UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
--------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to ____________________________
Commission File Number: 0-18856
---------------------------------------------------------
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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(612) 932-0888
--------------
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
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 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 April 30, 1999 - 15,130,682 shares
---------------------------- ----------------------------------
(Class) (Outstanding)
1
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
INDEX
PART I - FINANCIAL INFORMATION: PAGE
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND 13
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 20
PART II - OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 2. CHANGES IN SECURITIES 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 22
ITEM 5. OTHER INFORMATION 22
ITEM 6. (a) EXHIBITS 22
(b) REPORTS ON FORM 8-K 22
SIGNATURES 23
2
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters
discussed in this Form 10-Q 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. As provided for under the Private Securities
Litigation Reform Act, the Company cautions investors that actual results of
future operations may differ from those anticipated in forward-looking
statements due to a number of factors, including the Company's ability to
maintain profitability, introduce new products and services, build profitable
revenue streams around new product and service offerings, maintain loyalty and
continued purchasing of the Company's products by existing customers, execute on
customer delivery and installation schedules, collect outstanding accounts
receivable and manage concentration of credit and payment timing risks,
particularly those relating to large customers, create and maintain satisfactory
distribution and operations relationships with automated fingerprint
identification system ("AFIS") vendors, attract and retain key employees, secure
timely and cost-effective availability of product components, meet increased
competition, maintain adequate working capital and liquidity, including the
availability of financing as may be required, and upgrade products and develop
new technologies. For a more complete description of such factors, see "Risk
Factors" under Item 7 of the Company's Form 10-K report for the year ended
September 30, 1998, as amended by the Company's Form 10-K/A filed with the
Securities and Exchange Commission on January 28, 1999.
3
<PAGE>
DIGITAL BIOMETRICS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 2) $ 676,930 $ 840,616
Accounts receivable, less allowance for doubtful accounts of $280,581 and
$296,583, respectively 5,335,911 4,352,197
Inventory (note 3) 2,498,780 2,848,421
Prepaid expenses and other costs 273,397 214,559
------------ ------------
Total current assets 8,785,018 8,255,793
------------ ------------
Property and equipment 2,618,698 2,410,172
Less accumulated depreciation and amortization (1,607,307) (1,355,161)
------------ ------------
1,011,391 1,055,011
------------ ------------
Patents, trademarks, copyrights and licenses, net of accumulated amortization of
$98,161 and $100,656, respectively 29,547 35,785
Deferred issuance costs on convertible debentures, net of accumulated amortization of
$47,193 and $29,648, respectively (note 6) 56,682 71,872
------------ ------------
$ 9,882,638 $ 9,418,461
============ ============
Current liabilities:
Accounts payable $ 1,197,559 $ 1,783,086
Line of credit advances (note 4) 353,194 111,962
Accrued warranty 366,517 385,422
Deferred revenue 1,104,538 918,291
Other accrued expenses (note 5) 1,253,581 1,239,011
Current installments of capital lease obligations 57,015 34,620
------------ ------------
Total current liabilities 4,332,404 4,472,392
Capital lease obligations, less current installments 133,289 113,117
Convertible debentures (note 6) 736,383 884,840
------------ ------------
Total liabilities 5,202,076 5,470,349
------------ ------------
Stockholders' equity (note 7):
Common Stock, $.01 par value. Authorized, 40,000,000 shares; issued
and outstanding 15,130,682 and 13,661,832 shares, respectively 151,307 136,618
Additional paid-in capital 45,960,049 44,114,225
Deferred compensation (117,000) (91,500)
Accumulated deficit (41,313,794) (40,211,231)
------------ ------------
Total stockholders' equity 4,680,562 3,948,112
------------ ------------
$ 9,882,638 $ 9,418,461
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
DIGITAL BIOMETRICS, INC.
CONSOLIDATED STATEMENTS OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Identification systems $ 4,242,322 $ 1,299,000 $ 5,588,441 $ 2,989,249
Maintenance 879,644 617,649 1,711,433 1,199,540
Systems integration services 68,960 111,156 258,720 111,156
------------ ------------ ------------ ------------
Total revenues 5,190,926 2,027,805 7,558,594 4,299,945
------------ ------------ ------------ ------------
Cost of revenues:
Identification systems 2,677,292 1,106,440 3,579,145 2,536,988
Maintenance 645,958 550,920 1,332,871 935,421
Systems integration services 42,263 73,032 142,767 73,032
------------ ------------ ------------ ------------
Total cost of revenues 3,365,513 1,730,392 5,054,783 3,545,441
------------ ------------ ------------ ------------
Gross margin 1,825,413 297,413 2,503,811 754,504
------------ ------------ ------------ ------------
Selling, general and administrative expenses:
Sales and marketing 462,570 380,092 888,595 896,593
Engineering and development 507,823 824,380 1,142,767 1,524,672
General and administrative 723,972 455,201 1,375,452 932,767
------------ ------------ ------------ ------------
Total expenses 1,694,365 1,659,673 3,406,814 3,354,032
------------ ------------ ------------ ------------
Income (loss) from operations 131,048 (1,362,260) (903,003) (2,599,528)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 6,532 8,142 12,807 20,147
Interest expense (note 6) (47,720) (190,095) (212,367) (284,165)
Other expense -- (18,129) -- (22,796)
------------ ------------ ------------ ------------
Total other income (expense) (41,188) (200,082) (199,560) (286,814)
------------ ------------ ------------ ------------
Net income (loss) $ 89,860 $ (1,562,342) $ (1,102,563) $ (2,886,342)
============ ============ ============ ============
Net income (loss) per common share $ 0.01 $ (0.12) $ (0.08) $ (0.23)
============ ============ ============ ============
Net income (loss) per common share -
assuming dilution $ 0.01 $ (0.12) $ (0.08) $ (0.23)
============ ============ ============ ============
Weighted average common shares
outstanding 14,727,788 12,551,141 14,269,266 12,455,352
============ ============ ============ ============
Weighted average common shares
outstanding - assuming dilution (note 2) 14,775,549 12,551,141 14,269,266 12,455,352
============ ============ ============ ============
</TABLE>
5
<PAGE>
DIGITAL BIOMETRICS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,102,563) $(2,886,342)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for doubtful accounts receivable (7,731) 5,287
Deferred compensation amortization 28,500 27,937
Depreciation and amortization 307,195 256,143
Write-off of intangible assets -- 76,780
Loss on disposal of fixed assets -- 12,613
Loss from paydowns on marketable securities -- 1,315
Interest expense amortization for the
intrinsic value of the beneficial
conversion feature of convertible
debentures 125,000 250,000
Interest expense on debentures converted
into common stock 24,581 10,784
Changes in operating assets and liabilities:
Accounts receivable (975,983) 1,414,325
Inventories 349,641 (359,889)
Prepaid expenses (58,838) 95,830
Accounts payable (585,527) (346,270)
Deferred revenue 186,247 160,126
Accrued expenses 116,523 (96,099)
----------- -----------
Net cash used in operating activities (1,592,955) (1,377,460)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (138,862) (220,638)
Patents, trademarks, copyrights and licenses (1,268) (19,985)
Proceeds from marketable securities -- 155,132
----------- -----------
Net cash used in investing activities (140,130) (85,491)
----------- -----------
Cash flows from financing activities:
Issuance of convertible debentures, net 450,111 899,400
Principal payments on capital lease obligations (27,098) --
Private placements of common stock 905,154 --
Net advances on line of credit 241,232 --
----------- -----------
Net cash provided by financing activities 1,569,399 899,400
----------- -----------
Decrease in cash and cash equivalents (163,686) (563,551)
Cash and cash equivalents at beginning of period 840,616 1,891,397
----------- -----------
Cash and cash equivalents at end of period $ 676,930 $ 1,327,846
=========== ===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Digital Biometrics, Inc., (the "Company," "Digital Biometrics" or "DBI")
was incorporated in Minnesota in May 1985 and reincorporated in Delaware in
December, 1986. The principal business of Digital Biometrics is the development,
manufacture, marketing and integration of computer-based products and services
for the identification of individuals. In addition, through its Integral
Partners subsidiary, the Company provides information technology (IT) services
to commercial and governmental clients. The Company also participates with Lakes
Gaming, Inc. in a joint venture named TRAK 21 Development, LLC, which seeks to
develop, test and market an automated wagering tracking system based on
technology developed by the Company.
Digital Biometrics is a leading provider of products employing "biometric"
technology, the science of identifying individuals by measuring distinguishing
biological characteristics. The Company's main products are special-purpose,
computer-based systems for "live-scan" fingerprint capture. These live-scan
systems employ patented, high-resolution optics and specialized hardware and
software, combined with industry-standard computer hardware and software, to
create highly optimized, special-purpose systems which capture, digitize, print
and transmit forensic-grade fingerprint images. Historically, these systems have
been purchased primarily by law enforcement agencies, although some systems have
been purchased by civil and commercial buyers. The Company also offers
high-resolution, single-fingerprint capture products for commercial and
governmental identification applications.
The Company's strategy is to continue to market live-scan systems to law
enforcement agencies, expand its products and service offerings, and expand into
other markets. The law enforcement market for live-scan biometric products is
well established. The Company believes there is increasing interest from other
governmental and commercial markets to employ biometric identification
technologies and products in such areas as applicant processing and enrollment.
Digital Biometrics intends to aggressively pursue these emerging opportunities.
In addition, the Company established an information technology services
business which generated its first revenues in fiscal 1998. This business
operated under the name "Integrated Information Solutions" or "IIS" during most
of fiscal 1998. It has been renamed Integral Partners, Inc. and incorporated as
a wholly owned subsidiary of the Company, effective October 1, 1998. This
business is currently focused on the development of revenue opportunities
related to identification.
A majority of the Company's revenues in the first six months of fiscal 1999
and fiscal 1998 were derived from live-scan systems sales, maintenance and
applications development services to governmental customers. The Company's
current and near-term future results of operations are expected to be heavily
influenced by the characteristics of governmental markets. Government
procurement processes are subject to budgetary, economic and political
considerations which may vary significantly 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 may continue to result in, an irregular revenue cycle for the Company;
any prediction of future trends in this business is inherently difficult.
7
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
September 30, 1998, as amended by the Company's Form 10-K/A filed with the
Securities and Exchange Commission on January 28, 1999.
(2) ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Digital Biometrics, Inc. and its wholly owned subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company extends credit to federal, state and local governments.
Approximately 90% and 71%, respectively, of customer accounts receivable at
March 31, 1999 and September 30, 1998 were from government agencies, of which
52% and 42%, respectively, were from a single customer. Revenues from one
customer in the three-month period ended March 31, 1999 accounted for 42% of
total revenues, and revenues from two customers in the three-month period ended
March 31, 1998 accounted for 24% and 11% of total revenues. For the six-month
period ended March 31, 1999, revenues from one customer accounted for 32% of
total revenues. Revenues from two customers during the six-month period ended
March 31, 1998 accounted for 18% and 14% of total revenues. Export revenues for
the three-month period ended March 31, 1999 were less than 1% of total revenues
as compared to 10% for the same period in 1998. Export revenues for the
six-month period ended March 31, 1999 were less than 1% as compared to 21% for
the same period in 1998.
NET INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per share excludes dilution and is computed by dividing
the net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted income (loss) per share includes dilutive
potential common shares including stock options and warrants determined by the
treasury stock method and dilutive convertible securities.
STATEMENT OF CASH FLOWS
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.
8
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Six Months Ended
March 31,
1999 1998
-------- --------
Cash paid during the period for interest $30,425 $ 5,208
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
The Company entered into capital leases aggregating $69,665 for the
purchase of property and equipment during the six-month period ended March 31,
1999.
The Company has issued 642,757 shares of common stock for the conversion of
principal aggregating $650,000 of the 1997 Debentures plus $24,581 of accrued
interest.
For additional supplemental disclosure of non-cash investing and financing
activities see notes 6 and 7.
(3) 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:
March 31, September 30,
1999 1998
------------- -------------
Components and purchased
subassemblies $1,221,727 $1,119,766
Work in process 975,203 1,006,293
Finished goods 301,850 722,362
------------- -------------
$2,498,780 $2,848,421
============= =============
(4) LINE OF CREDIT
The Company has an inventory and receivables financing line of credit for
the lesser of eligible inventory and receivables or $2,000,000 with SPECTRUM
Commercial Services. Borrowings under this line of credit are secured by all the
assets of the Company. The line bears interest at an initial rate of 4% above
the prime rate, and may be reduced to 3.25% or 2.50% above the prime rate if
certain net income milestones are met. The line bears a minimum interest charge
of $5,200 per month, is payable upon demand and expires in September 2000. At
March 31, 1999, $353,194 was outstanding on this line of credit.
(5) OTHER ACCRUED EXPENSES
March 31, September 30,
1999 1998
------------- -------------
Accrued salaries and commissions $ 370,369 $ 370,326
Accrued vacation 166,841 154,424
Accrued installation costs 311,475 355,800
Other accrued expenses 404,896 358,461
------------- -------------
$1,253,581 $1,239,011
============= =============
9
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
(6) 8% CONVERTIBLE SUBORDINATED DEBENTURES
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 Subordinated Debentures (the "1997 Debentures") in
tranches of $500,000 each. The first four tranches were funded during fiscal
1998. The fifth tranche was funded in November 1998.
As of March 31, 1999, the Company has issued 1,838,284 shares of common
stock for the conversion of $1,750,000 aggregate principal amount of the 1997
Debentures, plus $50,049 of accrued interest at an average conversion price of
$0.98 per share. The intrinsic value of the beneficial conversion feature
aggregated $125,000 for the six-month period ending March 31, 1999 and $500,000
for fiscal 1998 and has been recorded as additional paid-in capital and interest
expense in the respective periods. The principal amount of the 1997 Debentures
outstanding at March 31, 1999 aggregated $750,000.
(7) STOCKHOLDERS' EQUITY
During the three-month period ended March 31, 1999, the Company granted
stock options for the purchase of an aggregate of 43,500 shares of common stock
to non-executive employees. These options are exercisable at a price of $1.25
per share and expire in 2006.
Effective with their election at the annual stockholders' meeting held on
March 16, 1999, the Company granted an aggregate of 43,200 shares of restricted
common stock to its non-employee directors. The grant resulted in $54,000 in
additional common stock issued and an equal amount of deferred compensation
expense which is being amortized on a straight-line basis over the three-year
restricted period. Also effective with their election, the Company granted
options to acquire an aggregate of 45,000 shares of the Company's common stock
to its non-employee directors. These options are exercisable at $1.25 per share
and expire in 2004.
On March 16, 1999, the shareholders approved an increase in the number of
shares of common stock authorized for issuance under the Digital Biometrics,
Inc. Retirement Plan from 200,000 to 500,000.
Effective March 16, 1999 the Company issued 20,069 shares of common stock
to satisfy the Company's discretionary matching to employees electing
participation in the Company's 401(k) retirement plan. This issuance increased
common stock and additional paid-in capital by $27,595 and reduced accrued
compensation by the same amount.
On April 14, 1999, the shareholders approved an amendment to the Company's
Certificate of Incorporation to authorize the issuance of up to 5,000,000 shares
of preferred stock.
(8) NET INCOME (LOSS) PER COMMON SHARE
The following is a summary of those securities outstanding at March 31 for
the respective periods, which have been excluded from the calculations because
the effect on net income (loss) per common share would not have been dilutive:
10
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three-Month Period For the Six-Month Period
Ended March 31, Ended March 31,
----------------------------- ---------------------------
1999 1998 1999 1998
----------------------------- ---------------------------
<S> <C> <C> <C> <C>
Options 1,892,545 912,700 2,195,600 912,700
Warrants 1,070,334 645,893 1,370,389 645,893
Convertible debentures 749,677 362,593 749,677 362,593
</TABLE>
The per share computations are based on the weighted average number of
common shares outstanding during the periods.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares outstanding at beginning of period 14,036,487 12,417,001 13,661,832 12,361,038
Shares issued under retirement plan 20,069 -- 87,897 55,963
Restricted stock awards, net of forfeitures 43,200 3,000 43,200 3,000
Shares issued for private placements 694,996 -- 694,996 --
Shares issued upon conversion of debentures 335,930 527,225 642,757 527,225
------------ ------------ ------------ ------------
Shares outstanding at end of period 15,130,682 12,947,226 15,130,682 12,947,226
============ ============ ============ ============
Weighted average common shares outstanding 14,727,788 12,551,141 14,269,266 12,455,352
------------ ------------ ------------ ------------
Weighted average common shares outstanding -
assuming dilution 14,775,549 12,55,141 14,269,266 12,455,352
============ ============ ============ ============
Net income (loss) $ 89,860 $ (1,562,342) $ (1,102,563) $ (2,886,342)
============ ============ ============ ============
Net income (loss) per common share $ 0.01 $ (0.12) $ (0.08) $ (0.23)
============ ============ ============ ============
Net income (loss) per common share -
assuming dilution $ 0.01 $ (0.12) $ (0.08) $ (0.23)
============ ============ ============ ============
</TABLE>
11
<PAGE>
DIGITAL BIOMETRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
(9) LITIGATION
There are no material lawsuits pending or, to the Company's knowledge,
threatened against the Company.
(10) PRIVATE PLACEMENTS
On January 8, 1999 the Company closed on a private placement offering of
common stock and warrants. A total of 422,219 shares were sold to accredited
investors at a price of $1.6579 each with total net proceeds to the Company of
approximately $600,000. Warrants to purchase up to an aggregate of 422,219
shares at an exercise price of $1.6579 per share were granted to the purchasers
for no additional consideration. The Company issued an additional warrant to
purchase up to 42,222 shares of common stock at an exercise price of $1.6728 per
share to an investment banking firm as partial compensation for services
rendered in the private placement.
On March 31, 1999 the Company closed on a private placement offering of
common stock and warrants. A total of 272,777 shares were sold to accredited
investors at a price of $1.3138 each with total net proceeds to the Company of
approximately $300,000. Warrants to purchase up to an aggregate of 272,777
shares at an exercise price of $1.3138 per share were granted to the purchasers
for no additional consideration. The Company issued an additional warrant to
purchase up to 27,278 shares of common stock at an exercise price of $1.3269 per
share to an investment banking firm as partial compensation for services
rendered in the private placement.
12
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
As more fully described in the subsection "Risk Factors" under Item 7
of the Company's Form 10-K report for the year ended September 30, 1998, 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 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. Stockholders 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.
Digital Biometrics is a leading provider of products employing
"biometric" technology, the science of identifying individuals by measuring
distinguishing biological characteristics. The Company's main products are
special-purpose, computer-based systems for "live-scan" fingerprint capture.
These live-scan systems employ patented, high-resolution optics and specialized
hardware and software, combined with industry-standard computer hardware and
software, to create highly optimized, special-purpose systems which capture,
digitize, print and transmit forensic-grade fingerprint images. Historically,
these systems have been purchased mainly by law enforcement agencies, although
some systems have been purchased by civil and commercial buyers. The Company
also offers high-resolution, single-fingerprint capture products for commercial
and governmental identification applications.
The Company's strategy is to continue to market live-scan systems to
law enforcement agencies, expand its products and service offerings, and expand
into other markets. The law enforcement market for live-scan biometric products
is well established. The Company believes there is increasing interest from
other governmental and commercial markets to employ biometric identification
technologies and products in such areas as applicant processing and enrollment.
Digital Biometrics intends to aggressively pursue these emerging opportunities.
In addition, the Company established an information technology services
business which generated its first revenues in fiscal 1998. This business
operated under the name "Integrated Information Solutions" or "IIS" during most
of fiscal 1998. It has been renamed Integral Partners, Inc. and incorporated as
a wholly owned subsidiary of the Company, effective October 1, 1998. During the
quarter ended March 31, 1999, the Company refocused this business from
commercial systems integration to the development of revenue opportunities
related to identification.
The Company is also engaged in a joint venture with Lakes Gaming, Inc.
operating under the name of TRAK 21 Development, LLC. This joint venture was
created to develop, test and market an automated wagering tracking system which
utilizes technology developed by the Company.
The law enforcement market and government procurement processes are
subject to budgetary, economic and political considerations which vary
significantly from state to state and among different agencies. These
characteristics, together with the increasing level of competition
13
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
within the live-scan electronic fingerprint industry, have resulted (and are
expected to continue to result) in an irregular revenue cycle for the Company.
The Company generally recognizes product sales on the date of shipment
for orders which are f.o.b. origin and upon delivery for f.o.b. destination,
although recognition at some later milestone is not uncommon based on the terms
of specific customer contracts. Revenue for professional services contracts and
systems integration services revenues are recognized using the percentage of
completion method or on a time-and-materials basis. 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 and 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.
Maintenance revenues are recognized over the life of the contract on a
straight-line basis.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Total revenues were $5,191,000 for the three months ended March 31,
1999 compared to $2,028,000 for the same prior-year period. Identification
system product revenues were $4,242,000 compared to $1,299,000 in the same
prior-year period. This 227% increase is due primarily to an increase in the
number of TENPRINTER systems sold during the three months ended March 31, 1999.
For the three-month period ended March 31, 1999, sales to one customer
accounted for approximately 42% of total revenues. Sales to two customers during
the three months ended March 31, 1998 accounted for approximately 24% and 11% of
total revenues. Export revenues for the three-month period ended March 31, 1999
were less than 1% of total revenues compared to 10% during the same prior-year
period.
Product maintenance and service revenues were $880,000 for the three
months ended March 31, 1999 compared to $618,000 for the same prior-year period,
an increase of 42%. This increase is due primarily to a larger installed base of
TENPRINTER systems covered by maintenance agreements and, to a lesser extent, an
increase in maintenance rates effective with maintenance contract renewals and
revenue from additional services.
Systems integration revenues were $69,000 for the three months ended
March 31, 1999 compared to $111,000 for the same prior-year period. Systems
integration revenues were generated from the Company's wholly owned subsidiary
Integral Partners, Inc., which began operations during the first quarter of
fiscal 1998 as a division of the Company.
14
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overall gross margins for the three months ended March 31, 1999 were
35%, as compared to 15% of revenues for the same prior-year period.
Gross margins on identification system revenues were 37% for the three
months ended March 31, 1999 compared to 15% in the same prior-year period. This
improvement is due to lower base system costs, economies of scale, lower levels
of warranty and installation costs than in the prior-year period, and the effect
of a favorable product mix.
Product maintenance and support margins for the three months ended
March 31, 1999 and 1998 were 27% and 11%, respectively. The increase in product
maintenance and support margins is due to increased revenues and lower
maintenance and support costs.
Systems integration margins for the three months ended March 31, 1999
were 39%, as compared to 34% for the same prior-year period.
Sales and marketing expenses for the three-month period ended March 31,
1999 were 9% of total revenues compared to 19% for the same three-month
prior-year period. The decrease in sales and marketing costs as a percentage of
total revenue is due primarily to the increase in revenues. Engineering and
development expenses were 10% of total revenues for the three-month period ended
March 31, 1999 compared to 41% for the same period a year ago. This decrease is
due primarily to increased revenues and reduced new product development costs.
General and administrative expenses for the three-month periods ended March 31,
1999 and 1998 were 14% and 22%, respectively, of total revenues. The decrease in
general and administrative expenses as a percentage of total revenue is due
primarily to an increase in revenues; this favorable impact was partially offset
by increased legal costs incurred in connection with legal action taken by a
competitor against one of the Company's customers in an unsuccessful effort to
prevent the Company's contract with the customer from proceeding forward.
General and administrative expenses for the current three-month period also
include increased expenses associated with Integral Partners, Inc.
Interest income decreased to $7,000 for the three months ended March
31, 1999 from $8,000 for the same period in 1998 due to lower cash balances.
Interest expense decreased to $48,000 for the three months ended March
31, 1999 from $190,000 for the same prior-year period, primarily due to a
$125,000 non-cash charge during the prior-year three-month period for the
intrinsic value of the beneficial conversion feature of convertible debentures.
The Company generated net income for the three-month period ended March
31, 1999 of $90,000 ($0.01 per share) as compared to a net loss of $1,324,000
($0.11 per share) for the same prior-year period.
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO SIX MONTHS ENDED MARCH 31, 1998
Total revenues were $7,559,000 for the six months ended March 31, 1999
compared to $4,300,000 for the same prior-year period. Identification system
product revenues were $5,588,000 compared to $2,989,000 in the same prior-year
period. This increase is due primarily to an increase in the number of
TENPRINTER systems sold during the six months ended March 31, 1999.
15
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the six-month period ended March 31, 1999, sales to one customer
accounted for approximately 32% of total revenues. Sales to two customers during
the six months ended March 31, 1998 accounted for approximately 18% and 14% of
total revenues. Export revenues for the six-month period ended March 31, 1999
were less than 1% of total revenues compared to 21% during the same prior-year
period.
Product maintenance and service revenues were $1,711,000 for the six
months ended March 31, 1999 compared to $1,200,000 for the same prior-year
period, an increase of 43%. This increase is due primarily to a larger installed
base of TENPRINTER systems covered by maintenance agreements and, to a lesser
extent, an increase in maintenance rates effective with maintenance contract
renewals and revenue from additional services.
Systems integration revenues were $259,000 for the six months ended
March 31, 1999 compared to $111,000 for the same prior-year period. Systems
integration revenues were generated from the Company's wholly owned subsidiary
Integral Partners, Inc., which began operations during the first quarter of
fiscal 1998 as a division of the Company.
Overall gross margins for the six months ended March 31, 1999 were 33%,
as compared to 18% of revenues for the same prior-year period.
Gross margins on identification system revenues were 36% for the six
months ended March 31, 1999 compared to 15% in the same prior-year period. This
improvement is due to lower base system costs, economies of scale, lower levels
of warranty and installation costs than in the prior-year period, and the effect
of a favorable product mix.
Product maintenance and support margins for the six months ended March
31, 1999 and 1998 were 22%.
Systems integration margins for the six months ended March 31, 1999
were 45%, as compared to 34% for the same prior-year period.
Sales and marketing expenses for the six-month period ended March 31,
1999 were 12% of total revenues compared to 21% for the same six-month
prior-year period. The decrease in sales and marketing costs as a percentage of
total revenue is due primarily to the increase in revenues. Engineering and
development expenses were 15% of total revenues for the six-month period ended
March 31, 1999 compared to 35% for the same period a year ago. This decrease is
due primarily to increased revenues and reduced new product development costs.
General and administrative expenses for the six-month periods ended March 31,
1999 and 1998 were 18% and 22%, respectively, of total revenues. The decrease in
general and administrative expenses as a percentage of total revenue is due
primarily to an increase in revenues, partially offset by an increase in legal
costs incurred during the three-month period ended March 31 ,1999, and an
increase in personnel-related costs and other general expenses associated with
Integral Partners, Inc.
Interest income decreased to $13,000 for the six months ended March 31,
1999 from $20,000 for the same period in 1998 due to lower balances of cash and
marketable securities.
16
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Interest expense decreased to $212,000 for the six months ended March
31, 1999 from $284,000 for the same prior-year period, primarily due to a
$125,000 decrease in non-cash charges during the six-month period ended March
31, 1999 for the intrinsic value of the beneficial conversion feature of
convertible debentures issued, partially offset by an increase in interest
expense due to an increase in the balance of convertible debentures outstanding.
The Company incurred a net loss for the six-month period ended March
31, 1999 of $1,103,000 ($0.08 per share) as compared to a net loss of $2,886,000
($0.23 per share) for the same prior-year period.
INFLATION
The Company does not believe inflation has significantly affected
revenues or expenses.
NET OPERATING LOSS CARRYFORWARDS
At March 31, 1999, the Company had carryforwards of net operating
losses of approximately $36,500,000 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 published U.S. Internal Revenue Service long-term
federal tax exempt rate. A total of $3,700,000 of the net operating loss
carryforwards at March 31, 1999 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 $32,800,000
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
The Company anticipates additional working capital requirements for
operations and capital improvements to fulfill deliveries of its current backlog
of customer orders. To meet these needs, the Company has established an
inventory and receivables financing line of credit for the lesser of eligible
inventory and receivables or $2,000,000 with SPECTRUM Commercial Services.
Borrowings under this line of credit are secured by all the assets of the
Company. The line bears interest at an initial rate of 4% above the prime rate,
and may be reduced to 3.25% or 2.50% above the prime rate if certain net income
milestones are satisfied. The line bears a minimum interest charge of $5,200 per
month, is
17
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
payable upon demand and expires in September 2000. At March 31, 1999,
approximately $353,000 was outstanding on this line of credit.
At March 31, 1999, the Company had $677,000 in cash and cash
equivalents. Based on the Company's sales and operating forecasts, management
believes that cash and cash equivalents, together with available financing
sources, will be adequate to meet current operating requirements. However, any
prediction of future sales is inherently difficult. Additional financing may be
required if sales and operating results are different from that currently
forecasted. The Company has identified potential sources for such additional
financing in the event that it is required; however, there can be no assurance
that such sources will provide the Company with additional financing on terms
that are acceptable to the Company, or on any terms.
YEAR 2000 PHENOMENON
Computers, software and other equipment utilizing microprocessors that
use only two digits to identify a year in a date field may be unable to
accurately process certain date-based information, including correct leap year
recognition, at or after the year 2000. This is commonly referred to as the
"Year 2000" phenomenon. Digital Biometrics is evaluating the potential effect of
the Year 2000 phenomenon on its business.
INTERNAL SYSTEMS
The Company is evaluating and reviewing all Company internal systems
that could pose Year 2000 risks, and the Company intends to correct problems as
they are identified. The Company is requesting Year 2000 readiness statements
from each of its major suppliers of hardware and software products used for
internal business applications, including computer and network equipment,
telephone equipment, facility date-sensitive hardware, process date-sensitive
hardware, and software. The Company will continue to review internal system
requirements and to correct Year 2000 deficiencies as they are identified.
The Company believes that the majority of its internal information
systems are Year 2000 compliant, such that they will be able to distinguish
accurately between 20th century and 21st century dates, and that the cost of
converting or replacing those that are not Year 2000 compliant will not be
material in relation to the Company's financial position or results of
operations. However, there can be no assurance that unforeseen difficulties or
costs will not arise. Furthermore, the information systems of the Company's
suppliers and customers may not be Year 2000 compliant, and it is possible that
various business functions which require the interaction of the Company's
systems with those of suppliers or customers will fail or malfunction in the
Year 2000.
The potential effect and related costs of the failure of the Company's
information systems suppliers to address Year 2000 issues in the products
supplied to the Company is not known at this time, but such failure may have a
material adverse affect on DBI. The Company believes that hardware and software
products for its internal systems are available for purchase from alternative
suppliers should its current vendors fail to conform to Year 2000 compliance.
18
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
VENDOR PRODUCTS FOR MANUFACTURING
The Company is also in the process of contacting its critical
suppliers, manufacturers, and other vendors to determine if their operations and
the products and services that they provide to the Company are Year 2000
compliant. Where practicable, the Company will develop contingency plans to
lessen its risks with respect to the failure of third parties to be Year 2000
ready. However, such failure, including failures of any contingency plans,
remains a possibility and may have a material adverse affect on the Company's
results of operations and financial condition.
COMPANY PRODUCTS
Management believes that all of the Company's products shipped
beginning January, 1999, are and will continue to be Year 2000 compliant. The
Company evaluated products sold prior to this date for Year 2000 suitability,
the specific nature of possible non-compliance, and the potential impact on
DBI's customers. The results are being communicated to the Company's customers
in writing as product generations are evaluated. Evaluation of the 1133S
TENPRINTER has been completed with notification of compliance communicated to
the Company's customers in writing in January, 1999. The evaluation of the 1133R
TENPRINTER product has been completed and the results were communicated to
customers in April, 1999.
Based on results of tests to date, the Company has concluded that 1133S
TENPRINTER systems shipped prior to January, 1999, are not Year 2000 compliant
with respect to certain date-sensitive functions, but can be made compliant with
software modifications. These modifications require changes to the operating
system of the affected products. The 1133S operating system is sourced from an
outside vendor, and then augmented by DBI to meet the particular requirements of
DBI's products. Consequently, achieving Year 2000 compliance requires obtaining
certain operating system modifications from the operating system vendor, which
are in turn incorporated by the Company into its applications and then
distributed by the Company to its customers. Year 2000 upgrades for the 1133S
TENPRINTER will be provided to customers with DBI maintenance agreements free of
any additional charge. Owners of non-compliant 1133S TENPRINTER systems that do
not have maintenance agreements with the Company may purchase Year 2000 upgrade
software and installation services from the Company.
In addition, based on test results to date, the Company has also
determined that models of the TENPRINTER prior to the 1133S are not Year 2000
compliant with respect to certain date-sensitive functions. The Company is
testing Year 2000 compliance on legacy software releases on a product-by-product
basis, and will communicate to customers the specific functions which may not
perform properly. As with the 1133S, the underlying operating systems of prior
models of the TENPRINTER were sourced from outside vendors. These operating
systems are no longer being supported by the vendors. Thus, no vendor assistance
for Year 2000 upgrading is available to Digital Biometrics, making the task of
upgrading these operating systems for Year 2000 compliance very difficult and
uneconomical. Some customers may continue to use non-compliant TENPRINTERs by
avoiding the use of non-compliant date-sensitive functions. To the best of the
Company's knowledge, the Company has no obligation to upgrade models of its
TENPRINTER product prior to the 1133S to Year 2000 compliance, and the Company
has no present plans to develop or offer any such upgrades to
19
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
bring to full Year 2000 compliance. In the event that the Company is required to
offer Year 2000 compliance on TENPRINTER systems prior to the 1133S without
compensation, the Company may be materially adversely affected. Customers with
non-compliant systems may purchase the Company's TENPRINTER 1133S or DBI
FingerPrinter CMS systems.
It is possible that the Company's revenue may be adversely affected if
current and prospective customers divert spending to correct or replace
information systems which are not Year 2000 compliant.
COST OF YEAR 2000 COMPLIANCE TO THE COMPANY
The estimated cost of the Company's software development to assure Year
2000 compliance of its 1133S TENPRINTER and future DBI products will be in the
range of $50,000 to $75,000. The Company believes that most Year 2000 compliance
upgrades to be provided to customers under maintenance agreements will be
installed on-site. The Company believes that the cost to implement the software
upgrades will be between $125,000 to $175,000 in total. If unplanned development
issues or unplanned customer installation problems arise, the cost to complete
Year 2000 compliance may exceed these estimates and have a material adverse
affect on the Company's results of operations.
The Company is creating a web site at www.digitalbiometrics.com
containing additional information about the Year 2000 issue and the Company's
compliance program.
Achieving Year 2000 compliance is dependent on a number of factors,
many of which are not within the Company's control. In the event that the above
assessment of the Company's situation regarding Year 2000 issues is found to be
incorrect on subsequent analysis, the Company's business and its results of
operations may be materially adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in reported market risks faced by the
Registrant since September 30, 1998.
20
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material lawsuits pending or, to the Company's
knowledge, threatened against the Company.
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable.
(b) Not applicable.
(c) On January 8, 1999 the Company closed on a private placement
offering of common stock and warrants. A total of 422,219 shares
were sold to accredited investors at a price of $1.6579 each with
total net proceeds to the Company of approximately $600,000.
Warrants to purchase up to an aggregate of 422,219 shares at an
exercise price of $1.6579 per share were granted to the
purchasers for no additional consideration. The Company issued an
additional warrant to purchase up to 42,222 shares of common
stock at an exercise price of $1.6728 per share to an investment
banking firm as partial compensation for services rendered in the
private placement. The issuance of shares from this private
placement is exempt from registration pursuant to section 4(2) of
the Securities Act of 1933, as amended, and regulation D,
promulgated thereunder.
On March 31, 1999 the Company closed on a private placement
offering of common stock and warrants. A total of 272,777 shares
were sold to accredited investors at a price of $1.3138 each with
total net proceeds to the Company of approximately $300,000.
Warrants to purchase up to an aggregate of 272,777 shares at an
exercise price of $1.3138 per share were granted to the
purchasers for no additional consideration. The Company issued an
additional warrant to purchase up to 27,278 shares of common
stock at an exercise price of $1.3269 per share to an investment
banking firm as partial compensation for services rendered in the
private placement. The issuance of shares from this private
placement is exempt from registration pursuant to section 4(2) of
the Securities Act of 1933, as amended, and regulation D,
promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
21
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on March
16, 1999. Proxies for such meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934 as
amended. At the meeting, sufficient favorable votes were cast to
approve the following management proposal:
* Adopt an Amendment to the Digital Biometrics, Inc.
Retirement Plan to increase the number of shares of common
stock authorized for issuance thereunder from 200,000 to
500,000. The results of the vote on this proposal were
10,297,293 shares voted for approval; 639,042 shares voted
against; 138,680 shares abstaining and 364,540 broker
non-votes.
The Annual Meeting was adjourned to April 14, 1999 as to the
proposal to amend the Company's Certificate of Incorporation to
authorize the issuance of up to 5,000,000 shares of preferred
stock. Sufficient favorable votes were cast to approve this
proposal on April 14, 1999. The results of the vote on this
proposal were 7,710,331 shares voted for approval; 850,154 shares
voted against; 112,243 shares abstaining and 5,007,271 broker
non-votes.
ITEM 5. OTHER INFORMATION
None
ITEM 6. (a) EXHIBITS
Exhibit 10.1 Form of Securities Purchase Agreement, dated as of
March 29, 1999.
Exhibit 10.2 Form of Registration Rights Agreement, dated as of
March 29, 1999.
Exhibit 10.3 Form of Common Stock Purchase Warrant issued to
purchasers of Digital Biometrics, Inc. common stock
in March 1999 private placement.
Exhibit 27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
On February 11, 1999 the Company filed a report on Form 8-K
of its Consolidated Balance Sheets for January 31, 1999 and
September 30, 1998.
22
<PAGE>
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED MARCH 31, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL BIOMETRICS, INC.
------------------------
(Registrant)
May 11, 1999 /s/ John J. Metil
------------------------
John J. Metil
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
23
EXHIBIT 10.1
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
------------------------------
March 29, 1999
------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Securities Purchase Agreement, dated as of March 29, 1999 (the
"Agreement"), is entered into by and among Digital Biometrics, Inc., a Delaware
corporation (the "Company"), and the parties who have executed this Agreement
and whose names appear on Schedule 1 attached hereto (each party listed on
Schedule 1 attached hereto a "Purchaser" and collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth herein, the
Company desires to issue and sell to the Purchasers and the Purchasers desire to
purchase an aggregate of ________ shares (the "Shares") of 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 SHARES
1.1 Purchase and Sale. Subject to the terms and conditions set forth
herein, the Company shall issue and sell to each Purchaser, and each Purchaser
shall purchase from the Company, the number of Shares set forth next to such
Purchaser's name on Schedule 1 attached hereto, for an aggregate purchase price
of $_________ (the "Purchase Price").
1.2 The Closing. (a) The closing of the purchase and sale of the Shares
(the "Closing") shall take place at the offices of Maslon Edelman Borman &
Brand, LLP ("Maslon"), 3300 Norwest Center, Minneapolis, MN 55402, immediately
following the execution hereof or such later date as the parties shall agree.
The date of the Closing is hereinafter referred to as the "Closing Date."
(b) At the Closing, (i) the Company shall deliver to each
Purchaser (1) a stock certificate, registered in the name of such Purchaser or
such Purchaser's designee, representing the number of Shares to be acquired at
Closing by such Purchaser (which number is set forth opposite such Purchaser's
name on Schedule 1 hereto), (2) a Warrant (as defined in Section 3.15), each
registered in such Purchaser's name or the name of such Purchaser's designee,
(3) the legal opinion of Maslon, substantially in the form attached hereto as
Exhibit B, and (3) all other documents, instruments and writings required to
have been delivered at or prior to the Closing by the Company pursuant to this
Agreement, including, without limitation, an executed original of the
Registration Rights Agreement, dated the date hereof, among the Company and the
Purchasers in the form of Exhibit A hereto (the "Registration Rights
Agreement"), and (b) each Purchaser shall deliver to the Company (1) the amount
set forth opposite such Purchaser's name on Schedule 1 hereto in immediately
available funds by wire transfer to an account designated in writing by the
Company
<PAGE>
for such purpose on or prior to the Closing Date, and (2) all documents,
instruments and writings required to have been delivered at or prior to the
Closing by such Purchaser pursuant to this Agreement, including without
limitation, an executed Registration Rights Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers as of the date hereof 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, 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 the Securities (as defined below) or any of this Agreement, the Shares, the
Warrant, or the Registration Rights Agreement, (collectively, 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).
-2-
<PAGE>
(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 Warrant 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 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 the Securities. The Securities 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 Warrant is outstanding will maintain an adequate reserve of
duly authorized shares of Common Stock to enable it to perform its exercise and
other obligations under this Agreement and the Warrant and in no circumstances
shall such reserved and available shares of Common Stock be less than 100% of
the number of shares of Common Stock as are issuable upon exercise in full of
the Warrant. The shares of Common Stock issuable upon exercise of the Warrant is
sometimes referred to herein as the "Underlying Shares," and the Shares, Warrant
and Underlying Shares are, collectively, the "Securities." When issued in
accordance with the terms of the Warrant, 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
-3-
<PAGE>
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, 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 Shares and 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), and (iii) 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 Purchasers the Shares
and 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.
(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 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. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the
-4-
<PAGE>
Purchasers as contemplated hereby are exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"). 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.
(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, 1998, 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 Purchasers 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, 1998, 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.
(k) Investment Company. The Company is not, and is not an
"Affiliate" (as defined in Rule 405 under the Securities Act) 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
-5-
<PAGE>
hereby. The Purchasers 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, their respective 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-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) 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.
(p) 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 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.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, severally and not jointly, makes the following representations and
warranties to the Company:
(a) Organization; Authority. Such 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 such Purchaser has been duly authorized by all necessary action on
the part of such Purchaser.
-6-
<PAGE>
Each of this Agreement and the Registration Rights Agreement has been duly
executed and delivered by such Purchaser and constitutes the valid and legally
binding obligation of such Purchaser, enforceable against such 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. Such 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 such 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's Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof, it is an "accredited investor"
pursuant to in Rule 501(a)(3) under the Securities Act.
(d) Experience of Purchaser. Such 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.
(e) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser acknowledges that the Securities are speculative investments and
involve a high degree of risk and such Purchasers is able to bear the economic
risk of an investment in the Securities, and, at the pre sent time, is able to
afford a complete loss of such investment.
(f) Access to Information. Such 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.
-7-
<PAGE>
(g) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to such 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 such Purchaser hereby
consents to such reliance.
The Company acknowledges and agrees that the Purchasers 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 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 Purchasers to
an Affiliate of such 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 Purchasers under this Agreement and the
Registration Rights Agreement.
(b) The Purchasers agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legends on the Securities:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION NOR WITH 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
-8-
<PAGE>
REQUIREMENTS OF THE SECURITIES ACT, AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed from the Shares
and the Company shall cause its transfer agent to issue a certificate or
certificates without any legend (upon surrender of the legended certificates
duly endorsed) to each holder of the Shares upon which it is stamped if (i) such
Securities are registered for resale under the Securities Act or (ii) such
legend is not required pursuant to Rule 144 promulgated under the Securities
Act. Underlying Shares shall not contain the legend set forth above nor any
other legend if the exercise of the Warrant or other issuances of Underlying
Shares 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 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 Purchasers,
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 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon exercise of the Warrant 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 its obligation to issue Underlying Shares in accordance with the Warrant is
unconditional and absolute regardless of the effect of any such dilution.
3.3 Furnishing of Information. As long as any 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 Purchasers may resell all of their 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
Purchasers 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
-9-
<PAGE>
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 Purchasers 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 Purchasers may reasonably request
and shall continue such qualification at all times through the third anniversary
of the 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 Purchasers.
3.7 Increase in Authorized Shares. At such time as the Company would
be, if a notice of exercise were to be delivered on such date, precluded from
honoring the exercise in full of the Warrant, 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 Warrant) and on account of all shares
reserved under any stock option, stock purchase, warrant or similar plan and
(iii) such number of Underlying Shares as would then be issuable upon the
exercise in full of the Warrant. 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 (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.
-10-
<PAGE>
3.8 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 number of Shares and
the number of Underlying Shares issuable upon exercise in full of the Warrant,
(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 Purchasers 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 exercise of the Warrant 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 the number of shares of Common Stock as would be issuable upon the exercise
of the Warrant in full.
3.9 [INTENTIONALLY OMITTED]
3.10 Notice of Breaches. Each of the Company and each 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 each 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 furnish by facsimile to
the holders of the Shares a copy of any written statement in support of or
relating to such claim or notice.
3.11 Exercise Obligations of the Company. The Company shall honor
exercises of the Warrant and shall deliver Underlying Shares in accordance with
the terms and conditions and time periods set forth in the Warrant.
3.12 Subsequent Offerings; Certain Company Actions. (a) The Company
shall not without the prior written consent of each 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
-11-
<PAGE>
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 60 Trading Days
after the Effectiveness Date (as defined in the Registration Rights Agreements)
(any days that any Purchaser is unable to sell Underlying Shares under the
Underlying Securities Registration Statement following the Effectiveness Date
shall be added to such 60 Trading Day period). The following offerings and
issuances shall not be subject to the restrictions set forth in the immediately
preceding sentence: (x) 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, (y) any equity or equity-
equivalent private offering entered into prior to the Closing Date and (z)
shares of Common Stock issued upon exercise of the Warrant.
(b) As long as Warrant is outstanding, the Company shall not
and shall cause the Subsidiaries not to, without the consent of each Purchaser,
which consent will not 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 any Purchaser.
3.13 The Warrant. At the Closing, the Company shall issue to each
Purchaser, a common stock purchase warrant, in the form of Exhibit C (the
"Warrant"), pursuant to which the Purchasers shall have the right at any time
thereafter through the fifth anniversary of the date of issuance thereof, to
acquire the number of shares of Common Stock set forth opposite such Purchaser's
name on Schedule 1 hereto.
3.14 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
MISCELLANEOUS
4.1 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
-12-
<PAGE>
Purchasers 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 Securities. Each Purchaser shall be
responsible for such Purchaser's own tax liability that may arise as a result of
the investment hereunder or the transactions contemplated by this Agreement.
4.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement and the Warrant
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.
4.3 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:
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: Maslon Edelman Borman & Brand
3300 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Facsimile No.: (612) 672-8397
Attn: Philip Tilton
If to the Purchasers: to the addresses set forth on Schedule 1 hereto
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
-13-
<PAGE>
4.4 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 the Company and each of the Purchasers; 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.
4.5 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.
4.6 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 its Warrant. The
assignment by a party of this Agreement or any rights hereunder shall not affect
the obligations of such party under this Agreement.
4.7 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 4.6,
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person.
4.8 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.
4.9 Survival. The representations, warranties, agreements and covenants
contained in this Agreement shall survive after the Closing Date and the
delivery and exercise of the Warrant.
4.10 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.
4.11 Publicity. The Company and each 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
-14-
<PAGE>
party with prior notice of such public statement. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Purchaser without the
prior written consent of such Purchaser, except to the extent required by law,
in which case the Company shall provide Purchasers with prior written notice of
such public disclosure.
4.12 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.
4.13 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]
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
Company:
DIGITAL BIOMETRICS, INC.
By: /s/ John J. Metil
-------------------------------------
Name: John J. Metil
Title: Executive Vice President
Purchasers:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
<PAGE>
-----------------------------------------
By:
-------------------------------------
Name:
Title:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
<PAGE>
Schedule I
Number Number of
Purchaser Purchase Price of Shares Underlying Shares
- --------- -------------- --------- -----------------
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of March 29, 1999, between Digital Biometrics, a Delaware
corporation (the "Company"), and the parties who have executed this Agreement
and whose names appear on Schedule 1 hereto (each party listed on Schedule 1
hereto, a "Purchaser" and collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").
The Company and the Purchasers 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.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the U.S. Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, $.01 par value per
share.
"Effectiveness Date" means the 90th day following the 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).
<PAGE>
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 30th day following the 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.
"Purchaser Warrants" means the Common Stock purchase warrants issued
to the Purchasers on the Closing Date pursuant to the terms of the Purchase
Agreement.
"Registrable Securities" means the (i) Shares purchased by the
Purchasers on the Closing Date pursuant to the Purchase Agreement and (ii) the
shares of Common Stock issuable upon exercise in full of the Purchaser Warrants.
The Registration Statement shall cover at least such number of shares of Common
Stock as equals the sum of (x) the number of Shares issued on the Closing Date
and (2) the number of shares of Common Stock issuable upon exercise in full of
the Warrant.
"Registration Delay Payments" shall have the meaning set forth in
Section 2(c).
-2-
<PAGE>
"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.
"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.
"Shares" 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,
-3-
<PAGE>
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.
(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.
(c) If (i) a Registration Statement covering the Registrable
Securities is not filed on or before the Filing Date (if the Company files such
Registration Statement without affording the Holder the opportunity to review
and comment on the same as required by Section 3(a) hereof, the Company shall
not be deemed to have satisfied this clause (i)), or (ii) the Company fails to
file with the Commission a request for acceleration in accordance with Rule
12d1-2 promulgated under the Exchange Act within five (5) days of the date that
the Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed" or is not
subject to further review, provided, however, that such five (5) day period may
be extended in the event that the Company reasonably believes that such
Registration Statement should be amended to include material non-public
information; or (iii) a Registration Statement covering the Registrable
Securities is not declared effective by the Commission on or before the
Effectiveness Date, or (iv) after the Registration Statement has been declared
effective by the Commission, the Registration Statement is either not effective
as to the Registrable Securities throughout the applicable Effectiveness Period
(unless such Registration Statement is succeeded by a subsequent Registration
Statement filed with and declared effective by the Commission within 10 Business
Days) or the Holders are not permitted for any reason to make sales thereunder
during such period, or (v) an amendment to the Registration Statement is not
filed by the Company with the Commission within ten (10) days of the
Commission's notifying the Company that such amendment is required in order for
the Registration Statement to be declared effective (any such failure or breach
being referred to as an "Event," and for purposes of clauses (i), (iii) and (iv)
the date on which such Event occurs, or for purposes of clause (ii) the date on
which such five (5) day period is exceeded, or for purposes of clause (v) the
date on which such ten (10) day period is exceeded, being referred to as "Event
-4-
<PAGE>
Date"), then, in any such case, as partial relief for the damages suffered
therefrom by the Holders (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to the Holders
1.0% of aggregate purchase price paid by such Holder (or its
predecessor-in-interest) on the Closing Date for such Holder's Shares pursuant
to the Purchase Agreement, 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 aggregate purchase price paid by
such Holder (or its predecessor-in-interest) on the Closing Date for such
Holder's Shares pursuant to the Purchase Agreement, in cash until such time as
the applicable Event is cured; provided, that the total amount of liquidated
damages the Company shall pay to the Holder pursuant to this Section 5(c)(i)
shall not exceed $____________ in aggregate. The payments to which a Holder
shall be entitled pursuant to this Section are referred to herein as
"Registration Delay Payments." Registration Delay Payments shall be calculated
on a cumulative basis.
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 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 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 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, 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 or any managing 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
-5-
<PAGE>
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 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 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
-6-
<PAGE>
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 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 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
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 and
any underwriters 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 reg istration 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
-7-
<PAGE>
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.
(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 covering the matters customarily covered in
opinions requested in Underwritten Offerings and such other matters as may be
reasonably requested by 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
-8-
<PAGE>
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 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
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.
-9-
<PAGE>
(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.
(p) 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.
(q) 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 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), (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 and (iii) so long as a Registration Statement
covering all of the Registrable Securities is effective and all of the Holders
are permitted to make sales of Registrable Securities under such Registration
Statement, such Holder will only sell the Registrable Securities that it holds
pursuant to such Registration Statement or in accordance with Rule 144
promulgated under the Securities Act. Each Holder shall indemnify and hold
harmless the Company and its officers, directors and agents, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs and expenses, as incurred, arising out of or
relating to the breach by such Holder of its obligations under this Section
3(r).
(r) 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 Pro spectus 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 Pro spectus or
Registration Statement.
-10-
<PAGE>
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, (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 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 limi tation, 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
-11-
<PAGE>
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.
(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.
-12-
<PAGE>
(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 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 (regard less 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).
-13-
<PAGE>
(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 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), no Purchaser shall not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such 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
-14-
<PAGE>
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 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
-15-
<PAGE>
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
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
-16-
<PAGE>
With copies to: Maslon Edelman Borman & Brand
3300 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Facsimile No.: (612) 672-8397
Attn: Philip Tilton
If to the Purchasers: to the addresses set forth on Schedule 1 hereto
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. Each 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 each 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 such Purchaser to any assignee or transferee of all
or a portion of the Shares, the Purchaser Warrants or the Registrable Securities
without the consent of the Company if: (i) such 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 Purchasers' (and to subsequent)
successors and assigns.
(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
-17-
<PAGE>
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 Agree ment 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 restric tion. 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
Company:
DIGITAL BIOMETRICS, INC.
By:
-------------------------------------
Name: John J. Metil
Title: Executive Vice President
Purchasers:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
<PAGE>
-----------------------------------------
By:
-------------------------------------
Name:
Title:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
<PAGE>
Schedule I
Purchaser Purchase Price
- --------- --------------
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.
THIS WARRANT IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND EXERCISE
SET FORTH IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF MARCH 29, 1999,
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.
DIGITAL BIOMETRICS, INC.
WARRANT
Warrant No. 001 Dated March 29, 1999
DIGITAL BIOMETRICS, INC., a Delaware corporation (the "Company"), hereby
certifies that, for value received, _________________, or its registered assigns
("Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company _________ 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 $1.3138 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 March 29, 2004 (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
<PAGE>
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 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
<PAGE>
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.
(i) 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 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
(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 multiplying the Exercise
Price in effect immediately prior thereto by a fraction, the numerator of which
shall be the sum of (i) the number of shares of common stock outstanding
immediately prior to such issuance, and (ii) the number of shares of common
stock which the aggregate consideration received (or to be received, assuming
exercise or conversion in full of such rights, warrants and convertible
securities) for the issuance of such additional shares of common stock would
purchase at the Exercise Price, and the denominator of which shall be the sum of
the number of shares of common stock outstanding immediately after the issuance
of such additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
(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
<PAGE>
(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 one
of the following manners:
(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:
<PAGE>
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. Certain Exercise Restrictions.
(a) The Holder agrees not to exercise this Warrant to the extent
such exercise would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 4.999% of the then issued and outstanding shares of common stock,
including shares issuable upon exercise of this Warrant after application of
this Section. The Holder shall have the sole authority and obligation to
determine whether the restriction contained in this Section applies. The
provisions of this Section may be waived by the Holder (but only as to itself
and not to any other holders of the other Warrant) upon not less than 75 days
prior notice to the Company (in which case, the Holder shall make such filings
with the Commission, including under Regulation 13D or 13G, as are required by
applicable law).
(b) The Holder also agrees not to exercise this Warrant to the
extent such exercise would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 9.999% of the then issued and outstanding common stock,
including shares issuable upon exercise of this Warrant after application of
this Section. The Holder shall have the sole authority and obligation to
determine whether the restriction contained in this Section applies. The
provisions of this Section may be waived by the Holder (but only as to itself
and not to any other holders of the Other Warrant) upon not less than 75 days
prior notice to the Company.
11. 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
<PAGE>
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.
12. 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.
13. 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 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.
14. 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.
<PAGE>
(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.
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:
--------------------------------------
(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:
- --------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000868373
<NAME> DIGITAL BIOMETRICS INC
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 676,930
<SECURITIES> 0
<RECEIVABLES> 5,616,492
<ALLOWANCES> 280,581
<INVENTORY> 2,498,780
<CURRENT-ASSETS> 8,785,018
<PP&E> 2,618,698
<DEPRECIATION> 1,607,307
<TOTAL-ASSETS> 9,882,638
<CURRENT-LIABILITIES> 4,332,404
<BONDS> 736,383
0
0
<COMMON> 151,307
<OTHER-SE> 4,529,255
<TOTAL-LIABILITY-AND-EQUITY> 9,882,638
<SALES> 5,588,441
<TOTAL-REVENUES> 7,558,594
<CGS> 3,579,145
<TOTAL-COSTS> 5,054,783
<OTHER-EXPENSES> 3,406,814
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212,367
<INCOME-PRETAX> (1,102,563)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,102,563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,102,563)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
