SCHEDULE 14A INFORMATION
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, For Use of the Commission
|_| Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMMISSION FILE NO. 0-18856
DIGITAL BIOMETRICS, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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DIGITAL BIOMETRICS, INC.
5600 ROWLAND ROAD
MINNETONKA, MN 55343-4315
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, APRIL 8, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Digital Biometrics, Inc. (the "Company"), a Delaware corporation, will be held
at the Lutheran Brotherhood Auditorium, 625 Fourth Avenue South, Minneapolis,
Minnesota, on Wednesday, April 8, 1998, at 3:30 p.m. Minneapolis time, and at
any adjournment or postponement thereof, for the following purposes, as more
fully described in the accompanying Proxy Statement:
1. To elect five directors, each to serve until the next Annual
Meeting of Stockholders and until their successors are duly
elected and qualified;
2. To consider and vote upon the amendment to the Company's
Certificate of Incorporation to increase the Company's
authorized Common Stock from 20,000,000 to 40,000,000 shares;
3. To consider and vote upon approval of the Company's 1998 Stock
Option Plan; and
4. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The transfer books of the Company will not be closed for the Annual
Meeting. Only stockholders of record at the close of business on February 13,
1998 are entitled to receive notice of, and to vote at, the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
James C. Granger
President
Minnetonka, Minnesota
February _____, 1998
- --------------------------------------------------------------------------------
ALL STOCKHOLDERS ARE CORDIALLY INVITED AND REQUESTED TO ATTEND THE
ANNUAL MEETING IN PERSON. STOCKHOLDERS WHO ARE UNABLE TO ATTEND IN PERSON ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY EXACTLY AS YOUR NAME
APPEARS THEREON AND PROMPTLY RETURN IT IN THE ENVELOPE PROVIDED, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES. YOUR PROXY IS BEING SOLICITED BY THE
BOARD OF DIRECTORS OF THE COMPANY. YOUR ATTENDANCE AT THE ANNUAL MEETING,
WHETHER IN PERSON OR BY PROXY, IS IMPORTANT TO ENSURE A QUORUM. IF YOU RETURN
YOUR PROXY, YOU STILL MAY VOTE YOUR SHARES IN PERSON BY GIVING WRITTEN NOTICE
(BY SUBSEQUENT PROXY OR OTHERWISE) TO THE SECRETARY OF THE COMPANY AT ANY TIME
PRIOR TO YOUR VOTE AT THE ANNUAL MEETING.
- --------------------------------------------------------------------------------
DIGITAL BIOMETRICS, INC.
5600 ROWLAND ROAD
MINNETONKA, MN 55343-4315
-------------------
PROXY STATEMENT FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 8, 1998
------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors (the "Board of Directors" or the "Board")
of Digital Biometrics, Inc. (the "Company"), to be voted at the Annual Meeting
of Stockholders (the "Annual Meeting") to be held at the Lutheran Brotherhood
Auditorium, 625 Fourth Avenue South, Minneapolis, Minnesota, on Wednesday April
8, 1998, at 3:30 p.m. Minneapolis time, and at any adjournment or postponement
thereof, for the purposes set forth in the accompanying Notice of Meeting. The
Notice of Annual Meeting, this Proxy Statement and the enclosed proxy are first
being mailed to stockholders on or about February 16, 1998.
The Board of Directors knows of no business which will be presented at
the Annual Meeting other than the matters referred to in the accompanying Notice
of Meeting. However, if any other matters are properly presented at the Annual
Meeting, it is intended that the persons named in the proxy will vote on such
matters in accordance with their judgment. If the enclosed proxy is executed and
returned, it nevertheless may be revoked at any time before it has been voted by
a later-dated proxy or a vote in person at the Annual Meeting. Shares
represented by properly executed proxies received on behalf of the Company will
be voted at the Annual Meeting (unless revoked prior to their vote) in the
manner specified therein. If no instructions are specified in a signed proxy
returned to the Company, the shares represented thereby will be voted (i) FOR
the election of the director nominees for director named herein; (ii) FOR the
proposal to approve the amendment to the Company's Certificate of Incorporation;
and (iii) FOR the proposal to approve the Company's 1998 Stock Option Plan.
VOTING RIGHTS AND OUTSTANDING COMMON STOCK
Only holders of the Common Stock of the Company whose names appear of
record on the books of the Company at the close of business on February 13, 1998
(the "Record Date"), are entitled to receive notice of, and to vote at, the
Annual Meeting. On the Record Date, the voting shares of the Company consisted
of 12,417,001 shares of Common Stock, each entitled to one vote per share.
The presence, in person or by proxy, of at least a majority of the
total number of shares of Common Stock issued and outstanding and entitled to
vote is necessary to constitute a quorum for the transaction of business at the
Annual Meeting. All votes will be tabulated by the inspector of election for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are not counted for any
purpose in determining whether Proposal Nos. 1 and 3 have been approved, but
they will have the same effect as negative votes on Proposal No. 2.
Assuming the presence of a quorum, directors must be elected by a
plurality of the shares of Common Stock represented and entitled to vote at the
Annual Meeting. The affirmative vote of the holders of a majority of the
outstanding Common Stock is required for passage of Proposal No. 2. The
affirmative vote of a majority of the shares of Common Stock represented and
entitled to vote at the Annual Meeting is required for the passage of Proposal
No. 3.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Bylaws of the Company permit the election of up to nine directors.
The Board has fixed the number of directors to serve from and after the Annual
Meeting at five. The five persons named below are nominated for election at the
Annual Meeting. Each nominee is currently a member of the Board of Directors.
The persons named in the accompanying proxy will vote for the election
of the below named nominees, unless authority to vote is withheld. Stockholders
do not have cumulative voting rights with respect to the election of directors,
and proxies cannot be voted for a greater number of directors than the number of
nominees named below. The Board is informed that the nominees are willing to
serve as directors, however, if any nominee is unable to serve or for good cause
will not serve, the proxy may be voted for such other person as the proxies
shall, in their discretion, determine following recommendation by the Nominating
Committee, or the Board may reduce the number of directors to eliminate the
vacancy.
The Board of Directors held 20 meetings during the fiscal year ended
September 30, 1997. Each director attended 75% or more of the total number of
meetings of the Board and the total number of meetings held by all committees of
the Board on which he served during the fiscal year ended September 30, 1997.
See "-Committees."
NOMINEES FOR ELECTION AS DIRECTOR
The following table sets forth certain information regarding the
nominees for election as director of the Company. All of the directors of the
Company elected at the Annual Meeting will serve until the next Annual Meeting
and until their successors are duly elected and qualified. There are no family
relationships between any director or officer.
Name Age Position
- -------------------------------------- --- -----------------------------------------------
James C. Granger (1).................. 51 President, Chief Executive Officer and Director
C. McKenzie Lewis III (1)(2)(3)....... 51 Chairman and Director
George Latimer (2)(3)................. 62 Director
Stephen M. Slavin (1)(2)(3)........... 57 Director
John E. Haugo......................... 62 Director
- ----------------------
(1) Member of Nominating Committee.
(2) Member of Compensation and Personnel Committee.
(3) Member of Audit Committee.
The following discussion describes the business experience and
background of the nominees, each of whom currently serves as a director of the
Company with the exception of John E. Haugo.
JAMES C. GRANGER. Mr. Granger became the Company's President and Chief
Executive Officer on January 1, 1997, and was appointed to the Board of
Directors of the Company effective January 27, 1997.
Prior to joining the Company, Mr. Granger was employed by ADC
Telecommunications, Inc. as President of its Access Platforms System between
March 1995 and December 1996. Between 1989 and February 1995, Mr. Granger was
employed by Sprint/United Telephone, Orlando, Florida, in various senior
marketing and management positions. Prior to 1989, Mr. Granger was employed by
American Telephone & Telegraph in various management positions.
C. MCKENZIE LEWIS III. Mr. Lewis was elected Chairman of the Company's
Board of Directors on October 28, 1996 and has served as a Director of the
Company since 1994. Between 1986 and 1996, Mr. Lewis served as Chief Executive
Officer and President and a director of Computer Network Technology Corporation
("CNT"), a developer and manufacturer of high performance extended channel
networking systems. Mr. Lewis has over 26 years experience in the computer and
data communications industry. Mr. Lewis is currently Managing General Partner in
MMP Partners Limited Partnership, a Minnesota limited partnership engaged
primarily in making venture capital investments.
GEORGE LATIMER. Mr. Latimer has served on the Company's Board of
Directors since 1990. From November 1995 through December 1997, Mr. Latimer
served as Chief Executive Officer of the National Equity Fund, a syndication of
financing for affordable housing in Chicago, Illinois. He is a Distinguished
Visiting Professor of Urban Studies at Macalester College, Saint Paul,
Minnesota. From July 1993 to November 1995, Mr. Latimer was Director, Office of
Special Actions, U.S. Department of Housing and Urban Development ("HUD"). From
February 1993 to July 1993, Mr. Latimer was employed as a consultant to HUD.
From 1990 to 1993, Mr. Latimer was Dean of Hamline University School of Law,
Saint Paul, Minnesota. From 1976 to 1990, Mr. Latimer served as the Mayor of
Saint Paul, Minnesota. Mr. Latimer is a member of the Board of Directors of
Piper Jaffray Investment Trust.
STEPHEN M. SLAVIN. Mr. Slavin has served on the Company's Board of
Directors since 1986. For more than six years, Mr. Slavin has been engaged in
the private practice of law as a partner of the firm of Foley & Lardner,
Chicago, Illinois.
JOHN E. HAUGO. Mr. Haugo has been appointed to the Board of Directors
effective February 9, 1998. Since September 1994, Mr. Haugo has been Vice
President and General Manager of the Serving Software Group Business Unit of HBO
and Company. From April 1986 until September 1994, prior to its acquisition by
HBO, Mr. Haugo was founder, Chairman and Chief Executive Officer of Serving
Software, Inc., a provider of health care scheduling and resource management
systems. Mr. Haugo is a director of Global Maintech, Inc.
COMMITTEES
The Board of Directors of the Company has three active Committees to
assist it in carrying out the duties of the Board.
During fiscal year 1997, the Audit Committee was comprised of Messrs.
Latimer (Chairman), Lewis and Slavin. The responsibilities of the Audit
Committee, in addition to such other duties specified by the Board of Directors,
include the following: (1) recommending independent accountants to the Board of
Directors; (2) reviewing the timing, scope and results of the independent
auditors' examination and related fees; (3) reviewing periodic comments and
recommendations made by the independent auditors; and (4) reviewing the scope
and adequacy of internal accounting controls. The Audit Committee held two
meetings during fiscal year 1997.
During fiscal year 1997, the Compensation and Personnel Committee was
comprised of Jack A. Klingert (Chairman) and Messrs. Lewis, Latimer and Slavin.
Mr. Klingert is retiring from the Board effective upon the date of the Annual
Meeting. The responsibilities of the Compensation and Personnel Committee
include making recommendations to the Board of Directors with respect to
compensation for executive employees of the Company and overseeing the Company's
stock option plans and the grant of stock options thereunder. The Compensation
and Personnel Committee met six times during fiscal year 1997.
A Nominating Committee was appointed by the Board on December 5, 1996.
During fiscal year 1997, this Committee was comprised of Messrs. Lewis
(Chairman), Granger and Slavin. The Nominating Committee makes recommendations
regarding the composition of the Board of Directors and nomination of
individuals for election by the stockholders of the Company. The Nominating
Committee did not meet during fiscal year 1997.
DIRECTOR COMPENSATION
Except as described below, outside directors of the Company served
without monetary compensation in fiscal 1997. Special compensation arrangements
were made with C. McKenzie Lewis III, as described below, for services in fiscal
1997 in connection with management transition matters.
Pursuant to the Company's 1992 Restricted Stock Plan, each time a
non-employee director is elected or re-elected to the Board, he or she will be
granted the number of shares of restricted stock equal to $18,000 divided by the
fair market value of one share of Common Stock at the close of business on the
day prior to the date of grant. The Restricted Stock is granted on the date of
the annual stockholders' meeting to each non-employee director elected or
re-elected at such meeting. Restricted Stock awards were made to the Company's
three outside directors who served in fiscal 1997, Jack A. Klingert, George
Latimer and Stephen M. Slavin.
In September 1997, the Board awarded 3,000 shares of Common Stock to
each of the Company's outside directors, Stephen M. Slavin, George Latimer, C.
McKenzie Lewis III and Jack A. Klingert, for additional services rendered in
fiscal 1997. The approximate market value of each such award on the date of
grant was $6,750.
In fiscal 1997, C. McKenzie Lewis III rendered additional services to
the Company in connection with various management transition matters, including
the formulation of a transition plan and the selection and hiring of new senior
management employees. Mr. Lewis also played a more active role in various other
management areas during the transition period. In consideration of these
services, the Company paid Mr. Lewis cash compensation totaling $40,000 and
granted Mr. Lewis a stock option under its 1990 Stock Option Plan for the
purchase of 40,000 shares of Common Stock at an exercise price of $3.125 per
share to fully vest by February 1998. In addition, in March 1997, concurrent
with his reelection to the Board, the Company issued Mr. Lewis a warrant for the
purchase of 8,000 shares of Common Stock at an exercise price of $2.125 per
share, in lieu of an award to him under the Company's 1992 Restricted Stock
Plan.
PROPOSAL NO. 2
APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
The Board of Directors has adopted the following resolution, which
would increase the Company's authorized Common Stock from 20,000,000 to
40,000,000 shares, subject to approval by the Company's stockholders.
RESOLVED, that the fourth article of the Certificate of Incorporation,
as amended, of Digital Biometrics, Inc. shall be amended in its
entirety to read as follows:
FOURTH
The total number of shares of stock which the
Corporation is authorized to issue is Forty Million
(40,000,000) shares of stock classified as Common
Stock, $.01 par value.
The stockholders of the Company do not have any preemptive right to
purchase or subscribe for any part of any new or additional issuance of the
Company's securities. The above-described amendment (the
"Amendment") provides that the Company is authorized to issue up to 40,000,000
shares of Common Stock, each of which is entitled to one vote.
As of January 31, 1998, there were 12,417,001 shares of Common Stock
outstanding and an aggregate of 1,292,500 shares of Common Stock reserved for
issuance in connection with outstanding stock options. An additional 280,893
shares have been reserved for issuance pursuant to outstanding warrants and an
estimated 2,000,000 shares reserved for issuance pursuant to conversion of the
Company's outstanding 8% Convertible Subordinated Debentures due December 1,
2000 (the "Debentures"). The Company sold $500,000 of the Debentures on December
1, 1997. The Company may issue up to $2,000,000 of additional Debentures in
tranches of $500,000 each, each of which is convertible at a price equal to the
lesser of the market price when a tranche is sold or 80% of the average closing
bid price of the Common Stock for the five trading days preceding the conversion
date of the tranche. If the Amendment is approved, the additional authorized
shares that would be available for issuance may be issued for any proper
corporate purpose by the Board of Directors at any time without further
corporate approval (subject, however, to applicable statutes or the rules of The
Nasdaq Stock Market which require stockholder approval for the issuance of
shares in certain circumstances). Although the Company has no intention or
commitment to issue any additional shares of Common Stock as of the date of this
Proxy Statement, other than the shares issuable upon exercise of rights under
outstanding options, warrants or pursuant to conversion of the Debentures, the
Board of Directors believes it is desirable to give the Company additional
flexibility in considering such actions as stock dividends, raising capital,
acquisitions or other corporate purposes. The authorization of such shares will
enable the Company to act promptly and without additional delay if appropriate
circumstances arise which require the issuance of such shares.
In addition to the foregoing, on May 2, 1996, pursuant to the
recommendations of the Company's Independent Committee, the Board adopted a
stockholder rights plan (the "Rights Plan"), and declared a dividend of one
purchase right (a "Right") for each share of Common Stock outstanding at the
close of business on May 22, 1996 (the "Record Date"). The Rights Plan is
designed to enable the Company and its Board of Directors to develop and
preserve long-term value for its stockholders and to protect stockholders in the
event an attempt is made to acquire control of the Company without an offer of
fair value to all stockholders. The Rights will be issued upon the terms and
subject to the conditions set forth in a Rights Agreement dated as of May 2,
1996 (the "Rights Agreement"), between the Company and Norwest Bank Minnesota,
National Association, as Rights Agent. Each Right will entitle the registered
holder to purchase from the Company after the Distribution Date (as described
below), a number of shares of Common Stock to be determined under the Rights
Agreement at an initial purchase price of $35 (the "Purchase Price"), subject to
adjustment. The Rights become exercisable on the first day after the
Distribution Date which is defined as the earlier of (i) 10 business days after
a public announcement that a person or group of affiliated or associated persons
(not including the Company, any subsidiary of the Company, any person holding
shares of Common Stock acquired in a transaction approved in advance in writing
by a majority of the disinterested directors of the Board of Directors of the
Company, any employee benefit plan of the Company or its subsidiaries or any
entity holding shares of Common Stock for or pursuant to any such plan, or any
person who beneficially owns 7.5% or more of the shares of Common Stock
outstanding on the 20th day preceding the Record Date, to the extent of such
ownership), have acquired beneficial ownership of 15% or more of the outstanding
shares of Common Stock, or (ii) 10 business days after the commencement of, or
the first public announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in beneficial ownership by
a person or group (excluding the Company, any subsidiary of the Company, any
employee benefit plan of the Company or of its subsidiaries, any entity holding
shares of Common Stock for or pursuant to any such plan, and any person holding
shares of Common Stock acquired in a transaction approved in advance in writing
by a majority of the disinterested directors of the Board of Directors of the
Company) of 15% or more of the shares of Common Stock outstanding. The Board of
Directors has the right, without approval of the Company's stockholders on the
holders of the Rights, to redeem outstanding Rights at any time and, without
approval of the Company's stockholders or the holders of the Rights, may
supplement, amend or terminate the Rights Plan. The Rights will expire on April
30, 2006 (the "Final Expiration Date"), unless the Final Expiration Date is
extended or unless the Rights are earlier redeemed or exchanged by the Company.
The Company does not currently have a sufficient number of shares of Common
Stock available for purchase by holders of the Rights should the Rights become
exercisable. Thus, the authorization of additional shares will enable the
Company to have shares of Common Stock available for issuance under the Rights
Plan, as well as for other important corporate purposes.
Except as discussed above, there are no specific understandings,
arrangements or agreements with respect to any transactions that would require
the Company to issue any new shares of its Common Stock.
VOTE REQUIRED. The affirmative vote of holders of a majority of the
shares of the Common Stock outstanding on the Record Date is required to approve
the Amendment. As a result, abstentions and broker non-votes will have the same
effect as negative votes. THE BOARD OF DIRECTORS CONSIDERS THE AMENDMENT TO BE
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT
YOU VOTE FOR APPROVAL OF THE AMENDMENT.
PROPOSAL NO. 3
APPROVAL OF THE 1998 STOCK OPTION PLAN
GENERAL
The Board of Directors has adopted, subject to stockholder approval,
the Company's 1998 Stock Option Plan (the "Plan") and reserved 600,000 shares of
Common Stock for issuance pursuant to the Plan. A general description of the
Plan is set forth below, but such description is qualified in its entirety by
reference to the full text of the Plan, a copy of which is appended to this
Proxy Statement as Exhibit A.
DESCRIPTION OF THE PLAN
PURPOSE. The purpose of the Plan is to promote the success of the
Company by facilitating the employment and retention of competent personnel and
by furnishing incentive to directors, officers, key employees, independent
contractors and others upon whose efforts the success of the Company will depend
to a large degree by encouraging stock ownership in order to increase the
proprietary interest of such individuals in the Company's success.
TERM. The term of the Plan is indefinite; however, the Board may
terminate the Plan at any time, provided that such termination will not affect
options then outstanding and provided further that no incentive stock options
may be granted under the Plan after January 18, 2008.
ADMINISTRATION. The Plan will be administered by the Compensation and
Personnel Committee of the Board. The Plan gives broad powers to the Committee
to administer and interpret the Plan, including the authority to select the
individuals to be granted options and to prescribe the particular form and
conditions of each option (which may vary from optionee to optionee).
ELIGIBILITY. All employees of the Company or any subsidiary are
eligible to receive incentive stock options pursuant to the Plan. All employees,
directors and officers of, and consultants and advisors to, the Company or any
subsidiary are eligible to receive nonqualified stock options. As of December
31, 1997, the Company had approximately 81 employees and officers and four
outside directors.
DIRECTOR OPTIONS. Under the Plan, each outside (non-employee) director
of the Company is automatically granted an option to purchase 15,000 shares of
Common Stock each year upon his or her election or re-election to the Board by
the stockholders. Each such option will be a nonqualified stock option, will
expire five years after the date it is granted, and will become exercisable
immediately upon the date of grant. If a non-employee director ceases to be a
director of the Company the option will remain exercisable for three months,
provided, that if such termination is because of death, the option will remain
exercisable until the earlier of the six-month anniversary of the director's
death or the expiration of the option's original term.
OPTIONS. When an option is granted under the Plan, the Committee, in
its discretion, specifies the option price, the type of option (either
"incentive" or "nonqualified") to be granted, and the number of shares of Common
Stock which may be purchased upon exercise of the option. The exercise price of
a stock option may not be less than 100% of the fair market value of the
Company's Common Stock on the grant date. On February ___, 1998, the closing
price of the Company's Common Stock as reported on the NASDAQ National Market
System was $_______.
The term during which an option may be exercised and whether an option will be
exercisable immediately, in stages or otherwise are set by the Committee, but
the term of any option may not exceed seven years from the date of grant.
Optionees may pay for shares upon exercise of options with cash, certified check
or Common Stock of the Company valued at the stock's then fair market value.
Each option granted under the Plan is nontransferable during the lifetime of the
optionee.
The Committee will determine the form of stock option agreements which
will be used for stock options granted under the Plan. Such agreements will
govern the right of an optionee to exercise an option upon termination of
employment or affiliation with the Company during the life of an optionee and
following an optionee's death. The Board or the Committee may impose additional
or alternative conditions and restrictions on the incentive or nonqualified
stock options granted under the Plan; however, each incentive option must
contain such limitations and restrictions upon its exercise as are necessary to
ensure that the option will be an incentive stock option as defined under the
Internal Revenue Code.
AMENDMENT. The Board of Directors may from time to time suspend or
discontinue the Plan or amend it in any respect; provided, however, that no such
revision or amendment may impair the terms and conditions of any outstanding
option to the material detriment of the optionee without the consent of the
optionee. An amendment shall be subject to the approval of the Company's
stockholders only to the extent required by applicable law, rule or regulation.
ANTIDILUTION PROVISIONS. The Board of Directors shall equitably adjust
the maximum number of shares of Common Stock reserved for issuance under the
Plan, the number of shares covered by each outstanding option and the option
price per share in the event of stock splits or consolidations, stock dividends
or other transactions in which the Company receives no consideration.
TAX INFORMATION
Under present law, no tax results upon the grant of nonqualified
options pursuant to the Plan. However, in the year that a nonqualified stock
option is exercised, the optionee must recognize compensation, taxable as
ordinary income, equal to the difference between the option price and the fair
market value of the shares on the date of exercise. The Company normally will
receive a deduction equal to the amount of compensation the optionee is required
to recognize as ordinary income if the Company complies with any applicable
federal income tax withholding requirements.
Incentive stock options granted under the Plan are intended to qualify
for favorable tax treatment under Section 422 of the Internal Revenue Code.
Under Section 422, an optionee recognizes no taxable income when the option is
granted. Further, the optionee generally will not recognize any taxable income
when the option is exercised if he or she has at all times from the date of the
option's grant until three months before the date of exercise been an employee
of the Company. The Company ordinarily is not entitled to any income tax
deduction upon the grant or exercise of an incentive stock option. Certain other
favorable tax consequences may be available to the optionee if he or she does
not dispose of the shares acquired upon the
exercise of an incentive stock option for a period of two years from the
granting of the option and one year from the receipt of the shares.
The foregoing is only a summary of the general effect of U.S. federal
income taxation upon the optionee and the Company with respect to the grant and
exercise of options under the Plan and the subsequent sale of shares. This
summary does not discuss the income tax laws of any state or foreign country in
which an optionee may reside.
NEW PLAN BENEFITS
The following table sets forth the automatic grants of options under
the Plan for 15,000 shares that will be made to each outside director elected at
the Annual Meeting at the time of such directors' election. There are no other
options currently contemplated other than those described below, although the
amount of awards granted to date are not necessarily indicative of the amounts
that will be awarded in the future.
1998 STOCK OPTION PLAN
NAME AND POSITION DOLLAR VALUE NUMBER OF SHARES
--------------------------------------- ------------ ----------------
James C. Granger....................... $0 0
President and Chief
Executive Officer
Glenn M. Fishbine...................... $0 0
Senior Vice President -
Technology
Executive Group........................ $0 0
Non-Executive Director Group........... * 60,000
Non-Executive Officer Employee Group... $0 0
---------------------
* Indeterminable.
VOTE REQUIRED. The affirmative vote of holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
Annual Meeting is required to approve the Plan. Abstentions will be considered
shares entitled to vote in the tabulation of votes cast on the proposal and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved. THE BOARD OF DIRECTORS CONSIDERS THE PLAN TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE PLAN.
REPORT OF COMPENSATION AND PERSONNEL COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation and Personnel Committee (the "Compensation Committee")
is composed of independent, outside directors whose names appear following this
report. The Compensation Committee considers how the achievement of the overall
goals and objectives of the Company can be aided through adoption of an
appropriate compensation philosophy and effective compensation program elements.
The Compensation Committee's responsibilities include determining the amount and
type of compensation for the executive officers of the Company, as well as
administering the Company's Common Stock-based benefit plans.
The Compensation Committee's philosophy is to maximize corporate
performance. The Compensation Committee believes that the Company's annual cash
compensation package (base salary plus bonus opportunities) must be sufficient
to retain and attract highly qualified and experienced executives and management
personnel. The Compensation Committee believes that stockholder value depends,
to a significant extent, on the establishment of a close alignment between the
financial interests of stockholders and those of the Company's employees, in
particular its executive officers. Compensation of the Company's executive
officers is therefore, in large part, based upon the performance of the Company
as measured by revenue and profitability objectives. Compensation of the
Company's executive officers includes three primary
elements: base compensation, annual incentives, and long-term incentives in the
form of stock options or restricted stock.
BASE COMPENSATION
Annual base salaries of the Company's executive officers other than the
Company's President and Chief Executive Officer are recommended by the
President, subject to approval by the Compensation Committee. Individual salary
recommendations may vary based upon the President's assessment of the value of
each executive's position in the Company, Company performance, the executive's
individual performance and comparative compensation for similar positions at
other companies as contained in summary survey data. Each executive officer has
executed an Employee Confidentiality and Proprietary Rights Agreement which
contains provisions for the protection of the company's proprietary information,
and assignment to the Company of any inventions developed by the executive in
connection with his employment. The annual compensation for the President and
Chief Executive Officer is determined by the Compensation Committee as discussed
below.
INCENTIVE COMPENSATION
Effective October 1, 1992, the Compensation Committee adopted an
Executive Compensation Plan (the "Plan") for executive officers of the Company.
The Plan was revised on April 29, 1997, to include certain non-executive officer
employees of the Company and includes maximum performance measurement criteria.
The Plan is performance based and includes both annual and long-term incentive
components. Performance under each Plan component is measured against
predetermined revenue and profitability objectives with a "threshold", "target"
and "maximum" for each. The Plan also includes the ability to assign individual
management objectives. Target amounts are based upon the annual budget for
revenue and profitability established by the Board of Directors as of the
beginning of each fiscal year. Threshold and maximum amounts are determined
annually for revenue and profitability by the Compensation Committee in
connection with the Board of Directors' consideration of the annual budget.
Performance below threshold results in no annual or long-term incentive award.
Financial results between threshold and target and between target and maximum
are linearly interpolated. There is no additional award payable under the Plan
for performance above maximum. The Plan provides a basis by which, at the
discretion of the Compensation Committee, annual incentive awards to executives
may be paid, all or partially, through restricted stock awards under the
Company's 1992 Restricted Stock Plan with vesting over a three-year period. The
long-term incentive awards to executives consist of stock options awards under
the Company's 1990 Stock Option Plan with vesting over a three-year period.
Actual amounts paid under the Plan are based upon formula calculations
as defined in the Plan and for 1997 were paid to executives based upon
achievement of individual management objectives. Certain of the executive
officers, including the President and Chief Executive Officer, were hired by the
Company during fiscal year 1997. To attract and secure employment of these
executive officers certain minimum levels of quarterly cash bonuses were paid
through the quarter ended September 30, 1997. Payments of these bonuses were
guaranteed regardless of meeting incentive components of the Plan. No awards
were paid under the revenue and profitability components of the Plan for fiscal
1997 as these objectives were not achieved.
Stock option plans offered by the Company have been established to
provide all employees, including executive officers, with an opportunity to
share, together with stockholders of the Company, in the Company's long-term
performance. Periodic grants of stock options are considered at least annually
for eligible employees, with additional grants authorized in the sole discretion
of the Compensation Committee. Historically, discretionary awards have been made
in circumstances such as commencement of employment, initiation of employment
contracts, completion of significant product installations and execution of
significant agreements and/or following significant change in job responsibility
or title. Stock options granted under the 1990 Stock Option Plan generally have
a three-year vesting schedule and expire ten years from the date of
grant. The exercise price of options granted under the 1990 Stock Option Plan is
equal to the fair market value of the underlying stock on the date of grant.
CEO COMPENSATION
Mr. Granger's base salary, bonus opportunities and awards and stock
option awards are reviewed annually and determined by the Compensation
Committee. Mr. Granger's base salary, bonuses and stock option awards are, in
general, determined using the same criteria described above for executive
officers. Mr. Granger's employment with the Company began on January 1, 1997,
with a base salary established at an amount comparable with that of chief
executive officers of companies similar to the Company. Mr. Granger's
compensation during fiscal 1997 included a guaranteed minimum bonus paid on a
quarterly basis through September 30, 1997, along with a stock option award
which was granted and effective with the start of his employment. The stock
option award vests one-third on each anniversary date until fully vested. Mr.
Granger is eligible to participate in the Company's 401(k) retirement plan. No
award was paid to Mr. Granger under the revenue and profitability components of
the Executive Compensation Plan for fiscal 1997. The level of Mr. Granger's
compensation relative to that of the Company's other executive officers
reflects, among other factors, the Compensation Committee's evaluation of his
role in implementing strategies to achieve the Company's goals and his duties
and responsibilities with the Company.
The Compensation Committee believes that the Company's compensation
programs for executive officers of the Company, which provide clear and direct
links between pay and performance, are aligned with the long-term interests of
the Company's stockholders.
Under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), a tax deduction by corporate taxpayers, such as the Company, is
limited with respect to the compensation of certain executive officers unless
such compensation is based upon performance objectives meeting certain
regulatory criteria or is otherwise excluded from the limitation. Based upon the
Compensation Committee's commitment to link compensation with performance as
described in this report, the Compensation Committee currently intends to
qualify compensation paid to the Company's executive officers for deductibility
by the Company under Section 162(m).
January 19, 1998
The Compensation and Personnel Committee
Jack A. Klingert, CHAIRMAN
George Latimer
C. McKenzie Lewis III
Stephen M. Slavin
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation paid by the Company for the last three fiscal years to its Chief
Executive Officer and other executive officers whose cash compensation exceeded
$100,000 in fiscal year 1997 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS
NAME AND ------------------- ----------------------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS SECURITIES UNDERLYING OPTIONS COMPENSATION
------------------ ---- ------ ----- ----------------------------- ------------
James C. Granger(1) 1997 $131,265 $32,816 250,000 $ -
President and Chief 1996 - - - -
Executive Officer 1995 - - - -
Glenn M. Fishbine, 1997 120,000 - - 171,234(2)
Senior Vice President - 1996 116,825 1,600 35,000 4,500
Technology 1995 110,553 5,650 45,000 4,253
- --------------------
(1) Mr. Granger has served as President and Chief Executive Officer of the
Company since January 1, 1997.
(2) Includes $3,737 in the form of Common Stock paid as a matching
contribution under the Company's 401(k) plan, and severance
compensation consisting of forgiveness of indebtedness totaling
$167,497.
STOCK OPTION GRANTS IN FISCAL YEAR 1997
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(3)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE)(2) DATE 5% 10%
---- ---------- ----------- ------------ ---- --------- --------
James C. Granger 250,000 25% $2.125 01/02/07 $334,100 $846,676
- ---------------------
(1) Subject to acceleration at the discretion of the Compensation Committee
or upon the death or disability of the optionee, each option becomes
cumulatively exercisable with respect to 33 1/3% of the shares covered
on each of the first three anniversaries of the grant date.
(2) Fair market value per share on the date of grant or the effective date,
whichever is less, in accordance with the 1990 Stock Option Plan.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules
of the Commission and do not represent the Company's estimate or
projection of the future Common Stock price.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
James C. Granger - - - 250,000 - $109,375
Glenn M. Fishbine - - 98,467 38,333 - -
- ----------------------
(1) Market value of underlying securities at fiscal year end minus the
exercise price.
TERMINATION OF EMPLOYMENT AND CHANGE-OF-CONTROL ARRANGEMENTS
In fiscal 1997 the Board of Directors of the Company adopted a Change
of Control Plan for the benefit of executive officers, providing for payments
upon the occurrence of a change of control of the Company. Upon a change of
control of the Company, an executive officer will, upon termination of his or
her employment, be entitled to payment of an amount equal to such officer's base
salary immediately prior to the change of control, payable on or before the 30th
day following the termination of such officer's employment. An officer is not
entitled to such payment if he or she is offered employment following a change
of control by the successor to the Company or its business, provided such
employment is approximately comparable to his or her employment with the Company
and is at a base salary level comparable to or greater than that paid by the
Company. In the event the employment of an officer is not terminated, or such
officer is offered employment by the successor and is employed, but such
employment is terminated within a period of one year following the change of
control, the officer shall be entitled to payment of an amount equal to his or
her base salary, less compensation actually paid during the period in which he
or she was employed by the Company or a successor subsequent to the change of
control. The change of control payment is limited to an amount not to exceed the
safe harbor under Section 280G of the Internal Revenue Code.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Compensation and Personnel Committee was
responsible for making recommendations to the Board as to executive compensation
and stock option grants to executive officers. The members of the Committee
include C. McKenzie Lewis III, Jack A. Klingert, George Latimer and Stephen M.
Slavin. For services related to executive transition and other matters rendered
in fiscal 1997, Mr. Lewis received from the Company cash compensation, a stock
option, and a warrant. Mr. Lewis participated in the meeting at which his
services and compensation were discussed, but abstained from the vote thereon.
See "Proposal No. 1, Election of Board of Directors - Director Compensation" and
"Certain Relationships and Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a transition agreement and general release between the
Company and a founder of the Company, Glenn M. Fishbine continued to be
compensated by the Company at his base salary through the one month transition
period ending November 30, 1997, during which he has agreed to provide
consulting services and advice to the Company. After the transition period, he
was compensated by the Company in a lump sum severance payment equal to his base
salary for two months. The Company has further agreed (i) to forgive, as of
September 30, 1997, $167,497 of indebtedness of Mr. Fishbine to the Company,
(ii) to release the shares of Common Stock pledge by Mr. Fishbine as collateral
to secure payment of his indebtedness to the Company, and (iii) that a stock
pledge agreement between Mr. Fishbine and the Company would be terminated. In
consideration of the foregoing, Mr. Fishbine also agreed to a one-year
non-competition arrangement with the Company.
Gordon L. Bramah is the Chairman of the Board of Directors of Bramah
Limited ("Bramah"), which is a significant stockholder of the Company. In
connection with early stage investments made by Bramah in the Company, the
Company granted Bramah an exclusive license in the United Kingdom for the
Company's technology. In October 1992, the exclusive license was reacquired by
the Company in return for a royalty arrangement whereby Bramah will be paid a
15% royalty on sales of the first $1.0 million of the Company's products in the
United Kingdom. As of September 30, 1997, the Company accrued approximately
$63,000 for royalties to Bramah on sales in the United Kingdom during fiscal
1997.
During fiscal year 1997, legal services were provided to the Company by
Foley & Lardner, Chicago, Illinois. Stephen M. Slavin is a partner of such firm
and a director of the Company.
During fiscal year 1997, C. McKenzie Lewis III, a director of the
Company, received cash compensation, stock options and a warrant pursuant to
special compensation arrangements with the Company. See "Proposal No. 1 Election
of Directors - Director Compensation."
SECURITY OWNERSHIP
The following table sets forth, as of December 31, 1997, the number of
shares of Common Stock beneficially owned by (i) each person known to be the
beneficial owner of five percent or more of the Common Stock, (ii) each
director, (iii) each executive officer named in the Summary Compensation Table
above and (iv) all officers and directors as a group. Any shares reflected in
the following table which are subject to an option or a warrant are deemed to be
outstanding for the purpose of computing the percentage of Common Stock owned by
the option or warrant holder but are not deemed to be outstanding for the
purpose of computing the percentage of Common Stock owned by any other person.
Except as otherwise indicated, each beneficial owner has sole voting and
investment power over the outstanding shares of which he has beneficial
ownership.
Name of Beneficial Owner or Group Shares Beneficially Owned(1)
- ------------------------------------------------- ----------------------------
Number Percent
--------- ----------
Perkins Capital Management Inc. 1,317,250 10.9%
730 East Lake Street
Wayzata, Minnesota 55391
Gordon L. Bramah 1,053,435 9.3%
Littlemoore House
Eckington, Sheffield S31 9EF
England
Bramah Limited 1,052,935 9.3%
Littlemoore House
Eckington, Sheffield S31 9EF
England
Jack A. Klingert 120,028 1.0%
Stephen M. Slavin(2) 103,501 *
George Latimer(3) 28,550 *
C. McKenzie Lewis III(4) 60,579 *
James C. Granger(5) 98,320 *
John J. Metil 3,280 *
Barry A. Fisher 1,521 *
Roman A. Jamrogiewicz 1,704 *
Michel R. Halbouty - -
All officers and directors as a group (9 persons) 417,483 3.3%
- -------------------
* 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 Commission and, accordingly, may include
securities owned by or for, among others, the spouse, children or
certain other relatives such person as well as other securities as to
which the person has or shares voting or investment power or has the
right to acquire within 60 days. The same shares may be beneficially
owned by more than one person.
(2) Includes 66,001 shares of Common Stock owned by Mr. Slavin and 37,500
shares of Common Stock that may be acquired subject to options.
(3) Includes 21,050 shares of Common Stock beneficially owned by Mr.
Latimer and an option for 7,500 shares of Common Stock.
(4) Includes 12,579 shares of Common Stock beneficially owned by Mr. Lewis
and an option and a warrant for the purchase of an aggregate of 48,000
shares of Common Stock.
(5) Includes 14,987 shares of Common Stock beneficially owned by Mr.
Granger and options for the purchase of an aggregate of 83,333 shares
of Common Stock.
There are no arrangements known to the Company which at a later date
may result in a change in control of the Company.
COMMON STOCK PERFORMANCE
The following graph compares cumulative total stockholder return on an
investment in the Common Stock during the period from September 30, 1992 to
September 30, 1997, with the Nasdaq Stock Market Index and Digital Biometrics,
Inc.'s primary competitor, Identix, Inc. The cumulative total stockholder return
assumes an initial investment of $100 on September 30, 1992.
[PLOT POINTS GRAPH]
INDEXED AS OF: 9/30/92
SOURCE: FACTSET RESEARCH SYSTEMS INC.
NASDAQ DIGITAL IDENTIX,
DATE COMPOSITE BIOMETRICS, INC. INC.
- --------- --------- ---------------- --------
30-SEP-92 100.0000 100.0000 100.0000
31-MAR-93 118.3209 153.2258 56.5217
30-SEP-93 130.7765 190.3226 84.7826
31-MAR-94 127.4641 141.9355 128.2609
30-SEP-94 131.0354 93.5484 110.8696
31-MAR-95 140.1084 111.2903 115.2174
29-SEP-95 178.9120 91.9355 452.1739
29-MAR-96 188.8319 43.5484 391.3044
30-SEP-96 210.3520 48.3871 334.7826
31-MAR-97 209.4570 26.6129 291.3044
30-SEP-97 289.0068 33.0645 397.8261
The Common Stock of the Company has been traded on the Nasdaq National
Market since April 25, 1993, and was traded on the Nasdaq SmallCap Market prior
to that time. The Common Stock is traded under the symbol DBII.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers and the holders of 10% or more of
the Company's stock to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of equity securities of
the Company. Based on the Company's review of copies of such reports received by
it, or written representations from reporting persons, the Company believes that
during fiscal year 1997 its directors and executive officers filed all reports
on a timely basis except as follows: (a) initial reports of ownership on Form 3
were not filed on a timely basis by John J. Metil, Barry A. Fisher, Roman A.
Jamrogiewicz and Michel R. Halbouty through inadvertence, but were filed on or
before the tenth day of the month following the month of initial employment; (b)
securities ownership reports on Form 4 were not filed in a timely basis by
outside directors of the Company, C. McKenzie Lewis III, Jack A. Klingert,
George Latimer and Stephen M. Slavin with respect to 3,000 shares of Common
Stock awarded to each of them by the board of directors as additional
compensation effective as of September 30, 1997, and issued in October 1997. The
related Form 4 for each reporting person was filed on or before the tenth day of
the month following the month of issuance.
STOCKHOLDER PROPOSALS
Any stockholder who desires to submit a proposal for action by the
stockholders at the next annual meeting must submit such proposal in writing to
C. McKenzie Lewis III, Chairman, Digital Biometrics, Inc., 5600 Rowland Road,
Minnetonka, Minnesota 55343-4315 by October 23, 1998. Due to the complexity of
the respective rights of the stockholders and the Company in this area, any
stockholder desiring to propose such an action is advised to consult with his or
her legal counsel with respect to such rights. It is suggested that any such
proposal be submitted by certified mail, return receipt requested.
PROXY SOLICITATION
The cost of this solicitation of proxies will be paid by the Company.
The Company has retained __________ & Company to assist in the solicitation of
proxies, at an estimated cost of $6,500 plus reimbursement of out-of-pocket
expenses. Proxies will also be solicited by mail, except that solicitation
personally or by telephone may also be made by the Company's regular employees
who will receive no additional compensation for their services in connection
with the solicitation. Arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials and the annual report to beneficial owners of stock held by such
persons. The Company will reimburse such parties for their expenses in so doing.
ANNUAL REPORT TO STOCKHOLDERS
A copy of the 1997 Annual Report to Stockholders of the Company
accompanies this Proxy Statement. A copy of the Company's Annual Report on Form
10-K for fiscal year 1997 will be provided without charge upon written request
of any stockholder whose proxy is being solicited by the Board of Directors. The
written request should be directed to Stockholder Relations, Digital Biometrics,
Inc., 5600 Rowland Road, Minnetonka, Minnesota 55343-4315. No part of the 1997
Annual Report to Stockholders is incorporated herein and no part thereof is to
be considered proxy soliciting material.
BY ORDER OF THE BOARD OF DIRECTORS
James C. Granger
President
Minnetonka, Minnesota
__________, 1998
EXHIBIT A
DIGITAL BIOMETRICS, INC.
1998 STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Affiliated Entity" means any entity other than a Subsidiary in
which the Company has a material interest, including a joint venture.
(b) "Book Value" shall mean the book value of a share of the Company's
Common Stock derived from the most current available financial
statements of the Company by dividing total stockholders' equity by the
number of shares issued and outstanding and making such adjustment for
results of operations since the date of such financial statements as
the Board of Directors or Committee shall deem appropriate.
(c) "Committee" shall mean a Committee of two or more directors who
shall be appointed by and serve at the pleasure of the Board. As long
as the Company's securities are registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), then,
to the extent necessary for compliance with Rule 16b-3, or any
successor provision, each of the members of the Committee shall be a
"Non-Employee Director." For purposes of this Section l(b)
"Non-Employee Director" shall have the same meaning as set forth in
Rule 16b-3, or any successor provision, as then in effect, of the
General Rules and Regulations under the Exchange Act. In addition, such
directors shall satisfy such requirements of the Internal Revenue Code
for outside directors acting under plans intending to qualify for
exemption under section 162(m)(4)(c) of the Code.
(d) The "Company" shall mean Digital Biometrics, Inc., a Delaware
corporation.
(e) "Exercise Price" shall mean the price per share at which Option
Stock may be purchased in accordance with an option agreement and this
Plan.
(f) "Fair Market Value" shall mean (i) if such stock is reported by the
Nasdaq National Market or Nasdaq SmallCap Market or is listed upon an
established stock exchange or exchanges, the reported closing price of
such stock by the Nasdaq National Market or Nasdaq SmallCap Market or
on such stock exchange or exchanges on the date the option is granted
or, if no sale of such stock shall have occurred on that date, on the
next preceding day on which there was a sale of stock; (ii) if such
stock is not so reported by the Nasdaq National Market or Nasdaq
SmallCap Market or listed upon an established stock exchange, the
average of the closing "bid" and "asked" prices quoted by the National
Quotation Bureau, Inc. (or any comparable reporting service) on the
date the option is granted, or if there are no quoted "bid" and "asked"
prices on such date, on the next preceding date for which there are
such quotes; or (iii) if such stock is not publicly traded as of the
date the option is granted, the per share value as determined by the
Board, or the Committee, in its sole discretion by applying principles
of valuation with respect to all such options.
(g) The "Internal Revenue Code" or "Code" is the Internal Revenue Code
of 1986, as amended from time to time.
(h) "Non-Employee Director" shall mean members of the Board who are not
employees of the Company or any subsidiary.
(i) "Option Stock" or "Stock" shall mean Common Stock of the Company
(subject to adjustment as described in Section 13) reserved for options
pursuant to this Plan.
(j) The "Optionee" means an employee of the Company or any Subsidiary
to whom an incentive stock option has been granted pursuant to Section
9; a consultant or advisor to or director (including a Non-Employee
Director), employee or officer of the Company or any Subsidiary to whom
a nonqualified stock option has been granted pursuant to Section 10; or
a Non-Employee Director to whom a nonqualified stock option has been
granted pursuant to Section 11.
(k) "Parent" shall mean any corporation which owns, directly or
indirectly in an unbroken chain, fifty percent (50%) or more of the
total voting power of the Company's outstanding stock.
(l) The "Plan" means this Digital Biometrics, Inc. 1998 Stock Option
Plan, as amended hereafter from time to time, including the form of
Option Agreements as they may be modified by the Board from time to
time.
(m) A "Subsidiary" shall mean any corporation of which fifty percent
(50%) or more of the total voting power of outstanding stock is owned,
directly or indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and
any Subsidiary hereafter created or acquired by facilitating the retention of
competent personnel and by furnishing incentive to officers, directors,
employees, consultants, and advisors upon whose efforts the success of the
Company and any Subsidiary will depend.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
provision, pursuant to Section 9 of this Plan, and through the granting of
"nonqualified stock options" pursuant to Sections 10 and 11 of this Plan.
Adoption of this Plan shall be and is expressly subject to the condition of
approval by the stockholders of the Company. Any incentive stock options granted
after adoption of the Plan by the Board of Directors shall be treated as
nonqualified stock options if stockholder approval is not obtained within twelve
months after adoption of the Plan by the stockholders of the Company.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the Board of
Directors, subject to approval by the stockholders of the Company as required in
Section 2.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(hereinafter referred to as the "Board") or by a Committee which may be
appointed by the Board from time to time (collectively referred to as the
"Administrator"). The Administrator shall have all of the powers vested in it
under the provisions of the Plan, including but not limited to exclusive
authority (where applicable and within the limitations described herein) to
determine, in its sole discretion, whether an incentive stock option or
nonqualified stock
option shall be granted, the individuals to whom, and the time or times at
which, options shall be granted, the number of shares subject to each option and
the option price and terms and conditions of each option. The Administrator
shall have full power and authority to administer and interpret the Plan, to
make and amend rules, regulations and guidelines for administering the Plan, to
prescribe the form and conditions of the respective stock option agreements
(which may vary from Optionee to Optionee) evidencing each option and to make
all other determinations necessary or advisable for the administration of the
Plan. The Administrator's interpretation of the Plan, and all actions taken and
determinations made by the Administrator pursuant to the power vested in it
hereunder, shall be conclusive and binding on all parties concerned.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith in connection with the administration
of the Plan. In the event the Board appoints a Committee as provided hereunder,
any action of the Committee with respect to the administration of the Plan shall
be taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Administrator shall from time to time, at its discretion and
without approval of the stockholders, designate those employees, officers,
directors, consultants, and advisors of the Company or of any Subsidiary or
Affiliated Entity to whom nonqualified stock options shall be granted under this
Plan; provided, however, that consultants or advisors shall not be eligible to
receive stock options hereunder unless such consultant or advisor renders bona
fide services to the Company or Subsidiary or Affiliated Entity and such
services are not in connection with the offer or sale of securities in a capital
raising transaction. The Administrator shall, from time to time, at its
discretion and without approval of the stockholders, designate those employees
of the Company or any Subsidiary or Affiliated Entity to whom incentive stock
options shall be granted under this Plan. The Administrator may grant additional
incentive stock options or nonqualified stock options under this Plan to some or
all participants then holding options or may grant options solely or partially
to new participants including persons to whom an offer of employment has been
extended. In designating participants the Administrator shall also determine the
number of shares to be optioned to each such participant. The Board may from
time to time designate individuals as being ineligible to participate in the
Plan.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Option Stock. Six Hundred Thousand (600,000) shares of
Option Stock shall be reserved and available for options under the Plan;
provided, however, that the total number of shares of Option Stock reserved for
options under this Plan shall be subject to adjustment as provided in Section 13
of the Plan. In the event that any outstanding option under the Plan for any
reason expires or is terminated prior to the exercise thereof, the shares of
Option Stock allocable to the unexercised portion of such option shall continue
to be reserved for options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time
to time during a period of ten (10) years from the effective date as defined in
Section 3. Nonqualified stock options may be granted pursuant to the Plan from
time to time after the effective date of the Plan and until the Plan is
discontinued or terminated by the Board. Any incentive stock option granted
during such ten-year period and any nonqualified
stock option granted prior to the termination of the Plan by the Board shall
remain in full force and effect until the expiration of the option as specified
in the written stock option agreement and shall remain subject to the terms and
conditions of this Plan.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant
to this Plan with cash, personal check, certified check or, if approved by the
Administrator in its sole discretion, Common Stock of the Company valued at such
Stock's then Fair Market Value, or such other form of payment as may be
authorized by the Administrator. The Administrator may, in its sole discretion,
limit the forms of payment available to the Optionee and may exercise such
discretion any time prior to the termination of the option granted to the
Optionee or upon any exercise of the option by the Optionee.
With respect to payment in the form of Common Stock of the Company, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure compliance with Rule 16b-3, or any successor provision, as
then in effect, of the General Rules and Regulations under the Exchange Act, if
applicable.
The Administrator may permit a participant to elect to pay the Exercise
Price by authorizing a third party to sell Stock (or a sufficient portion
thereof) acquired upon exercise of an Option and remit to the Company a
sufficient portion of the sale proceeds to pay the Exercise price and any tax
withholding resulting from such exercise.
The Administrator may permit all or any part of the Exercise Price and
any withholding taxes to be paid by delivering (on a form prescribed by the
Company) a full-recourse promissory note. The Exercise Price and any withholding
taxes may be paid, in whole or in part, in any other form that is consistent
with applicable laws, regulations and rules.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to this Section 9 shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Optionee to Optionee; provided, however,
that each Optionee and each Option Agreement shall comply with and be subject to
the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the incentive stock option. To
the extent required to qualify the Option as an incentive stock option
under Section 422 of the Internal Revenue Code, or any successor
provision, the Exercise Price per share shall not be less than one
hundred percent (100%) of the Fair Market Value of the Common Stock per
share on the date the Administrator grants the option; provided,
however, that if an Optionee owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or of its Parent or any Subsidiary, the option
price per share of an incentive stock option granted to such Optionee
shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Common Stock per share on the date of the grant of
the option. The Administrator shall have full authority and discretion
in establishing the option price and shall be fully protected in so
doing.
(b) Term and Exercisability of Incentive Stock Option. The term during
which any incentive stock option granted under the Plan may be
exercised shall be established in each case by the Administrator. To
the extent required to qualify the Option as an incentive stock option
under Section 422 of the Internal Revenue Code, or any successor
provision, in no event shall any incentive stock option be exercisable
during a term of more than seven (7) years after the date on which it
is granted; provided, however, that if an Optionee owns stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of its parent or any
Subsidiary, the incentive stock option granted to such Optionee shall
be exercisable during a term of not more than five (5) years after the
date on which it is granted.
(c) The Option Agreement shall state when the incentive stock option
becomes exercisable and shall also state the maximum term during which
the option may be exercised. In the event an incentive stock option is
exercisable immediately, the manner of exercise of the option in the
event it is not exercised in full immediately shall be specified in the
Option Agreement subject to Section 13, the Administrator may
accelerate the exercisability of any incentive stock option granted
hereunder which is not immediately exercisable as of the date of grant.
(d) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Administrator
shall deem advisable. Any such Option Agreement shall contain such
limitations and restrictions upon the exercise of the option as shall
be necessary to ensure that such option will be considered an
"incentive stock option" as defined in Section 422 of the Internal
Revenue Code or to conform to any change therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to this Section 10
shall be evidenced by a written Option Agreement. The Option Agreement shall be
in such form as may be approved from time to time by the Administrator and may
vary from Optionee to Optionee; provided, however, that each Optionee and each
Option Agreement shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the nonqualified stock option.
The option price per share shall be one hundred percent (100%) of the
Fair Market Value of the Common Stock per share on the date the
Administrator grants the option; provided, however, that the option
price may not be less than the higher of the Fair Market Value of the
Book Value of the Common Stock per share on the date of grant.
(b) Term and Exercisability of Nonqualified Stock Option. The term
during which any nonqualified stock option granted under the Plan may
be exercised shall be established in each case by the Administrator,
but shall not exceed seven (7) years. The Option Agreement shall state
when the nonqualified stock option becomes exercisable and shall also
state the term during which the option may be exercised. In the event a
nonqualified stock option is exercisable immediately, the manner of
exercise of the option in the event it is not exercised in full
immediately shall be specified in the stock option agreement subject to
Section 13, the Administrator may accelerate the exercisability of any
nonqualified stock option granted hereunder which is not immediately
exercisable as of the date of grant.
(c) Withholding. The Company or its Subsidiary shall be entitled to
withhold and deduct from future wages of the Optionee all legally
required amounts necessary to satisfy any and all withholding and
employment-related taxes attributable to the Optionee's exercise of a
nonqualified stock option. In the event the Optionee is required under
the Option Agreement to pay the Company, or make arrangements
satisfactory to the Company respecting payment of, such withholding and
employment-related taxes, the Administrator may, in its discretion and
pursuant to such rules as it may adopt, permit the Optionee to satisfy
such obligation, in whole or in part, by electing to have the Company
withhold shares of Common Stock otherwise issuable to the Optionee as a
result of the option's exercise equal to the amount required to be
withheld for tax purposes. Any stock elected to be withheld shall be
valued at its Fair Market Value, as of the date the amount of tax to be
withheld is determined under applicable tax law. The Optionee's
election to have shares withheld for this purpose shall be made on or
before the date the option is exercised or, if later, the date that the
amount of tax to be withheld is determined under applicable tax law.
Such election shall be approved by the Administrator and otherwise
comply with such rules as the Administrator may adopt to assure
compliance with Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under this
Section 10 shall contain such other provisions as the Administrator
shall deem advisable.
SECTION 11.
GRANTING OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Upon initial election and each re-election to Board by the
stockholders at an annual meeting of the Company, commencing with the
annual meeting of the stockholders held in 1998, each Non-Employee
Director who, on and after the date this Plan is approved by the
Company's stockholders, is elected or re-elected as a director of the
Company by the stockholders or whose term of office continues after a
meeting of stockholders at which directors are elected shall, as of the
date of such re-election or stockholder meeting (the "Grant Date"),
automatically be granted an option to purchase fifteen thousand
(15,000) shares of the Common Stock at an option price per share equal
to 100% of the Fair Market Value of the Common Stock on the date of
such election, re-election or stockholder meeting. Options granted
pursuant to this subsection (a) shall be exercisable in full after the
earlier of: (a) the Non-Employee Director's service on the Board
through the next succeeding annual meeting, or (b) the Non-Employee
Director's service on the Board for at least twelve months following
the Grant Date.
(b) No director shall receive more than one option pursuant to
subsection (a) of this Section 11 in any one fiscal year. All options
granted pursuant to this Section 11 shall be designated as nonqualified
options and shall be subject to the same terms and provisions as are
then in effect with respect to granting of nonqualified options to
officers and employees of the Company except that the option shall
expire on the earlier of (i) twelve (12) months after the Optionee
ceases to be a director (except by death) and (ii) five years after the
date of grant. Notwithstanding the foregoing, in the event of the death
of a Non-Employee Director, any option granted to such Non-Employee
Director pursuant to this Section 11 may be exercised at any time
within six (6) months of the death of such Non-Employee Director or on
the date on which the option, by its terms expires, whichever is
earlier.
SECTION 12.
TRANSFER OF OPTION
Except as otherwise provided by the Administrator, awards under the
Plan are not transferable other than as designated by the Participant by will or
by the laws of descent and distribution.
SECTION 13.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Company,
the number of shares of Option Stock reserved under Section 6 hereof and the
number of shares of Option Stock covered by each outstanding option and the
price per share thereof shall be adjusted to reflect such change. Additional
shares which may be credited pursuant to such adjustment shall be subject to the
same restrictions as are applicable to the shares with respect to which the
adjustment relates.
Unless otherwise provided in the stock option agreement, in the event
of an acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company (collectively referred to as
a "transaction"), all outstanding options shall become immediately exercisable,
whether or not such options had become exercisable prior to the transaction;
provided, however, that if the acquiring party seeks to have the transaction
accounted for on a "pooling of interests" basis and, in the opinion of the
Company's independent certified public accountants, accelerating the
exercisability of such options would preclude a pooling of interests under
generally accepted accounting principles, the exercisability of such options
shall not accelerate. In addition and subject to the foregoing, in the event of
such a transaction, the Board may provide for one or more of the following:
(a) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the
Board (which date shall give Optionees a reasonable period of time in
which to exercise the options prior to the effectiveness of such
transaction);
(b) that Optionees holding outstanding incentive or nonqualified
options shall receive, with respect to each share of Option Stock
subject to such options, as of the effective date of any such
transaction, cash in an amount equal to the excess of the Fair Market
Value of such Option Stock on the date immediately preceding the
effective date of such transaction over the option price per share of
such options; provided that the Board may, in lieu of such cash
payment, distribute to such Optionees shares of stock of the Company or
shares of stock of any corporation succeeding the Company by reason of
such transaction, such shares having a value equal to the cash payment
herein; or
(c) the continuance of the Plan with respect to the exercise of options
which were outstanding as of the date of adoption by the Board of such
plan for such transaction and provide to Optionees holding such options
the right to exercise their respective options as to an equivalent
number of shares of stock of the corporation succeeding the Company by
reason of such transaction.
The Board may restrict the rights of or the applicability of this
Section 13 to the extent necessary to comply with Section 16(b) of the
Securities Exchange Act of 1934, the Internal Revenue Code or any other
applicable law or regulation. The grant of an option pursuant to the Plan shall
not limit in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, exchange or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 14.
SECURITIES LAW COMPLIANCE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's counsel, with
all applicable legal requirements, including without limitation, those relating
to securities laws and stock exchange listing requirements. As a condition to
the issuance of Option Stock to Optionee, the Administrator may require Optionee
to (i) represent that the shares
of Option Stock are being acquired for investment and not resale and to make
such other representations as the Administrator shall deem necessary or
appropriate to qualify the issuance of the shares as exempt from the Securities
Act of 1933 and any other applicable securities laws, and (ii) represent that
Optionee shall not dispose of the shares of Option Stock in violation of the
Securities Act of 1933 or any other applicable securities laws.
As a further condition to the grant of any incentive or nonqualified
stock option or the issuance of Option Stock to Optionee, Optionee agrees to the
following:
(a) In the event the Company advises Optionee that it plans an
underwritten public offering of its Common Stock in compliance with the
Securities Act of 1933, as amended, and the underwriter(s) seek to
impose restrictions under which certain stockholders may not sell or
contract to sell or grant any option to buy or otherwise dispose of
part or all of their stock purchase rights of the underlying Common
Stock, Optionee will not, for a period not to exceed 180 days from the
prospectus, sell or contract to sell or grant an option to buy or
otherwise dispose of any incentive or nonqualified stock option granted
to Optionee pursuant to the Plan or any of the underlying shares of
Common Stock without the prior written consent of the underwriter(s) or
its representative(s).
(b) In the event the Company makes any public offering of its
securities and determines in its sole discretion that it is necessary
to reduce the number of issued but unexercised stock purchase rights so
as to comply with any states securities or Blue Sky law limitations
with respect thereto, the Board of Directors of the Company shall have
the right (i) to accelerate the exercisability of any incentive or
nonqualified stock option and the date on which such option must be
exercised, provided that the Company gives Optionee prior written
notice of such acceleration, and (ii) to cancel any options or portions
thereof which Optionee does not exercise prior to or contemporaneously
with such public offering.
(c) In the event of a transaction (as defined in Section 13 of the
Plan) which is treated as a "pooling of interests" under generally
accepted accounting principles, Optionee will comply with Rule 145 of
the Securities Act of 1933 and any other restrictions imposed under
other applicable legal or accounting principles if Optionee is an
"affiliate" (as defined in such applicable legal and accounting
principles) at the time of the transaction, and Optionee will execute
any documents necessary to ensure compliance with such rules.
The Company reserves the right to place a legend on any stock
certificate issued upon exercise of an option granted pursuant to the Plan to
assure compliance with this Section 14.
SECTION 15.
RIGHTS AS A STOCKHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a stockholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 13 of the Plan).
SECTION 16.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or amend it in any respect; provided, however, that no
such revision or amendment, except as is authorized in
Section 13, shall impair the terms and conditions of any option which is
outstanding on the date of such revision or amendment to the material detriment
of the Optionee without the consent of the Optionee. An amendment shall be
subject to approval by the stockholders of the Company only if such approval is
required for compliance with the requirements of any applicable law, rule or
regulation.
SECTION 17.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee
to exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
SECTION 18.
LIMITATION ON PAYMENTS
Any provision of the Plan to the contrary notwithstanding, in the event
that the independent auditors most recently selected by the Board (the
"Auditors") determine that any payment or transfer by the Company under the Plan
to or for the benefit of a Participant (a "Payment") would be nondeductible by
the Company for federal income tax purposes because of the provisions concerning
"excess parachute payments' in section 280G of the Code, than the aggregate
present value of all Payments shall be reduced (but not below zero) to the
Reduced Amount; provided that the Committee, at the time of that such Award
shall not be so reduced and shall not be subject to this Section 18. For
purposes of this Section 18, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Company because of
section 280G of the Code.
(a) If the Auditors determine that any Payment would be nondeductible
by the Company because of section 280G of the Code, then the Company
shall promptly give the Participant notice to that effect and a copy of
the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and
how much of the Payments shall be eliminated or reduced (as long as
after such election the aggregate present value of the Payments equals
the Reduced Amount) and shall advise the Company in writing of his or
her election within 10 days of receipt of notice. If no such election
is made by the Participant within such 10-day period, then the Company
may elect which and how much of the Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of
the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Section 18,
present value shall be determined in accordance with section 280G(d)(4)
of the Code. All determinations made by the Auditors under this Section
18 shall be binding upon the Company and the Participant and shall be
made within 60 days of the date when a Payment becomes payable or
transferable. As promptly as practicable following such determination
and the elections hereunder, the Company shall pay or transfer to or
for the benefit of the Participant such amounts as are then due to him
or her under the Plan and shall promptly pay or transfer to or for the
benefit of the Participant in the future such amounts as become due to
him or her under the Plan.
(b) As a result of uncertainty in the application of section 280G of
the Code at the time of an initial determination by the Auditors
hereunder, it is possible that Payments will have been made by
additional Payments which will not have been made by the Company could
have been made (an "Underpayment"), consistent in each case with the
calculation of the Reduced Amount hereunder. In the event that the
Auditors, based upon that assertion of a deficiency by the Internal
Revenue Service against the Company or the Participant which the
Auditors believe has a high probability of success, determine that an
Overpayment has been made, such Overpayment shall be treated for all
purposes as a loan to the Participant which he or she shall repay to
the Company, together with
interest at the applicable federal rate provided in section 7872(f)(2)
of the Code; provided, however, that no amount shall be payable by the
Participant to the Company if and to the extent that such payment would
not reduce the amount which is subject to taxation under section 4999
of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code.
DIGITAL BIOMETRICS, INC.
5600 ROWLAND ROAD
MINNETONKA, MN 55343-4315
(612) 942-0888
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having duly received the Notice of Annual Meeting of
Stockholders and the Proxy Statement, dated February ____, 1998, hereby appoints
James C. Granger and C. McKenzie Lewis III as proxies (each with the power to
act alone and with the power of substitution and revocation), to represent the
undersigned and to vote, as designated below, all shares of Common Stock of
Digital Biometrics, Inc. (the "Company") held of record by the undersigned on
February 13, 1998, at the Annual Meeting of Stockholders to be held at the
Lutheran Brotherhood Auditorium, 625 Fourth Avenue South, Minneapolis, Minnesota
on Wednesday, April 8, 1998, at 3:30 p.m., Minneapolis time, and at any
adjournment or postponement thereof.
1. To elect five directors, each to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees
below) listed below
JAMES C. GRANGER, C. MCKENZIE LEWIS III, GEORGE LATIMER,
STEPHEN M. SLAVIN, JOHN E. HAUGO
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL, WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
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2. To consider and vote upon the amendment to the Company's Certificate of
Incorporation to increase the Company's authorized Common Stock from
20,000,000 to 40,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To consider and vote upon approval of the Company's 1998 Stock Option
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON THE
PROXY BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 THROUGH 3. ABSTENTIONS WILL BE COUNTED TOWARD THE
EXISTENCE OF A QUORUM.
Please sign exactly as name appears on this proxy. When shares are held by joint
tenants, both should sign. If signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by an authorized person.
Dated:
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PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.