<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION DECEMBER 26, 2000
REGISTRATION NO. 333-51526
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
DIGITAL BIOMETRICS, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
DELAWARE 41-1545069
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
</TABLE>
5600 ROWLAND ROAD
MINNETONKA, MINNESOTA 55343-4315
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
MR. ROBERT F. GALLAGHER
CHIEF FINANCIAL OFFICER
DIGITAL BIOMETRICS, INC.
5600 ROWLAND ROAD
MINNETONKA, MINNESOTA 55343-4315
(952) 932-0888
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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<S> <C>
PHILIP J. TILTON, ESQ. DOUGLAS A. CIFU, ESQ.
MASLON EDELMAN BORMAN & BRAND, LLP PAUL, WEISS, RIFKIND, WHARTON & GARRISON
3300 WELLS FARGO CENTER 1285 AVENUE OF THE AMERICAS
MINNEAPOLIS, MINNESOTA 55402-4140 NEW YORK, NY 10019-6064
(612) 672-8200 (212) 373-3000
TELECOPY: (612) 672-8397 TELECOPY: (212) 757-3990
</TABLE>
APPROXIMATE DATE OF THE COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
---------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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--------------------------------------------------------------------------------
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[DBI LOGO]
PROXY STATEMENT/PROSPECTUS
TRANSACTION PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Dear Stockholder of Digital Biometrics, Inc.:
Digital Biometrics, Inc. ("DBI") and Visionics Corporation ("Visionics")
have entered into a merger agreement. The terms of the merger agreement provide
that a wholly owned subsidiary of DBI will merge with and into Visionics and
Visionics will become a wholly owned subsidiary of DBI.
If the merger is completed, DBI will provide to holders of Visionics common
stock and holders of options to purchase Visionics common stock merger
consideration equal in value to 7,000,000 shares of DBI common stock. A number
of shares of DBI common stock in excess of 7,000,000 will be issuable pursuant
to the merger such that, after taking into account DBI's receipt of the
aggregate exercise price for the Visionics options assumed by DBI, the net
merger consideration payable by DBI will be equal in value to 7,000,000 shares
of its common stock. The final allocation of the merger consideration will be
determined concurrent with the closing of the merger. DBI will pay cash instead
of issuing fractional shares of DBI common stock. Visionics shareholders who
comply with New Jersey law will be entitled to dissenters' rights to obtain
payment for the fair value of their shares of Visionics common stock. DBI
intends to adopt the Visionics Corporation name and the current Visionics
Corporation will be renamed "Visionics Technology Corporation."
This proxy statement/prospectus contains detailed information about the
proposed merger. It also contains information about DBI and Visionics that has
been filed with the Securities and Exchange Commission. You are encouraged to
read this document carefully. PLEASE SEE PAGE 24 OF THIS PROXY
STATEMENT/PROSPECTUS FOR RISK FACTORS YOU SHOULD CONSIDER BEFORE VOTING YOUR
SHARES.
The DBI Board of Directors has determined that the merger agreement and the
transactions contemplated by the merger agreement, including the merger and
DBI's assumption of all options to purchase shares of Visionics common stock
outstanding at the effective time of the merger, are advisable and fair to and
in the best interests of DBI and its stockholders and recommends that DBI
stockholders vote to approve and adopt the merger agreement and the transactions
contemplated by the merger agreement at the special meeting of DBI stockholders.
At the special meeting, you will also be asked to consider and vote on a
proposal to amend DBI's certificate of incorporation to change the name of the
corporation to Visionics Corporation. The special meeting of DBI stockholders
will be held at the Lutheran Brotherhood Auditorium, located at 625 Fourth
Avenue South, Minneapolis, Minnesota, on Thursday, February 15, 2001, at 2:00
PM, central standard time.
Your vote is very important, regardless of the number of shares you own.
Please vote your shares as soon as possible so that your shares are represented
at the special meeting. To vote your shares by telephone or the Internet, follow
the instructions appearing on the enclosed proxy card. If you do not wish to
vote by telephone or the Internet, please complete, sign and date the enclosed
proxy card and promptly return it in the enclosed postage-paid envelope.
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<PAGE> 3
The Board of Directors of DBI enthusiastically supports the proposed merger
with Visionics and urges you to vote "FOR" each of these proposals.
If you have any questions prior to the special meeting or need further
assistance, please call our proxy solicitor, Corporate Investor Communications,
Inc., at .
Thank you for your cooperation.
Very truly yours,
/s/ JOHN J. METIL
------------------------------------
John J. Metil
President and Chief Executive
Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated December 26, 2000, and is first being
mailed to DBI stockholders on or about January 8, 2001.
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<PAGE> 4
DIGITAL BIOMETRICS, INC.
5600 ROWLAND ROAD
MINNETONKA, MINNESOTA 55343
---------------------
NOTICE OF SPECIAL MEETING OF
DIGITAL BIOMETRICS, INC. STOCKHOLDERS
---------------------
To the Stockholders of Digital Biometrics, Inc.:
NOTICE IS HEREBY GIVEN that Digital Biometrics, Inc. ("DBI") will hold a
special meeting of its stockholders at the Lutheran Brotherhood Auditorium,
located at 625 Fourth Avenue South, Minneapolis, Minnesota, on Thursday,
February 15, 2001, at 2:00 PM, central standard time, for the following
purposes:
(1) To vote on a proposal to approve and adopt the Agreement and Plan
of Merger, dated as of October 18, 2000, by and among DBI, Visionics
Corporation and VC Acquisition Corp., a wholly owned subsidiary of DBI, and
the transactions contemplated by the merger agreement, including the merger
and DBI's issuance of over 7,000,000 shares of DBI common stock, including
shares issuable upon exercise of Visionics stock options to be assumed by
DBI. A copy of the merger agreement is attached as Appendix A to the proxy
statement/prospectus accompanying this notice;
(2) To vote on a proposal to amend DBI's certificate of incorporation
to change the name of the corporation to "Visionics Corporation." If this
proposal and the merger are approved, the name of the current Visionics
Corporation will be changed to "Visionics Technology Corporation"; and
(3) To transact such other business as may properly come before the
special meeting and any adjournment or postponement of the special meeting.
Only holders of record of DBI common stock at the close of business on
December 29, 2000 are entitled to receive this notice and to vote their
shares at the special meeting or any adjournment or postponement of the
special meeting. On the record date, there were approximately
stockholders of record of DBI common stock and approximately shares of
DBI common stock were issued and outstanding. Each share of DBI common
stock is entitled to one vote on each matter properly brought before the
special meeting.
Please vote your shares as soon as possible so that your shares are
represented at the special meeting. To vote your shares by telephone or the
Internet, follow the instructions appearing on the enclosed proxy card. If you
do not wish to vote by telephone or the Internet, please complete, sign and date
the enclosed proxy card and promptly return it in the enclosed postage-paid
envelope. If you attend the special meeting, you may vote in person if you wish
by completing a ballot at the special meeting, whether or not you have already
signed, dated and returned your proxy card or voted by telephone or the
Internet.
THE DBI BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE AND ADOPT THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT,
INCLUDING THE MERGER, AT THE SPECIAL MEETING, EACH OF WHICH ARE DESCRIBED IN
DETAIL IN THE PROXY STATEMENT/PROSPECTUS ACCOMPANYING THIS NOTICE.
<PAGE> 5
Please review the proxy statement/prospectus accompanying this notice for
more complete information regarding the matters proposed for your consideration
at the special meeting.
By the Order of the Digital Biometrics, Inc. Board of Directors,
/s/ JOHN J. METIL
------------------------------------
President and Chief Executive
Officer
January 8, 2001
PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE
ENCLOSED PROXY CARD.
2
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE
SPECIAL MEETING............................................. 5
SUMMARY..................................................... 9
The Companies............................................... 9
The Merger.................................................. 11
Working Capital Facility.................................... 16
The Special Meeting......................................... 17
Risk Factors................................................ 17
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION AND
COMPARATIVE PER SHARE DATA.................................. 18
NOTES TO COMPARATIVE UNAUDITED PER SHARE DATA............... 18
MARKET PRICE AND DIVIDEND INFORMATION....................... 19
SELECTED CONSOLIDATED FINANCIAL DATA........................ 21
RISK FACTORS................................................ 24
Risks Relating to the Merger................................ 24
Risk Factors Relating to DBI................................ 25
Risk Factors Relating to Visionics.......................... 29
THE COMPANIES............................................... 33
Digital Biometrics, Inc. ................................... 33
Visionics Corporation....................................... 39
THE DIGITAL BIOMETRICS, INC. SPECIAL MEETING................ 45
Date, Time and Place of the Special Meeting................. 45
Purposes of the Special Meeting............................. 45
Record Date of the Special Meeting.......................... 45
Majority of Outstanding Shares Must be Represented for a
Vote to be Taken.......................................... 45
Vote Required at the Special Meeting........................ 45
Voting Your Shares and Changing Your Vote................... 46
How Proxies are Counted..................................... 46
Costs of Solicitation....................................... 47
Other Business; Adjournments................................ 47
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE MERGER.................................................. 48
Background of the Merger.................................... 48
Reasons for the Merger; Recommendation of DBI Board of
Directors................................................. 49
The Merger Agreement........................................ 50
Material Federal Income Tax Consequences of the Merger...... 57
Expenses.................................................... 58
Amendment of the Merger Agreement........................... 58
Affiliate Agreements........................................ 58
Voting Agreements........................................... 59
Opinion of the DBI Board of Directors' Financial Advisor.... 59
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... 62
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION................................................. 68
VISIONICS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 69
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
OF DIGITAL BIOMETRICS, INC.................................. 73
COMPARATIVE RIGHTS OF HOLDERS OF DBI COMMON STOCK
AND VISIONICS COMMON STOCK.................................. 75
VISIONICS' SHAREHOLDERS' DISSENTER'S RIGHTS................. 80
OTHER ACTION TO BE TAKEN AT THE DBI SPECIAL MEETING......... 82
Change in DBI's Corporate Name to Visionics Corporation..... 82
LEGAL MATTERS............................................... 82
EXPERTS..................................................... 82
WHERE YOU CAN FIND MORE INFORMATION......................... 83
CONSOLIDATED FINANCIAL STATEMENTS OF VISIONICS
CORPORATION............................................... F-1
INDEX TO APPENDIXES TO PROXY STATEMENT...................... F-18
Appendix A: Agreement and Plan of Merger.................... A-1
Appendix B: Fairness Opinion of SunTrust Equitable
Securities................................................ B-1
Appendix C: Form of Voting Agreement........................ C-1
Appendix D: Chapter 11 of New Jersey Business Corporation
Act....................................................... D-1
PART II INFORMATION NOTE REQUIRED IN THE PROSPECTUS......... II-1
EXHIBIT INDEX............................................... II-5
</TABLE>
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<PAGE> 8
QUESTIONS AND ANSWERS ABOUT THE MERGER
AND THE SPECIAL MEETING
Q: WHY IS DIGITAL BIOMETRICS, INC. HOLDING THE SPECIAL MEETING?
A: Digital Biometrics, Inc., referred to as DBI, is holding the special
meeting for the following purposes:
(1) to ask you to vote on a proposal to approve and adopt the Agreement and
Plan of Merger, dated as of October 18, 2000, by and among DBI,
Visionics Corporation and VC Acquisition Corp., a wholly owned
subsidiary of DBI, and the transactions contemplated by the merger
agreement, including the merger and DBI's issuance of over 7,000,000
shares of DBI common stock, including shares issuable upon exercise of
Visionics stock options to be assumed by DBI;
(2) to ask you to vote on a proposal to amend DBI's certificate of
incorporation to change the name of the corporation to "Visionics
Corporation"; and
(3) to transact such other business as may properly come before the special
meeting and any adjournment or postponement of the special meeting.
A copy of the merger agreement is attached as Appendix A to this proxy
statement/prospectus and is incorporated by reference in this proxy
statement/prospectus.
Q: WHAT IS THE DETERMINATION AND RECOMMENDATION OF THE DBI BOARD OF
DIRECTORS WITH RESPECT TO THE MERGER?
A: DBI's Board of Directors has determined that the merger agreement and the
transactions contemplated by the merger agreement, including the merger and
DBI's issuance of over 7,000,000 shares of DBI common stock, including
shares issuable upon exercise of Visionics stock options to be assumed by
DBI, are advisable and fair to and in the best interests of DBI and its
stockholders and recommends that DBI stockholders vote to approve and adopt
the merger agreement and the transactions contemplated by the merger
agreement at the special meeting. In making its determination and
recommendation, DBI's Board of Directors considered discussions with DBI
senior management, consultations with its auditors and legal counsel, the
opinion of SunTrust Equitable Securities, financial advisor to DBI, dated
as of October 18, 2000, that as of the date of that opinion, the merger
consideration was fair from a financial point of view to DBI and its
stockholders.
Q: WHY ARE DBI AND VISIONICS PROPOSING THE MERGER?
A: Because both companies believe there is a significant business opportunity
to take biometrics into mainstream commercial markets. We believe that by
joining forces, the merged company will be the first to assemble the
complete set of technologies, operating skills and product offerings
necessary to lead this emerging industry. Both DBI and Visionics believe
the right vehicle in the future for delivery of biometric functionality is
deployment-ready biometric network appliances. Both companies have been
moving in this direction. Connectivity, scalability, the right applications
and good packaging will be key in the development of these network
applications.
The management of each of DBI and Visionics has concluded that the
combination of DBI and Visionics is an outstanding strategic fit. DBI
brings strengths in the design, assembly, deployment, integration and
support of the most complex biometric hardware and software systems on the
market. DBI's IBIS system for remote wireless identification embodies the
essence of the biometric network appliance concept. Visionics brings its
face recognition engine; significant expertise in the software and systems
aspects of Internet-enabled appliances; a broad and deep understanding of
the commercial markets for biometrics; and a distribution network of VARs
and integrators across a broad range of applications including banking,
information security, identification programs, high-end access control,
surveillance and criminal justice.
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Q: WHY DID DBI CHOOSE TO GROW IN THIS WAY?
A: For years, one of DBI's strategic goals has been to expand the breadth of
products DBI offers and the markets DBI serves. The commercial market for
biometric systems represents a large potential opportunity, and DBI
believes that facial recognition will be a key technology for commercial
applications. DBI believes the proposed merger will enable DBI to leverage
its expertise in the design and deployment of complex biometric systems
into new application areas and markets using facial recognition.
Furthermore, DBI believes this merger will enable DBI to combine the
strengths of both companies to create new offerings for new markets that
have not yet been conceptualized by many of its competitors.
Q: WHAT IS THE CURRENT BUSINESS OF VISIONICS?
A: Visionics is a pioneer in the field of face recognition. Human faces, just
like fingerprints, contain identity specific patterns that can be
automatically detected and matched by a computer. Visionics has become a
leader in the biometric industry by developing this into powerful
commercial technology with broad appeal. Today the Visionics software
engine, FaceIt, detects and recognizes faces faster than the blink of an
eye. In fact it matches faces at speeds in excess of a million faces per
second on a standard personal computer. It can even recognize faces in a
crowd, in motion and at a distance from purely ordinary images or cameras.
The commercial applications for this type of technology include security,
access control, banking, e-commerce, surveillance, law enforcement,
national identification, travel, natural human-machine interface,
multimedia search engines and personalization.
Visionics' business strategy has been to focus on the encapsulation of its
technology into modules and software components that meet the requirements
of a large number of applications and that are easy to integrate into
finished products and solutions.
Visionics' partner network consists of many companies that are developing
products and solutions based on Visionics' technology, including Polaroid,
Datacard, Informix, EDS, Wells Fargo's affiliate Innoventry, Imageware,
Printrak, Virage, and IBM.
Q: WHY DID VISIONICS CHOOSE TO GROW IN THIS WAY?
A: The execution of Visionics' growth strategy would require Visionics to
build many of the same capabilities and skills already possessed by DBI.
Visionics believes the merger is a faster and lower risk means to achieve
its growth objectives by introducing new product offerings made possible by
the merger.
Q: WHAT ARE THE IMPLICATIONS OF THE MERGER FOR YOUR CURRENT BUSINESSES?
A: Each company has a strong business in their current market areas. These are
assets for the post-merger company. The post-merger company fully intends
to continue to compete vigorously using its current business models and
products in the markets currently served. Management intends to make the
post-merger company even stronger through aggressive new product
development and new market penetration. This merger is about industry
leadership built by capitalizing on each company's respective strengths.
Q: WILL EACH COMPANY CONTINUE TO OFFER THEIR EXISTING PRODUCT LINES?
A: Yes. The merged company will continue to offer and support current product
lines under their respective brand names. Both DBI and Visionics believe
these product lines and brand identities are significant assets.
Q: WILL THERE BE ANY REDUNDANCY?
A: Neither DBI nor Visionics believes there will be any redundancy. The
results of the due diligence conducted by both parties suggest that there
is no significant duplication of functions between the two
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<PAGE> 10
companies. The parties intend to maintain and expand the facilities of both
companies, and do not anticipate that any employees will have to relocate.
Q: WHY IS DBI PROPOSING TO CHANGE ITS NAME TO VISIONICS CORPORATION?
A: DBI's Board of Directors believes the Visionics name is better identified
than the Digital Biometrics name in the commercial biometrics market, the
biometrics market DBI's board views as offering the greatest growth
potential. In addition, the DBI Board of Directors believes Visionics is a
broader, more general name than the Digital Biometrics name, providing the
merged company with increased flexibility to pursue new business areas
without having its name acting at cross-purposes to its business growth
objectives. To avoid confusion, both DBI and Visionics will be referred to
by their current names throughout this proxy statement/prospectus. DBI has
reserved the Nasdaq symbol "VSNX" for use in the event that the merger is
completed.
Q: WHAT WILL VISIONICS' SHAREHOLDERS RECEIVE WHEN THE MERGER IS
CONSUMMATED?
A: The merger consideration consists of approximately 7,000,000 new shares of
DBI common stock, to be allocated among the holders of Visionics common
stock and options to purchase Visionics common stock based on a formula
which gives effect to the exercise of all such options and DBI's receipt of
the aggregate exercise price. Please refer to "The Merger -- The Merger
Agreement -- Manner and Basis of Converting Shares and -- Treatment of
Options" for a more detailed explanation of the merger consideration.
Q: WHAT IS THE DETERMINATION AND RECOMMENDATION OF THE VISIONICS BOARD
OF DIRECTORS WITH RESPECT TO THE MERGER?
A: Visionics' Board of Directors has determined that the merger agreement and
the transactions contemplated by the merger agreement, including the
merger, are advisable and fair to and in the best interests of Visionics
and its shareholders and recommends that Visionics' shareholders vote to
approve and adopt the merger agreement and the transactions contemplated by
the merger agreement.
Q: WHEN DO THE PARTIES EXPECT TO COMPLETE THE MERGER?
A: The approval of DBI's stockholders and Visionics' shareholders is required
to complete the merger. DBI and Visionics expect to complete the merger
within one week after the special meeting of DBI's stockholders.
Q: WILL DBI ISSUE FRACTIONAL SHARES OF VISIONICS COMMON STOCK AS MERGER
CONSIDERATION?
A: DBI will not issue fractional shares in the merger. As a result, the total
number of shares of DBI common stock that each Visionics shareholder will
receive in the merger will be rounded down to the nearest whole number and
each Visionics shareholder will receive a cash payment for the value of any
remaining fraction of a share of DBI common stock that he or she would
otherwise receive, if any.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGER BY DBI'S STOCKHOLDERS?
A: The merger must be approved by the affirmative vote of the holders of at
least a majority of the issued and outstanding shares of DBI common stock
present in person or represented by proxy and entitled to vote at the
special meeting. If you return a signed and dated proxy card but do not
indicate how the shares are to be voted, those shares represented by your
proxy card will be voted as recommended by the DBI Board of Directors. A
properly executed proxy card marked "ABSTAIN" as well as a vote by
telephone or the Internet for "ABSTAIN" will not be voted at the special
meeting. Under Delaware law, abstentions are counted as present for
purposes of both establishing a quorum and as shares entitled to vote on a
matter. Since the merger must be approved by a majority of shares present
and entitled to vote on the matter, an abstention will have the same effect
as a vote against the merger. Broker non-votes (votes not cast on a
particular matter because the person voting the shares has not been
authorized by the beneficial owner of the shares to vote on such matter)
are
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<PAGE> 11
treated as present for purposes of establishing a quorum but not as shares
entitled to vote on the matter. Consequently, a broker non-vote will not
have the same effect as a vote against the merger.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting of DBI stockholders will be held on Thursday, February
15, 2001, at 2:00 PM, central time, at the Lutheran Brotherhood Auditorium,
located at 625 Fourth Avenue South, Minneapolis, Minnesota.
Q: WHO CAN VOTE AT THE SPECIAL MEETING?
A: DBI stockholders who hold their shares of record as of the close of
business on December 29, 2000, are entitled to notice of and to vote at the
special meeting. On the record date, there were approximately
stockholders of record of DBI common stock and approximately shares of
DBI common stock were issued and outstanding.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER OR NOMINEE, WILL
MY BROKER OR NOMINEE VOTE MY SHARES FOR ME?
A: Your broker or nominee will vote your shares only if you provide
instructions on how you want your shares to be voted. You should follow the
directions provided by them regarding how to instruct them to vote your
shares.
Q: CAN I CHANGE MY VOTE AFTER I HAVE VOTED BY TELEPHONE OR THE INTERNET
OR MAILED MY PROXY CARD?
A: Yes. You may change your vote by revoking your proxy at any time before the
polls close at the special meeting. You can do this in one of three ways:
(1) timely delivery of a valid, later-dated proxy, including a proxy cast
by telephone or the Internet;
(2) written notice addressed to Corporate Secretary, Digital Biometrics,
Inc., 5600 Rowland Road, Minnetonka, MN 55343, before the special
meeting that you have revoked your proxy; or
(3) attendance at the special meeting in person and completing a ballot.
You may not revoke your proxy by simply attending the special meeting unless
you complete a ballot. If you have instructed a broker or nominee to vote
your shares, you must follow directions from them to change those
instructions.
Q: WHAT DO I NEED TO DO NOW?
A: Please vote your shares as soon as possible, so that your shares are
represented at the special meeting.
TO VOTE YOUR SHARES BY TELEPHONE OR THE INTERNET FOLLOW THE INSTRUCTIONS
APPEARING ON THE ENCLOSED PROXY CARD. IF YOU DO NOT WISH TO VOTE BY
TELEPHONE OR THE INTERNET, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY CARD AND PROMPTLY RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
If you attend the special meeting, you may vote in person if you wish by
completing a ballot at the special meeting, whether or not you have already
signed, dated and returned your proxy card or voted by telephone or the
Internet.
Please review this proxy statement/prospectus for more complete information
regarding the matters proposed for your consideration at the special
meeting.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you would like additional copies of this proxy statement/prospectus or
if you have questions about how to complete and return your proxy card
and/or vote by telephone or the Internet, you should call Corporate
Investor Communications, Inc. at 877-535-1158. If you have questions about
other matters discussed in this proxy statement/prospectus, please
telephone Randy Meyer, DBI's Controller, or Robert F. Gallagher, DBI's
Chief Financial Officer, at (952) 932-0888.
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<PAGE> 12
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. It does not contain all of the information that is
important to you. We urge you to read carefully the entire proxy
statement/prospectus, the other documents to which this document refers and the
documents of DBI which are incorporated by reference in this proxy
statement/prospectus to understand fully the proposed merger of VC Acquisition
Corp., a wholly owned subsidiary of DBI with and into Visionics Corporation,
resulting in Visionics becoming a wholly owned subsidiary of DBI. See "Where You
Can Find More Information." A copy of the Agreement and Plan of Merger dated
October 18, 2000 and by and among DBI, Visionics and VC Acquisition Corp. is
attached as Appendix A to this proxy statement/prospectus and is incorporated by
reference in this proxy statement/prospectus.
THE COMPANIES
DIGITAL BIOMETRICS, INC.
DBI is a leading provider of identification information systems that employ
"biometric" technology, which is the science of identifying individuals by
measuring distinguishing biological characteristics. DBI's biometric
identification systems and information technology services enable law
enforcement and other government agencies to identify and manage information
about individuals, and help commercial employers and government agencies to
conduct background checks on applicants for employment or permits. DBI's product
and service offerings include computer-based fingerprinting and photographic
systems, software tools, multi-media data storage and communications servers,
and the systems integration and software development services required to deploy
and use these systems.
DBI has evolved from essentially a single-product live-scan hardware
supplier to an identification information systems company. DBI continues to
expand its product line and information technology services to further penetrate
the law enforcement market, while introducing new products and services for the
emerging applicant-processing and security markets among commercial and
government customers. Typical customers include: U.S. government agencies, such
as the Immigration and Naturalization Service (INS) and U.S. Postal Service;
local and state police; the United States armed forces; school districts;
financial institutions; utilities; and casinos.
DBI's main products are special-purpose, computer-based "live-scan" systems
for the capture and transmission of high-resolution forensic-grade fingerprints,
along with text information on the fingerprinted subject and in some cases,
photographs. 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 fingerprints and related
data to large-scale databases (sold by other vendors), and receive return
messages on the identity and background of the individual being checked. These
systems, including the new IBIS systems for wireless, real-time mobile
identification, are among the most complex biometric systems ever developed.
DBI's business includes data capture systems as well as products and services to
facilitate the transmission of identification information in a variety of
networked environments. DBI's systems are used by commercial customers and
government agencies to conduct fingerprint-based background checks on applicants
for employment, permits and citizenship, as well as by law enforcement agencies.
DBI's strategy is to continue to market live-scan systems to law
enforcement agencies while expanding its product and service offerings and the
markets it serves. The law enforcement market for live-scan biometric products
is well established. DBI believes there is growing demand from other
governmental and commercial markets to employ identification information
technologies in background checks. DBI is aggressively pursuing these emerging
markets. DBI expects the proposed merger with Visionics to position DBI at the
forefront of the biometrics technology industry. By leveraging the capabilities
of both companies, the merged company intends to deliver biometrics on platforms
that are scalable, cost-effective and easy for customers to adopt.
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<PAGE> 13
DBI was incorporated in Minnesota in 1985 under the name C.F.A.
Technologies, Inc., was reincorporated in Delaware in 1986 and changed its name
to Digital Biometrics, Inc. in 1990. DBI's headquarters is located at 5600
Rowland Road, Minnetonka, Minnesota 55343, and its telephone number is (952)
932-0888.
Recent Announcements. The following summarizes events and other matters
addressed in recent public announcements by DBI.
On October 25, 2000, DBI announced that Mr. Robert L. Bridigum joined DBI
as Vice President of New Product Development. Mr. Bridigum joined DBI from SEK
Technologies, a California-based high-tech engineering and manufacturing
company, where he was General Manager and Chief Engineer. Mr. Bridigum has also
held positions of Vice President of Engineering for Check Technology
Corporation, Director of Graphics Product Development and Software Manager for
DataCard Group, and Program Manager of Advanced Engineering and Technology and
Software Engineer for Honeywell Avionics. Mr. Bridigum received his
undergraduate degree from Juanita College, and his graduate degree from Old
Dominion University, both in Physics.
On November 6, 2000, DBI announced the appointment of Robert F. Gallagher
as Chief Financial Officer. Mr. Gallagher has more than 23 years of financial
management experience. Prior to joining DBI, Mr. Gallagher was Chief Financial
Officer of TSI Incorporated, a $100 million public company and supplier of
innovative sensors and instrumentation systems. Prior to TSI, Mr. Gallagher was
employed by the public accounting firm KPMG LLP. Mr. Gallagher earned a BSBA
from Creighton University in Nebraska and an MBA from the University of
Minnesota.
VISIONICS CORPORATION
Visionics Corporation is a leading developer of facial recognition
technology worldwide. Visionics pioneered the field of facial recognition with
its software engine, FaceIt(R), which allows computers to rapidly and accurately
recognize faces. FaceIt(R) is an Enabling Technology with Mass Appeal(TM) that
has been integrated into several products and solutions built by Visionics'
partners, which include original equipment manufacturers, software developers,
system integrators and value-added resellers. These products and solutions
include Smart CCTV(TM)(Closed Circuit Television) systems, web-based search
engine applications, mass-market authentication systems for information
security, banking, civil applications including drivers licenses, national
identification programs and voter registration and law enforcement applications.
Visionics is focused on technological innovations and on the development of
information architectures for delivering them. Visionics possesses a
distribution network of partners across a broad range of vertical markets
including banking, information security, identification programs, high-end
access control, surveillance and criminal justice.
Visionics licenses its enabling technology to original equipment
manufacturers, software developers and system integrators for incorporation into
final products and solutions. Visionics delivers to its partners the software
modules, tools and technical support necessary to integrate FaceIt(R) technology
into these products. This partnership allows each party to leverage its core
competence, shorten time to market and focus its resources. In the future,
Visionics may sell directly to vertical markets where Visionics and its partners
currently do not participate.
Visionics intends to continue to support and expand its network of partners
by maintaining its biometric facial recognition technology and delivering
back-end infrastructure support that allows for easier integration into
commercial applications. Visionics' partner network presently consists of
several companies developing products and solutions based on Visionics'
technology. Many of these companies have already finished development and have
begun marketing and selling their solutions and products enabled by the
Visionics software engine. These companies include Polaroid, Datacard, Informix,
EDS, Wells Fargo's affiliate Innoventry, Imageware, Printrak, Virage, and IBM.
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<PAGE> 14
Visionics will grow its business by leveraging the diverse vertical markets
of its partners. Visionics' business strategy emphasizes the encapsulation of
its technology into modules and software components that meet the requirements
of a large number of applications and that are easy to integrate by software
developers and original equipment manufacturers into finished products and
solutions. The applications of this enabling technology include security, access
control, banking, e-commerce, surveillance, law enforcement, national
identification, travel, multimedia search engines and personalization. Visionics
strives to develop superior enabling technology while its partners develop and
deploy products based on the Visionics technology for use in different markets.
It is Visionics' policy to cooperate, rather than compete, with its business
partners.
Visionics was incorporated in 1994 in the State of New Jersey. Visionics
executive offices are located at 1 Exchange Place, Suite 800, Jersey City, New
Jersey 07302 and its telephone number is (201) 332-9213. Visionics also has a
British wholly owned subsidiary called Visionics Ltd. that handles business
development and marketing in Europe and the Middle East.
Recent Announcements. The following summarizes events and other matters
addressed in recent public announcements by Visionics.
On October 25, 2000, Visionics announced that it has been named by Informix
as a Solution Showcase Award Program winner. The program targets all Informix
Solutions Alliance Partners in North America, Latin America and Canada. ISA
Partners were given the opportunity to submit their "Solution Success Stories"
to a team of reviewers who selected the most innovative solution that best
solved the customer's business problem using Informix technology. The criteria
to be considered in these categories included quantified ROI (implementation
costs and results), short implementation time, innovative and cutting-edge
application/solution and a solution that represents a revolutionary change in
business practice for Visionics.
On November 1, 2000, Visionics announced that it has been selected by DARPA
(the Defense Advanced Research Projects Agency) as a participant in the Human
Identification at a Distance program. The contract is in excess of two million
dollars to Visionics for an initial two-year period, with a provision that it
may be extended, for a similar amount, for an additional two years depending on
progress made during the initial phase. The overall goal of the Human
Identification program is to promote major technological leaps in the state of
the art of identification at a distance.
On November 29, 2000, Visionics announced that IBM Corporation has licensed
FaceIt(R) technology for biometric screensaver software that ships with IBM's
UltraPort camera, an option available for IBM A, T and X series ThinkPad
portable computers. These new IBM notebooks have an Ultra Port built-in on the
top of the monitor into which the camera plugs in and delivers full motion video
for a number of applications including face recognition.
The biometric screen saver uses FaceIt(R) technology to provide information
security and privacy in a convenient, user-friendly fashion. It also
demonstrates the potential for a more natural computer user interface that
leverages the camera's video capabilities. Like a regular screensaver, it locks
the screen upon user inactivity; it then keeps continuous watch, through the
UltraPort camera, for human faces in the field of view. Once the face of the
authorized user reappears, the software reopens the screen and restores the
desktop to where the user had left it. The software also provides for an audit
trail of all faces that appeared in the field of view while the system was
locked.
THE MERGER
RECOMMENDATION OF DBI'S BOARD OF DIRECTORS; DBI'S REASONS FOR THE MERGER
On October 18, 2000, the DBI Board of Directors unanimously determined that
the merger agreement and the transactions contemplated by the merger agreement,
including the merger and DBI's assumption of all options to purchase Visionics
common stock outstanding at the effective time of the merger, were advisable and
fair to and in the best interests of DBI and its stockholders. In reaching its
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<PAGE> 15
decision to approve the merger agreement and the transactions contemplated by
the merger agreement, the DBI Board considered several factors, including:
- DBI has concluded that significant growth opportunities are available in
commercial markets for biometric applications, especially those utilizing
facial recognition. Combining DBI's and Visionics' respective strengths
and other attributes are compatible with the strategy of pursuing
commercial markets. DBI possesses significant expertise in the design,
assembly, deployment, integration and support of complex biometric
hardware and software systems. Visionics will contribute its facial
recognition software engine, substantial expertise in the software and
systems aspects of Internet-enabled appliances, a broad and deep
understanding of the commercial markets for biometrics, and a partner
network consisting of original equipment manufacturers, software
developers, system integrators and value added resellers. The combined
entity will have a broader array of products to offer customers and
greater diversity in markets served than presently possessed by either
DBI or Visionics.
- DBI believes the investor community has discounted DBI's valuation due to
its relatively small size, concerns regarding fluctuations in its
revenues and operating results, the high percentage of its revenues
generated by government customers, and its limited involvement with
commercial biometric applications outside of fingerprint-based criminal
background checks. DBI's management believes the combined entity's
greater commercial focus will generate more interest from institutional
investors.
- The merged entity will be able to combine aspects of each company's
technology to develop new biometric applications as well as leverage each
company's research and development efforts and manufacturing and product
support expertise across a larger, single organization.
RECOMMENDATION OF VISIONICS' BOARD OF DIRECTORS; VISIONICS' REASONS FOR THE
MERGER
On October 18, 2000, the Visionics Board of Directors unanimously
determined that the merger agreement and the transactions contemplated by the
merger agreement were advisable and fair to and in the best interests of
Visionics and its stockholders. In reaching its decision to approve the merger
agreement and the transactions contemplated by the merger agreement, the
Visionics Board considered several factors, including:
- Visionics believes the merger of the respective strengths and other
attributes of Visionics and DBI will place the combined entity at the
forefront of the biometrics technology industry.
- Visionics has concluded that significant growth opportunities are
available in commercial markets for biometric applications. Combining
Visionics' and DBI's respective strengths and other attributes are
compatible with the strategy of pursuing commercial markets. DBI
possesses significant expertise in the design, assembly, deployment,
integration and support of complex biometric hardware and software
systems. Visionics will contribute its facial recognition software
engine, substantial expertise in the software and systems aspects of
Internet-enabled appliances, a broad and deep understanding of the
commercial markets for biometrics, and a partner network consisting of
original equipment manufacturers, software developers, system integrators
and value added resellers. The combined entity will have a broader array
of products to offer customers and greater diversity in markets served
than presently possessed by either DBI or Visionics.
- The merged entity will be able to combine each company's technology to
develop new biometric applications and leverage research and development
costs and manufacturing and product support expertise across a larger
organization.
TERMS OF THE MERGER
General. At the effective time of the merger, VC Acquisition Corp. will be
merged with and into Visionics, the issued and outstanding shares of Visionics
Corporation common stock will be converted into the right to receive shares of
DBI common stock, and all of the issued and outstanding shares of
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<PAGE> 16
VC Acquisition Corp. common stock will be converted into one share of Visionics
Corporation common stock. As the surviving corporation, Visionics will continue
to operate as a separate company and a wholly owned subsidiary of DBI. DBI's
management may merge the subsidiary into the parent corporation after a
transition period of an indeterminate length. The merger will become effective
upon the filing of a certificate of merger with the Department of Treasury of
the State of New Jersey. Assuming all conditions to the merger are met or waived
by the appropriate party or parties, it is anticipated that the merger will be
completed within one week after the special meeting of DBI's stockholders.
At the effective time of the merger, DBI's name will be changed to
"Visionics Corporation" and the name of the former Visionics Corporation will be
changed to "Visionics Technology Corporation." In the interest of avoiding
confusion, both DBI and Visionics will be referred to by their current names
throughout this proxy statement/prospectus.
Conversion of Shares; Treatment of Options. Pursuant to the terms of the
merger agreement, at the effective time of the merger, all issued and
outstanding shares of Visionics common stock will be cancelled and converted
into shares of DBI common stock based on a formula which allocates merger
consideration equal in value to 7,000,000 shares of DBI common stock among the
holders of Visionics common stock and options to purchase common stock on a
basis giving effect to the exercise of all such options and DBI's receipt of the
aggregate exercise price. A number of shares of DBI common stock in excess of
7,000,000 will be issuable pursuant to the merger such that, after taking into
account DBI's receipt of the aggregate exercise price for the Visionics options
assumed by DBI, the net merger consideration payable by DBI will be equal in
value to 7,000,000 shares of its common stock.
Escrow of Shares Issued in the Merger. To support the Visionics
shareholders' indemnification obligations under the merger agreement, ten
percent of the shares of DBI common stock issuable in the merger will be
deposited with an escrow agent pursuant to an escrow agreement to be entered
into by and among DBI, the escrow agent and an attorney-in-fact representing the
Visionics shareholders.
Indemnification. The merger agreement provides that the Visionics
shareholders will indemnify DBI for any and all losses or damages resulting from
any breach by Visionics of representations, warranties, covenants or other terms
contained in the merger agreement and all related agreements. Under the
indemnification provisions of the merger agreement, the liability of the
Visionics shareholders other than certain significant shareholders is limited to
the escrow shares, and the indemnification claims of DBI are subject to a
minimum threshold of $50,000. In general, the indemnification liability of the
aforementioned significant shareholders is limited to 20 percent of the
aggregate merger consideration (less the significant shareholders' pro rata
portion of the escrow shares).
Registration of DBI Common Stock; Resale. The issuance of the shares of
DBI common stock to effect the merger has been registered under the Securities
Act of 1933, as amended. With certain exceptions described below, such shares
will be freely resalable by the holders following the publication of results of
operations of the combined corporations for a period not less than 30 days. Each
of four significant shareholders of Visionics, together with Visionics' other
executive officers and directors, is deemed to be an "affiliate" of Visionics
under the federal securities laws. Such affiliate status results in the
imposition of certain volume limitations (contained in Rule 144 promulgated
under the Securities Act) on resales of DBI common stock received in the merger
for a period of one year. Shares of DBI common stock held in the escrow account
may be sold by the beneficial owners of such shares provided that proceeds from
the sales remain in the escrow account for the duration of the escrow period.
Conditions to the Merger. The obligation of the parties to effect the
merger are subject to the satisfaction of certain conditions, including without
limitation:
- the continued accuracy of the parties' representations and warranties;
- the absence of any material adverse change in the financial condition and
results of operations of the parties;
- approval of the merger by the stockholders of DBI and the shareholders of
Visionics;
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<PAGE> 17
- the Securities and Exchange Commission declaring effective the
registration statement covering the shares of DBI common stock issuable
in the merger;
- DBI's receipt of a letter from its independent certified public
accountants stating that the merger may be accounted for using the
pooling of interests method;
- the parties' receipt of opinions from their respective legal counsels to
the effect that the merger will qualify as a reorganization under Section
368(a) of the Internal Revenue Code; and
- the average closing price of DBI's common stock for the 20 trading days
preceding the closing date for the merger equaling or exceeding $4.00.
Termination of the Merger Agreement. The merger agreement may be
terminated by either party if:
- the merger has not been effected prior to May 31, 2001;
- either party fails to obtain the approval of its stockholders or
shareholders;
- any state or federal governmental authority shall have taken action to
prohibit or enjoin the merger; or
- the average closing price of DBI's common stock for the 20 trading days
preceding the closing date for the merger does not equal or exceed $4.00.
DBI may terminate the merger agreement if the representations and
warranties made by Visionics are no longer accurate or Visionics has breached a
covenant contained in the merger agreement.
Visionics may terminate the merger agreement if the representations and
warranties made by DBI are no longer accurate or if DBI has breached a covenant
contained in the merger agreement.
Dissenters' Rights. Any Visionics shareholder who gives proper written
demand of his dissenters' rights prior to action by the Visionics shareholders
with respect to the merger, who does not vote in favor of the merger and who
complies with other requirements of applicable New Jersey law, will have a right
to demand payment of the fair value of his or her shares of Visionics common
stock.
OPINION OF DBI'S FINANCIAL ADVISOR
SunTrust Equitable Securities provided its opinion to the DBI Board of
Directors that, as of the date of its opinion, which was October 18, 2000, the
exchange ratio of DBI common stock to be issued in consideration for Visionics
common stock and options to purchase Visionics common stock was fair from a
financial point of view to the stockholders of DBI. The full text of the
SunTrust Equitable Securities opinion, which sets forth assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached as Appendix B to this proxy statement/prospectus and is
incorporated by reference into this proxy statement/prospectus.
The opinion of SunTrust Equitable Securities does not constitute a
recommendation as to how you should vote your shares with respect to the merger.
We urge you to read the opinion in its entirety.
Pursuant to DBI's January 2000 agreement with SunTrust Equitable
Securities, DBI has agreed to pay SunTrust Equitable Securities a transaction
fee equal to two percent of the value of the aggregate consideration paid by DBI
in the merger. In addition, DBI has agreed to pay SunTrust Equitable Securities
a fee of $250,000 for a fairness opinion with respect to the merger. DBI has
also agreed to indemnify SunTrust Equitable Securities against certain
liabilities, including certain liabilities under the federal securities laws.
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<PAGE> 18
MARKET PRICE DATA
The common stock of DBI has been traded on the Nasdaq Stock Market under
the symbol "DBII" since DBI's initial public offering in December 1990. No
established trading market exists for Visionics common stock.
The closing sale price per share of DBI common stock, as reported on the
Nasdaq Stock Market on October 18, 2000, the last full trading day before the
execution of the merger agreement by DBI was $5.25. See "Market Price and
Dividend Information."
VOTING AGREEMENTS
Pursuant to the terms of the merger agreement, the holders of 99 percent of
the issued and outstanding shares of Visionics common stock have entered into
voting agreements with DBI. Each such agreement:
(i) restricts the transfer of the shareholder's shares;
(ii) imposes on the shareholder an obligation to vote in favor of the
merger in connection with any shareholder action taken with respect to the
merger; and
(iii) grants to DBI an irrevocable proxy to vote the shareholder's
shares in the manner specified in the voting agreement.
This proxy statement/prospectus also serves as an information statement for
approval of the merger by Visionics' shareholders.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based on the projected capitalization of Visionics at the effective time of
the merger, the number of shares of DBI common stock issued and outstanding as
of October 31, 2000, and assuming a $6.00 20-day average DBI stock price at the
effective time of the merger and no exercise of dissenters' rights, at the
effective time of the merger, the holders of shares of Visionics common stock
and options to purchase Visionics common stock (assuming for this purpose the
exercise of such options), subject to the provisions of the escrow agreement,
will beneficially own approximately 26 percent of DBI's total issued and
outstanding shares, determined on a fully-diluted basis.
CONDUCT OF VISIONICS' BUSINESS PRIOR TO THE MERGER
Under the merger agreement, Visionics has agreed, during the period from
the date of the merger agreement and continuing until the earlier of the
termination of the merger agreement pursuant to its terms or the consummation of
the merger, except to the extent that DBI otherwise consents in writing, that
Visionics will carry on its business in the ordinary course, use all reasonable
efforts to preserve intact Visionics' current business organization, keep
available the services of its current officers, employees, and agents and
maintain its relations and goodwill with customers, suppliers, landlords,
creditors, employees, agents, and others conducting business with Visionics.
Visionics is prohibited from taking certain actions without DBI's prior consent,
including without limitation:
- amending its charter documents, issuing shares of its capital stock
(except upon exercise of currently outstanding options) or issuing
securities convertible into shares of its capital stock;
- incurring or assuming any debt (exclusive of the loan from DBI);
- acquiring or merging with any other entity; or
- taking any action which may disqualify the merger for pooling of
interests accounting or as a tax-free reorganization.
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OPERATIONS FOLLOWING THE MERGER
Upon the closing of the merger, Visionics will be operated as a wholly
owned subsidiary of DBI, maintaining its offices in New Jersey. DBI's management
may merge the subsidiary into the parent corporation after a transition period
of an indeterminate length. Dr. Joseph Atick, currently the Chief Executive
Officer of Visionics, will become the Chief Executive Officer of DBI. John
Metil, President and Chief Executive Officer of DBI, will assume the office of
President and each of Dr. Atick and Mr. Metil will report directly to DBI's
Board of Directors. James Granger will remain as Chairman of DBI's Board of
Directors. Dr. Atick and Jason Choo, an executive of Lonsdale Group Limited, a
major shareholder of Visionics, will join DBI's Board of Directors.
Pursuant to the merger agreement, the certificate of incorporation of
Visionics in effect immediately prior to the merger will remain in effect for
the subsidiary after the merger.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The merger is intended to qualify as a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended, and accordingly:
(i) none of DBI, Visionics or VC Acquisition Corp. should recognize
gain or loss as a result of the merger; and
(ii) in general, holders of Visionics common stock who exchange their
shares for DBI common shares will not recognize a taxable gain or loss on
the exchange.
Assuming the merger qualifies as a tax-free reorganization under Section
368(a) of the Internal Revenue Code, holders of options to purchase shares of
Visionics common stock who receive options to purchase shares of DBI common
stock upon their cancellation will recognize no taxable income or loss on the
exchange. Upon any subsequent exercise of options to purchase shares of DBI
common stock, the holder will recognize ordinary income equal to the excess of
the market value of the shares acquired over the aggregate exercise paid. See
"The Merger and Related Transactions -- Certain Federal Income Tax
Considerations."
ACCOUNTING TREATMENT
DBI anticipates that the merger will be accounted for as a pooling of
interests for financial reporting purposes in accordance with accounting
principles generally accepted in the United States of America. DBI's receipt of
a letter from its independent certified public accountants, KPMG LLP, stating
that the merger may be accounted using the pooling of interests method is a
condition to DBI's obligation to complete the merger.
WORKING CAPITAL FACILITY
Concurrent with the parties' execution and delivery of the merger
agreement, DBI provided to Visionics a six-month $1,000,000 working capital
facility bearing interest at 12.5 percent per annum and secured by substantially
all the assets of Visionics.
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THE SPECIAL MEETING
RECORD DATE; VOTING POWER
You are entitled to vote at the special meeting if you owned shares of DBI
common stock as of the close of business on December 29, 2000, the record date
for the special meeting.
On the record date, there were shares of DBI common stock
outstanding. DBI stockholders will have one vote for each share of DBI common
stock they owned at the record date.
MEETING QUORUM; VOTES REQUIRED
Under Section 216 of the Delaware General Corporation Law, a majority of
the shares of common stock outstanding on the record date must be present in
person or represented by proxy to establish a quorum for the transaction of
business at the special meeting. A majority of the shares present at the special
meeting in person or represented by proxy and entitled to vote at the special
meeting must vote to approve and adopt the merger agreement and approve the
merger.
RISK FACTORS
In considering whether to approve and adopt the merger agreement and the
transactions contemplated by the merger agreement, including the merger, you
should carefully review and consider the information contained below in "Risk
Factors."
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SUMMARY HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION AND
COMPARATIVE UNAUDITED PER SHARE DATA
The following table presents selected comparative unaudited per share data
for DBI on a historical and pro forma combined basis, and for Visionics on a
historical and pro forma equivalent basis, giving effect to the merger assuming
that 0.52 shares of DBI are issued in exchange for each share of Visionics
common stock. Such exchange ratio is based on an assumed 20-day average closing
market price of DBI's common stock of $6.00 per share. The information presented
below is derived from the combined consolidated historical financial statements
of DBI and Visionics, including the related notes thereto, incorporated by
reference and included elsewhere herein, respectively, and the unaudited pro
forma condensed combined balance sheet and statement of operations, included
elsewhere herein. This information should be read in conjunction with such
historical and pro forma financial statements and the related notes thereto. See
"Incorporation of Certain Documents by Reference" and "Unaudited Pro Forma
Condensed Combined Financial Statements."
The pro forma earnings (loss) per share data do not reflect: (i) the direct
transaction costs of the merger, or (ii) any benefits from the utilization of
DBI's net operating loss carryforwards. The per share data set forth below is
not necessarily indicative of the results of the future operations of the
combined entity or the actual results that would have been achieved had the
merger been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
VISIONICS
DBI COMMON STOCK COMMON STOCK
----------------------- ------------------------
PRO FORMA PRO FORMA
COMBINED HISTORICAL EQUIVALENT
HISTORICAL (1) (5) (1)(3)(4)
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
EARNINGS (LOSS) PER SHARE FROM CONTINUING
OPERATIONS -- ASSUMING DILUTION(1)
Year Ended September 30, 2000.................... $ 0.02 $(0.02) $(0.11) $(0.01)
Year Ended September 30, 1999.................... $ 0.01 $(0.01) $(0.02) $ 0.00
Year Ended September 30, 1998.................... $(0.38) $(0.30) $(0.05) $(0.16)
DIVIDENDS(2)..................................... -- -- -- --
BOOK VALUE(3)(4) September 30, 2000.............. $ 0.54 $ 0.50 $ 0.20 $ 0.26
</TABLE>
NOTES TO COMPARATIVE UNAUDITED PER SHARE DATA
(1) The unaudited pro forma combined information per share combines
financial information of DBI for the fiscal years ended September 30, 2000, 1999
and 1998 with the financial information of Visionics for the fiscal year ended
September 30, 2000 and the calendar years ended December 31, 1999 and 1998,
respectively. See pages 79-81 for the unaudited pro forma condensed combined
statements of operations.
(2) Neither DBI nor Visionics have declared or paid dividends since their
inception.
(3) The unaudited Visionics equivalent pro forma per share amounts are
calculated by multiplying the respective pro forma combined per share amounts by
a pro forma exchange ratio of .52 shares of DBI common stock for each share of
Visionics common stock.
(4) Historical book value per share is computed by dividing total
stockholders' equity by the number of common shares outstanding at the end of
each period presented. Pro forma combined book value per share is computed by
dividing pro forma total stockholders' equity by the pro forma number of common
shares outstanding at September 30, 2000 for DBI and for Visionics. The
Visionics equivalent pro forma book value per share is calculated by multiplying
the pro forma combined book value per share amount by the exchange ratio.
(5) Historical Visionics net loss per share is reflected as of Visionics'
year ended September 30, 2000 and fiscal years ended December 31, 1999 and 1998,
respectively.
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MARKET PRICE AND DIVIDEND INFORMATION
DBI's common stock is listed on the Nasdaq National Market ("Nasdaq") under
the symbol "DBII." The following table sets forth the range of high and low
closing prices reported on Nasdaq for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
----- ------
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1998
First Quarter............................................. $2.50 $1.25
Second Quarter............................................ $2.13 $1.16
Third Quarter............................................. $2.66 $1.56
Fourth Quarter............................................ $2.56 $ .97
FISCAL YEAR ENDED SEPTEMBER 30, 1999
First Quarter............................................. $1.88 $ .91
Second Quarter............................................ $1.88 $1.22
Third Quarter............................................. $2.72 $1.19
Fourth Quarter............................................ $3.63 $2.25
FISCAL YEAR ENDED SEPTEMBER 30, 2000
First Quarter............................................. $4.63 $2.75
Second Quarter............................................ $9.13 $3.81
Third Quarter............................................. $7.63 $3.50
Fourth Quarter............................................ $6.25 $3.88
FISCAL YEAR ENDING SEPTEMBER 30, 2001
First Quarter [through December 22, 2000]................. $6.75 $3.188
</TABLE>
Visionics' common stock is not publicly traded.
The following table sets forth the closing price per share of DBI common
stock and the "equivalent per share price" (as defined below) of Visionics
common stock as of (i) October 18, 2000, the last trading day before DBI and
Visionics announced the signing of the merger agreement, and (ii) December 22,
2000, the most recent practicable date prior to the printing of this proxy
statement/prospectus for which such information was obtainable. The "equivalent
per share price" of Visionics common stock as of such dates equals the closing
price per share of DBI common stock on such dates multiplied by the pro forma
exchange ratio of .52 (such ratio is based on the closing market price of DBI's
common stock on October 18, 2000 of $5.25 per share). See "The Merger -- the
Merger Agreement -- Manner and Basis of Converting Shares."
<TABLE>
<CAPTION>
DBI VISIONICS
COMMON EQUIVALENT PER
STOCK SHARE
------- ---------------
<S> <C> <C>
MARKET PRICE PER SHARE AT:
October 18, 2000............................................ $ 5.25 $ 2.73
December 22, 2000........................................... $ 3.50 $ 1.82
</TABLE>
Apart from the publicly disclosed information concerning DBI which is
included and incorporated by reference in this proxy statement/prospectus, DBI
cannot state with certainty what factors account for changes in the market price
of its stock.
19
<PAGE> 23
Visionics shareholders are advised to obtain current market quotations for
DBI common stock. No assurance can be given as to the market price of DBI common
stock at any time before the merger becomes effective or at any time thereafter.
THE NUMBER OF SHARES OF DBI COMMON STOCK TO BE ISSUED IN THE MERGER IS
RELATIVELY INSENSITIVE TO CHANGES IN THE MARKET PRICE OF DBI COMMON STOCK WHICH
COULD OCCUR BEFORE THE MERGER BECOMES EFFECTIVE. CONSEQUENTLY, IF THE MARKET
PRICE OF DBI COMMON STOCK DECREASES PRIOR TO THE MERGER, THE VALUE OF THE MERGER
CONSIDERATION PAYABLE TO VISIONICS SHAREHOLDERS WILL ALSO DECREASE. See "The
Merger -- The Merger Agreement -- Manner and Basis of Converting Shares."
DBI has reserved the Nasdaq symbol "VSNX" for use in the event the merger
with Visionics is completed.
20
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA OF DIGITAL BIOMETRICS, INC.
The following selected historical consolidated financial data should be
read in conjunction with DBI's consolidated financial statements and related
notes thereto and DBI's "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included or incorporated by reference in
this document. The consolidated statements of operations data for each of the
years in the five-year period ended September 30, 2000, and the consolidated
balance sheet data as of September 30, 2000, 1999, 1998, 1997 and 1996, are
derived from the consolidated financial statements of DBI. DBI's consolidated
financial statements for each of the years in the three-year period ended
September 30, 2000, and as of September 30, 2000 and 1999 are incorporated by
reference in this document. Historical results are not necessarily indicative of
the results to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................. $22,940,468 $22,199,250 $11,322,691 $11,419,358 $ 8,327,272
Cost of revenue.......................... 14,819,385 14,954,356 8,516,958 8,811,271 6,181,481
Cost of revenue -- non-recurring
charges................................ -- -- -- 1,529,118 --
----------- ----------- ----------- ----------- ------------
Gross margin........................... 8,121,083 7,244,894 2,805,733 1,078,969 2,145,791
----------- ----------- ----------- ----------- ------------
Operating expenses:
Selling, general and administrative.... 7,676,266 6,862,353 7,081,579 6,946,935 11,742,220
Non-recurring charges.................. 221,473 -- -- 330,319 --
----------- ----------- ----------- ----------- ------------
Total expenses.................. 7,897,739 6,862,353 7,081,579 7,277,254 11,742,220
----------- ----------- ----------- ----------- ------------
Income (loss) from operations............ 223,344 382,541 (4,275,846) (6,198,285) (9,596,429)
Other income (expense)................... 214,884 (283,653) (612,586) (77,109) (2,090,474)
----------- ----------- ----------- ----------- ------------
Net income (loss)........................ $ 438,228 $ 98,888 $(4,888,432) $(6,275,394) $(11,686,903)
=========== =========== =========== =========== ============
Net income (loss) per common share....... $ 0.03 $ 0.01 $ (0.38) $ (0.53) $ (1.24)
=========== =========== =========== =========== ============
Net income (loss) per common share --
assuming dilution...................... $ 0.02 $ 0.01 $ (0.38) $ (0.53) $ (1.24)
=========== =========== =========== =========== ============
Weighted average common shares........... 16,595,051 14,781,936 12,748,140 11,766,220 9,451,015
=========== =========== =========== =========== ============
Weighted average common shares --assuming
dilution............................... 18,074,983 15,081,973 12,748,140 11,766,220 9,451,015
=========== =========== =========== =========== ============
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 1,893,156 $ 3,175,868 $ 840,616 $ 1,891,397 $ 466,990
Accounts receivable, net................. 9,256,468 7,415,334 4,352,197 5,161,356 5,676,849
Working capital.......................... 8,161,709 6,384,809 3,783,401 6,131,758 5,506,587
Total assets............................. 16,246,299 14,746,781 9,418,461 10,699,238 17,309,371
Long-term obligations.................... -- 241,174 997,957 -- 2,374,739
Total liabilities........................ 7,103,772 7,616,452 5,470,349 3,533,990 6,853,999
Stockholders' equity..................... 9,142,527 7,130,329 3,948,112 7,165,248 10,455,372
</TABLE>
DBI has paid no cash dividends on its common stock.
21
<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA OF VISIONICS CORPORATION
The following selected historical financial data should be read in
conjunction with Visionics' consolidated financial statements and related notes
thereto and Visionics' "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this document. The
consolidated statements of operations data for the years ended September 30,
2000 and December 31, 1999 and 1998, and the consolidated balance sheet data at
September 30, 2000 and December 31, 1999 and 1998 are derived from the financial
statements of Visionics which are included elsewhere in this document. The
presentation has the effect of including Visionics' consolidated results of
operations for the three months ended December 31, 1999 in the statements of
operations for both the year ended December 31, 1999 and the year ended
September 30, 2000. The consolidated statements of operations data for the years
ended December 31, 1997 and 1996, and the consolidated balance sheet data at
December 31, 1997 and 1996 are derived from the unaudited consolidated financial
statements of Visionics and are not included or incorporated by reference in
this document. Historical results are not necessarily indicative of the results
to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------------------------
2000 1999 1998 1997 1996
------------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................. $ 2,634,592 $ 2,623,314 $ 1,891,745 $ 1,739,700 $113,314
Cost of revenue......................... 658,303 301,207 463,095 351,797 39,452
----------- ----------- ----------- ----------- --------
Gross margin................... 1,976,289 2,322,107 1,438,650 1,387,903 73,862
----------- ----------- ----------- ----------- --------
Operating expenses:
Selling, general and development...... 3,381,968 2,645,002 2,020,742 734,333 135,543
Non-recurring charges................. 78,689 -- -- -- --
----------- ----------- ----------- ----------- --------
Total expenses................. 3,460,657 2,645,002 2,020,742 734,333 135,543
----------- ----------- ----------- ----------- --------
Income (loss) from operations........... (1,484,368) (322,895) (592,092) 653,570 (61,681)
Other income (expense).................. 140,734 152,804 (71,791) (1,871) --
----------- ----------- ----------- ----------- --------
Income (loss) before provision for
(benefit of) income taxes............. (1,343,634) (170,091) (663,883) 651,699 (61,681)
Provision for (benefit of) income
taxes................................. (37,538) 56,974 (123,000) 240,000 --
----------- ----------- ----------- ----------- --------
Net income (loss)....................... $(1,306,096) $ (227,065) $ (540,883) $ 411,699 $(61,681)
=========== =========== =========== =========== ========
Net income (loss) per common share...... $ (0.11) $ (0.02) $ (0.05) $ 0.04 $ (0.31)
=========== =========== =========== =========== ========
Net income (loss) per common share --
assuming dilution..................... $ (0.11) $ (0.02) $ (0.05) $ 0.04 $ (0.31)
=========== =========== =========== =========== ========
Weighted average common
shares................................ 12,050,840 12,007,630 11,841,096 10,000,000 200,000
=========== =========== =========== =========== ========
Weighted average common shares --
assuming dilution..................... 12,050,840 12,007,630 11,841,096 10,107,181 200,000
=========== =========== =========== =========== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------
2000 1999 1998 1997 1996
------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $1,730,418 $3,126,605 $3,131,022 $ 23,940 $ 1,197
Accounts receivable, net.................... 523,328 297,993 194,798 681,957 --
Working capital (deficit)................... 1,584,481 3,149,419 3,156,894 313,912 (24,924)
Total assets................................ 3,659,504 4,411,982 3,672,966 838,003 15,786
Long-term obligations....................... 543,850 857,889 62,000 65,267 51,222
Total liabilities........................... 1,267,100 1,190,833 231,069 457,841 77,343
Stockholders' equity (deficit).............. 2,392,404 3,221,149 3,441,897 380,192 (61,557)
</TABLE>
Visionics has paid no dividends on its common stock.
22
<PAGE> 26
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The selected unaudited pro forma combined financial data reflects the
merger using the pooling of interests method of accounting. The unaudited pro
forma condensed combined statements of operations combine DBI's consolidated
statements of operations data for the fiscal years ended September 30, 2000,
1999 and 1998 with Visionics' statements of operations data for the fiscal year
ended September 30, 2000 and the calendar years ended December 31, 1999 and
1998, respectively. The presentation has the effect of including Visionics'
results of operations for the three months ended December 31, 1999 in the
unaudited pro forma condensed combined statements of operations for both the
year ended December 31, 1999 and the year ended September 30, 2000. The selected
unaudited pro forma combined financial data have been derived from information
contained in the most recent annual and quarterly financial statements of DBI
and Visionics, which are incorporated herein by reference or included elsewhere
herein, respectively.
The selected unaudited pro forma combined financial data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the merger had been
consummated at the beginning of the periods indicated, nor is such information
indicative of the future operating results or financial position of DBI after
the merger.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................... $25,575,060 $24,822,564 $13,214,436
Cost of revenue....................................... 15,477,688 15,714,578 8,980,053
----------- ----------- -----------
Gross margin................................ 10,097,372 9,107,986 4,234,383
----------- ----------- -----------
Operating expenses:
Selling, general and development.................... 11,058,234 9,048,340 9,102,321
----------- ----------- -----------
Total expenses.............................. 11,058,234 9,048,340 9,102,321
----------- ----------- -----------
Income (loss) from operations......................... (960,862) 59,646 (4,867,938)
Other income (expense)................................ 355,618 (130,849) (684,377)
----------- ----------- -----------
Income (loss) before provision for (benefit of) income
taxes............................................... $ (605,244) $ (71,203) $(5,552,315)
Provision for (benefit of) income taxes............... (37,538) 56,974 (123,000)
----------- ----------- -----------
Net loss.............................................. $ (567,706) $ (128,177) $(5,439,315)
=========== =========== ===========
Net loss per common share............................. $ (0.02) $ (0.01) $ (0.30)
=========== =========== ===========
Net loss per common share -- assuming dilution........ $ (0.02) $ (0.01) $ (0.30)
=========== =========== ===========
Weighted average common shares........................ 22,861,488 21,025,904 18,905,510
=========== =========== ===========
Weighted average common shares -- assuming dilution... 22,861,488 21,025,904 18,905,510
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 2000
---------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,623,574
Accounts receivable, net.................................... 9,779,796
Working capital............................................. 9,746,190
Total assets................................................ 19,905,803
Long-term obligations....................................... 543,850
Total liabilities........................................... 8,370,872
Stockholders' equity........................................ 11,534,931
</TABLE>
23
<PAGE> 27
RISK FACTORS
Information or statements provided by the Company from time to time,
including statements contained in this Form S-4, may contain certain
"forward-looking statements," including comments regarding anticipated future
operations, market opportunities, operating results and financial performance of
the Company. The Company's future operating performance and share price are
influenced by many factors, including factors which may be treated in
forward-looking statements. The Company cautions readers that any
forward-looking statements made by the Company or any of its representatives in
this Form S-4 or in any other reports, filings, press releases, speeches or
other comments, are not a guarantee of future performance. Any such
forward-looking statements are subject to risks and uncertainties that may cause
actual results to differ materially from those which may be projected on the
basis of such forward-looking statements. Furthermore, the Company assumes no
obligation to update such forward-looking statements.
Among the risks and uncertainties which may affect future performance are
those described below. These risk factors are being set forth pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995 with the
intention of obtaining the benefits of the "safe harbor" provisions of the
Reform Act for such forward-looking statements.
RISKS RELATING TO THE MERGER
DBI may not realize the anticipated benefits of the merger.
The anticipated benefits of the merger may not be achieved unless certain
operations of DBI and Visionics are successfully integrated, including aspects
of the two companies' research and development and marketing operations. The
transition to a combined company will require substantial management attention
and the process of coordination of the operations, especially research and
development and marketing, may be complicated by the necessity of combining
personnel in different locations with disparate business backgrounds and
corporate cultures. In addition, combining the two organizations could cause the
interruption of, or a loss of momentum in, the activities of either or both of
the companies' businesses. Any difficulties experienced in the transition
process and any loss of or interruption in business as a result of the diversion
of resources to pursue the integration of the organizations could have an
adverse effect on the combined operations.
Even if DBI is successful in integrating its operations with those of
Visionics, all or many of the anticipated benefits of the merger may not be
realized. The respective boards of directors of DBI and Visionics believe the
proposed merger will permit the combined company to achieve a level of success
neither company is capable of attaining on its own. However, there can be no
assurance that the merger will enhance DBI's profitability or otherwise benefit
its stockholders, including the former shareholders of Visionics who receive
shares of DBI common stock in the merger. In the event that the merger benefits
fail to materialize, the market price of DBI's common stock may be materially
adversely affected.
The aggregate number of shares of common stock to be issued by DBI in the
Merger is fixed and will not be adjusted in the event of any change in stock
price.
Under the merger agreement, DBI will issue an aggregate of approximately
7,000,000 shares of its common stock in exchange for all of the shares of
Visionics common stock and options to purchase shares of Visionics common stock.
This is a fixed number and will not be adjusted in the event of any increase or
decrease in the price of DBI common stock. The price of DBI common stock at the
closing of the merger may vary from its respective price or value on the date of
this proxy statement/prospectus and on the date of the special meeting. The
price of DBI common stock may vary because of changes in the business,
operations or prospects of DBI, the timing of the completion of the merger, the
prospects of post-merger operations, general market and economic conditions and
other factors. Because the date that the merger is completed may be later than
the date of the special meeting, the price of DBI common stock on the date of
the special meeting may not be indicative of its price on the date the merger is
completed.
24
<PAGE> 28
The business combination will dilute your percentage ownership of DBI's common
stock.
The business combination will dilute the percentage ownership held by DBI's
stockholders when compared to their ownership prior to the business combination.
Based upon the estimated capitalization of DBI at the effective time of the
merger, Visionics' shareholders will hold approximately 26 percent of DBI's
common stock (determined on a fully-diluted basis) after giving effect to the
issuance of such shares and the pro forma exercise of options to purchase
Visionics common stock to be assumed by DBI in connection with the merger.
Costs incurred in connection with the merger will have an adverse effect on
DBI's profitability.
DBI expects to incur substantial costs and expenses in connection with the
proposed merger, a large portion of which will be incurred whether or not the
merger is completed. DBI proposes to account for the merger using the pooling of
interests method, pursuant to which all such costs and expenses related to the
merger will be immediately charged against DBI's earnings rather than
capitalized and amortized to expense over an extended period. Consequently,
DBI's near-term profitability will be adversely affected, potentially resulting
in a reduction of the market price of its common stock.
DBI expects to incur significant costs and expenses to integrate the
operations of the two companies, negatively affecting DBI's short-term
profitability.
DBI's management anticipates that the process of integrating the two
companies' operations will require the immediate investment of substantial
resources. Financial benefits flowing from the merger, if any, are not expected
to be realized until fiscal 2002 or later. Consequently, the integration process
will likely have an adverse effect on DBI's short-term profitability and,
potentially, the market price of its common stock.
Visionics' customers may perceive the proposed merger as competitively
threatening.
Visionics' customers are primarily original equipment manufacturers,
application developers and system integrators who license Visionics' enabling
technology. DBI sells its products and services directly to end users, primarily
law enforcement agencies. Some of Visionics' customers may mistakenly perceive
DBI's sales practices as a competitive threat to their businesses and withdraw
from further interaction with Visionics, adversely affecting the business and
prospects of the combined company.
RISK FACTORS RELATING TO DBI
The following factors are among the most significant risks and
uncertainties which may affect the future performance of the business of Digital
Biometrics as it is currently constituted:
- The ability of DBI to manage its operations in light of historic and
expected volatility and unpredictability in its quarterly and annual
revenues;
- The financial impact of investments required to maintain and enhance the
competitiveness of DBI, as well as the financial impact of investments to
develop and enter new markets and to develop and introduce new products
and services;
- The ability of DBI to maintain operating profitability;
- Competitive technological advances to which DBI is unable to respond in a
timely manner or at all;
- The ability of DBI to develop, introduce and build revenue and profit
streams based on new products and services in existing and emerging
markets;
- Maintenance of the loyalty and continued purchasing of DBI's products by
existing customers;
- Execution on customer commitments, including the fulfillment of delivery
and installation schedules as may be established, modified, accelerated
or delayed by customers or DBI, and the
25
<PAGE> 29
implementation on time and within specifications of special features and
functionality required by various customer contracts;
- Litigation or threatened litigation;
- Challenges of contract awards by competitors resulting in legal expenses
and potential delays or reversals of customer purchase commitments;
- Collection of outstanding accounts receivable;
- Management of the concentration of accounts receivable and other credit
risks associated with selling products and services to governmental
entities and other large customers;
- Availability of adequate working capital and liquidity, including the
availability of additional financing as may be required;
- Creation and maintenance of satisfactory distribution and operations
relationships with third parties, including AFIS (automated fingerprint
identification systems) vendors, systems integrators and other product
providers;
- Attraction and retention of key employees due in particular to the
general shortage of technical employees and intense competition for their
services; and
- Continuance of the timely and cost-effective availability of components
and subassemblies.
DBI's financial performance may be adversely affected by competition;
anticipated growth in the markets for DBI's products and services may not
materialize.
Markets for DBI's products and services are characterized by significant
and increasing competition. DBI's financial results may be adversely affected by
the actions of existing and future competitors, including the development of new
technologies, the introduction of new products, and price reductions by such
competitors to gain or retain market share. Adverse consequences on DBI may
include the diminution of revenues and revenue opportunities, price reductions,
and the need to incur additional costs to respond to the actions of competitors.
Furthermore, DBI's expectations of future opportunities and investments to
capitalize on such opportunities are based on assumptions about growth in the
size of the market for identification systems and related products and services.
As this is a relatively new market, such assumptions and forecasts are
inherently difficult to make, and actual market growth may be substantially
different than DBI currently anticipates. Market growth depends on many factors,
including factors not within the control of DBI, including but not limited to
international market expansion, growth in applicant processing markets, and
replacement cycles for products currently in use.
DBI may be unable to develop new products and services as anticipated.
DBI intends to grow in part through the introduction of new products and
services in current and new markets. There can be no assurance that such new
products and services can be developed in a timely fashion, within allotted
budgets, or at all, nor can there be any assurance that such new products and
services will be accepted by the intended customers at profitable price levels
or at all.
Parts and subassemblies used in our manufacturing operations may not be
available when needed.
Certain components and subassemblies used in the manufacture of DBI's
systems are sourced from single suppliers. In the event that these suppliers are
unable to provide DBI with its requirements, or were to change pricing
significantly, DBI's results of operations could be materially and adversely
affected.
26
<PAGE> 30
If the merger is completed, DBI will need additional financing which may not
be available to DBI on reasonable terms or any terms.
Management believes that cash, cash equivalents, and other working capital
provided from operations, together with available financing sources, are
sufficient to meet current operating requirements of the business of Digital
Biometrics as it has existed historically. However, risks related to DBI's
ability to maintain adequate working capital and liquidity include the continued
availability of credit under DBI's line of credit which expires on January 31,
2001, the continued availability of vendor credit as needed, payment by
customers of accounts receivable at such times and in such amounts as to enable
DBI to meet its payment obligations, and continued profitable operating results.
In the event that the above or other liquidity risks materialize, DBI may be
unable to sustain its operations from the sources of working capital available
to it.
Furthermore, management may from time to time determine that the
competitive position of DBI may be enhanced through substantial and increased
investments in product and technology development programs and/or marketing
initiatives. Management may determine to make such investments despite its
assessment that gross profit during the investment period will be less than the
expenses to be incurred, thus resulting in an anticipated loss during the
period.
If the merger is consummated, DBI will require additional capital to fully
exploit the opportunities presented by the merger, such as joint product
development and entry into new markets. DBI is currently contemplating raising
the required capital through the issuance and sale of equity securities. There
can be no assurance, however, that the financing necessary to pursue the
combined company's business plan will be available on terms acceptable or
favorable to DBI, or on any terms. If DBI fails to obtain such financing, its
business prospects and the market price of DBI's common stock may be materially
adversely affected.
DBI's reliance on governmental agency customers has produced volatility in
revenues and earnings.
DBI's performance in any one reporting period is not necessarily indicative
of sales trends or future operating or earnings performance. During most
quarters, DBI's revenues are concentrated in a relatively small number of large
customers; historically, these have been government agencies. DBI is subject to
significant quarter-to-quarter fluctuations in revenue which are frequently very
difficult to predict. Such revenue volatility makes management of inventory
levels, cash flow and profitability inherently difficult. Factors which lead to
revenue fluctuations include variations in the availability of large
procurements and variations in the success of DBI in winning such procurements.
In the event DBI is successful in winning such procurements, there may be
planned unevenness in shipping schedules, as well as potential delays and
schedule changes in the timing of deliveries and recognition of revenue, or
cancellation of such procurements. Also, law enforcement and other government
agencies are subject to political, budgetary, purchasing and delivery
constraints which DBI expects may continue to result in quarterly and annual
revenues and operating results which may be irregular and difficult to predict.
Other factors also contribute to volatility in DBI's operating results.
In addition to potential volatility due to market characteristics just
described, DBI's financial results may be affected by many other factors which
are difficult to predict, including but not limited to: changes in the mix of
products sold; changes in the availability and pricing of components and
subassemblies; increases required in development and marketing expenses to
address opportunities or competitive pressures in the market; and unforeseen
legal expenses.
Particularly noteworthy is the need to invest in planned technical
development programs to maintain and enhance the competitiveness of DBI, and to
develop and launch new products and services. To improve the manageability and
likelihood of success of such programs requires the development of budgets,
plans and schedules for the execution of these programs and the adherence to
such budgets, plans and schedules. The majority of such program costs are
payroll and related staff expenses, and secondarily materials, subcontractors,
promotional expenses and the like. These costs are very difficult to adjust in
27
<PAGE> 31
response to short-term fluctuations in the revenues of DBI, compounding the
difficulty of achieving profitability in the event of a revenue downturn.
Furthermore, management may from time to time determine that the
competitive position of DBI may be enhanced through substantial and increased
investments in product and technology development programs and/or marketing
initiatives. Management may determine to make such investments despite its
assessment that gross profit during the investment period will be less than the
expenses to be incurred, thus resulting in an anticipated loss during the
period. Such planned losses may be particularly difficult to manage in light of
the volatility of DBI's revenue stream discussed above.
DBI's success depends in part on the efforts and success of third parties over
which DBI has no control.
In addition to its direct marketing activities, DBI markets its products
and services through various distribution and other cooperative relationships
with third parties such as AFIS suppliers and systems integrators. In many
cases, the sale of Digital Biometrics products or services is dependent on the
success of such third parties in winning contested procurements, in executing on
their own responsibilities under agreements with customers and in doing so in a
timely manner, and in the effectiveness of their selling efforts on behalf of
DBI's products. At times, such third party distributors may offer products of
DBI's competitors as well.
DBI's results of operations are subject to governmental credit, funding and
other related factors.
DBI extends substantial credit to federal, state and local governments in
connection with sales of DBI's products and services. Approximately 96 percent
and 94 percent, respectively, of customer accounts receivable at September 30,
2000 and 1999, were from government agencies, of which 34 percent was from one
customer at September 30, 2000 and 53 percent were from two customers at
September 30, 1999. For the years ended September 30, 2000, 1999 and 1998, sales
to two customers in 2000 accounted for 36 percent, sales to two customers in
1999 accounted for 43 percent, and sales to two customers in 1998 accounted for
28 percent, respectively, of annual sales. Sales to sizeable customers requiring
large and sophisticated networks of live-scan systems and peripheral equipment
often include technical requirements which may not be fully known at the time
requirements are specified by the customer. In addition, contracts may specify
performance criteria which must be satisfied before the customer accepts the
products and services. Collection of accounts receivable may be dependent on
completion of customer requirements, which may be unpredictable, subject to
change by the customer, and not fully understood at the time of acceptance of
the order by DBI, and may involve investment of additional DBI resources. These
investments of additional resources are accrued when amounts can be estimated
but may be uncompensated and negatively impact profit margins and DBI's
liquidity. Furthermore, in many instances, customer procurements are dependent
on the availability or continued availability of state or federal government
grants and general tax funding. Such funding may be subject to termination at
any time at the sole discretion of the government body providing or receiving
such funds. Additionally, without regard to termination of funding, government
agencies both domestically and internationally may successfully assert the right
to terminate business or funding relationships with DBI at their sole discretion
without adequate or any compensation or recourse for DBI.
DBI's ongoing success is dependent upon the continued availability of certain
key employees.
DBI is dependent in its operations on the continued availability of the
services of its employees, many of whom are individually key to DBI's current
and future success, and the availability of new employees to implement the
company's growth plans. The market for skilled employees is highly competitive,
especially for employees in technical fields. While DBI's compensation programs
are intended to attract and retain the employees required for DBI to be
successful, there can be no assurance that DBI will be able to retain the
services of all of its key employees or a sufficient number to execute on its
plans, nor can there be any assurances that DBI will be able to continue to
attract new employees as required.
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We may be unable to upgrade our products and develop and incorporate new
technologies as required to effectively compete in our industry.
DBI competes in markets characterized by continual and rapid technological
change. Frequently, technical development programs of DBI require assessments to
be made of the future directions of technology and technology markets generally,
which are inherently risky and difficult to predict. Failure to choose correctly
among technical alternatives may result in material adverse effects on the
competitive position, revenues, required spending levels and profitability of
DBI.
The competitive nature of DBI's markets requires continual investment in
upgrading of DBI's product and service offerings. There can be no assurance that
the pace of DBI's development efforts will be sufficient to maintain
competitiveness.
Continued participation by DBI in the market for live-scan systems which
are linked to forensic-quality databases under the jurisdiction of governmental
agencies may require the investment of DBI resources in upgrading of DBI's
products and technology for DBI to compete and to meet regulatory and statutory
standards. There can be no assurance that such resources will be available to
DBI or that the pace of product and technology development established by
management will be appropriate to the competitive requirements of the
marketplace.
Our joint venture with Lakes Gaming, Inc. is subject to all the risks inherent
in a start-up business.
On March 16, 1998, DBI entered into an agreement with Lakes Gaming, Inc.
(formerly Grand Casinos, Inc.) forming a joint venture, TRAK 21 Development,
LLC, to productize, test and market the TRAK-21 blackjack wagering data capture
and player tracking system. The joint venture is susceptible to the normal
business risks customary to a start-up operation. In particular, although
prototype models of TRAK-21 have been successfully demonstrated, there can be no
assurance that this technology will operate as required in live casino
environments or that products based on TRAK-21 technology will be accepted by
customers. In addition, it has not been determined whether or not the TRAK-21
system will be able to compete, on the basis of price and performance, with
player tracking systems of competitors whose systems have been marketed for
longer periods of time. Furthermore, productization and market launch of TRAK-21
may require additional capital which neither DBI nor Lakes Gaming is obligated
to provide. Therefore, there can be no assurance that the joint venture will be
profitable to DBI.
RISK FACTORS RELATING TO VISIONICS
The following factors are among the most significant risks and
uncertainties which may affect the future performance of the business of
Visionics:
- The emergence of a substantial and growing market for facial recognition
products;
- The ability of Visionics to manage its operations in light of historic
and expected volatility and unpredictability in its quarterly and annual
revenues;
- The financial impact of investments required to maintain and enhance the
competitiveness of Visionics, as well as the financial impact of
investments to develop and enter new markets and to develop and introduce
new products and services;
- The need to raise capital to finance the operations of Visionics until it
achieves cash flow self-sufficiency;
- The ability of Visionics to attain operating profitability;
- Competitive technological advances to which Visionics is unable to
respond in a timely manner or at all;
- The ability of Visionics to develop, introduce and build revenue and
profit streams based on new products and services in existing and
emerging markets;
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- Maintenance of the loyalty and continued purchasing of Visionics'
products by existing customers;
- Continued and accelerated sell-through by Visionics' partner channels to
end users;
- Competition from other biometric technologies or other non-biometric
technologies which accomplish the same objectives as Visionics' products;
- Legislation limiting the deployment and use of facial recognition
products;
- Management of the concentration of accounts receivable and other credit
risks associated with selling products and services to a relatively small
number of significant customers;
- Creation and maintenance of satisfactory distribution and operations
relationships with third parties, including original equipment
manufacturers, software developers, value-added resellers and systems
integrators; and
- Attraction and retention of key employees.
Visionics' financial performance may be adversely affected by competition;
anticipated growth in the markets for Visionics' products may not materialize.
The markets for Visionics' products are intensely competitive, both from
directly competing products as well as alternate technical solutions to many of
the security problems addressed by facial recognition. Visionics' financial
results may be adversely affected by the actions of existing and future
competitors, including the development of new products and technologies, the
introduction of new products, and price reductions by competitors to gain or
retain market share. Adverse consequences on Visionics may include the
diminution of revenues and revenue opportunities, price reductions, and the need
to incur additional costs to respond to the actions of competitors.
Furthermore, Visionics' expectations of future opportunities and
investments to capitalize on such opportunities are based on assumptions about
growth in the market for facial recognition products and services. As this is a
relatively new market such assumptions and forecasts are inherently difficult to
make, and actual market growth may be substantially different than Visionics
currently anticipates. Market growth depends on many factors, including factors
not within the control of Visionics.
Visionics may be unable to develop new products and services as anticipated.
Visionics intends to grow in part through the introduction of new products
and services in current and new markets. There can be no assurance that such new
products and services can be developed in a timely fashion, within allotted
budgets, or at all, nor can there be any assurance that such new products and
services will be accepted by the intended customers at profitable price levels
or at all.
Visionics requires additional capital to pursue its business plan and such
capital may not be available on acceptable terms or any terms.
Visionics is an early-stage company in an emerging market. Until reaching
agreement on a merger with DBI, Visionics was pursuing venture capital financing
to fund its operations. The growth plan of Visionics requires the continued
availability of investment capital in an amount which may exceed the resources
available from the internally-generated funds of DBI. Thus, the merged company
may require external investment capital. In the event that investment capital is
not available on terms acceptable to the merged company or at all, then the
growth plans and operations of Visionics may be adversely affected. Management
believes that cash, cash equivalents, and other working capital provided from
operations may not be sufficient to meet planned operating requirements of the
business of Visionics until and if profitability is achieved. In the event that
the above or other liquidity risks materialize, Visionics may be unable to
sustain its operations from the sources of working capital available to it.
Furthermore, management may from time to time determine that the
competitive position of Visionics may be enhanced through substantial and
increased investments in product and technology
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development programs and/or marketing initiatives. Management may determine to
make such investments despite its assessment that gross profit during the
investment period will be less than the expenses to be incurred, thus resulting
in an anticipated loss during the period.
Thus, there can be no assurance that further financing may not be required,
or, if further financing is required, that it will be available on terms that
are acceptable or favorable to Visionics, or at all. In light of the anticipated
merger, management believes that to fully exploit the opportunities inherent in
both companies, for instance the prospect of joint product development, entry
into new markets and the like, additional capital may be required. If additional
capital cannot be raised, the business plans of the merged company may be
substantially and negatively affected.
Visionics' results of operations are subject to significant volatility.
Visionics' performance in any one reporting period is not necessarily
indicative of sales trends or future operating or earnings performance.
Visionics' revenues each quarter are concentrated in a relatively small number
of large customers. Visionics is subject to significant quarter-to-quarter
fluctuations in revenue which are frequently very difficult to predict which may
result in fluctuations in earnings.
Other factors may also create volatility in Visionics' results of operations.
In addition to revenue fluctuations just noted, Visionics' financial
results may be affected by many other factors which are difficult to predict,
including but not limited to changes in the mix of products sold, increases
required in development and marketing expenses to address opportunities or
competitive pressures in the market, and unforeseen legal expenses.
Particularly noteworthy is the need to invest in planned technical
development programs to maintain and enhance the competitiveness of Visionics,
and to develop and launch new products and services. To improve the
manageability and likelihood of success of such programs requires the
development of budgets, plans and schedules for the execution of these programs
and the adherence to such budgets, plans and schedules. The majority of such
program costs are payroll and related staff expenses, and secondarily
subcontractors, materials, promotional expenses and the like. These costs are
very difficult to adjust in response to short-term fluctuations in the revenues
of Visionics, compounding the difficulty of achieving profitability in the event
of a revenue downturn.
Furthermore, management may from time to time determine that the
competitive position of Visionics may be enhanced through substantial and
increased investments in product and technology development programs and/or
marketing initiatives. Management may decide to make such investments despite
its estimation that the anticipated financial return will be realized in
subsequent periods, resulting in the incurrence of losses during the investment
period(s). Such planned losses may be particularly difficult to manage in light
of fluctuations in the Visionics' revenue stream discussed above.
Visionics' ongoing success is dependent in large part on the efforts and
success of third parties over which Visionics has no control.
Visionics markets its products and services through various distribution
and other cooperative relationships with third parties, including original
equipment manufacturers, software developers, value-added resellers and systems
integrators. In many cases, the sale of Visionics products or services is
dependent on the success of such third parties in winning contested
procurements, in executing on their own responsibilities under agreements with
customers and in doing so in a timely manner, and in the effectiveness of their
selling efforts on behalf of Visionics' products. At times, such third party
distributors may offer products of Visionics' competitors as well.
At present, the market for facial recognition products is at an early
stage. Revenues of Visionics come mainly from up-front minimum license fees from
original equipment manufacturers, software developers, value-added resellers and
integrators who have developed or are developing applications which utilize
Visionics' technology. For Visionics to be successful, its partners must be
successful in selling their
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applications to end users. In the event that they are not successful to the
extent required for Visionics to reach profitability, the operations of
Visionics may be significantly and adversely affected.
Visionics is subject to substantial and ongoing credit risk.
Visionics extends substantial credit to its customers in connection with
sales of Visionics' products and services. The operating cash flow of Visionics
is dependent on the timely collection of accounts receivable. In the event that
collections are delayed, the financial position of Visionics may be materially
adversely affected.
The markets for Visionics' products may be adversely affected by legislation
designed to protect privacy rights.
From time to time, facial recognition and other biometric technologies have
been the focus of organizations and individuals seeking to curtail or eliminate
the use of these technologies on the grounds that these technologies may be used
to diminish personal privacy rights. In the event that such initiatives result
in restrictive legislation, the market for facial recognition products may be
adversely affected.
Visionics' ongoing success is dependent on the continued availability of
certain key employees.
Visionics is dependent in its operations on the continued availability of
the services of its employees, many of whom are individually key to Visionics'
current and future success, and the availability of new employees to implement
Visionics' growth plans. The market for skilled employees is highly competitive,
especially for employees in technical fields. While Visionics' compensation
programs are intended to attract and retain the employees required for Visionics
to be successful, there can be no assurance that Visionics will be able to
retain the services of all of its key employees or a sufficient number to
execute on its plans, nor can there be any assurances that Visionics will be
able to continue to attract new employees as required.
Visionics may be unable to upgrade its products and develop and incorporate
new technologies at a rate sufficient to effectively compete in its industry.
Visionics competes in markets characterized by continual and rapid
technological change. Frequently, technical development programs of Visionics
require assessments to be made of the future directions of technology and
technology markets generally, both of which are inherently risky and difficult
to predict. Failure to choose correctly among technical alternatives may result
in material adverse impacts on the competitive position, revenues, required
spending levels and profitability of Visionics.
The competitive nature of Visionics' markets requires continual investment
in upgrading of Visionics' product and service offerings. There can be no
assurance that the pace of Visionics' development efforts will be sufficient to
maintain competitiveness.
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THE COMPANIES
DIGITAL BIOMETRICS, INC.
GENERAL
DBI is a leading provider of identification information systems that employ
"biometric" technology, which is the science of identifying individuals by
measuring distinguishing biological characteristics. DBI's biometric
identification systems and information technology services enable law
enforcement and other government agencies to identify and manage information
about individuals, and help commercial employers and government agencies to
conduct background checks on applicants for employment, permits or citizenship.
DBI's product and service offerings include computer-based fingerprinting and
photographic systems including mobile wireless systems, software tools,
multi-media data storage and communications servers, and the systems integration
and software development services required to deploy and use these systems.
DBI has evolved from essentially a single-product live-scan hardware
supplier to an identification information systems company. DBI continues to
expand its product line and information technology services to further penetrate
the law enforcement market, while introducing new products and services for the
emerging applicant-processing and security markets among commercial and
government customers. Typical customers include: U.S. government agencies such
as the Immigration and Naturalization Service (INS) and U.S. Postal Service;
local and state police; the United States armed forces; school districts;
financial institutions; utilities; airports; and casinos.
DBI's main products are special-purpose, computer-based "live-scan" systems
for the capture and transmission of high-resolution forensic-grade fingerprints,
along with text information on the fingerprinted subject and in some cases
photographs. 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 fingerprints and related
data to large-scale databases (sold by other vendors), and receive return
messages on the identity and background of the individual being checked. These
systems, including the new IBIS system for wireless, real-time mobile
identification, are among the most complex biometric systems ever developed.
DBI's business includes data capture systems as well as the integration skills
required to connect these systems to identification information networks. These
products and services are used by commercial customers and government agencies
to conduct fingerprint-based background checks on applicants for employment,
citizenship or permits, as well as by law enforcement agencies.
DBI's strategy is to continue to market live-scan systems to law
enforcement agencies and to expand its product and service offerings and the
markets it serves. The law enforcement market for live-scan biometric products
is well established. DBI believes there is growing demand from other
governmental and commercial markets to employ identification information
technologies in background checks, enrollment and applicant processing
applications. Digital Biometrics is aggressively pursuing these emerging
markets.
Additionally, DBI has aggressively explored accelerating its growth through
mergers or acquisitions and DBI retained SunTrust Equitable Securities to assist
management and the Board in generating and evaluating possibilities. The
proposed merger with Visionics Corporation is the result of this effort.
Also, DBI and Lakes Gaming, Inc. are engaged in a joint venture named TRAK
21 Development, LLC, to develop, test and market an automated wagering tracking
system based on technology developed by DBI. This system is intended to track
the betting activity of casino patrons playing blackjack.
During fiscal 2000, substantially all of DBI's revenues were derived from
sales of live-scan fingerprinting systems and related products and services.
Approximately 96 percent of customer accounts receivable at September 30, 2000
were from government agencies, of which 34 percent was from one customer. For
the last three fiscal years, sales to two customers accounted for 36 percent of
total revenues in 2000, sales to two customers accounted for 43 percent of total
revenues in 1999, and sales to two
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customers accounted for 28 percent of total revenues in 1998. Export revenues
were less than 1 percent, 2 percent and 9 percent of total revenues,
respectively, for those three fiscal years.
DBI's sales have historically included large purchases by a relatively
small number of customers. This concentration of sales among few relatively
large customers is expected to continue in the foreseeable future. Furthermore,
the nature of government markets and procurement processes is expected to result
in continued quarter-to-quarter fluctuations in DBI's revenues and earnings
which are and will continue to be difficult to predict.
DBI was incorporated in Minnesota in 1985 under the name C.F.A.
Technologies, Inc., was reincorporated in Delaware in 1986, and changed its name
to Digital Biometrics, Inc. in 1990. DBI's headquarters is located at 5600
Rowland Road, Minnetonka, Minnesota 55343, and its telephone number is (952)
932-0888.
IDENTIFICATION INFORMATION SYSTEMS MARKET
Digital Biometrics develops, manufactures and markets products, systems and
integration services in the identification systems segment of the security
industry. Biometrics is one of the important enabling technologies used in DBI's
products.
Biometrics offer two basic capabilities: verification and identification.
In verification, or one-to-one matching, a biometric measurement is matched
against one associated with the claimed identity. Voice and hand are only
capable of verification. Face, finger and iris are capable of delivering
identification as well as verification.
Biometric identification, which is the process of determining someone's
identity without knowing anything else, consists of a number of techniques at
various stages of technical maturity and market acceptance. Many of these
techniques have been incorporated into computer-based hardware and software
measurement technologies. The goal of using biometric products is that, when
used with databases of characteristics which previously have been positively
linked to specific individuals, these products enable the positive
identification of individuals whose identity is under scrutiny.
The biometrics technologies family includes fingerprinting (forensic and
non-forensic), facial recognition, voice recognition, retinal and iris scanning,
DNA analysis, hand geometry, handwriting analysis and keystroke analysis.
Biometrics provide proof of identity which is not based on something one
possesses such as an identification card, passport, token or key, nor based on
something one remembers such as a password or personal identification number,
but based on a stable physical trait such as the measurements of finger image
patterns or facial characteristics.
Fingerprinting. For over a century, fingerprints have been the method of
choice to positively identify individuals. Forensic scientists endeavor to match
latent fingerprints lifted from crime scenes with the fingerprints of suspected
perpetrators. Criminal courts throughout the world accept the testimony of
fingerprint experts, and convictions are routinely achieved with fingerprint
evidence. Computerizing fingerprint identification methods has greatly increased
the speed of criminal identification processes and has been widely accepted in
the law enforcement community. As yet, none of the other biometric
identification technologies has achieved the degree of acceptance of
fingerprints in law enforcement or any other markets.
Digital Biometrics offers products that employ "forensic-quality"
fingerprint capture technologies. Forensic quality refers to the resolution and
pixel gray-scale depth of the image. DBI's fingerprinting products have been
employed by law enforcement organizations in a number of states since 1988 and
foreign countries since 1991.
Prior to the introduction of sophisticated computer-based fingerprint
capture and matching technologies, manually taken fingerprints were manually
cross-checked against large and growing collections of paper-and-ink fingerprint
records to identify individuals and to positively associate them with crime
scenes. To manage these large quantities of data, computerized databases for
fingerprint
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classification and identification were introduced in the 1970s. These systems,
known as AFIS (automatic fingerprint identification systems), greatly improved
the speed and efficiency of fingerprint searches. Current AFIS systems are
capable of performing several thousand comparisons of fingerprints per second.
These systems present a trained fingerprint examiner with a short list of
candidate prints from which the examiner makes a final visual determination of
whether two prints match.
AFIS systems are provided by a number of vendors, including NEC
Technologies, SAGEM MORPHO, Inc., Printrak International Inc., TRW, Cogent
Systems and others. DBI does not manufacture AFIS systems.
With the introduction of AFIS systems, it became apparent that the quality
of fingerprints taken using the traditional paper-and-ink method was often not
adequate to meet the needs of this sophisticated technology. An unacceptably
high percentage of conventionally inked fingerprints could not be read properly
by AFIS systems because of poor image quality. In response to this problem,
Digital Biometrics and its competitors introduced sophisticated, computer-based
imaging systems to capture and digitize fingerprints. This process yields a much
higher level of so-called "minutia" points, which are the basis for the
identification techniques used by AFIS systems.
DBI's Tenprinter(R) system and DBI FingerPrinter CMS(R) consistently
generate high quality fingerprint data, which, at the user's option, may be
transmitted over telephone lines to AFIS sites, other databases, the FBI, or may
be printed locally or at remote locations on any number of card formats. These
systems also permit review of the quality of the prints as they are being taken,
enabling the operator to screen out bad prints without having to redo the entire
fingerprint card, thus improving the productivity of the fingerprinting process.
Non-forensic grade fingerprint readers and matching algorithms are offered
by a large number of vendors for use in applications requiring verification or
limited authentication (a comparison of a fingerprint to a relatively small
database of fingerprints.) DBI believes that these markets have many
unattractive business characteristics, including without limitation a large
number of competitors, intense price competition, limited product
differentiation and low margin potential. DBI does not participate in these
markets and has no present intention of doing so unless it is able to develop a
business plan for entry and growth which addresses the business problems just
noted.
PRODUCTS AND SERVICES
Live-scan Systems.
The Tenprinter System: The Tenprinter system is a computer-based, inkless
live-scan system that electronically captures a fingerprint and creates a
digital image. Fingerprints are captured by placing the fingers of a subject on
the contact surface of an optical assembly. The optical image is converted into
a digital image by an electronic photo-imaging detector. In addition, text
demographic information on the individual being fingerprinted is entered either
directly or via input from another electronic source and accompanies the
fingerprint data. In some cases, photographs of the face and/or other parts of
the body (scars, marks and tattoos) of the fingerprinted subject may also
accompany fingerprint records. The digital images produced by the Tenprinter
system along with demographic text and digital photographic data may be
transmitted electronically to AFIS systems and other databases, and/or may be
printed at a local or remote site. In the gray-scale printing technology
available with the Tenprinter system, the printed fingerprint includes the
nuances normally seen in a conventional "paper-and-ink" fingerprint. The
Tenprinter can receive return messages from the AFIS regarding the identity and
background of the fingerprinted subject. The Tenprinter is fully FBI
IQS-compliant (see General below) and is generally used in a networked
environment.
The primary target markets for the Tenprinter are state and local law
enforcement, other government agencies and high volume commercial users that own
or transmit fingerprint and related records to AFIS systems. The assistance and
support of the AFIS vendor is frequently important in the sale and installation
of live-scan systems.
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DBI FingerPrinter CMS: The DBI FingerPrinter CMS is a desktop-size,
integrated live-scan fingerprinting system that captures and transmits
fingerprints without the use of ink. Through its smaller size and reduced cost,
the CMS appeals to a wider range of identification applications outside DBI's
traditional law enforcement and high-volume government agency markets. The CMS
is particularly well suited for applicant processing and enrollment processing
applications that require forensic-grade fingerprint records without the
ruggedized construction and additional law enforcement features of the
Tenprinter.
The CMS is fully FBI IQS-compliant (see General below) and is designed for
use in a networked environment. It includes proven AFIS interface capabilities,
password security and remote diagnostics. The CMS has the same data capture and
transmission capabilities as the Tenprinter, including the integration of text.
Palm Scanner: DBI's Palm Print Scanning subsystem option for the
Tenprinter allows for the optical capture of the entire palm side of the hand,
meeting the Palm Print Specifications outlined by the International Association
for Identification. DBI's Palm Scanner is the only palm product currently on the
market that meets the International Association for Identification's standard.
General: Prices of live-scan systems vary depending on configuration.
Live-scan systems are generally priced between approximately $30,000 and $80,000
per unit. DBI's systems have received certification under the FBI's IQS (Image
Quality Standards). The FBI is digitizing the nation's fingerprint database at
500 dots per inch with 8 bits of grayscale resolution. To the best of DBI's
knowledge, competitors also have received or are in process of receiving IQS
approval.
A compression ratio is specified in the FBI's WSQ (Wavelet Scalar
Quantization) Gray-Scale Fingerprint Image Compression Specification. Data is
compressed to save time and money in the transmission of digital fingerprint
images and in their computer-based storage at the FBI's repository. The WSQ
compression algorithm was selected for its compatibility with fingerprint data.
DBI's live-scan systems offer WSQ data compression of fingerprint data before
transmission as do the systems of its competitors.
The FBI's IAFIS (Integrated Automated Fingerprint Identification System)
became operational in 1999. The IAFIS was developed to provide identification
services to the nation's law enforcement community and organizations where
criminal background histories are a critical factor in consideration for
employment.
The implementation of the IAFIS allows fingerprint images taken at local
law enforcement agencies by live-scan or card-scan equipment to be transmitted
electronically to the FBI for processing by the FBI IAFIS. The IAFIS houses over
132 million criminal records and 87 million civil records, with an approximate
accumulation rate of 30,000 to 50,000 new records per day.
Fingerprint comparison is, and has been, the accepted standard for
establishing positive identification of criminal history record subjects in the
United States. Live-scan systems such as DBI's TENPRINTER and the DBI
Fingerprinter CMS produce the prints that are transmitted to the IAFIS and AFIS
by government and commercial agencies.
AFIS COMMUNICATIONS MANAGEMENT SYSTEM (ACMS)
DBI's ACMS (AFIS Communications Management System) is an industry-standard,
server-level data communications and interface family of products that
facilitates the integration of DBI's identification products with large-scale
networks in law enforcement and commercial applications, such as banks. These
systems manage the transmission of data and/or subsets of the data captured at
DBI's live-scan systems to one or multiple databases and printing locations.
These server systems also deliver management reporting capabilities. DBI's
live-scan systems are normally configured in networked environments. The
integration of DBI's systems into complex information networks is frequently
crucial to the delivery of the appropriate information to meet a customer's
requirements.
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ANCILLARY SOFTWARE PRODUCTS
Digital Biometrics offers a variety of optional software programs that are
available for purchase which enhance the functionality of its live-scan systems
and provide quality assurance.
PHOTOGRAPHIC IMAGE CAPTURE SYSTEM
DBI's photographic image capture systems provide high-quality photographs
in conjunction with fingerprint records and personal history information from
DBI's live-scan systems. DBI has offered photographic imaging and related server
products to a limited number of customers.
IDENTIFICATION BASED INFORMATION SYSTEM (IBIS)
IBIS is a mobile wireless identification, data collection and information
processing system. It is being designed to provide law enforcement officers with
rapid identification of individuals, historical information about individuals
and relational database capabilities. It can be utilized as an investigative
tool allowing officers to build a complete audio and video data file of a crime
scene and to transmit that data to a central site in real time. A complete
management reporting database and audit trail is included.
A component of the IBIS is the RDT (remote data terminal), a lightweight
wireless portable data collection device. The RDT is designed to capture a
fingerprint image and photograph from a remote location. The data is then
transmitted to an AFIS to search for positive identification, returning a "hit"
or "no hit" response back to the RDT.
The IBIS is being installed on a pilot basis in Hennepin County, Minnesota
and the cities of Ontario and Redlands, California.
ASSEMBLY, INSTALLATION AND MAINTENANCE
DBI's hardware products are assembled from purchased components at its
facility in Minnetonka, Minnesota. The time required for delivery of standard
products averages approximately 30 to 45 days from the date the purchase order
is received. Delivery of non-standard products with customer-unique features
and/or functionality will vary depending upon the level of engineering
development required.
DBI's products are installed primarily by DBI's employees. DBI offers
various levels of maintenance service for its equipment, which are delivered by
Company employees. Maintenance contracts are typically sold separately from the
hardware and software products.
SALES AND DISTRIBUTION
DBI sells systems directly to end users through its own sales force and
through distribution relationships with AFIS suppliers, including NEC
Technologies. Relationships with AFIS vendors are an important means of
distribution to many customers and, consequently, are significant to DBI.
Furthermore, DBI's systems must deliver information to and receive information
from AFIS systems, thereby requiring a technical relationship between Digital
Biometrics and AFIS suppliers to assure proper integration of DBI's systems with
the requirements of AFIS systems.
SUPPLIERS
Digital Biometrics buys substantially all live-scan systems components from
outside suppliers for assembly and testing by DBI. Some of these components are
designed by DBI and are custom manufactured to its specifications. Digital
Biometrics may specify parts used in such components. DBI inspects and tests
incoming parts and components, and conducts test and burn-in procedures on
assembled finished products. Certain components used in manufacturing DBI's
live-scan systems are currently supplied by a single vendor to obtain volume
economies. Secondary sources are available but would take several months to
bring into production. Delays in product deliveries to customers could occur
until the secondary sources are secured.
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INFORMATION TECHNOLOGY SERVICES
DBI has offered software development and integration services to a limited
number of customers directly and through its wholly owned subsidiary, Integral
Partners, Inc. There were no integration services generated from Integral
Partners, Inc. in fiscal 2000. Integral Partners, Inc. had sales of $259,000 in
fiscal 1999 for systems integration consulting in commercial applications
unrelated to identification. Integral Partners, Inc. was dissolved on September
29, 2000. DBI has focused its identification systems and integration activities
on projects related to identification.
TRAK-21
Prior to 1997, DBI developed a prototype blackjack table wagering data
capture system called TRAK-21. The TRAK-21 system was developed to enable
casinos to track the wagering activity of its blackjack patrons as well as the
productivity of its tables and dealers. In March 1998, DBI formed a joint
venture with the predecessor of Lakes Gaming, Inc., to commercialize the TRAK-21
technology. The joint venture is called TRAK 21 Development, LLC. DBI has
derived no revenues to date from the joint venture or from this system. DBI is
under contract with TRAK 21 Development, LLC to provide development services,
for which it is compensated. Compensation received by DBI from the joint venture
is accounted for as an offset to development expenses. It is anticipated that if
the system is successfully productized, the joint venture company will market
the system to the gaming industry. Neither DBI nor Lakes Gaming is obligated to
finance the continuing operations of TRAK 21 Development, LLC.
There are a variety of companies providing blackjack player tracking
information and capabilities to the gaming industry, the most prominent of which
is Mikohn Gaming Corporation. TRAK-21 uses high-level image processing for
automatically calculating wagers, which differentiates it from other systems,
including Mikohn's, which use table and chip sensors to track player wagering.
Components necessary to manufacture TRAK-21 systems are anticipated to be
primarily standard parts available from a variety of suppliers.
PROPRIETARY TECHNOLOGY
DBI owns federally registered trademarks for the marks Tenprinter, DBI
FingerPrinter CMS and TRAK-21. DBI has applied for trademark registration for
DBI IBIS.
DBI owns several U.S. patents and has U.S. patent applications pending with
respect to the technology currently employed in its products. DBI has also filed
for patent protection in several foreign countries. Although additional features
of DBI's products may be patentable, DBI has chosen to preserve these features
as trade secrets rather than applying for patent protection. DBI has obtained
signed confidentiality agreements from all employees and from independent
consultants who have access to confidential information.
ENGINEERING AND DEVELOPMENT
DBI incurred engineering and development expenses for new product and
services development and enhancements to existing products. For the fiscal years
ended September 30, 2000, 1999 and 1998, DBI's non-reimbursed engineering and
development expenses were $2,750,000, $2,225,000 and $3,193,000, respectively.
COMPETITION
The market for live-scan systems and related products is competitive.
Live-scan and related identification information products and services products
have been developed and are offered by several companies including Identix Inc.,
Heimann Biometric Systems GmbH, Printrak International Inc. and Cross Match
Technologies, Inc. In addition, several other companies distribute live-scan and
related products and services, including NEC Technologies, SAGEM MORPHO, Inc.
and Printrak. Both NEC Technologies and SAGEM MORPHO, Inc. have from time to
time entered into distribution agreements
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with Digital Biometrics, although both mainly rely on DBI competitors for the
products which they market. DBI competes in the live-scan market primarily on
the basis of image quality, features, performance, network integration, service
and support, and price. Most of DBI's competitors have substantially greater
financial and other resources than DBI.
Continued growth in demand for live-scan fingerprint systems may attract
additional competition.
EMPLOYEES
On October 31, 2000, DBI employed 133 persons on either a full-time or
part-time basis, none of whom is represented by a union. Of these persons, six
have general management responsibilities and the remainder perform sales,
marketing, engineering, customer service, assembly, or administrative functions.
DBI utilizes additional individuals to perform services on a part-time or
consulting basis as needed. Personnel will be hired in the future as DBI deems
necessary. DBI believes that its employee relations are good.
All DBI employees have executed agreements that provide for the
confidentiality of DBI's proprietary information and the ownership by DBI of
inventions developed using DBI's resources.
PROPERTIES
Digital Biometrics does not own any real estate. DBI's primary offices and
facilities are located in approximately 37,200 square feet of space, expanding
to approximately 55,000 square feet of space effective April 2001, in an
industrial park at 5600 Rowland Road, Minnetonka, Minnesota. The space is
occupied under a lease expiring on March 31, 2008 and is considered satisfactory
for DBI's current business needs.
DBI leases approximately 8,000 square feet of space in a facility in Maple
Grove, Minnesota under an operating lease expiring in June 2003. DBI subleases
this office space to another company.
DBI has a customer service and sales office in Ontario, California, in
approximately 5,600 square feet of space in an industrial office park. This
space is occupied under a lease expiring in May 2002.
LEGAL PROCEEDINGS
There are no material lawsuits pending or, to DBI's knowledge, threatened
against Digital Biometrics.
VISIONICS CORPORATION
OVERVIEW
Visionics Corporation is a leading developer of facial recognition
technology worldwide. Visionics pioneered the field of facial recognition with
its software engine, FaceIt(R), which allows computers to rapidly and accurately
recognize faces. FaceIt(R) is an Enabling Technology with Mass Appeal(TM) that
has been integrated into several products and solutions built by Visionics'
partners, which include original equipment manufacturers, software developers,
system integrators and value-added resellers. These products and solutions
include Smart CCTV(TM)(Closed Circuit Television) systems, web-based search
engine applications, mass-market authentication systems for information security
and banking, civil applications including drivers' licenses, national
identification programs and voter registration, and law enforcement
applications.
Visionics is focused on technological innovations and on the development of
information architectures for delivering them. Visionics possesses a
distribution network of partners across a broad range of vertical markets
including banking, information security, identification programs, high-end
access control, surveillance and criminal justice.
Visionics licenses its enabling technology to original equipment
manufacturers, software developers and system integrators for incorporation into
final products and solutions. Visionics delivers to its partners
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the software modules, tools and technical support necessary to integrate
FaceIt(R) technology into these products. This partnership allows each party to
leverage its core competence, shorten time to market and focus its resources. In
the future, Visionics may sell directly to some of the vertical markets where
Visionics and its partners currently do not participate.
Visionics intends to continue to support and expand its network of partners
by maintaining its biometric facial recognition technology and delivering
back-end infrastructure support that allows for easier integration into
commercial applications. Visionics' partner network presently consists of
several companies developing products and solutions based on Visionics'
technology. Many of these companies have already finished development and have
begun marketing and selling their solutions and products enabled by Visionics'
software engine. These companies include Polaroid, Datacard, Informix, EDS,
Wells Fargo's affiliate Innoventry, Imageware, Printrak, Virage, and IBM.
Visionics intends to grow its business by leveraging the diverse vertical
markets of its partners. Visionics' business strategy emphasizes the
encapsulation of its technology into modules and software components that meet
the requirements of a large number of applications and that are easy to
integrate by software developers and original equipment manufacturers into
finished products and solutions. Visionics strives to develop superior enabling
technology while its partners develop and deploy products based on Visionics'
technology for use in different markets. It is Visionics' policy to cooperate,
rather than compete, with its business partners.
Visionics was incorporated in 1994 in the State of New Jersey. Visionics
executive offices are located at 1 Exchange Place, Suite 800, Jersey City, New
Jersey 07302 and its telephone number is (201) 332-9213. Visionics also has a
British wholly owned subsidiary called Visionics Ltd. that handles business
development and marketing in Europe and the Middle East.
FACIAL RECOGNITION
In a large number of biometric applications, facial recognition is most
suitable because it is most familiar to the end user (photo identification
programs are common), requires minimal participation (does not require touching
or doing anything), uses widely available existing and emerging video
infrastructure (e.g., webcams, digital cameras in handheld devices or phones,
security cameras in CCTV systems, etc.) and delivers a range of capabilities
that go beyond verifying someone's identity (natural human-machine interface).
In several other applications, facial recognition is the only feasible
biometric technology due to political, economic or legacy issues (existing
databases) which dictate that facial photographs are the only type of biometric
data collected or available. In addition, sometimes the operational scenario of
the application requires identification at a distance. This capability is
important in security markets for applications such as surveillance and human
traffic management.
THE FACEIT(R) TECHNOLOGY
FaceIt(R) is real-time software engine that enables a computer connected to
an image or video source (camera) to recognize human faces like humans do. It
automatically detects faces in the video scene, tracks them, converts them into
a faceprint, and identifies who they are by matching the faceprint against a
database of known faceprints. It works from a distance, in motion and without
subject participation.
The faceprint is an identity specific digital code and is as small as 84
bytes. It can be stored for later comparison against a live print on any
standard storage medium or device-in the magnetic stripe of a credit card, in
memory of a smart card, in a 2D-bar code or simply in a database on a hard
drive.
FaceIt(R) is based on a mathematical algorithm called Local Feature
Analysis, which was discovered by Visionics' founders. The algorithm allows for
the description of complex patterns such as faces in terms of spatial
relationships among an irreducible set of local features. It essentially
quantifies how a face is put together from its constituent local features. The
algorithm is robust with respect to changes in facial hair,
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expression, lighting, weight gain, aging etc. It works from a frontal image and
up to about 25 degrees from frontal.
Visionics relies primarily on the combination of trade secrets, copyright
and, to some extent, on patents to protect the intellectual property embodied by
its technology and applications. Visionics has obtained one patent and has two
patent applications pending.
PRODUCT OFFERINGS
Currently all of Visionics' products are in pure software form. They can be
classified into three categories:
Software Development Toolkits. The majority of Visionics' product offering
is in the form of modules and software components -- so-called engines -- that
enable products and solutions made by original equipment manufacturers and
developers. Visionics' engines and modules come in variety of forms,
capabilities and grades depending on desired speed, size of database required,
and general functionality. Visionics delivers these to the developer community
packaged in software development toolkits (SDKs). These SDKs encapsulate all the
logic necessary for detecting, capturing, tracking, faceprint coding, and
matching faces. They also include multimedia utilities, image quality control
and demonstration code. The encapsulations of Visionics' technology are all in
object code with an established Application Programming Interface (API). The API
application allows developers to easily access the capabilities of Visionics'
engines without getting access to the source code and hence without exposing its
proprietary algorithms.
Run-time Licenses. For developers to sell their products enabled by
Visionics' engines, they need to acquire a run-time code or license from
Visionics. This allows them to duplicate and activate Visionics' capabilities
inside their finished products. The fee for the run-time license depends on
which components or modules are used in the product and is set by an OEM price
list maintained by Visionics. Some fees are one-time, others are recurrent with
the growth of the database or with the number of transactions. The three main
engines that commonly generate run-time revenue are: Verification Engine,
Automated Facial Alignment Engine and FaceIt(R) DB COM Engine.
Application Software. In addition to the enabling components and modules,
Visionics has software products aimed at certain specific markets. These
products are developed not in competition with Visionics' partners but in order
to help them validate and establish new cutting edge markets. They tend to be in
applications, which are technically more challenging and hence require a higher
level of expertise to develop. They are sold through our partners who are also
encouraged to customize them to the needs of their customers. Visionics'
Application Software includes:
FaceIt(R) Informix Datablade: a plug-in software module for the Informix
Database. It delivers the FaceIt(R) capabilities within the database platform in
a plug-and-play fashion. It is aimed at the Informix clients that have very
large databases on the Internet and wish to search them using FaceIt(R).
FaceIt(R) Surveillance and Sentinel: stand-alone add-on products to CCTV
systems. They continuously and automatically search, or manually in case of the
lower cost Sentinel, CCTV video feeds for faces and match them against a watch
list. They issue an alert signal when a foe or friend appears in front of the
camera.
FaceIt(R) Screen Saver: Original equipment manufacturer product aimed at
promoting the use of facial recognition on laptops and PCs. Offers users privacy
enhancement by allowing them to use their face to access their computer.
PRODUCTS UNDER DEVELOPMENT
In addition to the above, Visionics has several technology and product
initiatives underway that Visionics expects will expand its offerings. Among
these offerings are:
Biometric Network Appliances. These are deployment-ready hardware devices,
which are dedicated to handling biometric traffic on a network. They connect to
communication networks, including the
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Internet, capture and/or receive biometric data, translate and encrypt the data,
and match it and communicate results. Visionics expects that this platform will
support face, finger and voice. With these devices, building a scalable security
product or solution becomes as simple as connecting cameras to the Internet.
Visionics believes they are essential for the enterprise adoption of biometrics
in the commercial domain and for the broad adoption in some key consumer
markets.
DBI currently offers or is developing several fingerprint-related products
which may be defined as Biometric Network Appliances.
Bio-API and BAPI Modules. These modules are encapsulations of Visionics'
technology that will be in compliance with emerging industry standards.
MARKETING AND DISTRIBUTION CHANNELS
Market Overview. There are three major markets in which Visionics
currently operates: These are the Criminal Justice, Civil and Commercial
Markets.
Criminal Justice Market: Visionics' engine is integrated by product
developers that service this market worldwide. Visionics' one-to-many search
engines are used in mugshot and booking information systems. This allows the
police to search a criminal database by submitting a suspect's image. In this
market, there is also significant interest in Visionics' surveillance
capability. Among Visionics' partners in this area are Imageware, Printrak and
G-Tek.
Civil Markets: In these markets major system integrators incorporate
Visionics' engines into their solutions in order to prevent identity fraud which
result from aliases and duplicates. They use Visionics' high-end one-to-many
search engines to ensure that records enrolled in large identification databases
are unique. The applications include driver's licenses, national identification,
passports, voter registration, visas, and welfare. Among Visionics' partners in
this area are Polaroid, Unisys, Keyware Solutions, and MetaData. Visionics'
installations include the West Virginia Department of Motor Vehicles (through
Polaroid), the Mexican Voter Registration (through MetaData) and INS IDENT
(through Keyware Solutions).
Commercial Markets: The commercial markets are very diverse and hold the
most growth potential. Some of Visionics' partners are employing Visionics'
enabling technology in areas including:
(1) IT Security (computer and network logon, application and data security).
Biometrics replace passwords and personal identification numbers. They
provide more effective security since they cannot be lost, compromised or
stolen. They provide convenience since the user does not have to remember
anything and they cut down on the cost of password administration at the
enterprise level. The advantages of facial recognition over other biometrics in
this area include its ability to use standard multi-purpose peripherals, such as
video conferencing or webcams, which make it cheaper to deploy and the fact that
it is the only biometric capable of monitoring. Monitoring is the process of
continuous authentication, and it offers enhanced security over the traditional
process of logon. With monitoring, a user is continuously authenticated -- for
as long as the user continues to be in front of the camera. As soon as the user
steps away the system activates a security shield. An unauthorized person cannot
use the system even if an authorized person previously logged on.
Among the products enabled by FaceIt(R) in this market segment are
Windows(R) NT-logon products from SafLink, Keyware and Bionetrix and visual
screen savers on Sony and IBM laptop computers.
(2) Financial Self Service (ATM machines and financial kiosks).
Visionics' major deployment in this area is on Innoventry's RPM machines.
These are self service ATM machines that offer an expanded array of financial
services at a point of convenience to the consumer, including check cashing,
payroll advance and bill payment. They use FaceIt(R) in order to authenticate
the customer without PIN or card -- thus protecting the privacy and security of
the
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customer's assets. More importantly the use of FaceIt(R) protects the financial
institution from fraud, it prevents someone from creating new alias and
committing repeat fraud under other names.
(3) Physical Security (access control, CCTV surveillance, human traffic
management).
The interest in facial recognition in the security market stems from its
ability to identify people at a distance without them doing or touching
anything. This capability can be used to alert security when a certain
individual on a watch list appears, or it can be used to grant access to doors
or gates. Visionics sees the surveillance market as the driver in this area
since facial recognition delivers a capability that no other technology at the
moment offers. Among Visionics' partner's installations in this area are
surveillance in CCTV control rooms in town centers (e.g. Newham England where
the system is used to detect criminals), casinos (where the system is used to
detect card cheats) and borders and airports (used to detect drug traffickers).
(4) Multimedia search engines.
Search engines allow for the indexing of multimedia content, such as video
clips and news photographs, by what faces they contain. In this area, Visionics'
currently partners with Virage, Inc. which has developed a product called
FaceLogger. FaceLogger is used by broadcast and news organizations including,
CNN, ABC and NBC. The software checks news clips for the presence of a
predefined set of celebrities or world leaders before the clips are archived and
builds an index that can be subsequently searched.
(5) Travel (Airline, car/hotel kiosks).
The travel industry continues to look for solutions to manage its rapid
growth without compromising security. The IATA (International Air Transport
Association) forecasts that the total number of passengers will double over the
next decade (which also means significant growth in travel-related services).
Self-service kiosks employing biometric technology can provide a solution to
this problem. Biometrics offer a convenient and effective way to prove an
individual's identity to a machine without the need for human intervention.
Facial recognition has the advantage of being user-friendly and familiar.
Equally important is the fact that it uses the same video camera that the
service provider uses to connect the customer to a call or customer care
center -- should the customer require assistance.
(6) Transaction Security (online banking, E/M-Commerce).
The Internet provides a medium over which several types of transactions
take place. Biometrics can be used to secure those transactions by requiring
that each be associated with an authorized identity before a transaction is
approved. Facial recognition has an advantage over other biometrics in this area
in that it can use the existing and the emerging video communication
infrastructure. For example, the front page article of the September 11, 2000
issue of Electronic Engineering Times cites industry predictions that by the
year 2004, 20 to 50 percent of all mobile phones will have a digital camera.
PROPRIETARY TECHNOLOGY
Visionics owns federally registered trademarks for the marks Visionics,
Face It, FaceIt, and Your Face is Your Password as well as United Kingdom
registrations of FaceIt and Visionics. Visionics has applied for trademark
registration for Enabling Technology with Mass Appeal, Face the Future,
Facegrabber, FaceIt Sentinel, Friend or Foe, Security with a Human Face, Smart
Content Delivery and Smart Display.
Visionics owns one U.S. patent and has U.S. patent applications pending
which cover technology currently employed in its products. Although additional
features of Visionics' products may be patentable, Visionics has chosen to
preserve these features as trade secrets rather than applying for patent
protection. Visionics has obtained signed confidentiality agreements from all
employees and from independent consultants who have access to confidential
information.
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COMPETITION
Visionics has become a leader in the biometric industry not only by having
a powerful biometric algorithm, but by continually improving and evolving its
biometric technologies. Visionics maintains a team of scientists and engineers
that have kept the technology ahead of competition and have broadened its
capabilities, making it the enabling technology for an ever increasing number of
applications.
While Visionics will continue to compete on technology and innovation, its
competitiveness is not limited to those areas. Over the years, Visionics has
built significant value in technology that goes beyond the algorithms. Visionics
has designed and built encapsulations or infrastructure for deployment of its
technology. Visionics has also built a strong developer network that acts as a
distribution channel for its products. In addition, Visionics believes the brand
name recognition of FaceIt(R) and Visionics are assets that add to its
competitiveness.
Since Visionics' technology enables a broad range of applications,
different competitors may emerge in different market segments.
Visionics does not perceive other biometric companies as competitors across
all applications. Facial recognition has certain unique capabilities with which,
in the opinion of Visionics' management, no other biometric can compete at this
time. For example, in the market for surveillance, only facial recognition can
be used. In applications that can be enabled by all biometrics, end-user
preferences or infrastructure will ultimately dictate which biometric will be
used. For example, if phones with cameras become commonplace facial recognition
will be used.
Notwithstanding the above, Visionics perceives biometric competition in the
following markets and applications. In banking and travel, competition comes
from iris scanning (specifically from Iridian, Inc. (formerly Iris Scan). In
information security, fingerprint and voice biometrics compete well against
face. In this application segment Visionics leverages the monitoring capability
of face to add value to security systems, even ones that already deploy a
biometric.
In the market for national identification, Visionics currently competes
with AFIS vendors. However, Visionics believes facial recognition will
ultimately enhance AFIS systems; accordingly Visionics anticipates that AFIS
vendors will become a natural channel for the deployment of Visionics'
technology rather than competitors.
In applications where face is the only biometric feasible, Visionics
competes on the basis of the strength of its algorithm, the LFA, and the
uniqueness of its infrastructure offerings. In the opinion of its management,
Visionics' facial techniques are superior to those possessed by Visionics'
competitors.
EMPLOYEES
As of October 31, 2000, Visionics employs 30 full time persons.
Approximately sixty-five percent of Visionics' employees are technical personnel
possessing advanced degrees, including eight Ph.Ds.
All of Visionics' employees have signed non-disclosure agreements that
protect the intellectual property of Visionics.
PROPERTIES
Visionics leases its corporate office facilities in Jersey City, New Jersey
under an agreement expiring in 2006. The lease requires monthly rental payments
of $15,556, increasing to $19,630 in June 2001 (when approximately 1,500
additional square feet will be made available to Visionics), and increasing
further to $20,416 in 2002, plus Visionics' pro rata portion of real estate
taxes, utilities and common area maintenance expenses. The lease agreement
contains an option for an additional five-year term.
LEGAL PROCEEDINGS
Visionics is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of Visionics' management, the
ultimate disposition of these matters will not have a material adverse effect on
Visionics. To Visionics' knowledge, there is no threatened litigation against
Visionics.
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THE DIGITAL BIOMETRICS, INC. SPECIAL MEETING
This proxy statement/prospectus is being furnished in connection with the
solicitation of proxies from the holders of DBI common stock by the DBI Board
for use at the special meeting and any adjournment or postponement of the
special meeting. DBI mailed this proxy statement/prospectus to DBI stockholders
beginning January 8, 2001. You should read this proxy statement/prospectus
carefully before voting your shares.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting will be held at the Lutheran Brotherhood Auditorium,
located at 625 Fourth Avenue South, Minneapolis, Minnesota, on Thursday,
February 15, 2001, starting at 2:00 PM, central standard time.
PURPOSES OF THE SPECIAL MEETING
DBI is holding the special meeting for the following purposes:
(1) To ask you to vote on a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of October 18, 2000, among DBI,
Visionics and VC Acquisition Corp., a wholly owned subsidiary of DBI, and
the transactions contemplated by the merger agreement, including the merger
and DBI's issuance of over 7,000,000 shares of DBI common stock, including
shares issuable upon exercise of Visionics stock options to be assumed by
DBI.
(2) To ask you to vote on a proposal to amend DBI's Certificate of
Incorporation to change the name of the corporation to "Visionics
Corporation." If the merger proposal and this proposal are approved, the
name of the current Visionics Corporation will be changed to "Visionics
Technology Corporation."
(3) To transact such other business as may properly come before the
special meeting and any adjournment or postponement of the special meeting.
RECORD DATE OF THE SPECIAL MEETING
DBI stockholders who hold their shares of DBI common stock of record as of
the close of business on December 29, 2000, are entitled to notice of and to
vote at the special meeting. On that record date, there were approximately
stockholders of record of DBI common stock and approximately shares of DBI
common stock were issued and outstanding.
MAJORITY OF OUTSTANDING SHARES MUST BE REPRESENTED FOR A VOTE TO BE TAKEN
In order to have a quorum at the special meeting, a majority of the shares
of DBI common stock that are issued and outstanding and entitled to vote at the
special meeting must be present in person or represented by proxy. If a quorum
is not present, a majority of the shares of DBI common stock that are
represented may adjourn or postpone the special meeting.
VOTE REQUIRED AT THE SPECIAL MEETING
The merger agreement and the transactions contemplated by the merger
agreement, including the merger and DBI's issuance of over 7,000,000 shares of
DBI common stock, including shares issuable upon exercise of Visionics stock
options to be assumed by DBI, must be approved by the affirmative vote of the
holders of at least a majority of the issued and outstanding shares of DBI
common stock present or represented by proxy and entitled to vote at the special
meeting. Each share of DBI common stock is entitled to cast one vote. As of the
record date for the special meeting, DBI directors and executive officers were
the beneficial owners of 1,139,777 shares, or 6.4 percent, of issued and
outstanding DBI common stock. All DBI directors and executive officers have
indicated that they intend to vote the shares of DBI common stock beneficially
owned by them in favor of the merger agreement and the transactions
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contemplated by the merger agreement. Under Delaware law, abstentions are
counted as present for purposes of establishing a quorum and as shares entitled
to vote on a matter. Consequently, with respect to matters requiring a majority
of shares present at the special meeting or represented by proxy and entitled to
vote, an abstention has the same effect as a negative vote. Broker non-votes are
also counted as present for purposes of establishing a quorum, but not counted
as shares entitled to vote on a matter. Accordingly, broker non-votes will not
have the same effect as a negative vote on the proposed merger.
VOTING YOUR SHARES AND CHANGING YOUR VOTE
Voting Your Shares
The DBI Board of Directors is soliciting proxies from the DBI stockholders.
This will give you the opportunity to vote at the special meeting. When you
deliver a valid proxy, the shares represented by that proxy will be voted in
accordance with your instructions.
To vote by telephone or the Internet, please follow the instructions for
telephone or Internet voting appearing on the enclosed proxy card. If you do not
wish to vote by telephone or the Internet, please complete the enclosed proxy
card, sign, date and return it in the enclosed envelope by February 15, 2001. To
be valid, a returned proxy card must be signed and dated. If you vote your
shares by telephone or the Internet, you do not need to return a proxy card.
If your shares are held in the name of your broker or nominee, they will
vote your shares only if you provide instructions on how you want your shares to
be voted. You should follow the directions provided by them regarding how to
instruct them to vote your shares.
If you attend the special meeting, you may vote in person if you wish by
completing a ballot at the special meeting, whether or not you have already
signed, dated and returned your proxy card or voted by telephone or the
Internet. The giving of a proxy does not affect your right to vote should you
attend the special meeting in person and complete a ballot, and you may revoke
your proxy at any time before the polls close at the special meeting. Properly
executed proxies that have not been revoked will be voted as specified. If your
shares are held in the name of your broker or nominee, you must obtain a proxy,
executed in your favor, from the holder of record to be able to vote at the
special meeting.
Changing Your Vote by Revoking Your Proxy
You may change your vote by revoking your proxy at any time before the
polls close at the special meeting. You can do this in one of three ways:
(1) timely delivery of a valid, later-dated proxy, including a proxy
cast by telephone or the Internet;
(2) written notice that you have revoked your proxy directed to DBI's
Corporate Secretary at the address of DBI before the special meeting; or
(3) attendance at the special meeting in person and completing a
ballot.
You will not revoke your proxy by simply attending the special meeting
unless you complete a ballot. If you have instructed a broker or nominee to vote
your shares, you must follow directions from them to change those instructions.
HOW PROXIES ARE COUNTED
If you return a signed and dated proxy card but do not indicate how the
shares are to be voted, those shares represented by your proxy card will be
voted as recommended by the DBI Board. A valid proxy also gives the individuals
named as proxies authority to vote in their discretion when voting the shares on
any other matters that are properly presented for action at the special meeting
and any adjournment or postponement of the special meeting.
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Broker non-votes, which are shares held by brokers or nominees that are
represented at a meeting but with respect to which the broker or nominee is not
empowered to vote on a particular proposal, will be counted for purposes of
determining whether there is a quorum at the special meeting. However, broker
non-votes are not counted as shares entitled to vote on a proposal. Accordingly,
broker non-votes do not have the same effect as a negative vote on the proposal.
A properly executed proxy card marked "ABSTAIN" as well as a vote by telephone
or the Internet for "ABSTAIN" will not be voted at the special meeting. An
abstention may be counted to determine whether there is a quorum present at the
special meeting. However, because the affirmative vote of at least a majority of
the issued and outstanding shares of DBI common stock entitled to vote at the
special meeting is required to approve the merger agreement and the transactions
contemplated by the merger agreement, abstaining from voting will have the same
effect as a vote against the proposed merger.
COSTS OF SOLICITATION
DBI will pay the costs of soliciting DBI proxies from its stockholders. In
addition to solicitation by mail, telephone, electronic or other means, DBI will
make arrangements with brokerage houses and other custodians, nominees and
fiduciaries, referred to as the "nominees," to send proxy materials to
beneficial owners of shares of DBI common stock held of record by such nominees.
Upon request, DBI will reimburse these nominees for their reasonable expenses in
forwarding the proxy materials to beneficial owners of shares of DBI common
stock.
Certain directors and employees of DBI may solicit proxies on behalf of the
DBI Board of Directors. The directors and employees of DBI who may solicit
proxies include John Metil, Robert Gallagher, James Granger and Randy Meyer.
In addition to proxy solicitation activities of directors and employees of
DBI, DBI has retained Corporate Investor Communications, Inc. to aid in the
solicitation of proxies from DBI stockholders in connection with the special
meeting and to verify certain records related to the solicitation. Corporate
Investor Communications, Inc. will receive a fee of approximately $ as
compensation for its services, plus reimbursement of its reasonable
out-of-pocket expenses. DBI has agreed to indemnify Corporate Investor
Communications, Inc. against related liabilities arising out of or in connection
with its engagement with DBI.
The extent to which proxy solicitation efforts are necessary depends
entirely upon how promptly DBI's stockholders vote by Internet or telephone, or
mail in their proxies. Voting delays increase the costs and expenses incurred by
DBI in connection with the special meeting and are therefore adverse to the best
interests of DBI and its stockholders. PLEASE VOTE BY TELEPHONE OR THE INTERNET
AS SOON AS POSSIBLE, OR SEND IN YOUR PROXY WITHOUT DELAY.
OTHER BUSINESS; ADJOURNMENTS
DBI is not currently aware of any other business to be acted upon at the
special meeting. If, however, other matters are properly brought before the
special meeting and any adjournment or postponement of the special meeting, your
proxies will have discretion to vote or act on those matters according to their
best judgment, including to adjourn or postpone the special meeting or any
adjournment of a later-held special meeting.
Adjournments may be made for the purpose of, among other things, soliciting
additional proxies. Any adjournment may be made from time to time by approval of
the holders of shares representing a majority of the votes present in person or
by proxy at the special meeting, whether or not a quorum exists, without further
notice other than by an announcement made at the special meeting. DBI does not
currently intend to seek an adjournment of the special meeting.
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THE MERGER
BACKGROUND OF THE MERGER
Management of Digital Biometrics and Visionics have known each other and
have been acquainted with each other's products for several years.
Meaningful dialogue between Visionics and DBI with respect to a possible
business relationship commenced through a series of telephone conversations
which began on June 26, 2000 between Dr. Atick and Mr. John Metil, who at the
time was Executive Vice President of DBI, and Mr. James Granger, then President,
Chief Executive Officer and Chairman of the Board of Directors of DBI. In these
conversations, the parties discussed Visionics' activities to close a round of
venture capital financing. Dr. Atick indicated his interest in exploring whether
a strategic investment by a company such as DBI might be a preferable
alternative, particularly if the strategic investor could offer already-existing
infrastructure in hardware or systems product design and manufacturing. Messrs.
Granger and Metil indicated their interest in exploring such possibilities. The
parties agreed that further assessment was warranted.
Several telephone conversations then ensued between Messrs. Granger and
Metil and Messrs. Charles Byrge, Brian Shepler and Adam Landa of SunTrust
Equitable Securities, who had been retained by DBI to assist in exploring
corporate development opportunities. On the basis of these discussions, DBI
management concluded that further dialog with Visionics was advisable to gather
key business information under a confidentiality agreement. DBI management
further concluded that the next step in the assessment should be undertaken by
SunTrust Equitable Securities.
Consequently, Messrs. Byrge and Shepler arranged to meet with Dr. Atick at
the Visionics office in Jersey City, New Jersey, on July 12, 2000. At this
meeting, Visionics and DBI entered into a confidentiality agreement signed by
Dr. Atick, on behalf of Visionics, and Mr. Byrge acting on behalf of DBI. During
this meeting, Mr. Byrge noted that DBI was more interested in exploring a merger
between the companies than in investing in Visionics. The parties discussed what
strategic benefits and obstacles might be encountered in a merger or strategic
partnership between DBI and Visionics.
In telephone conversations over the next few days, Messrs. Byrge and
Shepler communicated the results of the Jersey City meeting. DBI management
concluded that the proposed business combination was sufficiently attractive to
warrant inviting Dr. Atick to visit DBI's headquarters.
On July 19, Messrs. Granger and Metil informed the Digital Biometrics Board
of the discussions with Visionics. No action was taken by the Board.
On July 20, Dr. Atick and Mr. Allen Ganz, Vice President of Business
Development of Visionics, met with Messrs. Granger, Metil, Byrge, Shepler and
Landa at DBI's office in Minnetonka, Minnesota. At this meeting, the parties
continued to explore the benefits and risks of a merger between the two
companies. No resolution was reached or anticipated.
On August 2, SunTrust Equitable Securities presented Dr. Atick with an
outline of a possible merger proposition, which Dr. Atick reviewed with the
Visionics Board. No action was taken by the Visionics Board. On August 10,
Messrs. Granger and Metil met with Dr. Atick and other members of the Visionics
management team including Mr. Ganz, Mr. Norman Redlich and Mr. Paul Griffin at
the Visionics office in Jersey City. In particular, Messrs. Granger and Metil
and Dr. Atick continued discussions regarding provisions of a potential merger.
No resolution was reached.
Through the remainder of August and until September 11, discussions
continued between DBI, SunTrust Equitable Securities and Visionics in an effort
to reach an understanding on terms for a potential merger. As of September 11,
the parties concluded that sufficient progress was being made that the parties
would enter into a mutual exclusivity agreement under which both DBI and
Visionics agreed to discontinue merger and financing discussions with other
parties. The Visionics Board of Directors authorized execution of this agreement
on September 11. The DBI Board of Directors authorized execution of this
agreement on September 12. The agreement was signed on September 12.
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Also on September 12, the DBI Board of Directors authorized management to
enter into negotiations with Visionics aimed at reaching agreement on terms of a
merger between the companies, and, at the discretion of management, to commence
due diligence.
From September 12 to October 18, the parties conducted intensive
negotiations assisted by SunTrust Equitable Securities and legal counsel to both
parties focused on reaching agreement, if possible, on the terms of a definitive
merger agreement. Also during this period, DBI engaged various outside experts
to assist in due diligence on the business, legal, technical and financial
affairs of Visionics, and Visionics, assisted by its legal counsel, conducted a
similar review of DBI.
On October 3 and October 10, Messrs. Granger and Metil, assisted by legal
counsel and SunTrust Equitable Securities, made reports to the DBI Board on the
status of negotiations and the results of due diligence efforts.
On October 17, Mr. Metil and Dr. Atick reached final agreement on the terms
of a definitive merger agreement.
On October 18, SunTrust Equitable Securities delivered its oral opinion (a
written opinion was provided thereafter) to the DBI Board of Directors that as
of such date, a pro forma exchange ratio of .52 shares of DBI common stock for
each share of Visionics common stock was fair to the DBI stockholders from a
financial point of view. On the same date, the definitive merger agreement was
approved by the Board of Digital Biometrics and Visionics and signed by both
parties.
REASONS FOR THE MERGER; RECOMMENDATION OF DBI BOARD OF DIRECTORS
On October 18, 2000, the DBI Board of Directors unanimously determined that
the merger agreement and the transactions contemplated by the merger agreement,
including the merger, were advisable and fair to and in the best interests of
DBI and its stockholders. In reaching its decision to approve the merger
agreement and the transactions contemplated by the merger agreement, and to
recommend to stockholders that they approve and adopt the merger agreement and
the transactions contemplated by the merger agreement, the DBI Board consulted
with its financial advisor, SunTrust Equitable Securities, its legal counsel,
Maslon Edelman Borman & Brand, LLP, and with DBI senior management and
considered a number of factors, including the following material factors.
The proposed merger presents DBI with the opportunity to transform itself
into one of the leading providers of biometric solutions with "state of the art"
applications and capabilities in multiple biometrics. DBI possesses considerable
strengths in the design, assembly, deployment, integration and support of the
most complex biometric hardware and software systems on the market. For example,
DBI's IBIS system for remote wireless identification embodies the key
ingredients of all biometric network appliances, providing an engineering head
start for future deployment of the Visionics technology. Visionics will
contribute its face recognition engine; significant expertise in the software
and systems aspects of Internet-enabled appliances; a broad and deep
understanding of the commercial markets for biometrics; and a distribution
network of value-added-resellers and integrators across a broad range of
applications including banking, information security, ID programs, high-end
access control, surveillance and criminal justice. The combined entity will have
a broader array of products to offer customers and greater diversity in markets
served than presently possessed by either DBI or Visionics.
DBI has positioned itself as a leading provider of information based
identification systems and services, utilizing primarily fingerprint technology.
It is also one of the few profitable companies in the biometric industry after
new management successfully restructured DBI's operations after many years of
financial difficulty. While new management has been successful in executing its
business plan to strengthen DBI financially as well as develop new business and
new products, the investor community may have discounted DBI's valuation due to
its relatively small size, the concerns regarding fluctuations in its revenues
and operating results, the high percentage of its revenues generated by
government customers, and its limited involvement with commercial biometric
applications outside of fingerprint-based criminal background checks. DBI's
largest competitor, Identix Incorporated, has historically received a higher
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valuation than DBI in the public equity markets due, perhaps, to the ability of
a larger group of investors to own its shares as well as a perception that
Identix can offer multiple biometric services to large commercial markets. The
combined entity created by the proposed merger may stimulate institutional
investor interest as a result of increased research coverage associated with the
more appealing commercial focus that Visionics brings to the established
business.
Although it is not expected that the proposed merger will result in any
immediate cost savings, the merged entity may be able to combine aspects of each
company's technology to develop new biometric applications as well as leverage
research and development efforts and manufacturing and product support expertise
across a larger, single organization.
The foregoing discussion of the information and factors considered by the
DBI Board of Directors is not intended to be exhaustive. While the members of
DBI's Board of Directors considered each of the foregoing factors in reaching
its determinations, individual members of the DBI Board may have attached
different importance to each of the factors. In view of the number and wide
variety of factors considered in their evaluation of the merger, the members of
DBI's Board of Directors did not consider it practicable, nor did they attempt,
to assign relative weight to the factors considered in reaching their
determinations.
In addition, the DBI Board of Directors did not undertake to make any
specific determination as to whether any particular factor was favorable or
unfavorable to the DBI Board's ultimate determination, but rather conducted an
overall evaluation of the reasons described above. The DBI Board of Directors
considered all these factors as a whole, and considered the factors to be
favorable to and to support each of its determinations.
THE MERGER AGREEMENT
General Terms
The merger agreement contemplates the merger of a DBI subsidiary, VC
Acquisition Corp., with and into Visionics. The merger will become effective
upon the filing of a certificate of merger with the Department of Treasury of
the State of New Jersey in accordance with New Jersey law. It is anticipated
that if all conditions of the merger have been fulfilled or waived, the merger
will be completed within one week after the special meeting of DBI's
stockholders. The delay in fulfilling any condition of the merger could delay,
or terminate, the merger.
Manner and Basis of Converting Shares
At the effective time of the merger, each of the issued and outstanding
shares of Visionics common stock, exclusive of shares held by persons who
exercise dissenter's rights, will be converted into a number of shares of DBI
common stock determined by applying an exchange ratio calculated by dividing:
(A) the quotient derived from dividing:
(1) the sum of:
(a) the product of:
(i) 7,000,000; multiplied by
(ii) the average closing share price of DBI common stock during
the 20 consecutive trading days preceding the closing date for the
merger; plus
(b) the product of:
(i) the number of shares covered by Visionics stock options
outstanding on the closing date for the merger; multiplied by
(ii) the average exercise price of such options, rounded to the
nearest cent; plus
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(2) the number of outstanding shares of Visionics common stock,
assuming the exercise of all outstanding Visionics stock options; by
(B) the 20-day average closing share price referred to above.
Exchange Procedures
Promptly after the closing date for the merger, DBI, acting through its
counsel, Maslon Edelman Borman & Brand, LLP, will mail to each Visionics
shareholder of record immediately prior to the closing date, a letter of
transmittal and instructions to be used in surrendering Visionics stock
certificates. Upon surrender to Maslon of a Visionics stock certificate for
cancellation and an executed copy of the letter of transmittal, the holder of
such Visionics stock certificate will be entitled to receive:
(1) a certificate representing the number of whole shares of DBI
common stock, subject to the issuance of 10 percent of these shares into
escrow (see "-- Escrow of DBI Common Stock" below);
(2) cash in lieu of any fractional shares; and
(3) unpaid dividends and distributions, if any, which such holder has
the right to receive in respect of the stock surrendered.
Escrow of DBI Common Stock
As partial security for the performance of the Visionics shareholders'
indemnification obligations assumed pursuant to the merger agreement, 10 percent
of the DBI's common stock issuable pursuant to the merger will be placed in an
escrow account for a period of one year pursuant to the terms of an escrow
agreement to be entered into by and among DBI, an attorney-in-fact as
representative of the Visionics shareholders and an escrow agent to be mutually
acceptable to the attorney-in-fact and DBI.
The relative interests of each Visionics shareholder in the escrow shares
will be pro rata based upon their proportionate ownership of Visionics common
stock as of the effective time, and certificates representing each Visionics
shareholder's pro rata escrow shares shall be issued in the name of such
shareholder upon consummation of the merger and the execution and delivery by
each Visionics shareholder of a stock power endorsed in blank. Upon consummation
of the merger, each Visionics shareholder shall become a stockholder of DBI with
respect to such Visionics shareholder's pro rata portion of the escrow shares
and shall have all of the rights of a stockholder with respect to all such
shares, including the right to vote the shares and to receive all dividends and
other distributions paid with respect thereto. Visionics shareholders will also
have the right to sell their escrow shares during the escrow period, provided
that all proceeds from such sales must remain in the escrow account subject to
indemnification claims made by DBI during the escrow period. Visionics
shareholders may not pledge, hypothecate or otherwise encumber the escrow shares
(or proceeds from the sale of escrow shares) during the escrow period. The
attorney-in-fact will be entitled to delivery of certificates representing the
escrow shares on the one-year anniversary of the closing date, subject to a pro
rata holdback of escrow shares then equal in value to 100 percent of any then
existing indemnification claims as measured by the closing sale price for DBI's
common stock on the closing date for the merger.
Treatment of Options
At the effective time of the merger, each outstanding option to purchase
shares of Visionics common stock will be converted into an option to purchase
shares of DBI common stock in a denomination equal to the product of the
exchange ratio described in "-- Manner and Basis of Converting Shares"
multiplied by the number of shares of Visionics common stock purchasable under
the Visionics stock option plan. The exercise price of the DBI stock option will
be equal to the exercise price stated in the Visionics stock option agreement
divided by the aforementioned exchange ratio. Immediately after the closing date
for of the merger, DBI will file with the Securities and Exchange Commission a
registration statement on Form S-8 covering the shares of DBI common stock
issuable upon exercise of the DBI stock options.
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Stock Ownership Following the Merger
Based upon the number of shares of Visionics common stock and options to
purchase Visionics common stock outstanding on October 31, 2000, assuming no
exercise of dissenters' rights, and assuming that the 20-day average closing
share price referred to above is $6.00 (although there can be no assurance that
it will be so), an aggregate of 7,123,675 shares of DBI common stock will be
issued and issuable to holders of Visionics common stock and stock options in
the merger. Based upon the foregoing and the number of shares of DBI common
stock issued and outstanding as of October 31, 2000, former holders of Visionics
common stock and stock options will hold approximately 26 percent of DBI's
common stock upon consummation of the merger, determined on a fully-diluted
basis.
No fractional shares will be issued by DBI in the merger. Each Visionics
shareholder otherwise entitled to a fractional share of DBI common stock will
receive from DBI an amount of cash based upon the 20-day average share price.
Until a certificate representing Visionics common stock has been
surrendered to the DBI's exchange agent, each such certificate will be deemed at
any time after the effective time to represent only the right to receive upon
such surrender the number of shares of DBI common stock to which the Visionics
shareholder is entitled under the merger agreement.
Conduct of Visionics' Business Prior to the Merger
The merger agreement provides that during the period from October 18, 2000
(the date of the merger agreement) to the effective time of the merger,
Visionics will conduct its business in the ordinary course and consistent with
past practices, and use its commercially reasonable best efforts to preserve
intact its business organization, to keep available the services of its officers
and employees and to maintain satisfactory relationships with all persons with
whom it does business. In addition, without DBI's prior written consent,
Visionics may not:
(1) amend its charter documents;
(2) issue any shares of its capital stock or securities convertible
into shares of its capital stock, except for shares of common stock upon
exercise of options outstanding on the date of the merger agreement;
(3) create, incur or assume any debt, except for the DBI working
capital facility described below and the refinancing of existing
obligations on terms no less favorable than the existing terms, or become
liable for the obligations of any other person or entity;
(4) make any capital expenditures or make any loans, advances or
capital contributions to, or investments in, any other person or entity,
other than in the ordinary course of business consistent with past
practices;
(5) acquire the stock or assets of, or merge or consolidate with, any
other entity;
(6) dispose of or encumber any assets or properties material to
Visionics;
(7) increase the compensation of any of its officers or enter into,
amend or terminate any agreement, plan or other arrangement pertaining to
its employees, or increase the compensation of employees who are not
officers except in the ordinary course of business and consistent with past
practices; or
(8) take any action which would disqualify the merger for pooling of
interests accounting treatment purposes or as a tax-free reorganization for
income tax purposes.
Indemnification by Visionics Shareholders
By virtue of the approval of the merger agreement by the requisite vote of
the Visionics shareholders, each Visionics shareholder (other than shareholders
dissenting from the merger) will be deemed to have
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agreed that the escrow shares to which such Visionics shareholder becomes
entitled upon consummation of the merger shall be placed in escrow as security
for the performance of the Visionics shareholder's indemnification obligations
under and as provided for in the merger agreement. DBI, and each of DBI's
subsidiaries, and their respective officers, directors, employees, agents,
affiliates and stockholders will be entitled to be indemnified and held harmless
against and in respect of:
(i) any and all losses, damages or deficiencies (whether as a result
of a direct claim by DBI against the Visionics shareholders, a third party
claim against DBI or otherwise) resulting to DBI from any and all breaches
of representations, warranties, covenants or other terms of the merger
agreement by Visionics made or contained in the merger agreement or in any
exhibit thereto; and
(ii) all costs and expenses incident to any and all actions, suits,
proceedings, claims, demands, assessments or judgments in respect of the
foregoing, regardless of the merit thereof, including DBI's reasonable
legal and accounting fees and expenses (whether incident to the foregoing
or to DBI's enforcement of its rights of defense and indemnity).
In the event that the Visionics shareholders become liable to DBI under the
indemnification provisions of the merger agreement, the aggregate liability of
Visionics shareholders (other than certain significant shareholders) from and
after the effective time through the first anniversary of the closing date will
not exceed the escrow shares (together with proceeds from any sales of Escrow
Shares) held by the escrow agent. In general, the indemnification liability of
the significant shareholders referred to above from and after the effective time
through the first anniversary of the closing date will not exceed 20 percent of
the aggregate merger consideration, less the value attributable to such
shareholders' pro rata portion of the escrow shares.
Indemnification Threshold. The Visionics shareholders will not have any
indemnification obligation to DBI under the merger agreement unless and until
the aggregate amount of all losses, damages, costs, expenses and deficiencies
incurred by DBI reaches $50,000, at which time the Visionics shareholders shall
be liable in full for all losses, damages, costs, expenses and deficiencies.
Representations and Warranties
The merger agreement contains various representations and warranties of
Visionics and DBI relating to, among other things:
(1) the due organization, power and standing of Visionics, DBI and VC
Acquisition Corp., and similar corporate matters;
(2) the capital structure of Visionics and DBI;
(3) the authorization and enforceability of the merger agreement and
all related agreements;
(4) the absence of conflicts under charter documents and conflict with
any contracts, and required consents or approvals;
(5) compliance with laws;
(6) investigations and litigation;
(7) accuracy of financial statements and absence of undisclosed
liabilities;
(8) absence of undisclosed liabilities and certain changes or events;
(9) absence of undisclosed brokers and finders; and
(10) accuracy of documents and information.
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Visionics has made additional representations and warranties, relating to,
among other things:
(1) Visionics' employee benefit plans;
(2) Visionics' material contracts;
(3) Visionics' legally enforceable rights to its intellectual
property;
(4) Visionics' accounts receivable and leasehold interests;
(5) Visionics' personnel, service providers, compensation and
benefits;
(6) Visionics' income taxes and other taxes;
(7) certain payments to shareholders, directors, officers and
employees of Visionics and related agreements;
(8) absence of environmental and tax liabilities; and
(9) absence of actions taken that would prevent DBI from accounting
for the merger using the pooling of interests method.
In addition, DBI has made additional representations relating to, among
other things:
- income taxes and other taxes;
- enforceable rights to its intellectual property;
- employee benefit plans;
- absence of actions taken that would prevent DBI from accounting for the
merger using the pooling of interests method; and
- the timeliness and completeness of reports filed by it with the
Securities and Exchange Commission.
Exclusivity
Visionics has agreed not to, during the period prior to the closing or
termination of the merger agreement, directly or indirectly, take any action to
solicit, initiate, seek, entertain, encourage or support any inquiry, proposal
or offer from, furnish any information to, or participate in any negotiations
with, any third party regarding a public offering of Visionics, any acquisition
of, or merger or consolidation involving Visionics, or any acquisition of any
material portion of the stock or assets of Visionics. In addition, Visionics is
prohibited from accepting entering into any agreement, arrangement or
understanding regarding a third party acquisition transaction prior to the
earlier of the effective time of the merger or the termination of the merger
agreement.
DBI has agreed not to, during the period prior to the closing or
termination of the merger agreement:
(i) enter into any form of business combination involving DBI;
(ii) issue or sell DBI debt securities; or
(iii) enter into any arrangement providing for any direct or indirect
acquisition or purchase of the assets of DBI and its subsidiaries or 10
percent or more of any class of equity securities of DBI, any tender offer
or exchange offer that if consummated would result in any person
beneficially owning 10 or more of any class of equity securities of DBI,
any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
DBI, other than the transactions contemplated by the merger agreement.
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Additional Covenants
The merger agreement also contains certain other covenants including, among
other things, covenants relating to the special meeting of DBI, obtaining
necessary consents in connection with the merger, cooperation of the parties
with respect to any governmental filings or applications, confidentiality of
information, issuance of public announcements and obtaining affiliate
agreements.
Conditions Precedent to the Merger
Conditions to Each Party's Obligations. The obligation of each party to
effect the merger is subject to the satisfaction of certain conditions at or
prior to the effective time of the merger including without limitation:
(1) The stockholders of DBI and the shareholders of Visionics will
have approved the merger and related transactions.
(2) Neither the merger nor any of the transactions contemplated by the
merger will have been enjoined by any federal or state governmental
authority.
(3) The registration statement covering the issuance of the DBI common
stock issuable in the merger will have been declared effective by the
Securities and Exchange Commission.
(4) DBI will have received a letter from its independent accountants,
KPMG LLP, to the effect that the merger qualifies for "pooling of
interests" accounting treatment if consummated in accordance with the
merger agreement.
(5) The average closing price for DBI's common stock for the 20
trading days preceding the closing date for the merger will not be less
than $4.00.
Conditions to Visionics' Obligations. The obligation of Visionics to
effect the merger is subject to the satisfaction of certain conditions at or
prior to the effective time of the merger, including without limitation:
(1) The representations and warranties of DBI contained in the merger
agreement will be true and correct at the effective time of the merger
disregarding, for such purposes, any exception resulting from: (i) changes
in the economy generally, (ii) changes in the industry in which DBI
operates or (iii) changes resulting from the public announcement of the
merger and the transactions contemplated by the merger agreement.
(2) DBI will have performed and complied with all the covenants and
agreements in all material respects and satisfied in all material respects
all the conditions required by the merger agreement to be performed or
complied with or satisfied by DBI at or prior to the effective time of the
merger.
(3) There will have been no material adverse change in the financial
condition or results of operations of DBI since the date of the merger
agreement (October 18, 2000) disregarding, for such purposes, any such
change resulting from: (i) changes in the economy generally, (ii) changes
in the industry in which DBI operates or (iii) changes resulting from the
public announcement of the merger and the transactions contemplated by the
merger agreement.
(4) Visionics shall have received an opinion from Paul, Weiss,
Rifkind, Wharton & Garrison, counsel to Visionics, to the effect that the
merger will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code.
Conditions to DBI's Obligations. The obligation of DBI to effect the
merger is subject to the satisfaction of certain conditions at or prior to the
effective time of the merger, including without limitation:
(1) The representations and warranties of Visionics contained in the
merger agreement shall be true and correct on the closing date
disregarding, for such purposes, any exception resulting from:
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(i) changes in the economy generally, (ii) changes in the industry in which
Visionics operates or (iii) changes resulting from the public announcement
of the merger and the transactions contemplated by the merger agreement.
(2) Visionics shall have performed and complied with all the covenants
and agreements in all material respects and satisfied in all material
respects all the conditions required by the merger agreement to be
performed or complied with or satisfied by Visionics at or prior to the
effective time of the merger.
(3) There shall have been no material adverse change in the financial
condition or results of operations of Visionics since the date of the
merger agreement (October 18, 2000) disregarding, for such purposes, any
such change resulting from: (i) changes in the economy generally, (ii)
changes in the industry in which Visionics operates or (iii) changes
resulting from the public announcement of the merger and the transactions
contemplated by the merger agreement.
(4) DBI shall have received an opinion from Maslon Edelman Borman &
Brand, LLP, counsel to DBI, substantially to the effect that the merger
will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code.
(5) The holders of no more than 1 percent of Visionics shares shall
have provided Visionics with notice of their intent to dissent with respect
to the merger.
(6) Any and all agreements by and among Visionics' shareholders with
respect to their shares of Visionics common stock shall have been
terminated and will be of no further force or effect.
Termination or Amendment of Merger Agreement
The merger agreement may be terminated at any time prior to the effective
time of the merger:
(1) by either DBI or Visionics if:
(a) the merger shall not have been consummated on or prior to May 31,
2001;
(b) approval of the merger and the transactions contemplated by the
merger agreement shall not have been obtained from Visionics' shareholders;
(c) approval of the merger and the transactions contemplated by the
merger agreement shall not have been obtained from DBI's stockholders; or
(d) any federal or state governmental authority shall have issued an
order or taken any other action enjoining or otherwise prohibiting the
consummation of the merger and such order or other action shall have become
final and nonappealable;
(2) by DBI if the average closing share price of DBI's common stock for the
20 trading days preceding the closing date is less than $4.00, or if Visionics
shall have breached in any material respect any of its representations or
warranties, except where such breach is attributable to:
(i) changes in the economy generally;
(ii) changes in the industry in which Visionics operates; or
(iii) changes resulting from the public announcement of the merger
agreement and the transactions contemplated by the merger agreement;
or if Visionics breaches any of its covenants or other agreements contained in
the merger agreement; or
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(3) by Visionics if the average closing share price of DBI's common stock
for the 20 trading days preceding the closing date is less than $4.00, or if DBI
shall have breached in any material respect any of its representations or
warranties, except where such breach is attributable to:
(i) changes in the economy generally;
(ii) changes in the industry in which DBI operates; or
(iii) changes resulting from the public announcement of the merger
agreement and the transactions contemplated by the merger agreement);
or if DBI breaches any of its covenants or other agreements contained in the
merger agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.
The following summary of the material federal income tax consequences to
the holders of Visionics common stock and options to purchase Visionics common
stock, as the case may be, in connection with the merger is based upon current
provisions of the Internal Revenue Code, currently applicable Treasury
regulations and judicial and administrative rulings and decisions as of the date
of this proxy statement/ prospectus. Legislative, judicial or administrative
changes may be forthcoming that could alter or modify the statements set forth
herein, possibly on a retroactive basis. The summary does not purport to deal
with all aspects of federal income taxation that may affect particular holders
of Visionics common stock in light of their individual circumstances, nor with
certain types of holders subject to special treatment under the federal income
tax laws (e.g., life insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, holders owning stock as part of a "straddle,"
"hedge" or "conversion transaction," holders who acquired their Visionics common
stock pursuant to the exercise of an employee stock option or otherwise as
compensation, and holders of Visionics common stock who are neither citizens nor
residents of the United States, or that are foreign corporations, foreign
partnerships or foreign estates or trusts for U.S. federal income tax purposes).
In addition, the summary assumes that each Visionics shareholder holds his or
her shares of Visionics common stock as a capital asset.
Consequences of the Merger to Visionics Shareholders
Pursuant to the merger agreement, a wholly-owned subsidiary of DBI will be
merged with and into Visionics, with Visionics as the surviving corporation and
the Visionics shareholders will receive shares of DBI common stock (and cash in
lieu of any fractional shares of DBI common stock) in exchange for their shares
of Visionics common stock. It is a condition of Visionics' obligation to
consummate the merger that it shall have received an opinion of its tax counsel,
dated as of the effective date of the merger, to the effect that the merger will
be treated as a tax-free reorganization under Section 368(a)(1) of the Internal
Revenue Code. Assuming the merger is so treated for federal income tax purposes,
no gain or loss will be recognized by Visionics shareholders as a result of the
merger (unless such shareholders receive cash in lieu of fractional shares of
DBI common stock, in which case the amount of gain (or loss) recognized will be
treated in the manner described in the following paragraph).
The receipt by a Visionics shareholder of any cash in lieu of a fractional
share of DBI common stock pursuant to the merger will be a taxable transaction
under the Internal Revenue Code for federal income tax purposes. The receipt of
cash in lieu of fractional shares of DBI common stock will result in gain or
loss (rather than dividend income), measured by the difference between the
amount of cash received and the adjusted basis of the fractional share.
Visionics shareholders who anticipate receiving fractional shares of DBI common
stock should consult their own tax advisors about the treatment of capital gain
or loss arising from such receipt.
An opinion of counsel is not binding on the IRS or any court, and no ruling
has been sought from the IRS as to the federal income tax consequences of any
aspect of the merger. Accordingly, there is no assurance that the IRS will not
take a position contrary to one or more positions reflected in such an opinion
or that such an opinion will be upheld by the courts if challenged by the IRS.
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<PAGE> 61
Consequences of the Merger to Holders of Visionics Options
The merger agreement provides that options to purchase Visionics common
stock outstanding on the closing date will be converted into options to purchase
shares of DBI common stock. Assuming the merger qualifies as a tax-free
reorganization, no gain or loss will be recognized upon such conversion. Upon
the exercise of an option to purchase DBI common stock, ordinary income will be
recognized to the extent that the then fair market value of the shares acquired
exceeds the applicable exercise price. Depending upon a number of factors, any
gain or loss realized in a subsequent disposition of shares purchased upon
exercise of a stock option may be ordinary or capital, long or short term.
Consequences of the Merger to DBI and DBI Stockholders
Pursuant to the merger agreement, a wholly-owned subsidiary of DBI will be
merged with and into Visionics, with Visionics as the surviving corporation, in
exchange for approximately 26 percent of the outstanding common stock of DBI
determined on a fully-diluted basis and giving effect to the exercise of options
to purchase shares of Visionics common stock assumed by DBI. For federal income
tax purposes, no gain or loss will be recognized by DBI or DBI stockholders as a
result of the merger. As a condition to DBI's obligation to effect the merger,
DBI must receive at or prior to the effective time of the merger the opinion of
Maslon Edelman Borman & Brand, LLP, counsel for DBI, substantially to the effect
that, on the basis of facts, representations and assumptions set forth in such
opinion, the federal income tax consequences of the merger to DBI and DBI
stockholders will be as set forth in the preceding sentence.
An opinion of counsel is not binding on the IRS, and no ruling has been
sought from the IRS as to the federal income tax consequences of any aspect of
the merger. Accordingly, there is no assurance that the IRS will not take a
position contrary to one or more positions reflected in such an opinion or that
such an opinion will be upheld by the courts if challenged by the IRS.
EXPENSES
Whether or not the merger is consummated, all costs and expenses, including
legal, accounting and investment banking fees and expenses, incurred in
connection with the merger agreement and the transactions contemplated thereby
will be paid by the party incurring such expenses. If the merger is consummated,
Visionics' expenses will be borne by Visionics as a wholly owned subsidiary of
DBI.
AMENDMENT OF THE MERGER AGREEMENT
The merger agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties to the merger agreement.
AFFILIATE AGREEMENTS
Subject to the escrow provisions described under "-- Escrow of DBI Common
Stock" and "-- Indemnification by Visionics' Shareholders," and subject to
certain resale restrictions attributable to pooling of interest accounting
requirements, all shares of DBI common stock and resale restrictions received by
Visionics shareholders in the merger will be registered under the Securities Act
and will be freely transferable, except that shares of DBI common stock received
by persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of Visionics at the time of the special meeting or affiliates of
DBI after the merger may be resold by them only in transactions permitted by the
resale provisions of Rule 145 promulgated under the Securities Act or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Visionics or DBI generally include individuals or entities that
control, are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal
shareholders or stockholders of such party. The merger agreement requires
Visionics to cause each of its affiliates to execute a written affiliate
agreement to the effect that such person will not offer to sell, transfer, or
otherwise dispose of any of the shares of DBI common stock issued to such person
in or pursuant to the merger unless such sale, transfer or other disposition is
made in compliance with Rule 145 under the Securities Act. Compliance
58
<PAGE> 62
with Rule 145 requires executive officers, directors and significant
shareholders of the entity acquired in a merger to comply with certain
provisions of Rule 144 promulgated under the Securities Act when reselling
shares received in the merger during the one-year period commencing on the date
of the merger. Rule 144 limits sales of such shares during any three-month
period to not more than the greater of one percent of: (i) the shares then
outstanding or (ii) the reported average weekly trading volume of the shares
during the four calendar weeks immediately preceding the date on which notice of
the sale is sent to the Securities and Exchange Commission. Sales under Rule 144
are also subject to certain manner of sale restrictions, notice requirements and
availability of current public information concerning DBI.
VOTING AGREEMENTS
Each of Lonsdale Group Limited, Paul A. Griffin, A. Norman Redlich and
Joseph J. Atick, who together own approximately 99 percent of the issued and
outstanding common stock of Visionics as of the date of this prospectus, have
executed a voting agreement with DBI. Each voting agreement provides that the
shareholder (i) will not transfer his or its shares, or the related voting
rights, except to a person who agrees to be bound by the terms of the voting
agreement; and (ii) will vote all shares owned by such shareholder prior to the
date of termination of the merger agreement in favor of the merger, the merger
agreement and the transactions contemplated by the merger agreement. In
addition, each such shareholder has granted to DBI an irrevocable proxy to vote
such shareholder's shares as specified in the voting agreement. A copy of the
voting agreement is attached to this proxy statement/prospectus as Appendix C.
This proxy statement/prospectus also serves as an information statement for
Visionics shareholders
OPINION OF THE DBI BOARD OF DIRECTORS' FINANCIAL ADVISOR
DBI retained SunTrust Equitable Securities to act as financial advisor in
connection with the merger. On October 18, 2000, SunTrust Equitable Securities
delivered an oral opinion to the DBI Board of Directors, followed by a written
opinion as of the same date, that as of the date of such opinion, a pro forma
exchange ratio of .5200 shares of DBI common stock for each share of Visionics
common stock was fair to the DBI stockholders from a financial point of view.
The full text of the SunTrust Equitable Securities opinion is attached to
this document as Appendix B. The full text of the SunTrust Equitable Securities
opinion sets forth the assumptions made by SunTrust Equitable Securities in
arriving at its opinion as well as certain qualifications to the opinion of
SunTrust Equitable Securities. Furthermore, the full text of the SunTrust
Equitable Securities opinion describes the information reviewed by SunTrust
Equitable Securities and briefly describes the qualifications of SunTrust
Equitable Securities to render an opinion as to the fairness, from a financial
point of view, of the pro forma exchange ratio to the DBI stockholders. SunTrust
Equitable Securities advice to DBI's Board of Directors was provided to assist
the board members with their consideration of the merger and does not constitute
a recommendation to any DBI stockholder as to how to vote with respect to the
merger.
In preparing its opinion, SunTrust Equitable Securities performed a variety
of analyses which are described briefly below. In arriving at its opinion,
SunTrust Equitable Securities considered the results of all such analyses as a
whole and did not attribute any particular weight to any specific analysis or
factor. As such, consideration of only a portion of the analyses could create an
incomplete view of the processes underlying the SunTrust Equitable Securities
opinion.
In performing its analyses, SunTrust Equitable Securities made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of DBI and
Visionics. The analyses performed by SunTrust Equitable Securities are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of SunTrust Equitable Securities analysis
of the fairness of the exchange ratio to the DBI stockholders from a financial
point of view and were provided to the DBI Board of Directors in connection with
the delivery of SunTrust Equitable Securities opinion. The analyses do not
purport to be appraisals or to reflect the prices
59
<PAGE> 63
at which a company might actually be sold. SunTrust Equitable Securities assumed
that the various projections or results of operations that SunTrust Equitable
Securities examined were reasonably prepared on a basis reflecting the best
currently available estimates and good faith judgments of the respective
managements of DBI and Visionics. The projections are based on numerous
variables and assumptions that are inherently unpredictable and must be
considered not certain of occurrence as projected. Accordingly, actual results
could vary significantly from those set forth in such projections. SunTrust
Equitable Securities relied upon the accuracy and completeness of all the
financial and other information reviewed by SunTrust Equitable Securities that
was publicly available or furnished by or on behalf of DBI or Visionics without
assuming responsibility for independent verification. In addition, Sun Trust did
not make an independent evaluation or appraisal of the assets and liabilities
(contingent or otherwise) of DBI or Visionics and was not furnished with any
such evaluation or appraisal.
The following paragraphs summarize the material quantitative analyses
performed by SunTrust Equitable Securities in arriving at the opinion delivered
to the DBI Board of Directors. SunTrust Equitable Securities did not perform a
discounted cash flow analysis because the projected financial information made
available to SunTrust Equitable Securities was not sufficient to permit SunTrust
Equitable Securities to perform such analysis. Advising on the fairness of a
proposed merger is a complex process and is not necessarily susceptible to
partial analysis or summary description.
Contribution Analysis
SunTrust Equitable Securities analyzed the percentage of revenue and gross
profit that each of DBI and Visionics would contribute to the combined entity.
SunTrust Equitable Securities noted that, at the pro forma exchange ratio, the
percentage ownership of Visionics' shareholders was within the range of the
implied contribution for the 2001 fiscal year.
<TABLE>
<CAPTION>
CONTRIBUTION OF: DBI VISIONICS DBI/VISIONICS
---------------- ----- --------- -------------
<S> <C> <C> <C>
Revenue................................................ 82.6%.. 17.4% 100%
Gross profit........................................... 72.7% 27.3% 100%
Implied ownership...................................... 73.5% 26.5% 100%
</TABLE>
Analysis of Recent Acquisition Transactions
Using publicly-available information, SunTrust Equitable Securities
reviewed the purchase prices and multiples paid in selected merger and
acquisition transactions involving technology-related companies. No company or
transaction was identical to Visionics or the merger. Many of these transactions
include early stage development companies involved with largely non-established
technologies. SunTrust Equitable Securities examined 66 transactions since
January 1, 1999 and reviewed the relationship between the aggregate transaction
value and the acquired company's revenue for the twelve months preceding the
acquisition. SunTrust Equitable Securities noted that, based upon DBI's stock
price on October 18, 2000, the value of Visionics implied by the exchange ratio
was below the average and median multiples of revenue for the preceding twelve
months in both transactions in which stock was the only form of consideration
paid as well as transactions involving cash, stock or other forms of
consideration.
<TABLE>
<CAPTION>
STOCK ONLY IMPLIED
---------------- TRANSACTION
AVERAGE MEDIAN AVERAGE MEDIAN MULTIPLE
------- ------ ------- ------ -----------
<S> <C> <C> <C> <C> <C>
Aggregate transaction value to:
Trailing twelve months revenue................. 80.7x 22.6x 96.1x 33.0x 12.6x
</TABLE>
Analysis Of Certain Publicly-Traded Companies
Using publicly-available information, SunTrust Equitable Securities
reviewed the stock prices, market multiples and certain other characteristics
for certain companies in the biometric and related industries. None of these
companies is identical to Visionics. The companies included in this analysis
were Communication Intelligence Corporation, Identix Incorporated, Keyware
Technologies, Nuance Communi-
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<PAGE> 64
cations, SpeechWorks International, Viisage Technology, Inc. and Virage, Inc.
SunTrust Equitable Securities noted that, based upon DBI's stock price on
October 18, 2000, the value of Visionics implied by the exchange ratio was below
the average and median multiples of revenue for the preceding twelve months as
well as forecasted revenue for fiscal year 2001, when available, for the other
publicly-traded companies.
<TABLE>
<CAPTION>
IMPLIED
TRANSACTION
MARKET MULTIPLE OF: AVERAGE MEDIAN MULTIPLE
------------------- ------- ------ -----------
<S> <C> <C> <C>
Trailing 12 months revenue.................................. 39.4x 28.4x 12.6x
Forecasted fiscal year 2001 revenue......................... 14.7x 9.9x 6.2x
</TABLE>
In connection with the merger, SunTrust Equitable Securities has performed
investment banking and financial advisory services for DBI for which it has
received compensation. In the ordinary course of business, SunTrust Equitable
Securities trades the equity securities of DBI for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in DBI securities.
Pursuant to the engagement letter, dated January 28, 2000, by and between
DBI and SunTrust Equitable Securities, DBI has agreed to pay SunTrust Equitable
Securities a success fee equal to 2.0 percent of the aggregate consideration
given to Visionics shareholders by DBI upon the close of the merger as well as a
fee of $250,000 related to the opinion. Of that fee, $100,000 was paid with
respect to the opinion delivered by SunTrust Equitable Securities on October 18,
2000 and an additional $100,000 was paid with respect to the opinion as a result
of its inclusion in this statement. The remaining $50,000 will become payable to
SunTrust Equitable Securities upon the close of the merger along with the
success fee. DBI has also agreed to reimburse SunTrust Equitable Securities for
the expenses reasonably incurred by it in connection with its engagement,
including reasonable counsel fees, and to indemnify SunTrust Equitable
Securities and its officers, directors, employees, agents and controlling
persons against certain expenses, losses, claims, damages or liabilities in
connection with its services, including those arising under federal securities
laws.
As described in "Reasons for the Merger; Recommendation of the Board of
Directors" above, the advice of SunTrust Equitable Securities to the Board of
Directors of DBI was one of many factors taken into consideration by the board
in reaching its conclusion to recommend to DBI stockholders that they vote in
favor of the merger.
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<PAGE> 65
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Financial Information
is based on the historical financial statements of DBI and Visionics and has
been prepared to illustrate the effect of the merger. The Unaudited Pro Forma
Condensed Combined Financial Information has been prepared assuming that the
merger will be accounted for as a pooling of interests, whereby DBI will restate
its historical consolidated financial statements to include the assets,
liabilities, shareholders' equity and results of operations of Visionics for all
periods.
The Unaudited Pro Forma Condensed Combined Balance Sheet at September 30,
2000 gives effect to the merger and the related transactions as if they had
occurred on September 30, 2000, and was prepared based upon the audited
consolidated balance sheet of DBI as of September 30, 2000 and the audited
balance sheet of Visionics as of September 30, 2000.
The Unaudited Pro Forma Condensed Combined Statements of Operations for
each of the years in the three-year period ended September 30, 2000, give effect
to the merger as of October 1, 1997. The Unaudited Pro Forma Condensed Combined
Statement of Operations for the fiscal years ended September 30, 2000, 1999 and
1998 was prepared based upon the consolidated statement of operations of DBI for
the fiscal years ended September 30, 2000, 1999 and 1998 and the consolidated
statement of operations of Visionics for the fiscal year ended September 30,
2000 and the fiscal years ended December 31, 1999 and 1998, respectively.
The Unaudited Pro Forma Condensed Combined Financial Information is based
on certain assumptions and adjustments described in the notes to the Unaudited
Pro Forma Condensed Combined Financial Information included in this joint proxy
statement/prospectus and should be read in conjunction with the historical
financial statements and accompanying disclosures contained in DBI's September
30, 2000 Form 10-K and Visionics' September 30, 2000 consolidated financial
statements and notes thereto, which are incorporated by reference or appear
elsewhere in this joint proxy statement/prospectus.
The Unaudited Pro Forma Condensed Combined Financial Information presented
below does not reflect future events that may occur after the merger.
As a result of these assumptions, estimates and uncertainties, the
accompanying Unaudited Pro Forma Condensed Combined Financial Information does
not purport to describe the actual financial condition or results of operations
that would have been achieved had the merger in fact occurred on the dates
indicated, nor does it purport to predict DBI's future financial condition or
results of operations.
62
<PAGE> 66
INDEX TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Condensed Combined Balance Sheet at
September 30, 2000........................................ 64
Unaudited Pro Forma Condensed Combined Statements of
Operations:
Year ended September 30, 2000............................. 65
Year ended September 30, 1999............................. 66
Year ended September 30, 1998............................. 67
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements................................................ 68
</TABLE>
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<PAGE> 67
DIGITAL BIOMETRICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- ---------------------------
DBI VISIONICS ADJUSTMENTS RESULTS
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 1,893,156 $ 1,730,418 $ -- $ 3,623,574
Accounts receivable, net................ 9,256,468 523,328 -- 9,779,796
Inventory............................... 3,900,754 -- -- 3,900,754
Prepaid expenses and other costs........ 215,103 53,985 -- 269,088
------------ ----------- ----------- ------------
Total current assets.......... 15,265,481 2,307,731 -- 17,573,212
Property and equipment, net............. 935,669 434,897 -- 1,370,566
Capitalized software costs, net......... -- 839,430 -- 839,430
Other assets............................ 45,149 77,446 -- 122,595
------------ ----------- ----------- ------------
$ 16,246,299 $ 3,659,504 $ -- $ 19,905,803
============ =========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable........................ $ 1,711,438 $ 381,946 $ -- $ 2,093,384
Deferred revenue........................ 3,642,246 314,024 -- 3,956,270
Other accrued expenses.................. 1,750,088 10,192 -- 1,760,280
Current installments of notes payable... -- 15,071 -- 15,071
Current installments of capital lease
obligations........................... -- 2,017 2,017
------------ ----------- ----------- ------------
Total current liabilities..... 7,103,772 723,250 -- 7,827,022
Notes payable, excluding current
installments.......................... -- 28,334 -- 28,334
Deferred revenue, excluding current
portion............................... -- 511,976 -- 511,976
Capital lease obligations, less current
installments.......................... -- 3,540 -- 3,540
------------ ----------- ----------- ------------
Total liabilities............. 7,103,772 1,267,100 -- 8,370,872
------------ ----------- ----------- ------------
Stockholders' equity:
Preferred stock......................... -- -- -- --
Common stock............................ 168,517 3,675,810 (3,675,810)(1) 231,214
62,697(1)
Additional paid-in capital.............. 48,741,875 -- (3,675,810)(1) 52,354,988
62,697(1)
Deferred compensation................... (93,750) -- -- (93,750)
Accumulated deficit..................... (39,674,115) (1,283,205) -- (40,957,320)
Accumulated other comprehensive loss.... -- (201) (201)
------------ ----------- ----------- ------------
Total stockholders' equity.... 9,142,527 2,392,404 -- 11,534,931
------------ ----------- ----------- ------------
$ 16,246,299 $ 3,659,504 $ -- $ 19,905,803
============ =========== =========== ============
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
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<PAGE> 68
DIGITAL BIOMETRICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- --------------------------
DBI VISIONICS ADJUSTMENTS RESULTS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE................................... $22,940,468 $ 2,634,592 $ -- $25,575,060
COST OF REVENUE........................... 14,819,385 658,303 -- 15,477,688
----------- ----------- ----------- -----------
GROSS MARGIN.................... 8,121,083 1,976,289 -- 10,097,372
OPERATING EXPENSES
Selling, general and development........ 7,676,266 3,381,968 -- 11,058,234
Non-recurring charges................... 221,473 78,689 (300,162)(2) --
----------- ----------- ----------- -----------
Total operating expenses........ 7,897,739 3,460,657 (300,162) 11,058,234
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS............. 223,344 (1,484,368) 300,162 (960,862)
OTHER INCOME, NET......................... 214,884 140,734 -- 355,618
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
(BENEFIT OF) INCOME TAXES............... 438,228 (1,343,634) 300,162 (605,244)
PROVISION FOR (BENEFIT OF) INCOME TAXES... -- (37,538) -- (37,538)
----------- ----------- ----------- -----------
NET INCOME (LOSS)......................... $ 438,228 $(1,306,096) $ 300,162 $ (567,706)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE........ $ 0.03 $ (0.11) $ 0.06 $ (0.02)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON
SHARE -- ASSUMING DILUTION.............. $ 0.02 $ (0.11) $ 0.07 $ (0.02)
=========== =========== =========== ===========
Weighted average common shares
outstanding............................. 16,595,051 12,050,840 (5,784,403) 22,861,488
=========== =========== =========== ===========
Weighted average common shares
outstanding -- assuming dilution........ 18,074,983 12,050,840 (7,264,335) 22,861,488
=========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
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<PAGE> 69
DIGITAL BIOMETRICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------- -------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1999
DBI VISIONICS ADJUSTMENTS RESULTS
------------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE........................... $22,199,250 $ 2,623,314 $ -- $24,822,564
COST OF REVENUE................... 14,954,356 301,207 -- 15,255,563
----------- ----------- ----------- -----------
GROSS MARGIN............ 7,244,894 2,322,107 -- 9,567,001
OPERATING EXPENSES
Selling, general and
development.................. 6,862,353 2,645,002 -- 9,507,355
----------- ----------- ----------- -----------
Total operating
expenses.............. 6,862,353 2,645,002 -- 9,507,355
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS..... 382,541 (322,895) -- 59,646
OTHER INCOME (EXPENSE)............ (283,653) 152,804 -- (130,849)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
(BENEFIT OF) INCOME TAXES....... 98,888 (170,091) -- (71,203)
PROVISION FOR (BENEFIT OF) INCOME
TAXES........................... -- 56,974 56,974
----------- ----------- ----------- -----------
NET INCOME (LOSS)................. $ 98,888 $ (227,065) $ -- $ (128,777)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON
SHARE........................... $ 0.01 $ (0.02) $ -- $ (0.01)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON
SHARE -- ASSUMING DILUTION...... $ 0.01 $ (0.02) $ -- $ (0.01)
=========== =========== =========== ===========
Weighted average common shares
outstanding..................... 14,781,936 12,007,630 (5,763,662) 21,025,904
=========== =========== =========== ===========
Weighted average common shares
outstanding -- assuming
dilution........................ 15,081,973 12,007,630 (6,063,699) 21,025,904
=========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
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<PAGE> 70
DIGITAL BIOMETRICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------- -------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1998
DBI VISIONICS ADJUSTMENTS RESULTS
------------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE............................... $11,322,691 $1,891,745 $ -- $13,214,436
COST OF REVENUE....................... 8,516,958 463,095 -- 8,980,053
----------- ---------- ---------- -----------
GROSS MARGIN................ 2,805,733 1,428,650 -- 4,234,383
OPERATING EXPENSES
Selling, general and development.... 7,081,579 2,020,742 -- 9,102,321
----------- ---------- ---------- -----------
Total operating expenses.... 7,081,579 2,020,742 -- 9,102,321
----------- ---------- ---------- -----------
INCOME (LOSS) FROM OPERATIONS......... (4,275,846) (592,092) -- (4,867,938)
OTHER INCOME (EXPENSE)................ (612,586) (71,791) -- (684,377)
----------- ---------- ---------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
(BENEFIT OF) INCOME TAXES........... (4,888,432) (663,883) -- (5,552,315)
PROVISION FOR (BENEFIT OF) INCOME
TAXES............................... -- (123,000) -- (123,000)
----------- ---------- ---------- -----------
NET INCOME (LOSS)..................... $(4,888,432) $ (540,883) -- $(5,429,315)
=========== ========== ========== ===========
NET INCOME (LOSS) PER COMMON SHARE.... $ (0.38) $ (0.05) $ 0.13 $ (0.30)
=========== ========== ========== ===========
NET INCOME (LOSS) PER COMMON
SHARE -- ASSUMING DILUTION.......... $ (0.38) $ (0.05) $ 0.13 $ (0.30)
=========== ========== ========== ===========
Weighted average common shares
outstanding......................... 12,748,140 11,841,096 (5,683,726) 18,905,510
=========== ========== ========== ===========
Weighted average common shares
outstanding -- assuming dilution.... 12,748,140 11,841,096 (5,683,726) 18,905,510
=========== ========== ========== ===========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The adjustments to arrive at the unaudited pro forma condensed combined
financial information are as follows:
(1) The issuance or reservation for issuance of approximately
7,135,000 shares of DBI common stock with an aggregate par value of $71,350
and the elimination of Visionics common stock due to the conversion of each
outstanding share of Visionics common stock into 0.52 of a share of DBI
common stock. The 7,135,000 shares includes approximately 865,000 shares of
DBI common stock reserved for the assumption of outstanding Visionics stock
options. The pro forma condensed combined financial information reflects
6,269,718 shares of DBI common stock with a par value of $62,697 issued for
the elimination of Visionics common stock outstanding as of September 30,
2000. The actual number of shares of DBI common stock to be issued in
connection with the merger will be based upon the number of Visionics
shares and options outstanding immediately prior to the effective time of
the merger, together with the amount of the 20-day average closing price of
DBI's common stock preceding the merger.
(2) Total direct transaction costs, consisting of amounts due to
investment bankers, financial advisor, legal, accounting and printing fees,
are estimated at $2,300,000. The pro forma combined financial information
excludes the effects of the direct transaction costs incurred during the
third and fourth quarters of fiscal 2000 of $300,162. The remaining
transaction costs are expected to be incurred during the first half of
fiscal 2001 and will be charged to operations in the period during which
they occur.
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VISIONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Visionics Corporation is a leading developer of facial recognition
technology worldwide. Visionics pioneered the field of facial recognition with
its software engine, FaceIt(R), which allows computers to rapidly and accurately
recognize faces. FaceIt(R) is an enabling technology with Mass Appeal(TM) that
has been validated in a large number of real-world products and solutions built
by Visionics' original equipment manufacturer partners and software developers.
These include Smart CCTV(TM) systems, web-based search engine applications,
mass-market authentication systems for information security, banking and
e-commerce.
Visionics is a technology company focused on innovations and the
development of information architectures for delivering them. It is Visionics'
policy to cooperate, rather than compete with its business partners. The company
licenses its enabling technology to OEMs, application developers and system
integrators for incorporation into final products and solutions. To its
partners, Visionics delivers software modules, tools and technical support
necessary to integrate FaceIt(R) technology into these products. This
partnership allows each party to leverage its core competence, shorten time to
market and focus its resources.
Visionics' business strategy emphasizes the encapsulation of its technology
into modules and software components that meet the requirements of a large
number of applications and that are easy to integrate by software developers and
original equipment manufacturers into finished products and solutions.
Visionics was incorporated in 1994 in the State of New Jersey with its
executive offices located in Jersey City, New Jersey. In 1999, Visionics
established Visionics Ltd., a wholly owned subsidiary in the United Kingdom.
Visionics recognizes revenue from software licenses when all of the
following conditions have been satisfied: completion of a written license
arrangement; delivery of the software with no significant Visionics
post-delivery obligations; the fee is fixed or determinable; and payment is due
within one year and collectibility is probable. Revenue from sublicense
arrangements with resellers are recognized upon shipment of the software, if
there are no significant post-delivery obligations, if reseller is creditworthy,
and if the terms of arrangement are such that the payment terms are not subject
to price adjustment, are non-cancelable and are non-refundable. Revenue from
sublicensing arrangements with significant postcontract customer support (in
excess of one year)' including enhancements and upgrades, where significant
vendor specific objective evidence does not exist to allocate the fee to the
software and postcontract customer support, are recognized along with the
support ratably over the period during which support is expected to be provided.
Revenue from consulting services is recognized as work is performed.
RESULTS OF OPERATIONS
Fiscal 2000 Compared to Fiscal 1999
The presentation has the effect of including Visionics' results of
operations for the three months ended December 31, 1999 in the consolidated
statements of operations for both the year ended December 31, 1999 and the year
ended September 30, 2000. The Company's unaudited statement of operations for
the three months ended December 31, 1999 included revenues of approximately
$400,000 and a net loss of approximately $440,000.
Total revenue in 2000 of $2,635,000 approximated 1999 revenue of
$2,623,000. The Company experienced a $287,000 or 20 percent increase in its
product and license revenues that was essentially offset by a $276,000 or 25
percent decline in service revenue. The growth in the product and license
revenue is a result of the Company's larger product offering and expanding
customer base. Service revenue
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in 1999 benefited from a large contract to assist a commercial customer with
developing an application encapsulating the Company's technology. There was not
a similarly large commercial service contract in 2000.
Sales to one customer in fiscal 2000 accounted for approximately 11% of
total revenue. Sales to two customers in 1999 accounted for approximately 37% of
total revenue.
Cost of product and licenses increased to $182,000 in 2000 from $42,000 in
1999. The increase in costs is due to two primary reasons:
- Increased amortization of capitalized software costs.
- Costs associated with product sold into the United Kingdom. The United
Kingdom subsidiary was established in late calendar 1999.
While service revenue declined, cost of services in fiscal 2000 increased
$217,000 to $476,000 from $259,000 in calendar 1999. Service revenue in 2000 was
derived principally from governmentally funded customers where the associated
contract margin was lower.
Research and development costs declined $129,000 from $459,000 to $330,000.
Large portions of research and development costs, as well as service costs,
represent labor-related costs. In fiscal 2000, more technical staff efforts were
spent supporting service contract efforts as reflected in the increased service
costs noted above. The offsetting result of these efforts was a decline in
research and development costs.
Selling, general and development costs increased $944,000 from $2,186,000
to $3,130,000. Throughout 1999 and 2000, the Company continued increasing its
staffing levels to establish its business partnerships, its marketing channels
and pursue market opportunities. Much of the increase in selling, general and
development costs in fiscal 2000 are related to labor and associated costs such
as rent, travel and depreciation of an increased level of property and equipment
required to support the larger staff. Additionally, the Company incurred higher
professional fees for both the filing of patents to protect the Company's
technology as well as approximately $79,000 in merger-related costs.
Other income decreased to $141,000 in fiscal 2000 from $153,000 in 1999,
due primarily to lower balances of cash and cash equivalents.
Income taxes benefit of $38,000 for fiscal 2000 compares to a provision for
income taxes of $57,000 in fiscal 1999. This reduction in income taxes is due
primarily to the increased loss in fiscal 2000. The income tax benefit is low in
relationship to the Company's loss before income taxes because the Company is in
a net operating loss carryforward position for tax purposes.
Fiscal 1999 Compared to Fiscal 1998
Total revenue in 1999 of $2,623,000 increased 39% from 1998 revenue of
$1,892,000. The increase in total revenue was due primarily to increased sales
and license fees to value added resellers. In addition, service revenue in 1999
benefited from a large contract to assist a commercial customer with developing
an application encapsulating the Company's technology.
Sales to two customers in 1999 accounted for approximately 37% of total
revenue. Sales to five customers in 1998 accounted for approximately 88% of
total revenue.
Cost of product and license were not substantial in either 1999 or 1998.
While service revenue increased, cost of services in 1999 decreased
$192,000 to $259,000 from $451,000 in calendar 1999. Service revenue in 1998 was
derived principally from governmentally funded customers where the associated
contract margin was lower. 1999 service revenue included a higher portion of
strong margin commercial contracts.
Research and development costs increased $200,000 from $259,000 to
$459,000. Large portions of research and development costs, as well as service
costs, represent labor-related costs. In fiscal 1999, less
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technical staff efforts were spent supporting service contract efforts as
reflected in the decreased service costs noted above. The offsetting result of
these efforts was an increase in research and development costs.
Selling, general and development costs increased $424,000 from $1,762,000
to $2,186,000. Throughout 1998 and 1999, the Company continued increasing its
staffing levels to establish its business partnerships, its marketing channels
and pursue market opportunities. Much of the increase in selling, general and
administrative costs in fiscal 1999 are related to labor and associated costs
such as rent and travel.
Interest and dividend income increased to $153,000 in fiscal 1999 from
$120,000 in fiscal 1998, due to higher returns on marketable investments and
cash and cash equivalents. There was no interest expense in fiscal 1999 compared
to $3,000 in fiscal 1998. Other expense in fiscal 1998 includes $189,000 for
disposition of marketable investments.
Income tax expense of $57,000 for 1999 compares to a benefit for income
taxes of $123,000 in 1998. The increase in income taxes is due primarily to an
increase in the valuation allowance relating to the possibility the Company may
be unable to recognize the benefit of the deferred tax asset. The increase in
the valuation allowance more than offsets the income tax benefit form the
pre-tax loss.
Inflation. Visionics does not believe inflation has significantly impacted
revenues or expenses.
LIQUIDITY AND CAPITAL RESOURCES
General. For the period from Visionics' inception in 1994 through
September 30, 2000, Visionics' cumulative deficit was $1,283,000.
At September 30, 2000, Visionics had $1,730,000 in cash and cash
equivalents. Visionics is an early-stage company in an emerging market.
Visionics has received venture capital financing to fund its operations. The
growth plan of Visionics requires the continued availability of investment
capital. In the event that investment capital is not available on terms
acceptable to Visionics or at all, then the growth plans and operations of
Visionics may be adversely affected. Management believes that cash, cash
equivalents, and other working capital provided from operations may not be
sufficient to meet Visionics' planned operating requirements until and if
profitability is achieved. In the event that the above or other liquidity risks
materialize, Visionics may be unable to sustain its operations from the sources
of working capital available to it.
Furthermore, management may from time to time determine that the
competitive position of Visionics may be enhanced through substantial and
increased investments in product and technology development programs and/or
marketing initiatives. Management may determine to make such investments despite
its assessment that gross margin during the investment period will be less than
the expenses to be incurred, thus resulting in an anticipated loss during the
period.
Analysis of Cash Flows from Operations. Net cash used in operating
activities was $881,000 for fiscal 2000 compared to net cash provided by
operating activities of $625,000 for 1999. This unfavorable cash flow impact
resulted primarily from an increase in the net loss during the current-year
period, an increase in accounts receivable, and a decrease in deferred revenue,
partially offset by an increase in accounts payable and accrued expenses for the
current year.
Net cash used in investing activities was $739,000 for fiscal 2000 compared
to $636,000 for 1999. The increase was due primarily to an increase in
capitalized software costs and an increase in purchases of property and
equipment to accommodate investment in the business.
Net cash provided by financing activities was $56,000 for fiscal 2000
compared to $6,000 for fiscal 1999. Cash from financing activities was provided
primarily from notes payable and stock option exercises.
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<PAGE> 75
COMPREHENSIVE INCOME
During fiscal 1999, Visionics implemented SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes standards for reporting and
displaying the components of comprehensive income. The impact to the financial
statements is limited primarily to the disclosure format of foreign currency
translation adjustments.
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes new standards for recognizing all derivatives as either assets or
liabilities, and measuring those instruments at fair value. SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133," changed the effective date to fiscal
years beginning after June 15, 2000. Visionics will be required to adopt the new
standard beginning with the first quarter of fiscal 2001. The company believes
the effect of the adoption of the new standard on Visionics' financial
statements will not have a material impact.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 which provides the staff's views in applying
accounting principles generally accepted in the United States of America to
selected revenue recognition issues. Visionics will be required to adopt SAB No.
101 beginning with the fourth quarter of fiscal 2000. The company believes the
effect of the adoption of the new standard on Visionics' financial statements
will not have a material impact.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF DIGITAL BIOMETRICS, INC.
The following table sets forth, as of October 31, 2000, the number of
shares of DBI's common stock beneficially owned by (i) each person known to be
the beneficial owner of five percent or more of the total issued and outstanding
shares of DBI's common stock, (ii) each director and (iii) all officers and
directors as a group, prior to and immediately after the consummation of the
Merger on a pro forma basis. For purposes of the pro forma after merger
calculation of share ownership, the 20-day average closing price of DBI's common
stock immediately preceding the merger was assumed to be $6.00 per share, and
the number of shares of Visionics common stock was assumed to be 12,106,250 and
the number of shares purchasable under outstanding options was assumed to be
1,649,000 with an average exercise price of $.45 per share. Any shares reflected
in the following table which are subject to an option or a warrant are deemed to
be outstanding for the purpose of computing the percentage of the Company's
issued and outstanding common stock owned by the option or warrant holder but
are not deemed to be outstanding for the purpose of computing the percentage of
the Company's issued and outstanding common stock owned by any other person.
Except as otherwise indicated, each beneficial owner has sole voting and
investment power over the outstanding shares of which he has beneficial
ownership.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PRO FORMA AFTER
OWNED(1) MERGER
------------------- -------------------
NAME OF BENEFICIAL OWNER/GROUP NUMBER PERCENT NUMBER PERCENT
------------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Joseph J. Atick....................................... -- -- 2,071,551 8.6
A. Norman Redlich..................................... -- -- 2,071,551 8.6
Paul A. Griffin....................................... -- -- 1,035,775 4.3
Lonsdale Group Ltd.................................... -- -- 1,035,775 4.3
Perkins Capital Management Inc.
730 East Lake Street
Wayzata, Minnesota 55391............................ 1,303,526 7.7 1,303,526 5.4
George Latimer(2)..................................... 86,312 * 86,312 *
C. McKenzie Lewis III(3).............................. 115,341 * 115,341 *
John E. Haugo(4)...................................... 60,762 * 60,762 *
John E. Lawler(5)..................................... 7,411 * 7,411 *
James C. Granger(6)................................... 436,768 2.5 436,768 1.8
John J. Metil(7)...................................... 175,064 1.0 175,064 *
Barry A. Fisher(8).................................... 131,638 * 131,638 *
Michel R. Halbouty(9)................................. 126,481 * 126,481 *
Robert F. Gallagher................................... -- * -- *
All officers and directors as a group of 11(10)....... 1,139,777 6.4 4,253,411 17.1
</TABLE>
---------------
* Indicates an amount less than one percent
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission and, accordingly, may
include securities owned by or for, among others, the spouse, children or
certain other relatives of such person as well as other securities as to
which the person has or shares voting or investment power or has the right
to acquire within 60 days. The same shares may be beneficially owned by
more than one person.
(2) Includes 63,812 shares of common stock beneficially owned by Mr. Latimer
and options for the purchase of an aggregate of 22,500 shares of common
stock.
(3) Includes 37,841 shares of common stock beneficially owned by Mr. Lewis and
options and a warrant for the purchase of an aggregate of 78,000 shares of
common stock.
(4) Includes 30,762 shares of common stock beneficially owned by Mr. Haugo and
an option for the purchase of 30,000 shares of common stock.
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(5) Includes 3,411 shares of common stock beneficially owned by Mr. Lawler and
options for the purchase of an aggregate of 4,000 shares of common stock.
(6) Includes 20,101 shares of common stock beneficially owned by Mr. Granger
and options for the purchase of an aggregate of 416,667 shares of common
stock.
(7) Includes 8,397 shares of common stock beneficially owned by Mr. Metil and
options for the purchase of an aggregate of 166,667 shares of common stock.
(8) Includes 6,638 shares of common stock beneficially owned by Mr. Fisher and
options for the purchase of an aggregate of 125,000 shares of common stock.
(9) Includes 109,481 shares of common stock beneficially owned by Mr. Halbouty
and options for the purchase of an aggregate of 17,000 shares of common
stock.
(10) Includes 859,834 shares of common stock issuable upon exercise of common
stock purchase options and warrants.
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<PAGE> 78
COMPARATIVE RIGHTS OF HOLDERS OF DBI COMMON STOCK
AND VISIONICS COMMON STOCK
The following is a comparison of certain of the rights of holders of
Visionics common stock and those of holders of DBI common stock. Because
Visionics is organized under the laws of the State of New Jersey and DBI is
organized under the laws of the State of Delaware, differences in the rights of
holders of DBI common stock and those of holders of Visionics common stock arise
from differing provisions of Delaware law and New Jersey law, in addition to
differing provisions of DBI's and Visionics' respective organizational
documents. Except as noted below, the organizational documents of Visionics are
substantially the same.
The following summary does not purport to be a complete statement of the
provisions affecting, and differences between, the rights of holders of DBI
common stock and those of holders of Visionics common stock. The identification
of specific provisions or differences is not meant to indicate that other
equally or more significant differences do not exist. This summary is qualified
in its entirety by reference to New Jersey law and Delaware law and by the
governing corporate instruments of DBI and Visionics, to which stockholders are
referred.
AUTHORIZED CAPITAL STOCK
Visionics. Visionics' authorized capital stock consists of 20,000,000
shares of common stock no par value. On October 31, 2000, 12,106,250 shares of
Visionics common stock outstanding and 1,649,000 shares of Visionics common
stock were reserved for issuance pursuant to Visionics' stock-based benefit
plans. The Visionics board may determine the preferences, limitations and
relative rights, to the extent permitted by New Jersey law, of any class or
series of shares of preferred stock before issuance of such shares. The issuance
of such shares does not require the approval of the holders of Visionics common
stock.
DBI. DBI's authorized capital stock consists of 40,000,000 shares of
common stock, $.01 par value, and 5,000,000 shares of preferred stock, $.01 par
value. On October 31, 2000, 16,895,058 shares of DBI common stock and no shares
of preferred stock were outstanding, 3,357,102 shares of DBI common stock were
reserved for issuance pursuant to DBI's stock-based benefit plans. The DBI board
may determine the preferences, limitations and relative rights, to the extent
permitted by Delaware law, of any class or series of shares of DBI preferred
stock before issuance of such shares. The issuance of such shares does not
require the approval of the holders of DBI common stock.
DIRECTORS
Visionics. New Jersey law allows for a board of one or more members. The
bylaws of Visionics both provide for between one and six directors. The
Visionics board currently consists of four directors.
At each annual election of directors, the directors are elected to hold
office until the next annual meeting of shareholders. Directors are elected by a
majority vote of shareholders entitled to vote at a meeting at which a quorum is
present. Holders of Visionics common stock do not have cumulative voting rights
in the election of directors.
DBI. Delaware law provides that the board of directors of a Delaware
corporation shall consist of the number of individuals specified in or fixed in
accordance with the bylaws or the certificate of incorporation of the
corporation. DBI's bylaws provide that provide for between five and nine
directors. The DBI board currently consists of six directors.
At each annual election of directors, the directors are elected to hold
office until their successors are elected or until their death, resignation or
removal. Directors are elected by a majority of the votes cast by holders of DBI
common stock entitled to vote at a meeting at which a quorum is present. Holders
of DBI common stock do not have cumulative voting rights in the election of
directors.
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REMOVAL OF DIRECTORS
Visionics. The bylaws of Visionics allow for removal of directors by the
shareholders with or without cause. The affirmative vote of the holders of a
majority of the then outstanding voting stock, voting as a single class, is
required to remove directors.
DBI. A member of the DBI board may be removed with or without cause by the
holders of a majority of shares of DBI stock then entitled to vote in the
election of directors.
VACANCIES ON THE BOARD OF DIRECTORS
Visionics. Vacancies on the Visionics board, and any newly created
directorships resulting from any increase in the size of the Visionics board,
may be filled by the majority of directors then holding office although less
than a quorum, or by the sole remaining director.
DBI. Vacancies on the DBI board and newly created directorships resulting
from an increase in the number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director, and each director so elected shall serve until the unexpired term of
the directorship to which he is elected, or until his successor is elected and
qualified.
DIRECTOR STANDARD OF CONDUCT
Visionics. Under New Jersey law, directors and members of any committee
designated by the board of directors shall discharge their duties in good faith
and with that degree of diligence, care and skill which ordinarily prudent
people would exercise under similar circumstances in like positions.
DBI. Delaware common law requires that a director of a Delaware
corporation discharge his or her duties as a director in accordance with the
fiduciary duties of care and loyalty. The duty of care requires that directors,
in performing their corporate duties, exercise the care that an ordinarily
prudent person would exercise under similar circumstances. The duty of loyalty
prohibits self-dealing by directors.
LIMITATIONS ON DIRECTOR LIABILITY
Visionics. The Visionics certificate of incorporation provides that a
director shall not be personally liable to the corporation, or to its
shareholders, for damages for breaches of their fiduciary duty as a director,
provided, however, that a director or officer cannot be relieved from liability
for any breach of duty based upon an act or omission (1) in breach of such
person's duty of loyalty to the entity or its shareholders, (2) not in good
faith or involving a knowing violation of law or (3) resulting in the receipt by
such person of an improper personal benefit.
DBI. The DBI certificate of incorporation provides that a director shall
not be personally liable to DBI or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any breach
of the director's duty of loyalty to DBI or its stockholders, (2) for acts or
omissions involving bad faith or which involved intentional misconduct or a
knowing violation of law, (3) for any transaction from which the director
derived an improper personal benefit or (4) under Section 174 of the Delaware
General Corporation Law.
INDEMNIFICATION
Visionics. As authorized under New Jersey law, Visionics' certificate of
incorporation provides that a director or officer shall not be personally liable
to the corporation or its shareholders for monetary damages for a breach of
fiduciary duty owed to the corporation, as provided above.
DBI. The DBI bylaws provide that DBI shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was, at any time
prior to or during which such provision is in effect, a director, officer,
employee or agent of DBI, or is or was, at any time prior to or during which
such provision is in effect, serving at the request of DBI as a
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<PAGE> 80
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against reasonable
expenses (including attorneys' fees), judgments, fines, penalties, amounts paid
in settlement and other liabilities actually and reasonably incurred by such
person in connection with such action, suit or proceeding upon such
determination having been made as to such person's good faith and conduct.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
Visionics. New Jersey law generally requires that any merger, share
exchange or sale of assets of a corporation other than in the regular course of
business be approved by the affirmative vote of a majority of the votes cast by
the holders of shares entitled to vote. The Visionics certificate of
incorporation and bylaws do not contain any provisions that alter this voting
requirement.
DBI. Delaware law generally requires that any merger or sale of all or
substantially all of the assets of a corporation not in the ordinary course of
business be approved by the affirmative vote of the majority of the issued and
outstanding shares entitled to vote. The DBI certificate of incorporation and
bylaws do not contain any provisions that alter this voting requirement.
ANTI-TAKEOVER STATUTES
Visionics. The New Jersey Business Corporation Act provides that in
determining whether a proposal or offer to acquire a corporation is in the best
interest of the corporation, a board of directors may, in addition to
considering the effects of any action on shareholders, consider (1) the effects
of the proposed action on the corporation's employees, suppliers, creditors and
customers, (2) the effects on the community in which the corporation operates
and (3) the longer-term as well as short-term interests of the corporation and
its shareholders, including the possibility that those interests may be served
best by the continued independence of the corporation.
The statute also provides that if, based on those factors, a board
determines that the offer is not in the best interest of the corporation, it may
reject the offer.
The New Jersey Stockholders Protection Act prohibits some specified
business combinations between an "interested shareholder" and a "resident
domestic corporation." An "interested shareholder" is one that is directly or
indirectly a beneficial owner of 10 percent or more of the voting power of the
outstanding voting stock of a resident domestic corporation. The prohibitions
are as follows: (1) specified business combinations are prohibited for five
years after the date the interested shareholder acquired its stock, unless the
business combination was approved by the resident domestic corporation's board
of directors before the interested shareholder's stock acquisition date and (2)
after the five-year period, the prohibition on certain business combinations
continues unless (a) the combination is approved by the affirmative vote of
two-thirds of the voting stock not beneficially owned by the interested
shareholder, (b) the combination is approved by the board before the interested
shareholder's stock acquisition date or (3) the corporation's common
shareholders receive payment for their shares that meets standards prescribed in
the statute.
DBI. Section 203 of the Delaware General Corporation Law provides that a
corporation shall not engage in any "business combination" with any "interested
stockholder" for a period of three years following the time that such
stockholder became an interested stockholder, unless (1) prior to such time, the
board of directors of the corporation approved either the business combination
or the transaction that resulted in the stockholder becoming an interested
stockholder, (2) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85 percent of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned (a) by persons who are directors and
also officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer or (c) at or subsequent to
such time, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock that is not owned by
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the interested stockholder. A "business combination" under the Delaware General
Corporation Law is generally defined as any of the following transactions
involving the corporation and an interested stockholder thereof: (1) a merger or
consolidation; (2) a sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 10 percent or more of the corporation's assets; (3) an issuance
or transfer of the corporation's stock; (4) a transaction having the effect of
directly or indirectly increasing the proportionate share of the corporation's
stock held by such interested stockholder; or (5) any receipt by such interested
stockholder of the benefit of any loans, guarantees, pledges or other financial
benefits. An "interested stockholder" under the Delaware General Corporation Law
is generally defined as any person owning 15 percent or more of the
corporation's outstanding voting stock.
AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BYLAWS
Visionics. Under New Jersey law, unless a greater vote is specified in the
certificate of incorporation, the affirmative vote of a majority of the votes
cast by shareholders of the corporation entitled to vote is required for
(1) any amendment to a New Jersey corporation's certificate of
incorporation,
(2) a voluntary dissolution of the corporation,
(3) a sale or other disposition of all or substantially all of a
corporation's assets other than in the ordinary course of business or
(4) a merger or consolidation of the corporation with another
corporation.
The Visionics certificate of incorporation and bylaws do not contain any
provisions that alter this voting requirement.
DBI. Delaware law provides that its certificate of incorporation may be
amended by the DBI board and by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote. DBI's bylaws may be made,
repealed, altered, amended or rescinded by a vote of the majority of the members
of the board of directors.
DISSENTERS' RIGHTS
Visionics. Under New Jersey law, any shareholder of a New Jersey
corporation has the right to dissent from, and an appraisal of the "fair value"
of his or her shares in the event of the consummation of a merger, consolidation
or sale, lease, exchange or other disposition of all or substantially all of the
corporation's assets not in the usual or regular course of business, provided
that, unless the certificate of incorporation otherwise provides, a shareholder
shall not have the right to dissent from any merger, consolidation or
disposition of assets with respect to shares of a class or series which is
listed on a national securities exchange or is held of record by not less than
1,000 record shareholders or for which, pursuant to the merger, consolidation or
disposition of assets, he will receive:
(1) cash;
(2) shares, obligations or other securities which, upon consummation
of the merger, consolidation or disposition of assets, will either be
listed on a national securities exchange or held of record by not less than
1,000 holders; or
(3) cash and securities.
A corporation may provide in its certificate of incorporation that holders
of all classes of its shares, or of a particular class or series thereof, shall
have the right to dissent from specified corporate actions in addition to those
enumerated above.
DBI. Under Delaware law, a stockholder of a Delaware corporation is
entitled to an appraisal by the Court of Chancery of the "fair value" of his or
her shares in the event of the consummation of a merger
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<PAGE> 82
or consolidation to which the corporation is a party, provided that either (1)
approval by the stockholders of the corporation is required for the merger
pursuant to Delaware law or the corporation's certificate of incorporation and
the stockholder is entitled to vote or (2) the corporation is a subsidiary being
merged with its parent or another subsidiary of the parent pursuant to a
particular Delaware law provision for such transactions and all of the stock of
the corporation is not owned by the parent corporation.
With respect to shares of any class or series that are either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held by at least 2,000 record stockholders, appraisal rights
are not available to the holders of such shares by reason of a merger or
consolidation unless the holders thereof are required by the terms of an
agreement of merger or consolidation to accept for such stock anything except:
(1) cash in lieu of fractional shares,
(2) shares of the surviving corporation or shares of any other
corporation that are either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the NASD or held by more than 2,000 record stockholders or
(3) a combination of cash in lieu of fractional shares and such
shares.
A Delaware corporation may provide in its certificate of incorporation that
appraisal rights shall be available for the shares of any class or series of its
stock as a result of an amendment to its certificate of incorporation, any
merger or consolidation to which the corporation is a party or the sale of all
or substantially all of the assets of the corporation.
A stockholder who has the right to appraisal in connection with a
transaction and to receive payment of the "fair value" of his or her shares must
follow specific procedural requirements as set forth in Delaware law in order to
maintain his or her right and obtain payment.
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<PAGE> 83
VISIONICS SHAREHOLDERS' DISSENTERS' RIGHTS
Holders of record of Visionics common stock who do not vote in favor of the
merger and who otherwise comply with the procedures set forth in Chapter 11 of
the New Jersey Business Corporation Act, as summarized below, will be entitled
to receive in cash the fair value of their shares. Failure to follow the
appropriate procedures set forth in Chapter 11 may result in the termination or
waiver of such shareholder's dissenter's rights. A person having a beneficial
interest in shares of Visionics capital stock held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect dissenters' rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO DISSENTERS' RIGHTS UNDER THE NEW JERSEY BUSINESS CORPORATION ACT AND IS
QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF CHAPTER 11 WHICH IS REPRINTED IN
ITS ENTIRETY AS APPENDIX D TO THIS PROSPECTUS/PROXY STATEMENT. ALL REFERENCES IN
CHAPTER 11 AND THIS SUMMARY TO A "SHAREHOLDER" OR "HOLDER" ARE THE RECORD HOLDER
OF THE SHARES OF VISIONICS COMMON STOCK AS TO WHICH DISSENTERS' RIGHTS ARE
ASSERTED.
Under the New Jersey Business Corporation Act, holders of shares of
Visionics common stock who follow the procedures set forth in Chapter 11 will be
entitled to receive payment in cash of the "fair value" of such shares,
exclusive of any element of value arising from the accomplishment or expectation
of the merger, together with a fair rate of interest. Pursuant to the terms of
the merger agreement, DBI has no obligation to consummate the merger if the
holders of more than one percent of Visionics' outstanding shares of common
stock elect to dissent from the merger. If the merger is not consummated, no
Visionics shareholder will be entitled to dissenters' rights.
Under the New Jersey Business Corporation Act, where a proposed merger is
to be submitted for approval at a meeting of shareholders, the corporation must
notify each of its shareholders, as determined on the record date for such
meeting, not less than 20 days prior to the meeting, that dissenters' rights are
available. The corporation must also include a copy of Chapter 11 with such
notice.
Any Visionics shareholder electing to dissent from the merger must file
with Visionics before the taking of a vote of the shareholders with respect to
the merger a written notice of dissent stating that such shareholder intends to
demand payment for his or her shares if the merger is consummated. A shareholder
who votes in favor of the merger may not pursue dissenters' rights with respect
to such shareholder's shares of Visionics common stock.
Only a holder of record of Visionics common stock is entitled to assert
dissenters' rights for the shares of common stock registered in that holder's
name. A demand for payment of the fair value of a dissenting shareholder's
shares should be executed by or on behalf of the holder of record, fully and
correctly, as such holder's name appears on such holder's stock certificate. If
the shares of Visionics common stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if shares are owned of record by more than
one person as in a joint tenancy or tenancy in common, the demand should be
executed by or on behalf of all joint owners. An authorized agent, including one
or more joint owners, may execute a demand for payment of fair value on behalf
of the holder of record; provided, however, the agent must identify the record
owner or owners and expressly disclose the fact that, in executing the demand,
the agent is agent for such owner or owners. A record holder such as a broker
who holds shares of Visionics common stock has a nominee for several beneficial
owners may exercise dissenter's rights with respect to shares held for one or
beneficial owners while not exercising such rights with respect to the shares
held for other beneficial owners; in such case, the written demand should set
forth the number of shares as to which appraisal is sought. When no number of
shares is expressly mentioned, the demand will be presumed to cover all shares
held in the name of the record owner. Shareholders who hold their shares of
Visionics common stock in brokerage accounts or other nominee forms and who wish
to exercise dissenters' rights are urged to consult with their brokers to
determine the appropriate procedures for making a demand for appraisal by such a
nominee.
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<PAGE> 84
Within 10 days after consummation of the merger, Visionics will provide
notice of the date on which the merger was consummated to each shareholder who
timely filed a notice of intent to dissent with Visionics and did not vote in
favor of the merger. Within 20 days after the mailing of such notice by
Visionics, a dissenting shareholder must deliver to Visionics a written demand
for payment of the fair value of his or shares. Not later than 20 days after
making written demand for the fair value of his or her shares, the dissenting
shareholder must submit to Visionics the certificates representing his or her
shares for notation thereon that such demand has been made, after which
Visionics will return such certificates to the dissenting shareholder.
Within 10 days after expiration of the period in which dissenting
shareholders may make a written demand for payment of the fair value of their
shares, Visionics must deliver to each dissenting shareholder the latest
available financial statements of Visionics, together with a written offer to
pay the dissenting shareholder for his or her shares at a specified price deemed
by Visionics to be the fair value of such shares. If Visionics and any
dissenting shareholder fail to agree upon the fair value of his or her shares
within the 30-day period commencing on the expiration of the 10-day period
referred to above, such dissenting shareholder may serve upon Visionics a
written demand that Visionics commence an action in the Superior Court for the
determination of the fair value of the dissenting shareholder's shares. Upon
receipt of such demand, Visionics shall have an additional 30-day period to
commence the aforementioned action, with respect to which all dissenting
shareholders who have not previously settled their claims with Visionics will be
named as parties. If Visionics fails to commence the action in Superior Court as
requested by one or more dissenting shareholders, a dissenting shareholder may
do so in the name of Visionics, but not later than 60 days following the
expiration of the 30-day period provided to Visionics for commencement of the
action.
The Superior Court will determine the fair value of the dissenting
shareholders' shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
The cost of the action may be determined by the Superior Court and taxed upon
the parties as the Superior Court deems equitable.
The right of a dissenting shareholder to receive the fair value of his or
her shares will terminate if:
(i) the demand for payment is withdrawn with the consent of Visionics;
(ii) the fair value of the shares is not agreed upon between the
shareholder and Visionics and no action for a determination of fair value
by the Superior Court is commenced within the time period provided by
Chapter 11 of the New Jersey Business Corporation Act;
(iii) the Superior Court determines that the shareholder is not
entitled to payment for his or her shares;
(iv) the merger is abandoned or rescinded; or
(v) a court having jurisdiction permanently enjoins or sets aside the
merger.
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<PAGE> 85
OTHER ACTION TO BE TAKEN AT THE DBI SPECIAL MEETING
CHANGE IN DBI'S CORPORATE NAME TO VISIONICS CORPORATION
At the DBI special meeting, DBI's stockholders will also be asked to
approve a proposed amendment to DBI's certificate of incorporation, that if
approved, will change DBI's corporate name to "Visionics Corporation." DBI's
Board of Directors has concluded that the Visionics name is better identified
with the market for commercial biometrics, the biometrics market DBI's Board
believes has the greatest growth potential. Visionics is also a broader, more
general name than Digital Biometrics, providing the merged company with more
identity flexibility to pursue new business areas without having its name acting
at cross-purposes to its business growth objectives.
DBI's Board of Directors has unanimously adopted a resolution declaring it
advisable to amend the company's certificate of incorporation to change the
corporate name. DBI's board of directors further directed that the proposed name
change be submitted for consideration by stockholders at the special meeting. As
amended, the Article numbered "FIRST" contained in the certificate of
incorporation would read in its entirety as follows:
"FIRST: THAT THE NAME OF THE CORPORATION IS
VISIONICS CORPORATION."
In the event the proposed name change is approved by DBI's stockholders,
DBI will thereafter file a certificate of amendment to its certificate of
incorporation with the Secretary of State of the State of Delaware, amending the
Article numbered "FIRST," which will become effective on the date such filing is
accepted by the Secretary of State. The DBI Board of Directors, however,
reserves the right not to file the certificate of amendment even if the proposed
name change is approved by the stockholders in the event the stockholders do not
approve and adopt the merger agreement or the merger agreement is otherwise
terminated.
LEGAL MATTERS
The validity of the shares of DBI common stock to be issued in connection
with the merger will be passed upon for DBI by its legal counsel, Maslon Edelman
Borman & Brand, LLP, Minneapolis, Minnesota.
Each of Maslon Edelman Borman & Brand, LLP and Paul, Weiss, Rifkind,
Wharton & Garrison, counsel to Visionics will deliver opinions concerning
certain federal income tax consequences of the merger.
EXPERTS
The consolidated financial statements and schedule of Digital Biometrics,
Inc. as of September 30, 2000 and 1999 and for each of the years in the
three-year period ended September 30, 2000 have been incorporated by reference
in this proxy statement/prospectus in reliance upon the report of KPMG LLP,
independent certified public accountants incorporated by reference herein upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Visionics Corporation and
subsidiary as of September 30, 2000 and for the year then ended included in this
proxy statement/ prospectus have been included in this proxy-prospectus in
reliance upon the report of KPMG LLP, independent certified public accountants
included herein, upon the authority of said firm as experts in accounting and
auditing.
The historical consolidated financial statements of Visionics Corporation
and subsidiary as of December 31, 1999 and 1998 and for each of the years in the
two year period ended December 31, 1999 included in this proxy
statement/prospectus have been audited by MR Weiser & Co. LLP, independent
82
<PAGE> 86
certified public accountants as stated in their report. Those historical
consolidated financial statements are included in this proxy/registration
statement in reliance upon their report given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
DBI has filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act that registers the distribution
to the Visionics shareholders of the shares of DBI common stock to be issued
under the terms of the merger agreement.
This proxy statement/prospectus is a part of that registration statement
and constitutes a prospectus of DBI in addition to being a proxy statement of
DBI for the special meeting. The registration statement, including the exhibits
and schedules to the registration statement, contains additional relevant
information about DBI and the DBI common stock. The rules and regulations of the
SEC allow DBI to omit certain information included in the registration statement
and the exhibits and schedules to the registration statement from this proxy
statement/prospectus.
In addition, DBI files annual, quarterly and current reports, proxy
statements and other information with the SEC under the Securities Exchange Act.
You may read and copy any reports, statements or other information at the
following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center, Suite 1400
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
at prescribed rates. Further information on the operation of the SEC's Public
Reference Room in Washington, D.C. can be obtained by calling the SEC at
l-800-SEC-0330.
The SEC also maintains an Internet world wide web site that contains
annual, quarterly and current reports, proxy statements and other information
about issuers, such as DBI, who file electronically with the SEC. The address of
that site is http://www.sec.gov.
The SEC allows DBI to "incorporate by reference" information into this
proxy statement/prospectus. This means that DBI can disclose important business,
financial and other information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is
deemed to be part of this proxy statement/prospectus, except for any information
superseded by information in this proxy statement/prospectus or in later filed
documents incorporated by reference in this proxy statement/prospectus. This
proxy statement/prospectus incorporates by reference the documents set forth
below that DBI has previously filed with the SEC. These documents contain
important information about DBI and its finances.
<TABLE>
<CAPTION>
DESCRIPTION OF FILING PERIOD OR DATE FILED
--------------------- --------------------
<S> <C>
Annual Report on Form 10-K Year Ended September 30, 2000
</TABLE>
DBI also incorporates by reference additional documents that DBI may file
with the SEC between the date of this proxy statement/prospectus and the date of
the special meeting. These documents include periodic reports, such as annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K, as well as proxy statements.
DBI has supplied all information contained or incorporated by reference in
this proxy statement/prospectus relating to DBI, and Visionics has supplied all
such information relating to Visionics.
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<PAGE> 87
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. DBI HAS NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM OR IN ADDITION TO
WHAT IS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY
STATEMENT/PROSPECTUS IS DATED , 2000. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THE PROXY STATEMENT/PROSPECTUS TO SHAREHOLDERS NOR THE
ISSUANCE OF DBI COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE
CONTRARY.
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<PAGE> 88
VISIONICS CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS*
SEPTEMBER 30, 2000 AND
DECEMBER 31, 1999 AND 1998
(WITH INDEPENDENT AUDITORS' REPORTS THEREON)
* Schedules have been omitted for the reason that they are not material to the
financial statements or notes thereto
F-1
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
Board of Directors
Visionics Corporation:
We have audited the accompanying consolidated balance sheet of Visionics
Corporation and subsidiary as of September 30, 2000, and the related
consolidated statements of operations, shareholders' equity and comprehensive
loss, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Visionics
Corporation and subsidiary as of September 30, 2000, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Short Hills, New Jersey
November 22, 2000
F-2
<PAGE> 90
INDEPENDENT AUDITORS' REPORT
Board of Directors
Visionics Corporation:
We have audited the accompanying consolidated balance sheets of Visionics
Corporation and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and comprehensive
loss, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Visionics
Corporation and subsidiary as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
/s/ M.R. Weiser & Co. LLP
New York, New York
March 17, 2000
F-3
<PAGE> 91
VISIONICS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
SEPTEMBER 30 -----------------------
2000 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 1,730,418 $3,126,605 $3,131,022
Accounts receivable, less allowance for doubtful
accounts of $26,800 at September 30, 2000.......... 523,328 297,993 194,798
Other current assets.................................. 53,985 765 143
Deferred income taxes (note 7)........................ -- 57,000 --
----------- ---------- ----------
Total current assets.......................... 2,307,731 3,482,363 3,325,963
Property and equipment, net (note 3).................... 434,897 343,486 171,537
Capitalized software development costs, net (note 4).... 839,430 548,702 156,374
Security deposits and other assets...................... 77,446 37,431 19,092
----------- ---------- ----------
Total assets.................................. $ 3,659,504 $4,411,982 $3,672,966
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable (note 5)........ $ 15,071 $ -- $ --
Current installments of obligations under capital
lease (note 10).................................... 2,017 -- --
Accounts payable and accrued expenses................. 381,946 90,213 56,359
Accrued payroll taxes................................. 10,192 20,620 57,710
Deferred revenue...................................... 314,024 211,111 --
Income taxes payable.................................. -- 11,000 --
Deferred income taxes (note 7)........................ -- -- 55,000
----------- ---------- ----------
Total current liabilities..................... 723,250 332,944 169,069
Notes payable, excluding current installments (note
5).................................................... 28,334 -- --
Obligations under capital lease, excluding current
installments (note 10)................................ 3,540 -- --
Deferred income taxes (note 7).......................... -- 219,000 62,000
Deferred revenue, excluding current portion............. 511,976 638,889 --
----------- ---------- ----------
Total liabilities............................. 1,267,100 1,190,833 231,069
Shareholders' equity (note 6) Common stock, no par
value, 20,000,000 shares authorized, 12,087,500,
12,035,000, and 12,000,000 shares issued and
outstanding at September 30, 2000, and December 31,
1999 and 1998, respectively........................... 3,675,810 3,636,435 3,630,060
Accumulated deficit................................... (1,283,205) (415,228) (188,163)
Accumulated other comprehensive loss.................. (201) (58) --
----------- ---------- ----------
Total shareholders' equity.................... 2,392,404 3,221,149 3,441,897
Commitments and contingencies (notes 10 and 11)
----------- ---------- ----------
Total liabilities and shareholders' equity.... $ 3,659,504 $4,411,982 $3,672,966
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 92
VISIONICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
DECEMBER 31,
SEPTEMBER 30, -------------------------
2000 1999 1998
------------- ----------- -----------
<S> <C> <C> <C>
Revenues (note 9):
License............................................. $ 1,760,056 $ 1,472,729 $ 980,592
Services............................................ 874,536 1,150,585 911,153
----------- ----------- -----------
Total revenues.............................. 2,634,592 2,623,314 1,891,745
----------- ----------- -----------
Operating expenses:
Cost of license..................................... 182,030 42,079 12,024
Cost of services.................................... 476,273 259,128 451,071
Research and development (note 4)................... 330,367 459,015 259,000
Selling, general and development.................... 3,130,290 2,185,987 1,761,742
----------- ----------- -----------
Total operating expenses.................... 4,118,960 2,946,209 2,483,837
----------- ----------- -----------
Loss from operations.................................. (1,484,368) (322,895) (592,092)
Other income (expense):
Interest and dividend income........................ 143,177 152,804 119,720
Interest expense.................................... (2,443) -- (3,000)
Loss on disposition of marketable investments....... -- -- (188,511)
----------- ----------- -----------
140,734 152,804 (71,791)
----------- ----------- -----------
Loss before income tax expense (benefit).............. (1,343,634) (170,091) (663,883)
Income tax expense (benefit) (note 7)................. (37,538) 56,974 (123,000)
----------- ----------- -----------
Net loss.................................... $(1,306,096) $ (227,065) $ (540,883)
----------- ----------- -----------
Net loss per common share, basic and diluted.......... $ (0.11) $ (0.02) $ (0.05)
=========== =========== ===========
Weighted-average shares outstanding, basic and
diluted............................................. 12,050,840 12,007,630 11,841,096
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE> 93
VISIONICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
COMMON STOCK EARNINGS OTHER
----------------------- (ACCUMULATED COMPREHENSIVE
SHARES AMOUNT DEFICIT) LOSS TOTAL
---------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1997........................ 10,000,000 $ 27,472 $ 352,720 $ -- $ 380,192
Net loss...................... -- -- (540,883) -- (540,883)
Sale of common stock (note
6).......................... 2,000,000 3,602,588 -- -- 3,602,588
---------- ---------- ----------- ----- -----------
BALANCE AT DECEMBER 31,
1998........................ 12,000,000 3,630,060 (188,163) -- 3,441,897
Net loss...................... -- -- (227,065) -- (227,065)
Foreign currency translation
adjustment.................. -- -- -- (58) (58)
-----------
Comprehensive loss............ (227,123)
Stock option exercise (note
6).......................... 35,000 6,375 -- -- 6,375
---------- ---------- ----------- ----- -----------
BALANCE AT DECEMBER 31,
1999........................ 12,035,000 $3,636,435 $ (415,228) $ (58) $ 3,221,149
========== ========== =========== ===== ===========
BALANCE AT SEPTEMBER 30,
1999........................ 12,007,500 $3,631,435 22,891 -- 3,654,326
Net loss...................... -- -- (1,306,096) -- (1,306,096)
Foreign currency translation
adjustment.................. -- -- -- (201) (201)
-----------
Comprehensive loss............ (1,306,297)
Stock option exercise (note
6).......................... 55,000 14,625 -- -- 14,625
Common stock and stock options
issued for services (note
6).......................... 25,000 11,750 -- -- 11,750
Stock-based compensation
expense (note 6)............ -- 18,000 -- -- 18,000
---------- ---------- ----------- ----- -----------
BALANCE AT SEPTEMBER 30,
2000........................ 12,087,500 $3,675,810 $(1,283,205) $(201) $ 2,392,404
========== ========== =========== ===== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE> 94
VISIONICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
DECEMBER 31,
SEPTEMBER 30, ------------------------
2000 1999 1998
------------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,306,096) $ (227,065) $ (540,883)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 124,794 29,426 59,408
Amortization of capitalized software.................... 99,290 42,079 12,024
Deferred income taxes................................... -- 45,000 (123,000)
Stock-based compensation................................ 18,000 -- --
Common stock and stock options issued for services...... 11,750 -- --
Loss on disposition of marketable investments........... -- -- 188,511
Allowance for doubtful accounts......................... 26,800 -- --
Changes in operating assets and liabilities:
Accounts receivable................................... (156,074) (103,195) 487,159
Other current assets.................................. (53,217) (622) 83
Security deposits and other assets.................... (40,015) (18,339) --
Accounts payable and accrued expenses................. 326,402 33,854 (65,085)
Accrued payroll taxes................................. (2,200) (37,090) 6,349
Deferred revenue...................................... 144,333 850,000 --
Income taxes payable.................................. (74,320) 11,000 --
----------- ---------- -----------
Net cash (used in) provided by operating
activities....................................... (880,553) 625,048 24,566
----------- ---------- -----------
Cash flows from investing activities:
Purchase of property and equipment........................ (246,435) (201,375) (161,337)
Capitalized software development costs.................... (492,798) (434,407) (140,223)
Purchase of marketable investments........................ -- -- (3,744,760)
Proceeds on disposition of marketable investments......... -- -- 3,556,249
----------- ---------- -----------
Net cash used in investing activities.............. (739,233) (635,782) (490,071)
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from notes payable............................... 49,142 -- --
Repayment of notes payable................................ (5,737) -- --
Payments under capital leases............................. (1,692) -- --
Repayment of officers' loan balances...................... -- -- (30,000)
Proceeds from sale of common stock........................ -- -- 3,602,588
Proceeds from exercise of stock options................... 14,625 6,375 --
----------- ---------- -----------
Net cash provided by financing activities 56,338 6,375 3,572,588
----------- ---------- -----------
Effect of exchange rates on cash.......................... (201) (58) --
----------- ---------- -----------
Net (decrease) increase in cash and cash
equivalents...................................... (1,563,649) (4,417) 3,107,083
Cash and cash equivalents, at beginning of period........... 3,294,067 3,131,022 23,939
----------- ---------- -----------
Cash and cash equivalents, at end of period................. $ 1,730,418 $3,126,605 $ 3,131,022
=========== ========== ===========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 2,443 $ -- $ 3,000
Income taxes paid......................................... 49,000 -- --
=========== ========== ===========
Supplemental disclosure of noncash investing and financing
activities:
Capital lease of equipment................................ $ 7,249 $ -- $ --
Stock-based compensation.................................. 18,000 -- --
Common stock and stock options issued for services
provided................................................ 11,750 -- --
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE> 95
VISIONICS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 20, 2000 AND
DECEMBER 1999 AND 1998
(1) DESCRIPTION OF THE BUSINESS
Visionics Corporation is a developer of facial recognition technology which
allows computers to rapidly and accurately recognize faces. The Company markets
its products in the United States and Europe.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation and Basis of Presentation.
The accompanying consolidated financial statements include the accounts of
Visionics Corporation and its wholly owned British subsidiary, Visionics Ltd.,
which commenced operations during 1999 (collectively referred to as the
Company). All material intercompany accounts and transactions have been
eliminated in consolidation.
The Company has changed its fiscal accounting year end to September 30. The
Company's unaudited results of operation for the three months ended December 31,
1999, included revenues of approximately $400,000 and net loss of approximately
$440,000.
(b) Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(c) Concentrations of Credit Risk
The Company maintains its cash balances in banks in New Jersey and
California. Balances are insured up to FDIC limits of $100,000. At September 30,
2000, the Company had cash balances of approximately $1,331,000 in excess of
such insurance.
The Company's trade receivables are potentially subject to credit risk. The
Company extends credit to its customers based upon an evaluation of the
customers' financial condition and credit history. Although the Company
generally does not require collateral, many sublicense agreements provide for
nonrefundable prepayments of minimum amounts by the reseller. The Company has
historically incurred minimum credit losses.
(d) Cash Equivalents
Cash equivalents of $1,290,608, $2,953,360 and $2,565,487 at September 30,
2000 and December 31, 1999 and 1998, respectively, consist of commercial paper
with an initial term of less than three months. The Company considers all highly
liquid investments purchased with an original or remaining maturity of three
months or less to be cash equivalents.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the double-declining balance and straight-line
methods over the estimated useful lives of the assets.
F-8
<PAGE> 96
VISIONIC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Leasehold improvements are amortized over the shorter of the estimated useful
life of the assets or the term of the lease.
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES IN YEARS
----------------
<S> <C>
Vehicles............................................. 5 years
Office furniture and equipment....................... 7 years
Computer equipment................................... 5 years
Leasehold improvements............................... 5 years
=======
</TABLE>
Expenditures for major renewals or betterments that extend the useful lives
of equipment are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred.
(f) Capitalized Software Development Costs
Research and development costs consist principally of salaries and benefits
paid to the Company's employees in the development of software products. The
Company's policy is to expense all research and development costs as incurred
until technological feasibility is established. Commencing with the
establishment of technological feasibility and concluding at the time the
product is ready for market, software development costs are capitalized.
Technological feasibility is defined as being established when product design
and a working model of the software product has been completed and tested. The
cost of those products that have met the technological feasibility criteria have
been capitalized. Annual amortization of capitalized software development costs
is calculated as the greater of the amount computed using (a) the ratio of
actual revenue from a product to the total of current and anticipated related
revenues from the product or (b) the economic life of the product, estimated to
be five years, on a straight-line basis.
(g) Revenue Recognition
Revenues from software licenses are recognized when all of the following
conditions have been satisfied: completion of a written license arrangement;
delivery of the software with no significant post-delivery obligations of the
Company; the fee is fixed or determinable; and payment is due within one year
and collection is probable. Revenues from sublicense arrangements with resellers
are recognized upon shipment of the software, if there are no significant
post-delivery obligations, the reseller is creditworthy, and if the terms of
arrangement are such that the payment terms are not subject to price adjustment,
are non-cancelable and non-refundable. Revenue from sublicensing arrangements
with significant Postcontract Customer Support (PCS) (in excess of one year),
including enhancements and upgrades, where significant vendor specific objective
evidence does not exist to allocate the fee to the software and PCS, are
recognized along with the PCS ratably over the period during which PCS is
expected to be provided. Revenues from consulting services are recognized as
work is performed.
(h) Income Taxes
Income taxes are calculated using the asset and liability method in which
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are computed using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred taxes of a change in tax rates is
recognized in the consolidated statement of operations in the period that
includes the enactment date. Deferred income tax assets and liabilities are
primarily a result of (a) reporting taxable income on the cash basis of
accounting while using
F-9
<PAGE> 97
VISIONIC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
full accrual accounting for financial statement purposes, (b) the result of
differences in the timing of deductions for income tax and financial reporting
purposes regarding capitalized software costs, and (c) net operating loss
carryforwards. The Company is a calendar year taxpayer.
(i) Foreign Currency Translation
Assets and liabilities of the foreign subsidiary are translated at the
exchange rate in effect at the balance sheet date. Revenues, costs, and expenses
are translated using an average exchange rate. Gains and losses resulting from
translation are accumulated as a separate component of accumulated other
comprehensive loss in shareholders' equity. Gains and losses resulting from
foreign currency transactions are included in the consolidated statements of
operations.
(j) Stock-Based Compensation
The Company applies the intrinsic-value method prescribed in APB Opinion
No. 25, Accounting for Stock Issued to Employees to account for the issuance of
stock incentives to employees and directors. Pro forma disclosure of the net
loss impact of applying the provisions of SFAS No. 123, Accounting for Stock-
based Compensation (FASB 123), and of recognizing stock compensation expense
over the vesting period based on the fair value of all stock-based awards on the
date of grant is presented in note 6.
(k) Basic Net Income (Loss) Per Common Share and Diluted Net Income (Loss) Per
Common Share
Basic net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period. Diluted net income per share gives effect to all dilutive potential
common shares that were outstanding during the period. Potential common shares
are not included in the Company's calculation of the dilutive net loss per share
in the applicable years presented, since their inclusion would be anti-dilutive.
The Company's basic and diluted net loss per common share for the applicable
years presented, therefore, are the same. At September 30, 2000, the Company had
outstanding stock options which could potentially dilute basic net income per
share in the future (see note 6).
(l) Fair value of Financial Instruments
The fair value of financial instruments is determined by reference to
market data and other valuation techniques as appropriate. The Company believes
the fair value of its financial instruments, principally cash equivalents,
accounts receivable, accounts payable, income taxes payable, accrued expenses,
and notes payable approximates their recorded values due to the short-term
nature of the instruments or interest rates, which are comparable with current
rates.
(m) Impairment of Long-lived Assets and Long-lived Assets to be Disposed of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
carrying amount or fair value less costs to sell.
F-10
<PAGE> 98
VISIONIC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(n) Segment Information
The Company is managed and operated as one business. The entire business is
managed by a single management team that reports to the Chief Executive Officer.
The Company does not operate separate lines of business or product lines.
Accordingly, the Company does not prepare discrete financial information with
respect to separate product areas and does not have separately reportable
segments as defined by Statement of Financial Accounting Standards No. 131,
Disclosures About Segments of an Enterprise and Related Information.
(3) PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital lease, is
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
2000 1999 1998
------------- -------- --------
<S> <C> <C> <C>
Office furniture and equipment..................... $ 76,866 76,866 53,101
Computer equipment (note 10)..................... 569,606 415,052 257,092
Vehicles......................................... 54,782 -- --
Leasehold improvements........................... 19,650 19,650 --
--------- -------- --------
720,904 511,568 310,193
Less accumulated depreciation and
amortization........................... (286,007) (168,082) (138,656)
--------- -------- --------
$ 434,897 343,486 171,537
========= ======== ========
</TABLE>
Depreciation and amortization expense in the amount of $124,794, $29,426
and $59,408 for the years ended September 30, 2000 and December 31, 1999 and
1998, respectively, is included in selling, general and administrative expenses
in the accompanying consolidated statements of operations.
(4) CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalized software development costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
2000 1999 1998
------------- ------- -------
<S> <C> <C> <C>
Capitalized software development costs............... $977,973 603,073 168,666
Less accumulated amortization.............. (138,543) (54,371) (12,292)
-------- ------- -------
$839,430 548,702 156,374
======== ======= =======
</TABLE>
Amortization of capitalized software development costs in the amount of
$99,290, $42,079 and $12,024 for the years ended September 30, 2000 and December
31, 1999 and 1998, respectively, is included in costs of license in the
accompanying consolidated statements of operations.
During the years ended September 30, 2000 and December 31, 1999 and 1998,
research and development costs charged to operations were $330,367, $459,015,
and $259,000, respectively.
(5) NOTES PAYABLE
Notes payable at September 30, 2000 in the amount of $43,405 consists of
amounts due pursuant to the financing of certain vehicles owned by Visionics
Ltd. The notes are payable over a three-year period in monthly installments of
approximately $1,650 including interest at rate per annum of 12% to 13%.
Aggregate principal maturities of the notes for the years ending September 30
are as follows: 2001 -- $15,071; 2002 -- $17,090; and 2003 -- $11,244.
F-11
<PAGE> 99
VISIONIC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) SHAREHOLDERS' EQUITY
(a) Common Stock
During January 1998, the Company sold 2,000,000 shares of common stock for
cash to one shareholder in a private placement for net proceeds of $3,602,588.
In March 2000, the Company issued 25,000 shares of common stock for
services provided. Compensation expense in the amount of $8,750 representing the
estimated fair value of common shares issued has been included in the
consolidated statement of operations for the year ended September 30, 2000.
(b) Stock Options
The directors and shareholders of the Company approved an employee stock
incentive plan (the Plan) which provides for the issuance of options to purchase
shares of common stock effective January 1, 1997.
The Plan provides that options granted thereunder may, at the election of
the Stock Option Plan Administrative Committee, qualify as incentive stock
options meeting the requirements set forth in Section 422A of the Internal
Revenue Code or options which do not qualify as incentive stock options. The
Plan permits options to be granted for a period of up to ten years. The price of
qualifying incentive stock options generally shall be not less than 100% to 110%
of the fair value of the Company's common stock on the date of grant. The price
of nonqualified stock options shall be established by the Administrative
Committee. Employees are generally vested in the options in 25% annual
increments over a four-year period. Outstanding options are cancelled on
conditions of termination of employment, and must be exercised within defined
short-term periods upon the employee's death, disability or retirement. The Plan
provides that the Company may make loans to assist participants in exercising
options. Upon a change in control, the vesting of certain options will be
accelerated.
A summary of stock option activity related to the Company's stock option
plan during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE
SHARES PER SHARE EXPIRATION DATE OF OPTION
--------- ------------ ----------------------------------
<S> <C> <C> <C>
Outstanding December 31, 1997....... 223,000 $.016 January 1-December 31, 2007
Granted........................... 72,500 .174 January 1-December 31, 2008
Terminated........................ 43,000 .016
---------
Outstanding December 31, 1998....... 252,500 .062 January 1, 2007-December 31, 2008
Granted........................... 485,000 .307 January 1-December 31, 2009
Terminated........................ 95,000 .079
Exercised......................... 35,000 .145
---------
Outstanding December 31, 1999....... 607,500 .250 January 1, 2007-December 31, 2009
=========
Outstanding September 30, 1999...... 675,000 .250 January 1, 2007-December 31, 2009
Granted........................... 1,333,500 .490 October 1-September 30, 2010
Terminated........................ 285,750 .340
Exercised......................... 55,000 .240
---------
Outstanding September 30, 2000...... 1,667,750 .450 January 1, 2007-September 30, 2010
=========
</TABLE>
During the year ended September 30, 2000, the Company granted a total of
528,000 options to employees having exercise prices ranging from $.35 to $.70
per share when the estimated fair value of the Company's common stock was $1.10
to $1.60 per share. Consequently, the Company has recorded
F-12
<PAGE> 100
VISIONIC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation expense in the accompanying consolidated statement of operations
for the year ended September 30, 2000 in the amount of $18,000. The weighted
average grant date fair value of options issued during the year ended September
30, 2000 was $1.11.
Also during the year ended September 30, 2000, the Company issued options
to acquire 25,000 shares of the Company's common stock with an exercise price of
$.35 per share for services provided. These options were issued pursuant to the
Plan and are included in the option activity table above. The Company has
recorded compensation expense in the amount of $3,000 related to the granting of
these options in the accompanying consolidated statement of operations for the
year ended September 30, 2000. These options were exercised in their entirety
prior to September 30, 2000.
At September 30, 2000, options for 278,938 shares at a weighted average
exercise price of $.31 per share, at prices ranging from $.10 to $.50 per share
were exercisable. The weighted average remaining contractual life at September
30, 2000 was 9 years.
The Company applies APB Opinion No. 25 in accounting for options granted to
employees and directors under its stock option plans and, accordingly, no
compensation cost is recognized for its stock options granted to its employees
or directors in the consolidated financial statements when the price equals the
fair market value of such stock on the date of grant. Had the Company determined
compensation cost based on the fair value of its stock options at the grant date
under SFAS No. 123, the Company's net loss would have increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
2000 1999 1998
------------- ------- -------
<S> <C> <C> <C>
Net loss -- as reported.............................. $1,306,096 227,065 540,883
Net loss -- pro forma................................ 1,355,465 230,264 541,016
Loss per share -- as reported........................ 0.11 0.02 0.05
Loss per share -- pro forma.......................... 0.11 0.02 0.05
========== ======= =======
</TABLE>
Principal assumptions used in applying the option valuation model were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------
2000 1999 1998
------------- ---- ----
<S> <C> <C> <C>
Risk-free interest rate.................................... 5% 5% 5%
Expected life, in years.................................... 8 8 8
Expected volatility........................................ 80% 0 0
Expected dividend yield.................................... 0 0 0
</TABLE>
F-13
<PAGE> 101
VISIONIC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES
Income tax expense (benefit) attributable to loss from operations consists
of the following:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------
DECEMBER 31,
SEPTEMBER 30, ------------------
2000 1999 1998
------------- ------- --------
<S> <C> <C> <C>
Current:
Federal........................................... $(15,895) -- --
State............................................. (54,643) 11,974 --
Foreign........................................... 33,000 -- --
-------- ------- --------
(37,538) 11,974 --
-------- ------- --------
Deferred:
Federal........................................... -- 63,000 (95,000)
State............................................. -- (18,000) (28,000)
-------- ------- --------
-- 45,000 (123,000)
-------- ------- --------
Total income tax expense (benefit)........ $(37,538) 56,974 (123,000)
======== ======= ========
</TABLE>
The income tax expense (benefit) differed from the amount computed by
applying the U.S. federal income tax rate of 34% to loss before income taxes as
a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------
DECEMBER 31,
SEPTEMBER 30, ------------------
2000 1999 1998
------------- ------- --------
<S> <C> <C> <C>
Computed "expected" tax benefit..................... $(456,835) (57,800) (225,700)
State income tax, net of federal benefit............ (78,687) (10,100) (39,400)
Change in valuation allowance....................... 491,548 146,300 52,700
Federal benefit of net operating loss............... -- -- 76,100
State benefit of net operating loss................. -- -- 13,300
Foreign withholding tax............................. 33,000 -- --
Foreign tax credit available........................ (33,000) -- --
Research and development tax credit available....... -- (26,000) --
Other............................................... 6,436 4,574 --
--------- ------- --------
$ (37,538) 56,974 (123,000)
========= ======= ========
</TABLE>
F-14
<PAGE> 102
VISIONIC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of September 30, 2000 and
December 31, 1999 and 1998 is presented below:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
DECEMBER 31,
SEPTEMBER 30, -------------------
2000 1999 1998
------------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward.................. $ 525,116 -- 52,700
Capital loss carryforward........................ 75,291 -- --
Tax credits...................................... 33,000 -- --
Accounts payable and accrued expenses............ 117,841 35,800 22,400
Deferred revenue................................. 329,904 339,000 --
---------- -------- --------
Total gross deferred tax assets.......... 1,081,152 374,800 75,100
Valuation allowance.............................. (525,689) (199,000) (52,700)
---------- -------- --------
Net deferred tax assets.................. 555,463 175,800 22,400
---------- -------- --------
Deferred tax liabilities:
Accounts receivable.............................. 204,188 118,800 77,400
Capitalized software development costs........... 335,268 219,000 62,000
Depreciation and amortization.................... 16,007 -- --
---------- -------- --------
Total gross deferred tax liabilities..... 555,463 337,800 139,400
---------- -------- --------
Net deferred tax asset (liability)....... -- (162,000) (117,000)
========== ======== ========
</TABLE>
The valuation allowance for deferred tax assets as of October 1, 1999 and
January 1, 1999 and 1998 was $34,141, $52,700 and $0, respectively. The net
change in the valuation allowance for the years ended September 30, 2000 and
December 31, 1999 and 1998 was an increase of $491,548, $146,300 and $52,700,
respectively.
In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.
Based on the level of historical taxable income and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management does not believe that it is more likely than not the Company will
realize the full benefits of these deductible differences. Accordingly, the
Company has provided a valuation allowance against the gross deferred tax assets
as of September 30, 2000 and December 31, 1999 and 1998. As of September 30,
2000, the Company has reported U.S. net operating loss carryforwards, state net
operating loss carryforwards and foreign tax credits of approximately
$1,289,000, $1,289,000 and $33,000, respectively. The federal net operating loss
carryforwards begin expiring in the year 2020, and the state net operating loss
carryforwards begin expiring in the year 2007.
(8) EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) profit sharing plan. Employees are eligible
to participate after three months of employment and having obtained age 21. At
its discretion, the Company may make contributions which are allocated to
eligible participants. Participants are fully vested in all amounts credited to
their account. Participants may borrow against their accounts to a maximum of
$50,000 or one-half of their vested aggregate account. Company contributions for
the years ended September 30, 2000 and December 31, 1999 and 1998 were $64,997,
$52,612 and $20,000, respectively.
F-15
<PAGE> 103
VISIONIC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) SIGNIFICANT CUSTOMERS
One customer accounted for approximately $287,000 or 11% of total sales for
the year ended September 30, 2000. There were no amounts due from this customer
at September 30, 2000.
Two customers accounted for approximately $960,000 or 37% of total sales
for the year ended December 31, 1999. At December 31, 1999, amounts due from
these customers aggregated approximately $81,000.
Five customers accounted for approximately $1,662,000 or 88% of total sales
for the year ended December 31, 1998.
(10) LEASES
The Company is obligated under a capital lease for certain equipment that
expires in 2003. At September 30, 2000, the gross amount of property and
equipment and related accumulated amortization recorded under this capital lease
was as follows:
<TABLE>
<S> <C>
Computer equipment......................................... $7,249
Less accumulated amortization.................... 2,645
------
$4,604
======
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of September 30, 2000 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30 LEASES LEASES
------------------------ ------- ---------
<S> <C> <C>
2001........................................................ $2,844 190,311
2002........................................................ 2,844 189,999
2003........................................................ 1,185 188,150
2004........................................................ -- 147,326
------ -------
Total minimum lease payments...................... 6,873 715,786
=======
Less amount representing interest (at 17.7%)................ 1,316
------
Present value of net minimum capital lease payments......... 5,557
Less current installments of obligations under capital
lease..................................................... 2,017
------
Obligations under capital lease, excluding current
installments.............................................. $3,540
======
</TABLE>
On October 6, 2000, the Company amended its lease for office space to
provide for additional space and to extend its lease term. As a result of this
amendment, office rent expense will increase from approximately $186,000 per
year to approximately $240,000 per year, commencing on June 1, 2001 through May
31, 2006. The additional increase in rent expense has not been included in the
table above.
Rent expense under these leases for the years ended September 30, 2000 and
December 31, 1999 and 1998 amounted to $169,390, $97,045 and $72,688,
respectively. The office space leases provide for escalations based upon the
general operating costs incurred by the lessor. Each lease is renewable for
defined periods at the "Market Value Rent" at the time of renewal.
F-16
<PAGE> 104
VISIONIC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) CONTINGENCIES
At September 30, 2000, the Company is involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
(12) PROPOSED MERGER WITH DIGITAL BIOMETRICS, INC.
On October 18, 2000, the Company entered into an agreement and plan of
merger with Digital Biometrics, Inc. (DBI). Under the terms of the merger
agreement, holders of the Company's common stock and options to purchase shares
of the Company's common stock will receive merger consideration equal in value
to 7,000,000 shares of DBI common stock. This transaction is expected to be
accounted for as a pooling-of-interests. The merger will be subject to customary
conditions including regulatory review and the approval of the shareholders of
the Company and the stockholders of DBI.
DBI also agreed to lend the Company up to $1 million under a six-month
note. This note bears interest at 12.5% and is secured by substantially all of
the Company's assets.
F-17
<PAGE> 105
INDEX TO
APPENDIXES TO PROXY STATEMENT
<TABLE>
<CAPTION>
PAGE
APPENDIX DESCRIPTION NO.
-------- ----------- ----
<C> <S> <C>
A Agreement and Plan of Merger................................ A-1
B Fairness Opinion of SunTrust Equitable Securities........... B-1
C Form of Voting Agreement.................................... C-1
D Chapter 11 of New Jersey Business Corporation Act........... D-1
</TABLE>
F-18
<PAGE> 106
APPENDIX
A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DIGITAL BIOMETRICS, INC.,
VC ACQUISITION CORP.
AND
VISIONICS CORPORATION
OCTOBER 18, 2000
A-1
<PAGE> 107
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 TERMS OF THE MERGER..................................... A-5
The Merger.................................................. A-5
1.1
Effective Time.............................................. A-5
1.2
Merger Consideration........................................ A-6
1.3
Dissenting Shares........................................... A-6
1.4
Shareholders' Rights upon Merger............................ A-7
1.5
Surrender and Exchange of Shares............................ A-7
1.6
The Escrow Account.......................................... A-8
1.7
Options..................................................... A-9
1.8
Certificate of Incorporation and Bylaws of the Surviving A-10
1.9 Corporation.................................................
Directors and Officers of the Surviving Corporation......... A-10
1.10
Directors and Executive Officers of Purchaser............... A-10
1.11
Other Effects of Merger..................................... A-10
1.12
Registration Statement Prospectus/Proxy Statement........... A-10
1.13
Tax-Free Reorganization..................................... A-11
1.14
Voting Agreements........................................... A-11
1.15
Corporate Name of Purchaser................................. A-11
1.16
Additional Actions.......................................... A-11
1.17
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY........... A-12
Due Incorporation and Good Standing......................... A-12
2.1
Capitalization.............................................. A-12
2.2
Subsidiaries................................................ A-12
2.3
Authorization; Binding Agreement............................ A-13
2.4
Governmental Approvals...................................... A-13
2.5
No Violations............................................... A-13
2.6
Company Financial Statements................................ A-13
2.7
Absence of Certain Changes or Events; No Undisclosed A-14
2.8 Liabilities.................................................
Compliance with Laws........................................ A-14
2.9
Permits..................................................... A-14
2.10
Litigation.................................................. A-14
2.11
Contracts................................................... A-14
2.12
Employee Benefit Plans...................................... A-14
2.13
Taxes and Returns........................................... A-15
2.14
Intellectual Property....................................... A-15
2.15
Finders and Investment Bankers.............................. A-16
2.16
Pooling of Interests Accounting............................. A-16
2.17
Insurance................................................... A-16
2.18
Title to Properties......................................... A-16
2.19
Accounts Receivable......................................... A-16
2.20
Employees................................................... A-17
2.21
Affiliate Transactions...................................... A-17
2.22
Customers and Suppliers..................................... A-17
2.23
Officers and Directors; Bank Accounts....................... A-17
2.24
Professional Fees........................................... A-17
2.25
Disclosure.................................................. A-17
2.26
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER............. A-18
Organization and Good Standing.............................. A-18
3.1
Capitalization.............................................. A-18
3.2
Subsidiaries................................................ A-18
3.3
Authorization; Binding Agreement............................ A-19
3.4
</TABLE>
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<TABLE>
<S> <C> <C>
Governmental Approvals...................................... A-19
3.5
No Violations............................................... A-19
3.6
Securities Filings.......................................... A-19
3.7
Purchaser Financial Statements.............................. A-20
3.8
No Undisclosed Liabilities.................................. A-20
3.9
Litigation.................................................. A-20
3.10
Compliance with Laws........................................ A-20
3.11
Taxes and Returns........................................... A-20
3.12
Intellectual Property....................................... A-20
3.13
Employee Benefit Plans...................................... A-21
3.14
Finders and Investment Bankers.............................. A-21
3.15
No Prior Activities......................................... A-21
3.16
Pooling of Interests Accounting............................. A-21
3.17
Insurance................................................... A-21
3.18
ARTICLE 4 ADDITIONAL COVENANTS OF THE COMPANY..................... A-22
Conduct of Business of the Company and the Company A-22
4.1 Subsidiaries................................................
Notification of Certain Matters............................. A-23
4.2
Access and Information...................................... A-23
4.3
Shareholder Approval........................................ A-23
4.4
Reasonable Commercial Efforts............................... A-23
4.5
Public Announcements........................................ A-24
4.6
Professional Fees........................................... A-24
4.7
No Solicitation............................................. A-24
4.8
ARTICLE 5 ADDITIONAL COVENANTS OF PURCHASER....................... A-24
Conduct of Business of Purchaser and the Purchaser A-24
5.1 Subsidiaries................................................
Notification of Certain Matters............................. A-25
5.2
Access and Information...................................... A-25
5.3
Reasonable Commercial Efforts............................... A-25
5.4
Public Announcements........................................ A-26
5.5
Compliance.................................................. A-26
5.6
SEC and Stockholder Filings................................. A-26
5.7
Tax Opinion Certificate..................................... A-26
5.8
Letter of Accountants....................................... A-26
5.9
Indemnification............................................. A-26
5.10
Stockholder Approval........................................ A-27
5.11
No Solicitation............................................. A-27
5.12
Plan of Reorganization...................................... A-27
5.13
Fairness Opinion............................................ A-27
5.14
ARTICLE 6 CONDITIONS.............................................. A-28
Conditions to Each Party's Obligations...................... A-28
6.1
Conditions to Obligations of the Company.................... A-28
6.2
Conditions to Obligations of Purchaser...................... A-29
6.3
Frustration of Conditions................................... A-30
6.4
ARTICLE 7 TERMINATION AND ABANDONMENT............................. A-31
Termination................................................. A-31
7.1
Effect of Termination and Abandonment....................... A-31
7.2
ARTICLE 8 SURVIVAL; INDEMNIFICATION............................... A-32
Survival of Representations and Warranties.................. A-32
8.1
Indemnification of Purchaser................................ A-32
8.2
Procedure for Indemnification of Purchaser.................. A-32
8.3
Indemnification Threshold; Maximum Indemnification A-33
8.4 Liability...................................................
</TABLE>
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<TABLE>
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ARTICLE 9 MISCELLANEOUS........................................... A-33
Confidentiality............................................. A-33
9.1
Amendment and Modification.................................. A-34
9.2
Waiver of Compliance; Consents.............................. A-34
9.3
Notices..................................................... A-34
9.4
Binding Effect; Assignment.................................. A-35
9.5
Expenses.................................................... A-35
9.6
Governing Law............................................... A-35
9.7
Counterparts................................................ A-35
9.8
Interpretation.............................................. A-35
9.9
Entire Agreement............................................ A-35
9.10
Severability................................................ A-35
9.11
Specific Performance........................................ A-35
9.12
Third Parties............................................... A-36
9.13
Disclosure Letters.......................................... A-36
9.14
EXHIBITS:
Exhibit A: Form of Escrow Agreement
Exhibit B: Form of Voting Agreement
Exhibit C: Form of Affiliate Agreement
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of October 18, 2000, by and among Visionics Corporation, a corporation
organized under the laws of the State of New Jersey (the "Company"), Digital
Biometrics, Inc., a Delaware corporation ("Purchaser"), VC Acquisition Corp., a
New Jersey corporation and wholly owned subsidiary of Purchaser ("Merger Sub")
and, for the purpose of Sections 1.7(a), 8.2, 8.3 and 8.4 only, certain
shareholders of the Company identified on the signature pages of this Agreement
(collectively, the "Major Shareholders").
WITNESSETH:
WHEREAS, the respective Boards of Directors of the Company, Merger Sub and
Purchaser have approved the merger (the "Merger") of Merger Sub with and into
the Company in accordance with the laws of the State of New Jersey and the
provisions of this Agreement;
WHEREAS, the Company, Merger Sub and Purchaser desire to make certain
representations, warranties and agreements in connection with, and establish
various conditions precedent to, the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Purchaser and the Company are entering into a lending arrangement, pursuant to
Purchaser has agreed to lend to the Company up to $1 million (the "Working
Capital Facility"), and the Company has executed and delivered to Purchaser a
promissory note, security agreement and patent security agreement; and
WHEREAS, for financial reporting purposes, it is intended that the Merger
shall be accounted for as a "pooling of interests."
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements hereinafter set forth in the parties hereto
agree as follows:
AGREEMENT:
ARTICLE 1
TERMS OF THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions of this
Agreement, the Merger shall be consummated in accordance with the New Jersey
Business Corporation Act (the "NJBCA"). At the Effective Time (as defined
below), upon the terms and subject to the conditions of this Agreement, Merger
Sub shall be merged with and into the Company in accordance with the NJBCA and
the separate existence of Merger Sub shall thereupon cease, and the Company, as
the surviving corporation in the Merger (the "Surviving Corporation"), shall
continue its corporate existence under the laws of the State of New Jersey as a
subsidiary of Purchaser under a name mutually agreeable to the parties. The
parties shall prepare and execute a certificate of merger (the "Certificate of
Merger") in order to comply in all respects with the requirements of the NJBCA
and with the provisions of this Agreement.
1.2. Effective Time. The Merger shall become effective at the time of the
filing of the executed original and copy of the Certificate of Merger with the
Department of Treasury of the State of New Jersey as required by Section
14A:10-4.1 of the NJBCA or at such later time as may be specified in the
Certificate of Merger. No later than the business day immediately following the
satisfaction and/or waiver by the party or parties entitled to the benefit of
the same of all of the conditions set forth in Article 6 of this Agreement, the
parties hereto shall cause the Merger to become effective. Purchaser and the
Company shall mutually determine the time of such filing and the place where the
closing of the Merger
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(the "Closing") shall occur. The time when the Merger shall become effective is
herein referred to as the "Effective Time" and the date on which the Effective
Time occurs is herein referred to as the "Closing Date."
1.3. Merger Consideration.
(a) Subject to the provisions of this Agreement, each of the issued and
outstanding shares (the "Company Shares") of common stock, no par value, of the
Company (the "Company Stock"), exclusive of Dissenting Shares as defined in
Section 1.4, as of the Effective Time shall be converted into a number of fully
paid, validly issued and nonassessable shares of the common stock of Purchaser,
par value $.01 per share (the "Purchaser Stock"), equal to the result of
dividing: (a) the quotient derived from dividing (i) The Aggregate Merger
Consideration by (ii) the Fully Diluted Company Shares by (b) the Closing Share
Price (the "Exchange Ratio"), subject to payment of cash in lieu of any
fractional share as hereinafter provided (the "Merger Consideration"). For
purposes of this Agreement:
- The "Aggregate Merger Consideration" shall mean the sum of: (a) the
product of (i) the Closing Share Price by (ii) 7,000,000 plus (b) the
product of (i) the number of Company Options (as defined in Section 1.8
hereof) outstanding on the Closing Date multiplied by the average
exercise price (rounded to the nearest one cent) of the Company Options.
- "Fully Diluted Company Shares" shall mean the number of shares of Company
Stock outstanding on the Closing Date assuming the exercise of all
outstanding Company Options.
- The "Closing Share Price" shall mean the average closing share price of
Purchaser's Stock during the 20 consecutive trading days ending on the
trading day immediately preceding the Closing Date as reported by The
Nasdaq National Market.
The Exchange Ratio shall be subject to appropriate adjustment in the event
of a stock split, stock dividend or recapitalization after the date of this
Agreement applicable to shares of Purchaser Stock or Company Stock.
(b) No fractional shares of Purchaser Stock shall be issued pursuant to the
Merger nor will any fractional share interest involved entitle the holder
thereof to vote, to receive dividends or to exercise any other rights of a
stockholder of Purchaser. In lieu thereof, any holder of Company Stock (each a
"Company Shareholder") who would otherwise be entitled to a fractional share of
Purchaser Stock pursuant to the provisions hereof shall receive an amount in
cash pursuant to Section 1.6(d) hereof.
(c) Subject to the provisions of this Agreement, at the Effective Time, the
shares of Merger Sub common stock outstanding immediately prior to the Merger
shall be converted, by virtue of the Merger and without any action on the part
of the holder thereof, into one share of the common stock of the Surviving
Corporation (the "Surviving Corporation Common Stock"), which one share of the
Surviving Corporation Common Stock shall constitute all of the issued and
outstanding capital stock of the Surviving Corporation and shall be owned by
Purchaser.
1.4. Dissenting Shares. Notwithstanding any provision of this Agreement to
the contrary, each outstanding Company Share, the holder of which has demanded
and perfected such holder's right to dissent from the Merger and to be paid the
fair value of such shares in accordance with Section 14A:11 of the NJBCA and, as
of the Effective Time, has not effectively withdrawn or lost such dissenters'
rights ("Dissenting Shares"), shall not be converted into or represent a right
to receive the Merger Consideration into which Company Shares are converted
pursuant to Section 1.3 hereof, but the holder thereof shall be entitled only to
such rights as are granted by the NJBCA. Notwithstanding the immediately
preceding sentence, if any holder of Company Shares who demands dissenters'
rights with respect to such shares under the NJBCA effectively withdraws or
loses (through failure to perfect or otherwise) its dissenters' rights, then as
of the Effective Time or the occurrence of such event, whichever later occurs,
such holder's Company Shares will automatically be converted into and represent
only the right to receive the Merger Consideration as provided in Section 1.3
hereof, without interest thereon, upon surrender of the certificate or
certificates formerly representing such Shares. After the Effective Time,
Purchaser shall cause the
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Company to make all payments to holders of Dissenting Shares with respect to
such demands in accordance with the NJBCA. The Company shall give Purchaser (i)
prompt written notice of any notice of intent to demand fair value for any
Company Shares, withdrawals of such notices, and any other instruments served
pursuant to the NJBCA and received by the Company, and (ii) the opportunity to
direct all negotiations and proceedings with respect to demands for fair value
for Company Shares under the NJBCA. The Company shall not, except with the prior
written consent of Purchaser, voluntarily make any payment with respect to any
demands for fair value for Company Shares or offer to settle or settle any such
demands.
1.5. Shareholders' Rights upon Merger. Upon consummation of the Merger,
the certificates which theretofore represented the Company Shares (the
"Certificates") shall cease to represent any rights with respect thereto, and,
subject to applicable Law (as defined in Section 2.6 below) and this Agreement,
shall only represent the right to receive the Merger Consideration, including
the amount of cash, if any, payable in lieu of fractional shares of Purchaser
Stock into which the Company Shares have been converted pursuant to this
Agreement.
1.6. Surrender and Exchange of Shares.
(a) Maslon Edelman Borman & Brand, LLP, counsel to Purchaser, shall act as
exchange agent (the "Exchange Agent") for the Merger. Promptly after the
Effective Time, Purchaser shall make available, or cause to be made available,
to the Exchange Agent such certificates evidencing such number of shares of
Purchaser Stock, as and when necessary, in order to enable the Exchange Agent to
affect the exchange of certificates and make the cash payments in respect of
fractional shares contemplated by Section 1.3(b) hereof. Purchaser shall also
make available, or cause to be made available, certificates representing 10
percent of the aggregate Merger Consideration (the "Escrow Shares") and cause
the same to be deposited into the Escrow Account (as defined in Section 1.7
hereof) as partial security for the Company Shareholders' indemnification
obligations as set forth in Article 8 hereof.
(b) On the Closing Date, Purchaser shall instruct the Exchange Agent to
mail to each holder of record of a Certificate, within five business days of
receiving from the Company a list of such holders of record, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Purchaser may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificate in exchange for certificates
representing the applicable number of shares of Purchaser Stock.
(c) After the Effective Time, each holder of a Company Share (other than
holders of Dissenting Shares) shall surrender and deliver the Certificates to
the Exchange Agent together with a duly completed and executed transmittal
letter. Upon such surrender and delivery, the holder shall receive a certificate
representing the number of whole shares of Purchaser Stock into which such
holder's Company Shares have been converted pursuant to this Agreement, subject
to payment of cash in lieu of any fractional share. Until so surrendered and
exchanged, each outstanding Certificate after the Effective Time shall be deemed
for all purposes to evidence the right to receive that number of whole shares of
Purchaser Stock into which the Company Shares have been converted pursuant to
this Agreement, subject to payment of cash in lieu of any fractional share;
provided, however, that no dividends or other distributions, if any, in respect
of the shares of Purchaser Stock, declared after the Effective Time and payable
to holders of record after the Effective Time shall be paid to the holders of
any unsurrendered Certificates until such Certificates and transmittal letters
are surrendered and delivered are provided herein. Subject to applicable Law,
after the surrender and exchange of Certificates, the record holders thereof
will be entitled to receive any such dividends or other distributions without
interest thereon, which theretofore have become payable with respect to the
number of shares of Purchaser Stock for which such Certificates were
exchangeable. Holders of any unsurrendered Certificates shall not be entitled to
vote Purchaser Stock until such Certificates are exchanged pursuant to this
Agreement.
(d) Any holder of Company Shares who would otherwise be entitled to a
fractional share of Purchaser Stock pursuant to the provisions hereof shall
receive cash (without interest) in an amount equal
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to such holder's proportionate interest in the net proceeds from the sale or
sales in the open market by the Exchange Agent, on behalf of all such holders,
of the shares of Purchaser Stock constituting the excess of (i) the number of
whole shares of Purchaser Stock delivered to the Exchange Agent by Purchaser
over (ii) the aggregate number of whole shares of Purchaser Stock to be
distributed to holders of Company Stock (such excess being herein called the
"Excess Shares"). As soon as practicable following the Effective Time, the
Exchange Agent shall determine the number of Excess Shares and, as agent for the
former holders of Company Stock, shall sell the Excess Shares at the prevailing
prices on The Nasdaq Stock Market. The Exchange Agent shall deduct from the
proceeds of the sale of the Excess Shares all commissions, transfer taxes and
other out-of-pocket transaction costs, including the expenses and compensation
of the Exchange Agent, incurred in connection with such sale of Excess Shares.
Until the net proceeds of such sale have been distributed to the former holders
of Company Stock, the Exchange Agent will hold such proceeds in trust for such
former holders. As soon as practicable after the determination of the amount of
cash to be paid to such former holders in lieu of any fractional interests, the
Exchange Agent shall make available in accordance with this Agreement such
amounts to such former holders.
(e) At the Effective Time, the stock transfer books of the Company shall be
closed and no transfer of Company shares shall be made thereafter, other than
transfers of Company Shares that have occurred prior to the Effective Time. In
the event that, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged for shares of
Purchaser Stock or cash as provided in Section 1.3 hereof.
(f) If consideration in respect of Company Shares is to be made to a person
other than the person in whose name a Certificate is registered, it shall be a
condition to such payment that such Certificate so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that the person
requesting such payment shall have paid any transfer and other taxes required by
reason of such payment in a name other than that of the registered holder of the
Certificate surrendered or shall have established to the satisfaction of
Purchaser or the Exchange Agent that such tax either has been paid or is not
payable.
(g) None of the Company, Purchaser or the Exchange Agent shall be liable to
any holder of Company Shares for any such shares of Purchaser Stock (or
dividends or distributions with respect thereto), or cash delivered to a public
official pursuant to any abandoned property, escheat or similar law, rule,
regulation, statute, order, judgment or decree.
1.7. The Escrow Account.
(a) As partial security for the performance of the Company Shareholders'
indemnification obligations set forth in Article 8 hereof, the Escrow Shares
shall be placed in an escrow account (the "Escrow Account") pursuant to the
terms of an escrow agreement to be entered into by and among Purchaser, a the
representative of the Company Shareholders on behalf of the Company Shareholders
(the "Attorney-in-Fact"), and an escrow agent (the "Escrow Agent") to be
mutually acceptable to the Attorney-in-Fact and Buyer, in form and substance
substantially as set forth in Exhibit A (the "Escrow Agreement"). By their
execution of this Agreement the Major Shareholders, and by their approval of the
Merger, the other Company Shareholders, will be conclusively deemed to have
consented to, approved and agreed to be bound by the Escrow Agreement and the
employment of Joseph Atick as the Attorney-in-Fact under the Escrow Agreement.
The Company Shareholders will also be conclusively deemed to have consented to,
approved and agreed to the taking by the Attorney-in-Fact of any and all actions
and the making of any decisions required or permitted to be taken by such
Attorney-in-Fact under this Agreement and/or the Escrow Agreement, including,
without limitation, the exercise of the power to (i) authorize delivery to
Purchaser of Escrow Shares (and proceeds from any sale of the Escrow Shares) and
satisfaction of indemnity claims by Purchaser pursuant to Article 8, (ii) agree
to negotiate, enter into settlements and compromises of, comply with orders of
courts and awards of arbitrators with respect to, such claims, (iii) arbitrate
results, settle or compromise any claim for indemnity made pursuant to Article 8
and (iv) take all actions necessary in the judgment of the Attorney-in-Fact for
the
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accomplishment of the foregoing. The Company Shareholders will be bound by all
actions taken and documents executed by the Attorney-in-Fact in connection with
the Escrow Agreement. In performing the functions specified in this Agreement
and Escrow Agreement, the Attorney-in-Fact will not be liable to any Company
Shareholders in absence of gross negligence or willful misconduct on the part of
the Attorney-in-Fact. Any out-of-pocket costs and expenses reasonably incurred
by the Attorney-in-Fact in connection with the actions taken by the
Attorney-in-Fact pursuant to the terms of the Escrow Agreement (including,
without limitation, the hiring of legal counsel and the incurring of legal fees
and costs) will be paid by the Company Shareholders to the Attorney-in-Fact pro
rata in proportion to their respective percentage interests in the Escrow Shares
(and proceeds from any sale of the Escrow Shares).
(b) The relative interests of each Company Shareholder in the Escrow Shares
and the proceeds from any sale of Escrow Shares will be based upon his or her
relative contribution to the escrow account as provided in Sections 1.3 and 1.6
and certificates representing each Company Shareholder's Escrow Shares shall be
issued in the name of each Company Shareholder upon consummation of the Closing
and the execution and delivery by each Company Shareholder of a stock power
endorsed in blank. Upon the consummation of the Closing, each Company
Shareholder shall become a stockholder of Purchaser with respect to such Company
Shareholder's portion of the Escrow Shares and shall have all of the rights of a
stockholder with respect to all such shares, including the right to vote the
shares, to receive all dividends and other distributions paid with respect
thereto, and the right to sell all or a portion of such shares at any time
following the public disclosure of Purchasers' consolidated results of
operations for a period commencing on the Closing Date and not less than 30
days; provided, however, that during the term of the escrow, no Company
Shareholder may pledge, hypothecate or otherwise encumber any Escrow Shares, and
the proceeds from any sale of the Escrow Shares shall be retained in the Escrow
Account pending any payout pursuant to the provisions of Article 8 hereof or
delivery to the Attorney-in-Fact as set forth below. The Attorney-in-Fact shall
be entitled to delivery of certificates representing the Escrow Shares, together
with proceeds from any sale of Escrow Shares, on the one-year anniversary of the
Closing Date, subject to a pro rata holdback of Escrow Shares (and proceeds from
any sale of Escrow Shares) then equal in value to 100 percent of any then
existing indemnification claims as measured by the closing share price of
Purchaser Stock on the Closing Date as reported by The Nasdaq National Market.
1.8. Options. At the Effective Time, Purchaser shall cause each holder of
a then outstanding and unexercised option (the "Company Options") exercisable
for shares of Company Stock to receive, by virtue of the Merger and without any
action on the part of the holder thereof, options exercisable for shares of
Purchaser Stock (a "Purchaser Option") in a share denomination equal to the
product of: (a) the Exchange Ratio determined pursuant to Section
1.3(a)multiplied by (b) the number of shares of Company Stock purchasable under
the Company Option and with an exercise price equal to the quotient of: (a) the
exercise price stated in the Company Option divided by (b) the Exchange Ratio.
Each Purchaser Option shall contain such other terms and conditions as are
contained in the agreements evidencing the Company Options, exclusive of share
denomination and exercise price. Purchaser shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of Purchaser
Stock for delivery upon the exercise of Company Options after the Effective
Time. Immediately after the Effective Time, Purchaser shall file or cause to be
filed all registration statements on Form S-8 or other appropriate form as may
be necessary in connection with the purchase and sale of Purchaser Stock
contemplated by such Company Options subsequent to the Effective Time, and shall
maintain the effectiveness of such registration statements (and maintain the
current. status of the prospectus or prospectuses contained therein) for so long
as any of the Company Options registered thereunder remain outstanding. As soon
as practicable after the Effective Time, Purchaser shall qualify under
applicable state securities laws the issuance of such shares of Purchaser Stock
issuable, upon exercise of Company Options. Purchaser shall use reasonable
commercial efforts to cause to be taken any actions necessary on the part of
Purchaser to enable subsequent transactions in Purchaser Stock after the
Effective Time pursuant to the Company Options held by persons subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act (as
defined below) to be exempt from the application of Section 16(b) of the
Securities Exchange Act, to the extent permitted thereunder.
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1.9. Certificate of Incorporation and Bylaws of the Surviving
Corporation. At and after the Effective Time, the Certificate of Incorporation
and the Bylaws of the Surviving Corporation shall be identical to the Articles
of Incorporation and the Bylaws of the Company in effect at the Effective Time
(subject to any subsequent amendments).
1.10. Directors and Officers of the Surviving Corporation. At and after
the Effective Time the directors of Merger Sub immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation, and
the officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
successors are elected or appointed and qualified. If, at the Effective Time, a
vacancy shall exist on the Board of Directors or in any office of the Surviving
Corporation, such vacancy may thereafter be filled in the manner provided by
law.
1.11. Directors and Executive Officers of Purchaser. At and after the
Effective Time Purchaser's Board of Directors shall be increased by two members,
Purchaser shall cause Joseph Atick and Jason Choo to be appointed to serve in
the newly created positions and James Granger shall be designated Chairman of
the Board. At and after the Effective Time, Joseph Atick and John Metil,
respectively, will be designated as Chief Executive Officer and President of
Purchaser, and each will report directly to Purchaser's Board of Directors.
1.12. Other Effects of Merger. The Merger shall have all further effects
as specified in the applicable provisions of the NJBCA.
1.13. Registration Statement Prospectus/Proxy Statement.
(a) For the purposes of (i) registering Purchaser Stock for issuance to
holders of the Company Shares in connection with the Merger with the Securities
and Exchange Commission ("SEC") under the Securities Act of 1933, as amended,
and the rules and regulations thereunder (the "Securities Act"), and complying
with applicable state securities Laws, (ii) holding the meeting of the Company's
shareholders to vote upon the adoption of this Agreement and the Merger and the
transactions contemplated hereby and thereby (the "Company Proposals") and (iii)
holding the meeting of Purchaser's stockholders to vote upon issuance of
Purchaser Stock to the Company Shareholders in the Merger and the change in the
name of Purchaser to "Visionics Corporation" as contemplated by Section 1.16 of
this Agreement (the "Purchaser Proposals"), Purchaser and the Company will
cooperate in the preparation of a registration statement on Form S-4 (such
registration statement, together with any and all amendments and supplements
thereto, being herein referred to as the "Registration Statement"), including a
prospectus/proxy statement satisfying all requirements of applicable state
securities Laws, the Securities Act and the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Securities Exchange
Act"). Such prospectus/proxy statement in the form mailed by the Company and
Purchaser to their respective shareholders and stockholders, together with any
and all amendments or supplements thereto, is herein referred to as the
"Prospectus/Proxy Statement."
(b) The Company will furnish Purchaser with such information concerning the
Company and its subsidiaries as is necessary in order to cause the
Prospectus/Proxy Statement, insofar as it relates to the Company and its
subsidiaries, to comply with applicable Law. None of the information relating to
the Company and its subsidiaries supplied by the Company for inclusion in the
Prospectus/Proxy Statement will contain any untrue statement of a material fact
or will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Company agrees promptly to advise
Purchaser if, at any time prior to the meeting of the shareholders of the
Company referenced herein, any information provided by it in the
Prospectus/Proxy Statement is or becomes incorrect or incomplete in any material
respect and to provide Purchaser with the information needed to correct such
inaccuracy or omission, The Company will furnish Purchaser with such
supplemental information as may be necessary in order to cause the
Prospectus/Proxy Statement, insofar as it relates to the Company and its
subsidiaries, to comply with applicable Law after the mailing thereof to the
shareholders of the Company.
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(c) Purchaser will furnish the Company with such information concerning
Purchaser and its subsidiaries as is necessary in order to cause the
Prospectus/Proxy statement, insofar as it relates to Purchaser and its
subsidiaries, to comply with applicable Law. None of the information relating to
Purchaser and its subsidiaries supplied by Purchaser for inclusion in the
Prospectus/Proxy Statement will contain any untrue statement of a material fact
or will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Purchaser agrees promptly to advise
the Company if, at any time prior to the meeting of stockholders of the Company
referenced herein, any information provided by it in the Prospectus/Proxy
Statement is or becomes incorrect or incomplete in any material respect and to
provide the Company with the information needed to correct such inaccuracy or
omission. Purchaser will furnish the Company with such supplemental information
as may be necessary in order to cause the Prospectus/ Proxy Statement, insofar
as it relates to Purchaser and its subsidiaries, to comply with applicable Law
after the mailing thereof to the shareholders of the Company and Purchaser.
(d) The Company and Purchaser agree to cooperate in making any preliminary
filings of the Prospectus/Proxy Statement with the SEC, as promptly as
practicable, pursuant to Rule 14a-6 under the Securities Exchange Act.
(e) Purchaser will file the Registration Statement with the SEC and
appropriate materials with applicable state securities agencies as promptly as
practicable after the date hereof and will use its reasonable best efforts to
cause the Registration Statement to become effective under the Securities Act
and all such state filed materials to comply with applicable state securities
Laws. Purchaser shall, provide the Company for its review a copy of the
Registration Statement at least such amount of time prior to each filing thereof
as is customary in transactions of the type contemplated hereby and shall not
make any filing with the SEC without the prior written consent of the Company,
which consent shall not be unreasonably withheld or delayed. The Company
authorizes Purchaser to utilize the Registration Statement and in all such state
filed materials, the information concerning the Company and its subsidiaries
provided to Purchaser in connection with, or contained in, the Prospectus/Proxy
Statement. Purchaser promptly will advise the Company when the Registration
Statement has become effective and, of any supplements or amendments thereto,
and Purchaser will furnish the Company with copies of all documents. Except for
the Prospectus/Proxy Statement or the preliminary prospectus/proxy statement,
neither Purchaser nor the Company shall distribute any written material that
might constitute a "prospectus" relating to the Merger or the Company Proposals
within the meaning of the Securities Act or any applicable state securities Law
without the prior written consent of the other party.
1.14. Tax-Free Reorganization. The parties intend that the Merger qualify
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended, and the regulations thereunder (the "Code"). None of
the parties will knowingly take any action that would cause the Merger to fail
to qualify as a reorganization within the meaning of Section 368(a) of the Code.
1.15. Voting Agreements. As a condition to the effectiveness to this
Agreement, each of the Major Shareholders shall have executed and delivered to
Purchaser a voting agreement substantially in the form attached hereto as
Exhibit B.
1.16. Corporate Name of Purchaser. At the Effective Time, the Certificate
of Incorporation of Purchaser shall be amended to change Purchaser's name to
"Visionics Corporation."
1.17. Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Merger Sub or the Company or otherwise carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of Merger Sub or
the Company, all such deeds, bills of sale, assignments and assurances and to
take and do, in the name and on behalf of Merger Sub or the Company, all such
other actions and things as may be necessary or desirable to vest, perfect or
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confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out this
Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter from the Company to Purchaser
to be delivered upon the execution of this Agreement, which sets forth certain
disclosures concerning the Company and its business (the "Company Disclosure
Letter"), each section of which qualifies the correspondingly numbered
representation or warranty, the Company hereby represents and warrants to
Purchaser and Merger Sub as follows:
2.1. Due Incorporation and Good Standing. The Company and each of the
Company Subsidiaries (as defined below) is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
The Company and each of the Company Subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the character
of the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and in good standing would not
be reasonably likely to have a material adverse effect on the business, assets,
condition (financial or otherwise), liabilities or the results of operations of
the Company and its subsidiaries taken as a whole ("Company Material Adverse
Effect"). The Company has heretofore made available to Purchaser accurate and
complete copies of the Certificate of Incorporation and Bylaws, as currently in
effect, of the Company. For purposes of this Agreement, the term "Company
Subsidiary" shall mean any "Significant Subsidiary" (as such term is defined in
Rule 1-02 of Regulation S-X of the SEC) of the Company.
2.2. Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of 20,000,000 shares of Company Stock. As of the date
hereof, 12,106,250 shares of Company Stock were issued and outstanding. No other
capital stock of the Company is authorized or issued. All issued and outstanding
shares of the Company Stock are duly authorized, validly issued, fully paid and
non-assessable. As of the date hereof there are no outstanding rights,
subscriptions, warrants, puts, calls, unsatisfied preemptive rights, options or
other agreements of any kind relating to any of the outstanding, authorized but
unissued or unauthorized shares of the capital stock or any other security of
the Company, and there is no authorized or outstanding security of any kind
convertible into or exchangeable, for any such capital stock or other security.
2.3. Subsidiaries. Section 2.3 of the Company Disclosure Letter sets forth
the name and jurisdiction of incorporation or organization of each Company
Subsidiary, each of which is wholly owned by the Company except as otherwise
indicated in said Section 2.3 of the Company Disclosure Letter. All of the
capital stock and other interests of the Company Subsidiaries so held by the
Company are owned by it or a Company Subsidiary as indicated in said Section 2.3
of the Company Disclosure Letter, free and clear of any claim, lien,
encumbrance, security interest or agreement with respect thereto. All of the
outstanding shares of capital stock in each of the Company Subsidiaries directly
or indirectly held by the Company are duly authorized, validly issued, fully
paid and non-assessable and were issued free of preemptive rights and in
compliance with applicable Laws. No equity securities or other interests of any
of the Company Subsidiaries are or may become required to be issued or purchased
by reason of any options, warrants, rights to subscribe to, puts, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any capital stock of any Company
Subsidiary, and there are no contracts, commitments, understandings or
arrangements by which any Company Subsidiary is bound to issue additional shares
of its capital stock, or options, warrants or rights to purchase or acquire any
additional shares of its capital stock or securities convertible into or
exchangeable for such shares.
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2.4. Authorization; Binding Agreement. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
including, but not limited to, the Merger, have been duly and validly authorized
by the Company's Board of Directors and no other corporate proceedings on the
part of the Company or any Company Subsidiary are necessary to authorize the
execution and delivery of this Agreement or to consummate the transactions
contemplated hereby (other than the adoption of this Agreement by the
shareholders of the Company in accordance with the NJBCA). This Agreement has
been duly and validly executed and delivered by the Company and constitutes the
legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
by principles of equity regarding the availability of remedies ("Enforceability
Exceptions").
2.5. Governmental Approvals. No consent, approval, waiver or authorization
of, notice to or declaration or filing with ("Consent"), any nation or
government, any state or other political subdivision thereof, any entity,
authority or body exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including, without
limitation, any governmental or regulatory authority, agency, department, board,
commission, administration or instrumentality, any court, tribunal or arbitrator
and any self regulatory organization ("Governmental Authority") on the part of
the Company or any of the Company subsidiaries is required in connection with
the execution or delivery by the Company of this Agreement or the consummation
by the Company of the transactions contemplated hereby other than (i) the filing
of the Certificate of Merger with the Department of Treasury of the State of New
Jersey in accordance with the NJBCA, (ii) filings and approvals under the
Securities Act, Exchange Act and state securities laws, (iii) such filings as
may be required in any jurisdiction where the Company is qualified or authorized
to do business as a foreign corporation in order to maintain such qualification
or authorization and (iv) those consents that, if they were not obtained or
made, would not be reasonably likely to have a Company Material Adverse Effect.
2.6. No Violations. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by the
Company with any of the provisions hereof will not (i) conflict with or result
in any breach of any provision of the Certificate of Incorporation or Bylaws or
other governing instruments of the Company or any of the Company Subsidiaries,
(ii) require any Consent under or result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any Company Material Contract (as
defined below), (iii) result in the creation or imposition of any lien or
encumbrance of any kind upon any of the assets of the Company or any Company
Subsidiary or (iv) subject to obtaining the Consents from Governmental
Authorities referred to in Section 2.5 hereof, contravene any applicable
provision of any statute, law, rule or regulation or any order, decision,
injunction, judgment, award or decree ("Law") to which the Company or any
Company Subsidiary or its or any of their respective assets or properties are
subject, except, in the case of clauses (ii), (iii) and (iv) above, for any
deviations from the foregoing which would not be reasonably likely to have a
Company Material Adverse Effect.
2.7. Company Financial Statements. The audited consolidated financial
statements for the year ended December 31, 1999 (the "Annual Financial
Statements") and unaudited interim financial statements of the Company for the
nine month period ended September 30, 2000 (the "Latest Financial Statements"),
each of which has been delivered to Purchaser, have been prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP") applied on a consistent basis (except as may be indicated therein or in
the notes thereto) and present fairly, in all material respects, the financial
position of the Company and its subsidiaries as at the dates thereof and the
results of their operations and cash flows for the periods then ended subject,
in the case of the unaudited interim financial statements, to the absence of
footnotes and to normal year-end audit adjustments and any other adjustments
described therein.
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2.8. Absence of Certain Changes or Events; No Undisclosed
Liabilities. Except as set forth in the Latest Financial Statements, during the
period from December 31, 1999 to the date of this Agreement, there has not been:
(i) any event that has had or would reasonably be expected to have a Company
Material Adverse Effect, (ii) any declaration, payment or setting aside for
payment of any dividend or other distribution or any redemption or other
acquisition of any shares of capital stock or securities of the Company by the
Company, (iii) any material damage or loss to any material asset or property,
whether or not covered by insurance, or (iv) any change by the Company in
accounting principles or practices other than as required by GAAP. Except for
those liabilities that are fully reflected or reserved against on the balance
sheet of the Company included in the Latest Financial Statements and for
liabilities incurred in the ordinary course of business consistent with past
practice, since [date of Annual Financial Statements], neither the Company nor
any of its Subsidiaries has incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to become
due) that, either individually or in the aggregate, has had or would be
reasonably likely to have, a Company Material Adverse Effect.
2.9. Compliance with Laws. The business of the Company and each of its
Subsidiaries has been operated in compliance with all Laws applicable thereto,
except for any instances of non-compliance which would not be reasonably likely
to have a Company Material Adverse Effect.
2.10. Permits. (i) The Company and its subsidiaries have all permits,
certificates, licenses, approvals and other authorizations required in
connection with the operation of their respective businesses (collectively,
"Company Permits"); (ii) neither the Company nor any of its Subsidiaries is in
violation of any Company Permit and (iii) no proceedings are pending or
threatened, to revoke or limit any Company Permit, except, in the case of
clauses (i) through (iii), those the absence or violation of which would not be
reasonably likely to have a Company Material Adverse Effect.
2.11. Litigation. Except as disclosed in the Annual Financial Statements
and the Latest Financial Statements, there is no suit, action or proceeding
("Litigation") pending or, to the Company's Knowledge (as defined below),
threatened against the Company or any of its Subsidiaries, nor is there any
judgment, decree, injunction, rule or order of any Governmental Authority
outstanding against the Company or any of its Subsidiaries. For purposes of this
Agreement, the term "Knowledge" shall include the actual knowledge of the
person's officers and directors after due inquiry.
2.12. Contracts. Section 2.12 of the Company Disclosure Letter set forth a
complete and accurate listing of each agreement to which the Company or any of
its Subsidiaries is a party with respect to which the value of performance
required thereunder equals or exceeds the sum of $10,000 (each, a "Company
Material Contract"). All Company Material Contracts are valid and binding and
are in full force and effect and enforceable against the Company or such
Subsidiary in accordance with their respective terms, subject to the
Enforceability Exceptions. Neither the Company nor any of its Subsidiaries is in
violation or breach of or default under any such Company Material Contract where
such violation or breach would be reasonably likely to have a Company Material
Adverse Effect.
2.13. Employee Benefit Plans. Section 2.13 of the Company Disclosure
Letter contains a complete and accurate list of all material Benefit Plans (as
defined below) maintained or contributed to by the Company or any of its
Subsidiaries ("Company Benefit Plan"). A "Benefit Plan" shall include (i) an
employee benefit plan as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, together with all regulations
thereunder ("ERISA"), and (ii) whether or not described in the preceding clause,
any pension, profit sharing, stock bonus, deferred or supplemental compensation,
retirement, thrift, stock purchase or stock option plan or any other
compensation, welfare, fringe benefit or retirement plan, program, policy or
arrangement providing for benefits for or the welfare of any or all of the
current or former employees or agents of the Company or any of its subsidiaries
or their beneficiaries or dependents; provided, however, that Benefit Plans
shall not include any multiemployer plan, as defined in Section 3(37) of ERISA
(a "Multiemployer Plan"). Each of the Company Benefit Plans has been maintained
in compliance with its terms and all applicable Law, except where the failure to
do so would
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not be reasonably likely to result in a Company Material Adverse Effect. Neither
the Company nor any of its Subsidiaries contributes to, or has any outstanding
liability with respect to, any Multiemployer Plan.
2.14. Taxes and Returns.
(a) The Company and each of its subsidiaries has timely filed, or caused to
be timely filed all material Tax Returns (as defined below) required to be filed
by it, and has paid, collected or withheld, or caused to be paid, collected or
withheld, all material amounts of Taxes (as defined below) required to be paid,
collected or withheld, other than such Taxes for which adequate reserves in the
Company Financial Statements have been established or which are being contested
in good faith. There are no material claims or assessments pending against the
Company or any of its Subsidiaries for any alleged deficiency in any Tax, and
the Company has not been notified in writing of any proposed Tax claims or
assessments against the Company or any of its Subsidiaries (other than in each
case, claims or assessments for which adequate reserves in the Latest Financial
Statements have been established or which are being contested in good faith or
are immaterial in amount). Neither the Company nor any of its Subsidiaries has
any waivers or extensions of any applicable statute of limitations to assess any
material amount of Taxes. There are no outstanding requests by the Company or
any of its Subsidiaries for any extension of time within which to file any
Material Tax Return or within which to pay any material amounts of Taxes shown
to be due on any return. There are no liens for material amounts of Taxes on the
assets of the Company or any of its Subsidiaries except for statutory liens for
current Taxes not yet due and payable.
(b) For purposes of this Agreement, the term "Tax" shall mean any federal,
state, local, foreign or provincial income, gross receipts, property, sales,
use, license, excise, franchise, employment, payroll, alternative or added
minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty imposed by any Governmental Authority. The
term "Tax Return" shall mean a report, return or other information (including
any attached schedules or any amendments to such report, return or other
information) required to be supplied to or filed with a governmental entity with
respect to any Tax, including an information return, claim for refund, amended
return or declaration or estimated Tax.
2.15. Intellectual Property.
(a) The Company or its Subsidiaries own, or are licensed or otherwise
possess legal enforceable rights to use all: (i) trademarks and service marks
(registered or unregistered), trade dress, trade names and other names and
slogans embodying business goodwill or indications of origin, all applications
or registrations in any jurisdiction pertaining to the foregoing and all
goodwill associated therewith; (ii) patentable inventions, technology, computer
programs and software (including password unprotected interpretive code or
source code, object code, development documentation, programming tools,
drawings, specifications and data) and all applications and patents in any
jurisdiction pertaining to the foregoing, including re-issues, continuations,
divisions, continuations-in-part, renewals or extensions; (iii) trade secrets,
including confidential and other non-public information (iv) copyrights in
writings, designs, software programs, mask works or other works, applications or
registrations in any jurisdiction for the foregoing and all moral rights related
thereto; (v) databases and all database rights; and (vi) Internet Web sites,
domain names and applications and registrations pertaining thereto ("Company
Intellectual Property") that are used in the respective businesses of the
Company and its Subsidiaries as currently conducted except for any such failures
to own, be licensed or process that would not be reasonably likely to have a
Company Material Adverse Effect.
(b) Except as may be evidenced by patents issued after the date hereof,
there are no conflicts with or infringements of any material Company
Intellectual Property by any third party and the conduct of the businesses as
currently conducted does not conflict with or infringe any proprietary right of
a third party.
(c) Section 2.15(c) of the Company Disclosure Letter sets forth a complete
list of all patents, registrations and applications pertaining to the Company
Intellectual Property owned by the Company and its Subsidiaries. All such
Company Intellectual Property listed is owned by the Company and/or its
Subsidiaries, free and clear of liens or encumbrances of any nature.
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(d) Section 2.15(d) of the Company Disclosure Letter sets forth a complete
list of all material licenses, sublicenses and other agreements in which the
Company and its Subsidiaries have granted rights to any person to use the
Company Intellectual Property. The Company will not, as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, be in breach of any license, sublicense or other agreement
relating to the Company Intellectual Property.
(e) The Company and its Subsidiaries own or have the right to use all
computer software currently used in and material to the businesses.
2.16. Finders and Investment Bankers. Neither the Company nor any of its
officers or directors has employed any broker or finder or otherwise incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby.
2.17. Pooling of Interests Accounting. Neither the Company nor any of its
affiliates, has through the date hereof, taken or agreed to take any action that
would prevent Purchaser from accounting for the business combination to be
effected by the Merger as a "pooling of interests."
2.18. Insurance. Section 2.18 of the Company Disclosure Letter sets forth
a true and complete list, in all material respects, of all insurance policies
carried by, or covering the Company and its Subsidiaries with respect to their
businesses, assets and properties and with respect to which records are
maintained at the Company's principal executive offices, together with, in
respect of each such policy, the amount of coverage and the deductible. The
Company and its subsidiaries maintain insurance policies against all risk of a
character, including without limitation, business interruption insurance, and in
such amounts as are usually insured against by similarly situated companies in
the same or similar businesses. Each insurance policy set forth on Section 2.18
of the Company Disclosure Letter is in full force and effect and all premiums
due thereon have been paid in full.
2.19. Title to Properties.
(a) The Company does not own any real property. The real property demised
by the leases (the "Leases") described under the caption referencing this
Section 2.19 in the Disclosure Letter constitutes all of the real property used
or occupied by the Company (the "Real Property"). The Real Property has access,
sufficient for the conduct of the Company's business as now conducted.
(b) The Leases are in full force and effect, and the Company holds a valid
and existing leasehold interest under each of the Leases for the term set forth
under such caption in the Company Disclosure Letter. The Company has delivered
to Purchaser complete and accurate copies of each of the Leases, and none of the
Leases has been modified in any respect, except to the extent that such
modifications are disclosed by the copies delivered to Purchaser. The Company is
not in default, and no circumstances exist which, if unremedied, would, either
with or without notice or the passage of time or both, result in such default
under any of the Leases; nor is any other party to any of the Leases in default.
(c) The Company owns good and marketable title to each of the tangible
properties and tangible assets reflected on the Latest Financial Statements or
acquired since the date thereof, free and clear of all liens and encumbrances,
except for (i) liens for current taxes not yet due and payable, (ii) the
properties subject to the Leases, (iii) liens imposed by law and incurred in the
ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers and materialmen; and (iv) liens that would not reasonably
be likely to have a Company Material Adverse Effect.
(d) All of the machinery, equipment and other tangible assets necessary for
the conduct of the Company's business are in good condition and repair, ordinary
wear and tear excepted, and are usable in the ordinary course of business. The
Company owns, or leases under valid leases, all machinery, equipment and other
tangible assets necessary for the conduct of its business.
2.20. Accounts Receivable. The accounts receivable reflected on the Latest
Financial Statements are valid receivables, are not subject to valid
counterclaims or setoffs, and are collectible in accordance with their terms,
except as otherwise described in the Disclosure Letter under the caption
referencing this Section 2.20, and except to the extent of the bad debt reserve
reflected on the Latest Financial Statements.
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2.21. Employees. (a) No executive employee of the Company and, to the
Knowledge of the Company, no group of the Company's employees has any plans to
terminate his, her or its employment; (b) except for such violations which are
not, individually or in the aggregate, reasonably likely to result in a Company
Material Adverse Effect, the Company has complied with all laws relating to the
employment of labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining and the payment of social security and
other taxes; (c) the Company has no material labor relations problem pending and
its labor relations are satisfactory; (d) there are no workers' compensation
claims pending against the Company nor, to the Company's Knowledge, have any
such claims been threatened against the Company; (e) to the Company's Knowledge,
no employee of the Company is subject to any secrecy or noncompetition agreement
or any other agreement or restriction of any kind that would impede in any way
the ability of such employee to carry out fully all activities of such employee
in furtherance of the business of the Company; and (f) no employee or former
employee of the Company has any claim with respect to any intellectual property
rights of the Company set forth under the caption referencing Section 2.21
hereof in the Company Disclosure Letter. Section 2.21 of the Company Disclosure
Letter sets forth a complete and accurate listing of all collective bargaining
agreements, employment agreements, consulting agreements, noncompetition
agreements, material nondisclosure agreements, executive compensation plans,
profit sharing plans, bonus plans, deferred compensation plans, employee pension
retirements plans and employee benefit stock option or stock purchase plans and
other employee benefit plans entered into or adopted by the Company.
2.22. Affiliate Transactions. No officer, director or employee of the
Company or any member of the immediate family of any such officer, director or
employee, or any entity in which any of such persons owns any beneficial
interest (other than any publicly-held corporation whose stock is traded on a
national securities exchange or in the over-the-counter market and less than one
percent of the stock of which is beneficially owned by any of such persons)
(collectively "Insiders"), has any agreement with the Company (other than normal
employment arrangements) or any interest in any property, real, personal or
mixed, tangible or intangible, used in or pertaining to the business of the
Company (other than ownership of capital stock of the Company). None of the
Insiders has any direct or indirect interest in any competitor, supplier or
customer of the Company or in any person, firm or entity from whom or to whom
the Company leases any property, or in any other person, firm or entity with
whom the Company transacts business of any nature. For purposes of this Section
2.22, the members of the immediate family of an officer, director or employee
shall consist of the spouse, parents, children, siblings, mothers- and
fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law of
such officer, director or employee.
2.23. Customers and Suppliers. The Company Disclosure Letter, under the
caption referencing this Section 2.23, lists the 10 largest customers and
suppliers of the Company for the year ended December 31, 1999, and for the
nine-month period ended September 30, 2000, and sets forth opposite the name of
each such customer or supplier the approximate percentage of net sales or
purchases by the Company attributable to such customer or supplier for each such
period. Since the date of the Latest Financial Statements, no customer or
supplier listed on the Disclosure Letter under the caption referencing this
Section 2.23 has indicated that it will stop or decrease, in any material
respect, the rate of business done with the Company except for changes in the
ordinary course of the Company's business.
2.24. Officers and Directors; Bank Accounts. The Company Disclosure
Letter, under the caption referencing this Section 2.24, lists all officers and
directors of the Company and all of the Company's bank accounts (designating
each authorized signer).
2.25. Professional Fees. The Company has not incurred aggregate legal,
accounting and brokerage fees and commissions in connection with the
transactions contemplated by this Agreement in excess of $250,000.
2.26. Disclosure. Neither this Agreement nor any of the Exhibits hereto or
as set forth in the Prospectus/Proxy Statement (to the extent such information
pertains to the Company), nor the Company Disclosure Letter contain any untrue
statement of a material fact regarding the Company or its business or any of the
other matters dealt with in this Article 2 relating to the Company or the
transactions
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contemplated by this Agreement or omit to state any material fact necessary to
make the statements contained herein or therein, in light of the circumstances
in which they were made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as set forth in the Purchaser Securities Filings (as defined below)
filed prior to the date of this Agreement and except as set forth in the
disclosure letter from Purchaser to the Company to be delivered upon the
execution of this Agreement, which sets forth certain disclosures concerning
Purchaser and its business (the "Purchaser Disclosure Letter"), each section of
which qualifies the correspondingly numbered representation or warranty,
Purchaser hereby represents and warrants to the Company as follows:
3.1. Organization and Good Standing. Purchaser, Merger Sub and each of the
Purchaser Subsidiaries in a corporation or partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate or partnership
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Purchaser and each of the Purchaser
Subsidiaries is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the character of the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not be reasonably likely to
have a material adverse effect on the business, assets, condition (financial or
otherwise), liabilities or the results of operations of Purchaser and its
subsidiaries taken as a whole ("Purchaser Material Adverse Effect"). Purchaser
has heretofore made available to the Company accurate and complete copies of the
Certificate of Incorporation and Bylaws, as currently in effect, of Purchaser.
For purposes of this Agreement, the term "Purchaser Subsidiary" shall mean any
"Significant Subsidiary" (as such term is defined in Rule 1-02 of Regulation S-X
of the SEC) of Purchaser.
3.2. Capitalization. As of the date hereof, the authorized capital stock
of Purchaser consists of 40,000,000 shares of common stock and 5,000,000 shares
of preferred stock. As of September 30, 2000, 16,851,725 shares of common stock
and no shares of preferred stock were issued and outstanding. No other capital
stock of Purchaser is authorized or issued. All issued and outstanding shares of
the Purchaser Stock are duly authorized, validly issued, fully paid and
non-assessable. Except as set forth in the Purchaser Securities Filings (as
defined in Section 3.7) or as otherwise contemplated by this Agreement, as of
the date hereof, there are no outstanding rights, subscriptions, warrants, puts,
calls, unsatisfied preemptive rights, options or other agreements of any kind
relating to any of the outstanding, authorized but unissued, unauthorized shares
of the capital stock or any other security of Purchaser, and there is no
authorized or outstanding security of any kind convertible into or exchangeable
for any such capital stock or other security.
3.3. Subsidiaries. Section 3.3 of the Purchaser Disclosure Letter sets
forth the name and jurisdiction of incorporation or organization of each
Purchaser Subsidiary. Each Purchaser Subsidiary is wholly owned by Purchaser,
except that TRAK 21 Development LLC is 51 percent owned by Purchaser. All of the
capital stock and other interests of the Purchaser Subsidiaries so held by
Purchaser are owned by it or a Purchaser Subsidiary as indicated in said Section
3.3 of the Purchaser Disclosure Letter, free and clear of any claim, lien,
encumbrance, security interest or agreement with respect thereto. All of the
outstanding shares of capital stock in each of the Purchaser Subsidiaries
directly or indirectly held by Purchaser are duly authorized, validly issued,
fully paid and non-assessable and were issued free of preemptive rights and in
compliance with applicable laws. No equity securities or other interests of any
of the Purchaser Subsidiaries are or may become required to be issued or
purchased by reason of any options, warrants, rights to subscribe to, puts,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of any capital stock of any
Purchaser Subsidiary, and there are no contracts, commitments, understandings or
arrangements by which any Purchaser Subsidiary is bound to issue additional
shares of its capital stock, or options, warrants or rights to purchase or
acquire
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any additional shares of its capital stock or securities convertible into or
exchangeable for such shares. All of the shares of Purchaser Stock issuable in
accordance with this Agreement in exchange for Company Stock will be, when so
issued, duly authorized, validly issued, fully paid and non-assessable and shall
be delivered free and clear of all liens, claims, charges and encumbrances of
any kind or nature whatsoever, including any preemptive rights of any holder of
capital stock of Purchaser.
3.4. Authorization; Binding Agreement. Purchaser and Merger Sub have all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby, including, but not limited to, the Merger, have been duly and validly
authorized by the respective Boards of Directors of Purchaser and Merger Sub, as
appropriate, and no other corporate proceedings on the part of Purchaser, Merger
Sub or any Purchaser Subsidiary are necessary to authorize the execution and
delivery of this Agreement or to consummate the transactions contemplated hereby
(other than the requisite approval of the Purchaser Proposal by the stockholders
of Purchaser and the requisite approval by the sole stockholder of Merger Sub of
this Agreement and the Merger). This Agreement has been duly and validly
executed and delivered by each of Purchaser and Merger Sub and constitutes the
legal, valid and binding agreements of Purchaser and Merger Sub, enforceable
against each of Purchaser and Merger Sub in accordance with its terms, subject
to the Enforceability Exceptions.
3.5. Governmental Approvals. No Consent from or with any Governmental
Authority on the part of Purchaser or any of the Purchaser Subsidiaries is
required in connection with the execution or delivery by Purchaser of this
Agreement or the consummation by Purchaser of the transactions contemplated
hereby other than (i) filings with the SEC, state securities laws administrators
and the NASD, (ii) filings and approvals under the Securities Act, Exchange Act
and state securities laws, (iii) such filings as may be required in any
jurisdiction where Purchaser is qualified or authorized to do business as a
foreign corporation in order to maintain such qualification or authorization and
(iv) those Consents that, if they were not obtained or made, would not be
reasonably likely to have a Purchaser Material Adverse Effect.
3.6. No Violations. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by Purchaser
with any of the provisions hereof will not (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or Bylaws or other
governing instruments of Purchaser or any of the Purchaser Subsidiaries, (ii)
require any Consent under or result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any Purchaser Material Contract (as defined below),
(iii) result in the creation or imposition of any lien or encumbrance of any
kind upon any of the assets of Purchaser or any Purchaser Subsidiary or (iv)
subject to obtaining the Consents from Governmental Authorities referred to in
Section 3.5 hereof, contravene any Law to which Purchaser or any Purchaser
Subsidiary or its or any of their respective assets or properties are subject,
except, in the case of clauses (ii), (iii) and (iv) above, for any deviations
from the foregoing which would not be reasonably likely to have a Purchaser
Material Adverse Effect.
3.7. Securities Filings. Purchaser has made available to the Company true
and complete copies of (i) its Annual Reports on Form 10-K for the years ended
September 30, 1999, 1998 and 1997, as filed with the SEC, (ii) its proxy
statements relating to all of the meetings of stockholders (whether annual or
special) of Purchaser since October 1, 1999, as filed with the SEC, and (iii)
all other reports, statements and registration statements and amendments thereto
(including, without limitation, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as amended) filed by Purchaser with the SEC since October
1, 1999, The reports and statements set forth in clauses (i) through (iii)
above, and those subsequently provided or required to be provided pursuant to
this Section 3.7, are referred to collectively herein as the "Purchaser
Securities Filings." As of their respective dates, or as of the date of the last
amendment thereof, if amended after filing, to Purchaser's Knowledge, all such
Purchaser Securities Filings complied in all material respects with the Exchange
Act and none of the Purchaser Securities Filings, contained or, as to Purchaser
Securities Filings subsequent to the date hereof, will contain, any
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untrue statement of a material fact or omitted or, as to Purchaser Securities
Filings subsequent to the date hereof, will 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. Each of
the Purchaser Securities Filings at the time of filing or as of the date of the
last amendment thereof, if amended after filing, complied or, as to Purchaser
Securities Filings subsequent to the date hereof, will comply in all material
respects with the Securities Exchange Act or the Securities Act, as applicable.
3.8. Purchaser Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Purchaser
included in the Purchaser Securities Filings (the "Purchaser Financial
Statements") have been prepared in accordance with GAAP applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and present
fairly, in all material respects, the financial position of Purchaser and its
subsidiary as at the dates thereof and the results of their operations and cash
flows for the periods then ended subject, in the case of the unaudited interim
financial statements, to normal year-end audit adjustments, any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Securities Exchange Act.
3.9. No Undisclosed Liabilities. Except for those liabilities that are
fully reflected or reserved against on the balance sheet of the Purchaser
included in the Purchaser Securities Filings and for liabilities incurred in the
ordinary course of business consistent with past practice, neither Purchaser nor
any of its subsidiaries has incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to become
due) that, either individually or in the aggregate, has had or would be
reasonably likely to have, a Purchaser Material Adverse Effect.
3.10. Litigation. Except as disclosed in the Purchaser securities Filings,
there is no Litigation pending or threatened against, Purchaser or any of its
subsidiaries which, individually or in the aggregate, would be reasonably likely
to have a Purchaser Material Adverse Effect, nor is there any judgment, decree,
injunction, rule or order of any Governmental Authority outstanding against
Purchaser or any of its subsidiaries which, individually or in the aggregate,
would be reasonably likely to have a Purchaser Material Adverse Effect.
3.11. Compliance with Laws. The business of Purchaser and each of its
subsidiaries has been operated in compliance with all Laws applicable thereto,
except for any instances of non-compliance which would not be reasonably likely
to have a Purchaser Material Adverse Effect.
3.12. Taxes and Returns. Purchaser and each of its subsidiaries has timely
filed, or caused to be timely filed all material Tax Returns required to be
filed by it, and has paid, collected or withheld, or caused to be paid,
collected or withheld, all material amounts of Taxes required to be paid,
collector Withheld, other than such Taxes for which adequate reserves in the
Purchaser Financial Statements have been established or which are being
contested in good faith. There are no material claims or assessments pending
against Purchaser or any of its subsidiaries for any alleged deficiency in any
Tax, and Purchaser has not been notified in writing of any proposed Tax claims
or assessment against Purchaser or any of its subsidiaries (other than in each
case, claims or assessments for which adequate reserves in the Purchaser
Financial Statements have been established or which are being contested in good
faith or are immaterial in amount). Neither Purchaser nor any of its
subsidiaries has any waivers or extensions of any applicable statute of
limitations to assess any material amount of Taxes. There are no binding
requests by Purchaser or any of its subsidiaries or any extension of time within
which to file any material Tax Return or within which to pay any material
amounts of Taxes shown to be due on any return. There are no liens for material
amounts of Taxes on the assets of Purchaser or any of its subsidiaries except
for statutory liens for current Taxes not yet due aid payable.
3.13. Intellectual Property.
(a) Purchaser or its subsidiaries own, or are licensed or otherwise possess
legal enforceable rights to use all; (i) trademarks and service marks
(registered or unregistered), trade dress, trade names and other names and
slogans embodying business goodwill or indications of origin, all applications
or registrations in
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any jurisdiction pertaining to the foregoing and all goodwill associated
therewith; (ii) patentable inventions, technology, computer programs and
software (including password unprotected interpretive code or source code,
object code, development documentation, programming tools, drawings,
specifications and data) and all applications and patents in any jurisdiction
pertaining to the foregoing, including reissues continuations, divisions,
continuations-in-part, renewals or extensions; (iii) trade secrets, including
confidential and other non-public information; (iv) copyrights in writings,
designs, software programs, mask works or other works, applications or
registrations in any jurisdiction for the foregoing and all moral rights related
thereto; (v) databases and all database rights; and (vi) Internet Web sites,
domain names and applications and registrations pertaining thereto ("Purchaser
Intellectual Property") that are used in the respective businesses of Purchaser
and its subsidiaries as currently conducted, except for any such failures to
own, be licensed or possess that would not be reasonably likely to have a
Purchaser Material Adverse Effect.
(b) There are no conflicts with or infringements of any material Purchaser
intellectual Property by any third party and the conduct of the businesses as
currently conducted does not conflict with or infringe any proprietary right of
a third party.
(c) Section 3.13(c) of the Purchaser Disclosure Letter sets forth a
complete list of all patents, registrations and applications pertaining to the
Purchaser Intellectual Property owned by Purchaser and its subsidiaries. All
such Purchaser Intellectual Property listed is owned by Purchaser and/or its
subsidiaries, free and clear of liens or encumbrances of any nature.
(d) Section 3.13(d) of the Purchaser Disclosure Letter, sets forth a
complete list of all material licenses, sublicenses and other agreements in
which Purchaser and its subsidiaries have granted rights to any person to use
the Purchaser Intellectual Property. Purchaser will not, as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, be in breach of any license, sublicense or other agreement
relating to the Purchaser Intellectual Property.
(e) Purchaser and its subsidiaries own or have the right to use all
computer software currently used in and material to the businesses.
3.14. Employee Benefit Plans. Section 3.14 of the Purchaser Disclosure
Letter contains a complete and accurate list of all material Benefit Plans (as
defined below) maintained or contributed to by Purchaser or any of its
subsidiaries ("Purchaser Benefit Plan"). Each of the Purchaser Benefit Plans has
been maintained in compliance with its terms and all applicable Law, except
where the failure to do so would not be reasonably likely to result in a
Purchaser Material Adverse Effect.
3.15. Finders and Investment Bankers. Neither Purchaser nor any of its
officers or directors has employed any broker or finder or otherwise incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby, other than pursuant to an agreement
with SunTrust Equitable Securities, the material terms of which have been
disclosed to the Company.
3.16. No Prior Activities. Except for obligations or liabilities incurred
in connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby, Merger
Sub has not incurred any obligations or liabilities, and has not engaged in any
business or activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person or entity.
3.17. Pooling of Interests Accounting. Neither Purchaser nor any of its
affiliates has, through the date hereof, taken or agreed to take any action that
would prevent the Company from accounting for the business combination to be
effected by the Merger as a "pooling of interests."
3.18. Insurance. Section 3.18 of the Purchaser Disclosure Letter sets
forth a true and complete list of all insurance policies carried by, or covering
Purchaser and its subsidiaries with respect to their businesses, assets and
properties and with respect to which records are maintained at Purchaser's
principal executive offices, together with, in respect of each such policy, the
name of the insurer, the policy number, the type of policy, the amount of
coverage and the deductible Purchaser and its subsidiaries maintain insurance
policies against all risks of a character, including without limitation,
business interruption
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insurance, and in such amounts as are usually insured against by similarly
situated companies in the same or similar businesses. Each insurance policy set
forth on Section 3.18 of the Purchaser Disclosure Letter is in full force and
effect and all premiums due thereon have been paid in full.
ARTICLE 4
ADDITIONAL COVENANTS OF THE COMPANY
The Company covenants and agrees as follows:
4.1. Conduct of Business of the Company and the Company Subsidiaries.
(a) Unless Purchaser shall otherwise agree in writing and except as
expressly contemplated by this Agreement or in the Company Disclosure Letter,
during the period from the date of this Agreement to the Effective Time, (i) the
Company shall conduct, and it shall cause its subsidiaries to conduct, its or
their businesses in the ordinary course and consistent with past practice, and
the Company shall, and it shall cause its subsidiaries to, use its or their
reasonable commercial efforts to preserve intact its business organization, to
keep available the services of its officers and employees and to maintain
satisfactory relationships with all persons with whom it does business and (ii)
without limiting the generality of the foregoing, neither the Company nor any of
its subsidiaries will:
A. amend or propose to amend its Certificate of Incorporation or
Bylaws (or comparable governing instruments) in any material respect;
B. authorize for issuance, issue, grant, sell, pledge, dispose of or
propose to issue, grant, sell, pledge or dispose of any shares of, or any
options, warrants, commitments, subscriptions or rights of any kind to
acquire or sell any shares of, the capital stock or other securities of the
Company or any of its subsidiaries including, but not limited to, any
securities convertible into or exchangeable for shares of stock of any
class of the Company or any of its subsidiaries, except for the issuance of
Company Shares pursuant to the exercise of stock options outstanding on the
date of this Agreement in accordance with their present terms;
C. split, combine or reclassify any shares of its capital stock or
declare, pay or set aside any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, other than dividends or distributions to the Company or a
subsidiary of the Company, or directly or indirectly redeem, purchase or
otherwise acquire or offer to acquire any shares of its capital stock or
other securities;
D. (a) except for the Working Capital Facility, create, incur or
assume any debt, except refinancing of existing obligations on terms that
are no less favorable to the Company or its subsidiaries than the existing
terms; (b) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, indirectly, contingently or otherwise) for
the obligations of any person; (c) other than in the ordinary course of
business consistent with past practice, make any capital expenditures or
make any loans, advances or capital contributions to, or investments in,
any other person (other than to a Company subsidiary and customary travel,
relocation or business advances to employees); (d) acquire the stock or
assets of, or merge or consolidate with, any other person; (e) voluntarily
incur any material liability or obligation (absolute, accrued, contingent
or otherwise); or (f) sell, transfer, mortgage, pledge or otherwise dispose
of, or encumber, or agree to sell, transfer, mortgage, pledge or otherwise
dispose of or encumber, any assets or properties, real, personal or mixed
material to the Company and its subsidiaries taken as a whole;
E. increase in any manner the compensation of any of its officers or
enter into, establish, amend or terminate any employment, noncompete,
consulting, retention, change in control, collective bargaining, bonus or
other incentive compensation, profit sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance,
deferred compensation or other compensation or benefit plan, policy,
agreement, trust, fund or arrangement with, for or in respect of, any
shareholder, officer, director, other employee, agent, consultant or
affiliate other than as required
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pursuant to the terms of agreements in effect on the date of this
Agreement; or, except in the ordinary course of business consistent with
past practices, increase the compensation of the Company's employees who
are not officers; or
F. take or cause to be taken any action, whether before or after the
Effective Time, which would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the
meaning of Section 368(a) of the Code.
(b) The Company shall, and the Company shall cause each of its subsidiaries
to, use its or their reasonable commercial efforts to comply in all material
respects with all Laws applicable to it or any of its properties, assets or
business and maintain in full force and effect all the Company Permits necessary
for, or otherwise material to, such business.
4.2. Notification of Certain Matters. The Company shall give prompt notice
to Purchaser if any of the following occur after the date of this Agreement: (i)
receipt of any notice or other communication in writing from any third party
alleging that the Consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement, provided that
such Consent would have been required to have been disclosed in this Agreement;
(ii) receipt of any material notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this Agreement;
(iii) the occurrence of an event which would be reasonably likely to have a
Company Material Adverse Effect or (iv) the commencement or threat of any
Litigation involving or affecting the Company or any of its subsidiaries, or any
of their respective properties or assets, or, to its knowledge, any employee,
agent, director or officer, in his or her capacity as such, of the Company or
any of its subsidiaries which, if pending on the date hereof, would have been
required to have been disclosed in this Agreement or which relates to the
consummation of the Merger.
4.3. Access and Information. Between the date of this Agreement and the
Effective Time, the Company will give, and shall direct its accountants and
legal counsel to give, Purchaser and its respective authorized representatives
(including, without limitation, its financial advisors, accountants and legal
counsel), at all reasonable times, access as reasonably requested to all offices
and other facilities and to all contracts, agreements, commitments, books and
records of or pertaining to the Company and its subsidiaries, will permit the
foregoing to make such reasonable inspections as they may require and will cause
its officers promptly to furnish Purchaser with such financial and operating
data and other information with respect to the business and properties of the
Company and its subsidiaries as Purchaser may from time to time reasonably
request.
4.4. Shareholder Approval. As soon as practicable, the Company will take
all steps necessary to duly call, give notice of, convene and hold a meeting of
its shareholders for the purpose of approving the Company Proposals and for such
other purposes as may be necessary or desirable in connection with effectuating
the transactions contemplated hereby. Except as otherwise contemplated by this
Agreement, the Board of Directors of the Company will use its best efforts to
obtain any necessary approval by the Company's shareholders of the Company
Proposals. Notwithstanding the foregoing, unless the Board of Directors of the
Company, after consultation with outside legal counsel to the Company,
determines that to do so would likely breach the fiduciary duties of the Board
of Directors under applicable law, the Company, acting through its Board of
Directors, shall include in the Prospectus/Proxy Statement the recommendation of
the Board of Directors that shareholders of the Company vote in favor of the
Company Proposals.
4.5. Reasonable Commercial Efforts. Subject to the terms and conditions
herein provided, the Company agrees to use its reasonable commercial efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the Merger and the transactions contemplated by this
Agreement, including, but not limited to obtaining all Consents from
Governmental Authorities and other third parties required for the consummation
of the Merger and the transactions contemplated thereby. Upon the terms and
subject to the conditions hereof, the Company agrees to use reasonable
commercial efforts to take, or cause to be
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taken, all actions and to do, or cause to be done, all things necessary to
satisfy the other conditions of the closing set forth herein.
4.6. Public Announcements. So long as this Agreement is in affect, the
Company shall not, and shall cause its affiliates not to issue or cause the
publication of any press release or any other announcement with respect to the
Merger or the transactions contemplated hereby without the consent of Purchaser,
except where such release or announcement is required by applicable Law, in
which case the Company, prior to making such announcement, will consult with
Purchaser regarding the same.
4.7. Professional Fees. The Company shall not incur aggregate legal,
accounting and brokerage, consulting and other fees and commissions in
connection with the transactions contemplated by this Agreement in excess of
$250,000.
4.8. No Solicitation.
(a) The Company shall, and shall direct and use reasonable efforts to cause
its officers, directors, employees, representatives and agents to, immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Company Takeover Proposal (as defined below). The Company shall
not, nor shall it permit any of its subsidiaries to, nor shall it authorize or
permit any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by it
or any of its subsidiaries, directly or indirectly, to knowingly (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed or reasonably likely to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to lead
to, any Company Takeover Proposal or (ii) participate in any discussion or
negotiations regarding any Company Takeover Proposal; "Company Takeover
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of the assets of the Company and its
subsidiaries or of any class of debt or equity securities of the Company or any
Company Subsidiary, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 5 percent or more of any class of
equity securities of the Company or any Company Subsidiary, any merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any
Company Subsidiary, other than the transactions contemplated by this Agreement.
(b) Except as set forth in this Section 4.8, neither the Board of Directors
of the Company nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to Purchaser, the
approval or recommendation by such Board of Directors or such committee of the
Company Proposals, (ii) approve or recommend, or propose publicly to approve or
recommend, any Company Takeover Proposal or (iii) cause the Company to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement (each, a "Company Acquisition Agreement") related to any
Company Takeover Proposal.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 4.8, the Company shall promptly advise Purchaser
orally and in writing of any request for information or of any Company Takeover
Proposal, the material terms and conditions of such request or the Company
Takeover Proposal and the identity of the person making such request or Company
Takeover Proposal.
ARTICLE 5
ADDITIONAL COVENANTS OF PURCHASER
Purchaser covenants and agrees as follows:
5.1. Conduct of Business of Purchaser and the Purchaser Subsidiaries.
(a) Unless the Company shall otherwise agree in writing and except as
expressly contemplated by this Agreement or in the Purchaser Disclosure Letter,
during the period from the date of this Agreement
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to the Effective Time, (i) Purchaser shall conduct, and it shall cause its
subsidiaries to conduct, its or their businesses in the ordinary course and
consistent with past practice, and Purchaser shall, and it shall cause its
subsidiaries to, use its or their reasonable commercial efforts to preserve
intact its business organization, to keep available the services of its officers
and employees and to maintain satisfactory relationships with all persons with
whom it does business and (ii) without limiting the generality of the foregoing,
neither Purchaser nor any of its subsidiaries will:
A. amend or propose to amend its Certificate of Incorporation or
Bylaws (or comparable governing instruments) in any material respect;
B. take or cause to be taken any action, whether before or after the
Effective Time, which would disqualify the Merger as a "pooling of
interests," for accounting purposes or as a "reorganization" within the
meaning of Section 368(a) of the Code; or
C. purchase, redeem or otherwise acquire or offer to purchase, redeem
or otherwise acquire or retire any shares of its capital stock or declare,
set aside, make or pay any dividend or other distribution payable in cash,
stock, property or otherwise with respect to any of its capital stock other
than dividends or distributions by any Purchaser Subsidiary.
(b) Purchaser shall, and Purchaser shall cause each of its subsidiaries to,
use its or their reasonable commercial efforts to comply in all material
respects with all Laws applicable to it or any of its properties, assets or
business and maintain in full force and effect all the Purchaser Permits
necessary for, or otherwise material to, such business.
5.2. Notification of Certain Matters. Purchaser shall give prompt notice
to the Company if any of the following occur after the date of this Agreement:
(i) receipt of any notice or other communication in writing from any third party
alleging that the Consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement, provided that
such Consent would have been required to have been disclosed in this Agreement;
(ii) receipt of any material notice or other communication from any Governmental
Authority (including, but not limited to, the NASD or any securities exchange)
in connection with the transactions contemplated by this Agreement; (iii) the
occurrence of an event which would be reasonably likely to have a Purchaser
Material Adverse Effect or (iv) the commencement or threat of any Litigation
involving or affecting Purchaser or any of its subsidiaries, or any of their
respective properties or assets, or, to its knowledge, any employee, agent,
director or officer, in his or her capacity as such, of Purchaser or any of its
subsidiaries which, if pending on the date hereof, would have been required to
have been disclosed in this Agreement or which relates to the consummation of
the Merger.
5.3. Access and Information. Between the date of this Agreement and the
Effective Time, Purchaser will give, and shall direct its accountants and legal
counsel to give, the Company and its respective authorized representatives
(including, without limitation, its financial advisors, accountants and legal
counsel), at all reasonable times, access as reasonably requested to all offices
and other facilities and to all contracts, agreements, commitments, books and
records of or pertaining to Purchaser and its subsidiaries, will permit the
foregoing to make such reasonable inspections as they may require and will cause
its officers promptly to furnish Purchaser with such financial and operating
data and other information with respect to the business and properties of
Purchaser and its subsidiaries as the Company may from time to time reasonably
request.
5.4. Reasonable Commercial Efforts. Subject to the terms and conditions
herein provided, Purchaser agrees to use its reasonable commercial efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper advisable to consummate and make effective as promptly
as practicable the Merger and the transactions contemplated by this Agreement
including, but not limited to obtaining all Consents from Governmental
Authorities and other third parties required for the consummation of the Merger
and the transactions contemplated thereby. Upon the terms and subject to the
conditions hereof, Purchaser agrees to use reasonable commercial efforts to
take, or cause to be taken,
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all actions and to do, or cause to be done, all things necessary to satisfy the
other conditions of the Closing set forth herein.
5.5. Public Announcements. So long as this Agreement is in effect,
Purchaser shall not, and shall cause its affiliates not to, issue or cause the
publication of any press release or any other announcement with respect to the
Merger or the transactions contemplated hereby without the consent of the
Company, except where such release or announcement is required by applicable Law
or pursuant to any applicable listing agreement with, or rules or regulations
of, the NASD, in which case Purchaser, prior to making such announcement, will
consult with the Company regarding the same.
5.6. Compliance. In consummating the Merger and the transactions
contemplated hereby, Purchaser shall comply in all material respects with the
provisions of the Securities Exchange Act and the Securities Act and shall
comply, and/or cause its subsidiaries to comply or to be in compliance, in all
material respects, with all other applicable Laws.
5.7. SEC and Stockholder Filings. Purchaser shall send to the Company a
copy of all material public reports and materials as and when it sends the same
to its stockholders, the SEC or any state or foreign securities commission.
5.8. Tax Opinion Certificate. Purchaser shall execute and deliver a
certificate in a form satisfactory to the counsel of Purchaser, signed by an
officer of Purchaser setting forth factual representations and covenants that
will serve as a basis for the tax opinions required pursuant to Section 6.2(e)
and Section 6.3(d) of this Agreement ("Purchaser Tax Opinion Certificate").
5.9. Letter of Accountants. Purchaser shall use its commercial reasonable
efforts to cause KPMG LLP to issue to Purchaser the letter described in Section
6.1(i) of this Agreement.
5.10. Indemnification. As of the Effective Time, the indemnification
provisions contained in the Bylaws, and the Articles of Incorporation of the
Surviving Corporation shall be at least as favorable to individuals who
immediately prior to the Closing Date were directors, officers, agents,
employers of the Company or otherwise entitled to indemnification under the
Company's Bylaws or Certificate of Incorporation (an "Indemnified Party") as
those contained in the Bylaws and the Certificate of Incorporation of the
Company, respectively, and shall not be amended, repealed or otherwise modified
for a period of six years after the Closing Date in any manner that would
adversely affect the rights thereunder of any Indemnified Party. The Company and
Purchaser shall, jointly and severally, to the fullest extent permitted under
New Jersey law and regardless of whether the Merger becomes effective, indemnify
defend and hold harmless, and after the Effective Time, Purchaser and the
Surviving Corporation shall jointly and severally, to the fullest extent
permitted under Delaware law, indemnify, defend and hold harmless, each
Indemnified Party against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, including, without limitation, liabilities arising out of this
Agreement or under the Securities Exchange Act, occurring through the Closing
Date, and in the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) the
Company or the Surviving Corporation shall pay the reasonable fees and expenses
of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to the Company or the Surviving Corporation, promptly as
statements therefor are received, and (ii) the Company and the Surviving
Corporation will cooperate in the defense of any such matter; provided, however,
that neither the Company nor the Surviving Corporation shall be liable for any
settlement affected without its written consent (which consent shall not be
unreasonably withheld); and further, provided, that neither the Company nor the
Surviving Corporation shall he obliged pursuant to this Section 5.10 to pay the
fees and disbursements of more than one counsel for all Indemnified Parties in
any single action except to the extent that, in the opinion of counsel for the
Indemnified Parties, two or more of such Indemnified Parties have conflicting
interests in the outcome of such action. Purchaser shall cause Surviving
Corporation to reimburse all expenses, including reasonable attorney's fees and
expenses, incurred by any person to enforce the obligations of Purchaser and the
Surviving Corporation under this Section 5.10.
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5.11. Stockholder Approval. As soon as practicable, Purchaser will take
all steps necessary to duly call, give notice of, convene and hold a meeting of
its stockholders for the purpose of approving the Purchaser Proposals and for
such other purposes as may be necessary or desirable in connection with
effectuating the transactions contemplated hereby. Except as otherwise
contemplated by this Agreement, the Board of Directors of Purchaser will use its
best efforts to obtain any necessary approval by Purchaser's stockholders of the
Purchaser Proposals. Notwithstanding the foregoing, unless the Board of
Directors of Purchaser, after consultation with outside legal counsel to
Purchaser, determines that to do so would likely breach the fiduciary duties of
the Board of Directors under applicable law, Purchaser, acting through its Board
of Directors, shall include in the Prospectus/Proxy Statement the recommendation
of the Board of Directors that stockholders of Purchaser vote in favor of the
Purchaser Proposals.
5.12. No Solicitation. Purchaser shall, and shall direct and use
reasonable efforts to cause its officers, directors, employees, representatives
and agents to, immediately cease any discussions or negotiations with any
parties that may be ongoing with respect to a Proposed Transaction (as defined
below). Purchaser shall not, nor shall it permit any of its subsidiaries to, nor
shall it authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries, directly or
indirectly, to knowingly (i) solicit, initiate or encourage (including by way of
furnishing information), or take any other action designed or reasonably likely
to facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Proposed Transaction or (ii)
participate in any discussion or negotiations regarding any Proposed
Transaction; provided, however, that if, at any time prior to the Effective
Time, the Board of Directors of Purchaser determines in good faith that the
failure to do so could reasonably be expected to result in a breach of its
fiduciary duties to Purchaser's stockholders under applicable law, Purchaser
may, in response to any proposal relating to a Proposed Transaction, (i) furnish
information with respect to Purchaser to any person pursuant to a customary
confidentiality agreement (as determined by Purchaser after consultation with
its outside counsel) and (ii) participate in negotiations regarding such
Proposed Transaction. "Proposed Transaction" means any inquiry, proposal or
offer from any person relating to any form of business combination involving
Purchaser, the issuance and sale of any Purchaser debt securities, or the any
direct or indirect acquisition or purchase of the assets of Purchaser and its
subsidiaries or 10 percent or more of any class of equity securities of
Purchaser or any Purchaser Subsidiary, any tender offer or exchange offer that
if consummated would result in any person beneficially owning 10 or more of any
class of equity securities of Purchaser or any Purchaser Subsidiary, any merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Purchaser or any
Purchaser Subsidiary, other than the transactions contemplated by this
Agreement; provided, however, that the foregoing restrictions shall not apply to
any proposed transaction involving the issuance and sale of debt or equity
securities of Purchaser in furtherance of the transactions contemplated by this
Agreement.
5.13. Plan of Reorganization. This Agreement is intended to constitute a
"plan of reorganization" within the meaning of Section 1.368-2(g) of the income
tax regulations promulgated under the Code. From and after the date of this
Agreement and until the Effective Time, each party to this Agreement shall use
its reasonable best efforts to cause the Merger to qualify, and will not,
without the prior written consent of the parties to this Agreement, knowingly
take any actions or cause any actions to be taken which could prevent the Merger
from qualifying, as a reorganization under the provisions of Section 368(a) of
the Code. Following the Effective Time, and consistent with any such consent,
none of the Surviving Corporation, Purchaser or any of their affiliates shall
knowingly take any action or knowingly cause any action to be taken which would
cause the Merger to fail to so qualify as a reorganization under Section 368(a)
of the Code.
5.14. Fairness Opinion. Purchaser shall solicit from Purchaser's financial
advisor, SunTrust Equitable Securities, a written opinion addressed to
Purchaser's Board of Directors to the effect that the Merger is fair to
Purchaser's stockholders from a financial point of view.
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ARTICLE 6
CONDITIONS
6.1. Conditions to Each Party's Obligations. The respective obligations of
each party to effect the Merger shall be subject to the fulfillment or waiver at
or prior to the Effective Time of the following conditions:
(a) Shareholder/Stockholder Approval. The Company Proposals shall have
been approved at or prior to the Effective Time by the requisite vote of the
shareholders of the Company. The Purchaser Proposals shall have been approved at
or prior to the Effective Time by the requisite vote of the stockholders of
Purchaser.
(b) No injunction or Action. No order, statute, rule, regulation,
executive order, stay, decree, judgment or injunction shall have been enacted,
entered, promulgated or enforced by any court or other Governmental Authority
since the date of this Agreement which prohibits or prevents the consummation of
the Merger which has not been vacated, dismissed or withdrawn prior to the
Effective Time. The Company and Purchaser shall use their reasonable best
efforts to have any of the foregoing vacated, dismissed or withdrawn by the
Effective Time.
(c) Governmental Approval. All Consents of any Governmental Authority
required for the consummation of the Merger and the transactions contemplated by
this Agreement shall have been obtained, except as may be waived by Purchaser
and the Company or those Consents the failure or which to obtain will not have a
Surviving Corporation Material Adverse Effect (as defined below).
(d) Required Consents. Any required Consents of any person to the Merger
or the transactions contemplated hereby shall have been obtained and be in full
force and effect, except for those the failure of which to obtain will not have
a material adverse effect on the business, assets, condition (financial or
otherwise), liabilities or the results of operations of the Surviving
Corporation and its subsidiaries taken as a whole ("Surviving Corporation
Material Adverse Effect").
(e) Registration Statement. The Registration Statement shall have been
declared effective and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no action, suit, proceeding or
investigation for that purpose shall have been initiated or threatened by any
Governmental Authority.
(f) Blue Sky. Purchaser shall have received all state securities law
authorizations necessary to consummate the transactions contemplated hereby.
(g) Quotation of Purchaser Stock. The shares of Purchaser Stock comprising
the Merger Consideration shall have been approved for quotation on The Nasdaq
National Market.
(h) Pooling of Interests. Purchaser shall have received a letter from KPMG
LLP to the effect that the Merger qualifies for "pooling of interests"
accounting treatment if consummated in accordance with this Agreement.
(i) Minimum Closing Share Price. The Closing Share Price shall not be less
than $4.00.
6.2. Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger shall be subject to the fulfillment at or prior to
the Effective Time of the following additional conditions, any one or more of
which may be waived by the Company:
(a) Purchaser Representations and Warranties. The representations and
warranties of Purchaser and Merger Sub set forth in this Agreement (excluding
any representation or warranty that refers specifically to "the date of this
Agreement" "the date hereof" or any other date other than the Closing Date)
shall be accurate in all material respects as of the Closing Date as if made on
and as of the Closing Date (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) any update
of or modification to the Purchaser Disclosure Letter made or purported to have
been made after the date of this Agreement shall be disregarded, (ii) any
inaccuracy that does not have a Material Adverse
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Effect on Purchaser shall be disregarded, and (iii) any inaccuracy that results
from: (x) changes in the economy generally, (y) changes in the industry in which
Purchaser operates or (z) changes resulting from the public announcement of this
Agreement and the transactions contemplated hereby shall be disregarded).
(b) Performance by Purchaser. Purchaser shall have performed and complied
with all the covenants and agreements in all material respects and satisfied in
all material respects all the conditions required by this Agreement to be
performed or complied with or satisfied by Purchaser at or prior to the
Effective Time.
(c) No Material Adverse Change. There shall have been no material adverse
change in the financial condition or results of operations of Purchaser since
the date of this Agreement; provided, however, that for purposes of determining
whether there shall have been any such material adverse change, (i) any adverse
change resulting from or relating to general business or economic conditions
shall be disregarded, (ii) any adverse change resulting from or relating to
conditions generally affecting the industry in which Purchaser competes shall be
disregarded, (iii) any adverse change resulting from or relating to the taking
of any action contemplated by this Agreement shall be disregarded, and (iv) any
change in Purchaser's results of operations reasonably consistent with
Purchaser's historical trends, including without limitation the effects of
seasonality, shall be disregarded.
(d) Certificates and Other Deliveries. Purchaser shall have delivered, or
caused to be delivered, to the Company (i) a certificate executed on its behalf
by its Chief Operating Officer or another authorized officer to the effect that
the conditions set forth in Sections 6.2(a), (b) and (c) hereof have been
satisfied; (ii) a certificate of good standing from the Secretary of State of
the State of Delaware stating that Purchaser is a validly existing corporation
in good standing (iii) a certificate of good standing from the Secretary of
State of New Jersey stating that Merger Sub is a validly existing corporation in
good standing (iv) duly adopted resolutions of the Board of Directors of
Purchaser and the Board of Directors and the stockholder of Merger Sub approving
the execution, delivery and performance of this Agreement and the instruments
contemplated hereby, and of Purchaser's stockholders approving the Purchaser
Proposal, each certified by its respective Secretary; (v) the duly executed
Purchaser Tax Opinion certificate and (vi) such other documents and instruments
as the Company reasonably may request.
(e) Tax Opinion. The Company shall have received an opinion from Paul,
Weiss, Rifkind, Wharton & Garrison based on the representation letters and
certificates substantially in the form previously agreed upon by the Purchaser
and the Company and dated the Closing Date, to the effect that the Merger will
qualify as a reorganization under the provisions of Sections 368(a) of the Code.
6.3. Conditions to Obligations of Purchaser. The obligations of Purchaser
to effect the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions, any one or more of which
may be waive by Purchaser:
(a) Company Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement (excluding any
representation or warranty that refers specifically to "the date of this
Agreement," "the date hereof" or any other date other than the Closing Date)
shall be accurate in all material respects as of the Closing Date as if made on
and as of the Closing Date (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) any update
of or modification to the Company Disclosure Letter made or purported to have
been made after the date of this Agreement shall be disregarded, (ii) any
inaccuracy that does not have a Material Adverse Effect on the Company shall be
disregarded, and (iii) any inaccuracy that results from: (x) changes in the
economy generally, (y) changes in the industry in which the Company operates or
(z) changes resulting from the public announcement of this Agreement and the
transactions contemplated hereby shall be disregarded).
(b) Performance by the Company. The Company shall have performed and
complied with all the covenants and agreements in all material respects and
satisfied in all material respects all the conditions required by this Agreement
to be performed or complied with or satisfied by the Company at or prior to the
Effective Time.
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(c) No Material Adverse Change. There shall have been no material adverse
change in the financial condition or results of operations of the Company and
its subsidiaries, taken as a whole, since the date of this Agreement; provided,
however, that for purposes of determining whether there shall have been any such
material adverse change, (i) any adverse change resulting from or relating to
general business or economic conditions shall be disregarded, (ii) any adverse
change resulting from or relating to conditions generally affecting the industry
in which the Company competes shall be disregarded, (iii) any adverse change
resulting from or relating to the taking of any action contemplated by this
Agreement shall be disregarded, and (iv) any change in the Company's results of
operations reasonably consistent with the Company's historical trends, including
without limitation the effects of seasonality, shall be disregarded.
(d) Tax Opinion. Purchaser shall have received an opinion from Maslon
Edelman Borman & Brand, LLP substantially to the effect that, if the Merger is
consummated in accordance with the provisions of this Agreement, under current
Law, for federal income tax purposes, the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code.
(e) Certificates and Other Deliveries. The Company shall have delivered,
or caused to be delivered, to Purchaser (i) a certificate executed on its behalf
by its Chief Executive Officer to the effect that the conditions set forth in
Sections 6.3(a), (b) and (c) hereof have been satisfied; (ii) a certificate of
good standing from the Secretary of State of the State of New Jersey stating
that the Company is a validly existing corporation in good standing; (iii) duly
adopted resolutions of the Board of Directors of the Company approving the
execution, delivery and performance of this Agreement and the instruments
contemplated hereby, and of the Company's Stockholders approving the Company
Proposals, each certified by the Secretary of the Company; (iv) a true and
complete copy of the Certificate of Incorporation certified by the Secretary of
State of the State of New Jersey, and a true and complete copy of the Bylaws of
the Company certified by the Secretary thereof; and (v) other documents and
instruments as Purchaser reasonably may request.
(f) Affiliate Agreement. Each person who is or may be an "affiliate" of
the Company within the meaning of Rule 145 of the rules and regulations of the
SEC promulgated under the Securities Act shall have entered into an agreement in
the form attached hereto as Exhibit C.
(g) Maximum Dissenting Shares. The holders of no more than 1 percent of
the Company Shares shall have provided the Company with notice of their intent
to dissent with respect to the Merger.
(h) Termination of Shareholder Agreements. That certain Shareholder
Agreement, dated January 30, 1998, by and among the Company, Joseph J. Atick, A.
Norman Redlich, Paul A. Griffin and Lonsdale Group Limited, together with any
and all other agreements by and among the Company's shareholders with respect to
their shares of Company Stock, shall have been terminated and will be of no
further force or effect.
6.4. Frustration of Conditions.
Neither Purchaser nor the Company may rely on the failure of any condition
set forth in this Article 6 to be satisfied if such failure was caused by such
party's failure to comply with or perform any of its covenants or obligations
set forth in this Agreement.
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ARTICLE 7
TERMINATION AND ABANDONMENT
7.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the stockholders of the
Company and the stockholders of Purchaser described herein:
(a) by mutual written consent of Purchaser and the Company;
(b) by either Purchaser or the Company if:
(i) the Merger shall not have been consummated on or prior to March
31, 2001, provided, however, that the right to terminate this Agreement
pursuant to this Section 7.1(b)(i) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure of the Merger to be consummated by such time;
(ii) the approval of the Company's shareholders required by Section
6.1(a) shall not have been obtained at a meeting duly convened therefor or
at any adjournment or postponement thereof;
(iii) the approval of Purchaser's stockholders required by Section
6.1(a) shall not have been obtained at a meeting duly convened therefor or
at any adjournment or postponement thereof; or
(iv) any Governmental Authority shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the consummation of the Merger and such order, decree
or ruling or other action shall have become final and nonappealable;
(c) by Purchaser if the Closing Share Price is less than $4.00, or if the
Company shall have breached in any material respect any of its representations
or warranties (except where such breach is solely attributable to: (i) changes
in the economy generally, (ii) changes in the industry in which the Company
operates or (iii) changes resulting from the public announcement of this
Agreement and the transactions contemplated hereby), or the Company shall have
breached any of its covenants or other agreements contained in this Agreement,
which breach or failure to perform is incapable of being cured or has not been
cured within 20 business days after the giving of written notice to the Company;
or
(d) by the Company if the Closing Share Price is less than $4.00, or if
Purchaser shall have breached in any material respect any of its representations
or warranties (except where such breach is solely attributable to: (i) changes
in the economy generally, (ii) changes in the industry in which Purchaser
operates or (iii) changes resulting from the public announcement of this
Agreement and the transactions contemplated hereby), or Purchaser shall have
breached any of its covenants or other agreements contained in this Agreement,
which breach or failure to perform is incapable of being cured or has not been
cured within 20 business days after the giving of written notice to Purchaser.
The party desiring to terminate this Agreement pursuant to the preceding
paragraphs shall give written notice of such termination to the other party in
accordance with Section 9.5 hereof.
7.2. Effect of Termination and Abandonment.
In the event of termination of this Agreement and the abandonment of the
Merger pursuant to this Article 7, this Agreement (other than Sections 7.2, 9.1,
9.3, 9.5, 9.6, 9.7, 9.8, 9.10, 9.11, 9.12, 9.13 and 9.14 hereof) shall become
void and of no effect with no liability on the part of any party hereto (or of
any of its directors, officers, employees, agents, legal or financial advisors
or other representatives); provided, however, that no such termination shall
relieve any party hereto from any liability for any breach of this Agreement
prior to termination. If this Agreement is terminated as provided herein, each
party shall use its reasonable best efforts to redeliver all documents, work
papers and other material (including any copies thereof) of any other party
relating to the transactions contemplated hereby, whether obtained before or
after the execution hereof, to the party furnishing the same.
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ARTICLE 8
SURVIVAL; INDEMNIFICATION
8.1. Survival of Representations and Warranties. Notwithstanding any
investigation made by or on behalf of Purchaser or the results of any such
investigation and notwithstanding the participation of Purchaser in the Closing,
those representations and warranties contained in Article 2 hereof which are
susceptible to confirmation and resolution through the audit process shall
survive the Closing until the filing with the SEC of Purchaser's Annual Report
on Form 10-K for the year ending September 30, 2001 (the "Audit Completion
Date") and all other representations and warranties contained in Article 2
hereof shall survive the Closing for a period of one year following the Closing
Date (the "Anniversary Date"). Notwithstanding the foregoing provision: (i)
claims specifically raised by Purchaser in one or more written notices given to
the Company Shareholders or their Attorney-in-Fact prior to the Audit Completion
Date or the Anniversary Date (as the case may be) may continue to be asserted by
Purchaser after such date, and (ii) claims based on fraud or intentional
misrepresentation (as defined below) may be brought at any time. For purposes of
this Agreement, the phrase "fraud or intentional misrepresentation" shall mean
any fraudulent or intentional misrepresentation, or reckless disregard, of a
material fact or condition existing on or prior to the Closing Date, or the
intentional or reckless omission of a material fact or condition existing on or
prior to the Closing Date.
8.2. Indemnification of Purchaser. As of the Effective Time, each Company
Shareholder, by virtue of the approval of the Merger and this Agreement by the
requisite vote of the Company Shareholders, agrees, severally and not jointly,
that the Escrow Shares to which such Company Shareholder becomes entitled upon
consummation of the Merger (disregarding for this purpose any fractional shares)
shall be placed in escrow, as partial security for the performance of the
Company Shareholder's indemnification obligations hereunder, as provided for in
the Escrow Agreement. The form of letter of transmittal to be signed by each
Company Shareholder contemplated by Section 1.6 shall specifically authorize the
Escrow Agent from time to time to transfer all or any portion of the
certificates so deposited, together with the proceeds from any sale of Escrow
Shares, in satisfaction of such Company Shareholder's indemnification obligation
hereunder. In connection therewith, Purchaser, and each of Purchaser's
subsidiaries, and their respective officers, directors, employees, agents,
affiliates and shareholders (referred to collectively herein as the "Purchaser")
will be entitled to be indemnified and held harmless against and in respect of:
(i) any and all losses, damages or deficiencies (whether as a result of a direct
claim by Purchaser against the Company Shareholders, a third party claim against
Purchaser or otherwise) resulting to Purchaser from any and all breaches of
representations, warranties, covenants or other terms of this Agreement by the
Company made or contained in this Agreement, the Company Disclosure Letter or in
any exhibit to this Agreement; and (ii) all costs and expenses incident to any
and all actions, suits, proceedings, claims, demands, assessments, settlements
or judgments in respect of the foregoing, regardless of the merit thereof,
including Purchaser's reasonable legal and accounting fees and expenses (whether
incident to the foregoing or to Purchaser's enforcement of said rights of
defense and indemnity) (items (i) and (ii) above shall be referred to herein
collectively as "Purchaser's Damages"). Except for claims of fraud or
intentional misrepresentation, the indemnification provided pursuant to this
Section 8.2 shall be Purchaser's sole remedy for the breach of any
representation or warranty set forth in this Agreement.
8.3. Procedure for Indemnification of Purchaser. If any action, suit or
proceeding shall be commenced against Purchaser or any claim, demand or
assessment be asserted against Purchaser in respect of which Purchaser proposes
to demand indemnification, Purchaser shall notify the Attorney-in-Fact to that
effect with reasonable promptness. The Attorney-in-fact may assume the defense
of any such claim, demand or assessment and Purchaser will have the right to
cause the Attorney-in-Fact, on behalf of the Company Shareholders, to assume the
entire control of the defense, compromise or settlement thereof, including, at
the expense of the Company Shareholders, employment of counsel satisfactory to
Purchaser and, in connection therewith, Purchaser shall cooperate fully to make
available to the Attorney-in-Fact all pertinent information under its control.
In the event that the Attorney-in-Fact assumes or Purchaser causes the
Attorney-in-Fact to assume control of the defense of any action, suit,
proceeding claim, demand or assessment (each a "Third-Party Claim") made against
Purchaser, all amounts incurred by the
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Attorney-in-Fact on behalf of the Company Shareholders in connection with the
defense, compromise or settlement thereof shall be credited against the Escrow
Account described in Section 1.7 hereof pursuant to the provisions of the Escrow
Agreement attached hereto as Exhibit A. With respect to any Third-Party Claim as
to which Purchaser does not cause the Attorney-in-Fact to assume control of the
defense thereof, the Company Shareholders shall thereafter, severally, but not
jointly, reimburse Purchaser for all of Purchaser's Damages, as and when they
are incurred, and Purchaser shall have recourse to the Escrow Shares and the
proceeds from any sale of Escrow Shares pursuant to the terms of the Escrow
Agreement for reimbursement of all such amounts or, in the event the total value
of Escrow Shares and proceeds from sales thereof then remaining in the Escrow
Account is less than the amount of Purchaser's Damages, by direct claim against
the Major Shareholders on a joint, but not several, basis.
In the event of any claim by Purchaser under the foregoing indemnification
provisions (or any others provided herein), Purchaser shall notify the
Attorney-in-Fact as provided above and in the event Purchaser does not cause the
Attorney-in-Fact to assume control of any related Third-Party Claim, Purchaser
shall assert its right to reimbursement of such amount by release of Escrow
Shares and proceeds from any sale of Escrow Shares pursuant to the Escrow
Agreement having an aggregate value, calculated on the basis of the Closing
Share Price, equal to the amount of Purchaser's Damages. In the event that the
amount of Purchaser's right of reimbursement exceeds the total value of Escrow
Shares and proceeds from any sale of Escrow Shares then remaining in the Escrow
Account, Purchaser may recover the amount of such excess by direct claim against
the Major Shareholders on a joint, but not several, basis.
8.4. Indemnification Threshold; Maximum Indemnification Liability. The
Company Shareholders shall not incur indemnification obligations under this
Article 8 unless and until the aggregate amount of Purchaser's Damages reaches
$50,000 (the "Indemnification Threshold"), at which time the Company
Shareholders shall be liable in full for all such Purchaser's Damages. The Major
Shareholders shall not be obligated under this Article 8 to pay an amount in
excess of 20 percent of the Aggregate Merger Consideration, less the amounts
paid to Purchaser from the Major Shareholders' pro rata portion of the Escrow
Account.
ARTICLE 9
MISCELLANEOUS
9.1. Confidentiality. Unless (i) otherwise expressly provided in this
Agreement, (ii) required by applicable Law or any listing agreement with, or the
rules and regulations of, any applicable securities exchange or the NASD, (iii)
necessary to secure any required Consents as to which the other party has been
advised or (iv) consented to in writing by Purchaser and the Company, any
information or documents furnished in connection herewith shall be kept strictly
confidential by the Company, Purchaser and their respective officers, directors,
employees and agents. Prior to any disclosure pursuant to the preceding
sentence, the party intending to make such disclosure shall consult with the
other party regarding the nature and extent of the disclosure. Nothing contained
herein shall preclude disclosures to the extent necessary to comply with
accounting, SEC and other disclosure obligations imposed by applicable Law. To
the extent required by such disclosure obligations, Purchaser after consultation
with the Company, may file with the SEC a Report on Form 8-K pursuant to the
Securities Exchange Act with respect to the Merger, which report may include,
among other things, financial statements and pro forma financial information
with respect to the other party. In connection with any filing with the SEC of a
registration statement or amendment thereto under the Securities Act, the
Company or Purchaser, after consultation with the other party, may include a
prospectus containing any information required to be included therein with
respect to the Merger, including, but not limited to, financial statements and
pro forma financial information with respect to the other party, and thereafter
distribute said prospectus. Purchaser and the Company shall cooperate with the
other and provide such information and documents as may be required in
connection with any such filings. In the event the Merger is not consummated,
each party shall return to the other any documents furnished by the other and
all copies thereof any of them may have made and will hold in absolute
confidence any information obtained from the other party except
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to the extent (i) such party is required to disclose such information by Law or
such disclosure is necessary or desirable in connection with the pursuit or
defense of a claim, (ii) such information was known by such party prior to such
disclosure or was thereafter developed or obtained by such party independent of
such disclosure as evidenced by such party's business records maintained in the
ordinary course of its business, or (iii) such information becomes generally
available to the public other than by breach of this Section 9.1. Prior to any
disclosure of information pursuant to the exception in clause (i) of the
preceding sentence, the party intending to disclose the same shall so notify the
party which provided the same in order that such party may seek a protective
order or other appropriate remedy should it choose to do so. Upon the execution
and delivery of this Agreement by the parties hereto, that certain Reciprocal
Non-Disclosure Agreement, dated July 12, 2000, by and between the Company and
Purchaser shall be terminated and of no further force or effect; provided,
however, that all confidential information disclosed thereunder shall continue
to be deemed confidential information for purposes hereof.
9.2. Amendment and Modification. This Agreement may be amended, modified
or supplemented only by a written agreement among the Company, Purchaser and
Merger Sub.
9.3. Waiver of Compliance; Consents. Any failure of the Company on the one
hand, or Purchaser on the other hand, to comply with any obligation, covenant,
agreement or condition herein may be waived by Purchaser on the one hand, or the
Company on the other hand, only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
9.3.
9.4. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person, by
facsimile, receipt confirmed, or on the next business day when sent by overnight
courier or on the second succeeding business day when sent by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(i) if to the Company, to:
Visionics Corporation
One Exchange Place, Suite 800
Jersey City, NJ 07302
Attention: Mr. Joseph Atick
Telecopy:
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: Douglas Cifu, Esq.
Telecopy: 212.757.3990
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(ii) if to Purchaser or Merger Sub, to:
Digital Biometrics, Inc.
5600 Rowland Road
Minnetonka, MN 55343
Attention: Mr. John Metil
Telecopy: 952.932.7181
with copies to:
Maslon Edelman Borman & Brand, LLP
90 South Seventh Street
Minneapolis, MN 55402
Attention: Joseph Alexander, Esq.
Telecopy: 612.672.8397
9.5. Binding Effect; Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto prior to the Effective Time without the prior written
consent of the other party hereto.
9.6. Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs or expenses.
9.7. Governing Law. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with the internal laws of, the State of Delaware.
9.8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which together be deemed an original, but all of which
together shall constitute one and the same instrument.
9.9. Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. As used in this Agreement, (i) the term "Person" shall mean and
include an individual, a partnership, a joint venture, a corporation, a limited
liability company, a trust, an association, an unincorporated organization, a
Governmental Authority and any other entity, (ii) unless otherwise specified
herein, the term "affiliate," with respect to any person, shall mean and include
any person controlling, controlled by or under common control with such person
and (iii) the term "subsidiary" of any specified person shall mean any
corporation 50 percent or more of the outstanding voting power of which, or any
partnership, joint venture, limited liability company or other entity 50 percent
or more of the total equity interest of which, is directly or indirectly owned
by such specified person.
9.10. Entire Agreement. This Agreement and the documents or instruments
referred to herein including, but not limited to, the Exhibit(s) attached hereto
and the Disclosure Letters referred to herein, which Exhibit(s) and Disclosure
Letters are incorporated herein by reference, embody the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants, or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and the understandings
between the parties with respect to such subject matter.
9.11. Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable in a jurisdiction, such provision shall be
modified or deleted, as to the jurisdiction involved, only to the extent
necessary to render the same valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby nor shall the validity, legality or
enforceability of such provision be affected thereby in any other jurisdiction.
9.12. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific
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terms or were otherwise breached. Accordingly, the parties further agree that
each party shall be entitled to an injunction or restraining order to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United states or any state having jurisdiction., this
being in addition to any other right or remedy to which such party may be
entitled under this Agreement, at law or in equity.
9.13. Third Parties. Except for the provisions contained in Sections 1.8,
1.11 and 5.10, nothing contained in this Agreement or in any instrument or
document executed by any party in connection with the transactions contemplated
hereby shall create any rights in, or be deemed to have been executed for the
benefit of, any that is not a party hereto or thereto or a successor or
permitted assign of such a party.
9.14. Disclosure Letters. The Company and Purchaser acknowledge that the
Company Disclosure Letter and the Purchaser Disclosure Letter (i) relate to
certain matters concerning the disclosures required and transactions
contemplated by this Agreement, (ii) are qualified in their entirety by
reference to specific provisions of this Agreement, (iii) are not intended to
constitute and shall not be construed as indicating that such matter is required
to be disclosed, nor shall such disclosure be construed as an admission that
such information is material with respect to the Company or Purchaser, as the
case may be, except to the extent required by this Agreement, and (iv)
disclosure of the information contained in one section of the Company Disclosure
Letter, or Purchaser Disclosure Letter shall be deemed proper disclosure for all
the sections thereof, as the case may be.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, Purchaser, Merger Sub, the Company and each of the
Major Shareholders have caused this Agreement to be signed and delivered by
their respective duly authorized officers as of the date first above written.
DIGITAL BIOMETRICS, INC.
By: /s/ JOHN J. METIL
----------------------------------
Name: John J. Metil
Title: President
VC ACQUISITION CORP.
By: /s/ JOHN J. METIL
----------------------------------
Name: John J. Metil
Title: Chief Executive Officer
VISIONICS CORPORATION
By: /s/ JOSEPH J. ATICK
----------------------------------
Name: Joseph J. Atick
Title: Chief Executive Officer
For the purpose of Sections 1.7(a), 8.2, 8.3 and 8.4 only.
MAJOR SHAREHOLDERS:
/s/ JOSEPH J. ATICK
------------------------------------
Joseph J. Atick
/s/ A. NORMAN REDLICH
------------------------------------
A. Norman Redlich
/s/ PAUL A. GRIFFIN
------------------------------------
Paul A. Griffin
LONSDALE GROUP LIMITED
By: /s/ JASON CHOO
----------------------------------
Its: Managing Director
----------------------------------
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<PAGE> 143
APPENDIX B
October 18, 2000
Board of Directors
Digital Biometrics, Inc.
5600 Rowland Road
Minnetonka, MN 55343
Members of the Board:
We understand that Digital Biometrics, Inc. (the "Company") has entered
into an Agreement and Plan of Merger (the "Agreement") dated October 18, 2000,
with Visionics Corporation ("Visionics") and VC Acquisition Corp. ("Merger
Sub"). The Agreement provides that, at the effective time of the merger (the
"Merger") of Merger Sub into Visionics (the "Effective Time"), Visionics will
become a wholly-owned subsidiary of the Company. Assuming today's date is the
closing date and the Effective Time of the Merger, each share of Visionics
common stock will be converted into the right to receive 0.5200 shares of the
Company's common stock (the "Exchange Ratio"). The terms and conditions of the
Merger are more fully set forth in the Agreement and related documents.
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, of the Exchange Ratio to the common stock
shareholders of the Company.
SunTrust Equitable Securities Corporation ("SunTrust Equitable"), as part
of its investment banking business, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. In consideration for rendering the opinion set forth in this letter,
SunTrust Equitable will receive a fee and reimbursement of its expenses. In
addition, the Company has agreed to indemnify SunTrust Equitable for certain
liabilities arising out of its engagement, including the rendering of this
opinion. In the ordinary course of business, we trade the equity securities of
the Company for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in these securities.
In connection with our opinion, we have reviewed, among other things, the
Agreement and terms of related documents, certain publicly available information
and certain other financial information, reports, forecasts and other internal
information that was provided to us by or on behalf of the Company and
Visionics. We held discussions with the management and representatives of the
Company and Visionics concerning the historical and current operations of the
Company and Visionics, their respective financial condition and prospects, as
well as the strategic and operating benefits anticipated from the Merger. In
addition, we conducted such other financial studies, analyses and investigations
and reviewed such other information and factors as we deemed appropriate for
purposes of this opinion.
In rendering this opinion, we have relied, without assuming any
responsibility for independent verification, on the accuracy and completeness of
all financial and other information reviewed by us that was publicly available
or furnished to us by or on behalf of the Company and Visionics. We have assumed
with your consent that the financial forecasts that we examined were reasonably
prepared on a basis reflecting the best currently available estimates and good
faith judgments of the management of the Company and Visionics. We express no
opinion with respect to such forecasts or the assumptions on which they were
based. We have been advised that prior to mailing of the Proxy Statement to the
Company's common stock shareholders in connection with the Merger, projections
that have been presented to SunTrust Equitable by Visionics may be modified to
reflect Generally Accepted Accounting Principles. Any material changes to the
projections could result in a modification to our analyses and the corresponding
opinion. We have not made an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of the Company or Visionics, nor were
we furnished with any such evaluations or appraisals. Our opinion is based upon
economic, market and other conditions as they exist and can be evaluated on the
date hereof and does not address the fairness of the Exchange Ratio to the
Company's common stock shareholders as of any other date. Our opinion does not
address the merits of the
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underlying decision by the Company to engage in the Merger and does not
constitute a recommendation to any shareholder of the Company as to whether or
not that shareholder should vote to approve the Merger. The financial markets in
general, and the markets for the securities of the Company in particular, are
subject to volatility, and this opinion does not purport to address potential
developments in the financial markets or the markets for the securities of the
Company after the date hereof.
It is understood that this letter is for the benefit and use of the Board
of Directors of the Company in its consideration of the Merger. This letter may
not be reproduced, disseminated, quoted or referred to at any time without our
prior written consent; however, the opinion rendered hereby may be included in
its entirety in the Proxy Statement relating to the Merger to be distributed by
the Company to its shareholders and filed with the Securities and Exchange
Commission.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to such
holders of the Company's common stock.
Very truly yours,
SUNTRUST EQUITABLE SECURITIES
CORPORATION
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<PAGE> 145
APPENDIX C
VOTING AGREEMENT
This Voting Agreement (the "Agreement") is made and entered into as of
October , 2000, by and between Digital Biometrics, Inc., a Delaware
corporation (the "Company"), and the undersigned shareholder (the "Shareholder")
of Visionics Corporation, a corporation organized under the laws of the State of
New Jersey (hereinafter "Visionics").
WITNESSETH:
WHEREAS, the Company, Merger Sub (as defined below) and Visionics have
entered into an Agreement and Plan of Merger (the "Merger Agreement"), which
contemplates that the Company will execute and file a Certificate of Merger,
which in turn will provide for the merger (the "Merger") of a wholly-owned
subsidiary of the Company ("Merger Sub") with and into Visionics. Pursuant to
the Merger, all of the issued and outstanding shares of capital stock of
Visionics will be converted into shares the Company's common stock, as set forth
in the Merger Agreement;
WHEREAS, Shareholder is the beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
such number of shares of the outstanding capital stock of Visionics and shares
subject to outstanding options and warrants as is indicated on the signature
page of this Agreement;
WHEREAS, in order to induce the Company to execute the Merger Agreement,
Shareholder agrees to vote the Shares (as defined below) and other such shares
of capital stock of Visionics over which Shareholder has voting power so as to
facilitate the transactions contemplated by the Merger Agreement; and
WHEREAS, the execution and delivery of this Agreement and of the attached
form of proxy is a material condition to the Company's willingness to enter into
the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
AGREEMENT:
1. Certain Definitions. Capitalized terms not defined herein shall have
the meanings ascribed to them in the Merger Agreement. For purposes of this
Agreement:
(a) "Expiration Date" shall mean the earlier to occur of (i) such date and
time as the Merger Agreement shall have been validly terminated pursuant to
Article 7 thereof, or (ii) such date and time as the matters set forth in
Section 4 hereof shall been duly approved by the shareholders of Visionics in
accordance with the terms and conditions of the Merger Agreement.
(b) "Person" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental authority.
(c) "Shares" shall mean: (i) all equity securities of Visionics (including
all shares of Visionics common stock and all options, warrants and other rights
to acquire shares of Company common stock or any other class or series of
Visionics capital stock) beneficially owned by Shareholder as of the date of
this Agreement; and (ii) all additional equity securities of Visionics
(including all shares of Visionics common stock and all options, warrants and
other rights to acquire shares of Company common stock or any other class or
series of Visionics capital stock) of which Shareholder acquires beneficial
ownership during the period from the date of this Agreement through the
Expiration Date.
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2. Transfer of Shares.
(a) Transferee of Shares to be Bound by this Agreement. Shareholder agrees
that, during the period from the date of this Agreement through the Expiration
Date, Shareholder shall not cause or permit any Transfer of any of the Shares to
be effected unless each Person to which any of such Shares, or any interest in
any of such Shares, is or may be transferred shall have: (a) executed a
counterpart of this Agreement and a proxy in the form attached hereto as Exhibit
A (with such modifications not involving additional representations, warranties
or covenants as the Company may reasonably request); and (b) agreed in writing
to hold such Shares (or interest in such Shares) subject to all of the terms and
provisions of this Agreement.
2. Transfer of Voting Rights. Shareholder agrees that, during the period
from the date of this Agreement through the Expiration Date, Shareholder shall
not deposit (or permit the deposit of) any Shares in a voting trust or grant any
proxy or enter into any voting agreement or similar agreement in contravention
of the obligations of Shareholder under this Agreement with respect to any of
the Shares.
3. Agreement to Vote Shares. At every meeting of the shareholders of
Visionics called, and at every adjournment thereof, and on every action or
approval by written consent of the shareholders of the Company, Visionics shall
cause the Shares to be voted (i) in favor of approval of the Merger Agreement
and the Merger and (ii) in favor of any matter that could reasonably be expected
to facilitate the Merger.
4. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Shareholder agrees to deliver to the Company a proxy in the form attached hereto
as Exhibit A (the "Proxy"), which shall be irrevocable to the fullest extent
permissible by law, with respect to the Shares.
5. Representations and Warranties of the Shareholder. Shareholder (i) is
the beneficial owner of the shares of Common Stock of Visionics, Preferred Stock
of Visionics and the options and warrants to purchase shares of Common Stock of
Visionics indicated on the final page of this Agreement, free and clear of any
liens, claims, options, rights of first refusal, co-sale rights, charges or
other encumbrances other than that certain Shareholder Agreement, dated January
30, 1998, by and among Visionics, Joseph J. Atick, A. Norman Redlich, Paul A.
Griffin and Lonsdale Group Limited (the termination of which is a condition to
the Company's obligation to effect the Merger); (ii) does not beneficially own
any securities of Visionics other than the shares of Common Stock of Visionics,
Preferred Stock of Visionics and options and warrants to purchase shares of
Common Stock or Preferred Stock of Visionics indicated on the signature page of
this Agreement; and (iii) has full power and authority to make, enter into and,
assuming due execution and delivery thereof by each other party thereto, carry
out the terms of this Agreement and the Proxy.
6. Additional Documents. Shareholder hereby covenants and agrees to
execute and deliver any additional documents not involving additional
representations, warranties or covenants necessary or desirable, in the
reasonable opinion of the Company, to carry out the intent of this Agreement.
7. Consent and Waiver. Shareholder (not in his capacity as a director or
officer of the Company) hereby gives any consents or waivers that are reasonably
required for the consummation of the Merger under the terms of any agreements to
which Shareholder is a party or pursuant to any rights Shareholder may have.
8. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
9. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
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(b) Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Visionics will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to the Company upon any such violation, the
Company shall have the right to enforce such covenants and agreements by
specific performance, injunctive relief or by any other means available to the
Company at law or in equity.
(e) Notices. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given upon receipt or, if earlier, (a) five (5) days after
deposit with the U.S. Postal Service or other applicable postal service, if
delivered by first class mail, postage prepaid, (b) upon delivery, if delivered
by hand, (c) one business day after the business day of deposit with Federal
Express or similar overnight courier, freight prepaid or (d) one business day
after the business day of facsimile transmission, if delivered by facsimile
transmission with copy by first class mail, postage prepaid, and shall be
addressed to the intended recipient as set forth below:
If to the Company:
Digital Biometrics, Inc.
5600 Rowland Road
Minnetonka, Minnesota 55343-4315
Attention: Mr. John Metil
telephone: 952.945.3335
telecopy: 952.932.7181
With a copy to:
Maslon Edelman Borman & Brand, LLP
3300 Wells Fargo Center
Minneapolis, Minnesota 55402
Attention: Joseph Alexander
telephone: 612.672.8200
telecopy: 612.672.8397
If to Shareholder: To the address for notice set forth
on the signature page hereof.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware. Shareholder hereby
consents to the personal jurisdiction of the state and federal courts located in
Delaware for any action or proceeding arising from or relating to this Agreement
or relating to any arbitration in which the parties are participants.
(g) Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
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(h) Effect of Headings. The section headings are for convenience only and
shall not affect the construction or interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
(j) Officers and Directors. No person who is or becomes (during the term
of this Agreement) a director or officer of the Company or Visionics makes any
agreement or understanding herein in his or her capacity as such director or
officer, and nothing herein will limit or affect, or give rise to any liability
to any Shareholder or any affiliate of that Shareholder by virtue of, any
actions taken by any Shareholder in his or her capacity as an officer or
director of the Company or Visionics, and no such actions shall be deemed a
breach or default under this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
SHAREHOLDER
DIGITAL BIOMETRICS, INC.
------------------------------------
Signature
By:
------------------------------------
Its:
------------------------------------
------------------------------------
Print Name
------------------------------------
------------------------------------
Print Address
------------------------------------
Telephone
------------------------------------
Telecopy No.
Shares Beneficially Owned:
shares of common stock
shares of common stock issuable
upon exercise of outstanding options
shares of common stock issuable
upon exercise of outstanding
warrants
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EXHIBIT A
IRREVOCABLE PROXY
The undersigned shareholder of Visionics Corporation, a corporation
organized under the laws of the State of New Jersey ("Visionics"), hereby
irrevocably (to the fullest extent permitted by law) appoints James Granger and
John Metil of Digital Biometrics, Inc., a Delaware corporation (the "Company"),
and each of them, as the sole and exclusive attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to vote and
exercise all voting and related rights (to the full extent that the undersigned
is entitled to do so) with respect to all of the shares of capital stock of
Visionics that now are or hereafter may be beneficially owned by the
undersigned, and any and all other shares or equity securities of Visionics
issued or issuable in respect thereof on or after the date hereof (collectively,
the "Shares") in accordance with the terms of this Proxy. The Shares
beneficially owned by the undersigned shareholder of Visionics as of the date of
this Proxy are listed on the final page of this Proxy. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to grant
any subsequent proxies with respect to the Shares until after the Expiration
Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Visionics and the undersigned
shareholder (the "Voting Agreement"), and is granted in consideration of the
Company entering into that certain Agreement and Plan of Merger (the "Merger
Agreement"), among Visionics, VC Acquisition Corporation, a New Jersey
corporation and a wholly owned subsidiary of the Company ("Merger Sub"), and the
Company. The Merger Agreement provides for the merger of Merger Sub into
Visionics in accordance with its terms and subject to its conditions (the
"Merger"). As used herein, the term "Expiration Date" shall mean the earlier to
occur of (i) such date and time as the Merger Agreement shall have been validly
terminated pursuant to Article 7 thereof or (ii) such date and time as the
Merger shall become effective in accordance with the terms and provisions of the
Merger Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of shareholders
of Visionics and in every written consent in lieu of such meeting in favor of
(i) approval of the Merger Agreement and the Merger, and (ii) in favor of each
of the other actions contemplated by the Merger Agreement and any action
required in furtherance hereof and thereof.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned shareholder may vote the
Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
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<PAGE> 150
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated: October , 2000
Signature of Shareholder:
------------------------------------------------------
Print Name of Shareholder:
------------------------------------------------------
Shares Beneficially Owned:
shares of common stock
shares of common stock issuable upon exercise of outstanding options
shares of common stock issuable upon exercise of outstanding warrants
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<PAGE> 151
APPENDIX D
CHAPTER 11. RIGHTS OF DISSENTING SHAREHOLDERS
14A:11-1 Right of Shareholders to Dissent -- (1) Any shareholder of a
domestic corporation shall have the right to dissent from any of the following
corporate actions
(a) Any plan of merger or consolidation to which the corporation is a
party, provided that, unless the certificate of incorporation otherwise provides
(i) a shareholder shall not have the right to dissent from any plan of
merger or consolidation with respect to shares
(A) of a class or series which is listed on a national securities
exchange or is held of record by not less than 1,000 holders on the
record date fixed to determine the shareholders entitled to vote upon
the plan of merger or consolidation; or
(B) for which, pursuant to the plan of merger or consolidation, he
will receive (x) cash, (y) shares, obligations or other securities
which, upon consummation of the merger or consolidation, will either be
listed on a national securities exchange or held of record by not less
than 1,000 holders, or (z) cash and such securities;
(ii) a shareholder of a surviving corporation shall not have the right
to dissent from a plan of merger, if the merger did not require for its
approval the vote of such shareholders as provided in section 14A:10-5.1 or
in subsections 14A:10-3(4), 14A:10-7(2) or 14A:10-7(4); or
(b) Any sale, lease, exchange or other disposition of all or substantially
all of the assets of a corporation not in the usual or regular course of
business as conducted by such corporation, other than a transfer pursuant to
subsection (4) of N.J.S. 14A:10-11, provided that, unless the certificate of
incorporation otherwise provides, the shareholder shall not have the right to
dissent
(i) with respect to shares of a class or series which, at the record
date fixed to determine the shareholders entitled to vote upon such
transaction, is listed on a national securities exchange or is held of
record by not less than 1,000 holders; or
(ii) from a transaction pursuant to a plan of dissolution of the
corporation which provides for distribution of substantially all of its net
assets to shareholders in accordance with their respective interests within
one year after the date of such transaction, where such transaction is
wholly for
(A) cash; or
(B) shares, obligations or other securities which, upon
consummation or the plan of dissolution will either be listed on a
national securities exchange or held of record by not less than 1,000
holders; or,
(C) cash and such securities; or
(iii) from a sale pursuant to an order of a court having jurisdiction.
(2) Any shareholder of a domestic corporation shall have the right to
dissent with respect to any shares owned by him which are to be acquired
pursuant to section 14A:10-9.
(3) A shareholder may not dissent as to less than all of the shares owned
beneficially by him and with respect to which a right of dissent exists. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all of the shares of such owner with respect to which the right of
dissent exists.
(4) A corporation may provide in its certificate of incorporation that
holders of all its shares, or of a particular class or series thereof, shall
have the right to dissent from specified corporate actions in addition to those
enumerated in subsection 14A:11-1 (1), in which case the exercise of such right
of dissent shall be governed by the provisions of this Chapter. (Last amended by
Ch. 279, L. '95, eff. 12-15-95.)
---------------
Ch. 279, L. '95, eff. 12-15-95, added matter in italic.
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<PAGE> 152
14A:11-2 Notice of Dissent; Demand for Payment; Endorsement of
Certificates -- (1) Whenever a vote is to be taken, either at a meeting of
shareholders or upon written consents in lieu of a meeting pursuant to section
14A:56, upon a proposed corporate action from which a shareholder may dissent
under section 14A:11-1, any shareholder electing to dissent from such action
shall file with the corporation before the taking of the vote of the
shareholders on such corporate action, or within the time specified in
paragraphs 14A:5-6(2)(b) or 14A:5-6(2)(c), as the case may be, if no meeting of
shareholders is to be held, a written notice of such dissent stating that he
intends to demand payment for his shares if the action is taken.
(2) Within 10 days after the date on which such corporate action takes
effect, the corporation, or, in the case of a merger or consolidation, the
surviving or new corporation, shall give written notice of the effective date of
such corporate action, by certified mail to each shareholder who filed written
notice of dissent pursuant to subsection 14A:11-2(l), except any who voted for
or consented in writing to the proposed action.
(3) Within 20 days after the mailing of such notice, any shareholder to
whom the corporation was required to give such notice and who has filed a
written notice of dissent pursuant to this section may make written demand on
the corporation, or, in the case of a merger or consolidation, on the surviving
or new corporation, for the payment of the fair value of his shares.
(4) Whenever a corporation is to be merged pursuant to (1) section
14A:10-5.l or subsection 14A:10-7(4) and shareholder approval is not required
under (2) subsections 14A:10-5.1(5) and 14A:10-5.1(6), a shareholder who has the
right to dissent pursuant to section 14A:11-l may, not later than 20 days after
a copy or summary of the plan of such merger and the statement required by (3)
subsection 14A: 10-5.1(2) is mailed to such shareholder, make written demand on
the corporation or on the surviving corporation, for the payment of the fair
value of his shares.
(5) Whenever all the shares, or all the shares of a class or series, are to
be acquired by another corporation pursuant to section 14A:10-9, a shareholder
of the corporation whose shares are to be acquired may, not later than 20 days
after the mailing of notice by the acquiring corporation pursuant to paragraph
14A:10-9(3)(b), make written demand on the acquiring corporation for the payment
of the fair value of his shares.
(6) Not later than 20 days after demanding payment for his shares pursuant
to this section, the shareholder shall submit the certificate or certificates
representing his shares to the corporation upon which such demand has been made
for notation thereon that such demand has been made, whereupon such certificate
or certificates shall be returned to him. If shares represented by a certificate
on which notation has been made shall be transferred, each new certificate
issued therefor shall bear similar notation, together with the name of the
original dissenting holder of such shares, and a transferee of such shares shall
acquire by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making a demand for payment of the
fair value thereof.
(7) Every notice or other communication required to be given or made by a
corporation to any shareholder pursuant to this Chapter shall inform such
shareholder of all dates prior to which action must be taken by such shareholder
in order to perfect his rights as a dissenting shareholder under this Chapter.
(Last amended by Ch. 94, L. '88, eff. 12-1-88.)
---------------
Ch. 94, [,. '88, eff. 12-1-88, added matter in italic and deleted
(1)"section 14A: 10-5";
(2) "subsections 14A:105(5) and 14A:10-5(6)";
(3) and "subsection 14A:10-5(2)".
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<PAGE> 153
14A:11-3 "Dissenting Shareholder" Defined; Date for Determination of Fair
Value -- (1) A shareholder who has made demand for the payment of his shares in
the manner prescribed by subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) is
hereafter in this Chapter referred to as a "dissenting shareholder".
(2) Upon making such demand, the dissenting shareholder shall cease to have
any of the rights of a shareholder except the right to be paid the fair value of
his shares and any other rights of a dissenting shareholder under this Chapter.
(3) "Fair value" as used in this Chapter shall be determined
(a) As of the day prior to the day of the meeting of shareholders at which
the proposed action was approved or as of the day prior to the day specified by
the corporation for the tabulation of consents to such action if no meeting of
shareholders was held; or
(b) In the case of a merger pursuant to (1) section 14A:10-5.1 or
subsection 14A:10-7(4) in which shareholder approval is not required, as of the
day prior to the day on which the board of directors approved the plan of
merger; or
(c) In the case of an acquisition of all the shares or all the shares of a
class or series by another corporation pursuant to section 14A:10-9, as of the
day prior to the day on which the board of directors of the acquiring
corporation authorized the acquisition, or, if a shareholder vote was taken
pursuant to section 14A:10-12, as of the day provided in paragraph
14A:11-3(3)(a). In all cases, "fair value" shall exclude any appreciation or
depreciation resulting from the proposed action. (Last amended by Ch. 94, L.
'88, eff. 12-1-88.)
14A:11-4 Termination of Right of Shareholder to be Paid the Fair Value of
His Shares -- (1) The right of a dissenting shareholder to be paid the fair
value of his shares under this Chapter shall cease if
(a) he has failed to present his certificates for notation as provided by
subsection 14A:11-2(6), unless a court having jurisdiction, for good and
sufficient cause shown, shall otherwise direct;
(b) his demand for payment is withdrawn with the written consent of the
corporation;
(c) the fair value of the shares is not agreed upon as provided in this
Chapter and no action for the determination of fair value by the Superior Court
is commenced within the time provided in this Chapter;
(d) the Superior Court determines that the shareholder is not entitled to
payment for his shares;
(e) the proposed corporate action is abandoned or rescinded; or
(f) a court having jurisdiction permanently enjoins or sets aside the
corporate action.
(2) In any case provided for in subsection 14A:11-4(1), the rights of the
dissenting shareholder as a shareholder shall be reinstated as of the date of
the making of a demand for payment pursuant to subsections 14A:11-2(3),
14A:11-2(4) or 14A:11-2(5) without prejudice to any corporate action which has
taken place during the interim period. In such event, he shall be entitled to
any intervening preemptive rights and the right to payment of any intervening
dividend or other distribution, or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu thereof,
at the election of the board, the fair value thereof in cash as of the time of
such expiration or completion.
---------------
(1) Ch. 94, L. '88, eff. 12-1-88, added matter in italic and deleted "section
14A:10-5".
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<PAGE> 154
14A:11-5 Rights of Dissenting Shareholder -- (1) A dissenting shareholder
may not withdraw his demand for payment of the fair value of his shares without
the written consent of the corporation.
(2) The enforcement by a dissenting shareholder of his right to receive
payment for his shares shall exclude the enforcement by such dissenting
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in subsection 14A:11-4(2) and except that
this subsection shall not exclude the right of such dissenting shareholder to
bring or maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is ultra vires, unlawful or fraudulent as to such
dissenting shareholder.
14A:11-6 Determination of Fair Value by Agreement -- (1) Not later than 10
days after the expiration of the period within which shareholders may make
written demand to be paid the fair value of their shares, the corporation upon
which such demand has been made pursuant to subsections 14A:11-2(3), 14A:11-2(4)
or 14A:11-2(5) shall mail to each dissenting shareholder the balance sheet and
the surplus statement of the corporation whose shares he holds, as of the latest
available date which shall not be earlier than 12 months prior to the making of
such offer and a profit and loss statement or statements for not less than a
12-month period ended on the date of such balance sheet or, if the corporation
was not in existence for such 12-month period, for the portion thereof during
which it was in existence. The corporation may accompany such mailing with a
written offer to pay each dissenting shareholder for his shares at a specified
price deemed by such corporation to be the fair value thereof. Such offer shall
be made at the same price per share to all dissenting shareholders of the same
class, or, if divided into series, of the same series.
(2) If, not later than 30 days after the expiration of the 10-day period
limited by subsection 14A:11-6(1), the fair value of the shares is agreed upon
between any dissenting shareholder and the corporation, payment therefor shall
be made I upon surrender of the certificate or certificates representing such
shares. (Last amended by Ch. 366, L. '73, eff. 5-1-74.)
14A:11-7 Procedure on Failure to Agree Upon Fair Value; Commencement of
Action to Determine Fair Value -- (1) If the fair value of the shares is not
agreed upon within the 30-day period limited by subsection 14A:11-6(2), the
dissenting shareholder may serve upon the corporation upon which such demand has
been made pursuant to subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) a
written demand that it commence an action in the Superior Court for the
determination of the fair value of the shares. Such demand shall be served not
later than 30 days after the expiration of the 30-day period so limited and such
action shall be commenced by the corporation not later than 30 days after
receipt by the corporation of such demand, but nothing herein shall prevent the
corporation from commencing such action at any earlier time.
(2) If a corporation fails to commence the action as provided in subsection
14A:11-7(1), a dissenting shareholder may do so in the name of the corporation,
not later than 60 days after the expiration of the time limited by subsection
14A:11-7(1) in which the corporation may commence such an action.
14A:11-8 Action to Determine Fair Value; Jurisdiction of Court;
Appointment of Appraiser -- In any action to determine the fair value of shares
pursuant to this Chapter:
(a) The Superior Court shall have jurisdiction and may proceed in the
action in a summary manner or otherwise;
(b) All dissenting shareholders, wherever residing, except those who have
agreed with the corporation upon the price to be paid for their shares, shall be
made parties thereto as an action against their shares quasi in rem;
(c) The court in its discretion may appoint an appraiser to receive
evidence and report to the court on the question of fair value, who shall have
such power and authority as shall be specified in the order of his appointment;
and
(d) The court shall render judgment against the corporation and in favor of
each shareholder who is a party to the action for the amount of the fair value
of his shares.
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<PAGE> 155
14A:11-9 Judgment in Action to Determine Fair Value -- (1) A judgment for
the payment of the fair value of shares shall be payable upon surrender to the
corporation of the certificate or certificates representing such shares.
(2) The judgment shall include an allowance for interest at such rate as
the court finds to be equitable, from the date of the dissenting shareholder's
demand for payment under subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) to
the day of payment. If the court finds that the refusal of any dissenting
shareholder to accept any offer of payment, made by the corporation under
section 14A:11-6, was arbitrary, vexatious or otherwise not in good faith. no
interest shall be allowed to him.
14A:11-10 Costs and Expenses of Action -- The costs and expenses of
bringing an action pursuant to section 14A:11-8 shall be determined by the court
and shall be apportioned and assessed as the court may find equitable upon the
parties or any of them. Such expenses shall include reasonable compensation for
and reasonable expenses of the appraiser, if any, but shall exclude the fees and
expenses of counsel for and experts employed by any party; but if the court
finds that the offer of payment made by the corporation under section 14A:11-6
was not made in good faith, or if no such offer was made, the court in its
discretion may award to any dissenting shareholder who is a party to the action
reasonable fees and expenses of his counsel and of any experts employed by the
dissenting shareholder.
14A:11-11 Disposition of Shares Acquired by Corporation -- (1) The shares
of a dissenting shareholder in a transaction described in (1) subsection
14A:11-1 (1) shall become reacquired by the corporation which issued them or by
the surviving corporation, as the case may be, upon the payment of the fair
value of shares.(2) (2) (Deleted by amendment, P.L. 1995, C. 279.)
(3) In an acquisition of shares pursuant to section 14A:10-9 or section
14A:10-13, the shares of a dissenting shareholder shall become the property of
the acquiring corporation upon the payment by the acquiring corporation of the
fair value of such shares. Such payment may be made, with the consent of the
acquiring corporation, by the corporation which issued the shares, in which case
the shares so paid for shall become reacquired by the corporation which issued
them and shall be cancelled. (Last amended by Ch. 279, L. '95, eff. 12-15-95.)
D-5
<PAGE> 156
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The certificate of incorporation of DBI provides that DBI shall indemnify
to the full extent permitted by law any person made, or threatened to be made, a
party to an action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he, his testator or intestate is or
was a director, officer or employee of DBI or serves or served any other
enterprise at the request of DBI. DBI's Bylaws contains a similar provision.
DBI's certificate of incorporation also provides that a director will not
be personally liable to DBI or its stockholders for monetary damages for breach
of fiduciary duty as a director, except to the extent that such an exemption
from liability or limitation thereof is not permitted by the Delaware General
Corporation Law.
Section 145 of the DGCL permits indemnification against expenses, fines,
judgment and settlements incurred by any director, officer or employee of a
company in the event of pending or threatened civil, criminal, administrative or
investigative proceedings, if such person was, or was threatened to be made, a
party by reason of the fact that he is or was a director, officer or employee of
the company. Section 145 also provides that the indemnification provided for
therein shall not be deemed exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. In addition, DBI and its subsidiaries
maintain a directors' and officers' liability insurance policy.
ITEM 21(A). EXHIBITS
See Exhibit Index.
ITEM 21(B). FINANCIAL STATEMENT SCHEDULES
All financial statement schedules of DBI which are required to be included
herein are included in the Annual Report of DBI on Form 10-K for the fiscal year
ended September 30, 2000 which is incorporated herein by reference.
ITEM 22. UNDERTAKINGS
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
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<PAGE> 157
(3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers and sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs 5(a)(i) and 5(a)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
15(d) of the Exchange Act that are incorporated by reference in the
registration statement.
(b) That for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(6) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
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(7) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (6) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amended Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 26th day of December, 2000.
DIGITAL BIOMETRICS, INC.
By: /s/ JOHN J. METIL
----------------------------------
John J. Metil
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
We, the undersigned officers and directors of Digital Biometrics, Inc.
hereby severally constitute John J. Metil and Philip J. Tilton and each of them
singly, our true and lawful attorneys with full power to them, and each of them
singly, to sign for us and in our names, in the capacities indicated below the
registration statement filed herewith and any amendments to said registration
statement, and generally to do all such things in our name and behalf in our
capacities as officers and directors to enable Digital Biometrics, Inc. to
comply with the provisions of the Securities Act of 1933 as amended, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any of
them, to said registration statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1933, this
registration statement has been signed below as of December 26, 2000 by the
following persons in the capacities and as of the date indicated.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
* Chairman of the Board of Directors
-----------------------------------------------------
James C. Granger
/s/ JOHN J. METIL President, Chief Executive Officer and
----------------------------------------------------- Director (Principal Executive Officer)
John J. Metil
/s/ ROBERT F. GALLAGHER Chief Financial Officer (Principal Financial
----------------------------------------------------- Officer)
Robert F. Gallagher
* Director
-----------------------------------------------------
C. McKenzie Lewis III
* Director
-----------------------------------------------------
George Latimer
* Director
-----------------------------------------------------
John E. Haugo
* Director
-----------------------------------------------------
John E. Lawler
*By: /s/ JOHN J. METIL
-----------------------------------------------------
John J. Metil
Attorney-in-fact
</TABLE>
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<PAGE> 160
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated October 18, 2000, by
and among the Registrant, VC Acquisition Corp. and
Visionics Corporation.*
3.1 -- Certificate of Incorporation, as amended through April
18, 1998 (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1,
effective March 11, 1993, File No. 33-58650 (the "1993
Form S-1"), and to Exhibit 3.1 to the Registrant's Report
on Form 10-Q for the quarter ended March 31, 1998).
3.2 -- Amendment to Certificate of Incorporation dated October
6, 2000.*
3.3 -- Bylaws, as amended (incorporated by reference to Exhibit
3.2 to the Registrant's Report on Form 10-K for the year
ended September 30, 1997 (the "1997 10-K")).
4.1 -- Specimen Common Stock Certificate (incorporated by
reference to the Registrant's Registration Statement on
Form S-1, effective August 14, 1991, File No. 33-41080).
4.3 -- Rights Agreement, dated May 2, 1996, between the
Registrant and Norwest Bank, Minnesota, National
Association, as Rights Agent (incorporated by reference
to Exhibit 4.3 to the Registrant's Registration Statement
on Form 8-A filed with the Securities and Exchange
Commission on May 9, 1996, File No. 0-18856).
5.1 -- Opinion of Maslon Edelman Borman & Brand, LLP.*
8.1 -- Tax opinion of Maslon Edelman Borman & Brand, LLP.
8.2 -- Tax opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1 -- Warrant, dated December 1, 1997, by and between the
Registrant and KA Investments LLC for the purchase of
15,000 shares of the Registrant's common stock
(incorporated by reference to Exhibit 10.2 to the 1997
10-K) and a schedule of substantially identical documents
executed by the Registrant (incorporated by reference to
Exhibit 4.5 to the Registrant's 1998 Annual Report on
Form 10-K (the "1998 10-K") and not filed pursuant to
Instruction 2 to Item 601 of Regulation S-K).
10.2 -- Warrant, dated December 1, 1997, between the Registrant
and Miller Johnson & Kuehn, Inc. for the purchase of
125,000 shares of the Registrant's common stock
(incorporated by reference to Exhibit 10.3 to the 1997
10-K).
10.3 -- Warrant dated March 18, 1997, between the Registrant and
C. McKenzie Lewis III for the purchase of 8,000 shares of
the Registrant's common stock (incorporated by reference
to Exhibit 10.4 to the 1997 10-K).
10.5 -- Agreement and General Release dated October 31, 1997
between the Registrant and Glenn M. Fishbine
(incorporated by reference to Exhibit 10.11 to the 1997
10-K).
10.6 -- General Credit and Security Agreement dated September 29,
1998 between the Registrant and SPECTRUM Commercial
Services (incorporated by reference to Exhibit 10.4 to
the 1998 10-K).
10.7 -- First Amended Revolving Note dated October 15, 1998 of
the Registrant payable to SPECTRUM Commercial Services,
amending and restating Revolving Note dated as of
September 29, 1998 (incorporated by reference to Exhibit
10.5 to the 1998 10-K).
</TABLE>
II-5
<PAGE> 161
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8 -- Lease for the Registrant's principal office facilities
dated November 7, 1989 (incorporated by reference from
the Registrant's Registration Statement on Form S-18,
effective December 6, 1990, File No. 33-36939C).
10.9 -- Amendment to Lease dated March 11, 1996 (incorporated by
reference to Exhibit 10.14 to the 1997 10-K).
10.10 -- 1990 Stock Option Plan, as amended (incorporated by
reference to Exhibit 99.1 to the Registrant's Report on
Form 10-Q for the quarter ended March 15, 1997).
10.11 -- 1992 Restricted Stock Plan (incorporated by reference
from the Registrant's 1993 Form S-1).
10.12 -- 1998 Stock Option Plan (incorporated by reference from
Exhibit 10 to the Registrant's Report on Form 10-Q for
the quarter ended March 31, 1998).
10.13 -- Form of Director Indemnification Agreement entered into
between the Registrant and outside directors
(incorporated by reference to Exhibit 10.17 to the 1997
10-K).
10.14 -- Loan Agreement dated November 19, 1999 between the
Registrant and Riverside Bank (incorporated by reference
from Exhibit 10.12 to the Registrant's Report on Form
10-Q for the quarter ended December 31, 1999).
10.15 -- Commercial Security Agreement dated November 19, 1999
between the Registrant and Riverside Bank (incorporated
by reference from Exhibit 10.13 to the Registrant's
Report on Form 10-Q for the quarter ended December 31,
1999).
10.16 -- Promissory Note, dated November 19, 1999, made by the
Registrants in favor of Riverside Bank (incorporated by
reference from Exhibit 10.14 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1999).
10.17 -- Loan Agreement dated November 19, 2000 between the
Registrant and Associated Bank Minnesota (incorporated by
reference from Exhibit 10.15 to the Registrant's 2000
Annual Report on Form 10-K).
10.18 -- Amendment to Lease for Registrant Premises dated November
21, 2999 (incorporated by reference from Exhibit 10.16 to
the Registrant's 2000 Annual Report on Form 10-K).
10.19 -- Amendment No. 1 to Agreement and Plan of Merger, dated
November 28, 2000, by and among the Registrant, VC
Acquisition Corp. and Visionics Corporation.*
21.1 -- Subsidiaries of the Registrant (incorporated by reference
from Exhibit 21.1 to the Registrant's 2000 Annual Report
on Form 10-K).
23.1 -- Consent of KPMG LLP.*
23.2 -- Consent of KPMG LLP.*
23.3 -- Consent of M.R. Weiser & Co., LLP.*
23.4 -- Consent of Maslon Edelman Borman & Brand, LLP (included
in Exhibits 5.1 and 8.1).
23.5 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison
(included in Exhibit 8.2).
27.1 -- Financial Data Schedule.*
99.1 -- Form of Proxy Card*
</TABLE>
-------------------------
* Previously filed.
II-6
