EXHIBIT 10.27
BIO-KEY INTERNATIONAL, INC.
SECURITIES PURCHASE AGREEMENT
SEPTEMBER 29, 2004
TABLE OF CONTENTS
Page
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1. Agreement to Sell and Purchase...............................................1
2. Expenses and Warrant.........................................................2
3. Closing, Delivery and Payment................................................2
3.1 Closing............................................................2
3.2 Delivery...........................................................2
4. Representations and Warranties of the Company................................3
4.1 Organization, Good Standing and Qualification......................3
4.2 Subsidiaries.......................................................3
4.3 Capitalization; Voting Rights......................................4
4.4 Authorization; Binding Obligations.................................4
4.5 Liabilities........................................................5
4.6 Agreements; Action.................................................5
4.7 Obligations to Related Parties.....................................6
4.8 Changes............................................................7
4.9 Title to Properties and Assets; Liens, Etc.........................8
4.10 Intellectual Property.............................................8
4.11 Compliance with Other Instruments.................................9
4.12 Litigation........................................................9
4.13 Tax Returns and Payments..........................................9
4.14 Employees........................................................10
4.15 Registration Rights and Voting Rights............................10
4.16 Compliance with Laws; Permits....................................10
4.17 Environmental and Safety Laws....................................11
4.18 Valid Offering...................................................11
4.19 Full Disclosure..................................................11
4.20 Insurance........................................................12
4.21 SEC Reports......................................................12
4.22 Listing..........................................................12
4.23 No Integrated Offering...........................................12
4.24 Stop Transfer....................................................12
4.25 Dilution.........................................................12
4.26 Patriot Act......................................................13
5. Representations and Warranties of the Purchaser.............................13
5.1 No Shorting.......................................................13
5.2 Requisite Power and Authority.....................................13
5.3 Investment Representations........................................14
5.4 Purchaser Bears Economic Risk.....................................14
5.5 Acquisition for Own Account.......................................14
5.6 Purchaser Can Protect Its Interest................................14
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TABLE OF CONTENTS
(continued)
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5.7 Accredited Investor...............................................14
5.8 Legends...........................................................14
6. Covenants of the Company....................................................16
6.1 Stop-Orders.......................................................16
6.2 Trading...........................................................16
6.3 Market Regulations................................................16
6.4 Reporting Requirements............................................16
6.5 Use of Funds......................................................16
6.6 Access to Facilities..............................................16
6.7 Taxes.............................................................17
6.8 Insurance.........................................................17
6.9 Intellectual Property.............................................18
6.10 Properties.......................................................18
6.11 Confidentiality..................................................18
6.12 Required Approvals...............................................18
6.13 Reissuance of Securities.........................................19
6.14 Opinion..........................................................20
7. Covenants of the Purchaser..................................................20
7.1 Confidentiality...................................................20
7.2 Non-Public Information............................................20
7.3 Regulation M......................................................20
8. Covenants of the Company and Purchaser Regarding Indemnification............20
8.1 Company Indemnification...........................................20
8.2 Purchaser's Indemnification.......................................21
9. Conversion of Convertible Note..............................................21
9.1 Mechanics of Conversion...........................................21
10. Registration Rights........................................................23
10.1 Registration Rights Granted......................................23
10.2 Offering Restrictions............................................23
11. Miscellaneous..............................................................23
11.1 Governing Law....................................................23
11.2 Survival.........................................................23
11.3 Successors.......................................................23
11.4 Entire Agreement.................................................24
11.5 Severability.....................................................24
11.6 Amendment and Waiver.............................................24
11.7 Delays or Omissions..............................................24
11.8 Notices..........................................................24
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TABLE OF CONTENTS
(continued)
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11.9 Attorneys' Fees..................................................26
11.10 Titles and Subtitles............................................26
11.11 Facsimile Signatures; Counterparts..............................26
11.12 Broker's Fees...................................................26
11.13 Construction....................................................26
12. Collateral Agent...........................................................26
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LIST OF EXHIBITS
Form of Convertible Term Note.............................................. Exhibit A
Form of Warrant............................................................ Exhibit B
Form of Opinion............................................................ Exhibit C
Form of Escrow Agreement................................................... Exhibit D
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THIS AGREEMENT AND THE INDEBTEDNESS EVIDENCED HEREBY ARE SUBJECT TO THE
PROVISIONS OF THAT CERTAIN INTERCREDITOR AND SUBORDINATION AGREEMENT (THE
"SUBORDINATION AGREEMENT") DATED AS OF SEPTEMBER 29, 2004 AMONG SHAAR FUND,
LTD., AS PURCHASER AGENT, LAURUS MASTER FUND, LTD., AS COLLATERAL AGENT, AETHER
SYSTEMS, INC., BIO-KEY INTERNATIONAL, INC. AND PUBLIC SAFETY GROUP, INC.; AND
EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE
PROVISIONS OF THE SUBORDINATION AGREEMENT.
SECURITIES PURCHASE AGREEMENT
THIS
SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of September 29, 2004, by and between BIO-KEY INTERNATIONAL, INC., a
Minnesota corporation (the "Company"), Laurus Master Fund, Ltd., a Cayman
Islands company ("Laurus"), and the parties signatory hereto as purchasers
(collectively with Laurus and individually, the "Purchaser"), and (iii) Laurus,
as Collateral Agent for the Purchasers (in such capacity, the "Collateral
Agent").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of
Convertible Term Notes in the aggregate principal amount of Five Million Fifty
Thousand Dollars ($5,050,000) (individually and collectively and as amended,
modified or supplemented from time to time, the "Note"), which Note is
convertible into shares of the Company's common stock, $0.01 par value per share
(the "Common Stock") at an initial fixed conversion price of $1.35 per share of
Common Stock ("Fixed Conversion Price");
WHEREAS, the Company wishes to issue warrants (individually and
collectively and as amended, modified or supplemented from time to time, the
"Warrant") to the Purchaser to purchase up to an aggregate 1,122,222 shares of
the Company's Common Stock (subject to adjustment as set forth therein) in
connection with Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant on the
terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company, the Note in the
aggregate principal amount of $5,050,000 as allocated on Schedule 1 hereto
convertible in accordance with the terms thereof into shares of the Company's
Common Stock in accordance with the terms of the Note and this Agreement. The
Note purchased on the Closing Date shall be known as the "Offering." A form of
the Note is annexed hereto as Exhibit A. The Note will mature on the Maturity
Date (as defined in the Note). Collectively, the Note and Warrant and Common
Stock issuable in payment of the Note, upon conversion of the Note and upon
exercise of the Warrant are referred to as the "Securities."
2. EXPENSES AND WARRANT. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser the Warrant to
purchase up to an aggregate of 1,122,222 shares of Common Stock as
allocated on Schedule 1 hereto in connection with the Offering pursuant to
Section 1 hereof. The Warrant must be delivered on the Closing Date. A form
of Warrant is annexed hereto as Exhibit B. All the representations,
covenants, warranties, undertakings, and indemnification, and other rights
made or granted to or for the benefit of the Purchaser by the Company are
hereby also made and granted in respect of the Warrant and shares of the
Company's Common Stock issuable upon exercise of the Warrant (the "Warrant
Shares").
(b) The Company shall reimburse the Purchaser for its reasonable
expenses (including legal fees and expenses) incurred in connection with
the preparation and negotiation of this Agreement and the Related
Agreements (as hereinafter defined), and expenses incurred in connection
with the Purchaser's due diligence review of the Company and its
Subsidiaries (as defined in Section 6.8) and all related matters. Amounts
required to be paid under this Section 2(c) will be paid on the Closing
Date and, when taken together with all fees to be paid by the Company to
the Escrow Agent (defined below) shall not exceed $27,000 for such expenses
referred to in this Section 2(c).
(c) The expenses referred to in the preceding clause (b) (net of
deposits previously paid by the Company) shall be paid at closing out of
funds held pursuant to the Escrow Agreement (as defined below) and a
disbursement letter (the "Disbursement Letter").
3. CLOSING, DELIVERY AND PAYMENT.
3.1. CLOSING. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), shall take place on the
date hereof, at such time or place as the Company and Purchaser may mutually
agree (such date is hereinafter referred to as the "Closing Date").
3.2. DELIVERY. Pursuant to the Escrow Agreement, at the Closing on the
Closing Date, the Company will deliver to the Purchaser, among other things, a
Note in the form attached as Exhibit A representing the aggregate principal
amount of $5,050,000 and a Warrant in the form attached as Exhibit B in the
Purchaser's name representing 1,122,222 Warrant Shares and the Purchaser will
deliver to the Company, among other things, the amounts set forth in the
Disbursement Letter by certified funds or wire transfer.
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4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as of immediately prior to the
acquisition of the Mobile Government Division of Aether Systems, Inc. as follows
(which representations and warranties are supplemented by the Company's filings
under the Securities Exchange Act of 1934 (collectively, the "Exchange Act
Filings"), public access to copies of which having been provided to the
Purchaser):
4.1. ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the
Company and each of its Subsidiaries is a corporation, partnership or limited
liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of the
Company and each of its Subsidiaries has the corporate power and authority to
own and operate its properties and assets, to execute and deliver (i) this
Agreement, (ii) the Note and the Warrant to be issued in connection with this
Agreement, (iii) the Master Security Agreement dated as of the date hereof
between the Company, certain Subsidiaries of the Company and the Purchaser (as
amended, modified or supplemented from time to time, the "Master Security
Agreement"), (iv) the Registration Rights Agreement relating to the Securities
dated as of the date hereof between the Company and the Purchaser (as amended,
modified or supplemented from time to time, the "Registration Rights
Agreement"), (v) the Subsidiary Guaranty dated as of the date hereof made by
certain Subsidiaries of the Company (as amended, modified or supplemented from
time to time, the "Subsidiary Guaranty"), (vi) the Stock Pledge Agreement dated
as of the date hereof among the Company, certain Subsidiaries of the Company and
the Purchaser (as amended, modified or supplemented from time to time, the
"Stock Pledge Agreement"), (vii) the Funds Escrow Agreement dated as of the date
hereof among the Company, the Purchaser and the escrow agent referred to therein
(the "Escrow Agent"), substantially in the form of Exhibit D hereto (as amended,
modified or supplemented from time to time, the "Escrow Agreement") and (viii)
all other agreements related to this Agreement and the Note and referred to
herein (the preceding clauses (ii) through (viii), collectively, the "Related
Agreements"), to issue and sell the Note and the shares of Common Stock issuable
upon conversion of the Note (the "Note Shares"), to issue and sell the Warrant
and the Warrant Shares, and to carry out the provisions of this Agreement and
the Related Agreements and to carry on its business as presently conducted. Each
of the Company and each of its Subsidiaries is duly qualified and is authorized
to do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and it Subsidiaries, taken individually and as a whole (a "Material
Adverse Effect").
4.2. SUBSIDIARIES. Each direct and indirect Subsidiary of the Company,
the direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 4.2. For the purpose of this Agreement, a "SUBSIDIARY" of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or
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indirectly, by such person or entity or (ii) a corporation or other entity in
which such person or entity owns, directly or indirectly, more than 50% of the
equity interests at such time.
4.3. CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, as of the date hereof
consists of 90,000,000 shares, of which 85,000,000 are shares of Common
Stock, par value $0.01 per share, 38,433,829 shares of which are issued and
outstanding , and 5,000,000 are shares of preferred stock, par value $0.01
per share (the "Preferred Stock") of which 75,682 shares of preferred stock
are issued and outstanding. The authorized capital stock of each Subsidiary
of the Company is set forth on Schedule 4.3.
(b) Except as disclosed on Schedule 4.3 or as disclosed in any
Exchange Act Filings, other than: (i) the shares reserved for issuance
under the Company's stock option plans; and (ii) shares which may be
granted pursuant to this Agreement and the Related Agreements, there are no
outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agreements, or
arrangements or agreements of any kind for the purchase or acquisition from
the Company of any of its securities. Except as disclosed on Schedule 4.3
or as disclosed in any Exchange Act Filings, neither the offer, issuance or
sale of any of the Note or the Warrant, or the issuance of any of the Note
Shares or Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common Stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable state
and federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares
of the Common Stock are as stated in the Company's Certificate of
Incorporation, including its Certificate of Designations (the "Charter").
The Note Shares and Warrant Shares have been duly and validly reserved for
issuance. When issued in compliance with the provisions of this Agreement
and the Company's Charter, the Securities will be validly issued, fully
paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or
as otherwise required by such laws at the time a transfer is proposed.
4.4. AUTHORIZATION; BINDING OBLIGATIONS. All corporate, partnership or
limited liability company, as the case may be, action on the part of the Company
and each of its Subsidiaries (including the respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Note and Warrant has been taken or will be
taken prior to the Closing. This Agreement and the Related Agreements, when
executed and
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delivered and to the extent it is a party thereto, will be valid and binding
obligations of each of the Company and each of its Subsidiaries, enforceable
against each such person in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
Except as set forth on Schedule 4.3, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with. Except as set forth on schedule 4.3, the issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
4.5. LIABILITIES. Neither the Company nor any of its Subsidiaries
has any contingent liabilities, except current liabilities incurred in the
ordinary course of business and liabilities disclosed in any Exchange Act
Filings.
4.6. AGREEMENTS; ACTION. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the
Company or any of its Subsidiaries is a party or by which it is bound which
may involve: (i) obligations (contingent or otherwise) of, or payments to,
the Company in excess of $50,000 (other than obligations of, or payments
to, the Company arising from purchase or sale agreements entered into in
the ordinary course of business); or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary right to or from the
Company (other than licenses arising from the purchase of "off the shelf"
or other standard products); or (iii) provisions restricting the
development, manufacture or distribution of the Company's products or
services; or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
(b) Since June 30, 2004, neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock other than dividends paid to the holders of the Company's Series C
Preferred Stock; (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than ordinary course obligations) individually in
excess of $50,000 or, in the case of indebtedness and/or liabilities
individually less than $50,000, in excess of $100,000 in the aggregate;
(iii) made any loans or advances to any person not in excess, individually
or in the aggregate, of $100,000, other than ordinary course advances for
travel expenses; or (iv) sold, exchanged or otherwise disposed of any of
its assets or rights, other than the sale of its inventory in the ordinary
course of
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business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
4.7. OBLIGATIONS TO RELATED PARTIES. Except as set forth on Schedule
4.7 or as disclosed in any Exchange Act Filings, there are no obligations of the
Company or any of its Subsidiaries to officers, directors, stockholders or
employees of the Company or any of its Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of the
Company and its Subsidiaries;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the Company); and
(d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7 or as disclosed in any
Exchange Act Filings, none of the officers, directors or, to the best of the
Company's knowledge, key employees or stockholders of the Company or any members
of their immediate families, are indebted to the Company, individually or in the
aggregate, in excess of $50,000 or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company, other than passive investments in publicly traded
companies (representing less than one percent (1%) of such company) which may
compete with the Company. Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person. Except as set forth on Schedule 4.7 or as disclosed
in any Exchange Act Filings, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
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4.8. CHANGES. Since June 30, 2004 , except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company or any of its Subsidiaries, which individually or in the aggregate
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee or
group of employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of business, in
the contingent obligations of the Company or any of its Subsidiaries by way
of guaranty, endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a valuable
right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of its
Subsidiaries to any stockholder, employee, officer or director of the
Company or any of its Subsidiaries, other than advances made in the
ordinary course of business;
(g) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company or any
of its Subsidiaries;
(h) any declaration or payment of any dividend or other distribution
of the assets of the Company or any of its Subsidiaries, other than
dividends paid to the holders of the Company's Series C Preferred Stock;
(i) any labor organization activity related to the Company or any of
its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or guaranteed
by the Company or any of its Subsidiaries, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of
business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the Company
or any of its Subsidiaries;
(l) any change in any material agreement to which the Company or any
of its Subsidiaries is a party or by which either the Company or any of its
Subsidiaries is bound which either individually or in the aggregate has
had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
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(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through (m)
above.
4.9. TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Except as set forth
on Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) minor liens and encumbrances which do not materially detract from
the value of the property subject thereto or materially impair the
operations of the Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
4.10. INTELLECTUAL PROPERTY.
(a) Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now
conducted and to the Company's knowledge, as presently proposed to be
conducted (the "Intellectual Property"), without any known infringement of
the rights of others. There are no outstanding options, licenses or
agreements of any kind relating to the foregoing proprietary rights, nor is
the Company or any of its Subsidiaries bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person
or entity other than such licenses or agreements arising from the purchase
of "off the shelf" or standard products.
(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has
violated any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person
or entity, nor is the Company or any of its Subsidiaries aware of any basis
therefor.
(c) The Company does not believe it is or will be necessary to utilize
any
8
inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company or any of its
Subsidiaries, except for inventions, trade secrets or proprietary
information that have been rightfully assigned to the Company or any of its
Subsidiaries.
4.11. COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company nor any
of its Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Note by the Company and the other Securities by the Company each pursuant hereto
and thereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
4.12. LITIGATION. Except as set forth on Schedule 4.12 hereto or as
disclosed in any Exchange Act Filings, there is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its Subsidiaries that prevents the Company or any
of its Subsidiaries from entering into this Agreement or the other Related
Agreements, or from consummating the transactions contemplated hereby or
thereby, or which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect or any change in the
current equity ownership of the Company or any of its Subsidiaries, nor is the
Company aware that there is any basis to assert any of the foregoing. Neither
the Company nor any of its Subsidiaries is a party or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit, proceeding or investigation
by the Company or any of its Subsidiaries currently pending or which the Company
or any of its Subsidiaries intends to initiate.
4.13. TAX RETURNS AND PAYMENTS. Each of the Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have been or are
being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
9
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14. EMPLOYEES. Except as set forth on Schedule 4.14, neither the
Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company or any of
its Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company or any of its Subsidiaries because of the nature of
the business to be conducted by the Company or any of its Subsidiaries; and to
the Company's knowledge the continued employment by the Company or any of its
Subsidiaries of its present employees, and the performance of the Company's and
its Subsidiaries' contracts with its independent contractors, will not result in
any such violation. Neither the Company nor any of its Subsidiaries is aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries, no
employee of the Company or any of its Subsidiaries has been granted the right to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the Company or
any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
4.15. REGISTRATION RIGHTS AND VOTING RIGHTS. Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its Subsidiaries is presently under any obligation, and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company's or its Subsidiaries' presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to the
Company's knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any agreement with respect to the voting of equity securities
of the Company or any of its Subsidiaries.
4.16. COMPLIANCE WITH LAWS; PERMITS. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, rule, regulation,
order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be
10
expected to have, either individually or in the aggregate, a Material Adverse
Effect. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations
are required to be filed in connection with the execution and delivery of this
Agreement or any other Related Agreement and the issuance of any of the
Securities, except such as has been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed in
a timely manner. Each of the Company and its Subsidiaries has all material
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.17. ENVIRONMENTAL AND SAFETY LAWS. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Subsidiaries or, to
the Company's knowledge, by any other person or entity on any property owned,
leased or used by the Company or any of its Subsidiaries. For the purposes of
the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous" or
"toxic" under any applicable local, state, federal and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control
of hazardous wastes, or other activities involving hazardous substances,
including building materials; or
(b) any petroleum products or nuclear materials.
4.18. VALID OFFERING. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19. FULL DISCLOSURE. Each of the Company and each of its
Subsidiaries has provided the Purchaser with all information requested by the
Purchaser in connection with its decision to purchase the Note and Warrant,
including all information the Company and its Subsidiaries believe is reasonably
necessary to make such investment decision. Neither this Agreement, the Related
Agreements, the exhibits and schedules hereto and thereto nor any other document
delivered by the Company or any of its Subsidiaries to Purchaser or its
attorneys or agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, contain any untrue statement of a material fact
nor omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading. Any financial projections and other estimates provided to
the Purchaser by the Company or any of its Subsidiaries were based on the
Company's and its
11
Subsidiaries' experience in the industry and on assumptions of fact and opinion
as to future events which the Company or any of its Subsidiaries, at the date of
the issuance of such projections or estimates, believed to be reasonable.
4.20. INSURANCE. Each of the Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
4.21. SEC REPORTS. Except as set forth on Schedule 4.21, the Company
has filed all proxy statements, reports and other documents required to be filed
by it under the Securities ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, as amended (the "Exchange Act").
The Company has provided public access to copies of: (i) its Annual Reports on
Form 10-KSB for its fiscal years ended December 31, 2003 ; and (ii) its
Quarterly Reports on Form 10-QSB for its fiscal quarter ended June 30, 2004 ,
and the Form 8-K filings which it has made during the fiscal year 2004 to date
(collectively, the "SEC Reports"). Except as set forth on Schedule 4.21, each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.22. LISTING. The Company's Common Stock is traded on the NASD Over
the Counter Bulletin Board ("OTCBB") and satisfies all requirements for the
continuation of such trading . The Company has not received any notice that its
Common Stock will be ineligible to trade or that its Common Stock does not meet
all requirements for such trading.
4.23. NO INTEGRATED OFFERING. Neither the Company, nor any of its
Subsidiaries or affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offering of
the Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
4.24. STOP TRANSFER. The Securities are restricted securities as of
the date of this Agreement. Neither the Company nor any of its Subsidiaries will
issue any stop transfer order or other order impeding the sale and delivery of
any of the Securities at such time as the Securities are registered for public
sale or an exemption from registration is available, except as required by state
and federal securities laws.
4.25. DILUTION. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
12
4.26. PATRIOT ACT. The Company certifies that, to the best of
Company's knowledge, neither the Company nor any of its Subsidiaries has been
designated, and is not owned or controlled, by a "suspected terrorist" as
defined in Executive Order 13224. The Company hereby acknowledges that the
Purchaser seeks to comply with all applicable laws concerning money laundering
and related activities. In furtherance of those efforts, the Company hereby
represents, warrants and agrees that: (i) none of the cash or property that the
Company or any of its Subsidiaries will pay or will contribute to the Purchaser
has been or shall be derived from, or related to, any activity that is deemed
criminal under United States law; and (ii) no contribution or payment by the
Company or any of its Subsidiaries to the Purchaser, to the extent that they are
within the Company's and/or its Subsidiaries' control shall cause the Purchaser
to be in violation of the United States Bank Secrecy Act, the United States
International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Company shall promptly notify the Purchaser if any of these
representations ceases to be true and accurate regarding the Company or any of
its Subsidiaries. The Company agrees to provide the Purchaser any additional
information regarding the Company or any of its Subsidiaries that the Purchaser
deems necessary or convenient to ensure compliance with all applicable laws
concerning money laundering and similar activities. The Company understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, the Purchaser may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Purchaser's investment in the Company. The Company further understands that the
Purchaser may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchaser, in its sole discretion, determines that it is in
the best interests of the Purchaser in light of relevant rules and regulations
under the laws set forth in subsection (ii) above.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1. NO SHORTING. The Purchaser or any of its affiliates and
investment partners has not at any time after September 8, 2004, will not and
will not cause any person or entity, directly or indirectly, to engage in "short
sales" of the Company's Common Stock as long as the Note shall be outstanding.
5.2. REQUISITE POWER AND AUTHORITY. The Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Related Agreements have been or
will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors'
13
rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3. INVESTMENT REPRESENTATIONS. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act"). The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it upon the conversion of the Note and
the exercise of the Warrant, respectively. The Purchaser further confirms that
it has had an opportunity to ask questions and receive answers from the Company
regarding the Company's and its Subsidiaries' business, management and financial
affairs and the terms and conditions of the Offering, the Note, the Warrant and
the Securities and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Purchaser or to
which the Purchaser had access.
5.4. PURCHASER BEARS ECONOMIC RISK. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser must bear the economic risk
of this investment until the Securities are sold pursuant to: (i) an effective
registration statement under the Securities Act; or (ii) an exemption from
registration is available with respect to such sale.
5.5. ACQUISITION FOR OWN ACCOUNT. The Purchaser is acquiring the Note
and Warrant and the Note Shares and the Warrant Shares for the Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
5.6. PURCHASER CAN PROTECT ITS INTEREST. The Purchaser represents that
by reason of its, or of its management's, business and financial experience, the
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note, the Warrant and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement and the Related
Agreements. Further, Purchaser is aware of no publication of any advertisement
in connection with the transactions contemplated in the Agreement or the Related
Agreements.
5.7. ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.8. LEGENDS.
(a) The Note shall bear substantially the following legend:
14
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO BIO-KEY INTERNATIONAL, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIO-KEY INTERNATIONAL,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIO-KEY
INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
15
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1. STOP-ORDERS. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2. TRADING. The Company shall promptly secure the trading of the
shares of Common Stock issuable upon conversion of the Note and upon the
exercise of the Warrant on the OTCBB (the "Principal Market") upon which shares
of Common Stock are traded (subject to official notice of issuance) and shall
maintain such trading so long as any other shares of Common Stock shall be so
traded. The Company will maintain the trading of its Common Stock on the
Principal Market or Nasdaq, and will comply in all material respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.3. MARKET REGULATIONS. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
6.4. REPORTING REQUIREMENTS. The Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
6.5. USE OF FUNDS. The Company agrees that it will use the proceeds of
the sale of the Note and the Warrant to acquire the Mobile Government Division
of Aether Systems, Inc. and for general working capital purposes only.
6.6. ACCESS TO FACILITIES. Each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser (or any
successor of the Purchaser), upon reasonable notice and during normal business
hours, at such person's expense and accompanied by a representative of the
Company, to:
(a) visit and inspect any of the properties of the Company or any of
its Subsidiaries;
(b) examine the corporate and financial records of the Company or any
of its Subsidiaries (unless such examination is not permitted by federal,
state or local law or by contract) and make copies thereof or extracts
therefrom; and
(c) discuss the affairs, finances and accounts of the Company or any
of its Subsidiaries with the directors, officers and independent
accountants of the Company or
16
any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7. TAXES. Each of the Company and each of its Subsidiaries will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company and its
Subsidiaries; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company and/or such Subsidiary shall
have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Company and its Subsidiaries will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security therefor.
6.8. INSURANCE. Each of the Company and its Subsidiaries will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as the Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and each of
its Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's and each of its Subsidiaries' joint and several
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of its Subsidiaries shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which the Company or the respective Subsidiary is engaged in
business; and (v) furnish Purchaser with (x) copies of all policies and evidence
of the maintenance of such policies at least thirty (30) days before any
expiration date, (y) excepting the Company's workers' compensation policy,
endorsements to such policies naming Purchaser as "co-insured" or "additional
insured" and appropriate loss payable endorsements in form and
17
substance satisfactory to Purchaser, naming Purchaser as loss payee, and (z)
evidence that as to Purchaser the insurance coverage shall not be impaired or
invalidated by any act or neglect of the Company or any Subsidiary and the
insurer will provide Purchaser with at least thirty (30) days notice prior to
cancellation. The Company and each Subsidiary shall instruct the insurance
carriers that in the event of any loss thereunder, the carriers shall make
payment for such loss to the Company and/or the Subsidiary and Purchaser
jointly. In the event that as of the date of receipt of each loss recovery upon
any such insurance, the Purchaser has not declared an event of default with
respect to this Agreement or any of the Related Agreements, then the Company
and/or such Subsidiary shall be permitted to direct the application of such loss
recovery proceeds toward investment in property, plant and equipment that would
comprise "Collateral" secured by Purchaser's security interest pursuant to its
security agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to Purchaser. In the event that Purchaser has
properly declared an event of default with respect to this Agreement or any of
the Related Agreements, then all loss recoveries received by Purchaser upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine. Any surplus (following satisfaction of all Company obligations to
Purchaser) shall be paid by Purchaser to the Company or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by the Company
or the Subsidiary, as applicable, to Purchaser, on demand.
6.9. INTELLECTUAL PROPERTY. Each of the Company and each of its
Subsidiaries shall maintain in full force and effect its existence, rights and
franchises and all licenses and other rights to use Intellectual Property owned
or possessed by it and reasonably deemed to be necessary to the conduct of its
business.
6.10. PROPERTIES. Each of the Company and each of its Subsidiaries
will keep its properties in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto; and each of
the Company and each of its Subsidiaries will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.11. CONFIDENTIALITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Company may disclose Purchaser's
identity and the terms of this Agreement to its current and prospective debt and
equity financing sources, and to satisfy any pre-emptive right obligations it
may have.
6.12. REQUIRED APPROVALS. For so long as twenty-five percent (25%) of
the principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not, and shall not permit any of its
Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends, other
than dividends paid to the Parent or any of its wholly-owned Subsidiaries
or to the holders of its Preferred Stock to the extent that it is required
to do so, (ii) issue any preferred stock that
18
is mandatorily redeemable prior to one year anniversary of Maturity Date
(as defined in the Note) or (iii) redeem any of its preferred stock or
other equity interests;
(b) liquidate, dissolve or effect a material reorganization (it being
understood that in no event shall the Company dissolve, liquidate or merge
with any other person or entity (unless the Company is the surviving
entity) other than to effect a reincorporation in the state of Delaware;
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's or any of its
Subsidiaries right to perform the provisions of this Agreement, any Related
Agreement or any of the agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole other than in connection with
an acquisition after which the Company is the surviving entity;
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of
equipment (not in excess of five percent (5%) of the fair market value of
the Company's and its Subsidiaries' assets) whether secured or unsecured
other than (x) the Company's indebtedness to the Purchaser, (y)
indebtedness set forth on SCHEDULE 6.12(e) attached hereto and made a part
hereof and any refinancings or replacements thereof on terms no less
favorable to the Purchaser than the indebtedness being refinanced or
replaced, and (z) any debt incurred in connection with the purchase of
assets in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; (ii) cancel any debt owing to it
in excess of $50,000 in the aggregate during any 12 month period; (iii)
assume, guarantee, endorse or otherwise become directly or contingently
liable in connection with any obligations of any other Person, except the
endorsement of negotiable instruments by the Company for deposit or
collection or similar transactions in the ordinary course of business or
guarantees of indebtedness otherwise permitted to be outstanding pursuant
to this clause (e); and
(f) create or acquire any Subsidiary after the date hereof unless (i)
such Subsidiary is a wholly-owned Subsidiary of the Company and (ii) such
Subsidiary becomes party to the Master Security Agreement, the Stock Pledge
Agreement and the Subsidiary Guaranty (either by executing a counterpart
thereof or an assumption or joinder agreement in respect thereof) and, to
the extent required by the Purchaser, satisfies each condition of this
Agreement and the Related Agreements as if such Subsidiary were a
Subsidiary on the Closing Date.
6.13. REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to
19
Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14. OPINION. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to Laurus from ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇. On or
before October 14, 2004, the Company will deliver to the Purchaser an opinion
from Minnesota counsel as to due authorization acceptable to Laurus. The Company
will provide, at the Company's expense, such other legal opinions in the future
as are deemed reasonably necessary by the Purchaser (and acceptable to the
Purchaser) in connection with the conversion of the Note and exercise of the
Warrant.
6.15 MARGIN STOCK. The Company will not permit any of the proceeds of
the Note or the Warrant to be used directly or indirectly to "purchase" or
"carry" "margin stock" or to repay indebtedness incurred to "purchase" or
"carry" "margin stock" within the respective meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect.
7. COVENANTS OF THE PURCHASER. The Purchaser covenants and agrees with the
Company as follows:
7.1. CONFIDENTIALITY. The Purchaser agrees that it will not disclose,
and will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
7.2. NON-PUBLIC INFORMATION. The Purchaser agrees not to effect any
sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
7.3. REGULATION M. The Purchaser acknowledges and agrees that
Regulation M promulgated under the Exchange Act will apply to any sales of the
Company's Common Stock, and the Purchaser will, and will cause each of its
affiliates and its investment partners to, comply with Regulation M in all
respects during such time as they may be engaged in a distribution of shares of
the Company's Common Stock.
8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
8.1. COMPANY INDEMNIFICATION. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability,
20
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Purchaser which results, arises out of or is
based upon: (i) any misrepresentation by the Company or any of its Subsidiaries
or breach of any warranty by the Company or any of its Subsidiaries in this
Agreement, any other Related Agreement or in any exhibits or schedules attached
hereto or thereto; or (ii) any breach or default in performance by Company or
any of its Subsidiaries of any covenant or undertaking to be performed by
Company or any of its Subsidiaries hereunder, under any other Related Agreement
or any other agreement entered into by the Company and/or any of its
Subsidiaries and Purchaser relating hereto or thereto.
8.2. PURCHASER'S INDEMNIFICATION. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon: (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
9. CONVERSION OF CONVERTIBLE NOTE.
9.1. MECHANICS OF CONVERSION.
(a) Provided the Purchaser has notified the Company of the Purchaser's
intention to sell the Note Shares and the Note Shares are included in an
effective registration statement or are otherwise exempt from registration
when sold: (i) upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel reasonably acceptable to the
Purchaser following a request by the Purchaser) to assure that the
Company's transfer agent shall issue shares of the Company's Common Stock
in the name of the Purchaser (or its nominee) or such other persons as
designated by the Purchaser in accordance with Section 9.1(b) hereof and in
such denominations to be specified representing the number of Note Shares
issuable upon such conversion; and (ii) the Company warrants that no
instructions other than these instructions have been or will be given to
the transfer agent of the Company's Common Stock and that after the
Effectiveness Date (as defined in the Registration Rights Agreement) the
Note Shares issued will be freely transferable subject to the prospectus
delivery requirements of the Securities Act and the provisions of this
Agreement, and will not contain a legend restricting the resale or
transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its right
to convert the Note or part thereof by telecopying or otherwise delivering
an executed and completed notice of the number of shares to be converted to
the Company (the "Notice of Conversion"). The Purchaser will not be
required to surrender the Note until the Purchaser receives a credit to the
account of the Purchaser's prime broker through the DWAC system (as defined
below), representing the Note Shares or until the Note has
21
been fully satisfied. Each date on which a Notice of Conversion is
telecopied or delivered to the Company in accordance with the provisions
hereof shall be deemed a "Conversion Date." Pursuant to the terms of the
Notice of Conversion, the Company will issue instructions to the transfer
agent accompanied by an opinion of counsel within one (1) business day of
the date of the delivery to the Company of the Notice of Conversion and
shall cause the transfer agent to transmit the certificates representing
the Conversion Shares to the Holder by crediting the account of the
Purchaser's prime broker with the Depository Trust Company ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
business days after receipt by the Company of the Notice of Conversion (the
"Delivery Date").
(c) The Company understands that a delay in the delivery of the Note
Shares in the form required pursuant to Section 9 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the event
that the Company fails to direct its transfer agent to deliver the Note
Shares to the Purchaser via the DWAC system within the time frame set forth
in Section 9.1(b) above and the Note Shares are not delivered to the
Purchaser by the Delivery Date, as compensation to the Purchaser for such
loss, the Company agrees to pay late payments to the Purchaser for late
issuance of the Note Shares in the form required pursuant to Section 9
hereof upon conversion of the Note in the amount equal to the greater of:
(i) $500 per business day after the Delivery Date; or (ii) the Purchaser's
actual damages from such delayed delivery. Notwithstanding the foregoing,
the Company will not owe the Purchaser any late payments if the delay in
the delivery of the Note Shares beyond the Delivery Date is solely out of
the control of the Company and the Company is actively trying to cure the
cause of the delay. The Company shall pay any payments incurred under this
Section in immediately available funds upon demand and, in the case of
actual damages, accompanied by reasonable documentation of the amount of
such damages. Such documentation shall show the number of shares of Common
Stock the Purchaser is forced to purchase (in an open market transaction)
which the Purchaser anticipated receiving upon such conversion, and shall
be calculated as the amount by which (A) the Purchaser's total purchase
price (including customary brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate principal and/or
interest amount of the Note, for which such Conversion Notice was not
timely honored.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.
22
10. REGISTRATION RIGHTS.
10.1. REGISTRATION RIGHTS GRANTED. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
10.2. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the "Excepted Issuances"), neither the Company nor any of its Subsidiaries
will issue any securities with a continuously variable/floating conversion
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement) prior to the
full repayment or conversion of the Note (together with all accrued and unpaid
interest and fees related thereto) (the "Exclusion Period").
11. MISCELLANEOUS.
11.1. GOVERNING LAW. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY
EITHER PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS
OF
NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF
NEW YORK. BOTH
PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS
ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND
WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE
UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.
11.2. SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
for one year after the date of the closing of the transactions contemplated
hereby to the extent provided therein. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
11.3. SUCCESSORS. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and
23
administrators of the parties hereto and shall inure to the benefit of and be
enforceable by each person who shall be a holder of the Securities from time to
time, other than the holders of Common Stock which has been sold by the
Purchaser pursuant to Rule 144 or an effective registration statement. Purchaser
may not assign its rights hereunder to a competitor of the Company.
11.4. ENTIRE AGREEMENT. This Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
11.5. SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.6. Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and Laurus.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of Laurus.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the
Company.
11.7. DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8. NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of
receipt.
24
All communications shall be sent as follows:
IF TO THE COMPANY, TO: Bio-Key International, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
WITH A COPY TO:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ Hall and ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
IF TO THE PURCHASER, TO: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services ltd.
▇.▇. ▇▇▇ ▇▇▇▇ G.T.
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
WITH A COPY TO:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
25
11.9. ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
11.10. TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
11.11. FACSIMILE SIGNATURES; COUNTERPARTS. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
11.12. BROKER'S FEES. Except as set forth on Schedule 11.12 hereof,
each party hereto represents and warrants that no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of such party
hereto is or will be entitled to any broker's or finder's fee or any other
commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.
11.13. CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to favor any party against the other.
12. COLLATERAL AGENT.
12.1 Each Purchaser hereby appoints Laurus Master Fund, Ltd. as
collateral agent for such Purchaser under this Agreement and all Related
Agreements (in such capacity, the "COLLATERAL AGENT") solely for purposes
of administering the Collateral and enforcing the terms of (and exercising
remedies) under this Agreement and all Related Agreements and for no other
purpose whatsoever. Each Purchaser hereby irrevocably authorizes the
Collateral Agent to take such action on its behalf under this Agreement and
the Related Agreements and to exercise such powers and perform such duties
hereunder and thereunder as are specifically delegated to or required of
the Collateral Agent by the terms hereof and thereof and such powers as are
incidental thereto. The Collateral Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement.
Nothing in this Agreement, expressed or implied, is intended to or shall be
so construed as to impose upon the Collateral Agent any obligations except
as expressly set forth herein. The Collateral Agent shall not have, nor
shall it be deemed to have, any fiduciary relationship with any Purchaser,
and no implied covenants, functions, responsibilities, duties, obligations
or liabilities shall be read into this Agreement or any other Related
Agreement or otherwise exist against the Collateral Agent.
26
12.2 Each Purchaser holds harmless the Collateral Agent for any costs,
expenses, liability, damage, claim or losses in connection with or arising
out of the transactions contemplated under this Agreement and the Related
Agreements except to the extent such cost, expense, liability, damage,
claim or loss arises from the Collateral Agent's gross negligence or
willful misconduct.
12.3 The Collateral Agent may execute any of its duties under this
Agreement, the Note or any other Related Agreement by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
and other consultants or experts concerning all matters pertaining to such
duties. The Collateral Agent shall not be responsible for the negligence or
misconduct of any agent or attorney-in-fact that it selects in the absence
of gross negligence or willful misconduct.
12.4 No Agent-Related Person shall (a) be liable for any action taken
or omitted to be taken by any of them under or in connection with this
Agreement or any Related Agreement or the transactions contemplated hereby
(except for its own gross negligence or willful misconduct in connection
with its duties expressly set forth herein), or (b) be responsible in any
manner to any Purchaser or participant for any recital, statement,
representation or warranty made by the Company or any officer thereof,
contained in this Agreement or any Related Agreement, or in any
certificate, report, statement or other document referred to or provided
for in, or received by the Collateral Agent under or in connection with,
this Agreement or any Related Agreement, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any Related
Agreement, or for any failure of the Company or any other party to any
Related Agreement to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Purchaser or
participant to ascertain or to inquire as to the observance or performance
of any of the agreements contained in, or conditions of, this Agreement or
any Related Agreement, or to inspect the properties, books or records of
the Company or any Affiliate thereof. As used herein, "Agent-Related
Person" means the Collateral Agent, together with any of its Affiliates,
and the officers, directors, employees, counsel, agents and
attorneys-in-fact of the Collateral Agent and such Affiliates.
12.5 The Collateral Agent shall have the sole right, power and
authority to declare defaults and exercise remedies under this Agreement
and the Related Agreements and to otherwise enforce the terms of this
Agreement and the Related Agreements against the Company and its
Affiliates, except in connection with claims arising with respect to the
exercise of any Warrant in which case the holder of such Warrant shall have
the right to enforce its rights thereunder. The Collateral Agent shall have
the sole right, power and authority to receive and issue receipts for any
of the sums, amounts, income, revenues, issues, profits and proceeds under,
on account of or with respect to the Collateral and the proceeds of any
judicial or public or private no judicial foreclosure sale with respect to
the Collateral, and the sole right to collect all proceeds of the
Collateral and to apply and pay such proceeds in accordance with the terms
of this Agreement and the Related Agreements.
12.6 Purchasers (i) further agree not take any action that would
hinder, delay,
27
limit, impede or prohibit any exercise of remedies by the Collateral Agent,
including any collection, sale, lease, exchange, transfer or other
disposition of the Collateral, whether by foreclosure or otherwise, or that
would limit, invalidate, avoid or set aside any Lien or Related Agreement
securing or purporting to secure the Obligations and (ii) hereby waive any
and all rights it may have (other than as specified herein) to object to
the manner in which the Collateral Agent or Laurus seek to enforce or
collect the Obligations Liens now or hereafter granted in any Collateral to
secure the Obligations.
12.7 APPLICATION OF PROCEEDS OF COLLATERAL. All proceeds of Collateral
received by the Collateral Agent (including, without limitation, any
interest earned thereon) resulting from the sale, collection or other
disposition of Collateral in connection with any demand for payment or
acceleration thereof, the exercise of any rights or remedies with respect
to any Collateral securing the Obligations or the commencement or
prosecution of enforcement of any of the rights and remedies under, as
applicable, the Purchase Agreement, the Related Agreements, or applicable
law, including without limitation the exercise of any rights of set-off or
recoupment, and the exercise of any rights or remedies of a secured
creditor under the UCC of any applicable jurisdiction or under the
Bankruptcy Code shall be applied to the Obligations as follows:
FIRST, to payment of that portion of the Obligations constituting
fees, indemnities, expenses and other amounts (including the reasonable
fees and expenses of counsel) payable to the Collateral Agent in its
capacity as such;
SECOND, to payment of that portion of the Obligations constituting
fees payable to the Purchasers, ratably among them in proportion to the
amounts described in Schedule 1 attached hereto;
THIRD, to payment of that portion of the Obligations constituting
indemnities and other amounts (other than fees, principal and interest)
payable to the Purchasers (including the reasonable fees and expenses of
counsel), ratably among them in proportion to the amounts described in
Schedule 1 attached hereto;
FOURTH, to payment of that portion of the Obligations constituting
accrued and unpaid interest on the Notes, ratably among the Purchasers in
proportion to the respective amounts described in Schedule 1 attached
hereto; and
FIFTH, to payment of that portion of the Obligations constituting
unpaid principal of the Notes, ratably among the Purchasers in proportion
to the respective amounts described in Schedule 1 attached hereto in
proportion to the aggregate amounts of such Notes owing to Purchasers then
due and payable.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
28
IN WITNESS WHEREOF, the parties hereto have executed the
SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY:
BIO-KEY INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
PURCHASER:
LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇ Grin
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
PURCHASER
▇▇▇▇▇▇ ▇▇▇▇▇, JR.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇, Jr.
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
29
SCHEDULE 1
NO. OF SHARES OF COMMON STOCK FOR
PURCHASER AMOUNT OF NOTE WHICH WARRANT EXERCISABLE:
--------- -------------- --------------------------
The Laurus Master Fund, Ltd. $ 5,000,000 1,111,111
▇▇▇▇▇▇ ▇▇▇▇▇ & Company, LLC $ 50,000 11,111
30
EXHIBIT A
THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY ARE SUBJECT TO THE PROVISIONS OF
THAT CERTAIN INTERCREDITOR AND SUBORDINATION AGREEMENT (THE "SUBORDINATION
AGREEMENT") DATED AS OF SEPTEMBER 29, 2004 AMONG SHAAR FUND, LTD., AS PURCHASER
AGENT, LAURUS MASTER FUND, LTD., AS COLLATERAL AGENT, AETHER SYSTEMS, INC.,
BIO-KEY INTERNATIONAL, INC. AND PUBLIC SAFETY GROUP, INC.; AND EACH HOLDER OF
THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF THE
SUBORDINATION AGREEMENT.
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BIO-KEY INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
FORM OF
SECURED CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, BIO-KEY INTERNATIONAL, INC., a Minnesota corporation
(the "BORROWER"), hereby promises to pay to [____________________________](the
"HOLDER") or its registered assigns or successors in interest, on order, the sum
of ___________Dollars ($________), together with any accrued and unpaid interest
hereon, on September 29, 2007 (the "MATURITY DATE") if not sooner paid.
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain
Securities Purchase Agreement dated as of
the date hereof between the Borrower and the Holder (as amended, modified or
supplemented from time to time, the "PURCHASE AGREEMENT").
The following terms shall apply to this Note:
31
ARTICLE I
INTEREST & AMORTIZATION
1.1(a) INTEREST RATE. Subject to Sections 4.11 and 5.6 hereof, interest
payable on this Note shall accrue at a rate per annum (the "Interest Rate")
equal to the "prime rate" published in THE WALL STREET JOURNAL from time to
time, plus two percent (2.0%). The prime rate shall be increased or decreased as
the case may be for each increase or decrease in the prime rate in an amount
equal to such increase or decrease in the prime rate; each change to be
effective as of the day of the change in such rate. Subject to Section 1.1(b)
hereof, the Interest Rate shall not be less than six percent (6.0%) per annum.
Interest shall be (i) calculated on the basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on November 1, 2004 and on the first
business day of each consecutive calendar month thereafter until the Maturity
Date (and on the Maturity Date), whether by acceleration or otherwise (each, a
"REPAYMENT DATE").
1.1 (b) INTEREST RATE ADJUSTMENT. The Interest Rate shall be calculated on
the last business day of each month hereafter until the Maturity Date (each a
"Determination Date") and shall be subject to adjustment as set forth herein. If
(i) the Borrower shall have registered the shares of the Borrower's common stock
underlying each of the conversion of the Note and that certain warrant issued to
Holder on a registration statement declared effective by the Securities and
Exchange Commission (the "SEC"), and (ii) the market price (the "Market Price")
of the Common Stock as reported by Bloomberg, L.P. on the Principal Market (as
defined below) for the five (5) trading days immediately preceding a
Determination Date exceeds the then applicable Fixed Conversion Price by at
least twenty five percent (25%), the Interest Rate for the succeeding calendar
month shall automatically be reduced by 200 basis points (200 b.p.) (2.0%) per
annum for each incremental twenty five percent (25%) increase in the Market
Price of the Common Stock above the then applicable Fixed Conversion Price. If
(i) the Borrower shall not have registered the shares of the Borrower's common
stock underlying the conversion of the Note and that certain warrant issued to
Holder on a registration statement declared effective by the SEC and which
remains effective, and (ii) the Market Price of the Common Stock as reported by
Bloomberg, L.P. on the principal market for the five (5) trading days
immediately preceding a Determination Date exceeds the then applicable Fixed
Conversion Price by at least twenty five percent (25%), the Interest Rate for
the succeeding calendar month shall automatically be decreased by 100 basis
points (100 b.p.) (1.0%) per annum for each incremental twenty five percent
(25%) increase in the Market Price of the Common Stock above the then applicable
Fixed Conversion Price. Notwithstanding the foregoing (and anything to the
contrary contained in herein), in no event shall the Interest Rate be less than
zero percent (0%).
1.2 MINIMUM MONTHLY PRINCIPAL PAYMENTS. Amortizing payments of the
aggregate principal amount outstanding under this Note at any time (the
"PRINCIPAL AMOUNT") shall begin on December 1, 2004 and shall recur on the first
business day of each succeeding month thereafter until the Maturity Date (each,
an "AMORTIZATION DATE"). Subject to Article 3 below, beginning on the first
Amortization Date, the Borrower shall make monthly payments to the Holder on
each Repayment Date, each in the amount of $_________, together with any accrued
32
and unpaid interest to date on such portion of the Principal Amount plus any and
all other amounts which are then owing under this Note, the Purchase Agreement
or any other Related Agreement but have not been paid (collectively, the
"MONTHLY AMOUNT"). Any Principal Amount that remains outstanding on the Maturity
Date shall be due and payable on the Maturity Date.
ARTICLE II
CONVERSION REPAYMENT
2.1 (a) PAYMENT OF MONTHLY AMOUNT IN CASH OR COMMON STOCK. Each month by
the fifth (5th) business day prior to each Repayment Date (the "NOTICE DATE"),
the Holder shall deliver to Borrower a written notice in the form of Exhibit B
attached hereto (each, a "REPAYMENT NOTICE") stating whether, according to the
Conversion Criteria (as defined below), the Monthly Amount payable on the next
Repayment Date shall be paid in cash or Common Stock, or a combination of both.
If a Repayment Notice is not delivered by the Holder on or before the applicable
Notice Date for such Repayment Date, then the Borrower shall pay the Monthly
Amount due on such Repayment Date in cash. Any portion of the Monthly Amount
paid in cash on a Repayment Date, shall be paid to the Holder in an amount equal
to 102% of such amount. The number of such shares to be issued by the Borrower
to the Holder on such Repayment Date (in respect of such portion of the Monthly
Amount converted into in shares of Common Stock pursuant to Section 2.1(b)),
shall be the number determined by dividing (x) the portion of the Monthly Amount
converted into shares of Common Stock, by (y) the then applicable Fixed
Conversion Price. For purposes hereof, the initial "FIXED CONVERSION PRICE"
means $1.35.
(b) MONTHLY AMOUNT CONVERSION GUIDELINES. Subject to Sections 2.1(a), 2.2,
and 3.2 hereof, the Holder shall convert into shares of Common Stock all or a
portion of the Monthly Amount due on each Repayment Date according to the
following guidelines (the "CONVERSION CRITERIA"): (i) the average closing price
of the Common Stock as reported by Bloomberg, L.P. on the Principal Market for
the five (5) trading days immediately preceding such Repayment Date shall be
greater than or equal to 110% of the Fixed Conversion Price and (ii) the amount
of such conversion does not exceed twenty five percent (25%) of the aggregate
dollar trading volume of the Common Stock for the twenty two (22) day trading
period immediately preceding delivery of a Repayment Notice. If the Conversion
Criteria are not met, the Holder shall convert only such part of the Monthly
Amount that meets the Conversion Criteria. Any part of the Monthly Amount due on
a Repayment Date that the Holder has not been able to convert into shares of
Common Stock due to failure to meet the Conversion Criteria, shall be paid by
the Borrower in cash at the rate of 102% of the Monthly Amount otherwise due on
such Repayment Date, within three (3) business days of the applicable Repayment
Date.
2.2 NO EFFECTIVE REGISTRATION. Notwithstanding anything to the contrary
herein, none of the Borrower's obligations to the Holder may be converted into
Common Stock unless (i) either (x) an effective current Registration Statement
(as defined in the Registration Rights
33
Agreement) covering the shares of Common Stock to be issued in connection with
satisfaction of such obligations exists or (y) an exemption from registration of
the Common Stock is available to pursuant to Rule 144 of the Securities Act and
(ii) no Event of Default hereunder exists and is continuing, unless such Event
of Default is cured within any applicable cure period or is otherwise waived in
writing by the Holder in whole or in part at the Holder's option.
2.3 OPTIONAL REDEMPTION IN CASH. The Borrower will have the option of
prepaying this Note ("OPTIONAL REDEMPTION") by paying to the Holder a sum of
money equal to one hundred ten percent (110%) of the principal amount of this
Note together with accrued but unpaid interest thereon and any and all other
sums due, accrued or payable to the Holder arising under this Note, the Purchase
Agreement, or any Related Agreement (the "REDEMPTION AMOUNT") outstanding on the
Redemption Payment Date (defined below). The Borrower shall deliver to the
Holder a written notice of redemption (the "NOTICE OF REDEMPTION") specifying
the date for such Optional Redemption (the "REDEMPTION PAYMENT DATE") which date
shall be seven (7) business days after the date of the Notice of Redemption (the
"REDEMPTION PERIOD"); provided, however, that in no event may the Borrower pay
the Holder any amount in respect of the exercise of any such Optional Redemption
(of all or any portion of this Note) unless the Borrower shall concurrently (i)
deposit additional cash collateral with Aether in an amount equal to the
aggregate amount to be paid to the Holder and all other Purchasers in connection
with such Optional Redemption (the "PREPAYMENT AMOUNT") and (ii) prepay the
Shaar Notes collectively by an aggregate amount equal to the Prepayment Amount.
A Notice of Redemption shall not be effective with respect to any portion of
this Note for which the Holder has a pending election to convert pursuant to
Section 3.1, or for conversions initiated or made by the Holder pursuant to
Section 3.1 during the Redemption Period. The Redemption Amount shall be
determined as if such Holder's conversion elections had been completed
immediately prior to the date of the Notice of Redemption. On the Redemption
Payment Date, the Redemption Amount must be paid in good funds to the Holder. In
the event the Borrower fails to pay the Redemption Amount on the Redemption
Payment Date as set forth herein, then (i) such Redemption Notice will be null
and void and (ii) the Borrower shall no longer have the right to exercise the
Optional Redemption as set forth herein. Each of the terms "Aether", "Aether
Note", "Shaar Note" has the meaning given to such term in the Subordination
Agreement.
ARTICLE III
CONVERSION RIGHTS
3.1. HOLDER'S CONVERSION RIGHTS. The Holder shall have the right, but not
the obligation, to convert all or any portion of the then aggregate outstanding
principal amount of this Note, together with interest and fees due hereon, into
shares of Common Stock subject to the terms and conditions set forth in this
Article III. The Holder may exercise such right by delivery to the Borrower of a
written notice of conversion not less than one (1) business day prior to the
date upon which such conversion shall occur.
34
3.2 CONVERSION LIMITATION. Notwithstanding anything contained herein to the
contrary, the Holder shall not be entitled to convert pursuant to the terms of
this Note an amount that would be convertible into that number of Conversion
Shares which would exceed the difference between the number of shares of Common
Stock beneficially owned by such Holder or issuable upon exercise of warrants
held by such Holder and 4.99% of the outstanding shares of Common Stock of the
Borrower. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The Holder may void the Conversion Share
limitation described in this Section 3.2 upon 75 days prior notice to the
Borrower or without any notice requirement upon an Event of Default.
3.3 MECHANICS OF HOLDER'S CONVERSION. (a) In the event that the Holder
elects to convert all or a portion of the outstanding balance of this Note into
Common Stock, the Holder shall give notice of such election by delivering an
executed and completed notice of conversion ("NOTICE OF CONVERSION") to the
Borrower and such Notice of Conversion shall provide a breakdown in reasonable
detail of the Principal Amount, accrued interest and fees being converted. On
each Conversion Date (as hereinafter defined) and in accordance with its Notice
of Conversion, the Holder shall make the appropriate reduction to the Principal
Amount, accrued interest and fees as entered in its records and shall provide
written notice thereof to the Borrower within two (2) business days after the
Conversion Date. Each date on which a Notice of Conversion is delivered or
telecopied to the Borrower in accordance with the provisions hereof shall be
deemed a Conversion Date (the "CONVERSION DATE"). A form of Notice of Conversion
to be employed by the Holder is annexed hereto as Exhibit A.
(b) Pursuant to the terms of the Notice of Conversion, the Borrower
will issue instructions to the transfer agent accompanied by an opinion of
counsel within one (1) business day of the date of the delivery to Borrower
of the Notice of Conversion and shall cause the transfer agent to transmit
the certificates representing the Conversion Shares to the Holder by
crediting the account of the Holder's designated broker with the Depository
Trust Corporation ("DTC") through its Deposit Withdrawal Agent Commission
("DWAC") system within three (3) business days after receipt by the
Borrower of the Notice of Conversion (the "DELIVERY DATE"). In the case of
the exercise of the conversion rights set forth herein the conversion
privilege shall be deemed to have been exercised and the Conversion Shares
issuable upon such conversion shall be deemed to have been issued upon the
date of receipt by the Borrower of the Notice of Conversion. The Holder
shall be treated for all purposes as the record holder of such Common
Stock, unless the Holder provides the Borrower written instructions to the
contrary.
3.4 CONVERSION MECHANICS.
35
(a) The number of shares of Common Stock to be issued upon each conversion
of this Note shall be determined by dividing that portion of the principal and
interest and fees to be converted, if any, by the then applicable Fixed
Conversion Price. In the event of any conversions of outstanding principal
amount under this Note in part pursuant to this Article III, such conversions
shall be deemed to constitute conversions of outstanding principal amount
applying to Monthly Amounts for the remaining Repayment Dates in chronological
order.
(b) The Fixed Conversion Price and number and kind of shares or other
securities to be issued upon conversion is subject to adjustment from time to
time upon the occurrence of certain events, as follows:
A. STOCK SPLITS, COMBINATIONS AND DIVIDENDS. If the shares of Common Stock
are subdivided or combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock in shares of Common Stock,
the Fixed Conversion Price or the Conversion Price, as the case may be, shall be
proportionately reduced in case of subdivision of shares or stock dividend or
proportionately increased in the case of combination of shares, in each such
case by the ratio which the total number of shares of Common Stock outstanding
immediately after such event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
B. During the period the conversion right exists, the Borrower will reserve
from its authorized and unissued Common Stock a sufficient number of shares to
provide for the issuance of Common Stock upon the full conversion of this Note.
The Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable. The Borrower agrees that its issuance of
this Note shall constitute full authority to its officers, agents, and transfer
agents who are charged with the duty of executing and issuing stock certificates
to execute and issue the necessary certificates for shares of Common Stock upon
the conversion of this Note.
C. SHARE ISSUANCES. Subject to the provisions of this Section 3.4, if the
Borrower shall at any time prior to the conversion or repayment in full of the
Principal Amount issue any shares of Common Stock or securities convertible into
Common Stock to a person other than the Holder (except (i) pursuant to
Subsections A or B above; (ii) pursuant to options, warrants, or other
obligations to issue shares outstanding on the date hereof as disclosed to
Holder in writing; or (iii) pursuant to options that may be issued under any
employee incentive stock option and/or any qualified stock option plan adopted
by the Borrower) for a consideration per share (the "Offer Price") less than the
Fixed Conversion Price in effect at the time of such issuance, then the Fixed
Conversion Price shall be immediately reset to such lower Offer Price at the
time of issuance of such securities.
D. RECLASSIFICATION, ETC. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid Principal Amount and accrued interest thereon, shall
36
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the Common Stock immediately prior to such
reclassification or other change.
3.5 ISSUANCE OF NEW NOTE. Upon any partial conversion of this Note, a new
Note containing the same date and provisions of this Note shall, at the request
of the Holder, be issued by the Borrower to the Holder for the principal balance
of this Note and interest which shall not have been converted or paid. Subject
to the provisions of Article IV, the Borrower will pay no costs, fees or any
other consideration to the Holder for the production and issuance of a new Note.
ARTICLE IV
EVENTS OF DEFAULT
Upon the occurrence and continuance of an Event of Default beyond any
applicable grace period, the Holder may make all sums of principal, interest and
other fees then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable. In the event of such an acceleration, the amount
due and owing to the Holder shall be 120% of the outstanding principal amount of
the Note (plus accrued and unpaid interest and fees, if any) (the "DEFAULT
PAYMENT"). The Default Payment shall be applied first to any fees due and
payable to Holder pursuant to the Note or the Related Agreements, then to
accrued and unpaid interest due on the Note and then to outstanding principal
balance of the Note.
The occurrence of any of the following events set forth in Sections 4.1
through 4.10, inclusive, is an "EVENT OF DEFAULT":
4.1 FAILURE TO PAY PRINCIPAL, INTEREST OR OTHER FEES. The Borrower fails to
pay when due any installment of principal, interest or other fees hereon in
accordance herewith, or the Borrower fails to pay when due any amount due under
any other promissory note issued by Borrower, and in any such case, such failure
shall continue for a period of three (3) days following the date upon which any
such payment was due.
4.2 BREACH OF COVENANT. The Borrower breaches any covenant or any other
term or condition of this Note or the Purchase Agreement in any material
respect, or the Borrower or any of its Subsidiaries breaches any covenant or any
other term or condition of any Related Agreement in any material respect and, in
any such case, such breach, if subject to cure, continues for a period of
fifteen (15) days after the occurrence thereof.
4.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
warranty made by the Borrower in this Note or the Purchase Agreement, or by the
Borrower or any of its Subsidiaries in any Related Agreement, shall, in any such
case, be false or misleading in any material respect on the date that such
representation or warranty was made or deemed made.
37
4.4 RECEIVER OR TRUSTEE. The Borrower or any of its Subsidiaries shall make
an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed.
4.5 JUDGMENTS. Any money judgment, writ or similar final process shall be
entered or filed against the Borrower or any of its Subsidiaries or any of their
respective property or other assets for more than $50,000, and shall remain
unvacated, unbonded or unstayed for a period of thirty (30) days.
4.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
of its Subsidiaries.
4.7 STOP TRADE. An SEC stop trade order or Principal Market trading
suspension of the Common Stock shall be in effect for five (5) consecutive days
or five (5) days during a period of ten (10) consecutive days, excluding in all
cases a suspension of all trading on a Principal Market, PROVIDED that the
Borrower shall not have been able to cure such trading suspension within thirty
(30) days of the notice thereof or list the Common Stock on another Principal
Market within sixty (60) days of such notice. The "Principal Market" for the
Common Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market System, American Stock Exchange, or
New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, or any securities exchange or other
securities market on which the Common Stock is then being listed or traded.
4.8 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. The Borrower shall
fail (i) to timely deliver Common Stock to the Holder pursuant to and in the
form required by this Note, and Section 9 of the Purchase Agreement, if such
failure to timely deliver Common Stock shall not be cured within two (2)
business days or (ii) to deliver a replacement Note to Holder within seven (7)
business days following the required date of such issuance pursuant to this
Note, the Purchase Agreement or any Related Agreement (to the extent required
under such agreements).
4.9 DEFAULT UNDER RELATED AGREEMENTS OR OTHER AGREEMENTS. The occurrence
and continuance of any Event of Default (as defined in the Purchase Agreement or
any Related Agreement) or any event of default (or similar term) under any other
indebtedness.
4.10 CHANGE IN CONTROL. The occurrence of a change in the controlling
ownership of the Borrower.
DEFAULT RELATED PROVISIONS
38
4.11 DEFAULT INTEREST RATE. Following the occurrence and during the
continuance of an Event of Default, interest on this Note shall automatically be
increased by one and one half percent (1.50%) per month, and all outstanding
obligations under this Note, including unpaid interest, shall continue to accrue
interest from the date of such Event of Default at such interest rate applicable
to such obligations until such Event of Default is cured or waived.
4.12 CONVERSION PRIVILEGES. The conversion privileges set forth in Article
III shall remain in full force and effect immediately from the date hereof and
until this Note is paid in full.
4.13 CUMULATIVE REMEDIES. The remedies under this Note shall be cumulative.
ARTICLE V
MISCELLANEOUS
5.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
5.2 NOTICES. Any notice herein required or permitted to be given shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party notified, (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Borrower at the address provided in the Purchase Agreement executed in
connection herewith, and to the Holder at the address provided in the Purchase
Agreement for such Holder, with a copy to ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇,
or at such other address as the Borrower or the Holder may designate by ten days
advance written notice to the other parties hereto. A Notice of Conversion shall
be deemed given when made to the Borrower pursuant to the Purchase Agreement.
5.3 AMENDMENT PROVISION. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented, and any
successor instrument issued pursuant to Section 3.5 hereof, as it may be amended
or supplemented.
5.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may
39
be assigned by the Holder in accordance with the requirements of the Purchase
Agreement. This Note shall not be assigned by the Borrower without the consent
of the Holder.
5.5 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of
New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of
New York or in the federal courts located in the state of
New York. Both parties and the individual signing this Note on behalf of the
Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder.
5.6 MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to establish
or require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Borrower to the Holder and thus refunded to the Borrower.
5.7 SECURITY INTEREST AND GUARANTEE. The Holder has been granted a security
interest (i) in certain assets of the Borrower and its Subsidiaries as more
fully described in the Master Security Agreement dated as of the date hereof and
(ii) pursuant to the Stock Pledge Agreement dated as of the date hereof. The
obligations of the Borrower under this Note are guaranteed by certain
Subsidiaries of the Borrower pursuant to the Subsidiary Guaranty dated as of the
date hereof.
5.8 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
5.9 COST OF COLLECTION. If default is made in the payment of this Note, the
Borrower shall pay to Holder reasonable costs of collection, including
reasonable attorney's fees.
[Balance of page intentionally left blank; signature page follows.]
40
41
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its
name effective as of this 29th day of September, 2004.
BIO-KEY INTERNATIONAL, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
WITNESS:
-------------------------------
42
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert all or part of the Note into
Common Stock
[Name and Address of Holder]
The Undersigned hereby converts $_________ of the principal due on [specify
applicable Repayment Date] under the Convertible Term Note issued by BIO-KEY
INTERNATIONAL, INC. dated August __, 2004 by delivery of Shares of Common Stock
of BIO-KEY INTERNATIONAL, INC. on and subject to the conditions set forth in
Article III of such Note.
1. Date of Conversion _______________________
2. Shares To Be Delivered: _______________________
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
43
EXHIBIT B
CONVERSION NOTICE
(To be executed by the Holder in order to convert all or part of a Monthly
Amount into Common Stock)
[Name and Address of Holder]
Holder hereby converts $_________ of the Monthly Amount due on [specify
applicable Repayment Date] under the Convertible Term Note issued by BIO-KEY
INTERNATIONAL, INC. dated _______, 200__ by delivery of Shares of Common Stock
of BIO-KEY INTERNATIONAL, INC. on and subject to the conditions set forth in
Article III of such Note.
1. Fixed Conversion Price: $_______________________
2. Amount to be paid: $_______________________
3. Shares To Be Delivered (2 divided by 1): __________________
4. Cash payment to be made by Borrower : $_____________________
Date: LAURUS MASTER FUND, LTD.
--------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
A-1
EXHIBIT B
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO BIO-KEY INTERNATIONAL, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
Right to Purchase up to [_______] Shares of Common Stock of
BIO-KEY INTERNATIONAL, INC.
(subject to adjustment as provided herein)
FORM OF
COMMON STOCK PURCHASE WARRANT
No. 904-__ Issue Date: September 29, 2004
BIO-KEY INTERNATIONAL, INC., a corporation organized under the laws of the
State of Minnesota ("BIO-Key International, Inc."), hereby certifies that, for
value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company (as
defined herein) from and after the Issue Date of this Warrant and at any time or
from time to time before 5:00 p.m.,
New York time, through the close of business
September 29, 2009 (the "Expiration Date"), up to [_____] fully paid and
nonassessable shares of Common Stock (as hereinafter defined), $0.01 par value
per share, at the applicable Exercise Price per share (as defined below). The
number and character of such shares of Common Stock and the applicable Exercise
Price per share are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include BIO-Key International, Inc. and
any corporation which shall succeed, or assume the obligations of, BIO-Key
International, Inc. hereunder.
(b) The term "Common Stock" includes (i) the Company's Common Stock,
par value $0.01 per share; and (ii) any other securities into which or for
which any of the securities described in (a) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of
assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holder of the Warrant at any time shall be entitled
to receive, or shall have received, on the exercise of the Warrant, in lieu
of or in addition to Common Stock, or which at any time shall be issuable
or shall have been issued in exchange for or in replacement of Common Stock
or Other Securities pursuant to Section 4 or otherwise.
(d) The "Exercise Price" applicable under this Warrant shall be
$1.55.
1. EXERCISE OF WARRANT.
1.1 NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the date
hereof through and including the Expiration Date, the Holder shall be entitled
to receive, upon exercise of this Warrant in whole or in part, by delivery of an
original or fax copy of an exercise notice in the form attached hereto as
Exhibit A (the "Exercise Notice"), shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.
1.2 FAIR MARKET VALUE. For purposes hereof, the "Fair Market Value" of
a share of Common Stock as of a particular date (the "Determination Date") shall
mean:
(a) If the Company's Common Stock is traded on the American Stock
Exchange or another national exchange or is quoted on the National or
SmallCap Market of The Nasdaq Stock Market, Inc. ("Nasdaq"), then the
closing or last sale price, respectively, reported for the last business
day immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on the American Stock
Exchange or another national exchange or on the Nasdaq but is traded on the
NASD OTC Bulletin Board, then the mean of the average of the closing bid
and asked prices reported for the last business day immediately preceding
the Determination Date.
(c) Except as provided in clause (d) below, if the Company's Common
Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules
then in effect of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all
amounts to be payable per share to holders of the Common Stock pursuant to
the charter in the event of such liquidation, dissolution or winding up,
plus all other amounts to be payable per share in respect of the Common
Stock in liquidation under the charter, assuming for the purposes of this
clause (d) that all of the shares of Common Stock then issuable upon
exercise of the Warrant are outstanding at the Determination Date.
1.3 COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its
3
continuing obligation to afford to such holder any rights to which such holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant. If the holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to such holder any such rights.
1.4 TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrant
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2. PROCEDURE FOR EXERCISE.
2.1 DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. The Company
agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the Holder as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares in accordance herewith. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) business days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder, or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2 EXERCISE. Payment may be made either (i) in cash or by certified
or official bank check payable to the order of the Company equal to the
applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares
of Common Stock and/or Common Stock receivable upon exercise of the Warrant in
accordance with Section (b) below, or (iii) by a combination of any of the
foregoing methods, for the number of Common Shares specified in such Exercise
Notice (as such exercise number shall be adjusted to reflect any adjustment in
the total number of shares of Common Stock issuable to the Holder per the terms
of this Warrant) and the Holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully-paid and non-assessable shares
of Common Stock (or Other Securities) determined as provided herein.
Notwithstanding any provisions herein to the contrary, if the Fair Market Value
of one share of Common Stock is greater than the Exercise Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant for cash,
the Holder may elect to receive shares equal to the value (as determined below)
of this Warrant (or the portion thereof being exercised) by surrender of this
Warrant at the principal office of the Company together with the properly
endorsed Exercise Notice in which event the Company shall issue to the Holder a
number of shares of Common Stock computed using the following formula:
4
X= Y (A-B)
---------
A
Where X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock purchasable under the Warrant
or, if only a portion of the Warrant is being exercised, the portion
of the Warrant being exercised (at the date of such calculation)
A = the Fair Market Value of one share of the Company's Common Stock (at
the date of such calculation)
B = Exercise Price (as adjusted to the date of such calculation)
3. EFFECT OF REORGANIZATION, ETC.; ADJUSTMENT OF EXERCISE PRICE.
3.1 REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time or
from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2 DISSOLUTION. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, concurrently with any distributions made to holders of its Common
Stock, shall at its expense deliver or cause to be delivered to the Holder the
stock and other securities and property (including cash, where applicable)
receivable by the Holder of the Warrant pursuant to Section 3.1, or, if the
Holder shall so instruct the Company, to a bank or trust company specified by
the Holder and having its principal office in
New York, NY as trustee for the
Holder of the Warrant (the "Trustee").
3.3 CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such
5
person shall have expressly assumed the terms of this Warrant as provided in
Section 4. In the event this Warrant does not continue in full force and effect
after the consummation of the transactions described in this Section 3, then the
Company's securities and property (including cash, where applicable) receivable
by the Holders of the Warrant will be delivered to Holder or the Trustee as
contemplated by Section 3.2.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Exercise Price then in effect. The
Exercise Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Exercise Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Exercise Price in effect
on the date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTs. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 11 hereof).
6. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANT. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of the Warrant, shares of Common Stock (or Other Securities)
from time to time issuable on the exercise of the Warrant.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any
6
registered holder hereof (a "Transferor") in whole or in part. On the surrender
for exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B attached hereto (the "Transferor Endorsement Form") and together with
evidence reasonably satisfactory to the Company demonstrating compliance with
applicable securities laws, which shall include, without limitation, the
provision of a legal opinion from the Transferor's counsel (at the Company's
expense) that such transfer is exempt from the registration requirements of
applicable securities laws, and with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
8. REPLACEMENT OF WARRANt. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted certain
registration rights by the Company. These registration rights are set forth in a
Registration Rights Agreement entered into by the Company and Purchaser dated as
of even date of this Warrant.
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this proviso is being made on
an exercise date, which would result in beneficial ownership by the Holder and
its affiliates of more than 4.99% of the outstanding shares of Common Stock of
the Company on such date. For the purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. Notwithstanding the foregoing, the restriction described in
this paragraph may be revoked upon 75 days prior notice from the Holder to the
Company and is automatically null and void upon an Event of Default under the
Note.
11. WARRANT AGENT. The Company may, by written notice to the each Holder of
the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, exchanging
this Warrant pursuant to Section 7, and replacing this Warrant pursuant to
Section 8, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.
12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner
7
hereof for all purposes, notwithstanding any notice to the contrary.
13. NOTICES, ETC. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such Holder or, until any such Holder furnishes to the
Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be governed by and construed in accordance with the
laws of State of
New York without regard to principles of conflicts of laws. Any
action brought concerning the transactions contemplated by this Warrant shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York; provided, however, that the Holder may choose to waive
this provision and bring an action outside the state of New York. The
individuals executing this Warrant on behalf of the Company agree to submit to
the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Warrant is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Warrant.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision hereof. The Company acknowledges that
legal counsel participated in the preparation of this Warrant and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Warrant to favor any party against the other party.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS.]
8
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
BIO-KEY INTERNATIONAL, INC.
WITNESS:
By:
----------------------------------
Name:
----------------------------------
Title:
------------------------------------ ----------------------------------
9
EXHIBIT A
FORM OF SUBSCRIPTION
(To Be Signed Only On Exercise Of Warrant)
TO: BIO-Key International, Inc.
Attention: Chief Financial Officer
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):
/ / ________ shares of the Common Stock covered by such Warrant; or
/ / the maximum number of shares of Common Stock covered by such
Warrant pursuant to the cashless exercise procedure set forth
in Section 2.
The undersigned herewith makes payment of the full Exercise Price for
such shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
/ / $__________ in lawful money of the United States; and/or
/ / the cancellation of such portion of the attached Warrant as is
exercisable for a total of _______ shares of Common Stock (using a Fair
Market Value of $_______ per share for purposes of this calculation);
and/or
/ / the cancellation of such number of shares of Common Stock as is
necessary, in accordance with the formula set forth in Section 2.2, to
exercise this Warrant with respect to the maximum number of shares of
Common Stock purchasable pursuant to the cashless exercise procedure set
forth in Section 2.
The undersigned requests that the certificates for such shares be issued in
the name of, and delivered to __________________________________________________
whose address is
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:
---------------------- ---------------------------------------------
(Signature must conform to name of holder as
specified on the face of the Warrant)
Address:
------------------------------------
------------------------------------
A-1
2
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To Be Signed Only On Transfer Of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of BIO-Key International, Inc. into which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of BIO-Key International, Inc. with full power of substitution in the premises.
Percentage Number
Transferees Address Transferred Transferred
----------- ------- ----------- -----------
----------------------------- ------------------------ -------------- -------------
----------------------------- ------------------------ -------------- -------------
----------------------------- ------------------------ -------------- -------------
----------------------------- ------------------------ -------------- -------------
Dated:
----------------------- ----------------------------------------------
(Signature must conform to name of holder as
specified on the face of the Warrant)
Address:
------------------------------------
------------------------------------
SIGNED IN THE PRESENCE OF:
---------------------------------------------
(Name)
ACCEPTED AND AGREED:
[TRANSFEREE]
----------------------------------------
(Name)
B-1
EXHIBIT C
FORM OF OPINION
1. Each of the Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Minnesota and has all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as it is now being
conducted.
2. Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements. All corporate action on the part
of the Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the authorization,
sale, issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements. The Note Shares and the Warrant Shares, when issued pursuant
to and in accordance with the terms of the Agreement and the Related Agreements
and upon delivery shall be validly issued and outstanding, fully paid and non
assessable.
3. The execution, delivery and performance by each of the Company and each
of its Subsidiaries of the Agreement and the Related Agreements to which it is a
party and the consummation of the transactions on its part contemplated by any
thereof, will not, with or without the giving of notice or the passage of time
or both:
(a) Violate the provisions of their respective Charter or bylaws; or
(b) Violate any judgment, decree, order or award of any court binding
upon the Company or any of its Subsidiaries; or
(c) Violate any [insert jurisdictions in which counsel is qualified]
or federal law
4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of each of the Company and each of its Subsidiaries
(to the extent such person is a party thereto), and are enforceable against each
of the Company and each of its Subsidiaries in accordance with their respective
terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any
C-1
preemptive rights or, to such counsel's knowledge, rights of first refusal that
have not been properly waived or complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's knowledge, neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy and security under circumstances that would cause the offering of the
Securities pursuant to the Agreement or any Related Agreement to be integrated
with prior offerings by the Company for purposes of the Securities Act which
would prevent the Company from selling the Securities pursuant to Rule 506 under
the Securities Act, or any applicable exchange-related stockholder approval
provisions.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any of the Related Agreements, or to consummate
the transactions contemplated thereby. To such counsel's knowledge, the Company
is not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
8. The terms and provisions of the Master Security Agreement and the Stock
Pledge Agreement create a valid security interest in favor of Laurus, in the
respective rights, title and interests of the Company and its Subsidiaries in
and to the Collateral (as defined in each of the Master Security Agreement and
the Stock Pledge Agreement). Each UCC-1 Financing Statement naming the Company
or any Subsidiary thereof as debtor and Laurus as secured party are in proper
form for filing and assuming that such UCC-1 Financing Statements have been
filed with the Secretary of State of Minnesota , the security interest created
under the Master Security Agreement will constitute a perfected security
interest under the Uniform Commercial Code in favor of Laurus in respect of the
Collateral that can be perfected by filing a financing statement. After giving
effect to the delivery to Laurus of the stock certificates representing the
ownership interests of each Subsidiary of the Company (together with effective
endorsements) and assuming the continued possession by Laurus of such stock
certificates in the State of New York, the security interest created in favor of
Laurus under the Stock Pledge Agreement constitutes a valid and enforceable
first perfected security interest in such ownership interests (and the proceeds
thereof) in favor of Laurus, subject to no other security interest. No filings,
registrations or recordings are required in order to perfect (or maintain the
perfection or priority of) the security interest created under the Stock Pledge
Agreement in respect of such ownership interests.
C-2
EXHIBIT D
FORM OF ESCROW AGREEMENT
This Agreement (this "Agreement") is dated as of the 29th day of September,
2004 among Bio-Key International, Inc., a Minnesota corporation (the "COMPANY"),
Laurus Master Fund, Ltd. (the "PURCHASER"), and Loeb & Loeb LLP (the "ESCROW
AGENT"):
WITNESSETH:
WHEREAS, the Purchaser has advised the Escrow Agent that (a) the Company
and the Purchaser have entered into a
Securities Purchase Agreement (the
"PURCHASE AGREEMENT") for the sale by the Company to the Purchaser of a secured
convertible term note (the "TERM NOTE"), (b) the Company has issued to the
Purchaser a common stock purchase warrant (the "TERM NOTE WARRANT") in
connection with the issuance of the Term Note, and (c) the Company and the
Purchaser have entered into a Registration Rights Agreement covering the
registration of the Company's common stock underlying the Term Note and the Term
Note Warrant (the "TERM NOTE REGISTRATION RIGHTS AGREEMENT");
WHEREAS, the Company and the Purchaser wish the Purchaser to deliver to the
Escrow Agent copies of the Documents (as hereafter defined) and the Escrowed
Payment (as hereafter defined) to be held and released by Escrow Agent in
accordance with the terms and conditions of this Agreement; and
WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to
the terms and conditions of this Agreement;
NOW THEREFORE, the parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. Whenever used in this Agreement, the following terms
shall have the meanings set forth below.
(a) "Agreement" means this Agreement, as amended, modified
and/or supplemented from time to time by written agreement among the parties
hereto.
(b) "Closing Payment" means the closing payment to be paid to
Laurus Capital Management, LLC, the fund manager, as set forth on Schedule A
hereto.
(c) "Disbursement Letter" means that certain letter delivered
to the Escrow Agent by each of the Purchaser and the Company setting forth wire
instructions and amounts to be funded at the Closing.
(d) "Documents" means copies of the Disbursement Letter, the
▇▇▇▇▇▇▇▇
▇-▇
Agreement, the Term Note, the Term Note Warrant, and the Term Note Registration
Rights Agreement.
(e) "Escrowed Payment" means $5,000,000.
1.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto with respect to the matters contained herein and
supersedes all prior agreements, understandings, negotiations and discussions of
the parties, whether oral or written. There are no warranties, representations
and other agreements made by the parties in connection with the subject matter
hereof except as specifically set forth in this Agreement.
1.3 EXTENDED MEANINGS. In this Agreement words importing the singular
number include the plural and vice versa; words importing the masculine gender
include the feminine and neuter genders. The word "person" includes an
individual, body corporate, partnership, trustee or trust or unincorporated
association, executor, administrator or legal representative.
1.4 WAIVERS AND AMENDMENTS. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, in each case only by a written instrument signed by all parties
hereto, or, in the case of a waiver, by the party waiving compliance. Except as
expressly stated herein, no delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any right, power or privilege hereunder
preclude any other or future exercise of any other right, power or privilege
hereunder.
1.5 HEADINGS. The division of this Agreement into articles, sections,
subsections and paragraphs and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement.
1.6 LAW GOVERNING THIS AGREEMENT; CONSENT TO JURISDICTION. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York without regard to principles of conflicts of laws. With
respect to any suit, action or proceeding relating to this Agreement or to the
transactions contemplated hereby ("Proceedings"), each party hereto irrevocably
submits to the exclusive jurisdiction of the courts of the County of New York,
State of New York and the United States District court located in the county of
New York in the State of New York. Each party hereto hereby irrevocably and
unconditionally (a) waives trial by jury in any Proceeding relating to this
Agreement and for any related counterclaim and (b) waives any objection which it
may have at any time to the laying of venue of any Proceeding brought in any
such court, waives any claim that such Proceedings have been brought in an
inconvenient forum and further waives the right to object, with respect to such
Proceedings, that such court does not have jurisdiction over such party. As
between the Company and the Purchaser, the prevailing party shall be entitled to
recover from the other party its reasonable attorneys' fees and costs. In the
event that any provision of this Agreement is determined by a court of competent
jurisdiction to be invalid or unenforceable, then the remainder of this
Agreement shall not be affected and shall remain in full force and effect.
1.7 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
D-2
favor any party against the other.
ARTICLE 11
APPOINTMENT OF AND DELIVERIES TO THE ESCROW AGENT
2.1 APPOINTMENT. The Company and the Purchaser hereby irrevocably
designate and appoint the Escrow Agent as their escrow agent for the purposes
set forth herein, and the Escrow Agent by its execution and delivery of this
Agreement hereby accepts such appointment under the terms and conditions set
forth herein.
2.2 COPIES OF DOCUMENTS TO ESCROW AGENT. On or about the date hereof,
the Purchaser shall deliver to the Escrow Agent copies of the Documents executed
by the Company to the extent it is a party thereto.
2.3 DELIVERY OF ESCROWED PAYMENT TO ESCROW AGENT. On or about the date
hereof, the Purchaser shall deliver to the Escrow Agent the Escrowed Payment.
2.4 INTENTION TO CREATE ESCROW OVER THE ESCROWED PAYMENT. The Purchaser
and the Company intend that the Escrowed Payment shall be held in escrow by the
Escrow Agent and released from escrow by the Escrow Agent only in accordance
with the terms and conditions of this Agreement.
ARTICLE III
RELEASE OF ESCROW
3.1 RELEASE OF ESCROW. Subject to the provisions of Section 4.2, the
Escrow Agent shall release the Escrowed Payment from escrow as follows:
(a) Promptly following receipt by the Escrow Agent of (i)
copies of the fully executed Documents and this Agreement, (ii) the Escrowed
Payment in immediately available funds, (iii) joint written instructions ("JOINT
INSTRUCTIONS") executed by the Company and the Purchaser setting forth the
payment direction instructions with respect to the Escrowed Payment and (iv)
Escrow Agent's verbal instructions from ▇▇▇▇▇ Grin and/or ▇▇▇▇▇▇ Grin (each of
whom is a director of the Purchaser) indicating that all closing conditions
relating to the Documents have been satisfied and directing that the Escrowed
Payment be disbursed by the Escrow Agent in accordance with the Joint
Instructions, then the Escrowed Payment shall be deemed released from escrow and
shall be promptly disbursed in accordance with the Joint Instructions. The Joint
Instructions shall include, without limitation, Escrow Agent's authorization to
retain from the Escrowed Payment Escrow Agent's fee for acting as Escrow Agent
hereunder and the Closing Payment for delivery to Laurus Capital Management, LLC
in accordance with the Joint Instructions.
(b) Upon receipt by the Escrow Agent of a final and
non-appealable judgment, order, decree or award of a court of competent
jurisdiction (a "COURT ORDER") relating to the Escrowed Payment, the Escrow
Agent shall remit the Escrowed Payment in accordance with the Court Order. Any
Court Order shall be accompanied by an opinion of counsel for the party
presenting the Court Order to the Escrow Agent (which opinion shall be
satisfactory to the Escrow Agent) to the effect that the court issuing the Court
Order is a court of competent jurisdiction and that the Court Order is
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final and non-appealable.
3.2 ACKNOWLEDGEMENT OF COMPANY AND PURCHASER; DISPUTES. The Company and
the Purchaser acknowledge that the only terms and conditions upon which the
Escrowed Payment are to be released from escrow are as set forth in Sections 3
and 4 of this Agreement. The Company and the Purchaser reaffirm their agreement
to abide by the terms and conditions of this Agreement with respect to the
release of the Escrowed Payment. Any dispute with respect to the release of the
Escrowed Payment shall be resolved pursuant to Section 4.2 or by written
agreement between the Company and Purchaser.
ARTICLE IV
CONCERNING THE ESCROW AGENT
4.1 DUTIES AND RESPONSIBILITIES OF THE ESCROW AGENT. The Escrow Agent's
duties and responsibilities shall be subject to the following terms and
conditions:
(a) The Purchaser and the Company acknowledge and agree that
the Escrow Agent (i) shall not be required to inquire into whether the
Purchaser, the Company or any other party is entitled to receipt of any Document
or all or any portion of the Escrowed Payment; (ii) shall not be called upon to
construe or review any Document or any other document, instrument or agreement
entered into in connection therewith; (iii) shall be obligated only for the
performance of such duties as are specifically assumed by the Escrow Agent
pursuant to this Agreement; (iv) may rely on and shall be protected in acting or
refraining from acting upon any written notice, instruction, instrument,
statement, request or document furnished to it hereunder and believed by the
Escrow Agent in good faith to be genuine and to have been signed or presented by
the proper person or party, without being required to determine the authenticity
or correctness of any fact stated therein or the propriety or validity or the
service thereof; (v) may assume that any person purporting to give notice or
make any statement or execute any document in connection with the provisions
hereof has been duly authorized to do so; (vi) shall not be responsible for the
identity, authority or rights of any person, firm or company executing or
delivering or purporting to execute or deliver this Agreement or any Document or
any funds deposited hereunder or any endorsement thereon or assignment thereof;
(vii) shall not be under any duty to give the property held by Escrow Agent
hereunder any greater degree of care than Escrow Agent gives its own similar
property; and (viii) may consult counsel satisfactory to Escrow Agent
(including, without limitation, Loeb & Loeb, LLP or such other counsel of Escrow
Agent's choosing), the opinion of such counsel to be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by Escrow Agent hereunder in good faith and in accordance with the opinion of
such counsel.
(b) The Purchaser and the Company acknowledge that the Escrow
Agent is acting solely as a stakeholder at their request and that the Escrow
Agent shall not be liable for any action taken by Escrow Agent in good faith and
believed by Escrow Agent to be authorized or within the rights or powers
conferred upon Escrow Agent by this Agreement. The Purchaser and the Company
hereby, jointly and severally, indemnify and hold harmless the Escrow Agent and
any of Escrow Agent's partners, employees, agents and representatives from and
against any and all actions taken or omitted to be taken by Escrow Agent or any
of them hereunder and any and all claims, losses, liabilities, costs, damages
and expenses suffered and/or incurred by the Escrow Agent arising in any manner
whatsoever out of the transactions contemplated by this Agreement and/or any
transaction related in any way hereto,
D-4
including the fees of outside counsel and other costs and expenses of defending
itself against any claims, losses, liabilities, costs, damages and expenses
arising in any manner whatsoever out the transactions contemplated by this
Agreement and/or any transaction related in any way hereto, except for such
claims, losses, liabilities, costs, damages and expenses incurred by reason of
the Escrow Agent's gross negligence or willful misconduct. The Escrow Agent
shall owe a duty only to the Purchaser and Company under this Agreement and to
no other person.
(c) The Purchaser and the Company shall jointly and severally
reimburse the Escrow Agent for its reasonable out-of-pocket expenses (including
counsel fees (which counsel may be Loeb & Loeb LLP or such other counsel of the
Escrow Agent's choosing) incurred in connection with the performance of its
duties and responsibilities hereunder, which shall not (subject to Section
4.1(b)) exceed $2,000.
(d) The Escrow Agent may at any time resign as Escrow Agent
hereunder by giving five (5) business days prior written notice of resignation
to the Purchaser and the Company. Prior to the effective date of resignation as
specified in such notice, the Purchaser and Company will issue to the Escrow
Agent a Joint Instruction authorizing delivery of the Documents and the Escrowed
Payment to a substitute Escrow Agent selected by the Purchaser and the Company.
If no successor Escrow Agent is named by the Purchaser and the Company, the
Escrow Agent may apply to a court of competent jurisdiction in the State of New
York for appointment of a successor Escrow Agent, and deposit the Documents and
the Escrowed Payment with the clerk of any such court and/or otherwise commence
an interpleader or similar action for a determination of where to deposit the
same.
(e) The Escrow Agent does not have and will not have any
interest in the Documents and the Escrowed Payment, but is serving only as
escrow agent, having only possession thereof.
(f) The Escrow Agent shall not be liable for any action taken
or omitted by it in good faith and reasonably believed by it to be authorized
hereby or within the rights or powers conferred upon it hereunder, nor for
action taken or omitted by it in good faith, and in accordance with advice of
counsel (which counsel may be Loeb & Loeb, LLP or such other counsel of the
Escrow Agent's choosing), and shall not be liable for any mistake of fact or
error of judgment or for any acts or omissions of any kind except to the extent
any such liability arose from its own willful misconduct or gross negligence.
(g) This Agreement sets forth exclusively the duties of the
Escrow Agent with respect to any and all matters pertinent thereto and no
implied duties or obligations shall be read into this Agreement.
(h) The Escrow Agent shall be permitted to act as counsel for
the Purchaser or the Company, as the case may be, in any dispute as to the
disposition of the Documents and the Escrowed Payment, in any other dispute
between the Purchaser and the Company, whether or not the Escrow Agent is then
holding the Documents and/or the Escrowed Payment and continues to act as the
Escrow Agent hereunder.
(i) The provisions of this Section 4.1 shall survive the
resignation of the Escrow Agent or the termination of this Agreement.
D-5
4.2 DISPUTE RESOLUTION; JUDGMENTS. Resolution of disputes arising under
this Agreement shall be subject to the following terms and conditions:
(a) If any dispute shall arise with respect to the delivery,
ownership, right of possession or disposition of the Documents and/or the
Escrowed Payment, or if the Escrow Agent shall in good faith be uncertain as to
its duties or rights hereunder, the Escrow Agent shall be authorized, without
liability to anyone, to (i) refrain from taking any action other than to
continue to hold the Documents and the Escrowed Payment pending receipt of a
Joint Instruction from the Purchaser and Company, (ii) commence an interpleader
or similar action, suit or proceeding for the resolution of any such dispute;
and/or (iii) deposit the Documents and the Escrowed Payment with any court of
competent jurisdiction in the State of New York, in which event the Escrow Agent
shall give written notice thereof to the Purchaser and the Company and shall
thereupon be relieved and discharged from all further obligations pursuant to
this Agreement. The Escrow Agent may, but shall be under no duty to, institute
or defend any legal proceedings which relate to the Documents and the Escrowed
Payment. The Escrow Agent shall have the right to retain counsel if it becomes
involved in any disagreement, dispute or litigation on account of this Agreement
or otherwise determines that it is necessary to consult counsel which such
counsel may be Loeb & Loeb LLP or such other counsel of the Escrow Agent's
choosing.
(b) The Escrow Agent is hereby expressly authorized to comply
with and obey any Court Order. In case the Escrow Agent obeys or complies with a
Court Order, the Escrow Agent shall not be liable to the Purchaser and Company
or to any other person, firm, company or entity by reason of such compliance.
ARTICLE V
GENERAL MATTERS
5.1 TERMINATION. This escrow shall terminate upon disbursement of the
Escrowed Payment in accordance with the terms of this Agreement or earlier upon
the agreement in writing of the Purchaser and Company or resignation of the
Escrow Agent in accordance with the terms hereof.
5.2 NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given one (1) day after being sent by telecopy (with copy delivered by
overnight courier, regular or certified mail):
(a) If to the Company, to: Bio-Key International, Inc.
Bio-Key International, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇, Hall & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇-▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(b) If to the Purchaser, to:
LAURUS MASTER FUND, LTD.
c/o Ogier Fiduciary Services (Cayman) Limited
▇.▇. ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ Church Street
▇▇▇▇▇▇ Town
Grand Cayman, Cayman Islands
British West Indies
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
(c) If to the Escrow Agent, to:
Loeb & Loeb LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
or to such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.
5.3 INTEREST. The Escrowed Payment shall not be held in an interest
bearing account nor will interest be payable in connection therewith.
5.4 ASSIGNMENT; BINDING AGREEMENT. Neither this Agreement nor any right
or obligation hereunder shall be assignable by any party without the prior
written consent of the other parties hereto. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.
5.5 INVALIDITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal, or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
5.6 COUNTERPARTS/EXECUTION. This Agreement may be executed in any number
of counterparts and by different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same agreement. This Agreement may
be executed by facsimile transmission.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.
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COMPANY:
BIO-KEY INTERNATIONAL, INC.
By:
---------------------------------
Name:
Title:
PURCHASER:
LAURUS MASTER FUND, LTD.
By:
---------------------------------
Name:
Title:
ESCROW AGENT:
LOEB & LOEB LLP
By:
---------------------------------
Name:
Title:
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SCHEDULE A TO FUNDS ESCROW AGREEMENT
PURCHASER PRINCIPAL NOTE AMOUNT
--------------------------------------------------------------------------------
LAURUS MASTER FUND, LTD.,
c/o Ogier Fiduciary Services (Cayman) Term Note in an aggregate principal
Ltd., P.O. Box 1234, Queensgate House, amount of $5,000,000
South Church Street, Grand Cayman,
Cayman Islands, British West Indies
Fax: ▇▇▇-▇▇▇-▇▇▇▇
--------------------------------------------------------------------------------
TOTAL $5,000,000
--------------------------------------------------------------------------------
FUND MANAGER CLOSING PAYMENT
--------------------------------------------------------------------------------
LAURUS CAPITAL MANAGEMENT, L.L.C. Closing payment payable in connection
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ with investment by Laurus Master Fund,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Ltd. for which Laurus Capital
Fax: ▇▇▇-▇▇▇-▇▇▇▇ Management, L.L.C. is the Manager.
--------------------------------------------------------------------------------
TOTAL $195,000
--------------------------------------------------------------------------------
WARRANTS
WARRANTS IN CONNECTION WITH
WARRANT RECIPIENT OFFERING
--------------------------------------------------------------------------------
LAURUS MASTER FUND, LTD. Term Note Warrant exercisable into
1,111,111 shares of common stock of
A Cayman Island corporation the Company issuable in connection
with the Term Note.
c/o Ogier Fiduciary Services (Cayman)
Ltd., ▇.▇. ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ Church Street, Grand Cayman,
Cayman Islands, British West Indies
Fax: ▇▇▇-▇▇▇-▇▇▇▇
--------------------------------------------------------------------------------
TOTAL WARRANTS EXERCISABLE INTO 1,111,111
SHARES OF COMMON STOCK OF THE COMPANY
--------------------------------------------------------------------------------
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