Precise Biometrics AB (publ) is a Swedish public limited company domiciled in Lund. The Company’s share has been listed on the O-list of the Stockholm Stock Exchange since October 3, 2000, which after October 2, 2006 was replaced by the Nordic Stock Exchange, where the Company is now listed on the Small Cap list. Precise Biometrics AB is subject to the Swedish Companies Act and Swedish stock exchange rules.

From July 1, 2008, Precise Biometrics has applied the Swedish corporate governance code (the Code). Corporate governance is founded on the company by-laws, the Swedish Companies Act and stock exchange rules, including the Code. Precise Biometrics differs from the Code mainly when it comes to the following items:

• The company has decided to not establish a specific internal audit function. This is further explained in the section “The board of directors’ report on internal control for the 2008 financial year”
• The board of Directors has chosen to not establish a specific audit committee, instead the Board of Directors self constitutes the audit committee. Read more in the section “Audit Committee”
• The board of Directors has chosen to not establish a specific compensation committee, instead the Board of Directors self constitutes the compensation committee. Read more in the section “Compensation committee”

The Corporate Governance Report describes in outline the way in which the company applies the Code. The present report has not been examined by the auditors.

The Annual General Meeting

The Swedish Companies Act and the company by-laws describe how General Annual Meetings must be convened and who is entitled to attend and vote at them. The minutes of the meeting are available on the Precise Biometrics website.

The annual general meeting for Precise Biometrics AB (publ) will be held on Wednesday April 21, 2010 at 16.00 at Precise Biometrics headquarters in Lund, Scheelevägen 30.

Under the company by-laws, the meeting must be convened through announcements posted in the Post- och Inrikes Tidningar and the Svenska Dagbladet newspapers. Stockholders wishing to attend the meeting must be entered in the capital stock register by 15 April at the latest. Applications to attend the meeting must be made in the manner specified in the convening notice.

The nominating committee

Under a decision taken at the company’s General Annual Meeting held on 22 April 2008 a nominating committee must be appointed. The nominating committee must at least consist of one representative from each of the three largest stockholders as of 31 August prior to the stockholders’ meeting and the chairman of the board of directors. The nominating committee is made up of the following persons: Kerstin Stenberg (Swedbank Robur funds), Öyvind Fjell (Storebrand fonder) and Nils Bernhard (Nils Bernhard Bolag).The Chairman of the Board, Lisa Thorsted, is also represented in the Nomination Committee, and is the convener.

The nominating committee’s proposals for the board of directors and fees paid to members of the board of directors, proposals for auditors and auditors’ fees and proposals for the chairman of the meeting must be contained in the notice convening the General Annual Meeting.

The board of directors

The members of the board of directors are elected at the General Annual Meeting. During the periods between General Annual Meetings, the board of directors of Precise Biometrics is the highest executive body.

The company by-laws contain no restrictions concerning the eligibility of the members of the board. Under the by-laws, the board of directors must consist of at least three and at the most seven members with a maximum of three alternates.

Following the General Annual Meetings in April 2008, the board of directors consisted of five ordinary members. None of the members of the board are employed in the company. The composition of the board of directors and the various tasks of its members are described under the headline “Board of directors” in the Annual report.

The work of the board of directors

The work of the board of directors complies with annually established rules of procedure. The rules of procedure include instructions to the company’s president, the tasks of the chairman of the board, the agenda of board meetings and the decision-making procedure. In 2009, the board of directors held nine meetings at which the minutes were taken. Issues discussed during the year included strategy and long-term aims, financing, policies and quarter and year-end reports.

During the year, the board of directors also appraised the work of the board. In addition to the ordinary meetings, the chairman and other board members were in constant contact with leading officials of the company, primarily the president and the CFO. Besides meetings where minutes were taken, the board of directors also received monthly updates on the company’s financial results and position.

Fees paid to the members of the board of directors appear in Note 27 of the financial statements.

Group executive

The Precise Biometrics executive is based at the head office in Lund. The composition of the executive is described under the headline “Management team” in the financial statements, and is designed to shorten decision-making pathways. During the year, the group held formal weekly meetings and a strategy and budget meeting.

The president keeps the board of directors up-to-date at all times. Besides the board meetings the president and the CFO held informal monthly update meetings with the board of directors, at which the company’s financial position and progress were presented.

Compensation committee

The task of the compensation committee is to manage questions relating to salary, pension terms, incentive schemes and other terms and conditions of employment for the company executive. Proposal of guidelines for leading officials are described in the administration report in the Annual Report. The compensation committee is made up of the entire board of directors. Since the board consist of five members it has been decided that no separate compensation committee should be set up, and instead the board of directors self constitutes the compensation committee.

The audit committee

Since the board of directors consists of five members it has been decided not to form a separate audit committee. These issues are managed by the board as a whole. To provide for disclosure needs the company’s auditors report to the board of directors at least twice a year. In addition, the chairman of the board has regular contact with the head auditor.

Auditors

The annual 2008 General Annual Meeting chose Öhrlings Price WaterhouseCoopers AB, with Eva Carlsvi as chief auditor, as Precise Biometrics’ auditors up to and including the General Annual Meeting in 2012. Öhrlings Price WaterhouseCoopers have been the company’s auditors since the company was established in 1998. The auditors perform assignments for other listed companies, but not to an extent which would interfere with the proper auditing of Precise Biometrics. None of the auditors have assignments which would throw doubts on their independence.

Information about the auditors’ fees may be found in the Annual Report, Note 8 for the consolidated statements and Note 8 for the parent company.

Policies

Precise Biometrics has established a number of policies. Overall these policies represent the guidelines determined by the board of directors and executive management to govern the organization’s operations. Below is a description of the policies established by the company. All policies are revised annually.
 

Finance policy

This policy is intended to establish clear guidelines for how the company manages financing, currency exposure, investments, insurances, and financial and accounting reporting.
 

Information policy

The information policy ensures that the company publishes consistent and correct information about its business and meets stock exchange requirements about disclosures to the stock market.
 

Insider policy

This policy ensures that there is no insider trading in the company stock. The company maintains a log of all transactions which may affect the stock price and the people in the company and on the board of directors who may have knowledge of these transactions.
 

IT policy

This policy is intended to establish guidelines for ownership rights and the purchase of computers. The IT policy also includes stipulations as to which programs are allowed and the procedures which apply to the installation of software. Rules for internet use also form part of the IT policy.
 

Ethics policy

The company’s ethics policy deals with issues and values concerning the company’s relations with its environment, its staff, its market and its stockholders.
 

Environmental policy

The purpose of the company´s environmental policy is to fulfil the policy’s guidelines regarding operations, investments and other activities and their effect on the environment. This is primarily focused on how the company is using recycable material in its production of hardware. Another focus area is that the employees should, as to what is possible, use environmental friendly travel alternatives.

The board of directors’ report on internal control for the 2009 financial year

Under the Swedish Companies Act and the Code, the board of directors is responsible for internal control. According to the Code, the board of directors must ensure there is good internal control and keep itself constantly informed about and evaluate the functioning of the company’s internal control system. The board of directors’ report has been limited only to include internal control of the financial reports. The report has not been examined by the auditors.

The board of directors decided to describe internal control in accordance with the COSO framework.
 

The control environment

In order to create and maintain an efficient control environment, the board of directors has drawn up a number of documents of significance to financial reporting. These documents include the board of directors’ rules of procedure and instructions for the president. The president is responsible for ensuring compliance in day-to-day operational work with the guidelines prepared by the board of directors. The president regularly reports to the board of directors based on established procedures, at meetings of the board and more informal update meetings.

In addition, the company auditors report to the board of directors at least twice per financial year. The head auditor also has regular contact with the chairman of the board.
The most important parts of the control environment are the steering documents on reporting and financial reporting. The company follows a clear procedure in relation to annual and monthly financial reporting. The closing financial statements are presented to the board of directors every month according to a predetermined template.

The company organization and the way in which business is run are also important bases for internal control. All areas of responsibility and employees have clearly defined roles. In general, the company policies are important bases for the functioning of the control environment.
 

Risk assessment and inspection activities

Precise Biometrics constantly assesses the current risk situation applying to financial reporting. Above all, the company examines the risk in financial statements, i.e. whether there are errors in accounting and the way in which assets and liabilities are assessed. There may also be risks associated with the management of intragroup balances. However, such risks are assessed as being minor in nature, as the company has a clear monthly financial closing process and established monitoring procedures and policies. It should also be noted that the company constantly updates its finance handbook.

Manual inspections are performed in order to prevent errors in financial reporting. The inspections are also incorporated in reporting and other IT systems.
 

Information and communications

The board of directors receives monthly reports from the president and CFO about the company’s financial position, progress and ongoing projects.

The company constantly informs relevant staff about updated financial reporting principles, policies and other changes to reporting requirements.

External information and communications are subject to the company information policy.

Follow-up

The board of directors and the auditing committee constantly assess the information submitted by the company executive. The company’s financial position is discussed at every board meeting and at more informal monthly update meetings. Comparisons with budgets and forecasts, along with analysis of non-compliances, are described in monthly reports.

The board of directors examines interim and year-end financial statements before they are published.
External auditing information also includes monitoring internal control in the group.

In this light, the board of directors did not find it necessary to perform a separate internal audit.

The Board of Directors of Precise Biometrics AB

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