
1996, due primarily to an increase in the number of TENPRINTER systems sold,
partially offset by volume and trade-in discounts. The increase in
identification systems product revenues from $6,821,000 in 1996 to $9,712,000 in
1997 resulted from an increase in sales of TENPRINTER systems, partially offset
by volume and trade-in discounts. Product maintenance and service revenues
increased from $1,506,000 in 1996 to $1,707,000 in 1997, due primarily to a
larger installed base of TENPRINTER systems. Sales to three customers in 1997
accounted for 17%, 14% and 12% of total revenues. Sales to two customers in 1996
accounted for 18% and 12% of total revenues.
<PAGE>
Gross margins for 1997 and 1996 were 9% and 26% of revenues, respectively.
Gross margin for 1997 includes non-recurring charges of $1,529,000 ($0.13 per
share) recognized during the third quarter comprised of $838,000 of inventory
adjustments substantially due to technical obsolescence, $524,000 of warranty
reserve funding for warranty items mainly associated with the introduction and
rollout of the S-Series, $132,000 for estimated committed losses on maintenance
contracts, and $35,000 for the write-off of tooling. Gross margin for 1996
includes a write-off of $350,000 for excess field service spare parts related to
previous generations of TENPRINTER products.
Gross margins on identification system product revenues were 19% in 1997
compared to 44% in 1996 (including the impact of the relevant 1997 non-recurring
charges). This decrease is due primarily to the impact of 1997 non-recurring
charges, volume discounts offered to certain customers, and higher installation
and warranty costs on S-Series TENPRINTER systems.
Product maintenance and support margins for 1997 (including the impact of
relevant 1997 non-recurring changes) and 1996 were (47%) and (57%) of
maintenance and support revenues, respectively. Product maintenance costs for
1996 include a write-off of $350,000 for excess field service spare parts
related to previous generations of TENPRINTER products.
Sales and marketing expenses decreased to 18% of total revenues in 1997
from 40% in 1996, due primarily to higher revenues, reduced demonstration
equipment expense, reduced charges for the allowance for doubtful accounts and,
to a lesser extent, a reduction in personnel and related expenses during fiscal
1997. Sales and marketing expenses in 1996 include a write-off of $282,000
related to previous generation TENPRINTER system demonstration equipment and a
charge of $540,000 related to an increase for the allowance for doubtful
accounts.
Engineering and development expenses decreased to 22% of total revenues in
1997 from 55% in 1996 largely due to increased revenues and lower S-Series and
TRAK-21 development expenses. Engineering and development expenses during 1996
include charges of $374,000 related to adjustments of unreimbursed manufacturing
setup costs of an international development project, and are net of
reimbursements for international development costs of $88,000.
Depreciation and amortization costs for 1996 include a write-off of
$549,000 for unamortized software of information systems products no longer
actively marketed.
General and administrative expenses in 1997 decreased to 18% of total
revenues from 33% in 1996 primarily due to higher revenues, reduced legal costs
of a patent infringement suit brought by the Company against a competitor and a
1996 charge of $380,000 related to CEO transition costs.
Operating expenses during fiscal 1997 include non-recurring and non-cash
charges of $330,000 recognized during the third quarter for the write-off of
assets with no future value and, to a lesser extent, equipment disposals.
Interest income decreased to $230,000 in fiscal 1997 from $586,000 in
fiscal 1996, primarily as a result of lower balances of marketable securities.
Interest expense decreased to $300,000 in fiscal 1997 from $2,676,000 in fiscal
1996, primarily due to a non-cash charge of $1,924,000 during fiscal 1996 for
the intrinsic value of the beneficial conversion feature of the 1995 Convertible
Debentures, and to a lesser extent, conversions of the 1995 Convertible
Debentures.
FISCAL 1996 COMPARED TO 1995
Fiscal 1996 operating results include a fourth quarter charge of $2,474,000
($0.26 per share) related to a review of strategies and refocusing of the
business conducted by prior management. This charge includes severance expenses,
write-off of excess and obsolete inventory and demonstration equipment resulting
from
<PAGE>
the introduction of the Company's new S-Series TENPRINTER, an increase in the
allowance for doubtful accounts, unreimbursed international development costs
and the write-off of unamortized technology rights as a result of the Company's
decision in the fourth quarter to no longer pursue the technology acquired in
the Design Data acquisition in 1994.
Total revenues in 1996 decreased to $8,327,000 from $9,098,000 in 1995, due
primarily to the inclusion in 1995 revenues of $1,800,000 in fees related to an
international development project. The increase in identification system product
revenues from $6,069,000 in 1995 to $6,821,000 in 1996 resulted from an increase
in sales of TENPRINTER systems partially offset by lower 1996 average selling
prices. Product maintenance and service revenues increased from $1,229,000 in
1995 to $1,506,000 in 1996, due primarily to a larger installed base of
TENPRINTER systems. Sales to two customers in 1996 accounted for 18% and 12% of
total sales. Sales to two customers in 1995 accounted for 29% and 23% of total
revenues.
Gross margins for 1996 and 1995 were 26% and 42% of revenues, respectively.
Gross margin for 1996 includes a fourth-quarter write-off of $350,000 for excess
field service spare parts related to previous generations of TENPRINTER
products.
Gross margins on identification system product revenues were 44% in 1996
compared with 50% in 1995. This decrease is due primarily to costs related to a
six-month delay in the introduction of the S-Series TENPRINTER system. During
this six-month period there were only nominal TENPRINTER system deliveries. The
fourth quarter in particular was impacted with high initial costs of product
introduction, including training and installation of field service providers.
Product maintenance and support margins for 1996 and 1995 were (57%) and
(34%) of maintenance and support revenues, respectively. The increased costs of
product maintenance and support are due primarily to the building of base field
service operations. Product maintenance costs for 1996 also include a
fourth-quarter write-off of $350,000 for excess field service spare parts
related to previous generations of TENPRINTER products.
Sales and marketing expenses increased to 40% of total revenues in 1996
from 26% in 1995 due primarily to increased international marketing efforts,
S-Series promotional expenses, a fourth-quarter write-off of $282,000 related to
previous generation TENPRINTER system demonstration equipment and a
fourth-quarter charge of $540,000 related to an increase in the allowance for
doubtful accounts.
Engineering and development expenses increased to 55% of total revenues in
1996 from 31% in 1995. Engineering and development expenses during 1996 include
fourth-quarter charges of $374,000 related to adjustments of unreimbursed
manufacturing setup costs of an international development project. After
adjustment, engineering and development expenses for 1996 and 1995 are net of
reimbursements for international development costs of $87,700 and $772,500,
respectively.
Depreciation and amortization costs include a fourth-quarter write-off of
$549,000 for unamortized software of information systems products no longer
actively marketed. General and administrative expenses in 1996 increased to 33%
of total sales from 19% in 1995, due primarily to $757,000 of legal costs
associated with a patent infringement suit brought by the Company against a
competitor and a fourth-quarter charge of $380,000 related to CEO transition
costs.
Interest income increased to $586,000 in fiscal 1996 from $378,000 in
fiscal 1995, primarily as a result of increased levels of marketable securities.
Interest expense increased to $2,676,000 in fiscal 1996 from $48,000 in fiscal
1995, due to interest expense on the 1995 Convertible Debentures and a non-cash
charge of $1,924,000 for the intrinsic value of the beneficial conversion
feature of the 1995 Convertible Debentures.
<PAGE>
INFLATION
The Company does not believe inflation has significantly impacted revenues
or expenses.
NET OPERATING LOSS CARRYFORWARDS
At September 30, 1997, the Company has carryforwards of net operating
losses of approximately $30,700,000 that may allow the Company to reduce future
income taxes that would otherwise be payable. Of this amount, approximately
$2,200,000 relates to compensation associated with the exercise of non-qualified
stock options which, when realized, would result in approximately $880,000
credited to additional paid-in capital. The carryforwards expire annually
beginning in 1999. The annual limitation on use of net operating losses is
calculated by multiplying the value of the corporation immediately prior to the
change in ownership by the long-term federal tax exempt rate. A total of
$3,700,000 of the net operating loss carryforwards at September 30, 1997, is
subject to an annual net operating loss limitation, estimated at $350,000,
resulting from the change in control of the Company which occurred, for income
tax purposes, on December 14, 1990, the date of the Company's initial public
offering. If the limited carryforward amount for any tax year exceeds the
regular taxable income for such year, then the unused portion may generally be
carried forward to increase the annual limitation for the following year.
Utilization of net operating losses aggregating $27,000,000 which were incurred
subsequent to the change of ownership are not limited. However, any future
ownership change could create a limitation with respect to these loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
For the period from the Company's inception in 1985 through September 30,
1997, the Company's cumulative deficit was $35,323,000. Losses are expected to
continue until revenues and gross margin from sales of the Company's current and
future products and services are sufficient to cover the level of operating
expenses required for the Company's operations.
The Company's business has included large contract awards from
international, state and local law enforcement agencies and it is expected that
this will continue. Collection of receivables related to billings of these
contract amounts is often protracted.
The Company entered into a receivables financing line of credit effective
October 1, 1996, for the lesser of eligible receivables or $3,500,000 with
Norwest Business Credit. Borrowings under this line of credit are secured by all
assets of the Company. The line bears interest at 1.5% above the prime rate
(8.5% at September 30, 1997), is payable upon demand and expires in January
1998. The Company elected to use the proceeds from the sale of marketable
securities to pay off all borrowings under this line of credit at September 30,
1997. For the period from September 30, 1997, through January 31, 1998, the
minimum interest shall be $10,000 per the terms of the agreement. The Company
anticipates renewal of the line upon expiration.
The Company had a $4,000,000 line of credit with Norwest Bank Minnesota
N.A. Borrowings under this line of credit were secured by marketable securities
and were limited to 80% of the market value of marketable securities held as
collateral by the bank. The Company elected to use the proceeds from the sale of
marketable securities during fiscal 1997 to pay off all borrowings under the
line at September 30, 1997 and terminate the line.
<PAGE>
The Company has a $200,000 line of credit with First Bank Minneapolis,
secured by cash deposits. Borrowings under the line bear interest at the prime
rate and are payable upon demand and expire in March 1998. There were no
borrowings under the line at September 30, 1997.
ISSUANCE OF 8% CONVERTIBLE SUBORDINATED DEBENTURES AND WARRANTS SUBSEQUENT TO
FISCAL YEAR END
To provide additional working capital, on December 1, 1997, the Company
entered into a convertible subordinated debenture purchase agreement ("Purchase
Agreement") with a private investor, providing for the Company's issuance and
sale of up to an aggregate of $2,500,000 of 8% Convertible Debentures (the
"Debentures") in tranches of $500,000 each. The first tranche was sold on
December 1, 1997. Additional tranches may be issued upon request of the Company
within 90 days of each previous tranche, if the Company meets conditions to
issuance including, but not limited to, conditions requiring the Company to have
effective and maintain a registration statement with the Securities and Exchange
Commission covering shares issuable upon conversion of the Debentures, and a
requirement that the Company's market capitalization be at least $12 million.
The initial tranche sold in the amount of $500,000 on December 1, 1997 is
convertible in whole or in part at the option of the holder, with accrued
interest, into Common Stock, at a conversion price equal to the lesser of the
average closing price of the five consecutive trading days preceding the
transaction ($1.96 per share) or 80% of the average closing price of the five
consecutive trading days preceding the conversion date. Future tranches may be
convertible on a similar basis but the conversion prices will be related to the
lesser of the market price on the issue date and the market price on the
conversion date. The Company has the right, exercisable at any time upon two
trading days notice to the purchaser of the debentures given at any time the
Company receives a conversion notice and the conversion price in effect in
connection with such conversion notice is less than $1.25, to repay, all or any
portion of the outstanding principal amount of the debentures which have been
tendered for conversion, at a price equal to the sum of 120% of the aggregate
principal amount of debentures to be repaid. In connection with the Purchase
Agreement, the Company has agreed to issue to the purchaser of the debentures,
upon the sale of each tranche warrants to purchase 15,000 of Common Stock
exercisable at $2.50 per share up to a maximum of 75,000 shares. Also, in
connection with the transaction, the Company paid $40,000 of fees to an
investment-banking firm and issued a warrant to purchase 125,000 shares of
Common Stock at an exercise price of $2.00 per share. The estimated value of
this warrant is $87,500 which is a debt issuance cost to be written off to
interest expense over the term of the Debentures. The Purchase Agreement
includes a beneficial conversion feature. The intrinsic value of the beneficial
conversion feature of each tranche will be allocated to additional paid-in
capital with the resulting discount on the debt resulting in a non-cash interest
expense charge to earnings (loss) over the vesting period of the conversion
feature. The intrinsic value of the conversion feature of the first tranche is
$125,000. Net proceeds to the Company will be used for working capital, the
development of new business opportunities, and other general corporate purposes.
ANALYSIS OF CASH FLOWS FROM OPERATIONS
Net cash used in operating activities was $2,652,000 and $9,374,000 for the
years ended September 30, 1997 and 1996, respectively. The decrease in cash used
in operating activities was primarily a result of the decreased net loss in
fiscal 1997 adjusted for changes in operating assets and liabilities. Cash flows
from changes in operating assets and liabilities changed from cash used of
$3,016,000 in fiscal 1996 to $2,389,000 of cash provided in fiscal 1997. This
$5,405,000 change in cash flow from operating assets and liabilities resulted
primarily from improved accounts receivable and inventory balances.
<PAGE>
Net cash provided by investing activities was $5,289,000 for the year ended
September 30, 1997, as compared with $757,000 of net cash used in investing
activities for the year ended September 30, 1996. The change was primarily due
to proceeds from paydowns and sales of marketable securities, and to a lesser
extent, reduced capital expenditures in fiscal 1997. Capital expenditures in
1996 were primarily for engineering and manufacturing test fixtures. The
Company's business does not require significant amounts of cash for capital
expenditures because substantial amounts of the manufacturing and assembly
processes utilized in the production of current products are performed by
outside vendors, as directed by the Company. Specifically, the Company purchases
electronics modules and standard mechanical assemblies from manufacturers of
such goods. In addition, sheet metal components, optical components and
specialized electronics modules are designed by the Company and manufactured to
the Company's proprietary specifications by outside sources.
Net cash used in financing activities was $1,213,000 for the year ended
September 30, 1997, as compared to net cash provided by financing activities of
$10,230,000 in 1996. Borrowings under lines of credit were $1,255,000 at
September 30, 1996. On September 29, 1995, the Company completed a private
placement to offshore accredited investors of $10,900,000 of 8% Convertible
Debentures due September 29, 1998 (the "1995 Debentures"), all of which were
converted to 4,237,748 shares of Common Stock as of September 30, 1997. The
average conversion price was $2.70 per share. Net proceeds to the Company during
fiscal 1996 after placement fees but before legal and other expenses were
$10,109,750. Interest accrued on the 1995 Debentures was also payable in Common
Stock at the time of conversion at the conversion price as described above. In
addition to the cash placement fee, a warrant to purchase 112,893 shares of the
Company's Common Stock at $8.40 per share was granted to the placement agent for
this offering. The warrant was valued at $112,893, which is reflected as a
discount on the 1995 Debentures and was amortized as interest expense over the
term of the 1995 Debentures. The intrinsic value of the beneficial conversion
feature of $1,923,529 was allocated to additional paid-in capital with the
resulting discount on the debt resulting in a non-cash interest expense charge
to earnings (loss) over the vesting period of the conversion feature. Net
proceeds to the Company were used for working capital, product development and
other corporate purposes.
At September 30, 1997, the Company had $1,891,000 in cash and cash
equivalents and $155,000 in marketable securities, which are classified as
available for sale. The unrealized loss on marketable securities was $135,000,
at September 30, 1996 and immaterial at September 30, 1997. These marketable
securities were collateral for borrowings under a line of credit. Virtually all
of the marketable securities were sold during fiscal 1997 with the proceeds used
to pay off all borrowings under the Norwest lines of credit. There were no
borrowings under lines of credit at September 30, 1997.
CAUTIONARY STATEMENTS
Information or statements provided by the Company from time to time,
including statements contained in this Form 10-K, may contain certain
"forward-looking information" including comments regarding anticipated future
operations, market opportunities, operating results and financial performance of
the Company. The cautionary statements provided below are being made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") and with the intention of obtaining the benefits of the "safe harbor"
provisions of the Act for such forward-looking information.
The Company cautions readers that any forward-looking information provided
by the Company is not a guarantee of future performance. Any such
forward-looking information is subject to risks and uncertainties that may cause
actual results to differ materially from those anticipated. Furthermore, the
Company assumes no obligation to update such forward-looking information.
<PAGE>
GENERAL
Among the most significant of these risks and uncertainties is the ability
of the Company to:
* Achieve operating profitability;
* Develop and introduce new products and services;
* Build profitable revenue streams around these new offerings;
* Maintain the loyalty and continued purchasing of the Company's
products by existing customers;
* Collect outstanding accounts receivable and manage the
concentration of credit and payment timing risks particularly
regarding large customers;
* Create and maintain satisfactory distribution and operations
relationships with AFIS vendors;
* Attract and retain key employees;
* Secure the timely and cost-effective availability of components.
INCREASED COMPETITION
In addition, markets for the Company's products and services are
characterized by significant and increasing competition. The Company's financial
results may be adversely affected by the actions of existing and future
competitors, including the development of new technologies, the introduction of
new products, and price reductions by such competitors to gain or retain market
share.
WORKING CAPITAL AND LIQUIDITY
Due primarily to continuing operating losses, the Company has not yet
achieved positive cash flow. The Company has been and continues to be reliant on
the availability of outside capital to sustain its operations. Management
believes that cash and cash equivalents, accounts receivable and working capital
provided from operations, together with available financing sources, are
sufficient to meet current and foreseeable operating requirements, including the
investment required to capitalize on new business opportunities. Risks related
to the Company's ability to maintain adequate working capital and liquidity
include the continued availability of bank credit after the expiration of the
Company's current accounts receivable line of credit in January 1998; the
availability of future tranches of capital under the terms of the 1997
Convertible Subordinated Debenture Purchase Agreement (see note 14 to the
Financial Statements below); and payment by customers of accounts receivable at
such times and in such amounts as to enable the Company to meet its payment
obligations. Furthermore, there can be no assurance that further financing may
not be required, or, if further financing is required, that it will be available
on terms that are acceptable or favorable to the Company.
LAW ENFORCEMENT MARKET CHARACTERISTICS RESULT IN IRREGULAR REVENUE CYCLES
The Company's performance in any one reporting period is not necessarily
indicative of sales trends or future performance. Law enforcement agencies are
subject to political and budgetary constraints and the nature of the law
enforcement market and government procurement processes are expected to continue
to result in irregular and unpredictable revenue cycles for the Company. In many
instances, customer procurements are dependent on the continued availability of
state or federal government grants and general tax funding.
LOCAL GOVERNMENTAL CREDIT CONSIDERATIONS
The Company extends substantial credit to state and local governments in
connection with sales of products to law enforcement agencies. Approximately
89%, and 70%, respectively, of customer accounts receivable at September 30,
1997 and 1996 were from government agencies, of which 39% and 40%,
<PAGE>
respectively, were from a single customer. For the years ended September 30,
1997, 1996 and 1995, sales to three customers in 1997 accounted for 43%, two
customers in 1996 accounted for 30%, and two customers in 1995 accounted for
52%, respectively, of annual sales. Sales to sizeable customers requiring large
and sophisticated networks of TENPRINTER systems and peripheral equipment often
include technical requirements which may not be fully known at the time
requirements are specified by the customer. In addition, contracts may specify
performance criteria, which must be satisfied before the customer accepts the
products and services. Collection of accounts receivable may be dependent on
completion of customer requirements, which may be unpredictable and not fully
understood at the time of acceptance of the order by the Company, and may
involve investment of additional Company resources. These investments of
additional resources are accrued when amounts can be estimated but may be
uncompensated and negatively impact profit margins and the Company's liquidity.
NEED TO UPGRADE PRODUCTS AND DEVELOP NEW TECHNOLOGIES
Continued participation by the Company in the law enforcement market for
live-scan systems requires the investment of Company resources in continuous
upgrading of the Company's products and technology sufficient for the Company to
compete and to meet regulatory and statutory standards. There can be no
assurance that such resources will be available to the Company or that the pace
of product and technology development established by management will be
appropriate to the competitive requirements of the marketplace.
GAMING MARKET RISKS
The Company has recently announced an agreement in principle with Grand
Casinos, Inc., to form a joint venture for the completion of productization and
subsequent marketing of the resultant product(s) based on the Company's TRAK-21
technology. The terms and conditions of the joint venture have not been fully
negotiated as of the date of this Form 10-K. There can be no assurance that a
definitive agreement satisfactory to both parties will be reached. In the event
that a joint venture is formed, it is susceptible to the normal business risks
customary to a start-up operation. In particular, although prototype models of
TRAK-21 have been successfully demonstrated, there can be no assurance that this
technology will operate as required in live casino environments or that products
based on TRAK-21 technology will be accepted by customers. In addition, it has
not been determined whether or not the TRAK-21 system will be able to compete,
on the basis of price and performance, with player tracking systems of
competitors whose systems have been marketed for longer periods of time. There
can be no assurance, therefore, that the joint venture, if implemented, will be
profitable to the Company.
SYSTEMS INTEGRATION AND NEW PRODUCT OPPORTUNITIES
The Company has recently established a systems integration division
designated as the Integrated Identification Solutions Division or "IIS". This is
a start-up operation with the normal risks, attendant to the establishment of a
new business. The ability of this new enterprise to ultimately generate revenues
and profits is as yet undetermined. The Company believes it must invest
significant resources to attract key employees, build a technical infrastructure
and market the capabilities of the division to prospective customers prior to
attracting any significant base of customers. It cannot be known whether
sufficient profits will ultimately be generated to provide a return on this
investment. While the Company believes that it has identified areas of market
opportunity not well served by current participants, competition can be expected
to increase, and such potential competitors may have greater resources available
than the Company.
<PAGE>
There can be no assurance that the Company will be able to attract and
retain qualified systems integration personnel necessary for the success of the
IIS Division, which depends significantly upon the efforts and performance of
its personnel.
The Company is currently evaluating the investment of resources in product
development and marketing related to its FC and SQUID products. The potential
impact on the Company's future revenues and profits cannot be determined at this
time.
YEAR 2000 IMPACT ON COMPUTER SYSTEMS
In June 1996, the Company began converting its computer systems enabling
proper processing of transactions relating to the year 2000 and beyond. The
operating system vendor has made software upgrades available to make its
software compatible with the year 2000. The Company will also test its
application software to ensure compatibility with the year 2000. The Company
presently believes that, with modifications to existing software and converting
to new software, the year 2000 will not pose significant operational problems
for the Company's computer systems as so modified and converted, although there
can be no assurance that unforeseen difficulties or costs may not arise.
EFFECT OF CERTAIN ANTI-TAKEOVER LAWS AND STOCKHOLDERS' RIGHTS PLAN
Certain provisions of the Delaware General Corporation Law and the Rights
Agreement between the Company and Norwest Bank Minnesota, National Association,
adopted by the Company effective May 2, 1996 (the "Rights Plan"), may have the
effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals. Section 203 of the Delaware
General Corporation Law restricts business combinations with interested
stockholders without board approval. Pursuant to the Rights Plan, the Company
declared a dividend of one common share purchase right (the "Right") for each
outstanding share of Common Stock. Each Right will entitle the holder thereof to
purchase from the Company after the Distribution Date (as described below), a
number of shares of Common Stock to be determined under the Rights Plan at an
initial purchase price of $35, subject to adjustment. One additional Right is
deemed delivered with each share of Common Stock subsequently issued by the
Company. The Rights become exercisable on the first day after the earlier of (i)
ten business days after the public announcement of the acquisition by a person
or group of 15% or more of the outstanding Common Stock or (ii) ten business
days after the commencement, or the first public announcement, of an intention
to acquire through tender or exchange offer 15% or more of the outstanding
Common Stock (the "Distribution Date"). In the event that the Company does not
have sufficient authorized but unissued shares of Common Stock to permit the
delivery of the required number of shares upon the exercise in full of the
Rights, then each Right shall entitle the holder thereof to purchase the number
of shares of Common Stock equal to a fraction determined under the Rights Plan.
As of the date hereof, the Company does not have sufficient authorized and
unissued shares of Common Stock to fully implement the Rights Plan. The Rights
Plan may discourage certain types of transactions involving an actual or
potential change in control of the Company which could be beneficial to the
Company or its stockholders.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Digital Biometrics, Inc.:
We have audited the accompanying balance sheets of Digital Biometrics, Inc.
as of September 30, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended September 30, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Digital Biometrics, Inc. as
of September 30, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended September 30, 1997,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 21, 1997,
except as to note 14(a) which
is as of November 24, 1997,
and note 14(b) which is as of
December 1, 1997
<PAGE>
DIGITAL BIOMETRICS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,891,397 $ 466,990
Marketable securities (note 4) 154,808 --
Accounts receivable, less allowance for doubtful accounts of $441,276 and
$692,534, respectively 5,161,356 5,676,849
Inventory (note 2) 2,294,593 3,633,659
Prepaid expenses and other costs 163,594 208,349
------------ ------------
Total current assets 9,665,748 9,985,847
------------ ------------
Property and equipment (note 3) 2,027,737 2,471,754
Less accumulated depreciation and amortization (1,113,185) (1,089,026)
------------ ------------
914,552 1,382,728
------------ ------------
Marketable securities (note 4) -- 5,690,371
Patents, trademarks, copyrights and licenses, net of accumulated amortization of
$156,171 and $192,899, respectively (note 1) 118,938 123,017
Deferred issuance costs on convertible debentures, net of accumulated amortization of
$196,854 and $172,476, respectively (note 7) -- 127,408
------------ ------------
$ 10,699,238 $ 17,309,371
============ ============
Current liabilities:
Accounts payable $ 1,451,779 $ 1,103,174
Line of credit advances (note 5) -- 1,255,000
Deferred revenue 677,925 649,178
Accrued warranty 584,676 128,500
Other accrued expenses (note 6) 819,610 1,343,408
------------ ------------
Total current liabilities 3,533,990 4,479,260
Convertible debentures (note 7) -- 2,374,739
------------ ------------
Total liabilities 3,533,990 6,853,999
------------ ------------
Stockholders' equity (note 10):
Common Stock, $.01 par value. Authorized, 20,000,000 shares; issued
and outstanding 12,361,038 and 10,777,288 shares, respectively 123,610 107,773
Additional paid-in capital 42,439,576 39,743,380
Unrealized losses on marketable securities (note 4) (1,639) (134,753)
Deferred compensation (73,500) (96,000)
Notes receivable from sale of Common Stock -- (117,623)
Accumulated deficit (35,322,799) (29,047,405)
------------ ------------
Total stockholders' equity 7,165,248 10,455,372
Commitments (note 12)
------------ ------------
$ 10,699,238 $ 17,309,371
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DIGITAL BIOMETRICS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
Identification systems (note 1) $ 9,712,259 $ 6,821,025 $ 6,069,382
Maintenance and other services 1,707,099 1,506,247 1,228,632
Other -- -- 1,800,000
------------ ------------ -----------
Total 11,419,358 8,327,272 9,098,014
------------ ------------ -----------
Cost of revenues:
Identification systems (note 1) 6,614,314 3,814,167 3,040,428
Maintenance and other services 2,196,957 2,367,314 1,644,330
Non-recurring charges 1,529,118 -- --
Other -- -- 588,654
------------ ------------ -----------
Total 10,340,389 6,181,481 5,273,412
------------ ------------ -----------
Gross margin 1,078,969 2,145,791 3,824,602
------------ ------------ -----------
Selling, general and administrative expenses:
Sales and marketing 2,057,099 3,369,441 2,394,916
Engineering and development 2,526,347 4,569,751 2,854,592
Depreciation and amortization 319,536 1,049,584 529,687
General and administrative 2,043,953 2,753,444 1,700,017
Non-recurring charges 330,319 -- --
---------------------------------------------
Total expenses 7,277,254 11,742,220 7,479,212
------------ ------------ -----------
Loss from operations (6,198,285) (9,596,429) (3,654,610)
Other income (expense):
Interest income 230,347 585,708 377,881
Interest expense (note 7) (300,039) (2,676,182) (47,826)
Loss on disposal of fixed assets (7,417) -- --
------------ ------------ -----------
Total other income (expense) (77,109) (2,090,474) 330,055
------------ ------------ -----------
Net loss $ (6,275,394) $(11,686,903) $(3,324,555)
============ ============ ===========
Loss per common share $ (0.53) $ (1.24) $ (0.43)
============ ============ ===========
Weighted average common shares outstanding 11,766,220 9,451,015 7,814,144
============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DIGITAL BIOMETRICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Deferred
------------------- Paid-in Comp- Accumulated
Shares Amount Capital ensation Other Deficit Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1994 7,787,959 $ 77,880 $28,846,828 $(389,483) $(730,198) $(14,035,947) $ 13,769,080
Restricted stock awards (note 10) 6,360 63 41,937 (42,000) -- -- --
Amortization of deferred compensation -- -- -- 214,799 -- -- 214,799
Exercise of employee stock options 30,500 305 70,550 -- -- -- 70,855
Stock award for retirement plan (note 9) 8,814 88 66,017 -- -- -- 66,105
Change in unrealized loss on marketable
securities (note 4) -- -- -- -- 256,548 -- 256,548
Issuance of warrant in connection with
convertible debentures (note 7) -- -- 112,893 -- -- -- 112,893
Intrinsic value of beneficial
conversion feature of convertible
debentures (note 7) -- -- 1,923,529 -- -- -- 1,923,529
Net loss -- -- -- -- -- (3,324,555) (3,324,555)
--------------------------------------------------------------------------------------
Balance September 30, 1995 7,833,633 78,336 31,061,754 (216,684) (473,650) (17,360,502) 13,089,254
Restricted stock awards (note 10) 17,456 175 71,825 (72,000) -- -- --
Amortization of deferred compensation -- -- -- 192,684 -- -- 192,684
Stock award for retirement plan (note 9) 16,831 168 94,506 -- -- -- 94,674
Change in unrealized loss on marketable
securities (note 4) -- -- -- -- 41,724 -- 41,724
Debt conversion (note 7) 2,751,868 27,519 8,201,870 -- -- -- 8,229,389
Warrant exercise 157,500 1,575 313,425 -- -- -- 315,000
Forgiveness of notes receivable from
sale of common stock (note 10) -- -- -- -- 179,550 -- 179,550
Net loss -- -- -- -- -- (11,686,903) (11,686,903)
--------------------------------------------------------------------------------------
Balance September 30, 1996 10,777,288 107,773 39,743,380 (96,000) (252,376) (29,047,405) 10,455,372
Restricted stock awards (note 10) 31,072 311 44,689 (18,000) -- -- 27,000
Amortization of deferred compensation -- -- -- 40,500 -- -- 40,500
Exercise of stock options 25,000 250 41,500 -- -- -- 41,750
Stock award for retirement plan (note 9) 41,798 418 88,403 -- -- -- 88,821
Change in unrealized loss on marketable
securities (note 4) -- -- -- -- 133,114 -- 133,114
Debt conversion (note 7) 1,485,880 14,858 2,506,341 -- -- -- 2,521,199
Forgiveness of notes receivable from
sale of Common Stock (note 10) -- -- -- -- 117,623 -- 117,623
Issuance of warrant as payment for
services received (note 1) -- -- 15,263 -- -- -- 15,263
Net loss -- -- -- -- -- (6,275,394) (6,275,394)
--------------------------------------------------------------------------------------
Balance September 30, 1997 12,361,038 $123,610 $42,439,576 $ (73,500) $ (1,639) $(35,322,799) $ 7,165,248
======================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DIGITAL BIOMETRICS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(6,275,394) $(11,686,903) $(3,324,555)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for doubtful accounts receivable (98,660) 651,000 48,000
Provision for technological obsolescence -- 631,243 486,738
Deferred compensation amortization and other 207,997 372,234 214,799
Depreciation and amortization 585,622 864,183 551,715
Write-off of intangible assets 20,048 548,788 --
Loss on sale of marketable securities 64,624 -- --
Loss on disposal and write-off of fixed assets
and tooling 227,769 8,305 10,071
Interest expense amortization for the
intrinsic value of the beneficial
conversion feature of convertible -- 1,923,529 --
debentures
Interest expense on debentures converted into
Common Stock 227,539 329,754 --
Changes in operating assets and liabilities:
Accounts receivable 614,153 (1,833,548) 33,506
Inventory 1,339,066 (2,389,220) 177,059
Prepaid expenses and other expenses (5,119) (63,424) (23,144)
Accounts payable 348,605 641,843 (352,467)
Deferred revenue 28,747 106,420 81,083
Accrued expenses 63,462 521,741 248,955
----------- ------------ -----------
Net cash used in operating activities (2,651,541) (9,374,055) (1,848,240)
----------- ------------ -----------
Cash flows from investing activities:
Purchase of property and equipment (242,613) (849,755) (491,318)
Proceeds from disposal of property and equipment -- -- 7,599
Patents, trademarks, copyrights and licenses (70,516) (36,859) (101,966)
Sales of marketable securities before maturity 5,602,327 130,043 687,965
----------- ------------ -----------
Net cash (used in) provided by investing activities 5,289,198 (756,571) 102,280
----------- ------------ -----------
Cash flows from financing activities:
Net line of credit (payments) advances (1,255,000) (195,000) 1,450,000
Exercise of warrants and options 41,750 315,000 70,855
Issuance of convertible debentures -- 10,109,750 --
----------- ------------ -----------
Net cash (used in) provided by financing activities (1,213,250) 10,229,750 1,520,855
----------- ------------ -----------
Increase (decrease) in cash and cash equivalents 1,424,407 99,124 (225,105)
Cash and cash equivalents at beginning of year 466,990 367,866 592,971
----------- ------------ -----------
Cash and cash equivalents at end of year $ 1,891,397 $ 466,990 $ 367,866
=========== ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 222,132 $ 13,210 $ 47,826
=========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Digital Biometrics, Inc., (the "Company") is a developer, manufacturer,
marketer and integrator of computer-based products and services for the
identification of individuals. The Company is a leading vendor of products
employing "biometric" technology, the science of the identification of
individuals through the measurement of distinguishing biological
characteristics. The Company's principal product is the TENPRINTER(R) system for
"live-scan" fingerprint capture used mainly in law enforcement applications. The
TENPRINTER(R) is a computer-based system with patented high-resolution optics
which captures, digitizes, prints and transmits forensic-grade fingerprint
images. The Company also offers high-resolution single-fingerprint capture
products for commercial and governmental identification applications and has
recently established a systems integration services business focused on the
integration of biometric and other identification technologies into applications
for government and commercial markets. Substantially all of the Company's
revenues in fiscal 1997, 1996 and 1995 came from sales and maintenance of
live-scan systems for law enforcement and related applications.
STATEMENTS OF CASH FLOWS
CASH AND CASH EQUIVALENTS:
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments and certificates of deposit purchased with an
original maturity date of three months or less to be cash equivalents.
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On December 31, 1996 and 1995, the Company issued 41,798 and 16,831 shares,
respectively, of Common Stock to satisfy the Company's discretionary matching to
employees electing participation in the Company's 401(k) retirement plan. These
issuances increased Common Stock and additional paid-in capital by $88,821 and
$94,674, respectively, and reduced accrued compensation by the same amount.
On January 27, 1997, the Company issued two warrants in payment for
services rendered in securing employment of certain executive officers of the
Company. Each warrant entitles the holder to purchase 10,000 shares of the
Company's Common Stock, exercisable at the price of $2.3125 per share, subject
to antidilution provisions of the warrants. These warrants were valued at a
combined amount of $15,263.
Effective with the acceptance of the resignation of a director, 6,341
shares of restricted Common Stock, which were not yet vested, were forfeited.
Effective with their election at the annual stockholders' meeting held on
March 18, 1997, the Company granted 25,413 shares of restricted Common Stock to
certain of its non-employee directors. The grant resulted in $54,000 in
additional Common Stock issued and an equal amount of deferred compensation
expense that is being amortized on a straight-line basis over the three-year
restricted period.
Effective September 30, 1997, the Company granted 12,000 shares of
restricted Common Stock to its non-employee directors. The grant resulted in
$27,000 in additional Common Stock issued and an equal amount of compensation
expense.
For the fiscal years ended September 30, 1997 and 1996, the Company has
issued 1,485,880 and 2,751,868 shares, respectively, of Common Stock for the
conversion of principal aggregating $2,450,000 and 8,450,000, respectively, of
the 1995 8% Convertible Debentures plus $228,000 and $329,000, respectively, of
accrued interest.
SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company extends credit to state and local governments in connection
with sales of products to law enforcement agencies. Approximately 89% and 70%,
respectively, of customer accounts receivable at September 30, 1997 and 1996,
were from government agencies, of which 39% and 40%, respectively, was from a
single customer. For the years ended September 30, 1997, 1996 and 1995, sales to
three customers in 1997 accounted for 43%, sales to two customers in 1996
accounted for 30%, and sales to two customers in 1995 accounted for 52%,
respectively, of annual sales. Export revenues were 5%, 15% and 21% of total
revenues, for the years ended September 30, 1997, 1996 and 1995, respectively.
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
MARKETABLE SECURITIES
Marketable securities consist of collateralized mortgage-backed securities
and U.S. Treasury zero coupon bonds. The Company classifies its marketable debt
securities as available for sale and records these securities at fair market
value. Net realized and unrealized gains and losses are determined on the
specific identification cost basis.
Unrealized gains and losses are reflected as a separate component of
stockholders' equity. A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than temporary results
in a charge to operations resulting in the establishment of a new cost basis for
the security.
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
Costs associated with patents, trademarks and copyrights are capitalized
and amortized over 60 months or the remaining life of the patent, trademark or
copyright, whichever is shorter. The cost of software licenses related to
purchased software are capitalized and amortized over 36 months or the life of
the license, whichever is shorter. Accumulated amortization at September 30,
1997 and 1996, was $156,171 and $192,899, respectively. The Company wrote off
$20,048 of unamoritized patents during fiscal 1997 for patents which were
abandoned. The Company wrote off $548,788 of unamortized technology rights costs
during the fourth quarter of fiscal 1996 as a result of the decision to no
longer actively pursue the technology acquired in the Design Data acquisition in
1994. Management periodically assesses the amortization period and
recoverability of the carrying amount of intangible assets based upon an
estimation of their value and future benefits of the recorded asset. Management
has concluded that the carrying amount of the intangible assets is realizable.
REVENUE RECOGNITION
Revenues from product sales are generally recognized on the date of
shipment. The Company's standard terms of sale are payment due net in 30 days,
f.o.b. Digital Biometrics, Inc. Terms of sale and shipment for certain
procurements by municipal or other government agencies may, however, be subject
to negotiation. Revenue under contracts where a performance bond, collateral or
customer acceptance is required is not recognized until collateral requirements
have been satisfied and customer acceptance has occurred. In cases where the
Company is required to purchase a performance bond or to deposit collateral in
accordance with the terms of a contract, the Company's policy is to defer
revenues under such contracts until the amount shipped exceeds the amount of the
performance collateral or until the security is released by the bonding company.
Maintenance revenues are recognized over the life of the contract on a
straight-line basis.
The Company's performance for any period is not necessarily indicative of
sales trends or future performance. The nature of the law enforcement market and
the government procurement process are expected to result in irregular and
unpredictable revenue cycles for the Company.
WARRANTY COSTS
Estimated product warranty costs are accrued at date of shipment.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
ENGINEERING AND DEVELOPMENT ARRANGEMENTS
Engineering and development costs are expensed as incurred. Engineering and
development expenses during fiscal 1996 include fourth-quarter charges of
$374,000 related to adjustments of unreimbursed manufacturing setup costs
related to an international development project. After adjustments, engineering
and development expenses for fiscal 1996 are net of a reimbursement of $87,700
from a company with which there was a teaming agreement for an international
development project.
NET LOSS PER COMMON SHARE
Net loss per common share is determined by dividing the net loss by the
weighted average number of shares of Common Stock and dilutive common share
equivalents outstanding. Common share equivalents have been excluded from the
computation of net loss per share, as their effect is anti-dilutive.
<PAGE>
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128") which simplifies the standards for computing earnings per share. SFAS
No. 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share, which excludes dilution. SFAS No. 128
must be adopted for financial statements issued for periods ending after
December 15, 1997, with earlier application not permitted. All prior-period
earnings per share amounts must be restated to conform to SFAS 128. The Company
plans to adopt SFAS No. 128 during the first quarter of fiscal 1998.
INCOME TAXES
The Company has adopted the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement carrying amount and tax basis of assets and liabilities. The Company
provides for deferred taxes at the enacted tax rate that is expected to apply
when the temporary differences reverse.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), was effective for 1996. This
statement provides for a fair value based method of accounting for grants of
equity instruments to employees. SFAS No. 123 permits entities to continue to
apply the intrinsic-value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25");
however, pro forma disclosures of net income (loss) and earnings (loss) per
share must be presented as if the fair value based method had been applied in
measuring compensation cost. The Company elected to continue with the
intrinsic-value method prescribed by APB No. 25 and the pro forma disclosures in
Note 10.
ACCOUNTING 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.
(2) INVENTORY
Inventory is valued at standard cost, which approximates the lower of
first-in, first-out (FIFO) cost or market. Inventory consists of the following:
September 30,
1997 1996
------------------- -------------------
Raw materials $1,054,606 $1,934,371
Work in process 699,097 717,696
Finished goods 540,890 981,592
------------------- -------------------
$2,294,593 $3,633,659
=================== ===================
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Furniture and equipment are recorded at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives, generally
three to five. Leasehold improvements are amortized over the estimated useful
life of the asset or lease term, whichever is shorter. Property and equipment
consist of the following:
September 30,
1997 1996
------------- --------------
Leasehold improvements $ 200,942 $ 172,222
Office furniture and equipment 671,146 835,933
Manufacturing equipment 237,465 193,612
Engineering equipment and tooling 918,184 1,269,987
------------- --------------
$2,027,737 $2,471,754
============= ==============
(4) MARKETABLE SECURITIES
Marketable securities consist primarily of collateralized mortgage-backed
securities. Net realized and unrealized gains and losses are determined on the
specific identification cost basis. Realized losses from sales of marketable
securities during fiscal 1997 were $64,624. Unrealized gains and losses are
reflected as a separate component of stockholders' equity.
The unrealized loss for available-for-sale marketable securities is as
follows:
September 30,
1997 1996
----------------- -----------------
Fair market value $154,808 $5,690,371
Amortized cost 156,447 5,825,124
----------------- -----------------
Unrealized gain (loss) $ (1,639) $ (134,753)
================= =================
(5) LINES OF CREDIT
The Company entered into a receivables financing line of credit effective
October 1, 1996, for the lesser of eligible receivables or $3,500,000 with
Norwest Business Credit. Borrowings under this line of credit are secured by all
assets of the Company. The line bears interest at 1.5% above the prime rate
(8.5% at September 30, 1997), is payable upon demand and expires in January
1998. The Company elected to use the proceeds from the sale of marketable
securities to pay off all borrowings under the line at September 30, 1997. For
the period from September 30, 1997 through January 31, 1998, the minimum
interest shall be $10,000 per the terms of the agreement.
The Company had a $4,000,000 line of credit with Norwest Bank Minnesota
N.A. Borrowings under this line of credit were secured by marketable securities
and were limited to 80% of the market value of marketable securities held as
collateral by the bank. The Company elected to use the proceeds from the sale of
marketable securities to pay off all borrowings under the line at September 30,
1997 and terminate the line.
The Company has a $200,000 line of credit with First Bank Minneapolis,
secured by cash deposits. Borrowings under the line bear interest at the prime
rate and are payable upon demand. The line expires in March 1998. There were no
amounts borrowed under the line at September 30, 1997.
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) OTHER ACCRUED EXPENSES
September 30,
1997 1996
--------------- ---------------
Other accrued expenses consist of:
Accrued salaries $ 265,707 $ 442,701
Accrued vacation 121,994 112,665
Accrued interest payable - 205,529
Other accrued expenses 431,909 582,513
--------------- ---------------
$ 819,610 $1,343,408
=============== ===============
(7) CONVERTIBLE DEBENTURES
On September 29, 1995, the Company completed a private placement to
offshore accredited investors of $10,900,000 of 8% Convertible Debentures due
September 29, 1998 (the "1995 Debentures"). Net proceeds to the Company after
placement fees but before legal and other expenses were $10,109,750. The 1995
Debentures were convertible one-third after 45 days, one-third after 75 days and
one-third after 105 days at the option of the 1995 Debenture holders. The
Company had the right to redeem the debentures prior to conversion. The
conversion price was equal to the lesser of $7.00 per common share or 85% of the
average trading price for any five consecutive trading days before conversion.
Interest accrued on the 1995 Debentures was payable in Common Stock at the time
of conversion at the conversion price as described above. In addition to the
cash placement fee, a warrant to purchase 112,893 shares of the Company's Common
Stock at $8.40 per share was granted to the placement agent for this offering.
The warrant was valued at $112,893, which was reflected as a discount on the
1995 Debentures and was amortized as interest expense over the term of the 1995
Debentures. The intrinsic value of the beneficial conversion feature of
$1,923,529 was allocated to additional paid-in capital with the resulting
discount on the debt resulting in a non-cash interest expense charge to earnings
(loss) over the vesting period of the conversion feature. Net proceeds to the
Company were used for working capital, product development and other general
corporate purposes.
All of the 1995 Debentures and accrued interest have been converted into
Common Stock during fiscal 1996 and fiscal 1997. The Company has issued
4,237,748 shares of Common Stock for the conversion of principal aggregating
$10,900,000 of the Convertible Debentures plus $557,000 of accrued interest at
an average conversion price of $2.70 per share. For the fiscal year ended
September 30, 1997, the Company has issued 1,485,880 shares of Common Stock for
the conversion of principal aggregating $2,450,000 of the 1995 Convertible
Debentures plus $228,000 of accrued interest at an average conversion price of
$1.80 per share.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are recorded in its balance sheet. The
carrying amount for cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities, line of credit advances and convertible debentures
approximate fair value due to the immediate or short-term maturity of these
financial instruments. The fair values of investments in marketable securities
are based on quoted market prices and are summarized in note 4.
(9) RETIREMENT PLAN
Effective January 1, 1992, the Company adopted a profit sharing and savings
plan (the Plan) classified as a defined contribution plan and qualifying under
Section 401(k) of the Internal Revenue Code. The Plan allows employees to defer
a portion of their annual compensation through pre-tax contributions to the
Plan. At the discretion of the Board of Directors, the Company may make matching
contributions up to an amount equal to 50% of the contributions made by each
employee, subject to a maximum contribution for each employee of 5% of
compensation. The Board may also make other discretionary contributions to the
Plan. Matching contributions at September 30, 1997 and 1996 resulted in accrued
compensation expense of $88,321 and $81,184, respectively. Matching
contributions have been paid through the issuance of Company Common Stock. For
the years ended September 30, 1997, 1996 and 1995, the Company incurred $95,958,
$102,504 and $66,708 respectively, of expense related to this plan.
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) STOCKHOLDERS' EQUITY
CAPITAL STOCK
On December 31, 1996 and 1995, the Company issued 41,798 and 16,831 shares,
respectively, of Common Stock to satisfy the Company's discretionary matching to
employees electing participation in the Company's 401(k) retirement plan. These
issuances increased Common Stock and additional paid-in capital by $88,821 and
$94,674, respectively.
SHAREHOLDER RIGHTS PLAN
In May 1996, the Board of Directors adopted a Shareholder Rights Plan. The
Plan is designed to enable the Company and its Board of Directors to develop and
preserve long-term value for stockholders and to protect stockholders in the
event an attempt is made to acquire control of the Company without an offer of
fair value to all stockholders. Under the Plan, each stockholder of record
beginning at the close of business on May 22, 1996, will receive as a dividend
one right for each share of DBI Common Stock held. The rights expire on April
30, 2006.
STOCK OPTIONS
In order to attract and retain employees and directors, while
preserving cash resources, the Company has, since its inception, utilized stock
option awards issued through various stock option plans and employment
arrangements. As of September 30, 1997, there were issued and outstanding
options for 1,182,500 shares of Common Stock issued to employees and directors
of which options to purchase 182,467 shares were currently exercisable.
On January 14, 1994, two executive officers exercised options for 88,438
and 135,000 shares of Common Stock, respectively, at an exercise price of $1.33
per share. Pursuant to terms of the stock option plans, the Company loaned the
total exercise amount to the executive officer in return for non-interest
bearing promissory notes, secured by Common Stock issued. The notes are
reflected as a reduction of stockholders' equity. In connection with each
executive's severance package, $117,623 and $179,550 of notes receivable were
forgiven by the Company and recorded as compensation expense in fiscal 1997 and
1996, respectively.
Information relating to stock options during fiscal 1997, 1996, and 1995 is
as follows:
Shares Weighted
Under Average
Option Price Range Exercise Price
------ ----------- --------------
Unexercised options outstanding -
September 30, 1994 574,900 $1.67-$14.75 $10.65
Options granted 339,500 $7.44-$9.00 $7.90
Options exercised (30,500) $2.00-$8.00 $2.32
Options forfeited (35,300) $7.44-$12.00 $10.25
- --------------------------------------------------------------------------------
Unexercised options outstanding -
September 30, 1995 848,600 $1.67-$14.75 $9.87
Options granted 110,500 $5.50-$6.25 $5.77
Options exercised - - -
Options forfeited (76,500) $7.44-$13.63 $9.56
- --------------------------------------------------------------------------------
Unexercised options outstanding -
September 30, 1996 882,600 $1.67-$14.75 $9.38
Options granted 1,001,700 $1.56-$3.13 $2.19
Options exercised (25,000) $1.67 $1.67
Options forfeited (676,800) $2.56-$14.75 $9.80
- --------------------------------------------------------------------------------
Unexercised options outstanding -
September 30, 1997 1,182,500 $1.56-$14.75 $3.21
The following table summarizes information concerning options outstanding
and exercisable as of September 30, 1997:
Outstanding Exercisable
----------- -----------
Number of options 1,182,500 182,467
Weighted average remaining
contractual life, in years 8.93 6.11
Weighted average exercise price $3.21 $8.08
<PAGE>
The Company applies APB Opinion No. 25 in accounting for options granted
under its stock option plans and, accordingly, no compensation cost has been
recognized for its stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net loss would have increased to
the pro forma amounts indicated below:
1997 1996
--------------- ----------------
Net loss - as reported $(6,275,394) $(11,686,903)
Net loss - pro forma (6,773,897) (11,688,889)
Loss per share - as reported $(0.53) $(1.24)
Loss per share - pro forma $(0.58) $(1.24)
The pro forma net loss reflects only options granted in 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period,
typically three years, and compensation cost for options granted prior to
October 1, 1995, is not considered.
Principal assumptions used in applying the option valuation model were as
follows:
1997 1996
---------------- ---------------
Risk-free interest rate 5.75% 5.75%
Expected life, in years 10 10
Expected volatility 127% 68%
Expected dividend yield 0% 0%
RESTRICTED STOCK
Effective October 1, 1992, the Board of Directors adopted the 1992
Restricted Stock Plan (the "Plan") pursuant to which awards of restricted stock
may be made to employees and non-employee directors of the Company. The Plan
serves as a means of providing annual bonus amounts to executive employees and
as the means of compensation of non-executive directors effective with each
director's election at the annual meeting of stockholders. Restricted stock
awards vest over a three-year period. The Company awarded 25,413, 17,456 and
8,860 shares, respectively, of Common Stock with a fair market value of $54,000,
$72,000 and $72,000, respectively, for the years ended September 30, 1997, 1996
and 1995.
Effective September 30, 1997, the Company granted 12,000 shares of
restricted Common Stock to its non-employee directors. The grant resulted in
$27,000 in additional Common Stock issued and an equal amount of compensation
expense.
WARRANTS
The Company has warrants outstanding at September 30, 1997, for the
purchase of 140,893 shares of its Common Stock. The warrants are currently
exercisable and expire at various times through September 29, 2000. The exercise
prices per share range from $2.125 to $8.40.
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(11) INCOME TAXES
There is no provision for income taxes since a valuation allowance has been
established equal to the corresponding net deferred tax asset. At September 30,
1997, the Company has carryforwards of net operating losses and research and
development tax credits of $30,700,000 and $827,608, respectively. These
carryforwards expire as follows:
Net Research and
Operating Development
Loss Tax Credit
------------------- ------------------
1999 $ 346,711 $ 15,236
2000 116,546 1,997
2001 - 6,343
2002 547,523 40,774
2003 993,803 68,109
2004 22,477 1,497
2005 1,387,756 -
2006 1,310,521 34,307
2007 2,084,429 63,736
2008 2,248,457 133,548
2009 4,605,122 307,704
2010 2,734,225 154,357
2011 7,268,776 -
2012 7,033,654 -
------------------- ------------------
$30,700,000 $ 827,608
=================== ==================
Due to uncertainty of the realization of deferred tax assets, the Company
has established a valuation allowance equal to net deferred tax assets. The
change in the valuation allowance for the years ended September 30, 1997 and
1996, is as follows:
1997 1996
----------------- ----------------
Balance at beginning of year $11,328,000 $ 8,099,000
Change in valuation allowance 2,523,000 3,229,000
----------------- ----------------
$13,851,000 $11,328,000
================= ================
The current and long-term deferred income tax asset and liability amounts
as of September 30, 1997 and 1996, were composed of the following:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Current and long-term deferred income tax asset resulting
from future deductible temporary differences are:
Accounts receivable allowance $ 177,000 $ 277,000
Inventory capitalization 28,000 39,000
Other accrued expenses 538,000 704,000
Research and development tax credit carryforwards 828,000 828,000
Net operating loss carryforwards 12,280,000 9,480,000
---------------- ----------------
13,851,000 11,328,000
(13,851,000) (11,328,000)
---------------- ----------------
$ 0 $ 0
================ ================
</TABLE>
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(11) INCOME TAXES (CONTINUED)
The aforementioned carryforwards are subject to the limitation provisions
of Internal Revenue Code sections 382 and 383. These sections provide
limitations on the availability of net operating losses and credits to offset
current taxable income and related income taxes when an ownership change has
occurred. The Company's initial public offering in December 1990, resulted in an
ownership change pursuant to these provisions and, accordingly, the use of the
above carryforwards is subject to an annual limitation. The annual limitation on
use of net operating losses is calculated by multiplying the value of the
corporation immediately prior to the change in ownership by the long-term
federal tax exempt rate. A total of $3,700,000 of the net operating loss
carryforwards at September 30, 1997, is subject to the annual net operating loss
limitation, estimated at $350,000. If the limited carryforward amount for any
tax year exceeds the regular taxable income for such year, then the unused
portion may generally be carried forward to increase the annual limitation for
the following year. Utilization of net operating losses aggregating $27,000,000
which were incurred subsequent to the change of ownership are not limited.
However, any future ownership change could create a limitation with respect to
these loss carryforwards. Approximately $2,200,000 of the $30,700,000 net
operating loss carryforwards relates to compensation associated with the
exercise of non-qualified stock options which, when realized, would result in
approximately $880,000 credited to additional paid-in capital.
(12) LEASE COMMITMENTS
The Company leases its primary office and production facility under an
operating lease that expires in April 2001. Annual base rent under the lease
agreement is approximately $237,000 and the Company is obligated to pay a pro
rata share for property taxes, maintenance and other operating expenses. The
Company leases a separate sales and service office in Los Angeles, California,
under an operating lease that expires in December 1997, and is on a year-to-year
lease arrangement. The Company is currently negotiating the extension of this
lease. Rent expense for operating leases for 1997, 1996 and 1995 was $396,800,
$329,400 and $338,300, respectively. Future minimum payments on operating leases
for the years ending September 30, 1998, 1999, 2000 and 2001, are $354,200,
$372,200, $399,300 and $241,700, respectively.
(13) LITIGATION
On June 1, 1995, the Company filed a complaint for patent infringement
against Identix, Inc., of Sunnyvale, California, in the U.S. District Court for
the Northern District of California. The complaint alleges that Identix has
willfully and deliberately infringed a Company patent through the manufacture,
use and/or sale of competing products. The complaint seeks, among other things,
an injunction prohibiting further infringement as well as unspecified monetary
damages. Identix has responded to the complaint alleging, among other purported
defenses, non-infringement and patent invalidity.
On August 27, 1996, the judge assigned to the case granted a partial
summary judgment in favor of Identix dismissing the Company's claims of patent
infringement with respect to Identix's Touchprint 600 product line. A
predecessor product, the Touchprint 900, received a similar ruling in favor of
Identix on December 20, 1996. During January 1997, the Company filed an appeal
of the court's decision of non-infringement. These appeals are decided by the
Federal Circuit, which is a Court of Appeals in Washington D.C. On October 8,
1997, the appeal was argued before the Court. As of December 11, 1997, no
appellate decision has been issued. A prediction of the final outcome of the
appeal is not possible. In the event the Company does not prevail in this
litigation, its competitive position could be adversely affected.
Except for the foregoing there are no material lawsuits pending or, to the
Company's knowledge, threatened against the Company.
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(14) SUBSEQUENT EVENTS
(a) JOINT VENTURE WITH GRAND CASINOS, INC.
On November 24, 1997, the Company entered into a letter of intent to form a
joint venture with Grand Casinos Inc. to further develop, test and market the
TRAK-21 automated player tracking system. It is anticipated that a definitive
agreement will be reached before the end of calendar 1997 with deployment of a
system band on TRAK-21 technology in a Grand Casino property in 1998.
(b) ISSUANCE OF 8% CONVERTIBLE SUBORDINATED DEBENTURES AND WARRANTS
To provide additional working capital, on December 1, 1997, the Company
entered into a convertible subordinated debenture purchase agreement ("Purchase
Agreement") with a private investor, providing for the Company's issuance and
sale of up to an aggregate of $2,500,000 of 8% Convertible Debentures
("Debentures") in tranches of $500,000 each. The first tranche was sold on
December 1, 1997. Additional tranches may be issued upon request of the Company
within 90 days of each previous tranche, if the Company meets all conditions to
issuance including, but not limited to, conditions requiring the Company to have
effective and maintain a registration statement with the Securities and Exchange
Commission covering shares issuable upon conversion of the Debentures and a
requirement that the Company's market capitalization be at least $12 million.
The initial tranche sold in the amount of $500,000 on December 1, 1997, is
convertible in whole or in part at the option of the holder, with accrued
interest, into Common Stock, at a conversion equal to the lesser of the average
closing price of the five consecutive trading days preceding the transaction
($1.96 per share) or 80% of the average closing price of the five consecutive
trading days preceding the conversion date. Future tranches may be convertible
on a similar basis but the conversion prices will be related to the lesser of
the market price on the issue date and the market price on the conversion date.
The Company has the right, exercisable at any time upon two trading days notice
to the purchaser of the debentures given at any time the Company receives a
conversion notice and the conversion price in effect in connection with such
conversion notice is less than $1.25, to repay all or any portion of the
outstanding principal amount of the debentures which have been tendered for
conversion, at a price equal to the sum of 120% of the aggregate principal
amount of debentures to be repaid. In connection with the Purchase Agreement,
the Company has agreed to issue to the purchaser of the debentures, upon the
sale of each tranche warrants to purchase 15,000 of Common Stock exercisable at
$2.50 per share up to a maximum 75,000 shares. Also, in connection with the
transaction, the Company paid $40,000 of fees to an investment-banking firm and
issued a warrant to purchase 125,000 shares of Common Stock at an exercise price
of $2.00 per share. The estimated value of this warrant is $87,500 which is a
debt issuance cost to be written off to interest expense over the term of the
Debentures. The Purchase Agreement includes a beneficial conversion feature. The
intrinsic value of the beneficial conversion feature of each tranche will be
allocated to additional paid-in capital with the resulting discount on the debt
resulting in a non-cash interest expense charge to earnings (loss) over the
vesting period of the conversion feature. The intrinsic value of the conversion
feature of the first tranche is $125,000. Net proceeds to the Company will be
used for working capital, business development and other general corporate
purposes.
ITEM 9. CHANGES IN & DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING &
FINANCIAL DISCLOSURE
The Company has not changed its independent auditors nor has the Company
had any disagreements with its independent auditors on matters of accounting or
financial disclosure.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
directors and executive officers of the Company. All of the directors of the
Company serve until the next annual meeting of stockholders and until their
respective successors are elected and qualified.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
James C. Granger (1)..................... 51 President, Chief Executive Officer, and Director
C. McKenzie Lewis III (1)(2)(3).......... 51 Chairman and Director
John J. Metil............................ 47 Chief Operating Officer and Chief Financial Officer
Barry A. Fisher.......................... 43 Vice President - Sales, Marketing and Business
Development
Roman A. Jamrogiewicz.................... 45 Vice President - Engineering
Michel R. Halbouty....................... 56 Vice President - Operations
Jack A. Klingert (2)(3).................. 68 Director
George Latimer (2)(3).................... 62 Director
Stephen M. Slavin (1)(2)(3).............. 57 Director
</TABLE>
- ----------------------
(1) Member of Nominating Committee.
(2) Member of Compensation and Personnel Committee.
(3) Member of Audit Committee.
JAMES C. GRANGER. Mr. Granger became the Company's President and Chief
Executive Officer on January 1, 1997, and was appointed to the Board of
Directors of the Company effective January 27, 1997. Prior to joining the
Company, Mr. Granger was employed by ADC Telecommunications, Inc., as President
of its Access Platforms System between March 1995 and December 1996. Between
1989 and February 1995, Mr. Granger was employed by Sprint/United Telephone,
Orlando, Florida, in various senior marketing and management positions. Prior to
1989, Mr. Granger was employed by American Telephone & Telegraph in various
management positions.
C. MCKENZIE LEWIS III. Mr. Lewis was elected Chairman of the Company's
Board of Directors on October 28, 1996, and has served as a Director of the
Company since 1997. Between 1986 and 1996, Mr. Lewis served as Chief Executive
Officer and President and a director of Computer Network Technology Corporation
("CNT"), a developer and manufacturer of high-performance extended-channel
networking systems. Mr. Lewis has over 26 years experience in the computer and
data communications industry. Since December 1996, Mr. Lewis has served as
Managing General Partner in MMP Partners Limited Partnership, a Minnesota
limited partnership engaged primarily in making venture capital investments, and
serves on boards of directors of several; privately-held high technology
companies.
<PAGE>
JOHN J. METIL. Mr. Metil has served as the Company's Chief Operating
Officer and Chief Financial Officer since joining the Company in April 1997.
From August 1992 through April 1997, Mr. Metil served as Executive Vice
President with the Zebulon Group, Inc. Previously, he was a co-founder and
served as Chief Financial Officer of Tricord Systems, Inc., and held senior
finance and corporate development positions at National Computer Systems,
Control Data Corporation and Pillsbury Company.
BARRY A. FISHER. Mr. Fisher has served as Vice President of Sales,
Marketing and Business Development since joining the Company in March 1997. From
July 1995 through March 1997, Mr. Fisher served as Vice President of Sales with
American Connexions, a national sales management company. From January 1988
through July 1995, he served as Vice President of Sales for Recovery
Engineering. From September 1976 through January 1988, he held senior management
positions at the Tennant Company.
ROMAN A. JAMROGIEWICZ. Mr. Jamrogiewicz has served as Vice President of
Engineering since joining the Company in May 1997. From November 1977 through
April 1997, Mr. Jamrogiewicz was employed with Alliant Techsystems and served as
Business Segment Director and held positions of Director for Advanced
Development, Program Director and Director of Software Engineering.
MICHEL R. HALBOUTY. Mr. Halbouty has served as Vice President of Operations
since joining the Company in May 1997. Mr. Halbouty served as Vice President of
Manufacturing with NetStar, Inc., from May 1992 through May 1997. He has also
held senior management positions with Lee Data Corporation and Control Data.
JACK A. KLINGERT. Mr. Klingert served as the Company's Chairman from 1987
through October 28, 1996, and served as the Company's President and Chief
Executive Officer beginning in 1987, retiring January 1997. He has also served
as a member of the Company's Board of Directors since 1987. Prior to joining the
Company in April 1987, Mr. Klingert, from 1964 to 1987, held a number of senior
level management positions with Control Data Corporation. From 1958 to 1964, Mr.
Klingert worked on various classified scientific and systems programming
projects in the Departments of Theoretical Physics and Computation at the
Lawrence Livermore National Laboratories, Livermore, California.
GEORGE LATIMER. Mr. Latimer has served on the Company's Board of Directors
since 1990. Since November 1995, Mr. Latimer has served as Chief Executive
Officer of the National Equity Fund, a syndication of financing for affordable
housing in Chicago, Illinois, and a Distinguished Visiting Professor of Urban
Studies at Macalester College, Saint Paul, Minnesota. From July 1993 through
November 1995, Mr. Latimer was Director, Office of Special Actions, U.S.
Department of Housing and Urban Development ("HUD"). From February 1993 through
July 1993, Mr. Latimer was employed as a consultant to HUD. From 1990 through
1993, Mr. Latimer was Dean of Hamline University School of Law, Saint Paul,
Minnesota. From 1976 through 1990, Mr. Latimer served as the Mayor of Saint
Paul, Minnesota. Mr. Latimer is a member of the Board of Directors of Piper
Jaffray Investment Trust.
STEPHEN M. SLAVIN. Mr. Slavin has served on the Company's Board of
Directors since 1986. For more than six years Mr. Slavin has been engaged in the
private practice of law as a partner of the firm of Foley & Lardner, Chicago,
Illinois.
Significant Employee
DENNIS F. WENDELL. On October 23, 1997, the Company employed Dennis F.
Wendell as General Manager of its Integrated Identification Solutions
Division. From May 1995 through September 1997, Mr. Wendell was employed as a
Business Director with Anderson Consulting. From September 1992 through April
1995, Mr. Wendell was self-employed as a corporate development consultant.
Previously, he was a co-founder and served as Vice President-Software
Development and Vice President-Systems Integration at Tricord Systems, Inc., and
has held executive and technical positions with Star Technologies, Analysts
International and Technalysis.
<PAGE>
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers and the holders of 10% or more of the
Company's stock to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of equity securities of
the Company. Based on the Company's review of copies of such reports received by
it, or written representations from reporting persons, the Company believes that
during the period from October 1, 1996, through September 30, 1997 its directors
and executive officers filed all reports on a timely basis except as follows:
(a) initial reports of ownership on Form 3 were not filed on a timely basis by
John J. Metil, Barry A. Fisher, Roman A. Jamrogiewicz and Michel R. Halbouty
through inadvertence, but were filed on or before the tenth day of the month
following the month of initial employment; (b) securities ownership reports on
Form 4 were not filed in a timely basis by outside directors of the Company, C.
McKenzie Lewis III , Jack A. Klingert, George Latimer and Stephen M. Slavin with
respect to 3,000 shares of Common Stock awarded to each of them by the board of
directors as additional compensation effective as of September 30, 1997, and
issued in October 1997. The related Form 4 for each reporting person was filed
on or before the tenth day of the month following the month of issuance.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by the Company for the last three fiscal years to its Chief Executive
Officer and other executive officers whose cash compensation exceeded $100,000
in fiscal year 1997 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------------------------
AWARDS
ANNUAL ----------------------------------
COMPENSATION RESTRICTED SECURITIES
--------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($) AWARDS($) OPTIONS(#) COMPENSATION
- ------------------------------ ------- ------------ ----------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
James C. Granger(1) 1997 $131,265 $32,816 $ - 250,000 $ -
President and Chief Executive
Officer
Glenn M. Fishbine,
Senior Vice President - 1997 120,000 - - - 171,234(2)
Technology 1996 116,825 1,600 - 35,000 4,500
1995 110,553 5,650 - 45,000 4,253
</TABLE>
(1) Mr. Granger has served as President and Chief Executive Officer of the
Company since January 1, 1997.
(2) Includes $3,737 in the form of Common Stock paid as a matching contribution
under the Company's 401(k) plan, and severance compensation consisting of
forgiveness of indebtedness totaling $167,497.
<PAGE>
STOCK OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(3)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE)(2) DATE 5%($) 10%($)
- ---------------------- ---------------- ----------------- ---------------- ----------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
James C. Granger 250,000 25% $2.125 01/02/07 $334,100 $846,676
</TABLE>
(1) Subject to acceleration at the discretion of the Compensation Committee or
upon the death or disability of the optionee, each option becomes
cumulatively exercisable with respect to 33 1/3% of the shares covered on
each of the first three anniversaries of the grant date.
(2) Fair market value per share on the date of grant or the effective date,
whichever is less, in accordance with the 1990 Stock Option Plan.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND FISCAL YEAR END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(2)
ACQUIRED ON VALUE ---------------------------------- ----------------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ---------------- ----------------- ---------------- ----------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
James C. Granger - - - 250,000 - $109,375
Glenn M. Fishbine - - 98,467 38,333 - -
</TABLE>
- ---------------------------------------
(1) Market value of underlying securities on date of exercise minus the exercise
price.
(2) Market value of underlying securities at year-end minus the exercise price
for in-the-money options.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of November 30, 1997, the number of
shares of Common Stock owned by (i) each person known to be the beneficial owner
of 5% or more of the Common Stock, (ii) each director, nominee for director and
executive officer of the Company, and (iii) all officers and directors as a
group. Any shares reflected in the following table which are subject to an
option or a warrant are deemed to be outstanding for the purpose of computing
the percentage of Common Stock owned by the option or warrant holder if
exercisable within 60 days from November 30, 1997, but are not deemed to be
outstanding for the purpose of computing the percentage of Common Stock owned by
any other person. Except as otherwise indicated, each beneficial owner sole
voting and investment power over the outstanding shares of which he has
beneficial ownership. Unless otherwise noted, the address for the following
person is 5600 Rowland Road, Suite 205, Minnetonka, Minnesota 55343-4315.
Shares
Beneficially Owned (1)
Name of Beneficial Owner or Group Number Percent
Perkins Capital Management Inc......................... 1,317,250 10.9%
730 East Lake Street
Wayzata, MN 55391
Gordon L. Bramah....................................... 1,053,435 9.3%
Littlemoor House
Eckington, Sheffield S31 9EF
England
Bramah Limited......................................... 1,052,935 9.3%
Littlemoor House
Eckington, Sheffield S31 9EF
England
Jack A. Klingert (2)................................... 120,028 1.0%
Stephen M. Slavin (3).................................. 103,501 *
330 North Wabash Avenue
Chicago, Illinois 60611
George Latimer (4) .................................... 28,550 *
1600 Grand Avenue
St. Paul, MN 55105
C. McKenzie Lewis III (5) ............................. 50,379 *
James C. Granger (6)................................... 95,333 *
John J. Metil (7)...................................... 1,000 *
Barry A. Fisher........................................ - -
Roman A. Jamrogiewicz.................................. - -
Michel R. Halbouty..................................... - -
All officers and directors as a group (9 persons)...... 398,791 3.2%
- -----------------------
* Indicates an amount less than one percent
<PAGE>
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Commission and accordingly, may include securities
owned by or for, among others, the spouse, children or certain other
relatives such person as well as other securities as to which the person
has or shares voting or investment power or has the right to acquire
within 60 days. The same shares may be beneficially owned by more than one
person.
(2) Includes 120,028 shares of Common Stock owned by Mr. Klingert.
(3) Includes 66,001 shares of Common Stock owned by Mr. Slavin and 37,500
shares of Common Stock that may be acquired subject to options.
(4) Includes 21,050 shares of Common Stock beneficially owned by Mr. Latimer
and an option for 7,500 shares of Common Stock.
(5) Includes 12,579 shares of Common Stock beneficially owned by Mr. Lewis and
an option for 37,800 shares of Common Stock.
(6) Includes 12,000 shares of Common Stock owned by Mr. Granger and options for
83,333 shares of Common Stock.
(7) Includes 1,000 shares of Common Stock owned by Mr. Metil.
There are no arrangements known to the Company, which at a later date may
result in a change of control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal year 1997, legal services were provided to the Company by
Foley & Lardner, Chicago, Illinois. Mr. Stephen M. Slavin is a partner of such
firm and a director of the Company.
Pursuant to a transition agreement and general release between the Company
and a founder of the Company, Mr. Glenn M. Fishbine, Mr. Fishbine continued to
be compensated by the Company at his base salary through the one-month
transition period ending November 30, 1997, during which he agreed to provide
consulting services and advice to the Company. After the transition period he
was compensated by the Company in a lump sum severance payment equal to his base
salary for two months. The Company further agreed (i) to forgive, as of
September 30, 1997, $167,497 of indebtedness of Mr. Fishbine to the Company,
(ii) to release the shares of Common Stock pledged by Mr. Fishbine as collateral
to secure payment of Mr. Fishbine's indebtedness to the Company, and (iii) that
a stock pledge agreement between Mr. Fishbine and the Company would be
terminated.
Gordon L. Bramah is the Chairman of the Board of Directors of Bramah
Limited ("Bramah"), which is a significant stockholder of the Company. In
connection with early stage investments made by Bramah in the Company, the
Company granted Bramah an exclusive license in the United Kingdom for the
Company's technology. In October 1992, the exclusive license was reacquired by
the Company in return for a royalty arrangement whereby Bramah will be paid a
15% royalty on sales of the first $1.0 million of the Company's products in the
United Kingdom. As of September 30, 1997, the Company accrued approximately
$63,000 for royalties to Bramah on sales in the United Kingdom during fiscal
1997.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Independent Auditors' Report
Balance Sheets: September 30, 1997 and 1996
Statements of Operations: Years ended September 30, 1997, 1996
and 1995
Statements of Stockholders' Equity: Years ended September 30,
1997, 1996 and 1995
Statements of Cash Flows: Years ended September 30, 1997, 1996
and 1995
Notes to Financial Statements
2. Exhibits
3.1 The Company's Certificate of Incorporation, as amended
(incorporated by reference to the Registrant's Registration
Statement on Form S-1, effective March 11, 1993, File No.
33-58650).
3.2 The Company's Bylaws, as amended.
4.1 Specimen Common Stock Certificate (incorporated by reference
to the Registrant's Registration Statement on Form S-1,
effective August 14, 1991, File No. 33-41080).
4.2 8% Convertible Subordinated Debenture Due December 1, 2000
dated December 1, 1997, between the Company and KA Investments
LDC.
4.3 Rights Agreement dated May 2, 1996, between the Company and
Norwest Bank, Minnesota, National Association, as Rights Agent
(incorporated by reference to the Registrant's Registration on
Form 8-A filed with the Securities and Exchange Commission on
May 9, 1996, File No. 000-18856).
10.1 Convertible Subordinated Debenture Purchase Agreement dated
December 1, 1997, between Company and KA Investments LDC.
10.2 Warrant dated December 1, 1997, between the Company and KA
Investments LDC for the purchase of 15,000 shares of the
Company's Common Stock.
10.3 Warrant dated December 1, 1997, between the Company and Miller
Johnson & Kuehn, Inc. for the purchase of 125,000 shares of
the Company's Common Stock.
10.4 Warrant dated March 18, 1997, between the Company and C.
McKenzie Lewis III for the purchase of 8,000 shares of the
Company's Common Stock.
10.5 Warrant dated August 25, 1997, issued October 23, 1997,
between the Company and Dennis Wendell for the purchase of
125,000 shares of the Company's Common Stock.
<PAGE>
10.6 Warrant dated September 25, 1997, issued October 23, 1997,
between the Company and Jeffrey Whalen for the purchase of
50,000 shares of the Company's Common Stock.
10.7 Warrant dated September 1997, issued December 13, 1997,
between the Company and Joseph VanLoy for the purchase of
50,000 shares of the Company's Common Stock.
10.8 Warrant dated January 27, 1997, between the Company and Andcor
Companies, Inc. for the purchase of 10,000 shares of the
Company's Common Stock.
10.9 Warrant dated January 27, 1997, between the Company and Andcor
Companies, Inc. for the purchase of 10,000 shares of the
Company's Common Stock.
10.10 Registration Rights Agreement dated December 1, 1997, between
the Company and KA Investments LDC.
10.11 Agreement and General Release dated October 1997, between the
Company and Glenn M. Fishbine.
10.12 $3.5 million Receivables Financing Line of Credit effective
October 1, 1996, between the Company and Norwest Business
Credit.
10.13 Lease for Company premises dated November 7, 1989,
(incorporated by reference from the Company's Registration
Statement on Form S-18, effective December 6, 1990, File No.
33-36939C).
10.14 Amendment to Lease for Company Premises dated March 11, 1996.
10.15 1990 Stock Option Plan, as amended (incorporated by reference
to the Registrant's Registration on Form 10-Q filed with the
Securities and Exchange Commission on May 15, 1997, File No.
000-18856).
10.16 1992 Restricted Stock Plan (incorporated by reference from the
Company's Registration Statement on Form S-1, effective March
11, 1993, File No. 33-58650).
10.17 Form of Director Indemnification Agreement entered into
between Registrant and outside directors.
11.1 Computation of Net Earnings (Loss) Per Common Share.
23.1 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K with the
Securities and Exchange Commission during the three-month period ended
September 30, 1997.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS FORM 10-K TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MINNETONKA,
MINNESOTA, ON THIS 23rd DAY OF DECEMBER 1997.
DIGITAL BIOMETRICS, INC.
(REGISTRANT) /s/ James C. Granger
---------------------------------
James C. Granger
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
FORM 10-K HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
/s/ James C. Granger December 23, 1997
- ---------------------------- -----------------
James C. Granger President, Chief Executive Officer Date
and Director (principal executive officer)
/s/ John J. Metil December 23, 1997
- --------------------------- -----------------
John J. Metil Chief Operating Officer Date
Chief Financial Officer (principal financial
Officer)
/s/ Jack A. Klingert * December 23, 1997
- ---------------------------
Jack A. Klingert Director -----------------
Date
/s/ George Latimer * December 23, 1997
- --------------------------- -----------------
George Latimer Director Date
/s/ C. McKenzie Lewis III * December 23, 1997
- --------------------------- -----------------
C. McKenzie Lewis III Chairman of the Board of Directors Date
/s/ Stephen M. Slavin * December 23, 1997
- --------------------------- -----------------
Stephen M. Slavin Director Date
* By /s/ John J. Metil December 23, 1997
------------------------ -----------------
John J. Metil Date
Attorney-In-Fact
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
Digital Biometrics, Inc.:
Under date of November 21, 1997, except as to note 14 (a) which is as of
November 24, 1997, and note 14 (b) which is as of December 1, 1997, we reported
on the balance sheets of Digital Biometrics, Inc., as of September 30, 1997 and
1996, and the related statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1997,
as contained in the annual report on Form 10-K for the year 1997. In connection
with our audits of the aforementioned financial statements, we also audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 21, 1997,
except as to note 14(a) which
is as of November 24, 1997,
and note 14(b) which is as
of December 1, 1997
<PAGE>
SCHEDULE II
DIGITAL BIOMETRICS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
---------------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Year Expenses Accounts Deductions Year
- --------------------------------- ------------------ ---------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
Allowance for Doubtful
Accounts
1995 $63,000 $48,000 -- -- $111,000
1996 111,000 651,000 (a) -- 69,466 (b) 692,534
1997 692,534 (98,660) -- 152,598 (b) 441,276
</TABLE>
(a) Includes fourth quarter charge of $540,000 for possible write-downs in
accounts receivable related to contracts for live-scan technology.
(b) Write-off of bad debts.
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
DIGITAL BIOMETRICS, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The corporation shall continuously
maintain in the State of Delaware a registered office and a registered agent
whose office is identical with such registered office.
SECTION 2. OTHER OFFICES. The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. An annual meeting of stockholders shall be
held, either within or without the State of Delaware, on the third Wednesday in
February of each year, for the purpose of electing directors and for the
transaction of such other business as may come before the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders for any
purpose other than the election of directors may be held at such time and place,
either within or without the State of Delaware, as shall be stated in the notice
of the meeting. Special meetings may be called by the President, by the Board of
Directors, or by the holders of not less than one-fifth of the outstanding stock
of the corporation entitled to vote.
SECTION 3. VOTING. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote, in person or by
proxy, for each share of stock held by such stockholder, but no proxy shall be
voted after three years from its date unless such proxy provides for a longer
period.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order with the address of each and the number
of shares held by each, shall
<PAGE>
be open to the examination of any stockholder for any purpose germane to the
meeting during ordinary business hours for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 4. QUORUM. Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding meetings of the stockholders. In case a quorum
shall not be present at any meeting, a majority in interest of the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until the requisite amount of stock entitled to vote shall be
present. At any such adjourned meeting at which the requisite amount of stock
entitled to vote shall be represented, any business may be transacted which
might have been transacted at the meeting as originally noticed; but only those
stockholders entitled to vote at the meeting as originally noticed shall be
entitled to vote at any adjournment or adjournments thereof.
SECTION 5. NOTICE OF MEETINGS. Written notice, stating the place, date
and time of the meeting, and in the case of a special meeting, the purposes for
which the meeting is called, shall be given to each stockholder entitled to vote
thereat at his address as it appears on the records of the corporation, not less
than ten, or in the case of a merger or consolidation, not less than twenty, nor
more than sixty days before the date of the meeting.
SECTION 6. STOCKHOLDERS RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or at any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
nor less than ten, or in the case of a merger or consolidation, not less than
twenty, days before the date of such meeting, nor more than sixty days prior to
any other action. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 7. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
<PAGE>
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. The number of directors shall be not less
than five (5) nor more than nine (9), as determined by the Board of Directors
from time to time. The directors shall be elected at the annual meeting of the
stockholders and each director shall hold office until his successor is elected
and qualified, or until his earlier death, resignation or removal. Directors
need not be stockholders.
SECTION 2. RESIGNATIONS. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, or if no time is specified, at
the time of its receipt by the Board of Directors. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. Vacancies occurring on the Board of Directors or
on any committee of the Board, or new directorships to be filed by reason of an
increase in the number of directors may be filled by a majority of the directors
then in office, or by a sole remaining director. Each director so chosen shall
hold office for the unexpired term and until his successor shall be duly chosen.
SECTION 4. REMOVAL. Except as hereinafter provided, any director or the
entire Board of Directors may be removed either with or without cause at any
time by the affirmative vote of the holders of a majority of all the shares of
stock outstanding and entitled to vote at an election of directors, at a special
meeting of the stockholders called for that purpose, and the vacancies thus
created may be filled, at the meeting held for the purpose of removal, by the
affirmative vote of a majority in interest of the stockholders entitled to vote.
If the holders of any class or series are entitled to elect one or more
directors by the provisions of the Certificate of Incorporation, these
provisions shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
SECTION 5. POWERS. The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
<PAGE>
SECTION 6. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and, unless the resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 7. MEETINGS. An annual meeting of directors for the purpose of
electing officers and for the transaction of such other business as may properly
come before the meeting, shall be held if a quorum is present, immediately after
and at the same place as the annual meeting of the stockholders, without notice
other than this by-law; or the time and place of such meeting may be fixed by
consent in writing of all the directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors without further notice than said resolution.
Special meetings of the board may be called by the Chairman of the
Board, the President or the Secretary on the written request of any director on
at least two days' notice to each director and shall be held at such place or
places as may be determined by the directors, or as shall be stated in the call
of the meeting.
SECTION 8. COMMUNICATIONS EQUIPMENT. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Such participation
in a meeting shall constitute presence in person at the meeting.
<PAGE>
SECTION 9. QUORUM. A majority of the incumbent directors shall
constitute a quorum for the transaction of business. If at any meeting of the
board there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum is obtained, and no further
notice thereof need be given other than by announcement at the meeting which
shall be so adjourned. The vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors
unless the Certificate of Incorporation or these By-Laws shall require the vote
of a greater number.
SECTION 10. COMPENSATION. Directors shall not receive any stated salary
for their services as directors or as members of committees, but by resolution
of the board a fixed fee and expenses of attendance may be allowed for
attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is signed
by all members of the board, or of such committee as the case may be, and such
written consent is filed with the minutes of the proceedings of the board or
committee.
ARTICLE IV
OFFICERS
SECTION 1. TITLES, ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be a President, a Treasurer, and a Secretary. In addition, the
Board of Directors may elect a Chairman, a Vice Chairman, and any number of Vice
Presidents, Assistant Secretaries and Assistant Treasurers, as they may deem
proper. None of the officers of the corporation need be directors. The officers
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of stockholders. Each officer
shall hold office until his successor is elected and qualified or until his
earlier death, resignation or removal. Any officer may resign any time upon
written notice to the corporation. Vacancies may be filled or new offices
created and filled by the Board of Directors. Any number of offices may be held
by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. REMOVAL. Any officer elected or appointed by the Board of
Directors may be removed by the Board whenever, in its judgment, the best
interests of the
<PAGE>
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
SECTION 4. CHAIRMAN. The Board of Directors of the Corporation may
elect a Chairman. The Chairman shall be a member of the Board of Directors. The
Chairman shall preside at all meetings of the Board of Directors and of the
shareholders of the Corporation and shall have and perform such other duties as
from time to time may be assigned to him or her by the Board of Directors.
SECTION 5. CHIEF EXECUTIVE OFFICER. Subject to the direction of the
Board of Directors, the Chief Executive Officer, who may also be designated as
the President of the Corporation, shall have overall charge over the business,
affairs and policies of the Corporation, including the day-to-day business of
the Corporation, and shall have the general powers and duties of supervision and
management usually vested in the office of Chief Executive Officer of a
corporation. In the absence of the Chairman of the Board of Directors, or if a
Chairman of the Board of Directors is not elected, the Chief Executive Officer
shall preside at all meetings of the shareholders and the Board of Directors.
Unless the Board of Directors shall otherwise authorize, the Chief Executive
Officer shall execute bonds, mortgages and other contracts on behalf of the
Corporation.
SECTION 6. VICE PRESIDENT. The Vice Presidents shall assist the
President in the discharge of his duties as the President may direct and shall
perform such other duties as may be assigned to them by the President or by the
Board of Directors. In the absence of the President, the Vice Presidents shall
perform the duties of the President, and when so acting shall have all the
powers of and be subject to all the restrictions upon the President.
SECTION 7. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the Board shall prescribe.
SECTION 8. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the President, or by the directors, or stockholders, upon whose request the
meeting is called as provided in these By-Laws. He
<PAGE>
shall record all the proceedings of the meetings of the stockholders and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the directors or the President. He shall
have the custody of the seal of the corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the President, and
attest the same.
SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall assist the Treasurer and the
Secretary, respectively, in the discharge of their duties, and shall have such
powers and shall perform such additional duties as shall be assigned to them by
the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. Certificates of stock, signed by the
Chairman or Vice Chairman of the Board of Directors, if they are elected, or by
the President or a Vice President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, shall be issued to each
stockholder certifying the number and class of shares owned by him in the
corporation. Any or all of the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES. A new certificate of stock may be issued
in the place of any certificate theretofore issued by the corporation, alleged
to have been lost or destroyed, and the directors may, in their discretion,
require the owner of the lost or destroyed certificates, or his legal
representative, to give the corporation a bond, in such sum as they may direct,
to indemnify the corporation against any claim that may be made against it on
account of the alleged loss of any such certificate, or the issuance of any such
new certificate.
SECTION 3. TRANSFER OF SHARES. Prior to due presentment of a
certificate for shares for registration of transfer the corporation may treat
the registered owner of such shares as the person exclusively entitled to vote,
to receive notifications and otherwise to have and exercise all the rights and
power of an owner. Where a certificate for shares is presented to the
corporation with a request to register for transfer, the corporation shall not
be liable to the owner or any other person suffering loss as a result of such
registration of transfer if (a) there were on or with the certificate the
necessary endorsements, and (b) the corporation had no notice of any adverse
claims or has discharged any duty to inquire into any known adverse claims. The
corporation may require reasonable assurance that said endorsements are genuine
and effective and compliance with such other regulations as may be prescribed by
or under the authority of the Board of Directors. Where a transfer of shares is
made for collateral security, and not absolutely, it shall be so expressed in
the entry of transfer if, when the shares are presented, both the transferor and
the transferee so request.
<PAGE>
SECTION 4. DIVIDENDS. The Board of Directors may from time to time
declare, and the corporation may pay, dividends on its outstanding stock, in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.
SECTION 5. SEAL. The Board of Directors may provide a corporate seal in
appropriate form.
SECTION 6. FISCAL YEAR. The fiscal year of the corporation shall begin
on the first day of October and end on the last day of September in each year.
SECTION 7. CHECKS. All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 8. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required
to be given by these By-Laws, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage prepaid, addressed to the
person entitled thereto at his address as it appears on the records of the
corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by statute.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be amended or altered by the Board of Directors at
any meeting. Such authority of the Board of Directors is subject to the power of
the stockholders to change or repeal these By-Laws.
<PAGE>
ARTICLE VII
INDEMNIFICATION OF OFFICERS, DIRECTORS
EMPLOYEES AND AGENTS
SECTION 1. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture,, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and except that no indemnification shall be
made in respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper. Notwithstanding the foregoing, the
corporation shall not be required to indemnify any such person in connection
with a proceeding voluntarily initiated by such person unless the proceeding was
authorized by a majority of the entire Board of Directors.
SECTION 3. Without limiting any right conferred by Sections 1 and 2 of
this Article, any person who was or is a party or is threatened to be made a
party to any
<PAGE>
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative of any type whatsoever, by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, and is or was serving as a fiduciary of, or otherwise rendering
services to, any employee benefit plan of or relating to the corporation, shall
be indemnified by the corporation against expenses (including, without
limitation, attorneys' fees), judgments, fines, penalties, excise taxes, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, or in connection with any appeal relating
thereto, if he acted in good faith in a manner he reasonably believed to be not
opposed to the best interests of the corporation, and with respect to a criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful, except in the case of an action, suit or proceeding by or in the right
of the corporation, in relation to matters as to which it shall be adjudicated
in such action, suit or proceeding, that such officer, director, employee or
agent is liable to the corporation and only to the extent that the judicial
determination specified in Section 2 of this Article shall be made.
SECTION 4. To the extent that a director, officer, employee or agent of
the corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1, 2 and 3 of this Article
VII, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
SECTION 5. Any indemnification under Sections 1, 2 and 3 of this
Article VII, shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 1, 2 and 3. Such
determination shall be made (a) by the board of directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by the stockholders.
SECTION 6. Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Article.
SECTION 7. The indemnification and advancement of expenses provided by
or granted pursuant to other Sections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity, while holding such
office.
<PAGE>
SECTION 8. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article shall, unless otherwise provided when
authorized or notified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors or administrators of such person.
SECTION 9. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article.
SECTION 10. For purposes of this Article, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had the power and authority to indemnify its directors, officers, employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
EXHIBIT 4.2
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
CONVERSION SET FORTH IN A CONVERTIBLE SUBORDINATED DEBENTURE PURCHASE AGREEMENT,
DATED AS OF DECEMBER 1, 1997, BETWEEN DIGITAL BIOMETRICS, INC. (THE "COMPANY")
AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
No. A-1 U.S. $50,000
DIGITAL BIOMETRICS, INC.
8% CONVERTIBLE SUBORDINATED DEBENTURE DUE DECEMBER 1, 2000
THIS DEBENTURE is one of a series of duly authorized issued debentures
in an aggregate principal amount of up to $2,500,000, of Digital Biometrics,
Inc., a Delaware corporation and having a principal place of business at 5600
Rowland Road, Minnetonka, Minnesota, 55343 (the "Company"), designated as its 8%
Convertible Subordinated Debentures, due December 1, 2000 (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to KA INVESTMENTS LDC,
or registered assigns (the "Holder"), the principal sum of Fifty Thousand
Dollars ($50,000), on or prior to December 1, 2000 or such earlier date as the
Debentures are required to be repaid as provided hereunder (the "Maturity Date")
and to pay interest to the Holder on the principal sum at the rate of 8% per
annum, payable upon conversion as provided hereunder, or on the Maturity Date if
not earlier converted. Interest shall accrue daily commencing on the Original
Issue Date (as defined in Section 6) until payment in full of the principal sum,
together with all accrued and unpaid interest and other amounts which may become
due hereunder, has been made. Interest shall be calculated on the basis of a
360-day year and for the actual number of days elapsed. Interest hereunder will
be paid to
<PAGE>
the Person in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of the Debentures (the "Debenture
Register"). All overdue, accrued and unpaid interest and other amounts due
hereunder shall bear interest at the rate of 15% per annum from the date such
interest is due hereunder through and including the date of payment. The
principal of, and interest on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address of the Holder
last appearing on the Debenture Register, except that principal paid on December
1, 2000 and interest due hereunder may, at the Company's option, be paid in
shares of the Common Stock (as defined in Section 6) calculated based upon the
Conversion Price (as defined below) on the Conversion Date, Maturity Date or the
date upon which interest shall cease to accrue, as the case may be. All amounts
due hereunder shall be paid in cash or Common Stock as provided for herein.
Notwithstanding anything to the contrary contained herein, the Company may not,
without the prior written consent of the Holder, issue shares of the Common
Stock in payment of interest on the principal amount or principal on December 1,
2000 if: (i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held as treasury stock, is
insufficient to pay interest or principal hereunder in shares of Common Stock;
(ii) such shares are not either registered for resale pursuant to an Underlying
Securities Registration Statement (as defined in Section 6) or freely
transferable without volume restrictions pursuant to Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Holder, in form and substance acceptable to the Holder; (iii) such shares are
not listed on the Nasdaq National Market (or the American Stock Exchange, Nasdaq
SmallCap Market or The New York Stock Exchange) and any other exchange on which
the Common Stock is then listed for trading; or (iv) the issuance of such shares
would result in the recipient thereof beneficially owning more than 4.999% of
the issued and outstanding shares of Common Stock as determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Payment
of interest on the Debentures in shares of Common Stock is also subject to the
provisions of Section 4(a)(ii).
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the
<PAGE>
Company and any agent of the Company may treat the person in whose name this
Debenture is duly registered on the Debenture Register as the owner hereof for
the purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture is overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary.
<PAGE>
Section 3. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(a) any default in the payment of the principal of, interest
on, or liquidated damages in respect of, this Debenture, free of any
claim of subordination, as and when the same shall become due and
payable (whether on the Conversion Date or the Maturity Date or by
acceleration or otherwise). Notwithstanding anything to the contrary,
no Event of Default shall exist upon the occurrence of a default in the
payment of interest on this Debenture that the Company cures within
five (5) days following receipt of written notice of such default;
(b) the Company shall fail to observe or perform any other
material covenant, agreement or warranty contained in, or otherwise
commit any breach of, this Debenture, the Purchase Agreement or the
Registration Rights Agreement (as defined in Section 6), and such
failure or breach shall not have been remedied within 10 days after the
date on which notice of such failure or breach shall have been given;
(c) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences
any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is commenced
against the Company or any subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period
of 60 days; or the Company or any subsidiary thereof is adjudicated
insolvent or bankrupt; or any order of relief or other order approving
any such case or proceeding is entered; or the Company or any
subsidiary thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Company or any
subsidiary thereof makes a general assignment for the benefit of
creditors; or the Company shall fail to pay, or shall state that it is
unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Company or any subsidiary thereof shall call a
meeting of its creditors with a view to arranging a composition or
adjustment of its debts; or the Company or any subsidiary thereof shall
by any act or failure to act indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate or other action
is taken by the Company or any subsidiary thereof for the purpose of
effecting any of the foregoing;
<PAGE>
(d) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement
or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness of the Company in an
amount exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(e) the Common Stock shall be delisted from the Nasdaq
National Market or any other national securities exchange or market on
which such Common Stock is listed for trading or suspended from trading
thereon without being relisted on the Nasdaq National Market, the
Nasdaq SmallCap Market, the American Stock Exchange or New York Stock
Exchange or having such suspension lifted, as the case may be, within
two Trading Days; or
(f) the Company shall be a party to any merger or
consolidation pursuant to which the Company shall not be the surviving
entity or shall dispose of all or substantially all of its assets in
one or more transactions, or shall redeem more than a de minimis number
of shares of Common Stock (other than redemptions of Underlying
Shares).
If during the time that any portion of this Debenture remains outstanding, any
Event of Default occurs and is continuing, and in every such case, then the
Holders of a majority in interest of the outstanding principal amount of
Debentures may, by notice to the Company, declare the full principal amount of
this Debenture, together with all accrued but unpaid interest and other amounts
owing hereunder, to the date of acceleration, to be, plus the Adjustment Amount
(as defined in Section 6) whereupon the same shall become, immediately due and
payable in cash (notwithstanding anything herein contained to the contrary)
without presentment, demand, protest or other notice of any kind, all of which
are waived by the Company, notwithstanding anything herein contained to the
contrary, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be rescinded
and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
Section 4. Conversion.
(a)(i) This Debenture shall be convertible into shares of the
Common Stock at the option of the Holder in whole or in part at any time and
from time to time upon the earlier to occur of (1) the date an Underlying
Securities Registration Statement is declared effective by the U.S. Securities
and Exchange Commission (the "Commission") and (2) the 90th day after the
Original Issue Date, and prior to the close of business on the Maturity Date.
The number of shares of Common Stock as shall be issuable upon a conversion
<PAGE>
hereunder shall be determined by dividing the principal amount of, plus accrued
but unpaid interest on, the Debenture to be converted by the Conversion Price
(as defined below), each as subject to adjustment as provided hereunder. The
Holder shall effect conversions by surrendering the Debentures (or such portions
thereof) to be converted, together with the form of conversion notice attached
hereto as Exhibit A (the "Holder Conversion Notice") to the Company. Each Holder
Conversion Notice shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Holder Conversion Notice is deemed to have
been delivered hereunder (the "Holder Conversion Date"). If no Holder Conversion
Date is specified in a Holder Conversion Notice, the Holder Conversion Date
shall be the date that the Holder Conversion Notice is deemed delivered
hereunder. Subject to Sections 4(a)(ii) and 4(b) hereof and Section 3.8 of the
Purchase Agreement, each Holder Conversion Notice, once given, shall be
irrevocable. If the Holder is converting less than all of the principal amount
represented by the Debenture(s) tendered by the Holder with the Holder
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
(ii) Certain Regulatory Approval. If on any Conversion
Date (A) the Common Stock is listed for trading on the Nasdaq National Market,
Nasdaq SmallCap Market or American Stock Exchange, (B) the Conversion Price then
in effect is such that the aggregate number of shares of the Common Stock that
would then be issuable upon conversion of the entire outstanding principal
amount of Debentures, together with any shares of the Common Stock previously
issued upon conversion of Debentures and as payment of interest thereunder would
equal or exceed 20% of the number of shares of the Common Stock outstanding on
the Original Issue Date (such number of shares, up to the number of shares as
equals such amount, the "Issuable Maximum"), and (C) the Company has not
previously obtained the Stockholder Approval (as defined below), then the
Company shall issue to the Holder requesting such conversion the Issuable
Maximum and, with respect to any shares of the Common Stock that otherwise would
have been issuable to such holder in respect of the Conversion Notice at issue
or in respect of payment of interest hereunder in excess of the Issuable
Maximum, the Holder shall have the option to require the Company to either (1)
as promptly as possible, but in no event later than 90 days after such
Conversion Date, convene a meeting of the holders of the Common Stock and obtain
the Stockholder Approval or (2) prepay the balance of the aggregate principal
amount of the Debentures then outstanding and held by such Holder. The
prepayment amount shall equal the Mandatory Prepayment Amount (as defined in
Section 6) for Debentures to be prepaid; provided, however, that if the Holder
has requested that the Company obtain Stockholder Approval under paragraph (1)
above and the Company fails for any reason to obtain such Stockholder Approval
within the time period set forth in (1) above, the Company shall be obligated to
prepay Debentures in accordance with the provisions of paragraph (2) above, and
in such case the interest contemplated by the immediately succeeding sentence
shall be deemed to accrue from the Conversion Date. If the Holder has requested
that the
<PAGE>
Company prepay Debentures pursuant to this Section and the Company fails for any
reason to pay the prepayment price under (2) above within seven days after the
Conversion Date, the Company will pay interest on such prepayment price at a
rate of 15% per annum to the converting Holder, accruing from the Conversion
Date until the prepayment price plus any accrued interest thereon is paid in
full. The entire Mandatory Prepayment Amount, including interest thereon, shall
be paid in cash. "Stockholder Approval" means the approval by a majority of the
total votes cast on the proposal, in person or by proxy, at a meeting of the
stockholders of the Company held in accordance with the Company's Certificate of
Incorporation and by-laws, of the issuance by the Company of shares of the
Common Stock exceeding the Issuable Maximum as a consequence of the conversion
of Debentures into the Common Stock at a price less than the greater of the book
or market value on the Original Issue Date as and to the extent required
pursuant to Rule 4460(i) of the Nasdaq Stock Market or Rule 713 of the American
Stock Exchange (or any successor or replacement provision thereof), as
applicable.
(iii) Provided that either (a) there has been a "Change
of Control" (as defined below) of Tarmachan Capital Management ("Tarmachan") or
(b) Irvin Kessler has left Tarmachan or has suffered a voluntary or involuntary
material lessening of responsibility as Chairman, this Debenture shall be
convertible in whole or in part into a number of shares of Common Stock equal to
the Conversion Price at the option of the Company; provided, however, that the
Company is not permitted to deliver a Company Conversion Notice (as defined
below) at any time when the Underlying Securities Registration Statement is not
then effective or shares of Common Stock are not listed for trading. The Company
shall effect such conversion by delivering to the Holder a written notice in the
form attached hereto as Exhibit B (the "Company Conversion Notice"), which
Company Conversion Notice, once given, shall be irrevocable. Each Company
Conversion Notice shall specify the principal amount of Debentures to be
converted in the case of a conversion at the Maturity Date or the amount of
accrued interest being converted in the case of a conversion of accrued
interest. The Company shall deliver such Company Conversion Notice at least two
(2) Trading Days before the Maturity Date or the date of conversion of the
accrued interest (such date is hereinafter referred to as the "Company
Conversion Date"). Upon its receipt of a Company Conversion Notice, the Holder
shall surrender the principal amount of Debentures subject to such notice at the
office of the Company or of any transfer agent for the Debentures or Common
Stock. If the Company is converting less than the aggregate principal amount of
all Debentures, the Company shall, upon conversion of the principal amount of
Debentures subject to such Company Conversion Notice and receipt of the
Debentures surrendered for conversion, deliver to the Holder, a replacement
Debenture for such principal amount of Debentures as have not been converted.
Each of a Holder Conversion Notice and a Company Conversion Notice is sometimes
referred to herein as a "Conversion Notice," and each of a "Holder Conversion
Date" and a "Company Conversion Date" is sometimes referred to herein as a
"Conversion Date." "Change of Control" means, for purposed of this Section
4(a)(iii), the occurrence of an acquisition, after the Original Issue Date, by
an individual, group, or legal entity of all of the voting securities of
Tarmachan.
<PAGE>
(b) Not later than three Trading Days after the Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of the Common Stock being acquired upon the conversion of
Debentures (subject to reduction pursuant to Section 4(a)(ii) hereof and Section
3.1(b) of the Purchase Agreement), (ii) Debentures in a principal amount equal
to the principal amount of Debentures not converted; (iii) a bank check in the
amount of all accrued and unpaid interest (if the Company has elected to pay
accrued interest in cash), together with all other amounts then due and payable
in accordance with the terms hereof, in respect of Debentures tendered for
conversion and (iv) if the Company has elected to pay accrued interest in shares
of the Common Stock, certificates, which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement), representing such number of shares of the Common Stock as
equals such interest divided by the Conversion Price calculated on the
Conversion Date; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of the Common Stock issuable upon
conversion of the principal amount of Debentures until Debentures are either
delivered for conversion to the Company or any transfer agent for the Debentures
or the Common Stock, or the Holder notifies the Company that such Debenture has
been mutilated, lost, stolen or destroyed and complies with Section 9 hereof.
The Company shall, upon request of the Holder, use its best efforts to deliver
any certificate or certificates required to be delivered by the Company under
this Section electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. If in the case of
any Conversion Notice such certificate or certificates, including for purposes
hereof, any shares of the Common Stock to be issued on the Conversion Date on
account of accrued but unpaid interest hereunder, are not delivered to or as
directed by the applicable Holder by the third Trading Day after the Conversion
Date, the Holder shall be entitled by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
Debentures tendered for conversion. If the Company fails to deliver to the
Holder such certificate or certificates pursuant to this Section, including for
purposes hereof, any shares of the Common Stock to be issued on the Conversion
Date on account of accrued but unpaid interest hereunder, prior to the fifth
Trading Day after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $1,500 for each day thereafter
until the Company delivers such certificates. If the Company fails to deliver to
the Holder such certificate or certificates pursuant to this Section prior to
the 20th day after the Conversion Date, the Company shall, at the Holder's
option (i) prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of the principal amount of Debentures then held by
such Holder, as requested by such Holder, and (ii) pay all accrued but unpaid
interest on account of the Debentures for which the Company shall have failed to
issue the Common Stock certificates hereunder, in cash. The prepayment amount
shall equal the Mandatory Prepayment Amount for the Debentures to be prepaid. If
the Holder has required the Company to prepay Debentures pursuant to this
Section and the Company fails for any reason to pay the prepayment price within
seven
<PAGE>
days after such notice is deemed delivered hereunder, the Company will pay
interest on the prepayment price at a rate of 15% per annum, in cash to such
Holder, accruing from such seventh day until the prepayment price and any
accrued interest thereon is paid in full.
(c) (i) The conversion price (the "Conversion Price") in
effect on any Conversion Date shall be the lesser of (a) $1.96 (the "Initial
Conversion Price") and (b) .80 multiplied by the Average Price calculated on the
Conversion Date; provided, that, (a) if an Underlying Securities Registration
Statement is not filed on or prior to the 30th day after the Original Issue Date
provided, that if such day is not a Business Day, such 30th day shall be the
next succeeding Business Day, or (b) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12d1-2 promulgated
under the Securities Exchange Act of 1934, as amended, within five (5) days of
the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that an Underlying Securities Registration Statement
will not be "reviewed" or is not subject to further review or comment by the
Commission, provided, however that such five (5) day period may be extended in
the event that the Company reasonably believes that such Underlying Securities
Registration Statement should be amended to include material non-public
information, or (c) if the Underlying Securities Registration Statement is not
declared effective by the Commission on or prior to the 90th day after the
Original Issue Date provided, that, if such day is not a Business Day, such 90th
day shall be the next succeeding Business Day, or (d) if such Underlying
Securities Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded by a
subsequent Underlying Securities Registration Statement filed with and declared
effective by the Commission within 10 Business Days (as defined in Section 6),
or (e) if trading in the Common Stock shall be suspended for any reason for more
than two Trading Days, or (f) if the conversion rights of the Holders of
Debentures are suspended for any reason or the Holder is not permitted to resell
Registrable Securities under the Underlying Securities Registration Statement
(any such failure being referred to as an "Event," and for purposes of clauses
(a), (c) and (f) the date on which such Event occurs, or for purposes of clause
(b) the date on which such five (5) days period is exceeded, or for purposes of
clause (d) the date which such 10 Business Day-period is exceeded, or for
purposes of clause (e) the date on which such two Trading Day period is
exceeded, being referred to as "Event Date"), the Company shall pay to the
Holders 1.0% of the product of the principal amount of outstanding Debentures
(each Holder being entitled to receive such portion of such amount as equals its
pro rata portion of Debentures then outstanding), in cash on the Event Date and
an additional 1.0% for each applicable 30 day period thereafter, as liquidated
damages. Commencing the 60th day after the Event Date, for each applicable 30
day period thereafter, the Company shall pay to the Holders 3.0% of the product
of the principal amount of outstanding Debentures (each Holder being entitled to
receive such portion of such amount as equals its pro rata portion of Debentures
then outstanding), in cash until such time as the applicable Event is cured
provided, that the total amount of
<PAGE>
liquidated damages the Company shall pay to the Holder pursuant to this Section
5(c)(i) shall not exceed $500,000 in aggregate.
(ii) If the Company, at any time while any Debentures
are outstanding, (a) shall pay a stock dividend or otherwise make a distribution
or distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures
are outstanding, shall issue rights or warrants to all holders of the Common
Stock (and not to Holders of Debentures) entitling them to subscribe for or
purchase shares of the Common Stock at a price per share less than the Per Share
Market Value of the Common Stock at the record date mentioned below, the Initial
Conversion Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of the Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Initial
Conversion Price pursuant to this Section, if any such right or warrant shall
expire and shall not have been exercised, the Initial Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Initial Conversion Price made pursuant
to the provisions of this Section 4 after the issuance of such rights or
warrants) had the adjustment of the Initial Conversion Price made upon the
issuance of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of the Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
<PAGE>
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to
Holders of Debentures) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case the
Initial Conversion Price at which Debentures shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of the Common Stock determined as of the
record date mentioned above, and of which the numerator shall be such Per Share
Market Value of the Common Stock on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith; provided, however,
that in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in interest of
Debentures then outstanding; and provided, further, that the Company, after
receipt of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the holders
of Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of the Common
Stock. Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder of this Debenture shall have
the right thereafter to, at its option, (A) convert the then outstanding
principal amount, together with all accrued but unpaid interest and any other
amounts then owing hereunder in respect of this Debenture only into the shares
of stock and other securities, cash and property receivable upon or deemed to be
held by holders of the Common Stock following such reclassification or share
exchange, and the Holders of the Debentures shall be entitled upon such event to
receive such amount of securities, cash or property as the shares of the Common
Stock of the Company into which the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of its outstanding principal amount of Debentures,
plus all interest and other amounts due and payable thereon, at a price
determined in accordance with Section 5(a). The entire repayment price shall be
paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
<PAGE>
(vi) All calculations under this Section 4 shall be
made to the nearest cent or the nearest whole share, as the case may be.
(vii) Whenever the Initial Conversion Price is
adjusted pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly
mail to each Holder of Debentures a notice setting forth the Initial Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(viii) If:
A. the Company shall declare a
dividend (or any other
distribution) on its Common Stock;
or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the
granting to all holders of the
Common Stock rights or warrants to
subscribe for or purchase any
shares of capital stock of any
class or of any rights; or
D. the approval of any stockholders of
the Company shall be required in
connection with any
reclassification of the Common
Stock of the Company, any
consolidation or merger to which
the Company is a party, any sale or
transfer of all or substantially
all of the assets of the Company,
of any compulsory share of exchange
whereby the Common Stock is
converted into other securities,
cash or property; or
E. the Company shall authorize the
voluntary or involuntary
dissolution, liquidation or winding
up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the
<PAGE>
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange;
provided, however, that the failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. Holders are entitled to convert
Debentures during the 30-day period commencing the date of such notice to the
effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of the Common Stock
solely for the purpose of issuance upon conversion of the Debentures and payment
of interest on the Debentures, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable, upon compliance with prospectus delivery requirements and applicable
state securities laws.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such Debentures so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries
to be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage
<PAGE>
prepaid, addressed to the Company, at 5600 Rowland Road, Minnetonka, Minnesota
55343 (facsimile number (612) 932-7181), attention Chief Financial Officer, or
such other address or facsimile number as the Company may specify for such
purposes by notice to the Holders delivered in accordance with this Section. Any
and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, addressed to each Holder of the Debentures
at the facsimile telephone number or address of such Holder appearing on the
books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:30 p.m. (Minnetonka time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 4:30 p.m.
(Minnetonka time) on any date and earlier than 11:59 p.m. (Minnetonka time) on
such date, (iii) four days after deposit in the United States mails, (iv) the
Business Day following the date of mailing, if send by nationally recognized
overnight courier service, or (v) upon actual receipt by the party to whom such
notice is required to be given.
Section 5. Repayments.
(a) The Company shall have the right, exercisable at any time
upon 2 Trading Days notice to the Holder of the Debentures given at any time the
Company receives a Conversion Notice and the Conversion Price in effect in
connection with such Conversion Notice is less than $1.25, to repay, from funds
legally available therefor at the time of such repayment, all or any portion of
the outstanding principal amount of the Debentures which have been tendered for
conversion, at a price equal to the sum of 120% of the aggregate principal
amount of Debentures to be repaid. In addition, the Company shall pay the
aggregate of all accrued but unpaid interest and other amounts owing in respect
of the Debentures to be repaid. The entire repayment price shall be paid in
cash.
Notwithstanding anything to the contrary contained herein, the Company shall
not have the right to repay the Debenture pursuant to this Section 5(a) if
repayment of the Debenture is required pursuant to another section of this
Debenture or pursuant to the Purchase Agreement.
(b) If any portion of the applicable repayment price under
Sections 6(a) shall not be paid by the Company within thirty (30) calendar days
after the original Conversion Date as set forth in such Conversion Notice,
interest shall accrue thereon at the rate of 15% per annum until the repayment
price plus all such interest is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). In addition, if any portion of such
repayment price remains unpaid for more than seven (7) calendar days after the
date due, the Holder of the Debentures subject to such repayment may elect, by
written notice to the Company given within seven (7) calendar days after the
date due, to either (i) demand
<PAGE>
conversion in accordance with the formula and the time frame therefor set forth
in Section 4 of all Debentures for which such repayment price, plus accrued
liquidated damages thereof, has not been paid in full (the "Unpaid Repayment
Shares"), in which event the Per Share Market Price for such shares shall be the
lower of the Per Share Market Price calculated on the date such repayment price
was originally due and the Per Share Market Price as of the Holder's written
demand for conversion, or (ii) invalidate ab initio such repayment,
notwithstanding anything herein contained to the contrary. If the Holder elects
option (i) above, the Company shall within three (3) Trading Days of its receipt
of such election deliver to the Holder the shares of the Common Stock issuable
upon conversion of the Unpaid Repayment Shares subject to such Holder conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of Holder's notice of
such election, return to the Holder all of the Debentures. Notwithstanding
anything to the contrary contained herein, the Company may not, without the
written consent of the holder, repay Debentures unless both the payment thereof
and the retention of such paid cash by the holder is consented to in writing
free of any subordination prior thereto by all lenders or holders of any
indebtedness or class of securities of the Company who have the right to consent
to or force the subordination of such payment.
Section 6. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Adjustment Amount" is equal to (i) the aggregate principal
amount of Debentures then outstanding multiplied by (A) the average Per Share
Market Value for the five Trading Days immediately preceding (1) the applicable
Trigger Date or (2) the date of payment of all amounts due as a result of such
Event of Default, whichever is greater, divided by (B) the Conversion Price with
respect to the aggregate principal amount of Debentures then outstanding
calculated on the applicable Trigger Date, minus (ii) the aggregate principal
amount of Debentures then outstanding, plus all accrued and unpaid interest
thereon and all other amounts due, except for those referred to in (i) above
pursuant to the terms hereof.
"Average Price" on any date means the average Per Share Market
Value for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of Minnesota are authorized or required by law or other government action
to close.
"Common Stock" means the Company's common stock, $.01 par
value per share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
<PAGE>
"Mandatory Prepayment Amount" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
date the Mandatory Prepayment Amount is demanded or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Per
Share Market Value on (x) the date the Mandatory Prepayment Amount is demanded
or (y) the date the Mandatory Prepayment Amount is paid in full, whichever is
greater, and (ii) all other amounts, costs, expenses and liquidated damages due
in respect of such Debentures.
"Original Issue Date" shall mean December 1, 1997 regardless
of the number of transfers of any Debenture and regardless of the number of
instruments which may be issued to evidence such Debenture.
"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
National Market or other stock exchange or quotation system on which the Common
Stock is listed for trading, or (b) if the Common Stock is not listed on the
Nasdaq National Market or any other stock exchange or market, the closing bid
price per share of the Common Stock on such date on the over-the-counter market,
as reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted
on the OTC Bulletin Board, the closing bid price per share of Common Stock on
such date on the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices), or (d) if the Common Stock is no longer traded
on the over-the-counter market and reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices), such closing bid price shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser).
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Subordinated
Debenture Purchase Agreement, dated as of the Original Issue Date, between the
Company and the original Holder of Debentures, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of
<PAGE>
Debentures, as amended, modified or supplemented from time to time in accordance
with its terms.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq National Market or other stock exchange or market on which
the Common Stock is listed for trading, or (b) if the Common Stock is not listed
on the Nasdaq National Market or any stock exchange or market, a day on which
the Common Stock is traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
or on the pink sheets as reported by the National Quotation Bureau Incorporated
or Bloomberg Information Services, Inc., as the case may be (or any similar
organization or agency succeeding their respective functions of reporting
prices).
"Trigger Date" shall mean, (i) with respect to an Event of
Default caused by an event described in Section 3(a), the date the payment of
principal or interest at issue was due, (ii) with respect to an Event of Default
caused by an event described in Section 3(b), the date specified in any other
provision of this Debenture, the Purchase Agreement or the Registration Rights
Agreement that require prepayment of the outstanding principal amount of this
Debenture as a result of an event so contemplated, if not, the date such event
becomes an Event of Default pursuant to Section 3(b), and (iii) with respect to
an Event of Default caused by an event described in Section 3(c), (d), (e) and
(f), the date such event becomes an Event of Default pursuant to such Sections.
"Underlying Shares" means the shares of Common Stock into
which the Debentures are convertible in accordance with the terms hereof and the
Purchase Agreement, in such number as required hereunder.
"Underlying Securities Registration Statement" means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering among other things the resale of the Underlying
Shares and naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct obligation of the Company. This Debenture
ranks pari passu with all other Debentures now or hereafter issued under the
terms set forth herein. The Company may only voluntarily prepay the outstanding
principal amount on the Debentures in accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive
<PAGE>
dividends and other distributions, or to receive any notice of, or to attend,
meetings of stockholders or any other proceedings of the Company, unless and to
the extent converted into shares of Common Stock in accordance with the terms
hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. (a) This Debenture is subordinated to Senior Debt,
which is any Debt of the Company (including, principal, interest or premium)
outstanding on the date hereof, or hereafter created, incurred, assumed or
guaranteed by the Company and all renewals, amendments, extensions and
refundings thereof, except Debt that expressly provides that it is not senior or
superior in right of payment to this Debenture. Debt is any indebtedness,
contingent or otherwise, in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of the Company or any
subsidiary or only to a portion thereof), or evidenced by bonds, notes,
debentures or similar instruments or letters of credit, or representing the
balance deferred and unpaid of the purchase price of any property or interest
therein, except any such balance that constitutes a trade payable if, and only
to the extent such indebtedness would appear as a liability on the balance sheet
of the Company or any subsidiary prepared on a consolidated basis in accordance
with generally accepted accounting principles, or any debt owed to any affiliate
(including any officer, director or employees thereof) of the Company. The
Company agrees, and each holder of this Debenture by accepting this Debenture
agrees, to the foregoing subordination. Until Senior Debt is satisfied, the
Company shall not, directly or indirectly, make any payment under this Debenture
(except for cash payments contemplated by Sections 4(a)(ii), 4(b), 4(c) or 5
hereof; provided, however, that at the time such payments are made there has not
been declared an event of default under any instrument representing Senior Debt
that has not been cured and provided, further, that such payments under Sections
4(a)(ii), 4(b) 4(c) or 5 hereof will not cause an event of default under any
such instruments), or grant any collateral for any of the Debentures or make any
distribution of any assets other than shares of Common Stock to the Holder. The
Holder shall take no action to enforce payment of the Debenture without the
consent of the holders of Senior Debt, provided, however, that the subordination
provided hereunder shall in no way limit the Holder's ability to convert
Debentures into shares of Common Stock, including after such time as any Event
of Default shall be declared hereunder.
(b) Should any payment, other than payments
contemplated in Section 10(a) above, be received by the Holder, such payment
shall be held in trust by the Holder for the benefit of the holders of Senior
Debt, and shall be delivered forthwith to the
<PAGE>
holders of Senior Debt for application to the Senior Debt, in the form received
with any necessary endorsement or assignment.
Section 11. This Debenture shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
conflicts of laws thereof.
Section 12. Any waiver by the Company or the Holder of a
breach of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other
<PAGE>
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
Section 13. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 14. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day (or, if such next succeeding Business Day falls
in the next calendar month, the preceding Business Day in the appropriate
calendar month).
IN WITNESS WHEREOF, the Company has caused this Debenture to
be duly executed by a duly authorized officer as of the date first above
indicated.
DIGITAL BIOMETRICS, INC.
By:________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE OPTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. A-1 into shares of Common
Stock, par value $.01 per share (the "Common Stock"), of Digital Biometrics,
Inc. (the "Company") according to the conditions hereof, as of the date written
below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
----------------------------------------------
Date to Effect Conversion
----------------------------------------------
Principal Amount of Debentures to be Converted
----------------------------------------------
Number of shares of Common Stock to be Issued
----------------------------------------------
Applicable Conversion Price
----------------------------------------------
Signature
----------------------------------------------
Name
----------------------------------------------
Address
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of DIGITAL BIOMETRICS, INC. (the
"Company") hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to convert Debenture No. A-1 into shares of Common Stock,
par value $.01 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations:
----------------------------------------------
Date to Effect Conversion
----------------------------------------------
Principal Amount of Debentures to be Converted
----------------------------------------------
Applicable Conversion Price
----------------------------------------------
Signature
----------------------------------------------
Name:
----------------------------------------------
Address:
EXHIBIT 10.1
- --------------------------------------------------------------------------------
CONVERTIBLE SUBORDINATED DEBENTURE PURCHASE AGREEMENT
Between
DIGITAL BIOMETRICS, INC.
and
KA INVESTMENTS LDC
------------------------------
December 1, 1997
------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONVERTIBLE SUBORDINATED DEBENTURE PURCHASE AGREEMENT,
dated as of December 1, 1997 (this "Agreement"), between Digital Biometrics,
Inc., a Delaware corporation (the "Company"), and KA Investments LDC, a Cayman
Islands corporation (the "Purchaser").
WHEREAS, subject to the terms and conditions set forth herein, the
Company desires to issue and sell to the Purchaser and the Purchaser desires to
purchase an aggregate principal amount of $2,500,000 of the Company's to be
created 8% Convertible Subordinated Debentures, due December 1, 2000 (the
"Debentures"), which are convertible into the Company's common stock, par value
$.01 per share (the "Common Stock").
IN CONSIDERATION of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES
1.1 Purchase and Sale. Subject to the terms and conditions set forth
herein, the Company shall issue and sell to the Purchaser and the Purchaser
shall purchase the Debentures, in denominations of $100,000 and integral
multiples of $50,000 in excess thereof.
1.2 The Tranche 1 Closing. (a) Subject to the terms and conditions set
forth herein, the Company shall issue and sell to the Purchaser and the
Purchaser shall purchase an aggregate principal amount of $500,000 of the
Debentures (the "Tranche 1 Debentures") for a purchase price of $500,000 (the
"Purchase Price"). The closing of the purchase and sale of the Tranche 1
Debentures (the "Tranche 1 Closing") shall take place at the offices of Robinson
Silverman Pearce Aronsohn & Berman LLP ("RSPAB"), 1290 Avenue of the Americas,
New York, New York 10104, immediately following the execution hereof or such
later date as the parties shall agree. The date of the Tranche 1 Closing is
hereinafter referred to as the "Tranche 1 Closing Date."
(b) At the Tranche 1 Closing, (i) the Company shall
deliver to the Purchaser (1) the Tranche 1 Debentures and the Tranche 1 Warrants
(as defined in Section 3.17), each registered in the name of the Purchaser, (2)
the legal opinion of Briggs and Morgan P.A., substantially in the form attached
hereto as Exhibit C, and (3) all other documents, instruments and writings
required to have been delivered at or prior to the Tranche 1 Closing by the
Company pursuant to this Agreement, and (b) the Purchaser shall
<PAGE>
deliver to the Company (1) $500,000, less the fees contemplated in Sections
2.1(l) and 5.1, in immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose on or prior to the Tranche
1 Closing Date, and (2) all documents, instruments and writings required to have
been delivered at or prior to the Tranche 1 Closing by the Purchaser pursuant to
this Agreement.
1.3 The Tranche 2 Closing. (a) Subject to the terms and conditions set
forth in this Agreement, the Company shall have the right to deliver a written
notice to the Purchaser (a "Subsequent Financing Notice") requiring the
Purchaser to purchase Debentures in the aggregate principal amount of up to
$500,000 (the "Tranche 2 Debentures") and the Tranche 2 Warrants (as defined in
Section 3.15). The Company may not deliver the Subsequent Financing Notice
relating to the Tranche 2 Debentures earlier than 75 days nor later than 105
days after the Tranche 1 Closing Date or, if such day is not a Business Day, the
next succeeding Business Day. The closing of the purchase and sale of the
Tranche 2 Debentures (the "Tranche 2 Closing") shall take place at the offices
of RSPAB on such date (which may not, without the consent of the Purchaser, be
prior to the fifteenth day after receipt of the Subsequent Financing Notice
relating to the Tranche 2 Debentures or, if such day is not a Business Day, the
next succeeding Business Day) as the Company may designate in the Subsequent
Financing Notice relating to the Tranche 2 Debentures; provided, however, that
in no case shall the Tranche 2 Closing take place unless and until the
conditions listed in Section 4.1 have been satisfied or waived by the
appropriate party and in no event shall the Tranche 2 Closing occur subsequent
to the 120th day after the Tranche 1 Closing Date or, if such day is not a
Business Day, the next succeeding Business Day (such date, the "Tranche 2
Closing Expiration Date"). The date of the Tranche 2 Closing is hereinafter
referred to as the "Tranche 2 Closing Date."
(b) At the Tranche 2 Closing, (i) the Company shall
deliver to the Purchaser (a) the Tranche 2 Debentures and the Tranche 2
Warrants, each registered in the name of the Purchaser, and (b) all other
documents, instruments and writings required to have been delivered at or prior
to the Tranche 2 Closing by the Company pursuant to this Agreement, and (ii) the
Purchaser shall deliver to the Company (a) an amount equal to the aggregate
principal amount of Tranche 2 Debentures to be sold at the Tranche 2 Closing in
accordance with this Section less the fees contemplated by Sections 2.1(l) and
5.1, in immediately available funds by wire transfer to an account designated in
writing by the Company prior to the Tranche 2 Closing Date and (b) all
documents, instruments and writings required to have been delivered at or prior
to Tranche 2 Closing by the Purchaser pursuant to this Agreement.
1.4 Tranche 3 Closing. (a) Subject to the terms and conditions set
forth in this Agreement, the Company shall have the right to deliver a
Subsequent Financing Notice requiring the Purchaser to purchase Debentures in
such principal amount as the Company may designate in such notice, which may not
be more than $500,000 (the "Tranche 3
<PAGE>
Debentures") and the Tranche 3 Warrants (as defined in Section 3.15). The
Company may not deliver the Subsequent Financing Notice relating to the Tranche
3 Debentures earlier than 75 days nor later than 105 days after the earlier to
occur of the Tranche 2 Closing Date or the Tranche 2 Closing Expiration Date or,
if such day is not a Business Day, the next succeeding Business Day. The closing
of the purchase and sale of the Tranche 3 Debentures (the "Tranche 3 Closing")
shall take place at the offices of RSPAB on such date (which may not, without
the consent of the Purchaser, be prior to the fifteenth day after receipt of the
Subsequent Financing Notice relating to the Tranche 3 Debentures or, if such day
is not a Business Day, the next succeeding Business Day) as the Company may
designate in the Subsequent Financing Notice relating to the Tranche 3
Debentures; provided, however, that in no case shall the Tranche 3 Closing take
place unless and until the conditions listed in Section 4.1 have been satisfied
or waived by the appropriate party and in no event shall the Tranche 3 Closing
occur subsequent to the 120th day after the earlier the earlier to occur of the
Tranche 2 Closing Date or Tranche 2 Closing Expiration Date or, if such day is
not a Business Day, the next succeeding Business Day (such date, the "Tranche 3
Closing Expiration Date"). The date of the Tranche 3 Closing is hereinafter
referred to as the "Tranche 3 Closing Date."
(b) At the Tranche 3 Closing, (i) the Company shall
deliver to the Purchaser (a) the Tranche 3 Debentures and Tranche 3 Warrants,
each registered in the name of the Purchaser, and (b) all other documents,
instruments and writings required to have been delivered at or prior to the
Tranche 3 Closing by the Company pursuant to this Agreement, and (ii) the
Purchaser shall deliver to the Company (a) an amount equal to the aggregate
principal amount of Tranche 3 Debentures to be sold at the Tranche 3 Closing in
accordance with this Section less the fees contemplated by Sections 2.1(l) and
5.1, in immediately available funds by wire transfer to an account designated in
writing by the Company prior to the Tranche 3 Closing Date and (b) all
documents, instruments and writings required to have been delivered at or prior
to Tranche 3 Closing by the Purchaser pursuant to this Agreement.
1.5 Tranche 4 Closing. (a) Subject to the terms and conditions set
forth in this Agreement, the Company shall have the right to deliver to the
Purchaser a Subsequent Financing Notice requiring the Purchaser to purchase
Debentures in such principal amount as the Company may designate in such notice,
which may not be more than $500,000 (the "Tranche 4 Debentures") and the Tranche
4 Warrants (as defined in Section 3.15). The Company may not deliver the
Subsequent Financing Notice relating to the Tranche 4 Debentures earlier than 75
days nor later than 105 days after the earlier to occur of the Tranche 3 Closing
Date or the Tranche 3 Closing Expiration Date or, if such day is not a Business
Day, the next succeeding Business Day. The closing of the purchase and sale of
the Tranche 4 Debentures (the "Tranche 4 Closing") shall take place at the
offices of RSPAB on such date (which may not, without the consent of the
Purchaser, be prior to the fifteenth day after receipt of the Subsequent
Financing Notice relating to the Tranche 4
<PAGE>
Debentures or, if such day is not a Business Day, the next succeeding Business
Day) as the Company may designate in the Subsequent Financing Notice relating to
the Tranche 4 Debentures; provided, however, that in no case shall the Tranche 4
Closing take place unless and until the conditions listed in Section 4.1 have
been satisfied or waived by the appropriate party and in no event shall the
Tranche 4 Closing occur after the 120th day after the earlier to occur of the
Tranche 3 Closing Date or Tranche 3 Closing Expiration Date or, if such day is
not a Business Day, the next succeeding Business Day (such date, the "Tranche 4
Closing Expiration Date"). The date of the Tranche 4 Closing is hereinafter
referred to as the "Tranche 4 Closing Date."
(b) At the Tranche 4 Closing, (i) the Company shall
deliver to the Purchaser (a) the Tranche 4 Debentures and Tranche 4 Warrants,
each registered in the name of the Purchaser, and (b) all other documents,
instruments and writings required to have been delivered at or prior to the
Tranche 4 Closing by the Company pursuant to this Agreement, and (ii) the
Purchaser shall deliver to the Company (a) an amount equal to the aggregate
principal amount of Tranche 4 Debentures to be sold at the Tranche 4 Closing in
accordance with this Section less the fees contemplated by Sections 2.1(l) and
5.1, in immediately available funds by wire transfer to an account designated in
writing by the Company prior to the Tranche 4 Closing Date and (b) all
documents, instruments and writings required to have been delivered at or prior
to Tranche 4 Closing by the Purchaser pursuant to this Agreement.
1.6 Tranche 5 Closing. (a) Subject to the terms and conditions set
forth in this Agreement, the Company shall have the right to deliver to the
Purchaser a Subsequent Financing Notice requiring the Purchaser to purchase
Debentures in such principal amount as the Company may designate in such notice,
which may not be more than $500,000 (the "Tranche 5 Debentures") and the Tranche
5 Warrants (as defined in Section 3.15). The Company may not deliver the
Subsequent Financing Notice relating to the Tranche 5 Debentures earlier than 75
days nor later than 105 days after the earlier to occur of the Tranche 4 Closing
Date or the Tranche 4 Closing Expiration Date or, if such day is not a Business
Day, the next succeeding Business Day. The closing of the purchase and sale of
the Tranche 5 Debentures (the "Tranche 5 Closing") shall take place at the
offices of RSPAB on such date (which may not, without the consent of the
Purchaser, be prior to the fifteenth day after receipt of the Subsequent
Financing Notice relating to the Tranche 5 Debentures or, if such day is not a
Business Day, the next succeeding Business Day) as the Company may designate in
the Subsequent Financing Notice relating to the Tranche 5 Debentures; provided,
however, that in no case shall the Tranche 5 Closing take place unless and until
the conditions listed in Section 4.1 have been satisfied or waived by the
appropriate party and in no event shall the Tranche 5 Closing occur after the
120th day after the earlier to occur of the Tranche 4 Closing Date or Tranche 4
Closing Expiration Date or, if such day is not a Business Day, the next
succeeding Business Day (such date, the "Tranche 5 Closing
<PAGE>
Expiration Date"). The date of the Tranche 5 Closing is hereinafter referred to
as the "Tranche 5 Closing Date."
(b) At the Tranche 5 Closing, (i) the Company shall
deliver to the Purchaser (a) the Tranche 5 Debentures and the Tranche 5
Warrants, each registered in the name of the Purchaser, and (b) all other
documents, instruments and writings required to have been delivered at or prior
to the Tranche 5 Closing by the Company pursuant to this Agreement, and (ii) the
Purchaser shall deliver to the Company (a) an amount equal to the aggregate
principal amount of Tranche 5 Debentures to be sold at the Tranche 5 Closing in
accordance with this Section less the fees contemplated by Sections 2.1(l) and
5.1, in immediately available funds by wire transfer to an account designated in
writing by the Company prior to the Tranche 5 Closing Date and (b) all
documents, instruments and writings required to have been delivered at or prior
to Tranche 5 Closing by the Purchaser pursuant to this Agreement.
1.7 The Tranche 1 Debentures shall be in the form of Exhibit A attached
hereto. The Tranche 2 Debentures, Tranche 3 Debentures, Tranche 4 Debentures and
Tranche 5 Debentures shall be identical to the Tranche 1 Debentures, except that
the definition of "Conversion Price" for such Debentures shall be determined by
reference to the applicable Original Issue Date of such Debenture.
For purposes of this Agreement, "Conversion Price," "Original
Issue Date," "Conversion Date" "Trading Day" and "Per Share Market Value" shall
have the meanings set forth in the Debentures; and "Average Price" as at any
date shall mean the average Per Share Market Value for the five (5) Trading Days
immediately preceding such date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as of the date hereof and as of each
Closing Date as follows:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than as set forth in
Schedule 2.1(a) attached hereto (collectively, the "Subsidiaries"). Except as
set forth on Schedule 2.1(a), each of the Subsidiaries is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation,
<PAGE>
with the requisite corporate power and authority to own and use its properties
and assets and to carry on its business as currently conducted. Each of the
Company and the Subsidiaries is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, (x) adversely
affect the legality, validity or enforceability of this Agreement, the
Debentures, the Warrants, and the Registration Rights Agreement, dated the date
hereof, between the Company and the Purchaser and substantially in the form of
Exhibit B attached hereto (the "Registration Rights Agreement," and collectively
with this Agreement, the Debentures and the Warrants, the "Transaction
Documents"), (y) have a material adverse effect on the results of operations,
assets, or financial condition of the Company and the Subsidiaries, taken as a
whole, or (z) adversely impair the Company's ability to perform fully on a
timely basis its material obligations under any Transaction Document (a
"Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and to otherwise carry out its
obligations thereunder. The execution and delivery of each Transaction Document
by the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of the
Company. Each Transaction Document has been duly executed by the Company and
when delivered in accordance with the terms hereof and each Transaction Document
shall constitute the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company nor any
Subsidiary is in violation of any provision of its respective certificate of
incorporation, by-laws or other charter documents (or their foreign
equivalents).
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Debentures and Warrants hereunder, securities, rights or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To
<PAGE>
the knowledge of the Company, except as specifically disclosed in the SEC
Documents (as defined below) or Schedule 2.1(c), no Person or group of Persons
(as defined below) beneficially owns (as determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) or has the right to acquire by agreement with or by obligation binding
upon the Company beneficial ownership of in excess of 5% of the Common Stock. A
"Person" means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
(d) Issuance of Debentures and Warrants. The Debentures and
the Warrants are duly authorized, and, when issued and paid for in accordance
with the terms hereof, shall be validly issued, fully paid and nonassessable.
The Company has and at all times while the Debentures and the Warrants are
outstanding will maintain an adequate reserve of duly authorized shares of
Common Stock to enable it to perform its conversion, exercise and other
obligations under this Agreement, the Warrants and the Debentures and in no
circumstances shall such reserved and available shares of Common Stock be less
than the sum of (i) 200% of (A) the number of shares of Common Stock as would be
issuable upon conversion in full of the Debentures, assuming such conversion
were effected on the Original Issue Date, and (B) the number of shares of Common
Stock as are issuable as payment of interest on the Debentures, and (ii) the
number of shares of Common Stock as are issuable upon exercise in full of the
Warrants. The shares of Common Stock issuable upon conversion of the Debentures,
as payment of interest in respect thereof and upon exercise of the Warrants are
sometimes referred to herein as the "Underlying Shares," and the Debentures,
Warrants and Underlying Shares are, collectively, the "Securities." When issued
in accordance with the terms of the Debentures and the Warrants, the Underlying
Shares will be duly authorized, validly issued, fully paid and nonassessable.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (or their foreign equivalents) (each as amended through the
date hereof), (ii) subject to obtaining the consents referred to in Section
2.1(f), conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument (evidencing a Company debt or otherwise) to
which the Company is a party or by which any property or asset of the Company is
bound or affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not,
<PAGE>
individually or in the aggregate, have or result in a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, could not have or result in a Material
Adverse Effect.
(f) Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
or make any filing or registration with, any court or other federal, state,
local, foreign or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the Transaction
Documents other than (i) the filing of a registration statement (an "Underlying
Securities Registration Statement") contemplated by the Registration Rights
Agreement with the Commission, which shall be filed in the time period set forth
in the Registration Rights Agreement, (ii) the applications for the listing of
the Underlying Shares with the Nasdaq National Market (and on each other
national securities exchange, market or trading facility on which the Common
Stock is then listed), (iii) to the extent required by Section 4(a)(ii) of the
Debentures, the "Stockholder Approval" as therein defined, and (iv) other than,
in all other cases, where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or filing, could not have
or result in, individually or in the aggregate, a Material Adverse Effect
(together with the consents, waivers, authorizations, orders, notices and
filings referred to in Schedule 2.1(f), the "Required Approvals"). The Company
shall deliver to the Purchaser the Underlying Shares in the manner contemplated
hereby and by the Registration Rights Agreement free and clear of all liens and
encumbrances of any nature whatsoever.
(g) Litigation; Proceedings. Except as specifically disclosed
in the SEC Documents (as hereinafter defined), there is no action, suit, notice
of violation, proceeding or investigation pending or, to the best knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any Transaction Document or the
Securities or (ii) could, individually or in the aggregate, have or result in a
Material Adverse Effect. Notwithstanding anything to the contrary contained
herein, in the event the Company obtains an unfavorable ruling in its patent
lawsuit pending against Identix, Inc. pending in the United States District
Court for the District of Northern California or decides not to continue
pursuing its claim against Identix, Inc., such unfavorable ruling or
discontinuance of litigation by the Company shall not be considered, for the
purposes of this Agreement, a Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (or has received notice of
a claim that it is in default under or that it is in violation of) any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is
<PAGE>
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not individually or in the
aggregate, have or result in, a Material Adverse Effect.
(i) Private Offering. Neither the Company nor any Person
acting on its behalf has taken or will take any action which might subject the
offering, issuance or sale of the Securities to the registration requirements of
Section 5 of the Securities Act of 1933, as amended (the "Securities Act").
(j) SEC Documents. Except as set forth on Schedule 2.1(j), the
Company has filed all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, since September 30, 1996,
(the foregoing materials being collectively referred to herein as the "SEC
Documents" and, together with the Schedules to this Agreement and other
documents and information furnished by or on behalf of the Company at any time
prior to the Closing, as the "Disclosure Materials") on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Documents prior to the expiration of any such extension. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal year-end audit adjustments. Except as
set forth in Schedule 2.1(j), since the date of the financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996, there has been no event, occurrence or development that has
had or that could have or result in a Material Adverse Effect which has not been
specifically disclosed in writing to the Purchaser by the Company. The Company
last filed audited financial statements with the Commission in connection with
its Form 10-K for the fiscal year ended September 30, 1996, and has not received
any comments from the Commission in respect thereof. The Schedules to this
Agreement furnished by or on behalf of the Company do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
<PAGE>
(k) Investment Company. The Company is not, and is not an
"Affiliate person" of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for fees payable and warrants
issuable to Miller, Johnson & Kuehn, Inc., no fees or commissions will be
payable by the Company to any broker, financial advisor, finder, investment
banker, or bank with respect to the transactions contemplated hereby. The
Purchaser shall have no obligation with respect to such fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
hereby. The Company shall indemnify and hold harmless the Purchaser, its
employees, officers, directors, agents, and partners, and their respective
Affiliates (as such term is defined under Rule 405 promulgated under the
Securities Act), from and against all claims, losses, damages, costs (including
the costs of preparation and attorney's fees) and expenses suffered in respect
of any such claimed or existing fees.
(m) Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the offering and sale of
the Securities other than the Disclosure Materials and any amendments and
supplements thereto or (ii) solicited any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(n) Form S-1 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-1 promulgated under the
Securities Act.
(o) Exclusivity. The Company shall not issue and sell
Debentures to any Person other than the Purchaser and its Affiliates and managed
funds, if any.
(p) Listing and Maintenance Requirements Compliance. Except as
set forth in Schedule 2.1(p), the Company has not in the two years preceding the
date hereof received written notice from any stock exchange or market on which
the Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market.
(q) Patents and Trademarks. Except as set forth in Schedule
2.1(q), the Company has, or has rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses, trade secrets and other intellectual property rights which are
necessary for use in connection with its business or which the failure to so
have would have a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). To the best knowledge of the Company, none of the
Intellectual Property Rights infringe on any rights of any other Person, and the
Company either owns or has duly licensed or otherwise acquired all necessary
rights with respect to the Intellectual Property Rights. The Company has not
received any notice from any third
<PAGE>
party of any claim of infringement by the Company of any of the Intellectual
Property Rights, and has no reason to believe there is any basis for any such
claim. To the best knowledge of the Company, except as set forth in Schedule
2.1(q), there is no existing infringement by another Person on any of the
Intellectual Property Rights. Notwithstanding anything to the contrary contained
herein, in the event the Company obtains an unfavorable ruling in its patent
lawsuit pending against Identix, Inc. pending in the United States District
Court for the District of Northern California or decides not to continue
pursuing its claim against Identix, Inc., such unfavorable ruling or
discontinuance of litigation by the Company shall not be considered, for the
purposes of this Agreement, a Material Adverse Effect.
2.2 Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company:
(a) Organization; Authority. The Purchaser is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents and to carry out its obligations thereunder. The acquisition of the
Securities by the Purchaser has been duly authorized by all necessary action on
the part of the Purchaser. Each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered by the Purchaser and constitutes
the valid and legally binding obligation of the Purchaser, enforceable against
the Purchaser, in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the
Securities for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof or
interest therein, without prejudice, however, to the Purchaser's right, subject
to the provisions of this Agreement and the Registration Rights Agreement, at
all times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act and in
compliance with applicable state securities laws or under an exemption from such
registration.
(c) Purchaser Status. At the time the Purchaser was offered
the Securities, it was, and at the date hereof, it is, and at each Closing Date,
it will be, an "accredited investor" pursuant to in Rule 501(a)(3) under the
Securities Act.
(d) Experience of Purchaser. The Purchaser either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
<PAGE>
(e) Ability of Purchaser to Bear Risk of Investment. Purchaser
acknowledges that the Securities are speculative investments and involve a high
degree of risk and the Purchaser is able to bear the economic risk of an
investment in the Securities, and, at the present time, is able to afford a
complete loss of such investment.
(f) Access to Information. The Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities, and the merits and risks of
investing in the Securities; (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives, agents or
counsel shall modify, amend or affect such Purchaser's right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the Company's
representations and warranties contained in the Transaction Documents.
(g) Reliance. The Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to the Purchaser without
registration under the Securities Act in a private placement that is exempt from
the registration provisions of the Securities Act and (ii) the availability of
such exemption, depends in part on, and the Company will rely upon the accuracy
and truthfulness of, the foregoing representations and the Purchaser hereby
consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) The Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements thereof. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or to the Company, the Company may require the
<PAGE>
transferor thereof to provide to the Company an opinion of counsel experienced
in the area of United States securities laws selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration under
the Securities Act. Notwithstanding the foregoing, the Company hereby consents
to and agrees to register in its securities transfer register any transfer by
the Purchaser to an Affiliate of the Purchaser, or any transfers among
Affiliates provided that the transferee certifies to the Company that it is an
"accredited investor" as defined in Rule 501(a) under the Securities Act, and
such transfer does not otherwise violate any federal or state securities laws.
Any such transferee shall have the rights of the Purchaser under this Agreement
and the Registration Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legends on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE, IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR DEBENTURES ONLY] THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER AND CONVERSIONS SET FORTH IN A CONVERTIBLE DEBENTURE
PURCHASE AGREEMENT, DATED AS OF DECEMBER 1, 1997, BETWEEN DIGITAL
BIOMETRICS, INC. (THE "COMPANY") AND THE ORIGINAL HOLDER HEREOF. A COPY
OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain the legend set forth above
if the conversion of such Debentures or exercise of the Warrants or other
issuances of Underlying Shares, as the case may be, occurs at any time while an
Underlying Securities Registration Statement is effective under the Securities
Act or, in the event there is not an effective Underlying Securities
Registration Statement at such time, if in the opinion of counsel to the Company
experienced in the area of United States securities laws such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company
<PAGE>
may also cause a stop-transfer order to be placed against the Securities with
its transfer agent during such time as the legends are on the Securities. The
Company agrees that it will provide the Purchaser, upon request, with a
certificate or certificates representing Underlying Shares, free from such
legend at such time as such legend is no longer required in accordance with this
Section. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company which enlarge the restrictions
of transfer set forth in this Section .
3.2 Acknowledgement of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Debentures and as
payment of interest thereon and (ii) exercise of the Warrants may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that, except as provided in Section 4(a)(ii) or Section 5 of the Debentures, its
obligation to issue Underlying Shares in accordance with the Debentures and the
Warrants is unconditional and absolute regardless of the effect of any such
dilution.
3.3 Furnishing of Information. As long as the Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. If at any time prior to the date on which
the Purchaser may resell all of its Underlying Shares without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act (as
determined by counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent for the
benefit of and enforceable by the Purchaser), the Company is not required to
file reports pursuant to such sections, it will prepare and furnish to the
Purchaser and make publicly available in accordance with Rule 144(c) promulgated
under the Securities Act annual and quarterly financial statements, together
with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
the legal opinion referenced above in this Section. Upon the request of any such
Person, the Company shall deliver to such Person a written certification of a
duly authorized officer as to whether it has complied with such requirements.
3.4 Copies and Use of Disclosure Materials. The Company consents to the
use of the Disclosure Materials and any amendments and supplements thereto by
the Purchaser
<PAGE>
in connection with resales of the Securities other than pursuant to an effective
registration statement, subject to any confidentiality requirements in
connection therewith.
3.5 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares under the securities
or Blue Sky laws of such jurisdictions as the Purchaser may reasonably request
and shall continue such qualification at all times through the third anniversary
of the last Closing Date; provided, however, that neither the Company nor its
Subsidiaries shall be required in connection therewith to qualify as a foreign
corporation where they are not now so qualified or to take any action that would
subject the Company to general service of process in any such jurisdiction where
it is not then so subject.
3.6 Integration. The Company shall not and shall use its best efforts
to ensure that no Affiliate of the Company shall sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the issue offer or sale of the Securities to the Purchaser.
3.7 Increase in Authorized Shares. At such time as the Company would
be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) converting the full outstanding
principal amount of Debentures (and paying any accrued but unpaid interest in
respect thereof in shares of Common Stock) that remain unconverted at such date
or (b) honoring the exercise in full of the Warrants, due to the unavailability
of a sufficient number of shares of authorized but unissued or reacquired Common
Stock, the Board of Directors of the Company shall promptly (and in any case
within 45 Business Days from such date) prepare and mail to the shareholders of
the Company proxy materials requesting authorization to amend the Company's
certificate of incorporation to increase the number of shares of Common Stock
which the Company is authorized to issue to at least a number of shares equal to
the sum of (i) all shares of Common Stock then outstanding, (ii) the number of
shares of Common Stock issuable on account of all outstanding warrants, options
and convertible securities (other than the Debentures and the Warrants) and on
account of all shares reserved under any stock option, stock purchase, warrant
or similar plan, (iii) 200% of the number of Underlying Shares as would then be
issuable upon a conversion in full of the then outstanding Debentures and as
payment of all future interest thereon in shares of Common Stock in accordance
with the terms of this Agreement and the Debentures and (iv) such number of
Underlying Shares as would then be issuable upon the exercise in full of the
Warrants. In connection therewith, the Board of Directors shall (a) adopt proper
resolutions authorizing such increase, (b) recommend to and otherwise use its
best efforts to promptly and duly obtain stockholder approval to carry out such
resolutions (and hold a special meeting of the shareholders no later than the
60th day after delivery of the proxy materials relating to such meeting) and
<PAGE>
(c) within 5 Business Days of obtaining such shareholder authorization, file an
appropriate amendment to the Company's certificate of incorporation to evidence
such increase.
3.8 Purchaser Ownership of Common Stock. The Purchaser may not use its
ability to convert Debentures or use its ability to acquire shares of Common
Stock upon exercise of the Warrants, to the extent that such conversion or
exercise would result in the Purchaser beneficially owning (for purposes of Rule
13d-3 under the Exchange Act) more than 4.999% of the outstanding shares of the
Common Stock; provided, however, that if ten days shall have elapsed since
Purchaser has declared a default under any Transaction Document and such event
shall not have been cured to Purchaser's satisfaction prior to the expiration of
such ten-day period, the provisions of this Section 3.8 shall be null and void
ab initio. Notwithstanding anything to the contrary contained herein, the
provisions of this Section shall have no effect on the Company's obligation to
issue shares of Common Stock to the Purchaser upon receipt or delivery of any
conversion or exercise notice. The terms and conditions of this Section shall
not apply to any conversion of Debentures other than at the option of Purchaser.
3.9 Listing and Reservation of Underlying Shares. (a) The Company shall
(i) not later than the fifth Business Day following the Closing Date, prepare
and file with the Nasdaq National Market (as well as any other national
securities exchange or market on which the Common Stock is then listed) an
additional shares listing application covering at least the sum of (A) two times
the number of Underlying Shares as would be issuable upon a conversion in full
of the Debentures, assuming such conversion occurred on the Original Issue Date,
(B) the number of Underlying Shares required to pay interest in respect of the
Debentures in stock, and (C) the number of Underlying Shares issuable upon
exercise in full of the Warrants, (ii) take all steps necessary to cause the
such shares to be approved for listing in the Nasdaq National Market (as well as
on any other national securities exchange or market on which the Common Stock is
then listed) as soon as possible thereafter, and (iii) provide to the Purchaser
evidence of such listing, and the Company shall maintain the listing of its
Common Stock on such exchange or market.
(b) The Company shall maintain a reserve of Common Stock for
the issuance upon conversion of Debentures (and for payment of interest thereon)
and upon exercise of the Warrants in such amount as to enable the Company to
perform its obligations in full under the Transaction Documents, which reserve
shall include a number of shares of Common Stock equal to not less than two
times the number of shares of Common Stock as would be issuable upon the
conversion in full of the Debentures and interest thereon, assuming such
conversion occurred on the Original Issue Date (subject to increase as
required).
3.10 Conversion Procedures. Exhibit E attached hereto sets forth the
procedures with respect to the conversion of the Debentures, including the form
of legal opinion, if
<PAGE>
necessary, that shall be rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchaser to exercise its right of conversion smoothly and expeditiously.
3.11 Purchaser's Rights if Trading in Common Stock is Suspended or
Delisted. If at any time while the Purchaser (or any assignee thereof) owns any
Securities, trading in the shares of the Common Stock is suspended on or
delisted from the Nasdaq National Market or any other principal market or
exchange for such shares (other than as a result of the suspension of trading in
securities on such market or exchange generally or temporary suspensions pending
the release of material information) for more than two Trading Days, at the
Purchaser's option exercisable by five Business Days prior written notice to the
Company, the Company shall repay the entire principal amount of then outstanding
Debentures and redeem all then outstanding Underlying Shares then held by the
Purchaser, at an aggregate purchase price equal to the sum of (I) the aggregate
outstanding principal amount of Debentures then held by the Purchaser plus all
accrued but unpaid interest thereon divided by the Conversion Price on the date
of the repurchase notice and multiplied by the Average Price preceding (a) the
day of such notice or (b) the date of payment in full of the repurchase price
calculated under this Section, whichever is greater, (II) the aggregate of all
non-principal and interest amounts then payable in respect of all Debentures to
be repaid, (III) the number of Underlying Shares then held by such Purchaser
multiplied by the Average Price immediately preceding (A) the date of the notice
or (B) the date of payment in full by the Company of the repurchase price
calculated under this Section, whichever is greater, and (IV) interest on the
amounts set forth in I - III above accruing from the 5th Business Day after such
notice until the repurchase price under this Section is paid in full at the rate
of 15% per annum.
3.12 Notice of Breaches. Each of the Company and the Purchaser shall
give prompt written notice to the other of any breach of any representation,
warranty or other agreement contained in this Agreement or in the Registration
Rights Agreement, as well as any events or occurrences arising after the date
hereof and prior to the Closing Date which would reasonably be likely to cause
any representation or warranty or other agreement of such party, as the case may
be, contained herein to be incorrect or breached as the date thereof. However,
no disclosure by either party pursuant to this Section shall be deemed to cure
any breach of any representation, warranty or other agreement contained herein
or in the Registration Rights Agreement.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated hereby and by the Registration Rights Agreement
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly
<PAGE>
furnish by facsimile to the holders of the Debentures a copy of any written
statement in support of or relating to such claim or notice.
3.13 Conversion and Exercise Obligations of the Company. The Company
shall honor conversions of the Debentures and exercises of the Warrants and
shall deliver Underlying Shares in accordance with the respective terms and
conditions and time periods set forth in the Debentures and the Warrants.
3.14 Subsequent Offerings; Certain Company Actions. (a) The Company
shall not without the prior written consent of the Purchaser which consent will
not be unreasonably withheld or delayed, directly or indirectly offer, sell,
grant any option to purchase, or otherwise dispose (or announce any offer, sale,
grant any option to purchase or other disposition) of any of its or its
Affiliates equity or equity-equivalent securities in a transaction not subject
to the registration requirements of the Securities Act or in a transaction not
subject to the registration requirements of the Securities Act at a price which
is, on the face thereof, or implied therein, less than the market price or fair
market value for such securities (a "Private Placement") until the earlier to
occur of (i) 60 Trading Days after the Tranche 2 Closing Date or Tranche 2
Closing Expiration Date, as applicable, (any days that the Purchaser is unable
to sell Underlying Shares under the Underlying Securities Registration Statement
shall be added to such 60 Trading Day period) or (ii) such time as conversions
aggregating 85% or more of all outstanding Debentures relating to each Closing
have been honored by the Company (as evidenced by a writing executed by each of
the Purchaser and the Company), provided, however that notwithstanding anything
to the contrary contained herein, in the event the Company consummates a Private
Placement at a time after the requirements of subparagraph (i) or (ii) have been
satisfied, the Purchaser shall no longer have any obligation to purchase
Debentures hereunder. The following offerings and issuances shall not be subject
to the restrictions set forth in the immediately preceding sentence: (w) the
granting of options or warrants to employees, officers, directors and advisors
of the Company, and the issuance of shares of Common Stock upon exercise of
options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company, (x) any equity or equity-equivalent private offering (i)
entered into prior to the Tranche 1 Closing Date or (ii) arranged by an
investment banker that is licensed by the National Association of Securities
Dealers, Inc. and which is restricted from resale for a period of at least 180
days, provided, that such 180 day period terminates at least 90 days after the
Tranche 5 Closing Date or Tranche 5 Closing Expiration Date, as applicable, (y)
any acquisition transaction which is restricted from resale for a period of at
least 180 days, provided, that such 180 day period terminates at least 90 days
after the Tranche 5 Closing Date or Tranche 5 Closing Expiration Date, as
applicable and (z) shares of Common Stock issued upon conversion of Debentures
or exercise of the Warrants.
(b) As long as Debentures are outstanding, the Company shall
not and shall cause the Subsidiaries not to, without the consent of the
Purchaser, which consent will not
<PAGE>
be unreasonably withheld or delayed, (i) amend its certificate of incorporation,
bylaws or other charter documents (or their foreign equivalents) (ii) split,
combine or reclassify its outstanding capital stock; (iii) declare, authorize,
set aside or pay any dividend or other distribution with respect to the Common
Stock; (iv) repay, repurchase or offer to repay, repurchase or otherwise acquire
shares of its Common Stock; or (v) enter into any agreement with respect to any
of the foregoing, in each such case so as to adversely affect rights of the
Purchaser.
3.15 The Warrants. At each of the Tranche 1 Closing, Tranche 2 Closing,
Tranche 3 Closing, Tranche 4 Closing and Tranche 5 Closing, the Company shall
issue to the Purchaser, common stock purchase warrants, in the form of Exhibit D
(the "Tranche 1 Warrants, Tranche 2 Warrants, Tranche 3 Warrants, Tranche 4
Warrants and Tranche 5 Warrants" and collectively, the "Warrants"), pursuant to
which the Purchaser shall have the right at any time thereafter through the
fifth anniversary of the date of issuance thereof, to acquire 15,000 shares of
Common Stock at an exercise price per share equal to $2.50. In the event that
there is not a Tranche 4 Closing or Tranche 5 Closing, the Company shall issue
to the Purchaser the Tranche 4 Warrants and Tranche 5 Warrants on the Tranche 4
Closing Expiration Date and Tranche 5 Closing Expiration Date, respectively,
unless the reason there is not a Tranche 4 Closing or Tranche 5 Closing if due
solely to a breach of this Agreement by Purchaser.
3.16 Use of Proceeds. The Company shall use all of the proceeds from
the placement of the Securities for working capital purposes and not for the
satisfaction of any portion of Company debt (except for reductions of the
Company's indebtedness to banks under any revolving line of credit) or to redeem
Company equity or equity-equivalent securities. Pending application of the
proceeds of this placement in the manner permitted hereby the Company will
invest such proceeds in interest bearing accounts and/or short-term, investment
grade interest bearing securities.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Tranche 2 Debentures, the Tranche 3 Debentures, the Tranche 4
Debentures and the Tranche 5 Debentures. The obligation of the Purchaser
hereunder to acquire and pay for Tranche 2 Debentures, Tranche 3 Debentures,
Tranche 4 Debentures and Tranche 5 Debentures is subject to the satisfaction or
waiver by the Purchaser at or before the Tranche 2 Closing, Tranche 3 Closing,
Tranche 4 Closing and Tranche 5 Closing, as applicable, of each of the following
conditions:
(a) Tranche 1 Closing. The Tranche 1 Closing shall have
occurred.
<PAGE>
(b) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company contained herein shall be true
and correct in all material respects as of the date when made and as of the
Tranche 2 Closing Date, Tranche 3 Closing Date, Tranche 4 Closing Date and
Tranche 5 Closing Date, as applicable, as though made on and as of such date;
(c) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Tranche 2 Closing
Date, Tranche 3 Closing Date, Tranche 4 Closing Date and Tranche 5 Closing Date,
as applicable;
(d) Underlying Securities Registration Statements. The
Underlying Securities Registration Statement registering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
have been declared effective under the Securities Act by the Commission and with
respect to each Closing Date, such Underlying Registration Statement shall have
remained effective and shall not be subject to any stop order and no stop order
shall be pending or threatened as at any Closing Date;
(e) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority which prohibits
the consummation of any of the transactions contemplated by this Agreement or
the Registration Rights Agreement relating to the issuance or conversion of any
of the Securities.
(f) No Suspensions of Trading in Common Stock. The trading in
the Common Stock shall not have been suspended by the Commission or on the
Nasdaq National Market (except for any suspension of trading of limited duration
solely to permit dissemination of material information regarding the Company and
except if, at the time there is any suspension on the Nasdaq National Market,
the Common Stock is then listed and approved for trading on the New York Stock
Exchange, Nasdaq SmallCap Market or the American Stock Exchange within one (1)
Trading Day thereof);
(g) Listing of Common Stock. The Common Stock, including the
Common Stock duly reserved for issuance upon conversion of the Tranche 2
Debentures, Tranche 3 Debentures, Tranche 4 Debentures and Tranche 5 Debentures,
as applicable, shall have been at all times between the Tranche 1 Closing Date,
the Tranche 2 Closing Date, the Tranche 3 Closing Date, the Tranche 4 Closing
Date and the Tranche 5 Closing Date, as applicable, and on such applicable
Closing Date be, listed for trading on the Nasdaq National Market, the American
Stock Exchange, New York Stock Exchange or the Nasdaq SmallCap Market.
<PAGE>
(h) Change of Control. No Change of Control in the Company
shall have occurred. "Change of Control" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity of in excess
of 40% of the voting securities of the Company, (ii) a replacement of more than
one-half of the members of the Company's board of directors which is not
approved by those individuals who are members of the board of directors on the
date hereof in one or a series of related transactions, (iii) the merger of the
Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
(i) Legal Opinion. The Company shall have delivered to such
Purchaser an opinion of outside legal counsel to the Company in substantially
the forms attached hereto as Exhibit C and dated the applicable Closing Date;
(j) Required Approvals. All Required Approvals shall have
been obtained;
(k) Shares of Common Stock. On each of the Tranche 2 Closing
Date, Tranche 3 Closing Date, Tranche 4 Closing Date and Tranche 5 Closing Date,
as applicable, the Company shall have reserved for issuance to the Purchaser two
times the number of Underlying Shares which would be issuable upon conversion in
full of the Tranche 2 Debentures, Tranche 3 Debentures, Tranche 4 Debentures,
Tranche 5 Debentures and Tranche 5 Debentures, as applicable, assuming such
conversion occurred on the Original Issue Date for such Securities;
(l) Delivery of Securities. The Company shall have delivered
to the Purchaser or an affiliate thereof the Debentures being purchased at such
Closing, registered in the name of the Purchaser, each in form satisfactory to
the Purchaser; and
(m) Performance of Conversion/Exercise Obligations. Through
the Tranche 2 Closing Date, Tranche 3 Closing Date, Tranche 4 Closing Date and
Tranche 5 Closing Date, as applicable, the Company shall have (a) delivered
Underlying Shares upon conversion of Debentures and otherwise performed its
obligations in accordance with the terms, conditions and timing requirements of
each Debenture and (b) shall have delivered Underlying Shares upon exercise of
the Warrants and otherwise performed its obligations in accordance with the
terms of the Warrants.
(n) Market Capitalization. The Company's "Market
Capitalization" shall not have been less than $12,000,000 at or prior to the
Tranche 2 Closing Date, Tranche 3 Closing Date, Tranche 4 Closing Date or
Tranche 5 Closing Date, as applicable. "Market Capitalization" shall be
determined by taking the weighted volume average of the Per Share Market for the
fifteen (15) Trading Days immediately prior to each applicable Closing Date
<PAGE>
and multiplying such fifteen (15) day weighted volume average by the number of
outstanding shares of the Company's Common Stock on the date preceding the
applicable Closing Date.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. Each party shall pay the fees and
expenses of its advisers and other experts in connection with the transactions
contemplated by this Agreement, except that the Company shall pay at the
applicable Closing the legal fees and disbursements of the Purchaser's counsel
in connection with the negotiation and preparation of the Transaction Documents
in the amount of $15,000, and the Purchaser shall pay such expenses as specified
in the Registration Rights Agreement. The Company shall pay all stamp and other
taxes and duties levied in connection with the issuance of the Debentures
pursuant hereto. The Purchaser shall be responsible for the Purchaser's own tax
liability that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement.
5.2 Entire Agreement; Amendments. This Agreement, together
with the Exhibits and Schedules hereto, the Debentures and the Warrants contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters. The Exhibits and Schedule to this Agreement are
hereby incorporated herein and made part hereof for all purposes as if fully set
forth herein.
5.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m.
(Minneapolis time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 4:30
p.m. (Minneapolis time) on any date and earlier than 11:59 p.m. (Minneapolis
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
<PAGE>
If to the Company: Digital Biometrics, Inc.
5600 Rowland Road
Minnetonka, MN 55343
Facsimile No.: (612) 932-7181
Attn: Chief Financial Officer
With copies to: Briggs and Morgan P.A.
2400 IDS Center
Minneapolis, MN 55402
Facsimile No.: (612) 334-8650
Attn: Avron L. Gordon
If to the Purchaser: KA Investments LDC
c/o Tarmachan Capital Management
1712 Hopkins Crossroads
Facsimile No.: (612) 542-4284
Attn: Irvin Kessler
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson
Scott D. Zucker
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
5.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
<PAGE>
5.5 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns, including any Persons to whom any Purchaser transfers Debentures or
Warrants. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
5.7 No Third-Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and, other than with respect to permitted assignees under Section
5.6, is not for the benefit of, nor may any provision hereof be enforced by, any
other Person.
5.8 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware without regard to the principles of conflicts of law thereof.
5.9 Survival. The representations, warranties, agreements and
covenants contained in this Agreement shall survive after the last Closing Date
and the delivery and conversion of the Debentures.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 Publicity. The Company and the Purchaser shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of the Purchaser without the prior written consent of the
Purchaser, except to the extent
<PAGE>
required by law, in which case the Company shall provide Purchaser with prior
written notice of such public disclosure.
5.12 Severability. In case any one or more of the provisions
of this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
5.13 Remedies. Each of the parties to this Agreement
acknowledges and agrees that the other parties would be damaged irreparably in
the event any of the provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are breached. Accordingly,
each of the parties hereto agrees that the other parties shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions of this Agreement in any action instituted in any court of the United
States of America or any state thereof having jurisdiction over the parties to
this Agreement and the matter, in addition to any other remedy to which they may
be entitled, at law or in equity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Debenture Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
Company:
DIGITAL BIOMETRICS, INC.
By:
---------------------------------
Name:
Title:
Purchaser:
KA INVESTMENTS LDC
By:
---------------------------------
Name:
Title:
EXHIBIT 10.2
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES.
THIS WARRANT IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
CONVERSION SET FORTH IN A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED AS OF
DECEMBER 1, 1997, BETWEEN DIGITAL BIOMETRICES, INC. (THE "COMPANY") AND THE
ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY.
DIGITAL BIOMETRICS, INC.
WARRANT
Warrant No. 001 Dated December 1, 1997
DIGITAL BIOMETRICS, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, KA Investments LDC, or its registered
assigns ("Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company 15,000 shares of Common Stock, par value $.01 per
share (the "Common Stock"), of the Company (each such share, a "Warrant Share"
and all such shares, the "Warrant Shares") at an exercise price equal to $2.50
per share (as adjusted from time to time as provided in Section 8, the "Exercise
Price"), at any time and from time to time from and after the date hereof and
through and including December 1, 2002 (the "Expiration Date"), and subject to
the following terms and conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
<PAGE>
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Company at
the office specified in or pursuant to Section 3(b). Upon any such registration
or transfer, a new warrant to purchase Common Stock, in substantially the form
of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion
of this Warrant so transferred shall be issued to the transferee and a New
Warrant evidencing the remaining portion of this Warrant not so transferred, if
any, shall be issued to the transferring Holder. The acceptance of the New
Warrant by the transferee thereof shall be deemed the acceptance of such
transferee of all of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 5:30 P.M., Minnetonka, Minnesota time, at any time
and from time to time on or after the date hereof to and including the
Expiration Date. At 5:30 P.M., Minnetonka, Minnesota time on the Expiration
Date, the portion of this Warrant not exercised prior thereto shall be and
become void and of no value. This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice as set forth in Section 11,
and upon payment of the Exercise Price multiplied by the number of Warrant
Shares that the Holder intends to purchase hereunder, in lawful money of the
United States of America, in cash or by certified or official bank check or
checks, all as specified by the Holder in the Form of Election to Purchase, the
Company shall promptly (but in no event later than 3 business days after the
Date of Exercise (as defined herein)) issue or cause to be issued and cause to
be delivered to or upon the written order of the Holder and in such name or
names as the Holder may designate, a certificate for the Warrant Shares issuable
upon such exercise, free of restrictive legends other than as required by the
Purchase Agreement of even date herewith between the Holder and the Company. Any
person so designated by the Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the Date of Exercise
of this Warrant.
<PAGE>
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable either in its entirety
or, for a portion of the number of Warrant Shares. If less than all of the
Warrant Shares which may be purchased under this Warrant are exercised at any
time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this Warrant, the
Company may not file any registration statement with the Securities and Exchange
Commission at any time when there is not then an effective registration
statement covering the resale of the Warrant Shares and naming the holder of
this Warrant as a selling stockholder thereunder (other than registration
statements of the Company filed on Form S-8 or Form S-4, each as promulgated
under the Securities Act of 1933, as amended, pursuant to which the Company is
registering securities pursuant to a Company employee benefit plan or pursuant
to a merger, acquisition or similar transaction including supplements thereto,
but not additionally filed registration statements in respect of such
securities), unless the Company provides the Holder with not less than 20 days
notice to each of the Holder and Robinson Silverman Peace Aronsohn & Berman LLP,
attention Kenneth L. Henderson and Scott D. Zucker, notice of its intention to
file such registration statement and provides the Holder the option to include
any or all of the applicable Warrant Shares therein. The piggyback registration
rights granted to the Holder pursuant to this Section shall continue until all
of the Holder's Warrant Shares have been sold in accordance with an effective
registration statement or upon the expiration of this Warrant. The Company will
pay all registration expenses in connection therewith.
5. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
<PAGE>
6. Replacement of Warrant. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
reasonably satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders (taking into account the adjustments
and restrictions of Section 8). The Company covenants that all Warrant Shares
that shall be so issuable and deliverable shall, upon issuance and the payment
of the applicable Exercise Price in accordance with the terms hereof, be duly
and validly authorized, issued and fully paid and nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 8. Upon each such adjustment of the Exercise
Price pursuant to this Section 8, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock (as defined below) or on any other
class of capital stock (and not the Common Stock) payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of
shares, or (iii) combine outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
<PAGE>
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property of the business combination partner of the
Company equal to the amount of Warrant Shares such Holder would have been
entitled to had such Holder exercised this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the Holder the right to receive
the securities or property set forth in this Section 8(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per share less than the Exercise Price then in effect,
then, forthwith upon such issue or sale, the Exercise Price shall be reduced to
the price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii)
<PAGE>
the total number of shares of Common Stock outstanding immediately after such
issue or sale.
(e) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall
take a record of the holders of its Common Stock for the
purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or
(B) to subscribe for or purchase Common Stock or securities
convertible or exchangeable into shares of Common Stock, then
such record date shall be deemed to be the date of the issue
or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting
of such right of subscription or purchase, as the case may be.
(ii) Treasury Shares. The number of shares
of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of
any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company, any consolidation or merger to
which the Company is a party, any sale or
transfer of all
<PAGE>
or substantially all of the assets of the
Company, or any compulsory share exchange
whereby the Common Stock is converted into
other securities, cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of
the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder may pay the Exercise Price in
cash or, in the event that a registration statement covering the resale of the
Warrant Shares and naming the holder thereof as a selling stockholder thereunder
is not effective for the resale of the Warrant Shares at any time during the
term of this Warrant, pursuant to a cashless exercise, as follows:
(a) Cash Exercise. The Holder shall deliver immediately
available funds;
(b) Cashless Exercise. The Holder shall surrender this Warrant
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
<PAGE>
A = the average of the closing sale prices
of the Common Stock for the five (5) Trading
Days immediately prior to (but not
including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
11. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 5600 Rowland Road,
Minnetonka, Minnesota 55343 or to Facsimile No.: (612) 932-7181 Attention: Chief
Financial Officer, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 11.
12. Warrant Agent.
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its
<PAGE>
succession as warrant agent to be mailed (by first class mail, postage prepaid)
to the Holder at the Holder's last address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware without
regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
DIGITAL BIOMETRICS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To DIGITAL BIOMETRICS, INC.
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase ___________
shares of Common Stock ("Common Stock"), par value $.01 per share, of Digital
Biometrics, Inc. and encloses herewith $________ in cash or certified or
official bank check or checks, which sum represents the aggregate Exercise Price
(as defined in the Warrant) for the number of shares of Common Stock to which
this Form of Election to Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR
TAX IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: , Name of Holder:
----------------- ----
(Print)
-------------------------------
(By:)
(Name:) --------------------------------
(Title:)
<PAGE>
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Digital Biometrics,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of Digital Biometrics, Inc. with full power
of substitution in the premises.
Dated:
- ---------------, ----
---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
EXHIBIT 10.3
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE
STATE SECURITIES.
DIGITAL BIOMETRICS, INC.
WARRANT
Warrant No. MJK-1 Dated December 1, 1997
DIGITAL BIOMETRICS, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, Miller, Johnson & Kuehn,
Incorporated, or its registered assigns ("Holder") is entitled, subject to the
terms set forth below, to purchase from the Company One Hundred Twenty-Five
Thousand (125,000) shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company (each such share, a "Warrant Share" and all such shares,
the "Warrant Shares") at an exercise price equal to $2.00 per share (as adjusted
from time to time as provided in Section 8, the "Exercise Price"), at any time
and from time to time from and after the date hereof and through and including
November 30, 2002 (the "Expiration Date"), and subject to the following terms
and conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form
of Assignment attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 3(b). Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
this Warrant so transferred shall be issued to the
<PAGE>
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder on
any business day before 5:30 P.M., Minnetonka, Minnesota time, at any time and
from time to time on or after the date hereof to and including the Expiration
Date. At 5:30 P.M., Minnetonka, Minnesota time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value. This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice as set forth in Section 11,
and upon payment of the Exercise Price multiplied by the number of Warrant
Shares that the Holder intends to purchase hereunder, in lawful money of the
United States of America, in cash or by certified or official bank check or
checks, all as specified by the Holder in the Form of Election to Purchase, the
Company shall promptly (but in no event later than 5 business days after the
Date of Exercise (as defined herein)) issue or cause to be issued and cause to
be delivered to or upon the written order of the Holder and in such name or
names as the Holder may designate, a certificate for the Warrant Shares issuable
upon such exercise, free of restrictive legends other than as required by
federal and state securities laws. Any person so designated by the Holder to
receive Warrant Shares shall be deemed to have become holder of record of such
Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable either in its entirety or,
for a portion of the number of Warrant Shares. If less than all of the Warrant
Shares which may be purchased under this Warrant are exercised at any time, the
Company shall issue or cause to be issued, at its expense, a New Warrant
evidencing the right to purchase the remaining number of Warrant Shares for
which no exercise has been evidenced by this Warrant.
<PAGE>
4. Piggyback Registration Rights. (a) If, during the period ending on
the earlier of (i) one year after the last exercise of this Warrant or (ii)
November 30, 2003, the Company proposes to register under the Securities Act of
1933 (except by a Form S-8 or S-4 registration statement or any successor
registration statement, or other similar form of limited applicability) any of
its common stock in an offering either on behalf of selling shareholders or
itself, it will give written notice to the Holder and holders of any Warrant
Shares of its intention to do so and, upon the written request of Holder or a
holder of Warrant Shares given within fifteen (15) business days after receipt
of such notice (which request shall specify the shares of Common Stock intended
to be sold or disposed of by such holder), the Company will use its best efforts
to cause to be included in such registration statement proposed to be filed by
the Company, the Warrant Shares for resale by the Holder; provided, that the
Holder agrees that its shares may be excluded from any underwritten offering if,
in the opinion of the underwriter, the inclusion of such Warrant Shares will
significantly and adversely affect the proposed underwriting. Any such exclusion
shall be on the same basis and pro rata as and with all other selling
shareholders in such offering. Notwithstanding the foregoing, in the event the
Company proposes to register shares of its common stock on its own behalf, it
shall be obligated to provide the notice set forth above to the Holder or the
holders of any Warrant Shares on two (2) occasions. The Company may, in its sole
discretion, withdraw any such registration statement and abandon the proposed
offering in which any such holder had requested to participate, in which case
the holders of Warrants and Warrant Shares will be entitled to participate in a
registration by the Company as if the withdrawn or abandoned registration
statement had never been filed. The Company shall not be obligated to maintain
the registration statement in effect for more than twenty-four months. The costs
and expenses of any registration under this Section 4, including but not limited
to legal fees, special audit fees, printing expenses, filing fees, fees and
expenses relating to qualifications under state securities or blue sky laws and
the premiums for insurance, if any, incurred by the Company in connection with
any registration made pursuant to this Section 4 shall be borne entirely by the
Company; provided, however, that any holders participating in such registration
shall bear their own underwriting discounts and commissions and the fees and
expenses of their own counsel or accountants in connection with any such
registration. If any registration shall be underwritten, in whole or in part,
the Company may require that all Warrant Stock requested for inclusion in such
notification or registration statement be included in the underwriting on the
same terms and conditions as the securities otherwise being sold to the
underwriters.
(b) The Holder agrees that upon receipt of notice from the Company of
an occurrence of any event or fact which, in the judgment of the Company's legal
counsel, requires a supplement or amendment, including a post-effective
amendment to the registration statement or prospectus therein, the Holder will
forthwith discontinue any disposition of the Warrant Shares pursuant to the
registration statement until the Holder has received copies of the amended
registration statement and/or supplemented prospectus, or until it is advised in
writing by the Company that the use of the applicable prospectus may be resumed,
and, in either case, has received copies of any additional or supplemental
filings that are incorporated or deemed to be incorporated by reference in such
prospectus or registration statement. The Company agrees that upon the
occurrence of an event which, in the opinion of its counsel, requires a
supplement or amendment to the registration statement or the prospectus
contained therein pursuant to which the Holder is disposing of Warrant Shares,
it will as promptly as practicable, but in no event more than 30 days after
<PAGE>
the occurrence of such event, amend such registration statement or supplement
such prospectus and provide copies thereof to the Holder.
(c) The Company hereby indemnifies the holder of any Common Stock
issued or issuable hereunder, its officers and directors, if any, who control
such holder of Common Stock within the meaning of Section 15 of the Securities
Act of 1933, as amended, against all losses, claims, damages and liabilities
caused by any untrue statement of a material fact contained in any registration
statement or prospectus (and as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus or caused by any omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by the Holder for use therein and the Holder by its acceptance
hereof agrees that it will severally indemnify and hold harmless the Company and
each of its officers, directors and any underwriter and each person, if any, who
controls the Company or any underwriter within the meaning of Section 15 of the
Securities Act of 1933, as amended, with respect to losses, claims, damages or
liabilities which are caused by any untrue statement or omission contained in
information furnished in writing to the Company or any underwriter by such
holder expressly for use therein.
5. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
reasonably satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable
<PAGE>
and deliverable upon the exercise of this entire Warrant, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders (taking into account the adjustments and restrictions of Section 8). The
Company covenants that all Warrant Shares that shall be so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 8. Upon each such adjustment of the Exercise
Price pursuant to this Section 8, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding,
(i) shall pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock (as defined below) or on any other class of
capital stock (and not the Common Stock) payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property of the business combination partner of the
Company equal to the amount of Warrant Shares such Holder would have been
entitled to had such Holder exercised this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such
<PAGE>
terms so as to continue to give to the Holder the right to receive the
securities or property set forth in this Section 8(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.
(ii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(e) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(f) If:
<PAGE>
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or
of any rights; or
(iv) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger
to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company,
or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder may pay the Exercise Price in
cash or, in the event that a registration statement covering the resale of the
Warrant Shares and naming the holder thereof as a selling stockholder thereunder
is not effective for the resale of the Warrant Shares at any time during the
term of this Warrant, pursuant to a cashless exercise, as follows:
(a) Cash Exercise. The Holder shall deliver immediately available
funds;
<PAGE>
(b) Cashless Exercise. The Holder shall surrender his Warrant
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the
Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) Trading Days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
11. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 5600 Rowland Road,
Minnetonka, Minnesota 55343 or to Facsimile No.: (612) 932-0888, Attention:
Chief Financial Officer, or (ii) if to the Holder, to the Holder at the address
or facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 11.
12. Warrant Agent.
<PAGE>
(a) The Company shall serve as warrant agent under this Warrant.
Upon thirty (30) days' notice to the Holder, the Company may appoint a new
warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant shall
be construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant; this
Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of Minnesota without regard to
the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
In Witness Whereof, the Company has caused this Warrant to be duly
executed this 1st day of December, 1997.
DIGITAL BIOMETRICS, INC.
By
------------------------------------------
John J. Metil, Chief Operating Officer and
Chief Financial Officer
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To DIGITAL BIOMETRICS, INC.
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase ________ shares
of Common Stock ("Common Stock"), par value $.01 per share, of Digital
Biometrics, Inc. and encloses herewith $__________ in cash or certified or
official bank check or checks, which sum represents the aggregate Exercise Price
(as defined in the Warrant) for the number of shares of Common Stock to which
this Form of Election to Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
-------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: , Name of Holder:
------------- ---- (Print)
------------------------------------------
(By:)
--------------------------------------------
(Name:)
(Title:)
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________ the right represented by the within Warrant
to purchase _______ shares of Common Stock of Digital Biometrics, Inc. to which
the within Warrant relates and appoints __________________________ attorney to
transfer said right on the books of Digital Biometrics, Inc. with full power of
substitution in the premises.
Dated:
- -------------------, ------
--------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
--------------------------------------------------
Address of Transferee
--------------------------------------------------
--------------------------------------------------
In the presence of:
- ------------------------
In the presence of:
- ------------------------
EXHIBIT 10.4
WARRANT
THIS CERTIFICATE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL EITHER (I) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (II) THE CORPORATION SHALL HAVE RECEIVED AN
OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
STOCK PURCHASE WARRANT
TO PURCHASE 8,000 SHARES OF
COMMON STOCK OF
DIGITAL BIOMETRICS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, C. McKenzie
Lewis, III is entitled to subscribe for and purchase from Digital Biometrics,
Inc., a Delaware corporation (the "Company"), at any time after March 18, 1997,
to and including March 18, 2007, Eight Thousand (8,000), fully paid and
nonassessable shares of the Common Stock of the Company at the price of $2.125
per share (the "Warrant Exercise Price"), subject to the antidilution provisions
of this Warrant. The shares which may be acquired upon exercise of this Warrant
are referred to herein as the "Warrant Shares." As used herein, the term
"Holder" means the initial holder, any party who acquires all or a part of this
Warrant as a registered transferee of the initial holder in accordance with the
terms of this Warrant, or any record holder or holders of the Warrant Shares
issued upon exercise, whether in whole or in part, of the Warrant; the term
"Common Stock" means and includes the Company's presently authorized voting
common stock, no par value per share, and shall also include any capital stock
of any class of the Company hereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution, or winding up of the Company; and the term
"Convertible Securities" means any stock or other securities convertible into,
or exchangeable for, Common Stock.
<PAGE>
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by
the Holder hereof, in whole or in part (but not as to a fractional share of
Common Stock), prior to the expiration of this Warrant by written notice of
exercise (in the form attached hereto) delivered to the Company at the principal
office of the Company and accompanied or preceded by the surrender of this
Warrant and payment of the Warrant Exercise Price for such shares. The Holder
shall then complete and comply with a subscription agreement in the form
requested by the Company.
(b) Neither this Warrant nor the Warrant Shares may be sold,
assigned, hypothecated, or otherwise transferred other than (i) by will or
pursuant to the operation of law, or (ii) pursuant to Section 8 hereof. Further,
this Warrant may not be sold, transferred, assigned, hypothecated or divided
into two or more Warrants of smaller denominations. Other than by operation of
law, there shall be no more than 4 outstanding record holders of this Warrant at
any one time.
2. Payment of Warrant Exercise Price.
Payment of the Warrant Exercise Price may be made by cash, certified
check, cashiers check or wire transfer or a combination thereof, at the election
of Holder.
3. Exchange and Replacement. Subject to Sections 1 and 8 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its principal executive office for a new Warrant(s) of like tenor and date
representing in the aggregate the right to purchase the number of Warrant Shares
purchasable hereunder, each of such new Warrant(s) to represent the right to
purchase such number of Warrant Shares (not to exceed the aggregate total number
purchasable hereunder) as shall be designated by the Holder at the time of such
surrender. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction, or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided, however, that if the initial Holder shall be such Holder, an
agreement of indemnity by such Holder shall be sufficient for all purposes of
this Section 3. This Warrant shall be promptly canceled by the Company upon the
surrender hereof in connection with any exchange or replacement. The Company
shall pay all expenses (other than stock transfer or income taxes) and other
charges payable in connection with the preparation, execution, and delivery of
Warrant(s) pursuant to this Section 3.
<PAGE>
4. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock
purchased hereby shall be and are deemed to be issued to the Holder as of the
close of business on the date on which this Warrant shall have been surrendered,
the payment made for such Warrant Shares as aforesaid and the subscription
agreement is returned to the Company. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding 15 business days after the
rights represented by this Warrant shall have been so exercised, such payment
surrendered and such agreement returned and, unless this Warrant has expired, a
new Warrant representing the right to purchase the number of Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall
not be required to deliver any certificate for Warrant Shares upon exercise of
this Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws. If registrations are not in effect and
if exemptions are not available when the Holder seeks to exercise the Warrant,
the Warrant exercise period will be extended, if need be, to prevent the Warrant
from expiring, until such time as either registrations become effective or
exemptions are available, and the Warrant shall then remain exercisable for a
period of at least 30 calendar days from the date the Company delivers to the
Holder written notice of the availability of such registrations or exemptions.
The Holder agrees to execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
5. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes (except stock transfer and income taxes),
liens, and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
6. Antidilution Adjustment. The provisions of this Warrant are subject
to adjustment as provided in this Section 6.
(a) The Warrant Exercise Price shall be adjusted from time to
time such that in case the Company shall hereafter:
<PAGE>
i) pay any dividends on any class of stock of the
Company payable in Common Stock;
ii) subdivide its then outstanding shares of Common
Stock into a greater number of shares; or
iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Company's Board of Directors (whose determination shall be
conclusive) shall determine the allocation of the adjusted Warrant Exercise
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock. All calculations under this Subsection
shall be made to the nearest cent or to the nearest 1/100 of a share, as the
case may be. In the event that at any time as a result of an adjustment made
pursuant to this Subsection, the holder of any Warrant thereafter surrendered
for exercise shall become entitled to receive any shares of the Company other
than shares of Common Stock, thereafter the Warrant Exercise Price of such other
shares so receivable upon exercise of any Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to Common Stock contained in this Section.
(b) Upon each adjustment of the Warrant Exercise Price
pursuant to Section 6(a) above, the Holder of each Warrant shall thereafter
(until another such adjustment) be entitled to purchase at the adjusted Warrant
Exercise Price the number of shares, calculated to the nearest full share,
obtained by multiplying the number of shares specified in such Warrant (as
adjusted as a result of all adjustments in the Warrant Exercise Price in effect
prior to such adjustment) by the Warrant Exercise Price in effect prior to such
adjustment and dividing the product so obtained by the adjusted Warrant Exercise
Price.
(c) In case of any capital reorganization or any
reclassification of the shares of Common Stock of the Company, or any
consolidation or merger to which the Company
<PAGE>
is a party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no adjustment under
Subsection (a) of this Section above but the Holder of each Warrant then
outstanding shall have the right thereafter to convert such Warrant into the
kind and amount of shares of stock and other securities and property which it
would have owned or have been entitled to receive immediately after such capital
reorganization, reclassification, consolidation, merger, statutory exchange,
sale, or conveyance had such Warrant been converted immediately prior to the
effective date of such consolidation, merger, statutory exchange, sale, or
conveyance and in any such case, if necessary, appropriate adjustment shall be
made in the application of the provisions set forth in this Section with respect
to the rights and interests thereafter of any Holders of the Warrant, to the end
that the provisions set forth in this Section shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation to any shares of
stock and other securities and property thereafter deliverable on the exercise
of the Warrant. The provisions of this Subsection shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or conveyances.
Prior to consummating any such consolidation, merger or sale, the successor
corporation (if other than the Company) resulting from such consolidation or
merger, or the corporation purchasing such assets, shall assume by written
instrument executed and mailed to the registered Holder hereof at the last
address of such Holder appearing on the books of the Company, the obligation to
deliver to such Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase.
(d) Upon any adjustment of the Warrant Exercise Price, then,
and in each such case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the Holder as shown on the books of
the Company, which notice shall state the Warrant Exercise Price resulting from
such adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
7. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
8. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof, the Holder, by acceptance
hereof, agrees to give 7 days written notice to the Company before transferring
this Warrant or transferring any Warrant Shares of such Holder's intention to do
so, describing briefly the manner of any proposed transfer. Such notice may be
provided in the form of Warrant Assignment attached hereto. Promptly upon
receiving such written notice, the Company shall present
<PAGE>
copies thereof to the Company's counsel. If in the reasonable opinion of such
counsel, the proposed transfer may be effected without registration or
qualification (under any federal or state securities laws), the Company, as
promptly as practicable, shall notify the Holder of such opinion, whereupon the
Holder shall be entitled to transfer this Warrant or to dispose of Warrant
Shares received upon the previous exercise of this Warrant, all in accordance
with the terms of the notice delivered by the Holder to the Company; provided
that an appropriate legend may be endorsed on this Warrant or the certificates
for such Warrant Shares respecting restrictions upon transfer thereof necessary
or advisable in the opinion of counsel and satisfactory to the Company to
prevent further transfer which would be in violation of Section 5 of the
Securities Act of 1933, as amended (the "1933 Act") and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations, warranties
and agreements as may be reasonably required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.
(b) If in the reasonable opinion of the counsel referred to in
this Section 8, the proposed transfer or disposition of this Warrant or such
Warrant Shares described in the written notice given pursuant to this Section 8
may not be effected without registration or qualification of this Warrant or
such Warrant Shares, the Company shall promptly give written notice thereof to
the Holder, and the Holder will limit its activities in respect to such as, in
the reasonable opinion of such counsel to the Company, are permitted by law.
9. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the last reported sale price or, if none, the average of the last reported
closing bid and ask prices on any national securities exchange or quoted on the
Nasdaq, or if not listed on a national securities exchange or quoted on Nasdaq,
the average of the last reported closing bid and ask prices as reported by Metro
Data Company, Inc. from quotations by market makers in such Common Stock on the
Minneapolis-St. Paul local over-the-counter sales.
10. Representations of the Holder.
(a) The Holder acknowledges and represents that Holder
understands that this Warrant is illiquid and highly speculative, that Holder is
able to bear the economic risk associated with this Warrant, and that Holder
believes that this Warrant is a suitable investment for Holder.
<PAGE>
(b) The Holder acknowledges and represents that Holder has
been given access to full and complete information regarding the Company
(including the opportunity to meet with Company officers and to review such
documents as Holder may have requested in writing) and has utilized such access
to Holder's satisfaction for the purpose of obtaining information about the
Company.
(c) The Holder represents and warrants that this Warrant is
being acquired for Holder's own account and without the intention of reselling
or redistributing the same. Holder further understands and agrees that the
transferability of the Warrant is restricted as described herein.
(d) The Holder hereby represents that he is an "accredited
investor" within the meaning of Rule 501 of Regulation D under the Securities
Act.
IN WITNESS WHEREOF, the undersigned have caused this Warrant to be
signed this 3rd day of April, 1997.
ATTEST: DIGITAL BIOMETRICS, INC.
By
- ---------------------------------- ------------------------------------
Its Secretary James C. Granger
Its Chief Executive Officer
------------------------------------
C. McKenzie Lewis, III
<PAGE>
NOTICE OF WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
TO: DIGITAL BIOMETRICS, INC.
The undersigned hereby irrevocably elects to exercise the attached
Warrant to purchase for cash, _____________ of the shares issuable upon the
exercise of such Warrant, and requests that certificates for such shares
(together with a new Warrant to purchase the number of shares, if any, with
respect to which this Warrant is not exercised) shall be issued in the name of,
and be delivered to,
-----------------------------------
(Print Name)
Please insert social security or other -----------------------------------
identifying number of registered holder of (Address)
certificate (_____________)
-----------------------------------
Date: _____________________, 199_ Signature*
*The signature of the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
<PAGE>
WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________ the right represented by the foregoing
warrant to purchase Common Stock of DIGITAL BIOMETRICS, INC., to which the
foregoing warrant relates and appoints ________________________________ attorney
to transfer said right on the books of DIGITAL BIOMETRICS, INC., with full power
of substitution in the premises.
The manner of the proposed transfer by the undersigned is described
briefly in the space below.
Dated:______________________________
------------------------------------
(Signature)
------------------------------------
------------------------------------
------------------------------------
(Address)
In Presence Of:
- -----------------------------------
EXHIBIT 10.5
EXHIBIT A
THIS CERTIFICATE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL EITHER (i) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) THE COMPANY SHALL HAVE RECEIVED AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS
IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
STOCK PURCHASE WARRANT
TO PURCHASE 150,000 SHARES OF
COMMON STOCK OF
DIGITAL BIOMETRICS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, Dennis
Wendell is entitled to subscribe for and purchase from Digital Biometrics, Inc.,
a Delaware corporation (the "Company"), subject to the terms hereof at any time
after August 18, 1997, to and including August 17, 2002, One Hundred Fifty
Thousand (150,000), fully paid and nonassessable shares of the Company's Common
Stock at the price of $1.875 per share (the "Warrant Exercise Price"), subject
to the antidilution provisions of this Warrant. The shares which may be acquired
upon exercise of this Warrant are referred to herein as the "Warrant Shares." As
used herein, the term "Holder" means the initial holder, any party who acquires
all or a part of this Warrant as a registered transferee of the initial holder
in accordance with the terms of this Warrant, or any record holder or holders of
the Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant; the term "Common Stock" means and includes the Company's presently
authorized voting common stock, no par value per share, and shall also include
any capital stock of any class of the Company hereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company; and the term "Convertible Securities" means any stock or other
securities convertible into, or exchangeable for, Common Stock.
<PAGE>
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability.
(a) Subject to the provisions of Section 2, this Warrant shall be
exercisable (i) to the extent of 75,000 shares of Common Stock on the first
anniversary of the date of the Independent Contractor Agreement between the
Company and Dennis Wendell and to which this Warrant is Exhibit A, and (ii) to
the extent of 150,000 Shares on the Second anniversary of such date.
(b) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), prior to the expiration of this Warrant by written notice of exercise
(in the form attached hereto) delivered to the Company at the principal office
of the Company and accompanied or preceded by the surrender of this Warrant and
payment of the Warrant Exercise Price for such Warrant Shares. Holder shall then
complete and comply with a subscription agreement in the form requested by the
Company.
(c) Neither this Warrant nor any Warrant Shares may be sold,
assigned, hypothecated, or otherwise transferred other than (i) by will or
pursuant to the operation of law, or (ii) pursuant to Section 9 hereof. Further,
this Warrant may not be sold, transferred, assigned, hypothecated or divided
into two or more Warrants of smaller denominations. Other than by operation of
law, there shall be no more than four outstanding Holders of this Warrant at any
one time.
2. Condition to Exercise. It shall be a condition to exercise of this
Warrant that (a) the Company obtain on or before January 1, 1998, at least
$2,000,000 in new or additional debt or equity funding ("Funding") for the
purpose of establishing the BIS; and (b) that upon the Company obtaining the
Funding, Contractor shall enter into the Employment Agreement with the company
in the form of Exhibit A hereto. In no case shall this Warrant be exercisable
with respect to any Warrant Shares until such time as the Company obtains
Funding. This Warrant shall be null and void if the Company does not receive the
Funding on or before __________, 1998.
3. Payment of Warrant Exercise Price. Payment of the Warrant Exercise
Price may be made by cash, certified check, cashiers check or wire transfer or a
combination thereof, at the election of Holder.
4. Exchange and Replacement. Subject to Sections 1 and 9 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its principal executive office for a new Warrant(s) of like tenor and date
representing in the aggregate the right to purchase the number of Warrant Shares
purchasable hereunder, each of such new Warrant(s) to represent the right to
purchase such number of Warrant Shares (not to exceed the aggregate total number
purchasable hereunder) as shall be designated by the Holder at the time of such
surrender. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction, or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon
<PAGE>
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant; provided,
however, that if the initial Holder shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 4.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses (other than stock transfer or income taxes) and other charges payable
in connection with the preparation, execution, and delivery of Warrant(s)
pursuant to this Section 4.
5. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock purchased
hereby shall be and are deemed to be issued to the Holder as of the close of
business on the date on which this Warrant shall have been surrendered, the
payment made for such Warrant Shares as aforesaid and the subscription agreement
is returned to the Company. Subject to the provisions of the next section,
certificates for the Warrant Shares so purchased shall be delivered to the
Holder within a reasonable time, not exceeding 15 business days after the rights
represented by this Warrant shall have been so exercised, such payment
surrendered and such agreement returned and, unless this Warrant has expired, a
new Warrant representing the right to purchase the number of Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not
be required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws. If registrations are not in effect and
if exemptions are not available when the Holder seeks to exercise the Warrant,
the Warrant exercise period will be extended, if need be, to prevent the Warrant
from expiring, until such time as either registrations become effective or
exemptions are available, and the Warrant shall then remain exercisable for a
period of at least 30 calendar days from the date the Company delivers to the
Holder written notice of the availability of such registrations or exemptions.
The Holder agrees to execute such documents and make such representations,
warranties and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
6. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes (except stock transfer and income taxes),
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
<PAGE>
7. Antidilution Adjustment. The provisions of this Warrant are subject
to adjustment as provided in this Section 7.
(a) The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter:
i) pay any dividends on any class of stock of the Company
payable in Common Stock;
ii) subdivide its then outstanding shares of Common Stock into
a greater number of shares; or
iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Company's Board of Directors (whose determination shall be
conclusive) shall determine the allocation of the adjusted Warrant Exercise
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock. All calculations under this Subsection
shall be made to the nearest cent or to the nearest 1/100 of a share, as the
case may be. In the event that at any time as a result of an adjustment made
pursuant to this Subsection, the Holder of any Warrant thereafter surrendered
for exercise shall become entitled to receive any shares of the Company other
than shares of Common Stock, thereafter the Warrant Exercise Price of such other
shares so receivable upon exercise of any Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to Common Stock contained in this Section.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 7(a) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise
<PAGE>
Price in effect prior to such adjustment and dividing the product so obtained by
the adjusted Warrant Exercise Price.
(c) In case of any capital reorganization or any reclassification
of the shares of Common Stock of the Company, or any consolidation or merger to
which the Company is a party other than a merger or consolidation in which the
Company is the continuing corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, or in the case of any statutory exchange of
securities with another corporation (including any exchange effected in
connection with a merger of a third corporation into the Company), there shall
be no adjustment under Subsection (a) of this Section above but the Holder of
each Warrant then outstanding shall have the right thereafter to convert such
Warrant into the kind and amount of shares of stock and other securities and
property which it would have owned or have been entitled to receive immediately
after such capital reorganization, reclassification, consolidation, merger,
statutory exchange, sale, or conveyance had such Warrant been converted
immediately prior to the effective date of such consolidation, merger, statutory
exchange, sale, or conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set forth in this
Section with respect to the rights and interests thereafter of any Holders of
the Warrant, to the end that the provisions set forth in this Section shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock and other securities and property thereafter
deliverable on the exercise of the Warrant. The provisions of this Subsection
shall similarly apply to successive consolidations, mergers, statutory
exchanges, sales or conveyances. Prior to consummating any such consolidation,
merger or sale, the successor corporation (if other than the Company) resulting
from such consolidation or merger, or the corporation purchasing such assets,
shall assume by written instrument executed and mailed to the registered Holder
hereof at the last address of such Holder appearing on the books of the Company,
the obligation to deliver to such Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such Holder may be
entitled to purchase.
(d) Upon any adjustment of the Warrant Exercise Price, then, and
in each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the Holder as shown on the books of the
Company, which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
8. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
9. Change in Control.
(a) Notwithstanding any other provision of this Warrant to the
contrary, in the event of a Change in Control (as defined below), this Warrant
shall become fully exercisable and vested to the fullest extent of the original
grant.
<PAGE>
(b) For the purposes hereof, a "Change in Control" shall mean the
happening of any of the following events:
(i) The acquisition by any individual, entity or group
(collectively, a "Person") (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 30% or more
of either (1) the then outstanding shares of Common Stock, or (2)
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors; provided, however, that the following
acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company; (B) any acquisition by the
Company; (C) any acquisition by a Person including the participant
or with whom or with which the participant is affiliated; (D) any
acquisition by a Person or Persons, one or more of which is a
member of the Board of Directors or an officer of the Company or
an affiliate of any of the foregoing on the effective date of the
Change in Control, (E) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company; or (F) any acquisition
by any corporation pursuant to a transaction described in clauses
(1), (2) and (3) of paragraph (iii) of this Subsection; or
(ii) During any period of 24 consecutive months, individuals
who, as of the beginning of such period, constituted the entire
Board of Directors of the Company cease for any reason to
constitute at least a majority of such Board, unless the election,
or nomination for election, by the Company's stockholders of each
new director was approved by a vote of at least two-thirds
(2/3rds) of the Continuing Directors, as hereinafter defined, in
office on the date of such election or nomination for election for
the new director. For purposes hereof, "Continuing Director" shall
mean: (A) any member of the Company's Board of Directors at the
close of business on the effective date of the Change in Control;
or (B) any member of the Company's Board of Directors who
succeeded any Continuing Director described in clause (A) above if
such successor's election, or nomination for election, by the
Company's stockholders, was approved by a vote of at least
two-thirds (2/3rds) of the Continuing Directors then still in
office. The term "Continuing Director" shall not, however, include
any individual whose initial assumption to office occurs as a
result of either an actual or threatened election contest (as such
term is used in Rule 14a-11 of Regulation 14A of the Exchange Act)
or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Company's Board of
Directors.
(iii) Approval by the stockholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (1) more
than 60% of the then outstanding securities having the right to
vote in the election of directors of the corporation resulting
from such reorganization, merger or consolidation
<PAGE>
is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners of the outstanding securities having the right
to vote in the election of directors of the Company immediately
prior to such reorganization, merger or consolidation, (2) no
Person (excluding the Company, any employee benefit plan (or
related trust) of the Company or such corporation resulting from
such reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 30% or more of
the then outstanding securities having the right to vote in the
election of Directors of the Company) beneficially owns, directly
or indirectly, 30% or more of the then outstanding securities
having the right to vote in the election of the directors of the
corporation resulting from such reorganization, merger or
consolidation, and (3) at least a majority of the members of the
Board of Directors of the corporation resulting from such
reorganization, merger or consolidation are Continuing Directors
at the time of the execution of the initial agreement providing
for such reorganization, merger or consolidation; or
(iv) Approval by the stockholders of the Company of (1) a
complete liquidation or dissolution of the Company, or (2) the
sale or other disposition of all or substantially all of the
assets of the Company, other than to a corporation, with respect
to which following such sale or other disposition, (A) more than
60% of the then outstanding securities having the right to vote in
the election of directors of such corporation is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners of the
outstanding securities having the right to vote in the election of
directors of the Company immediately prior to such sale or other
disposition of such outstanding securities, (B) no Person
(excluding the Company and any employee benefit plan (or related
trust) of the Company or such corporation and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 30% or more of the
outstanding securities having the right to vote in the election of
Directors of the Company) beneficially owns, directly or
indirectly, 30% or more of the then outstanding securities having
the right to vote in the election of directors of such
corporation, and (C) at least a majority of the members of the
board of directors of such corporation are Continuing Directors at
the time of the execution of the initial agreement or action of
the Company's Board of Directors providing for such sale or other
disposition of assets of the Company.
10. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof, the Holder, by acceptance
hereof, agrees to give seven days written notice to the Company before
transferring this Warrant or transferring any Warrant Shares of such Holder's
intention to do so, describing briefly the manner of any proposed transfer. Such
notice may be provided in the form of Warrant Assignment
<PAGE>
attached hereto. Promptly upon receiving such written notice, the Company shall
present copies thereof to the Company's counsel. If in the reasonable opinion of
such counsel, the proposed transfer may be effected without registration or
qualification (under any federal or state securities laws), the Company, as
promptly as practicable, shall notify the Holder of such opinion, whereupon the
Holder shall be entitled to transfer this Warrant or to dispose of Warrant
Shares received upon the previous exercise of this Warrant, all in accordance
with the terms of the notice delivered by the Holder to the Company; provided
that an appropriate legend may be endorsed on this Warrant or the certificates
for such Warrant Shares respecting restrictions upon transfer thereof necessary
or advisable in the opinion of counsel and satisfactory to the Company to
prevent further transfer which would be in violation of Section 5 of the
Securities Act and applicable state securities laws; and provided further that
the prospective transferee or purchaser shall execute such documents and make
such representations, warranties and agreements as may be reasonably required
solely to comply with the exemptions relied upon by the Company for the transfer
or disposition of the Warrant or Warrant Shares.
(b) If in the reasonable opinion of the counsel referred to in
this Section 10, the proposed transfer or disposition of this Warrant or such
Warrant Shares described in the written notice given pursuant to this Section 10
may not be effected without registration or qualification of this Warrant or
such Warrant Shares, the Company shall promptly give written notice thereof to
the Holder, and the Holder will limit its activities in respect to such as, in
the reasonable opinion of such counsel to the Company, are permitted by law.
11. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the last reported sale price or, if none, the average of the last reported
closing bid and ask prices on any national securities exchange or quoted on
Nasdaq, or if not listed on a national securities exchange or quoted on Nasdaq,
the average of the last reported closing bid and ask prices as reported by Metro
Data Company, Inc. from quotations by market makers in such Common Stock on the
Minneapolis-St. Paul local over-the-counter sales.
12. Representations of the Holder.
(a) The Holder acknowledges and represents that Holder understands
that this Warrant is illiquid and highly speculative, that Holder is able to
bear the economic risk associated with this Warrant, and that Holder believes
that this Warrant is a suitable investment for Holder.
<PAGE>
(b) The Holder acknowledges and represents that Holder has been
given access to full and complete information regarding the Company (including
the opportunity to meet with Company officers and to review such documents as
Holder may have requested in writing) and has utilized such access to Holder's
satisfaction for the purpose of obtaining information about the Company.
(c) The Holder represents and warrants that this Warrant is being
acquired for Holder's own account and without the intention of reselling or
redistributing the same. The Holder further understands and agrees that the
transferability of the Warrant is restricted as described herein.
(d) The Holder hereby represents that he is an "accredited
investor" within the meaning of Rule 501 of Regulation D under the Securities
Act.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Warrant to be
signed this ___ day of August, 1997.
ATTEST: DIGITAL BIOMETRICS, INC.
Its Secretary By
- ------------------------------- ----------------------------------
James C. Granger
Its Chief Executive Officer
-------------------------------------
Dennis Wendell
<PAGE>
NOTICE OF WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
TO: DIGITAL BIOMETRICS, INC.
The undersigned hereby irrevocably elects to exercise the attached
Warrant to purchase for cash, _____________ of the shares issuable upon the
exercise of such Warrant, and requests that certificates for such shares
(together with a new Warrant to purchase the number of shares, if any, with
respect to which this Warrant is not exercised) shall be issued in the name of,
and be delivered to,
-------------------------------------
(Print Name)
-------------------------------------
Please insert social security or other (Address)
identifying number of registered holder
of certificate (_____________)
-------------------------------------
Date: _____________________, 199__ Signature*
*The signature of the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
<PAGE>
WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________ the right represented by the foregoing
warrant to purchase Common Stock of DIGITAL BIOMETRICS, INC., to which the
foregoing warrant relates and appoints ________________________________ attorney
to transfer said right on the books of DIGITAL BIOMETRICS, INC., with full power
of substitution in the premises.
The manner of the proposed transfer by the undersigned is described
briefly in the space below.
Dated:______________________________
------------------------------------
(Signature)
------------------------------------
------------------------------------
------------------------------------
(Address)
In Presence Of:
- -----------------------------------
EXHIBIT 10.6
THIS CERTIFICATE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL EITHER (I) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (II) THE COMPANY SHALL HAVE RECEIVED AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS
IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
STOCK PURCHASE WARRANT
TO PURCHASE 50,000 SHARES OF
COMMON STOCK OF
DIGITAL BIOMETRICS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, Jeffrey
Whalen is entitled to subscribe for and purchase from Digital Biometrics, Inc.,
a Delaware corporation (the "Company"), subject to the terms hereof at any time
after August 18, 1997, to and including August 17, 2002, Fifty Thousand
(50,000), fully paid and nonassessable shares of the Company's Common Stock at
the price of $1.875 per share (the "Warrant Exercise Price"), subject to the
antidilution provisions of this Warrant. The shares which may be acquired upon
exercise of this Warrant are referred to herein as the "Warrant Shares." As used
herein, the term "Holder" means the initial holder, any party who acquires all
or a part of this Warrant as a registered transferee of the initial holder in
accordance with the terms of this Warrant, or any record holder or holders of
the Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant; the term "Common Stock" means and includes the Company's presently
authorized voting common stock, no par value per share, and shall also include
any capital stock of any class of the Company hereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company; and the term "Convertible Securities" means any stock or other
securities convertible into, or exchangeable for, Common Stock.
<PAGE>
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability.
(a) Subject to the provisions of Section 2, this Warrant shall
be exercisable (i) to the extent of 25,000 shares of Common Stock on the first
anniversary of the date of the Independent Contractor Agreement between the
Company and Jeffrey Whalen and to which this Warrant is Exhibit A, and (ii) to
the extent of 25,000 Shares on the Second anniversary of such date.
(b) The rights represented by this Warrant may be exercised by
the Holder hereof, in whole or in part (but not as to a fractional share of
Common Stock), prior to the expiration of this Warrant by written notice of
exercise (in the form attached hereto) delivered to the Company at the principal
office of the Company and accompanied or preceded by the surrender of this
Warrant and payment of the Warrant Exercise Price for such Warrant Shares.
Holder shall then complete and comply with a subscription agreement in the form
requested by the Company.
(c) Neither this Warrant nor any Warrant Shares may be sold,
assigned, hypothecated, or otherwise transferred other than (i) by will or
pursuant to the operation of law, or (ii) pursuant to Section 9 hereof. Further,
this Warrant may not be sold, transferred, assigned, hypothecated or divided
into two or more Warrants of smaller denominations. Other than by operation of
law, there shall be no more than four outstanding Holders of this Warrant at any
one time.
2. Condition to Exercise. It shall be a condition to exercise of this
Warrant that (a) the Company obtain on or before January 1, 1998, at least
$2,000,000 in new or additional debt or equity funding ("Funding") for the
purpose of establishing the BIS; and (b) that upon the Company obtaining the
Funding, Contractor shall enter into the Employment Agreement with the company
in the form of Exhibit A hereto. In no case shall this Warrant be exercisable
with respect to any Warrant Shares until such time as the Company obtains
Funding. This Warrant shall be null and void if the Company does not receive the
Funding.
3. Payment of Warrant Exercise Price. Payment of the Warrant Exercise
Price may be made by cash, certified check, cashiers check or wire transfer or a
combination thereof, at the election of Holder.
4. Exchange and Replacement. Subject to Sections 1 and 9 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its principal executive office for a new Warrant(s) of like tenor and date
representing in the aggregate the right to purchase the number of Warrant Shares
purchasable hereunder, each of such new Warrant(s) to represent the right to
purchase such number of Warrant Shares (not to exceed the aggregate total number
purchasable hereunder) as shall be designated by the Holder at the time of such
surrender. Upon receipt by the Company of evidence reasonably
<PAGE>
satisfactory to it of the loss, theft, destruction, or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of like
tenor, in lieu of this Warrant; provided, however, that if the initial Holder
shall be such Holder, an agreement of indemnity by such Holder shall be
sufficient for all purposes of this Section 4. This Warrant shall be promptly
canceled by the Company upon the surrender hereof in connection with any
exchange or replacement. The Company shall pay all expenses (other than stock
transfer or income taxes) and other charges payable in connection with the
preparation, execution, and delivery of Warrant(s) pursuant to this Section 4.
5. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock
purchased hereby shall be and are deemed to be issued to the Holder as of the
close of business on the date on which this Warrant shall have been surrendered,
the payment made for such Warrant Shares as aforesaid and the subscription
agreement is returned to the Company. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding 15 business days after the
rights represented by this Warrant shall have been so exercised, such payment
surrendered and such agreement returned and, unless this Warrant has expired, a
new Warrant representing the right to purchase the number of Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall
not be required to deliver any certificate for Warrant Shares upon exercise of
this Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws. If registrations are not in effect and
if exemptions are not available when the Holder seeks to exercise the Warrant,
the Warrant exercise period will be extended, if need be, to prevent the Warrant
from expiring, until such time as either registrations become effective or
exemptions are available, and the Warrant shall then remain exercisable for a
period of at least 30 calendar days from the date the Company delivers to the
Holder written notice of the availability of such registrations or exemptions.
The Holder agrees to execute such documents and make such representations,
warranties and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
6. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes (except stock transfer and income taxes),
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company
<PAGE>
will at all times have authorized and reserved for the purpose of issue or
transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
7. Antidilution Adjustment. The provisions of this Warrant are subject
to adjustment as provided in this Section 7.
(a) The Warrant Exercise Price shall be adjusted from time to
time such that in case the Company shall hereafter:
i) pay any dividends on any class of stock of the
Company payable in Common Stock;
ii) subdivide its then outstanding shares of Common
Stock into a greater number of shares; or
iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Company's Board of Directors (whose determination shall be
conclusive) shall determine the allocation of the adjusted Warrant Exercise
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock. All calculations under this Subsection
shall be made to the nearest cent or to the nearest 1/100 of a share, as the
case may be. In the event that at any time as a result of an adjustment made
pursuant to this Subsection, the Holder of any Warrant thereafter surrendered
for exercise shall become entitled to receive any shares of the Company other
than shares of Common Stock, thereafter the Warrant Exercise Price of such other
shares so receivable upon exercise of any Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to Common Stock contained in this Section.
<PAGE>
(b) Upon each adjustment of the Warrant Exercise Price
pursuant to Section 7(a) above, the Holder of each Warrant shall thereafter
(until another such adjustment) be entitled to purchase at the adjusted Warrant
Exercise Price the number of shares, calculated to the nearest full share,
obtained by multiplying the number of shares specified in such Warrant (as
adjusted as a result of all adjustments in the Warrant Exercise Price in effect
prior to such adjustment) by the Warrant Exercise Price in effect prior to such
adjustment and dividing the product so obtained by the adjusted Warrant Exercise
Price.
(c) In case of any capital reorganization or any
reclassification of the shares of Common Stock of the Company, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another corporation of the property of the Company as
an entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), there
shall be no adjustment under Subsection (a) of this Section above but the Holder
of each Warrant then outstanding shall have the right thereafter to convert such
Warrant into the kind and amount of shares of stock and other securities and
property which it would have owned or have been entitled to receive immediately
after such capital reorganization, reclassification, consolidation, merger,
statutory exchange, sale, or conveyance had such Warrant been converted
immediately prior to the effective date of such consolidation, merger, statutory
exchange, sale, or conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set forth in this
Section with respect to the rights and interests thereafter of any Holders of
the Warrant, to the end that the provisions set forth in this Section shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock and other securities and property thereafter
deliverable on the exercise of the Warrant. The provisions of this Subsection
shall similarly apply to successive consolidations, mergers, statutory
exchanges, sales or conveyances. Prior to consummating any such consolidation,
merger or sale, the successor corporation (if other than the Company) resulting
from such consolidation or merger, or the corporation purchasing such assets,
shall assume by written instrument executed and mailed to the registered Holder
hereof at the last address of such Holder appearing on the books of the Company,
the obligation to deliver to such Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such Holder may be
entitled to purchase.
(d) Upon any adjustment of the Warrant Exercise Price, then,
and in each such case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the Holder as shown on the books of
the Company, which notice shall state the Warrant Exercise Price resulting from
such adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
<PAGE>
8. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
9. Change in Control.
(a) Notwithstanding any other provision of this Warrant to the
contrary, in the event of a Change in Control (as defined below), this Warrant
shall become fully exercisable and vested to the fullest extent of the original
grant.
(b) For the purposes hereof, a "Change in Control" shall mean
the happening of any of the following events:
(i) The acquisition by any individual, entity or
group (collectively, a "Person") (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 30% or more of either (1) the then
outstanding shares of Common Stock, or (2) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors;
provided, however, that the following acquisitions shall not
constitute a Change in Control: (A) any acquisition directly
from the Company; (B) any acquisition by the Company; (C) any
acquisition by a Person including the participant or with whom
or with which the participant is affiliated; (D) any
acquisition by a Person or Persons, one or more of which is a
member of the Board of Directors or an officer of the Company
or an affiliate of any of the foregoing on the effective date
of the Change in Control, (E) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; or (F)
any acquisition by any corporation pursuant to a transaction
described in clauses (1), (2) and (3) of paragraph (iii) of
this Subsection; or
(ii) During any period of 24 consecutive months,
individuals who, as of the beginning of such period,
constituted the entire Board of Directors of the Company cease
for any reason to constitute at least a majority of such
Board, unless the election, or nomination for election, by the
Company's stockholders of each new director was approved by a
vote of at least two-thirds (2/3rds) of the Continuing
Directors, as hereinafter defined, in office on the date of
such election or nomination for election for the new director.
For purposes hereof, "Continuing Director" shall mean: (A) any
member of the Company's Board of Directors at the close of
business on the effective date of the Change in Control; or
(B) any member of the Company's Board of Directors who
succeeded any Continuing Director described in clause (A)
above if such successor's election, or nomination for
election, by the Company's stockholders, was approved by a
vote of at least two-thirds (2/3rds) of the Continuing
Directors then still in office. The term "Continuing
<PAGE>
Director" shall not, however, include any individual whose
initial assumption to office occurs as a result of either an
actual or threatened election contest (as such term is used in
Rule 14a-11 of Regulation 14A of the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Company's Board of
Directors.
(iii) Approval by the stockholders of the Company of
a reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or
consolidation, (1) more than 60% of the then outstanding
securities having the right to vote in the election of
directors of the corporation resulting from such
reorganization, merger or consolidation is then beneficially
owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners of
the outstanding securities having the right to vote in the
election of directors of the Company immediately prior to such
reorganization, merger or consolidation, (2) no Person
(excluding the Company, any employee benefit plan (or related
trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 30% or more
of the then outstanding securities having the right to vote in
the election of Directors of the Company) beneficially owns,
directly or indirectly, 30% or more of the then outstanding
securities having the right to vote in the election of the
directors of the corporation resulting from such
reorganization, merger or consolidation, and (3) at least a
majority of the members of the Board of Directors of the
corporation resulting from such reorganization, merger or
consolidation are Continuing Directors at the time of the
execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(iv) Approval by the stockholders of the Company of
(1) a complete liquidation or dissolution of the Company, or
(2) the sale or other disposition of all or substantially all
of the assets of the Company, other than to a corporation,
with respect to which following such sale or other
disposition, (A) more than 60% of the then outstanding
securities having the right to vote in the election of
directors of such corporation is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners of the
outstanding securities having the right to vote in the
election of directors of the Company immediately prior to such
sale or other disposition of such outstanding securities, (B)
no Person (excluding the Company and any employee benefit plan
(or related trust) of the Company or such corporation and any
Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 30% or more of the
outstanding securities having the right to vote in the
election of Directors of the Company) beneficially owns,
directly or indirectly, 30% or more of the then outstanding
securities having the right to vote in the election
<PAGE>
of directors of such corporation, and (C) at least a majority
of the members of the board of directors of such corporation
are Continuing Directors at the time of the execution of the
initial agreement or action of the Company's Board of
Directors providing for such sale or other disposition of
assets of the Company.
10. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof, the Holder, by acceptance
hereof, agrees to give seven days written notice to the Company before
transferring this Warrant or transferring any Warrant Shares of such Holder's
intention to do so, describing briefly the manner of any proposed transfer. Such
notice may be provided in the form of Warrant Assignment attached hereto.
Promptly upon receiving such written notice, the Company shall present copies
thereof to the Company's counsel. If in the reasonable opinion of such counsel,
the proposed transfer may be effected without registration or qualification
(under any federal or state securities laws), the Company, as promptly as
practicable, shall notify the Holder of such opinion, whereupon the Holder shall
be entitled to transfer this Warrant or to dispose of Warrant Shares received
upon the previous exercise of this Warrant, all in accordance with the terms of
the notice delivered by the Holder to the Company; provided that an appropriate
legend may be endorsed on this Warrant or the certificates for such Warrant
Shares respecting restrictions upon transfer thereof necessary or advisable in
the opinion of counsel and satisfactory to the Company to prevent further
transfer which would be in violation of Section 5 of the Securities Act and
applicable state securities laws; and provided further that the prospective
transferee or purchaser shall execute such documents and make such
representations, warranties and agreements as may be reasonably required solely
to comply with the exemptions relied upon by the Company for the transfer or
disposition of the Warrant or Warrant Shares.
(b) If in the reasonable opinion of the counsel referred to in
this Section 10, the proposed transfer or disposition of this Warrant or such
Warrant Shares described in the written notice given pursuant to this Section 10
may not be effected without registration or qualification of this Warrant or
such Warrant Shares, the Company shall promptly give written notice thereof to
the Holder, and the Holder will limit its activities in respect to such as, in
the reasonable opinion of such counsel to the Company, are permitted by law.
11. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price"
<PAGE>
with respect to shares of Common Stock of any class or series means the last
reported sale price or, if none, the average of the last reported closing bid
and ask prices on any national securities exchange or quoted on Nasdaq, or if
not listed on a national securities exchange or quoted on Nasdaq, the average of
the last reported closing bid and ask prices as reported by Metro Data Company,
Inc. from quotations by market makers in such Common Stock on the
Minneapolis-St. Paul local over-the-counter sales.
12. Representations of the Holder.
(a) The Holder acknowledges and represents that Holder
understands that this Warrant is illiquid and highly speculative, that Holder is
able to bear the economic risk associated with this Warrant, and that Holder
believes that this Warrant is a suitable investment for Holder.
(b) The Holder acknowledges and represents that Holder has
been given access to full and complete information regarding the Company
(including the opportunity to meet with Company officers and to review such
documents as Holder may have requested in writing) and has utilized such access
to Holder's satisfaction for the purpose of obtaining information about the
Company.
(c) The Holder represents and warrants that this Warrant is
being acquired for Holder's own account and without the intention of reselling
or redistributing the same. The Holder further understands and agrees that the
transferability of the Warrant is restricted as described herein.
(d) The Holder hereby represents that he is an "accredited
investor" within the meaning of Rule 501 of Regulation D under the Securities
Act.
IN WITNESS WHEREOF, the undersigned have caused this Warrant to be
signed this ___ day of September, 1997.
ATTEST: DIGITAL BIOMETRICS, INC.
By
- ---------------------------------- ----------------------------------
Its Secretary James C. Granger
Its Chief Executive Officer
----------------------------------
<PAGE>
NOTICE OF WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
TO: DIGITAL BIOMETRICS, INC.
The undersigned hereby irrevocably elects to exercise the attached
Warrant to purchase for cash, _____________ of the shares issuable upon the
exercise of such Warrant, and requests that certificates for such shares
(together with a new Warrant to purchase the number of shares, if any, with
respect to which this Warrant is not exercised) shall be issued in the name of,
and be delivered to,
-----------------------------------
(Print Name)
Please insert social security or other -----------------------------------
identifying number of registered holder of (Address)
certificate (_____________)
-----------------------------------
Date: _____________________, 199_ Signature*
*The signature of the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
<PAGE>
WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________ the right represented by the foregoing
warrant to purchase Common Stock of DIGITAL BIOMETRICS, INC., to which the
foregoing warrant relates and appoints ________________________________ attorney
to transfer said right on the books of DIGITAL BIOMETRICS, INC., with full power
of substitution in the premises.
The manner of the proposed transfer by the undersigned is described
briefly in the space below.
Dated:______________________________
------------------------------------
(Signature)
------------------------------------
------------------------------------
------------------------------------
(Address)
In Presence Of:
- -----------------------------------
EXHIBIT 10.7
THIS CERTIFICATE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL EITHER (I) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (II) THE COMPANY SHALL HAVE RECEIVED AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS
IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
STOCK PURCHASE WARRANT
TO PURCHASE 50,000 SHARES OF
COMMON STOCK OF
DIGITAL BIOMETRICS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, Joseph VanLoy
is entitled to subscribe for and purchase from Digital Biometrics, Inc., a
Delaware corporation (the "Company"), subject to the terms hereof at any time
after August 18, 1997, to and including August 17, 2002, Fifty Thousand
(50,000), fully paid and nonassessable shares of the Company's Common Stock at
the price of $1.875 per share (the "Warrant Exercise Price"), subject to the
antidilution provisions of this Warrant. The shares which may be acquired upon
exercise of this Warrant are referred to herein as the "Warrant Shares." As used
herein, the term "Holder" means the initial holder, any party who acquires all
or a part of this Warrant as a registered transferee of the initial holder in
accordance with the terms of this Warrant, or any record holder or holders of
the Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant; the term "Common Stock" means and includes the Company's presently
authorized voting common stock, no par value per share, and shall also include
any capital stock of any class of the Company hereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company; and the term "Convertible Securities" means any stock or other
securities convertible into, or exchangeable for, Common Stock.
<PAGE>
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability.
(a) Subject to the provisions of Section 2, this Warrant shall
be exercisable (i) to the extent of 25,000 shares of Common Stock on the first
anniversary of the date of the Independent Contractor Agreement between the
Company and Joseph VanLoy and to which this Warrant is Exhibit A, and (ii) to
the extent of 25,000 Shares on the Second anniversary of such date.
(b) The rights represented by this Warrant may be exercised by
the Holder hereof, in whole or in part (but not as to a fractional share of
Common Stock), prior to the expiration of this Warrant by written notice of
exercise (in the form attached hereto) delivered to the Company at the principal
office of the Company and accompanied or preceded by the surrender of this
Warrant and payment of the Warrant Exercise Price for such Warrant Shares.
Holder shall then complete and comply with a subscription agreement in the form
requested by the Company.
(c) Neither this Warrant nor any Warrant Shares may be sold,
assigned, hypothecated, or otherwise transferred other than (i) by will or
pursuant to the operation of law, or (ii) pursuant to Section 9 hereof. Further,
this Warrant may not be sold, transferred, assigned, hypothecated or divided
into two or more Warrants of smaller denominations. Other than by operation of
law, there shall be no more than four outstanding Holders of this Warrant at any
one time.
2. Condition to Exercise. It shall be a condition to exercise of this
Warrant that (a) the Company obtain on or before January 1, 1998, at least
$2,000,000 in new or additional debt or equity funding ("Funding") for the
purpose of establishing the BIS; and (b) that upon the Company obtaining the
Funding, Contractor shall enter into the Employment Agreement with the company
in the form of Exhibit A hereto. In no case shall this Warrant be exercisable
with respect to any Warrant Shares until such time as the Company obtains
Funding. This Warrant shall be null and void if the Company does not receive the
Funding.
3. Payment of Warrant Exercise Price. Payment of the Warrant Exercise
Price may be made by cash, certified check, cashiers check or wire transfer or a
combination thereof, at the election of Holder.
4. Exchange and Replacement. Subject to Sections 1 and 9 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its principal executive office for a new Warrant(s) of like tenor and date
representing in the aggregate the right to purchase the number of Warrant Shares
purchasable hereunder, each of such new Warrant(s) to represent the right to
purchase such number of Warrant Shares (not to exceed the aggregate total number
purchasable hereunder) as shall be designated by the Holder at the time of such
surrender. Upon receipt by the Company of evidence reasonably
<PAGE>
satisfactory to it of the loss, theft, destruction, or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of like
tenor, in lieu of this Warrant; provided, however, that if the initial Holder
shall be such Holder, an agreement of indemnity by such Holder shall be
sufficient for all purposes of this Section 4. This Warrant shall be promptly
canceled by the Company upon the surrender hereof in connection with any
exchange or replacement. The Company shall pay all expenses (other than stock
transfer or income taxes) and other charges payable in connection with the
preparation, execution, and delivery of Warrant(s) pursuant to this Section 4.
5. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock
purchased hereby shall be and are deemed to be issued to the Holder as of the
close of business on the date on which this Warrant shall have been surrendered,
the payment made for such Warrant Shares as aforesaid and the subscription
agreement is returned to the Company. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding 15 business days after the
rights represented by this Warrant shall have been so exercised, such payment
surrendered and such agreement returned and, unless this Warrant has expired, a
new Warrant representing the right to purchase the number of Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall
not be required to deliver any certificate for Warrant Shares upon exercise of
this Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws. If registrations are not in effect and
if exemptions are not available when the Holder seeks to exercise the Warrant,
the Warrant exercise period will be extended, if need be, to prevent the Warrant
from expiring, until such time as either registrations become effective or
exemptions are available, and the Warrant shall then remain exercisable for a
period of at least 30 calendar days from the date the Company delivers to the
Holder written notice of the availability of such registrations or exemptions.
The Holder agrees to execute such documents and make such representations,
warranties and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
6. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes (except stock transfer and income taxes),
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company
<PAGE>
will at all times have authorized and reserved for the purpose of issue or
transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
7. Antidilution Adjustment. The provisions of this Warrant are subject
to adjustment as provided in this Section 7.
(a) The Warrant Exercise Price shall be adjusted from time to
time such that in case the Company shall hereafter:
i) pay any dividends on any class of stock of the
Company payable in Common Stock;
ii) subdivide its then outstanding shares of Common
Stock into a greater number of shares; or
iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Company's Board of Directors (whose determination shall be
conclusive) shall determine the allocation of the adjusted Warrant Exercise
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock. All calculations under this Subsection
shall be made to the nearest cent or to the nearest 1/100 of a share, as the
case may be. In the event that at any time as a result of an adjustment made
pursuant to this Subsection, the Holder of any Warrant thereafter surrendered
for exercise shall become entitled to receive any shares of the Company other
than shares of Common Stock, thereafter the Warrant Exercise Price of such other
shares so receivable upon exercise of any Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to Common Stock contained in this Section.
<PAGE>
(b) Upon each adjustment of the Warrant Exercise Price
pursuant to Section 7(a) above, the Holder of each Warrant shall thereafter
(until another such adjustment) be entitled to purchase at the adjusted Warrant
Exercise Price the number of shares, calculated to the nearest full share,
obtained by multiplying the number of shares specified in such Warrant (as
adjusted as a result of all adjustments in the Warrant Exercise Price in effect
prior to such adjustment) by the Warrant Exercise Price in effect prior to such
adjustment and dividing the product so obtained by the adjusted Warrant Exercise
Price.
(c) In case of any capital reorganization or any
reclassification of the shares of Common Stock of the Company, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another corporation of the property of the Company as
an entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), there
shall be no adjustment under Subsection (a) of this Section above but the Holder
of each Warrant then outstanding shall have the right thereafter to convert such
Warrant into the kind and amount of shares of stock and other securities and
property which it would have owned or have been entitled to receive immediately
after such capital reorganization, reclassification, consolidation, merger,
statutory exchange, sale, or conveyance had such Warrant been converted
immediately prior to the effective date of such consolidation, merger, statutory
exchange, sale, or conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set forth in this
Section with respect to the rights and interests thereafter of any Holders of
the Warrant, to the end that the provisions set forth in this Section shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock and other securities and property thereafter
deliverable on the exercise of the Warrant. The provisions of this Subsection
shall similarly apply to successive consolidations, mergers, statutory
exchanges, sales or conveyances. Prior to consummating any such consolidation,
merger or sale, the successor corporation (if other than the Company) resulting
from such consolidation or merger, or the corporation purchasing such assets,
shall assume by written instrument executed and mailed to the registered Holder
hereof at the last address of such Holder appearing on the books of the Company,
the obligation to deliver to such Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such Holder may be
entitled to purchase.
(d) Upon any adjustment of the Warrant Exercise Price, then,
and in each such case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the Holder as shown on the books of
the Company, which notice shall state the Warrant Exercise Price resulting from
such adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
<PAGE>
8. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
9. Change in Control.
(a) Notwithstanding any other provision of this Warrant to the
contrary, in the event of a Change in Control (as defined below), this Warrant
shall become fully exercisable and vested to the fullest extent of the original
grant.
(b) For the purposes hereof, a "Change in Control" shall mean
the happening of any of the following events:
(i) The acquisition by any individual, entity or
group (collectively, a "Person") (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 30% or more of either (1) the then
outstanding shares of Common Stock, or (2) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors;
provided, however, that the following acquisitions shall not
constitute a Change in Control: (A) any acquisition directly
from the Company; (B) any acquisition by the Company; (C) any
acquisition by a Person including the participant or with whom
or with which the participant is affiliated; (D) any
acquisition by a Person or Persons, one or more of which is a
member of the Board of Directors or an officer of the Company
or an affiliate of any of the foregoing on the effective date
of the Change in Control, (E) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; or (F)
any acquisition by any corporation pursuant to a transaction
described in clauses (1), (2) and (3) of paragraph (iii) of
this Subsection; or
(ii) During any period of 24 consecutive months,
individuals who, as of the beginning of such period,
constituted the entire Board of Directors of the Company cease
for any reason to constitute at least a majority of such
Board, unless the election, or nomination for election, by the
Company's stockholders of each new director was approved by a
vote of at least two-thirds (2/3rds) of the Continuing
Directors, as hereinafter defined, in office on the date of
such election or nomination for election for the new director.
For purposes hereof, "Continuing Director" shall mean: (A) any
member of the Company's Board of Directors at the close of
business on the effective date of the Change in Control; or
(B) any member of the Company's Board of Directors who
succeeded any Continuing Director described in clause (A)
above if such successor's election, or nomination for
election, by the Company's stockholders, was approved by a
vote of at least two-thirds (2/3rds) of the Continuing
Directors then still in office. The term "Continuing
<PAGE>
Director" shall not, however, include any individual whose
initial assumption to office occurs as a result of either an
actual or threatened election contest (as such term is used in
Rule 14a-11 of Regulation 14A of the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Company's Board of
Directors.
(iii) Approval by the stockholders of the Company of
a reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or
consolidation, (1) more than 60% of the then outstanding
securities having the right to vote in the election of
directors of the corporation resulting from such
reorganization, merger or consolidation is then beneficially
owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners of
the outstanding securities having the right to vote in the
election of directors of the Company immediately prior to such
reorganization, merger or consolidation, (2) no Person
(excluding the Company, any employee benefit plan (or related
trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 30% or more
of the then outstanding securities having the right to vote in
the election of Directors of the Company) beneficially owns,
directly or indirectly, 30% or more of the then outstanding
securities having the right to vote in the election of the
directors of the corporation resulting from such
reorganization, merger or consolidation, and (3) at least a
majority of the members of the Board of Directors of the
corporation resulting from such reorganization, merger or
consolidation are Continuing Directors at the time of the
execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(iv) Approval by the stockholders of the Company of
(1) a complete liquidation or dissolution of the Company, or
(2) the sale or other disposition of all or substantially all
of the assets of the Company, other than to a corporation,
with respect to which following such sale or other
disposition, (A) more than 60% of the then outstanding
securities having the right to vote in the election of
directors of such corporation is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners of the
outstanding securities having the right to vote in the
election of directors of the Company immediately prior to such
sale or other disposition of such outstanding securities, (B)
no Person (excluding the Company and any employee benefit plan
(or related trust) of the Company or such corporation and any
Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 30% or more of the
outstanding securities having the right to vote in the
election of Directors of the Company) beneficially owns,
directly or indirectly, 30% or more of the then outstanding
securities having the right to vote in the election
<PAGE>
of directors of such corporation, and (C) at least a majority
of the members of the board of directors of such corporation
are Continuing Directors at the time of the execution of the
initial agreement or action of the Company's Board of
Directors providing for such sale or other disposition of
assets of the Company.
10. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof, the Holder, by acceptance
hereof, agrees to give seven days written notice to the Company before
transferring this Warrant or transferring any Warrant Shares of such Holder's
intention to do so, describing briefly the manner of any proposed transfer. Such
notice may be provided in the form of Warrant Assignment attached hereto.
Promptly upon receiving such written notice, the Company shall present copies
thereof to the Company's counsel. If in the reasonable opinion of such counsel,
the proposed transfer may be effected without registration or qualification
(under any federal or state securities laws), the Company, as promptly as
practicable, shall notify the Holder of such opinion, whereupon the Holder shall
be entitled to transfer this Warrant or to dispose of Warrant Shares received
upon the previous exercise of this Warrant, all in accordance with the terms of
the notice delivered by the Holder to the Company; provided that an appropriate
legend may be endorsed on this Warrant or the certificates for such Warrant
Shares respecting restrictions upon transfer thereof necessary or advisable in
the opinion of counsel and satisfactory to the Company to prevent further
transfer which would be in violation of Section 5 of the Securities Act and
applicable state securities laws; and provided further that the prospective
transferee or purchaser shall execute such documents and make such
representations, warranties and agreements as may be reasonably required solely
to comply with the exemptions relied upon by the Company for the transfer or
disposition of the Warrant or Warrant Shares.
(b) If in the reasonable opinion of the counsel referred to in
this Section 10, the proposed transfer or disposition of this Warrant or such
Warrant Shares described in the written notice given pursuant to this Section 10
may not be effected without registration or qualification of this Warrant or
such Warrant Shares, the Company shall promptly give written notice thereof to
the Holder, and the Holder will limit its activities in respect to such as, in
the reasonable opinion of such counsel to the Company, are permitted by law.
11. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price"
<PAGE>
with respect to shares of Common Stock of any class or series means the last
reported sale price or, if none, the average of the last reported closing bid
and ask prices on any national securities exchange or quoted on Nasdaq, or if
not listed on a national securities exchange or quoted on Nasdaq, the average of
the last reported closing bid and ask prices as reported by Metro Data Company,
Inc. from quotations by market makers in such Common Stock on the
Minneapolis-St. Paul local over-the-counter sales.
12. Representations of the Holder.
(a) The Holder acknowledges and represents that Holder
understands that this Warrant is illiquid and highly speculative, that Holder is
able to bear the economic risk associated with this Warrant, and that Holder
believes that this Warrant is a suitable investment for Holder.
(b) The Holder acknowledges and represents that Holder has
been given access to full and complete information regarding the Company
(including the opportunity to meet with Company officers and to review such
documents as Holder may have requested in writing) and has utilized such access
to Holder's satisfaction for the purpose of obtaining information about the
Company.
(c) The Holder represents and warrants that this Warrant is
being acquired for Holder's own account and without the intention of reselling
or redistributing the same. The Holder further understands and agrees that the
transferability of the Warrant is restricted as described herein.
(d) The Holder hereby represents that he is an "accredited
investor" within the meaning of Rule 501 of Regulation D under the Securities
Act.
IN WITNESS WHEREOF, the undersigned have caused this Warrant to be
signed this ___ day of September, 1997.
ATTEST: DIGITAL BIOMETRICS, INC.
By
- ---------------------------------- -----------------------------------
Its Secretary James C. Granger
Its Chief Executive Officer
-----------------------------------
Joseph VanLoy
<PAGE>
NOTICE OF WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
TO: DIGITAL BIOMETRICS, INC.
The undersigned hereby irrevocably elects to exercise the attached
Warrant to purchase for cash, _____________ of the shares issuable upon the
exercise of such Warrant, and requests that certificates for such shares
(together with a new Warrant to purchase the number of shares, if any, with
respect to which this Warrant is not exercised) shall be issued in the name of,
and be delivered to,
-----------------------------------
(Print Name)
Please insert social security or other -----------------------------------
identifying number of registered holder of (Address)
certificate (_____________)
-----------------------------------
Date: _____________________, 199_ Signature*
*The signature of the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
<PAGE>
WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________ the right represented by the foregoing
warrant to purchase Common Stock of DIGITAL BIOMETRICS, INC., to which the
foregoing warrant relates and appoints ________________________________ attorney
to transfer said right on the books of DIGITAL BIOMETRICS, INC., with full power
of substitution in the premises.
The manner of the proposed transfer by the undersigned is described
briefly in the space below.
Dated:______________________________
------------------------------------
(Signature)
------------------------------------
------------------------------------
------------------------------------
(Address)
In Presence Of:
- -----------------------------------
EXHIBIT 10.8
ANDCOR WARRANT NO. 1
THIS CERTIFICATE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL EITHER (I) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (II) THE CORPORATION SHALL HAVE RECEIVED AN
OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
STOCK PURCHASE WARRANT
TO PURCHASE 10,000 SHARES OF
COMMON STOCK OF
DIGITAL BIOMETRICS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, Andcor
Companies, Inc., or its registered assignees, is entitled to subscribe for and
purchase from Digital Biometrics, Inc., a Delaware corporation (the "Company"),
at any time after January 27, 1997, to and including January 27, 2000, Ten
Thousand (10,000), fully paid and nonassessable shares of the Common Stock of
the Company at the price of $2.3125 per share (the "Warrant Exercise Price"),
subject to the antidilution provisions of this Warrant. The shares which may be
acquired upon exercise of this Warrant are referred to herein as the "Warrant
Shares." As used herein, the term "Holder" means the initial holder, any party
who acquires all or a part of this Warrant as a registered transferee of the
initial holder in accordance with the terms of this Warrant, or any record
holder or holders of the Warrant Shares issued upon exercise, whether in whole
or in part, of the Warrant; the term "Common Stock" means and includes the
Company's presently authorized voting common stock, no par value per share, and
shall also include any capital stock of any class of the Company hereafter
authorized which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company; and the term "Convertible Securities"
means any stock or other securities convertible into, or exchangeable for,
Common Stock.
<PAGE>
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by
the Holder hereof, in whole or in part (but not as to a fractional share of
Common Stock), prior to the expiration of this Warrant by written notice of
exercise (in the form attached hereto) delivered to the Company at the principal
office of the Company and accompanied or preceded by the surrender of this
Warrant and payment of the Warrant Exercise Price for such shares. The Holder
shall then complete and comply with a subscription agreement in the form
requested by the Company.
(b) Neither this Warrant nor the Warrant Shares may be sold,
assigned, hypothecated, or otherwise transferred other than (i) by will or
pursuant to the operation of law, or (ii) pursuant to Section 8 hereof. Further,
this Warrant may not be sold, transferred, assigned, hypothecated or divided
into two or more Warrants of smaller denominations. Other than by operation of
law, there shall be no more than 4 outstanding record holders of this Warrant at
any one time.
2. Payment of Warrant Exercise Price.
Payment of the Warrant Exercise Price may be made by cash, certified
check, cashiers check or wire transfer or a combination thereof, at the election
of Holder.
3. Exchange and Replacement. Subject to Sections 1 and 8 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its principal executive office for a new Warrant(s) of like tenor and date
representing in the aggregate the right to purchase the number of Warrant Shares
purchasable hereunder, each of such new Warrant(s) to represent the right to
purchase such number of Warrant Shares (not to exceed the aggregate total number
purchasable hereunder) as shall be designated by the Holder at the time of such
surrender. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction, or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided, however, that if the initial Holder shall be such Holder, an
agreement of indemnity by such Holder shall be sufficient for all purposes of
this Section 3. This Warrant shall be promptly canceled by the Company upon the
surrender hereof in connection with any exchange or replacement. The Company
shall pay all expenses (other than stock transfer or income taxes) and other
charges payable in connection with the preparation, execution, and delivery of
Warrant(s) pursuant to this Section 3.
<PAGE>
4. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock
purchased hereby shall be and are deemed to be issued to the Holder as of the
close of business on the date on which this Warrant shall have been surrendered,
the payment made for such Warrant Shares as aforesaid and the subscription
agreement is returned to the Company. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding 15 business days after the
rights represented by this Warrant shall have been so exercised, such payment
surrendered and such agreement returned and, unless this Warrant has expired, a
new Warrant representing the right to purchase the number of Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall
not be required to deliver any certificate for Warrant Shares upon exercise of
this Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws. If registrations are not in effect and
if exemptions are not available when the Holder seeks to exercise the Warrant,
the Warrant exercise period will be extended, if need be, to prevent the Warrant
from expiring, until such time as either registrations become effective or
exemptions are available, and the Warrant shall then remain exercisable for a
period of at least 30 calendar days from the date the Company delivers to the
Holder written notice of the availability of such registrations or exemptions.
The Holder agrees to execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
5. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes (except stock transfer and income taxes),
liens, and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
6. Antidilution Adjustment. The provisions of this Warrant are subject
to adjustment as provided in this Section 6.
(a) The Warrant Exercise Price shall be adjusted from time to
time such that in case the Company shall hereafter:
<PAGE>
i) pay any dividends on any class of stock of the
Company payable in Common Stock;
ii) subdivide its then outstanding shares of Common
Stock into a greater number of shares; or
iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Company's Board of Directors (whose determination shall be
conclusive) shall determine the allocation of the adjusted Warrant Exercise
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock. All calculations under this Subsection
shall be made to the nearest cent or to the nearest 1/100 of a share, as the
case may be. In the event that at any time as a result of an adjustment made
pursuant to this Subsection, the holder of any Warrant thereafter surrendered
for exercise shall become entitled to receive any shares of the Company other
than shares of Common Stock, thereafter the Warrant Exercise Price of such other
shares so receivable upon exercise of any Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to Common Stock contained in this Section.
(b) Upon each adjustment of the Warrant Exercise Price
pursuant to Section 6(a) above, the Holder of each Warrant shall thereafter
(until another such adjustment) be entitled to purchase at the adjusted Warrant
Exercise Price the number of shares, calculated to the nearest full share,
obtained by multiplying the number of shares specified in such Warrant (as
adjusted as a result of all adjustments in the Warrant Exercise Price in effect
prior to such adjustment) by the Warrant Exercise Price in effect prior to such
adjustment and dividing the product so obtained by the adjusted Warrant Exercise
Price.
(c) In case of any capital reorganization or any
reclassification of the shares of Common Stock of the Company, or any
consolidation or merger to which the Company
<PAGE>
is a party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no adjustment under
Subsection (a) of this Section above but the Holder of each Warrant then
outstanding shall have the right thereafter to convert such Warrant into the
kind and amount of shares of stock and other securities and property which it
would have owned or have been entitled to receive immediately after such capital
reorganization, reclassification, consolidation, merger, statutory exchange,
sale, or conveyance had such Warrant been converted immediately prior to the
effective date of such consolidation, merger, statutory exchange, sale, or
conveyance and in any such case, if necessary, appropriate adjustment shall be
made in the application of the provisions set forth in this Section with respect
to the rights and interests thereafter of any Holders of the Warrant, to the end
that the provisions set forth in this Section shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation to any shares of
stock and other securities and property thereafter deliverable on the exercise
of the Warrant. The provisions of this Subsection shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or conveyances.
Prior to consummating any such consolidation, merger or sale, the successor
corporation (if other than the Company) resulting from such consolidation or
merger, or the corporation purchasing such assets, shall assume by written
instrument executed and mailed to the registered Holder hereof at the last
address of such Holder appearing on the books of the Company, the obligation to
deliver to such Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase.
(d) Upon any adjustment of the Warrant Exercise Price, then,
and in each such case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the Holder as shown on the books of
the Company, which notice shall state the Warrant Exercise Price resulting from
such adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
7. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
8. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof, the Holder, by acceptance
hereof, agrees to give 7 days written notice to the Company before transferring
this Warrant or transferring any Warrant Shares of such Holder's intention to do
so, describing briefly the manner of any proposed transfer. Such notice may be
provided in the form of Warrant Assignment attached hereto. Promptly upon
receiving such written notice, the Company shall present
<PAGE>
copies thereof to the Company's counsel. If in the reasonable opinion of such
counsel, the proposed transfer may be effected without registration or
qualification (under any federal or state securities laws), the Company, as
promptly as practicable, shall notify the Holder of such opinion, whereupon the
Holder shall be entitled to transfer this Warrant or to dispose of Warrant
Shares received upon the previous exercise of this Warrant, all in accordance
with the terms of the notice delivered by the Holder to the Company; provided
that an appropriate legend may be endorsed on this Warrant or the certificates
for such Warrant Shares respecting restrictions upon transfer thereof necessary
or advisable in the opinion of counsel and satisfactory to the Company to
prevent further transfer which would be in violation of Section 5 of the
Securities Act of 1933, as amended (the "1933 Act") and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations, warranties
and agreements as may be reasonably required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.
(b) If in the reasonable opinion of the counsel referred to in
this Section 8, the proposed transfer or disposition of this Warrant or such
Warrant Shares described in the written notice given pursuant to this Section 8
may not be effected without registration or qualification of this Warrant or
such Warrant Shares, the Company shall promptly give written notice thereof to
the Holder, and the Holder will limit its activities in respect to such as, in
the reasonable opinion of such counsel to the Company, are permitted by law.
9. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the last reported sale price or, if none, the average of the last reported
closing bid and ask prices on any national securities exchange or quoted on the
Nasdaq, or if not listed on a national securities exchange or quoted on Nasdaq,
the average of the last reported closing bid and ask prices as reported by Metro
Data Company, Inc. from quotations by market makers in such Common Stock on the
Minneapolis-St. Paul local over-the-counter sales.
10. Representations of the Holder.
(a) The Holder acknowledges and represents that Holder
understands that this Warrant is illiquid and highly speculative, that Holder is
able to bear the economic risk associated with this Warrant, and that Holder
believes that this Warrant is a suitable investment for Holder.
<PAGE>
(b) The Holder acknowledges and represents that Holder has
been given access to full and complete information regarding the Company
(including the opportunity to meet with Company officers and to review such
documents as Holder may have requested in writing) and has utilized such access
to Holder's satisfaction for the purpose of obtaining information about the
Company.
(c) The Holder represents and warrants that this Warrant is
being acquired for Holder's own account and without the intention of reselling
or redistributing the same. Holder further understands and agrees that the
transferability of the Warrant is restricted as described herein.
(d) The Holder hereby represents that it is an "accredited
investor" within the meaning of Rule 501 of Regulation D under the Securities
Act.
IN WITNESS WHEREOF, the undersigned have caused this Warrant to be
signed this ____ day of ________, 1997.
ATTEST: DIGITAL BIOMETRICS, INC.
By
- -------------------------------- -----------------------------------
Its Secretary James C. Granger
Its Chief Executive Officer
ANDCOR COMPANIES, INC.
By
----------------------------------
Its:
----------------------------
<PAGE>
NOTICE OF WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
TO: DIGITAL BIOMETRICS, INC.
The undersigned hereby irrevocably elects to exercise the attached
Warrant to purchase for cash, _____________ of the shares issuable upon the
exercise of such Warrant, and requests that certificates for such shares
(together with a new Warrant to purchase the number of shares, if any, with
respect to which this Warrant is not exercised) shall be issued in the name of,
and be delivered to,
----------------------------------
(Print Name)
Please insert social security or other ----------------------------------
identifying number of registered holder of (Address)
certificate (_____________)
----------------------------------
Date: _____________________, 199_ Signature*
*The signature of the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
<PAGE>
WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________ the right represented by the foregoing
warrant to purchase Common Stock of DIGITAL BIOMETRICS, INC., to which the
foregoing warrant relates and appoints ________________________________ attorney
to transfer said right on the books of DIGITAL BIOMETRICS, INC., with full power
of substitution in the premises.
The manner of the proposed transfer by the undersigned is described
briefly in the space below.
Dated:______________________________
------------------------------------
(Signature)
------------------------------------
------------------------------------
------------------------------------
(Address)
In Presence Of:
- -----------------------------------
EXHIBIT 10.9
ANDCOR WARRANT NO. 2
THIS CERTIFICATE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL EITHER (I) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (II) THE CORPORATION SHALL HAVE RECEIVED AN
OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
STOCK PURCHASE WARRANT
TO PURCHASE 10,000 SHARES OF
COMMON STOCK OF
DIGITAL BIOMETRICS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, Andcor
Companies, Inc., or its registered assignees, is entitled to subscribe for and
purchase from Digital Biometrics, Inc., a Delaware corporation (the "Company"),
at any time after January 27, 1997, to and including January 27, 2000, Ten
Thousand (10,000), fully paid and nonassessable shares of the Common Stock of
the Company at the price of $2.3125 per share (the "Warrant Exercise Price"),
subject to the antidilution provisions of this Warrant. The shares which may be
acquired upon exercise of this Warrant are referred to herein as the "Warrant
Shares." As used herein, the term "Holder" means the initial holder, any party
who acquires all or a part of this Warrant as a registered transferee of the
initial holder in accordance with the terms of this Warrant, or any record
holder or holders of the Warrant Shares issued upon exercise, whether in whole
or in part, of the Warrant; the term "Common Stock" means and includes the
Company's presently authorized voting common stock, no par value per share, and
shall also include any capital stock of any class of the Company hereafter
authorized which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company; and the term "Convertible Securities"
means any stock or other securities convertible into, or exchangeable for,
Common Stock.
<PAGE>
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by
the Holder hereof, in whole or in part (but not as to a fractional share of
Common Stock), prior to the expiration of this Warrant by written notice of
exercise (in the form attached hereto) delivered to the Company at the principal
office of the Company and accompanied or preceded by the surrender of this
Warrant and payment of the Warrant Exercise Price for such shares. The Holder
shall then complete and comply with a subscription agreement in the form
requested by the Company.
(b) Neither this Warrant nor the Warrant Shares may be sold,
assigned, hypothecated, or otherwise transferred other than (i) by will or
pursuant to the operation of law, or (ii) pursuant to Section 8 hereof. Further,
this Warrant may not be sold, transferred, assigned, hypothecated or divided
into two or more Warrants of smaller denominations. Other than by operation of
law, there shall be no more than 4 outstanding record holders of this Warrant at
any one time.
2. Payment of Warrant Exercise Price.
Payment of the Warrant Exercise Price may be made by cash, certified
check, cashiers check or wire transfer or a combination thereof, at the election
of Holder.
3. Exchange and Replacement. Subject to Sections 1 and 8 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its principal executive office for a new Warrant(s) of like tenor and date
representing in the aggregate the right to purchase the number of Warrant Shares
purchasable hereunder, each of such new Warrant(s) to represent the right to
purchase such number of Warrant Shares (not to exceed the aggregate total number
purchasable hereunder) as shall be designated by the Holder at the time of such
surrender. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction, or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided, however, that if the initial Holder shall be such Holder, an
agreement of indemnity by such Holder shall be sufficient for all purposes of
this Section 3. This Warrant shall be promptly canceled by the Company upon the
surrender hereof in connection with any exchange or replacement. The Company
shall pay all expenses (other than stock transfer or income taxes) and other
charges payable in connection with the preparation, execution, and delivery of
Warrant(s) pursuant to this Section 3.
<PAGE>
4. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock
purchased hereby shall be and are deemed to be issued to the Holder as of the
close of business on the date on which this Warrant shall have been surrendered,
the payment made for such Warrant Shares as aforesaid and the subscription
agreement is returned to the Company. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding 15 business days after the
rights represented by this Warrant shall have been so exercised, such payment
surrendered and such agreement returned and, unless this Warrant has expired, a
new Warrant representing the right to purchase the number of Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall
not be required to deliver any certificate for Warrant Shares upon exercise of
this Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws. If registrations are not in effect and
if exemptions are not available when the Holder seeks to exercise the Warrant,
the Warrant exercise period will be extended, if need be, to prevent the Warrant
from expiring, until such time as either registrations become effective or
exemptions are available, and the Warrant shall then remain exercisable for a
period of at least 30 calendar days from the date the Company delivers to the
Holder written notice of the availability of such registrations or exemptions.
The Holder agrees to execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
5. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes (except stock transfer and income taxes),
liens, and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
6. Antidilution Adjustment. The provisions of this Warrant are subject
to adjustment as provided in this Section 6.
(a) The Warrant Exercise Price shall be adjusted from time to
time such that in case the Company shall hereafter:
<PAGE>
i) pay any dividends on any class of stock of the
Company payable in Common Stock;
ii) subdivide its then outstanding shares of Common
Stock into a greater number of shares; or
iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Company's Board of Directors (whose determination shall be
conclusive) shall determine the allocation of the adjusted Warrant Exercise
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock. All calculations under this Subsection
shall be made to the nearest cent or to the nearest 1/100 of a share, as the
case may be. In the event that at any time as a result of an adjustment made
pursuant to this Subsection, the holder of any Warrant thereafter surrendered
for exercise shall become entitled to receive any shares of the Company other
than shares of Common Stock, thereafter the Warrant Exercise Price of such other
shares so receivable upon exercise of any Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to Common Stock contained in this Section.
(b) Upon each adjustment of the Warrant Exercise Price
pursuant to Section 6(a) above, the Holder of each Warrant shall thereafter
(until another such adjustment) be entitled to purchase at the adjusted Warrant
Exercise Price the number of shares, calculated to the nearest full share,
obtained by multiplying the number of shares specified in such Warrant (as
adjusted as a result of all adjustments in the Warrant Exercise Price in effect
prior to such adjustment) by the Warrant Exercise Price in effect prior to such
adjustment and dividing the product so obtained by the adjusted Warrant Exercise
Price.
(c) In case of any capital reorganization or any
reclassification of the shares of Common Stock of the Company, or any
consolidation or merger to which the Company
<PAGE>
is a party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no adjustment under
Subsection (a) of this Section above but the Holder of each Warrant then
outstanding shall have the right thereafter to convert such Warrant into the
kind and amount of shares of stock and other securities and property which it
would have owned or have been entitled to receive immediately after such capital
reorganization, reclassification, consolidation, merger, statutory exchange,
sale, or conveyance had such Warrant been converted immediately prior to the
effective date of such consolidation, merger, statutory exchange, sale, or
conveyance and in any such case, if necessary, appropriate adjustment shall be
made in the application of the provisions set forth in this Section with respect
to the rights and interests thereafter of any Holders of the Warrant, to the end
that the provisions set forth in this Section shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation to any shares of
stock and other securities and property thereafter deliverable on the exercise
of the Warrant. The provisions of this Subsection shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or conveyances.
Prior to consummating any such consolidation, merger or sale, the successor
corporation (if other than the Company) resulting from such consolidation or
merger, or the corporation purchasing such assets, shall assume by written
instrument executed and mailed to the registered Holder hereof at the last
address of such Holder appearing on the books of the Company, the obligation to
deliver to such Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase.
(d) Upon any adjustment of the Warrant Exercise Price, then,
and in each such case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the Holder as shown on the books of
the Company, which notice shall state the Warrant Exercise Price resulting from
such adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
7. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
8. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof, the Holder, by acceptance
hereof, agrees to give 7 days written notice to the Company before transferring
this Warrant or transferring any Warrant Shares of such Holder's intention to do
so, describing briefly the manner of any proposed transfer. Such notice may be
provided in the form of Warrant Assignment attached hereto. Promptly upon
receiving such written notice, the Company shall present
<PAGE>
copies thereof to the Company's counsel. If in the reasonable opinion of such
counsel, the proposed transfer may be effected without registration or
qualification (under any federal or state securities laws), the Company, as
promptly as practicable, shall notify the Holder of such opinion, whereupon the
Holder shall be entitled to transfer this Warrant or to dispose of Warrant
Shares received upon the previous exercise of this Warrant, all in accordance
with the terms of the notice delivered by the Holder to the Company; provided
that an appropriate legend may be endorsed on this Warrant or the certificates
for such Warrant Shares respecting restrictions upon transfer thereof necessary
or advisable in the opinion of counsel and satisfactory to the Company to
prevent further transfer which would be in violation of Section 5 of the
Securities Act of 1933, as amended (the "1933 Act") and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations, warranties
and agreements as may be reasonably required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.
(b) If in the reasonable opinion of the counsel referred to in
this Section 8, the proposed transfer or disposition of this Warrant or such
Warrant Shares described in the written notice given pursuant to this Section 8
may not be effected without registration or qualification of this Warrant or
such Warrant Shares, the Company shall promptly give written notice thereof to
the Holder, and the Holder will limit its activities in respect to such as, in
the reasonable opinion of such counsel to the Company, are permitted by law.
9. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the last reported sale price or, if none, the average of the last reported
closing bid and ask prices on any national securities exchange or quoted on the
Nasdaq, or if not listed on a national securities exchange or quoted on Nasdaq,
the average of the last reported closing bid and ask prices as reported by Metro
Data Company, Inc. from quotations by market makers in such Common Stock on the
Minneapolis-St. Paul local over-the-counter sales.
10. Representations of the Holder.
(a) The Holder acknowledges and represents that Holder
understands that this Warrant is illiquid and highly speculative, that Holder is
able to bear the economic risk associated with this Warrant, and that Holder
believes that this Warrant is a suitable investment for Holder.
<PAGE>
(b) The Holder acknowledges and represents that Holder has
been given access to full and complete information regarding the Company
(including the opportunity to meet with Company officers and to review such
documents as Holder may have requested in writing) and has utilized such access
to Holder's satisfaction for the purpose of obtaining information about the
Company.
(c) The Holder represents and warrants that this Warrant is
being acquired for Holder's own account and without the intention of reselling
or redistributing the same. Holder further understands and agrees that the
transferability of the Warrant is restricted as described herein.
(d) The Holder hereby represents that it is an "accredited
investor" within the meaning of Rule 501 of Regulation D under the Securities
Act.
IN WITNESS WHEREOF, the undersigned have caused this Warrant to be
signed this ____ day of ________, 1997.
ATTEST: DIGITAL BIOMETRICS, INC.
By
- -------------------------------- -----------------------------------
Its Secretary James C. Granger
Its Chief Executive Officer
ANDCOR COMPANIES, INC.
By
----------------------------------
Its:
----------------------------
<PAGE>
NOTICE OF WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
TO: DIGITAL BIOMETRICS, INC.
The undersigned hereby irrevocably elects to exercise the attached
Warrant to purchase for cash, _____________ of the shares issuable upon the
exercise of such Warrant, and requests that certificates for such shares
(together with a new Warrant to purchase the number of shares, if any, with
respect to which this Warrant is not exercised) shall be issued in the name of,
and be delivered to,
----------------------------------
(Print Name)
Please insert social security or other ----------------------------------
identifying number of registered holder of (Address)
certificate (_____________)
----------------------------------
Date: _____________________, 199_ Signature*
*The signature of the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
<PAGE>
WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________ the right represented by the foregoing
warrant to purchase Common Stock of DIGITAL BIOMETRICS, INC., to which the
foregoing warrant relates and appoints ________________________________ attorney
to transfer said right on the books of DIGITAL BIOMETRICS, INC., with full power
of substitution in the premises.
The manner of the proposed transfer by the undersigned is described
briefly in the space below.
Dated:______________________________
------------------------------------
(Signature)
------------------------------------
------------------------------------
------------------------------------
(Address)
In Presence Of:
- -----------------------------------
EXHIBIT 10.10
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of December 1, 1997, between Digital Biometrics, a Delaware
corporation (the "Company"), and KA Investments LDC, a Cayman Islands
corporation (the "Purchaser").
This Agreement is made pursuant to the Convertible
Subordinated Debenture Purchase Agreement, dated as of the date hereof between
the Company and the Purchaser (the "Purchase Agreement").
The Company and the Purchaser hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that
are defined in the Purchase Agreement shall have the meanings given such terms
in the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of Minnesota generally are authorized or required by law or other
government actions to close.
"Commission" means the U.S. Securities and Exchange
Commission.
"Common Stock" means the Company's Common Stock, $.01 par
value per share.
"Debentures" means the Company's series of 8% Convertible
Debentures in the aggregate principal amount of $2,500,000 issued to and/or to
be issued to the
<PAGE>
Purchaser on the Tranche 1 Closing Date, Tranche 2 Closing Date, Tranche 3
Closing Date, Tranche 4 Closing Date and Tranche 5 Closing Date, pursuant to the
Purchase Agreement.
"Effectiveness Date" means the 90th day following the Tranche
1 Closing Date or, if such day is not a Business Day, the Effectiveness Date
shall be the next succeeding Business Day.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the U.S. Securities Exchange Act of 1934,
as amended.
"Filing Date" means the 30th day following the Tranche 1
Closing Date or, if such day is not a Business Day, the succeeding Business Day.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
<PAGE>
"Purchaser Warrants" means the Common Stock purchase warrants
issued to and/or to be issued to the Purchaser on the Tranche 1 Closing Date,
Tranche 2 Closing Date, Tranche 3 Closing Date, Tranche 4 Closing Date and
Tranche 5 Closing Date, in accordance with the terms of the Purchase Agreement.
"Registrable Securities" means the shares of Common Stock
issuable upon (a) conversion in full of the Debentures, (b) exercise in full of
the Purchaser Warrants and the warrants issued by the Company to Miller, Johnson
& Kuehn, Inc. in connection with the Purchase Agreement, and (c) payment of
interest in respect of the Debentures; provided, however that in order to
account for the fact that the number of shares of Common Stock that are issuable
upon conversion of Debentures is determined in part upon the market price of the
Common Stock at the time of conversion, Registrable Securities contemplated by
clause (a) of this definition shall be deemed to include not less than 200% of
the number of shares of Common Stock into which the Debentures are convertible
assuming such conversion occurred on the Tranche 1 Closing Date. The initial
Registration Statement shall cover at least such number of shares of Common
Stock as equals the sum of (x) 200% of the number of shares of Common Stock into
which the Debentures are convertible, assuming such conversion occurred on the
Tranche 1 Closing Date, (y) interest thereon and (2) the number of shares of
Common Stock contemplated in clause (b) of this definition with respect to
warrants. The Company shall be required to file an additional Registration
Statement or amend the Registration Statement, if not effective, to the extent
that the actual number of shares of Common Stock into which Debentures are
convertible, plus shares issuable upon payment of interest as described above
and shares issuable upon exercise of the warrants included therein exceeds the
number of shares of Common Stock initially registered, the Company shall have 30
days to file such additional Registration Statement after notice of the
requirement thereof, which the Holder may give at such time when the number of
shares of Common Stock as are issuable upon conversion of Debentures exceeds
200% of the number of shares of Common Stock into which the Debentures are
convertible, assuming such conversion occurred on the Tranche 1 Closing Date.
"Registration Statement" means the registration statement
contemplated by Section 2(a) (covering such number of Registrable Securities and
any additional Registration Statements contemplated in the definition of
Registrable Securities), including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
<PAGE>
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means the law firm acting as counsel to the
Holders, for which the Holders will be reimbursed by the Company pursuant to
Section 4.
"Tranche 1 Closing Date" shall have the meaning set forth in
the Purchase Agreement.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
2. Shelf Registration
(a) On or prior to the Filing Date the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 promulgated under
the Securities Act or, if the Company is not then permitted to register the
resale of Registrable Securities on Form S-3, the Registration Statement shall
be on such other appropriate form in accordance herewith. The Company shall use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and to keep such Registration
Statement continuously effective under the Securities Act until the date which
is three years after the date that such Registration Statement is declared
effective by the Commission or such earlier date when all Registrable Securities
covered by such Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) promulgated under the Securities
Act, as determined by the counsel to the Company pursuant to a written opinion
letter to such effect, addressed to the Company's transfer agent (the
"Effectiveness Period"); provided, however, that the Company shall not be deemed
to have used its best efforts to keep the Registration Statement effective
during the Effectiveness Period if it voluntarily takes any action that would
result in the Holders not being able to sell all of the Registrable Securities
covered by such Registration Statement during the Effectiveness Period, unless
such action is required under applicable law or the Company has filed a
post-effective amendment to the Registration Statement and the Commission has
not declared it effective.
<PAGE>
(b) If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, the investment banker that will administer the offering will be selected
by the Holders of a majority of the Registrable Securities to be included in
such offering. In connection with any Underwritten Offering, if the managing
underwriters advise the Company and the participating Holders in writing that in
their opinion the amount of Registrable Securities proposed to be sold in such
Underwritten Offering exceeds the amount of Registrable Securities which can be
sold in such Underwritten Offering, there shall be included in such Underwritten
Offering the amount of such Registrable Securities which in the opinion of such
managing underwriters can be sold, and such amount shall be allocated pro rata
among the Holders proposing to sell Registrable Securities in such Underwritten
Offering. No Holder may participate in any Underwritten Offering hereunder
unless such Holder (i) agrees to sell its Registrable Securities on the basis
provided in any underwriting agreements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement (and any additional Registration
Statements as may be required hereunder) in accordance with Section 2(a), and
cause the Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than five (5) Business Days
prior to the filing of the Registration Statement or any related Prospectus or
any amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall (i) furnish to the Holders, their Special Counsel and any managing
underwriters, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders, their Special Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto if the Holders of a
majority of the Registrable Securities, their Special Counsel, or any managing
underwriters, shall reasonably object in writing within three (3) Business Days
of their receipt thereof (provided, that any days that shall elapse after the
date the Holders of a majority of the Registrable Securities, their Special
Counsel, or any managing
<PAGE>
underwriters provides the Company such objection and the date such party
approves the filing of the Registration Statement shall not count towards
determining the Filing Date or the Effectiveness Date).
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to all
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as practicable to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto
and promptly provide the Holders true and complete copies of all correspondence
from and to the Commission relating to the Registration Statement; and (iv)
comply with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any managing underwriters immediately (and, in the
case of (i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) whenever the Commission notifies the Company whether there will
be a "review" of such Registration Statement; (C) whenever the Company receives
(or representatives of the Company receive on its behalf) any oral or written
comments from the Commission in respect of a Registration Statement (copies or,
in the case of oral comments, summaries of such comments shall be promptly
furnished by the Company to the Holders; and (D) with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to the Registration
Statement or Prospectus or for additional information; (iii) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) if at any time any of the
representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from
<PAGE>
qualification of any of the Registrable Securities for sale in any jurisdiction,
or the initiation or threatening of any Proceeding for such purpose; and (vi) of
the occurrence of any event that makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Holders with
copies of all intended written responses to the comments contemplated in clause
(i)(C) of this Section 3(c) no later than one Business Day in advance of the
filing of such responses with the Commission so that the Holder shall have the
opportunity to comment thereon.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of
a majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as such managing underwriters and such Holders reasonably agree
should be included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment; provided, however, that the
Company shall not be required to take any action pursuant to this Section 3(e)
that would, in the opinion of counsel for the Company, violate applicable law or
be materially detrimental to the business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such
<PAGE>
Prospectus and each amendment or supplement thereto by each of the selling
Holders and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as any Holder or underwriter
reasonably requests in writing, to keep each such registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least two Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an 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.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq National
Market and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
<PAGE>
(l) In the case of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and whether or not an underwriting agreement is entered into, (i)
make such representations and warranties to such Holders and such underwriters
as are customarily made by issuers to underwriters in underwritten public
offerings, and confirm the same if and when requested; (ii) obtain and deliver
copies thereof to each Holder and the managing underwriters, if any, of opinions
of counsel to the Company and updates thereof addressed to each selling Holder
and each such underwriter, in form, scope and substance reasonably satisfactory
to any such managing underwriters and Special Counsel to the selling Holders
covering the matters customarily covered in opinions requested in Underwritten
Offerings and such other matters as may be reasonably requested by such Special
Counsel or such underwriters; (iii) immediately prior to the effectiveness of
the Registration Statement or at the time of delivery of any Registrable
Securities sold pursuant thereto (at the option of the underwriters), obtain and
deliver copies to the Holders and the managing underwriters, if any, of "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data is, or is
required to be, included in the Registration Statement), addressed to each
Person and in such form and substance as are customary in connection with
Underwritten Offerings; (iv) if an underwriting agreement is entered into, the
same shall contain indemnification provisions and procedures no less favorable
to the selling Holders and the underwriters, if any, than those set forth in
Section 6 (or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering; and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
<PAGE>
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not known by such
Person to be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts Underwritten Offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the Registration Statement, which statement shall cover said 12-month period, or
end shorter periods as is consistent with the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement
or any amendment thereto or any supplement to the Prospectus and the Company may
exclude from such registration the Registrable Securities of any such Holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the inclusion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the
ownership by such Holder of such securities in not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby that such Holder will assist in meeting any future
financial requirements of the Company , or (ii) if such reference to such Holder
by name or otherwise is not required by the Securities Act or any similar
Federal statute then in force, the deletion of the reference to such Holder in
any amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
Each Holder agrees by its acquisition of such Registrable
Securities that (i) it will not offer or sell any Registrable Securities under
the Registration Statement until it
<PAGE>
has received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(g) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 3(c) and (ii) it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection
with sales of Registrable Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the extent
specified in Section 4(b), be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with The Nasdaq Stock Market, Inc. and the Nasdaq
National Market and each other securities exchange or market or over-the-counter
bulletin board on which Registrable Securities are required hereunder to be
listed and (B) in compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the underwriters or
Holders in connection with Blue Sky qualifications of the Registrable Securities
and determination of the eligibility of the Registrable Securities for
investment under the laws of such jurisdictions as the Holders of a majority of
Registrable Securities may reasonably designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders, in
the case of the Special Counsel, to a maximum amount of $7,500, (v) Securities
Act liability insurance, if the Company so desires such insurance, and (vi) fees
and expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this
<PAGE>
Agreement. In addition, the Company shall be responsible for all of its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange as
required hereunder.
(b) If the Holders require an Underwritten Offering pursuant
to the terms hereof, the Holders shall be responsible for all costs, fees and
expenses in connection therewith, except for the fees and disbursements of the
Company's legal counsel and accountants, which shall be borne by the Company.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement and without limitation as to
time, indemnify and hold harmless each Holder, the officers, directors, agents
(including any underwriters retained by such Holder in connection with the offer
and sale of Registrable Securities), brokers (including brokers who offer and
sell Registrable Securities as principal as a result of a pledge or any failure
to perform under a margin call of Common Stock), investment advisors and
employees of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder or any such underwriter furnished
in writing to the Company by or on behalf of such Holder expressly for use
therein, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
<PAGE>
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact or alleged untrue statement of material fact
contained in the Registration Statement, any Prospectus, or any form of
prospectus, or arising solely out of or based solely upon any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of independent outside counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded
<PAGE>
parties) include both such Indemnified Party and the Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense thereof and such counsel
shall be at the expense of the Indemnifying Party), provided, however that the
Indemnifying Party shall only be responsible for the fees and expenses of one
law firm as separate counsel for the Indemnified Party. The Indemnifying Party
shall not be liable for any settlement of any such Proceeding effected without
its written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 10 Business Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in
<PAGE>
connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), the Purchaser
shall not be required to contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by the Purchaser from the
sale of the Registrable Securities subject to the Proceeding exceeds the amount
of any damages that the Purchaser has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Except as set forth on
Schedule 6(b) annexed hereto, neither the Company nor any of its subsidiaries
has, as of the date hereof, nor shall the Company or any of its subsidiaries, on
or after the date of this Agreement, enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions hereof. Except as set
forth on Schedule 6(b) annexed hereto, neither the Company nor any of its
subsidiaries has previously entered into any agreement granting any registration
rights with respect to any of its securities to any Person. Without limiting the
generality of the foregoing, without the written consent of the Holders of a
majority of the then outstanding Registrable Securities, the Company shall not
grant to any Person
<PAGE>
the right to request the Company to register any securities of the Company under
the Securities Act unless the rights so granted are subject in all respects to
the prior rights in full of the Holders set forth herein, and are not otherwise
in conflict or inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as set forth on
Schedule 6(c) annexed hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not enter into any agreement
providing any such right to any of its securityholders.
(d) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement and the
Company shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to each holder of Registrable Securities written notice of such
determination and, if within twenty (20) days after receipt of such notice, any
such holder shall so request in writing, the Company shall include in such
registration statement all or any part of the Registrable Securities such holder
requests to be registered, except that if, in connection with any Underwritten
Offering for the account of the Company the managing underwriter(s) thereof
shall impose a limitation on the number of shares of Common Stock which may be
included in the registration statement because, in such underwriter(s)'
judgment, such limitation is necessary to effect an orderly public distribution
of securities covered thereby, then the Company shall be obligated to include in
such registration statement only such limited portion of the Registrable
Securities for to which such holder has requested inclusion hereunder. Any
exclusion of Registrable Securities shall be made pro rata among the holders
seeking to include Registrable Securities, in proportion to the number of
Registrable Securities sought to be included by such holders; provided, however,
that the Company shall not exclude any Registrable Securities unless the Company
has first excluded all outstanding securities the holders of which are not
entitled by right to inclusion of securities in such registration statement; and
provided, further, however, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in such registration statement. No right to registration of
Registrable Securities under this Section shall be construed to limit any
registration otherwise required hereunder.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
<PAGE>
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m.
(Minnetonka time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 4:30
p.m. (Minnetonka time) on any date and earlier than 11:59 p.m. (Minnetonka time)
on such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: Digital Biometrics, Inc.
5600 Rowland Road
Minnetonka, MN 55343
Facsimile No.: (612) 932-7181
Attn: Chief Financial Officer
With copies to: Briggs and Morgan P.A.
2400 IDS Center
Minneapolis, MN 55402
Facsimile No.: (612) 334-8650
Attn: Avron L. Gordon
If to the Purchaser: KA Investments LDC
c/o Tarmachan Management
1712 Hopkins Crossroads
Minnetonka, MN 55305
<PAGE>
Facsimile No.: (612) 542-4244
Attn: Irvin Kessler
With copies to: Robinson Silverman Pearce Aronsohn&
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson
Scott D. Zucker
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in
the stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. The Purchaser may assign its rights hereunder in the manner and to
the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of the
Purchaser hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by the Purchaser to any assignee or transferee of all
or a portion of the Debentures, the Purchaser Warrants and other warrants
referenced in the definition of Registrable Securities or the Registrable
Securities without the consent of the Company if: (i) the Purchaser agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to such registration
rights are being transferred or assigned, (iii) at or before the time the
Company receives the written notice contemplated by clause (ii) of this Section,
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions of this Agreement, and (iv) such transfer shall have been made
in accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Purchaser's (and to subsequent)
successors and assigns.
<PAGE>
(i) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to principles of conflicts of law.
(k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
DIGITAL BIOMETRICS, INC.
By:
--------------------------------
Name:
Title:
KA INVESTMENTS LDC
By:
--------------------------------
Name:
Title:
EXHIBIT 10.11
AGREEMENT AND GENERAL RELEASE
This Agreement and General Release ("Agreement") is entered into this
_____ day of October, 1997, by and between Glenn M. Fishbine ("Executive") and
Digital Biometrics, Inc. (the "Company").
WHEREAS, Executive has resigned from his position as Senior Vice
President, Technology, of the Company effective October 7, 1997;
WHEREAS, Executive has agreed to continue his employment with the
Company through November 30, 1997 on a transitional basis as provided below, and
to resign from his employment with the Company as of such date; and
WHEREAS, Executive and the Company desire fully and finally to settle
all matters or issues that exist or that might arise out of Executive's
employment with Company, and the termination thereof,
NOW, THEREFORE, in consideration of the mutual promises contained
herein, Executive and Company agree as follows:
1. Resignation and Separation. Executive resigns from his position as
Senior Vice President, Technology, effective at the close of business on October
7, 1997 (the "Resignation Date"). From and after his Resignation Date, Executive
will continue to render services to the Company on a full-time basis though and
including October 31, 1997. Executive shall remain in the employment of the
Company through and including November 30, 1997, after which Executive resigns
from employment with the Company. During the period from the date hereof through
November 30, 1997 (the "Transition Period"), Executive shall continue to be
compensated at his current base salary payable at regular payroll intervals.
Executive's employment with Company shall terminate at 6:00 o'clock P.M. on the
last day of the Transition Period (the "Termination Date"). In the event
Executive has any accrued vacation remaining unused as of the Termination Date,
he shall receive payment in lieu of such vacation. The Company agrees to pay to
Allen and Associates, for Executive's benefit, a one-time placement service fee
of $500.00.
2. Services Between October 31, 1997 and November 30, 1997. During the
period following October 31, 1997 and through November 30, 1997, Executive shall
have no specific employment responsibilities or authority and will not, unless
requested by the Company, report for employment. Executive agrees, however, to
be available to consult in person or by telephone during such period, on any
matters within the scope of Executive's employment duties to date. Such
consultation shall be for no additional compensation, other than as set forth in
Section 1 of this Agreement.
<PAGE>
3. Severance Pay Following Transition Period. Following the Transition
Period, and provided he complies with the terms of this Agreement, Executive
will be entitled to receive from the Company a lump sum severance payment equal
to Executive's current base compensation for two months (the "Severance
Payment"). Except as hereinafter provided, no further severance payments will be
made to Executive.
4. Resolution of Indebtedness. As additional consideration to Executive
in connection with this Agreement, the Company agrees to forgive and discharge
Executive's indebtedness to the Company evidenced by Executive's two Promissory
Notes to the Company dated January 14, 1994, and one note dated December 31,
1996 (the "Notes") on condition of his compliance with the terms of this
Agreement. In addition, and also conditioned upon Executive's compliance with
the terms of this Agreement, the Company agrees to forgive the amount of
$8,446.73 paid by the Company on behalf of Executive for taxes payable by
Executive on account of his purchase of restricted stock which vested on
September 1, 1996. It is further agreed that 40,000 shares of the Company's
Common Stock owned by Executive currently being held by the Company as security
for the Notes evidenced by the Company's Common Stock certificates numbered DBI
3162 through DBI 3170, for 5,000 shares each, shall be released to Executive
upon the expiration of the twenty-one (21) day period specified in Section 7(d)
of this Agreement. The Company agrees to provide to Executive accounting support
relating to this Agreement or the payments made hereunder, in the event
Executive becomes involved in a federal or state income tax audit, but such
support shall not include tax or legal advice.
5. Return of Property. Executive shall return to the Company all files,
records, documents, drawings, plans or other property of the Company in
Executive's possession within ten (10) days following the Termination Date.
6. Transfer of Property to Executive. On or before the Termination
Date, the Company agrees to transfer to Executive, for no additional
consideration from Executive: (a) the laptop computer currently utilized by
Executive, and (b) a manufactured example or demonstration unit of the NPC
Tenprinter currently in the Company's inventory. The latter product is
transferred to Executive on an as-is basis without support or warranty of any
kind. The laptop computer to be transferred to Executive is similarly
transferred to Executive on an as-is basis, but with any related and applicable
manufacturer's warranty.
7. Release of Claims by Executive.
(a) As an essential inducement to Company to enter into this
Agreement, and as consideration for the foregoing promises of Company,
Executive, for himself, his successors and assigns, hereby fully and completely
releases and waives any and all claims, complaints, rights, causes of action or
demands of whatever kind, whether known or unknown or suspected to exist by
Executive, which he has or may have against Company and its predecessors,
successors, assigns, subsidiaries and affiliates, and all officers, directors,
shareholders, employees and agents of those persons and companies ("the Released
Parties")
<PAGE>
arising out of or relating to any actions, conduct, promises, statements,
decisions, or events occurring on or prior to the date of execution of this
Agreement, including, without limitation, Executive's employment with Company,
the resignations documented by this Agreement and the ultimate termination of
his employment with Company contemplated by this Agreement. Executive further
agrees that he will not, except as otherwise expressly permitted by applicable
federal law or regulation, institute or authorize any other party, either
governmental or otherwise, to institute any administrative or legal proceedings
against the Released Parties as a result of any claims of any kind or character
which Executive might have arising from or related to his employment with
Company, the resignations documented by this Agreement, the ultimate termination
of his employment with Company contemplated by this Agreement, and the nature
and substance of the disputes giving rise to this Agreement. Notwithstanding the
foregoing, Executive's release shall not affect his rights under the terms of
this Agreement itself or his rights to indemnity under applicable law, the
Company's By-Laws or any indemnification agreement previously entered into by
Executive and the Company.
(b) Executive's release of claims is intended to extend to and
include claims of any kind arising under the Minnesota Human Rights Act, Minn.
Stat. Section 363.01 et seq., Title VII of the Civil Rights Act of 1964, as
amended, 42 U.S.C. ss.2000e et seq., the Age Discrimination in Employment Act,
29 U.S.C. Section 621 et seq., the Americans with Disabilities Act, 42 U.S.C.
ss.ss. 12101 et seq., Minnesota Statutes ss.ss. 181.932 et seq. and any other
federal, state or local statute, Executive Order, or ordinance prohibiting
employment discrimination or otherwise relating to employment, as well as any
claim for breach of contract, wrongful discharge, breach of any express or
implied promise, misrepresentation, fraud, retaliation, violation of public
policy, infliction of emotional distress, defamation, promissory estoppel,
equitable estoppel, invasion of privacy or any other theory, whether legal or
equitable.
(c) Executive has been informed of his right to revoke this
Agreement insofar as it extends to potential claims under the Age Discrimination
in Employment Act by informing Company of his intent to revoke this Agreement
within seven (7) calendar days following the date appearing with his signature
below (the "Execution Date"). Executive has likewise been informed of his right
to rescind this release insofar as it relates to potential claims under the
Minnesota Human Rights Act by written notice to Company within fifteen (15)
calendar days following the Execution Date. Executive has further been informed
and understands that any such rescission must be in writing and hand-delivered
to Company or, if sent by mail, postmarked within the applicable time period,
sent by certified mail, return receipt requested, and addressed as follows:
James C. Granger
Chief Executive Officer
Digital Biometrics, Inc.
5600 Rowland Road
Minnetonka, MN 55343-4315
<PAGE>
Executive and Company agree that if Executive exercises his right of rescission,
this Agreement shall be entirely null and void and Executive shall return to
Company any consideration paid or benefit received pursuant to this Agreement
contemporaneously with the delivery of rescission notice.
(d) Executive has also been informed that the terms of this
Agreement will be open for acceptance and execution by him for a period of
twenty-one (21) days during which time he may consider whether to accept this
Agreement. Executive and Company agree that any changes to this Agreement made
prior to signing do not restart the 21-day period.
8. Release of Claims by Company. Company hereby releases and discharges
Executive and his heirs, successors and assigns, from any and all claims,
demands, actions, liabilities, damages or rights of any kind, whether known or
unknown or suspected to exist by Company, which it ever had or may now have
against Executive and his heirs, successors and assigns, or any of them, arising
out of or resulting from any matter, fact or thing occurring prior to the
Execution Date, including, without limitation, claims pursuant to any federal,
state, or local laws, regulations or other requirements or common law, provided,
however, the Company's release does not apply to or affect in any way claims
which might be made by reason of any intentional misconduct or criminal act by
Executive.
9. Nondisclosure. Executive agrees that he will keep the financial
terms of this Agreement confidential and will not disclose such information to
any person other than his legal counsel, immediate family members, financial or
tax consultants for professional use only in connection with Executive's
affairs, or as may be required in response to a proper inquiry by a government
agency, subpoena or court order or as may be required by applicable law. Company
agrees that it will keep the financial terms of this Agreement confidential and
will not disclose such information to any persons other than: (1) to Company's
officers, directors or employees in the ordinary course and scope of their
duties, Company's legal counsel, accountants, auditors, or tax advisors, or (2)
as may be required to satisfy all disclosure and reporting requirements
applicable to it as a publicly traded company, or (3) in response to a proper
inquiry by a government agency, subpoena or court order or as may be required by
applicable law. In the event either party believes disclosure may be required in
response to a court order, subpoena or valid inquiry by a government agency, it
will give the other party sufficient notice prior to disclosure to permit such
other party to seek, at its own expense, to prevent or limit such disclosure.
10. Non-Disparagement. The Company's officers, directors and managing
agents will not make remarks disparaging of Executive. Executive will not make
any remarks disparaging of the Company, its officers, directors or managing
agents.
11. Indemnity; Cooperation in Legal Actions.
<PAGE>
(a) Company shall indemnify Executive against any claims
arising from or related to his employment with Company to the full extent
allowed by Company By-laws, any written indemnification agreement and Delaware
law, in connection with any action or proceeding against Executive, whether
pending or threatened, for which Company is obliged to indemnify Executive.
Executive shall cooperate fully, and without additional compensation, with
Company in the defense of any action, suit, claim or proceeding commenced or
threatened against him and in the defense of any action, suit, claim or
proceeding commenced or threatened against Company in conjunction with any
action, suit, claim or proceeding commenced or threatened against him.
(b) In addition to the foregoing, following the Termination
Date, Executive agrees to provide assistance to Company (hereinafter "Litigation
Support") as may be reasonably requested by Company or its attorneys in
connection with the litigation of any action, suit, claim or proceeding
involving Company, whether now pending or to be commenced, which arises out of
or its related to any matters in which Executive was involved or for which he
was responsible during the term of his employment with Company. The Company will
compensate Executive for his Litigation Support services at the rate of $65.00
per hour and reimburse Executive for all reasonable travel and lodging expenses.
12. Consulting Services Following Termination Date. From and after the
Termination Date, Executive agrees to consult with the Company as needed and
requested by the Company from time to time. Such consultation shall relate to
the general areas of work in which Executive was engaged while an employee of
the Company. Unless another rate is agreed to by Executive and the Company, the
fees of Executive for such consulting services shall be $1,001 per eight hour
day. In performing such services for the Company, Executive shall be in the
relationship of an independent contractor, and not as an employee of the
Company. Executive acknowledges and agrees, however, that his services as a
consultant and all works created by him shall be considered work made for hire,
and all works, patents, improvements, inventions, discoveries, processes,
formulae, techniques, know-how, trade secrets and intellectual property rights,
whether or not patentable or registerable under copyright or similar statutes
(collectively, "Inventions"), directly connected with the business of the
Company, its subsidiaries or affiliates, authored or made by him while
consulting with the Company are the property of the Company. Executive shall
assign to the Company all of Executive's rights, title and interest in and to
any Inventions which have arisen pursuant to his consulting with the Company, or
may arise during the term of his employment with the Company, and relate to the
business of the Company. Executive agrees to execute and deliver to the Company,
promptly upon request, any documents which the Company may request to evidence
the Company's ownership of and exclusive rights in such Inventions.
13. Abandoned Patents. The Company acknowledges that Executive may have
been named as an inventor on one or more patent applications or patents issued
to, or owned by, the Company. The parties hereto acknowledge that renewal or
maintenance fees or annuities may periodically be due and payable on pending
applications and issued patents
<PAGE>
on which Executive is named as an inventor. Should the Company determine that it
no longer wishes to pay a renewal or maintenance fee or annuity for a particular
pending patent application or issued patent, then the Company will use
reasonable efforts to notify Executive of its decision prior to the due date of
any such fee. Executive may elect to pay such fee or annuity at his option. Upon
presentation to the Company of proof of payment of such fee by Executive, the
Company will assign all of its rights, title and interest in and to the pending
patent application or issued patent to Executive. It is understood and agreed
that the assignment of any particular pending patent application or issued
patent by the Company to Executive shall not be deemed to be an assignment of
any counterpart patent application or issued patent. Notwithstanding the
foregoing, the failure of the Company to notify Executive of its intent not to
pay any renewal or maintenance fee on any pending patent application or issued
patent shall not give rise to any claim or cause of action against the Company
in favor of Executive or any other person for damages, and Executive waives and
covenants not to sue the Company for any alleged damages or losses resulting
from the failure of the Company to give such notice to Executive. The rights
contained in this Section shall not be assignable by Executive.
14. Non-Competition. (a) Executive agrees, in consideration of this
Agreement and specifically the payments, covenants and benefits provided by the
Company in Sections 3, 4, 6 and 8, that during the period from the date hereof
through October 31, 1998, he will not, except for the services provided herein,
directly or indirectly: (i) enter into or engage in any business of the type and
character of the Covered Business (as hereinafter defined), whether as an
employee, consultant, partner or joint venturer, or as an officer, director,
adviser or shareholder of a corporation; (ii) call upon any of the persons,
firms, associations, corporations, organizations or governmental units listed in
Exhibit A for the purpose of soliciting, selling, diverting, taking away,
transferring or interfering with, the Company's business or prospective business
with such persons; or (iii) solicit, attempt to solicit or otherwise cause any
employee of the Company to terminate employment with the Company.
For the purposes of this Agreement, the term "Covered Business" of the
Company refers to the development, manufacture, marketing or sale of: (a)
Tenprinter fingerprint identification systems for identifying, verifying,
printing or electronically processing or transmitting fingerprints, or (b)
hand-held or portable fingerprint and mug shot systems, including, but not
limited to, systems competitive with the Squid, SR, VR or FR products or series
of products of the Company.
Executive recognizes and acknowledges that the Company's proprietary
technology is valuable on a world-wide basis and not limited to a particular
geographic area and therefore that the restrictions imposed by this Section 14
must be without geographic limitation.
15. Confidentiality. Executive hereby confirms, recognizes and
acknowledges that the business of the Company is highly competitive and that
during the course of his employment with the Company he has had access to all of
its proprietary and confidential
<PAGE>
information. Executive therefore covenants and agrees, and in consideration of
this Agreement covenants, agrees and reaffirms, that for a period of five (5)
years from and after the date of this Agreement, he will treat and protect as
confidential and proprietary information of the Company all business plans,
technology plans, patent applications, patent rights, inventions, intellectual
property rights, techniques, know-how, trade secrets, software, technical
designs, trademarks, trademark rights, trade names, trade name rights,
copyrights, customer and supplier lists and other business and financial
information of the Company which is not otherwise publicly known or available.
Executive agrees that he will not disclose or publish the foregoing without the
written consent of the Company.
16. Improvements, Patents, Etc. Executive hereby acknowledges and
agrees that all patents, improvements, inventions, discoveries, processes,
formulae, techniques, know-how, trade secrets and other intellectual property
rights, whether or not patentable or registerable under copyright or similar
statutes (collectively, "Inventions"), directly connected with the business of
the Company, its subsidiaries or affiliates, authored or made by him while in
the employment of the Company are the property of the Company; and the Company
at its discretion and expense may undertake promotion and exploitation of such
Inventions acquired by it. Executive may, at his sole discretion, upon the
Company's request, assist the Company in such promotion and exploitation under
the terms set forth in Section 12. Executive shall assign to the Company all of
Executive's rights, title and interest in and to any Inventions which have
arisen pursuant to his employment by the Company, or may arise during the term
of his employment with the Company, and relate to the business of the Company.
Executive agrees to execute and deliver to the Company, promptly upon its
request, any documents which the Company may reasonably request to evidence the
Company's ownership of and exclusive rights in such Inventions. Pursuant to
Minnesota Statutes ss. 181.78, Executive is notified that Executive's
obligations to assign or offer to assign any of the Executive's rights in an
Invention to the Company shall not apply to an Invention for which no equipment,
supplies, facility or trade secret information of the Company was used and which
was developed entirely on the Executive's own time, and (i) which does not
relate (a) directly to the business of the Company or (b) to the Company's
actual or demonstrably anticipated research or development, or (ii) which does
not result from any work performed by the Executive for the Company. Any
provision which purports to apply to such an Invention is to that extent against
the public policy of this state and is to that extent void and unenforceable.
17. Communications. There shall be no communication by Executive or the
Company to third parties concerning Executive's separation until such time as an
appropriate press release (to be approved by Executive and by James C. Granger
on behalf of the Company's Board of Directors) shall have been issued.
Thereafter, internal communication to the Company's employees shall be made in
terms to be mutually agreed upon. Any communications to third parties thereafter
shall be in terms consistent with the substance of the press release described
above.
<PAGE>
18. Entire Agreement, Amendment. Executive acknowledges that the only
consideration for signing this Agreement are the terms stated herein and that no
other promises or agreements of any kind have been made to him by any person or
entity whatsoever to cause him to sign this Agreement. The payments provided for
in this Agreement are to be made for, among other things, full satisfaction of
any claim, right or entitlement of Executive to compensation or benefits of any
kind, whether in the form of salary, fringe benefits, bonus, stock options,
commissions, incentive pay, severance pay, damages or otherwise. The foregoing
shall not be deemed to release, or operate as a waiver of, any rights which
Executive may have to exercise any stock option previously granted, in
accordance with its terms. All payments from the Company to Executive shall be
subject to all legally required reporting, withholding, deductions and taxation.
Executive acknowledges that the Company has made no representation whatsoever to
him regarding the appropriate tax treatment of any payments or benefits to be
received by him under the terms of this Agreement. Executive and Company agree
that this Agreement is the entire agreement between them, that it supersedes any
prior agreements regarding any of the subject matter of the Agreement, and that
any such prior agreements are now null and void. This Agreement can be modified
only in a writing which must be signed by both Executive and Company to be
effective.
19. No Admission of Wrongdoing. Executive and Company agree that this
Agreement is not an admission by Company, the Released Parties, or Executive of
any wrongdoing or of any acts that might be considered a violation of federal,
state or local law, with respect to the employment of Executive or otherwise,
and that this Agreement should not be interpreted as such.
20. Headings. Paragraph headings used herein are for convenience only
and are not part of this Agreement and shall not be used in construing it.
21. Assignment, Successors. Executive may not assign any of his rights
or delegate any of his duties or obligations under this Agreement. The rights
and obligations of Company under this Agreement shall inure to the benefit of
and be binding upon the successors (by purchase, merger, consolidation or
otherwise) and assigns of Company.
22. Governing Law. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and the
rights and obligations of the parties hereunder, shall be governed by the laws
of the State of Minnesota.
23. Opportunity to Review. Executive represents that he has read this
Agreement and agrees to all of the conditions and obligations set forth.
Further, Executive represents that he has had adequate time to consider the
terms of this Agreement, that he is voluntarily and without duress entering into
this Agreement with full understanding of its meaning, and that he has consulted
extensively with legal counsel of his choosing for advice in connection with
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement by their
signatures below.
------------------------------
Glenn M. Fishbine
DIGITAL BIOMETRICS, INC.
By
---------------------------
James C. Granger
Its Chief Executive Officer
EXHIBIT 10.12
CREDIT AND SECURITY AGREEMENT
Dated as of September 30, 1996
DIGITAL BIOMETRICS, INC., a Delaware corporation (the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby
agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
"Accounts" means the aggregate unpaid obligations of customers
and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open
account or deferred payment basis, whether now existing or hereafter
arising.
"Advance" has the meaning given in Section
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota, National Association as its
"base rate" or, if such bank ceases to announce a rate so designated,
any similar successor rate designated by the Lender.
"Book Net Worth" means the aggregate of the common
stockholders' equity of the Borrower, determined in accordance with
GAAP.
"Borrowing Base" means, at any time and subject to change from
time to time in the Lender's sole discretion, the lesser of:
(a) the Maximum Line; or
(b) (i) 75% of Eligible Accounts minus (ii) $100,000.
"Collateral" has the meaning given in Section .
"Default Rate" means an annual rate equal to 3% over the
Floating Rate, which rate shall change when and as the Floating Rate
changes.
"Eligible Accounts" means only all unpaid Accounts arising
from the sale of product from Borrower's "TENPRINTER S-Series" product
line, net of any credits, which have been designated by the Borrower as
Eligible Accounts, except the following shall not in any event be
deemed Eligible Accounts:
(1) That portion of Accounts over 120 days past
installation date, as evidenced by a certificate of
installation signed by the account debtor;
(2) That portion of Accounts that are disputed or
subject to a claim of offset or a contra account;
(3) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer, as evidenced by a
certificate of installation signed by the account debtor;
<PAGE>
(4) Accounts owed by an account debtor located
outside the United States which are not backed by a bank
letter of credit assigned to the Lender, in the possession of
the Lender and acceptable to the Lender in all respects, in
its sole discretion;
(5) Accounts owed by an account debtor that is the
subject of bankruptcy proceedings or has gone out of business;
(6) Accounts owed by a shareholder, subsidiary,
affiliate, officer or employee of the Borrower;
(7) Accounts not subject to a duly perfected security
interest in favor of the Lender or which are subject to any
lien, security interest or claim in favor of any Person other
than the Lender;
(8) That portion of Accounts that have been
restructured, extended, amended or modified;
(9) That portion of Accounts that constitutes finance
charges, service charges or sales or excise taxes;
(10) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if 10% or more of the total
amount due under Accounts from such debtor is ineligible under
clauses (1), (2) or (8) above; and
(11) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Event of Default" has the meaning specified in Section .
"Floating Rate" means an annual rate equal to the sum of the
Base Rate plus one and one-half percent (1.5%) which annual rate shall
change when and as the Base Rate changes.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section .
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired.
"Loan Documents" means this Agreement, the Note, the
Disclosure and the Security Documents and any and all other related
instruments, agreements and documents.
"Maximum Line" means $3,500,000.
"Note" means the Borrower's revolving promissory note, payable
to the order of the Lender in form and content satisfactory to Lender.
"Obligations" means each and every debt, liability and
obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Lender, including all indebtedness
arising under this Agreement, the Note or any other loan or credit
agreement or guaranty between the Borrower and the Lender, whether now
in effect or hereafter entered into.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Security Documents" means the Collateral Account Agreement
and the Lockbox Agreement, each of even date herewith and by and among
the Borrower, the Lender and Norwest Bank Minnesota, National
Association and any and all other documents, instruments and agreements
executed by the Borrower or any other party and delivered to the Lender
as amended form time to time, as security for the Obligations.
<PAGE>
"Security Interest" has the meaning given in Section .
"Termination Date" has the meaning given in Section 2.4.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of Minnesota.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1 Revolving Advances. The Lender may, in its sole discretion,
make advances to the Borrower from time to time from the date this Agreement is
signed and delivered to the Termination Date, on the terms and subject to the
conditions herein set forth (each an "Advance"). The Lender shall not consider
any request for an Advance if, after giving effect to such requested Advance,
the sum of the outstanding and unpaid Advances would exceed the Borrowing Base.
The Borrower's obligation to pay the Advances shall be evidenced by the Note.
Within the limits set forth in this Section , the Borrower may request Advances,
prepay, and request additional Advances. The Borrower shall make each request
for an Advance to the Lender before 11:00 a.m. (Minneapolis time) of the day of
the requested Advance. Requests may be made in writing or by telephone.
Section 2.2 Interest; Default Interest.
(a) Revolving Note. Except as set forth in Sections and the
outstanding principal balance of the Advances shall bear interest at the
Floating Rate. All interest shall be payable monthly in arrears on the first day
of the month and on demand.
(b) Minimum Interest Charge. Notwithstanding the interest
payable pursuant to Section , the Borrower shall pay to the Lender interest of
not less than $70,000 per year during the term of this Agreement, and on each
anniversary of this Agreement the Borrower shall pay any deficiency between such
minimum interest charge and the amount of interest otherwise calculated under
Sections and .
(c) Default Interest Rate. From the first day of any month
during which Borrower is not in compliance with its agreements set forth in this
Agreement or the Note, in the Lender's discretion and without waiving any of its
other rights and remedies, the outstanding principal balance of the Advances
shall bear interest at the Default Rate.
Section 2.3 Closing and Extension Fees. The Borrower agrees to pay the
Lender a closing fee of $26,250, to be paid on February 1, 1997. If this
Agreement is extended pursuant to Section 2.4 hereof, Borrower agrees to pay the
Lender an extension fee of one-half percent (.50 %) of the Maximum Line, to be
paid upon the effective date of any such extension.
Section 2.4 Discretionary Nature of Credit Facility; Termination Date,
Extension. THE LENDER MAY AT ANY TIME AND FOR ANY REASON REFUSE TO MAKE AN
ADVANCE AND/OR DEMAND PAYMENT OF THE ADVANCES AND TERMINATE THIS AGREEMENT
WHETHER BORROWER IS OR IS NOT IN COMPLIANCE WITH THIS AGREEMENT. The Lender need
not show that an adverse change has occurred in the Borrower's condition,
financial or otherwise, in order to refuse to make any requested Advance or to
demand payment of the Advances. This Agreement shall remain in effect until the
one year anniversary of the date of this Agreement and such anniversary date is
herein referred to as a "Termination Date". This Agreement may be extended for
additional one year periods only upon written agreement by the Lender and the
Borrower, in which case the one year anniversary of any such extension shall
also be referred to as a "Termination Date".
Section 2.5 Termination by Borrower.
(a) Termination by Borrower. The Borrower may terminate this
Agreement at any time subject to payment and performance of all Obligations, may
obtain any release or termination of the Security Interest to which the
<PAGE>
Borrower is otherwise entitled by law by (1) giving at least 30 days' prior
written notice to the Lender of the Borrower's intention to terminate this
Agreement, and (2) paying the Lender a prepayment fee in accordance with Section
2.5(b) if the Borrower terminates this Agreement effective as of any date other
than the Termination Date.
(b) Prepayment Fee. If the Borrower desires to terminate this
Agreement as of a Termination Date but without giving at least 30 days' prior
written notice thereof, or any date other than a Termination Date after giving
at least 30 days' prior written notice to the Lender of the Borrower's intention
to do so, it shall pay to the Lender a prepayment fee of the greater of (i) 1%
of the Maximum Line or (ii) the Minimum Interest Charge pursuant to subsection
2.2(b) above, prorated for the number of days remaining until a Termination
Date; provided that (i) no prepayment penalty shall be due if the Borrower shall
prepay the Obligations solely from cash flow generated from the Borrower's
operations and (ii) no prepayment fee shall be required if the prepayment is
wholly made pursuant to a refinancing with another "Norwest@ affiliated entity.
Section 2.6 Mandatory Prepayment. Without notice or demand, if the
outstanding principal balance of the Advances shall at any time exceed the
Borrowing Base, the Borrower shall immediately prepay the Advances to the extent
necessary to eliminate such excess.
Section 2.7 Advances Without Request. The Borrower hereby authorizes
the Lender, in its discretion, at any time or from time to time without the
Borrower's request, to make Advances to pay accrued interest, fees, uncollected
items that have been applied to the Obligations, and other Obligations due and
payable from time to time.
ARTICLE III
Security Interest
Section 3.1 Grant of Security Interest. The Borrower hereby grants to
the Lender a security interest (the "Security Interest") in the following
collateral (the "Collateral"), as security for the payment and performance of
the Obligations:
INVENTORY: All inventory of Borrower, as such term is defined in the
UCC, whether now owned or hereafter acquired, whether consisting of
whole goods, spare parts or components, supplies or materials, whether
acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located; and
ACCOUNTS AND OTHER RIGHTS TO PAYMENT: Each and every right of Borrower
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by Borrower or by some other person who subsequently transfers
such person's interest to Borrower, whether such right to payment is or
is not already earned by performance, and howsoever such right to
payment may be evidenced, together with all other rights and interests
(including all liens and security interests) which Borrower may at any
time have by law or agreement against any account debtor or other
obligor obligated to make any such payment or against any property of
such account debtor or other obligor; all including all of Borrower's
rights to payment in the form of all present and future accounts,
contract rights, loans and obligations receivable, chattel papers,
bonds, notes and other debt instruments, tax refunds and rights to
payment in the nature of general intangibles; and
EQUIPMENT: All of the Borrower's goods and equipment, as such term is
defined in the UCC whether now or hereafter owned, including all
present and future machinery, vehicles, furniture, manufacturing
equipment, shop equipment, office and recordkeeping equipment, parts,
tools, supplies, and including specifically the goods described in any
equipment schedule or list herewith or hereafter furnished to the
Lender by the Borrower;
FINANCIAL ASSETS: All securities, securities entitlements, financial
assets and certificates of deposit of Borrower, and all funds of
Borrower on deposit with and all property in the possession of the
Secured Party or any depository institution, each whether now owned or
hereafter acquired; and
<PAGE>
GENERAL INTANGIBLES: All of the Borrower's general intangibles, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including all present and future contract rights, patents, patent
applications, copyrights, trademarks, trade names, trade secrets,
customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use the Borrower's
name, and the goodwill of Borrower's business; and
PROCEEDS: Together with all substitutions and replacements for and
products of any of the foregoing property and together with proceeds of
any and all of the foregoing property and, in the case of all tangible
property, together with all accessions and together with (i) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any such tangible
property, and (ii) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such tangible property.
Section 3.2 Notification of Account Debtors and Other Obligors. The
Lender may at any time (either before or after the occurrence of an Event of
Default) notify any account debtor or other person obligated to pay the amount
due that such right to payment has been assigned or transferred to the Lender
for security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, as the Borrower's agent and attorney-in-fact, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for
the Borrower's account or forwarding such mail to the Borrower's last known
address.
Section 3.3 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of each premises where Borrower conducts its business
and has any rights of possession (the "Premises") at any time after the
occurrence and during the continuance of an Event of Default.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender in good faith
considers related.
(c) The Lender's right to hold the Premises shall terminate
upon the earlier of payment in full of all Obligations, or final sale or
disposition of all goods constituting Collateral and delivery of all such goods
to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession or use of any of the Premises;
provided, however, that if the Lender does pay or account for any rent or other
compensation for the possession or use of any of the Premises, the Borrower
shall reimburse the Lender promptly for the full amount thereof.
Section 3.4 License/Maintenance of Intellectual Property. The Borrower
hereby grants to the Lender a non-exclusive, worldwide and royalty-free license
to use or otherwise exploit all trademarks, franchises, trade names, copyrights
and patents owned by or licensed to the Borrower for the purpose of selling,
leasing or otherwise disposing of any or all Collateral following an Event of
Default. The Borrower shall not sell, transfer, assign (by operation of law or
otherwise), exchange, lease, license, allow to go abandoned or otherwise dispose
of all or any portion of said intellectual property and shall maintain and
protect all of such property in accordance with all applicable state, federal
and foreign laws.
Section 3.5 Filing a Copy. A carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by Borrower is
sufficient as a financing statement.
ARTICLE IV
Conditions of Lending
<PAGE>
In view of the fact that Advances may be made in the sole discretion of
the Lender, this Agreement does not set forth conditions precedent to Advances.
The Lender will advise the Borrower of the Lender's documentation and other
requirements before considering any Advance.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Name; Locations; Tax ID No., Subsidiaries. During its
existence, the Borrower has done business solely under its corporate name as set
forth herein and under such trade names and such other corporate names as
disclosed to Lender in writing before this Agreement is signed and delivered.
The address of Borrower's chief executive office and principal place of business
and its federal tax identification number are set forth below its signature to
this Agreement. All Inventory is located at that location or at one of the other
locations disclosed to Lender in writing before this Agreement is signed and
delivered. The Borrower has no subsidiaries except as disclosed to Lender in
writing before this Agreement is signed and delivered.
Section 5.2 Financial Condition; No Adverse Change. Before this
Agreement was signed and delivered, the Borrower furnished the Lender certain of
its unaudited financial statements certified by the Borrower. Those statements
fairly present the Borrower's financial condition as of the dates indicated
therein and the results of its operations for the periods then ended and were
prepared in accordance with generally accepted accounting principles. Since the
date of the most recent financial statements, there has been no material adverse
change in the business, properties or condition (financial or otherwise) of the
Borrower.
ARTICLE VI
Affirmative Covenants of the Borrower
So long as the Advances or any other obligations shall remain unpaid,
the Borrower will comply with the requirements in this Article, unless the
Lender shall otherwise consent in writing.
Section 6.1 Reporting Requirements. The Borrower will deliver to the
Lender each of the following in form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days
after the end of each fiscal year of the Borrower, the Borrower's
audited financial statements prepared in accordance with GAAP;
(b) as soon as available and in any event within 15 days after
the end of each month, an unaudited/internal balance sheet and
statement of income and retained earnings of the Borrower as at the end
of and for such month and for the year to date period then ended,
prepared in accordance with GAAP, subject to year-end audit
adjustments, together with a compliance certificate in the form
attached to this Agreement or such other form as Lender may require;
(c) within 10 days after the end of each month, agings of the
Borrower's accounts receivable and accounts payable as of the end of
such month;
(d) as soon as available and in any event no later than 15
days following the receipt thereof by the Borrower, a copy of the bank
account statements of the Borrower as of the last day of each month
from each bank with which Borrower maintains a checking account, such
statements to be provided to the Lender directly by each such bank or
by the Borrower with respect to a bank that is unwilling to send them
to the Lender;
<PAGE>
(e) weekly, on such day of the week as Lender may determine,
agings of the Borrower's accounts receivable arising from the sale of
Borrower's "TENPRINTER S-Series" product line, together with a schedule
of such accounts receivable that are not Eligible Accounts.
(f) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request;
(g) within three days of Borrower's payment of or deposit for
taxes, including but not limited to payroll taxes, proof of such
payment in form acceptable to the Lender; and
(h) at least thirty (30) days before the beginning of each of
Borrower's fiscal years, projections of Borrower's monthly balance
sheets and income statements for such fiscal year
Section 6.2 Inspection. Upon the Lender's request, the Borrower will
permit any officer, employee, attorney, agent or accountant for the Lender to
audit, review, make extracts from or copy any and all records of the Borrower
and to inspect the Collateral at all times during ordinary business hours.
Section 6.3 Account Verification. The Borrower will at any time and
from time to time upon request of the Lender send requests for verification of
Accounts or notices of assignment to account debtors and other obligors. The
Borrower authorizes the Lender to verify Accounts directly with account debtors
or other obligors from time to time, including on a daily basis (and the
Borrower understands the Lender intends to do so by telephone and/or in
writing).
Section 6.4 No Other Liens. The Borrower will keep all Collateral free
and clear of all security interests, liens and encumbrances except the Security
Interest, purchase money security interests in equipment, the security interest
of Norwest Bank Minnesota, N.A. in the Borrower's financial assets, and other
security interests approved by the Lender in writing.
Section 6.5 Insurance. The Borrower will at all times keep all tangible
Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request, with
a lender's loss payable clause in favor of Lender to the extent of its interest.
Section 6.6 Lockbox; Collateral Account. The Borrower has provided the
Lender with agreements regarding a lockbox and a collateral account in
connection with the collection of Accounts.
Section 6.7 Minimum Book Net Worth. The Borrower will at all times
maintain during each period described below, a Book Net Worth (on an
unconsolidated, Borrower-only basis), determined as of the end of each month, of
at least the amount set forth opposite such period:
Period Minimum Book Net Worth
------ ----------------------
September, 1996 $10,400,000
October, 1996 through December, 1996 $ 9,050,000
January, 1997 through March, 1997 $ 8,600,000
April, 1997 through August, 1997 $ 8,200,000
September, 1997 $ 8,500,000
<PAGE>
Provided, however, that if Borrower's net worth shall increase by reason of the
issuance of capital stock (including the conversion of subordinated debt to
capital stock), the minimum book net worth amounts shown above shall thereafter
be adjusted by the amount of such increase. If the Borrower's Book Net Worth as
reported on the final audited financial statements for September 30, 1996 shall
differ by $50,000 or more from $10, 455,000 as reported by Borrower to Lender,
the Lender shall have the right to amend the Minimum Book Net Worth amounts
shown above.
Section 6.8 No Sale or Transfer of Collateral and Other Assets. The
Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the
stock of any subsidiary, (ii) all or a substantial part of its assets, or (iii)
any Collateral or any interest therein (whether in one transaction or in a
series of transactions) to anyone other than the sale of Inventory in the
ordinary course of business.
Section 6.9 Place of Business; Name. The Borrower will not change the
location of its chief executive office or principal place of business from that
disclosed pursuant to Section . The Borrower will not permit any tangible
Collateral to be located in any state or area in which, in the event of such
location, a financing statement covering such Collateral would be required to
be, but has not in fact been, filed in order to perfect the Security Interest.
The Borrower will not change its name.
Section 6.10 Management Compensation. The Borrower will not increase
the compensation , including salary, bonuses and all other forms of compensation
(excepting, however, compensation in the form of the Borrower's capital stock or
stock options), of its Senior Management Employees, individually or in the
aggregate, by more than 10% in any of Borrower's fiscal years. For the purposes
of this Section 6.10, "Senior Management Employees" shall mean Jack A. Klingert,
Donald E. Berg, Glenn M. Fishbine, Louis C. Petsolt, Paul J. Skritp, and any
person who replaces such employee.
ARTICLE VII
Events of Default, Rights and Remedies
Section 7.1 Events of Default. An "Event of Default" as used herein
shall mean any of the following:
(a) Failure to pay the Note when demanded, and in this
connection Borrower hereby waives presentment, notice of dishonor and
protest;
(b) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement or any other Loan
Document.
Section 7.2 Rights and Remedies. As provided in Section 2.5, the Lender
may, at any time and for any reason, refuse to make any requested Advance or
demand payment of the Advances. Upon such demand or upon the occurrence of an
Event of Default or at any time thereafter, the Lender may exercise any or all
of the following rights and remedies:
(a) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which the Borrower hereby
expressly waives) and the right to sell, lease or otherwise dispose of
any or all of the Collateral, and in connection therewith, the Borrower
will on demand assemble the Collateral and make it available to the
Lender at a place to be designated by the Lender which is reasonably
convenient to both parties;
(b) the Lender may exercise any other rights and remedies
available to it by law or agreement.
<PAGE>
The remedies provided hereunder are cumulative.
Section 7.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section ) at least 10 calendar days before the
date of intended disposition or other action.
ARTICLE VIII
Miscellaneous
Section 8.1 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for hereunder shall be in writing and shall be (a) personally
delivered, (b) sent by first class United States mail, (c) sent by overnight
courier of national reputation, or (d) transmitted by telecopy, in each case
addressed or telecopied to the party to whom notice is being given at its
address or telecopy number as set forth below its signature to this Agreement.
Section 8.2 Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses (including legal fees) incurred by the Lender in
connection with the Loan Documents, and any other document or agreement related
thereto, and the transactions contemplated hereby, including wire transfer and
ACH charges, the cost of credit reports, overadvance fees, the expense of any
on-site auditors (not to exceed the then current standard applicable rate, which
on the date of this Agreement is $400 per day per auditor plus out of pocket
expenses), and fees and expenses in enforcing this Agreement.
Section 8.3 Indemnity. In addition to the payment of expenses pursuant
to Section , the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(1) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the
execution and delivery of this Agreement and the other Loan Documents
or the making of the Advances;
(2) any and all liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) in connection with any investigative,
administrative or judicial proceedings, whether or not such Indemnitee
shall be designated a party thereto, which may be imposed on, incurred
by or asserted against any such Indemnitee, in any manner related to or
arising out of or in connection with the making of the Advances, this
Agreement and the other Loan Documents or the use or intended use of
the proceeds of the Advances; and
(3) any claim, loss or damage to which any Indemnitee may be
subjected as a result of any violation of any federal, state, local or
other governmental statute, regulation, law, or ordinance dealing with
the protection of human health and the environment.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, the Borrower, or counsel
designated by the Borrower and satisfactory to the Indemnitee, will resist and
defend such action, suit or proceeding to the extent and in the manner directed
by the Indemnitee. Each Indemnitee will use its best efforts to cooperate in the
defense of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
<PAGE>
Section 8.4 Binding Effect; Assignment; Sharing of Information. The
Loan Documents shall be binding upon and inure to the benefit of the Borrower
and the Lender and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights thereunder or any
interest therein without the prior written consent of the Lender. Without
limitation of the Lender's right to share information regarding the Borrower and
its Affiliates with Lender's participants, accountants, lawyers and other
advisors, the Lender may share at any time with Norwest Corporation, and all
direct and indirect subsidiaries of Norwest Corporation, any and all information
the Lender may have in its possession regarding the Borrower and its Affiliates,
and the Borrower waives any right of confidentiality it may have with respect to
such sharing of information.
Section 8.5 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
This Agreement and the Note shall be governed by and construed in accordance
with the laws (other than conflict laws) of the State of Minnesota. Each party
consents to the personal jurisdiction of the state and federal courts located in
the State of Minnesota in connection with any controversy related to this
Agreement, waives any argument that venue in any such forum is not convenient
and agrees that any litigation initiated by any of them in connection with this
Agreement shall be venued in either the District Court of Hennepin County,
Minnesota located in Minneapolis, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division. THE PARTIES WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the date first above written.
NORWEST BUSINESS CREDIT, INC. DIGITAL BIOMETRICS, INC.
By
By --------------------------------
----------------------------- Jack A. Klingert, Its President
Warren G. Lindman Its President
Its Assistant Vice President
Address: Address:
Norwest Center 5600 Rowland Road
Sixth Street and Marquette Avenue Suite 205
Minneapolis, Minnesota 55479-0152 Minnetonka, Minnesota 55343
Telecopy No. (612) 673-8589 Telecopy No. (612) 932-7181
Federal Tax ID No. 41-1712687 Federal Tax I.D. No. 41-1545069
[Signature Page to Credit and Security Agreement]
<PAGE>
COMPLIANCE CERTIFICATE
To: Warren G. Lindman
Norwest Business Credit, Inc.
Date: __________________, 199___
Subject: Digital Biometrics, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as
of September 30, 1996 (the "Credit Agreement"), attached are the financial
statements of Digital Biometrics, Inc. (the "Borrower") as of and for
________________, 19___ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower's financial condition as of the date thereof.
Events of Default. (Check one):
|_| The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
|_| The undersigned has knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement and attached
hereto is a statement of the facts with respect to thereto.
Representation and Warranties. (Check one):
|_| The undersigned hereby reaffirms the representations and
warranties as set forth in the Credit Agreement, each of which
are true and correct as of the date hereof.
|_| The undersigned hereby reaffirms the representations and
warranties set forth in the Credit Agreement, each of which
are true and correct as of the date hereof except as described
in the statement attached hereto.
Financial Covenants. I further hereby certify as follows:
1. Minimum Book Net Worth. Pursuant to Section of the Credit
Agreement, as of the Reporting Date, the Borrower's Book Net Worth was
$____________, which |_| satisfies |_| does not satisfy the requirement
that such amount be not less than $_____________ on the Reporting Date
as set forth in table below:
Period Minimum Book Net Worth
------ ----------------------
September, 1996 $10,400,000
October, 1996 through December, 1996 $ 9,050,000
January, 1997 through March, 1997 $ 8,600,000
April, 1997 through August, 1997 $ 8,200,000
September, 1997 $ 8,500,000
<PAGE>
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
DIGITAL BIOMETRICS, INC.
By
-------------------------------------------------
Donald E. Berg
Its Vice President of Finance and Administration
EXHIBIT 10.14
LEASE AMENDMENT
This agreement is made the 13th day of March 1996, between Rowland Pond
Investors, a Minnesota Partnership (hereinafter called LANDLORD) and CFA
Technologies, dba Digital Biometrics, Inc. (hereinafter called TENANT).
Whereas, by lease dated November 7, 1989 and as further amended December 29,
1989, May 1, 1991, May 19, 1993, October 8, 1993 and August 4, 1994, landlord
leased to Tenant the real property together with the building and improvements
then erected thereon, located at Rowland Pond Center, 5600 and 5610 Rowland
Road, in the City of Minnetonka, the State of Minnesota, all as more
particularly described in said Lease and Amendments.
Therefore, in consideration of the mutual covenants herein contained, and other
good and valuable consideration, it is covenanted and agreed between the parties
that the aforesaid Lease and Amendments be modified and amended as follows:
Leased Space and Building
The space is identified as Suites 205, 230, 225/220 and 165, Rowland Pond
Center. Comprised of 33,382 sq. ft. of which 25,282 sq. ft. is office space and
8,100 sq. ft. is warehouse/service area.
Lease Term
The lease term shall be five (5) years commencing on May 1, 1996.
Rates
Months 1 through 36 $19,757.00 Monthly Base Rent
Months 37 through 60 $21,999.00 Monthly Base Rent
Additional Rent
The net rentable area of Rowland Pond Center is 119,079 sq. ft. Tenant's
proportionate share for purposes of allocating real estate taxes, assessments
and operating expenses shall be increased to 28.03%.
Leased Space
The space will be taken as built.
Expansion Option
The Tenant is given the first right to lease Suite 240 as it becomes available
commencing May 1, 1996. This space consists of 3,300 sq. ft. Tenant shall lease
the space as built at the current market rates for Rowland Pond Center at that
time. Tenant is given ten (30) days to accept or reject the space upon
notification from Landlord of its availability.
Tenant Improvements Allowance/Improvements
Landlord will pay for rooftop air conditioning and hearing units for Suite 230
in the amount of $13,300.00 upon full execution of this Lease Amendment.
Landlord will, at its sole
<PAGE>
March 13, 1996
Page 2
expense, replace carpet as indicated on attached Exhibit "A", upon Tenant
schedule with 30 day prior notice to Landlord. Tenant will be responsible to
move all of its personal property to facilitate this carpeting.
Cancellation Option
Tenant may cancel the Lease for Suite 165, comprised of 2,433 sq. ft. of which
2082 sq. ft. is office space and 341 sq. ft. is warehouse/service area, any time
after May 1, 1996 by giving Landlord 60 days prior written notice of Tenant's
intent to cancel the lease for this portion of their leased space. Upon
cancellation Tenant's base rent and additional rent shall be reduced
proportional to the rent being paid at that time.
Option to Renew
Provided Tenant is not in default under the terms and conditions of this Lease,
the tenant shall have the first option to renew this lease for one five year
period under the same terms and conditions of the original lease except the base
rent shall be at the then fair market rent for Rowland Pond Center at that time
(Rates will be based on the average per square foot rates of the four most
current leases signed at Rowland Pond). Tenant shall give 180 day prior written
notice of its intent to exercise this option.
Landlord's Option
The Landlord shall have the option to delay occupancy by Tenant of Suite 220/225
for a period of four months, changing the lease commencement date for 220/225
from May 1, 1996 to September 1, 1996. Tenant's monthly base rent shall be
reduced by $4,464 per month from the quoted rates in this lease amendment for
the months of May through August 1996. Tenant's proportional additional rent
shall change from 28.03% to 21.63% for this period. Landlord shall grant Tenant
a credit towards base rent of $2,000 for the month of May 1996.
<PAGE>
March 13, 1996
Page 3
This Amendment shall supersede any contrary or conflicting information contained
in the original Lease between Landlord and Tenant dated November 7, 1989. All
other terms and conditions of the original Lease shall remain in full force and
effect.
ROWLAND POND INVESTORS CFA TECHNOLOGIES, INC.
dba: DIGITAL BIOMETRICS, INC.
By By
----------------------------------- ----------------------------------
Its Its
-------------------------------- --------------------------------
Date Date
--------------------------------- --------------------------------
DIGITAL BIOMETRICS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made as of the 2nd day of January,
1997, by and between Digital Biometrics, Inc., a Delaware corporation (the
"Company"), and James C. Granger (the "Indemnitee").
WHEREAS, Indemnitee is a member of the Board of Directors of the
Company;
WHEREAS, it may be difficult to retain directors of the Company unless
such persons are adequately indemnified against liabilities incurred and claims
made in connection with or arising out of the performance of their duties as
directors of the Company;
WHEREAS, in addition to the indemnification to which Indemnitee is
entitled under the Certificate of Incorporation (the "Certificate") and the
Bylaws of the Company (the "Bylaws"), the Company intends to attempt to obtain
at its sole expense insurance protecting its officers and directors, including
Indemnitee, against certain losses arising out of actual or threatened actions,
suits or proceedings to which such persons may be made or threatened to be made
parties. However, as a result of circumstances having no relation to, and beyond
the control of, the Company and Indemnitee, there can be no assurance of the
continuation or renewal of that insurance.
WHEREAS, to induce Indemnitee to continue to serve as a member of the
Board of Directors of the Company, the Company has determined that is in its
best interests to assure Indemnitee of the protection currently provided by the
Certificate, the Bylaws and directors' and officers' insurance, and to indemnify
Indemnitee to the fullest extent provided by law.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree to the
foregoing as follows:
1. Services. Subject to the provisions of Indemnitee's written
agreement with the Company, if any, Indemnitee agrees to serve as a director of
the Company so long as he is duly elected and qualified in accordance with the
applicable provisions of the Certificate and the Bylaws. Subject to the
provisions of Indemnitee's Agreement with the Company, if any, Indemnitee may at
any time and for any reason resign from such position (subject to any other
contractual obligation imposed by operation of law).
<PAGE>
2. Initial Indemnity.
(a) The Company shall indemnify Indemnitee to the fullest
extent provided by applicable law and to such greater extent as
applicable law may thereafter from time to time permit when he was or
is a party or is threatened to be made party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Company), by reason of the fact that he is or was or had
agreed to become a director of the Company, or is or was serving or had
agreed to serve at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against all costs, charges and expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by Indemnitee in connection
with the defense or settlement thereof or any appeal therefrom, if
Indemnitee acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the Company, and,
with respect to any criminal action or proceedings, had no reasonable
cause to believe his conduct was unlawful.
(b) The Company shall indemnify Indemnitee to the fullest
extent provided by applicable law and to such greater extent as
applicable law may thereafter from time to time permit when he was or
is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by or in the right of
the Company to procure a judgment in its favor by reason of the fact
that he is or was or had agreed to become a director of the Company, or
is or was serving or had agreed to serve at the request of the Company
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all
costs, charges and expenses (including attorneys' fees) judgments,
fines and amounts paid in settlement actually and reasonably incurred
by Indemnitee in connection with the defense or settlement thereof or
any appeal therefrom if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of
the Company, and except that no indemnification shall be made in
respect of any claim, issue or matter as to which Indemnitee shall have
been adjudged to be liable to the Company unless and only to the extent
that the Court of Chancery or the court in which such action, suit or
proceeding was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of
the case, Indemnitee is fairly and reasonably entitled to indemnity for
such amounts which the Court of Chancery or such other court shall deem
proper.
(c) The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption
that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that Indemnitee's conduct
was unlawful.
<PAGE>
(d) To the extent that Indemnitee has been successful on the
merits or otherwise, including without limitation the dismissal of an
action without prejudice, in defense of any action, suit or proceeding
referred to in Sections 2(a) or 2(b) hereof or in defense of any claim,
issue or matter therein, he shall be indemnified against costs, charges
and expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(e) Any indemnification under Sections 2(a) or 2(b) (unless
ordered by a court) shall be made by the Company only as authorized in
the specific case upon a determination, in accordance with Sections
2(e) and 4 hereof or any applicable provision of the Certificate, the
Bylaws, other agreement, resolution or otherwise, that indemnification
of Indemnitee is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 2(a) or 2(b). Such
determination shall be made (1) by the Board of Directors of the
Company (the "Board") by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or
(ii) if such a quorum of disinterested directors is not available or,
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel (designated in the manner provided below in
this Section (e)) in a written opinion, or (iii) by the stockholders of
the Company (the "Stockholders"). Independent legal counsel shall be
designated by vote of a majority of the disinterested directors;
provided, however that if the Board is unable or falls to so designate,
such designation shall be made by Indemnitee subject to the approval of
the Company (which approval shall not be unreasonably withheld).
Independent legal counsel shall not be any person or firm who, under
the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or
Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees and expenses
of such independent legal counsel and to indemnify fully such counsel
against costs, charges and expenses (including attorneys' and others'
fees and expenses) actually and reasonably incurred by such counsel in
connection with this Agreement or the opinion of such counsel pursuant
hereto.
(f) All expenses (including without limitation attorneys'
fees) incurred by Indemnitee in his capacity as a director of the
Company in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Company
in advance of the final disposition of such action, suit or proceeding
in the manner prescribed by Section 4(b) hereof.
(g) If Indemnitee was entitled to indemnification under this
Agreement as to only a portion of the amounts actually incurred by
Indemnitee in the investigation, defense, appeal or settlement of any
action, suit or proceeding but not for the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof
to which he is entitled.
<PAGE>
(h) The Company shall not adopt any amendment to the
Certificate or the Bylaws the effect of which would be to deny,
diminish or encumber Indemnitee's rights to indemnity pursuant to the
Certificate, the Bylaws, the General Corporation Law of the State of
Delaware (the "GCL") or any other applicable law as applied to any act
or failure to act occurring in whole or in part prior to the date (the
"Effective Date") upon which the amendment was approved by the Board or
the Stockholders, as the case may be. In the event that the Company
shall adopt any amendment to the Certificate or By-Laws the effect of
which is to so deny, diminish or encumber Indemnitee's rights to
indemnity, such amendment shall apply only to acts or failures to act
occurring entirely after the Effective Date thereof.
3. Additional Indemnification.
(a) Pursuant to Section 145(f) of the GCL, without limiting
any right which Indemnitee may have pursuant to Section 2 hereof, the
Certificate, the Bylaws, the GCL, any policy of insurance or otherwise,
but subject to the limitations on the maximum permissible indemnity
which may exist under applicable law at the time of any request for
indemnity hereunder determined as contemplated by Section 4(a) hereof,
the Company shall indemnify Indemnitee against any amount which he is
or becomes legally obligated to pay relating to or arising out of any
claim made against him because of any act, failure to act or neglect or
breach of duty, including any actual or alleged error, misstatement or
misleading statement, which he commits, suffers, permits or acquiesces
in while acting in his capacity as a director of the Company, or, at
the request of the Company, as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise. The payments which the Company is obligated to make
pursuant to this Section 3 shall include, without limitation, damages,
judgments, settlements and charges, costs, expenses, expenses of
investigation and expenses of defense of legal actions, suits,
proceedings or claims and appeals therefrom, and expenses of appeal,
attachment or similar bonds; provided, however that the Company shall
not be obligated under this Section 3(a) to make any payment in
connection with any claim against Indemnitee:
(i) to the extent of any fine or similar governmental
imposition which the Company is prohibited by applicable law
from paying which results from a final, nonappealable order;
or
(ii) to the extent based upon or attributable to
Indemnitee gaining in fact a personal profit to which he was
not legally entitled, including without limitation profits
made from the purchase and sale by Indemnitee of equity
securities of the Company which are recoverable by Company
pursuant to Section 16(b) of the Securities Exchange Act of
1934, as amended, and profits arising from transactions in
publicly traded securities of the Company which were effected
by Indemnitee in violation of Section 10(b) of the Securities
Exchange Act of 1934, as amended, including Rule 10b-5
promulgated thereunder; or
<PAGE>
(iii) subject to the provisions of Section 7(c)
hereof, to the extent based upon or attributable to any
actions, suits or proceedings initiated or brought voluntarily
by Indemnitee and not by way of defense, but indemnification
may be provided by the Company if the Board finds it to be
appropriate.
The determination of whether Indemnitee shall be entitled to indemnification
under this Section 3(a) may be, but shall not be required to be, made in
accordance with Section 4(a) hereof. If that determination is so made, it shall
be binding upon the Company and Indemnitee for all purposes.
(b) All expenses (including without limitation attorneys'
fees) incurred by Indemnitee in defending any actual or threatened
civil or criminal action, suit, proceeding or claim shall be paid by
the Company in advance of the final disposition thereof as authorized
in accordance with Section 4(b) hereof.
4. Certain Procedures Relating to indemnification and Advancement of
Expenses.
(a) Except as otherwise permitted or required by the GCL, for
purposes of pursuing his rights to indemnification under Sections 2(a),
2(b) or 3(a) hereof, as the case may be, Indemnitee may, but shall not
be required to, (i) submit to the Board a sworn statement of request
for indemnification substantially in the form of Exhibit I attached
hereto and made a part hereof (the "Indemnification Statement") and
(ii) present to the Company reasonable evidence of all expenses for
which payment is requested. Submission of an Indemnification Statement
to the Board shall create a presumption that Indemnitee is entitled to
indemnification under Sections 2(a), 2(b) or 3(a) hereof, as the case
may be, and the Board shall be deemed to have determined that
Indemnitee is entitled to such indemnification unless within 30
calendar days after submission of the Indemnification Statement the
Board shall determine by vote of a majority of the directors at a
meeting at which a quorum is present, based upon clear and convincing
evidence (sufficient to rebut the foregoing presumption), and
Indemnitee shall have received notice within such.period in writing of
such determination that Indemnitee is not so entitled to
indemnification, which notice shall disclose with particularity the
evidence in support of the Board's determination. The foregoing notice
shall be sworn to by all persons who participated in the determination
and voted to deny indemnification. The provisions of this Section 4(a)
are intended to be procedural only and shall not affect the right of
Indemnitee to indemnification under this Agreement, and any
determination by the Board that Indemnitee is not entitled to
indemnification and any failure to make the payments requested in the
Indemnification Statement shall be subject to judicial review as
provided in Section 7 hereof.
(b) For purposes of determining whether to authorize
advancement of expenses pursuant to Section 2(f) hereof, Indemnitee
shall submit to the Board a sworn statement of request for advancement
of expenses substantially in the form of
<PAGE>
Exhibit 2 attached hereto and made a part hereof (the "Undertaking"),
affirming that (1) he has reasonably incurred or will reasonably incur
actual expenses in defending an actual civil or criminal action, suit,
proceeding or claim and (ii) he undertakes to repay such amount if it
shall ultimately be determined that he is not entitled to be
indemnified by the Company under this Agreement or otherwise. For
purposes of requesting advancement of expenses pursuant to Section 3(b)
hereof, Indemnitee may, but shall not be required to, submit an
Undertaking or such other form of request as he determines to be
appropriate (an "Expense Request"). Upon receipt of an Undertaking or
Expense Request, as the case may be, the Board shall within 10 calendar
days authorize immediate payment of the expenses stated in the
Undertaking or Expense Request, as the case may be, whereupon such
payments shall immediately be made by the Company. No security shall be
required in connection with any Undertaking or Expense Request and any
Undertaking for Expense Request shall be accepted without reference to
Indemnitee's ability to make repayment.
5. Subrogation; Duplication of Payments.
(a) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required
and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights.
(b) The Company shall not be liable under this Agreement to
make any payment in connection with any claim made against Indemnitee
to the extent Indemnitee has actually received payment (under any
insurance policy, the Certificate, the Bylaws or otherwise) of the
amounts otherwise payable hereunder; provided, however, that such
portions, if any, of any proceeds of any such insurance policy that are
required to be reimbursed to the insurance carrier under the terms of
its insurance policy shall not be deemed to be payments to Indemnitee
hereunder.
6. Director and Executive Officer Liability Insurance. The Company
shall, from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies with
reputable insurance companies covering certain liabilities that may be incurred
by its directors and executive officers. Notwithstanding the foregoing,, the
Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or if Indemnitee
is covered by similar insurance maintained by a parent or subsidiary of the
Company. The Indemnitee shall be entitled to the protection of any such
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers (and to the extent the Company maintains such an
insurance policy or policies, the Indemnitee shall be covered by such
<PAGE>
policy or policies in accordance with its or their terms, to the maximum extent
of the coverage available for any officer or director of the Company).
7. Enforcement.
(a) If a claim for indemnification or advancement of expenses
made to the Company pursuant to this Agreement is not paid in full by
the Company within 30 calendar days after a written claim has been
received by the Company, Indemnitee may at any time thereafter bring
suit against the Company to recover the unpaid amount of the claim.
(b) In any action brought under Section 7(a) hereof, it shall
be a defense to a claim for indemnification pursuant to Sections 2(a)
or 2(b) hereof (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the Undertaking, if any is required, has been
tendered to the Company) that Indemnitee has not met the standards of
conduct which make it permissible under the GCL for the Company to
indemnify Indemnitee for the amount claimed, but the burden of proving
such defense shall be on the Company. Neither the failure of the
Company (including the Board, independent legal counsel or the
Stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because he has met the
applicable standard of conduct set forth in the GCL, nor an actual
determination by the Company (including the Board, independent legal
counsel or the Stockholders) that Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that Indemnitee has not met the applicable
standard of conduct.
(c) It is the intent of the Company that Indemnitee not be
required to incur the expenses associated with the enforcement of his
rights under this Agreement by litigation or other legal action because
the cost and expense thereof would substantially detract from the
benefits intended to be extended to Indemnitee hereunder. Accordingly,
if it should appear to Indemnitee that the Company has failed to comply
with any of its obligations under the Agreement or in the event that
the Company or any other person takes any action to declare the
Agreement void or unenforceable, or institutes any action, suit or
proceeding designed (or having the effect of being designed) to deny,
or to recover from, Indemnitee the benefits intended to be provided to
Indemnitee hereunder, the Company irrevocably authorizes Indemnitee
from time to time to retain counsel of his choice, at the expense of
the Company as hereafter provided, to represent Indemnitee in
connection with the initiation or defense of any litigation or other
legal action, whether by or against the Company or any director,
officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Regardless of the outcome thereof, the Company shall
pay and be solely responsible for any and all costs, charges and
expenses, including without limitation attorneys' and others' fees and
expenses, reasonably incurred by Indemnitee (i) as a result of the
Company's failure
<PAGE>
to perform this Agreement or any provision thereof or (ii) as a result
of the Company or any person contesting the validity or enforceability
of this Agreement or any provision thereof as aforesaid.
8. Merger, Consolidation or Sale of Assets. The Company shall require
any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to a significant portion of the business and/or assets of the Company
such that there is effectively a change in control of the Company or a material
diminution in the ability of the Company to perform this Agreement, as a
condition to any such transaction, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if rio such succession had taken place. Such assumption
agreement shall be in form and substance satisfactory to Indemnitee. The Company
shall give Indemnitee 30 days prior notice of any transaction that would result
in such a succession and the opportunity to review the documentation that
confirms the successor's obligation to assume and agree to perform this
Agreement. Executed copies of such documentation shall be delivered to
Indemnitee upon completion of any such transaction.
9. Nonexclusivity and Severability.
(a) The right to indemnification provided by this Agreement
shall not be exclusive of any other rights to which Indemnitee may be
entitled under the Certificate, the Bylaws, the GCL, any other statute,
insurance policy, agreement, vote of stockholders or of directors or
otherwise, both as to actions in his official capacity and as to
actions in another capacity while holding such office, and shall
continue after Indemnitee has ceased to be a director, officer,
employee or agent and shall inure to the benefit of and be enforceable
by his heirs, personal or legal representatives, executors,
administrators, devisees, legatees, distributees and successors. If
Indemnitee should die while any amounts would still be payable to
Indemnitee hereunder if Indemnitee had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Indemnitee's devisee, legatee, or
other designee, or if there be no such designee, to Indemnitee's
estate.
(b) If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to other persons or circumstances
shall not be affected, and the provision so held to be invalid,
unenforceable or otherwise illegal shall be reformed to the extent (and
only to the extent) necessary to make it enforceable, valid and legal.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflict or law thereof.
<PAGE>
11. Modification; Survival. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof. This Agreement
may be modified only by an instrument in writing signed by both parties hereto.
The provisions of this Agreement shall survive the death, disability or
incapacity of Indemnitee or the termination of Indemnitee's service as a
director, executive officer or director and executive officer of the Company and
shall inure to the benefit of Indemnitee's heirs, personal or legal
representatives, executors, administrators, devisees, legatees, distributees and
successors.
12. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mall, with postage prepaid, on the third business day after the date
on which it is so mailed:
If to Indemnitee, to him at the following address:
If to the Company, to it at the following address:
Digital Biometrics, Inc.
5600 Rowland Road, Suite 205
Minnetonka, Minnesota 55343
Attention: Donald E. Berg
Vice President and Chief Financial Officer
13. Certain Terms. For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to any employee
benefit plan; references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, Indemnitee with respect to an
employee benefit plan, its participants or beneficiaries; references to the
singular shall include the plural and vice versa, and if Indemnitee acted in
good faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan he shall be deemed to
have acted in a manner "not opposed to the best interest of the Company" as
referred to herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
DIGITAL BIOMETRICS, INC.
By /s/ James C. Granger
Its
-----------------------------
/s/ James C. Granger
----------------------------------------
Signature of Director
----------------------------------------
Print Name of Director
<PAGE>
Exhibit 1
INDEMNIFICATION STATEMENT
STATE OF __________________________ )
) ss.
COUNTY OF __________________________ )
I, _______________________________, being first duly sworn, do depose
and say as follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated as of ______________, 199_ between Digital
Biometrics, Inc., a Delaware corporation (the "Company"), and the undersigned.
2. I am requesting indemnification against charges, costs, expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
all of which (collectively, "Liabilities") have been or will be incurred by me
in connection with an actual or threatened action, suit, proceeding or claim to
which I am a party or am threatened to be made a party.
3. With respect to all matters related to any such action, suit,
proceeding or claim, I am entitled to be indemnified as herein contemplated
pursuant to the aforesaid Indemnification Agreement.
4. Without limiting any other rights which I have or may have, I am
requesting indemnification against Liabilities which have or may arise out of:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
________________________________
Signature
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this ______ day of _____________________, 199_.
________________________________
Notary Public
[Seal]
My commission expires the ____ day of ________________, 199_.
<PAGE>
Exhibit 2
INDEMNIFICATION STATEMENT
STATE OF __________________________ )
) ss.
COUNTY OF __________________________ )
I, _______________________________, being first duly sworn, do depose
and say as follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated as of ______________, 199_ between Digital
Biometrics, Inc., a Delaware corporation (the "Company"), and the undersigned.
2. I am requesting advancement of certain costs, charges and expenses
which I have incurred or will incur in defending an actual or pending civil or
criminal action, suit, proceeding or claim.
3. I hereby undertake to repay this advancement of expenses if it shall
ultimately be determined that I am not entitled to be indemnified by the Company
under the aforesaid Agreement or otherwise.
4. The costs, charges and expenses for which advancement is requested
are, in general, all expenses related to ______________________________________
_______________________________________________________________________________.
________________________________
Signature
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this ______ day of _____________________, 199_.
________________________________
Notary Public
[Seal]
My commission expires the ____ day of ________________, 199_.
<PAGE>
DRAFT RESOLUTION AUTHORIZING INDEMNIFICATION AGREEMENT
RESOLVED, that the form of Indemnification Agreement attached hereto as
Exhibit A (the "Indemnification Agreement") is hereby authorized and approved,
and the Company's President and the Vice President, Finance and Administration
are, and each of them is, hereby authorized and directed to execute and deliver
the Indemnification Agreement to each of the Company's directors, on behalf of
the Company, in the form or substantially in the form attached hereto as Exhibit
A, but with such changes therein, additions thereto and deletions therefrom, if
any, as the officer executing the same shall approve, and such approval shall be
conclusively evidenced by the execution of the Indemnification Agreement by such
officer on behalf of the Company.
RESOLVED, that the Company's President and the Vice President, Finance
and Administration are, and each of them is, hereby authorized and directed to
prepare, execute, deliver and file all such other and further instruments and to
take such other further action as officers, or either of them, may deem
necessary or desirable in connection with execution of the Indemnification
Agreement by the Company and each of its directors, and the execution by such
officers, or either of them, of any such instrument(s) or the doing by one or
more of them of any act in connection with the foregoing matters shall
conclusively establish their authority therefor from the Company and the
approval and ratification by the Company of the instruments so executed and the
action so taken.
FURTHER RESOLVED, that all actions taken prior to this date by the
officers of the Company, or any of them, for and on behalf of the Company in
respect of said Indemnification Agreement, are in all respects ratified,
approved and confirmed.
EXHIBIT 11.1
DIGITAL BIOMETRICS, INC.
STATEMENT RE: COMPUTATION OF LOSS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Shares outstanding at beginning of year 10,777,288 7,833,633 7,787,959
Shares awarded for retirement plan 41,798 16,831 8,814
Restricted stock awards, net 31,072 17,456 6,360
Exercise of stock options and warrants 25,000 157,500 30,500
Shares issued upon conversion of debentures 1,485,880 2,751,868 --
------------ ------------ -----------
Shares outstanding at end of year 12,361,038 10,777,288 7,833,633
============ ============ ===========
Weighted average shares outstanding (a) 11,766,220 9,451,015 7,814,144
============ ============ ===========
Net loss $ (6,275,394) $(11,686,903) $(3,324,555)
============ ============ ===========
Loss per common share and common and common share
equivalents $ (0.53) $ (1.24) $ (0.43)
============ ============ ===========
</TABLE>
(a) Stock options and other common share equivalents are not included in the
calculation of the net loss per common share as their effect is
antidilutive.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Digital Biometrics, Inc.:
We consent to incorporation by reference in the registration statements
(Numbers 33-41510, 33-63984, 33-90900 and 333-34725) on Form S-8 of Digital
Biometrics, Inc., of our reports dated November 21, 1997, except as to note
14(a) which is as of November 24, 1997, and note 14 (b) which is as of December
1, 1997, relating to the balance sheets of Digital Biometrics, Inc., as of
September 30, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows and the related financial statement schedule
for each of the years in the three-year period ended September 30, 1997, which
reports appear in the September 30, 1997, Annual Report on Form 10-K of Digital
Biometrics, Inc., and to the reference to our firm under the heading "Selected
Financial Data" in the Company's September 30, 1997, Annual Report on Form 10-K
which is incorporated by reference in the registration statements.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 23, 1997
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned Director of Digital Biometrics, Inc., a Delaware
corporation, hereby constitutes and appoints James C. Granger and John J. Metil
or either of them as Attorney-in-Fact in their respective name, place and stead
to execute Digital Biometric's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997, together with any and all subsequent amendments
thereof, in their respective capacities as President, Chief Executive Officer
and Director, and Chief Operating Officer and Chief Financial Officer, and
hereby ratifies all that either said Attorney-in-Fact may do by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 17th day of December, 1997.
/s/ George Latimer
------------------------
George Latimer,
Director
<PAGE>
POWER OF ATTORNEY
The undersigned Chairman of the Board of Directors of Digital
Biometrics, Inc., a Delaware corporation, hereby constitutes and appoints James
C. Granger and John J. Metil or either of them as Attorney-in-Fact in their
respective name, place and stead to execute Digital Biometric's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997, together with any and
all subsequent amendments thereof, in their respective capacities as President,
Chief Executive Officer and Director, and Chief Operating Officer and Chief
Financial Officer, and hereby ratifies all that either said Attorney-in-Fact may
do by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 17th day of December, 1997.
/s/ C. McKenzie Lewis III
---------------------------
C. McKenzie Lewis III,
Chairman of the Board of Directors
<PAGE>
POWER OF ATTORNEY
The undersigned Director of Digital Biometrics, Inc., a Delaware
corporation, hereby constitutes and appoints James C. Granger and John J. Metil
or either of them as Attorney-in-Fact in their respective name, place and stead
to execute Digital Biometric's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997, together with any and all subsequent amendments
thereof, in their respective capacities as President, Chief Executive Officer
and Director, and Chief Operating Officer and Chief Financial Officer, and
hereby ratifies all that either said Attorney-in-Fact may do by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 17th day of December, 1997.
/s/ Stephen M. Slavin
------------------------
Stephen M. Slavin,
Director
<PAGE>
POWER OF ATTORNEY
The undersigned Director of Digital Biometrics, Inc., a Delaware
corporation, hereby constitutes and appoints James C. Granger and John J. Metil
or either of them as Attorney-in-Fact in their respective name, place and stead
to execute Digital Biometric's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997, together with any and all subsequent amendments
thereof, in their respective capacities as President, Chief Executive Officer
and Director, and Chief Operating Officer and Chief Financial Officer, and
hereby ratifies all that either said Attorney-in-Fact may do by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 17th day of December, 1997.
/s/ Jack A. Klingert
------------------------
Jack A. Klingert,
Director
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