EXHIBIT 10.53
BIO-KEY INTERNATIONAL, INC.
SECURITIES PURCHASE AGREEMENT
JUNE 8, 2005
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........................................................4
4.3 Capitalization; Voting Rights.......................................4
4.4 Authorization; Binding Obligations..................................5
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..........................................10
4.14 Employees.........................................................10
4.15 Registration Rights and Voting Rights.............................11
4.16 Compliance with Laws; Permits.....................................11
4.17 Environmental and Safety Laws.....................................11
4.18 Valid Offering....................................................12
4.19 Full Disclosure...................................................12
4.20 Insurance.........................................................12
4.21 SEC Reports.......................................................12
4.22 Listing...........................................................12
4.23 No Integrated Offering............................................13
4.24 Stop Transfer.....................................................13
4.25 Dilution..........................................................13
4.26 Patriot Act.......................................................13
5. Representations and Warranties of the Purchaser..............................14
5.1 No Shorting........................................................14
5.2 Requisite Power and Authority......................................14
5.3 Investment Representations.........................................14
5.4 Purchaser Bears Economic Risk......................................15
5.5 Acquisition for Own Account........................................15
5.6 Purchaser Can Protect Its Interest.................................15
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TABLE OF CONTENTS
(continued)
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5.7 Accredited Investor................................................15
5.8 Legends............................................................15
5.9 Laurus Consent.....................................................16
6. Covenants of the Company.....................................................16
6.1 Stop-Orders........................................................16
6.2 Trading............................................................17
6.3 Market Regulations.................................................17
6.4 Reporting Requirements.............................................17
6.5 Use of Funds.......................................................17
6.6 Access to Facilities...............................................17
6.7 Taxes..............................................................18
6.8 Insurance..........................................................18
6.9 Intellectual Property..............................................19
6.10 Properties........................................................19
6.11 Confidentiality...................................................19
6.12 Required Approvals................................................19
6.13 Reissuance of Securities..........................................21
6.14 Opinion...........................................................21
7. Covenants of the Purchaser...................................................21
7.1 Confidentiality....................................................21
7.2 Non-Public Information.............................................21
7.3 Regulation M.......................................................21
8. Covenants of the Company and Purchaser Regarding Indemnification.............22
8.1 Company Indemnification............................................22
8.2 Purchaser's Indemnification........................................22
9. Conversion of Convertible Note...............................................22
9.1 Mechanics of Conversion............................................22
10. Registration Rights.........................................................24
10.1 Registration Rights Granted.......................................24
10.2 Offering Restrictions.............................................24
11. Miscellaneous...............................................................24
11.1 Governing Law.....................................................24
11.2 Survival..........................................................24
11.3 Successors........................................................25
11.4 Entire Agreement..................................................25
11.5 Severability......................................................25
11.6 Amendment and Waiver..............................................25
11.7 Delays or Omissions...............................................25
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TABLE OF CONTENTS
(continued)
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11.8 Notices...........................................................25
11.9 Attorneys' Fees...................................................26
11.10 Titles and Subtitles.............................................27
11.11 Facsimile Signatures; Counterparts...............................27
11.12 Broker's Fees....................................................27
11.13 Construction.....................................................27
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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 (AS
AMENDED, MODIFIED AND/OR SUPPLEMENTED, 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 June 8, 2005, by and between BIO-KEY INTERNATIONAL, INC., a Delaware
corporation (the "Company") and Laurus Master Fund, Ltd., a Cayman Islands
company ("Laurus" or the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of
Convertible Term Notes in the aggregate principal amount of Two Million Dollars
($2,000,000) (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, $0.0001 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 of 444,444 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
$2,000,000 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 444,444 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(b) 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 $20,000 for such expenses referred to in this Section 2(b).
(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 $2,000,000 and a Warrant in the form attached as
Exhibit B in the Purchaser's name representing 444,444 Warrant Shares and
the Purchaser will deliver to the Company, among other
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things, the amounts set forth in the Disbursement Letter by certified funds
or wire transfer.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser as of the date hereof 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 September 29, 2004between 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 September 29, 2004 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 September 29,
2004 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"), (viii) the Reaffirmation and Ratification Agreement dated as
of the date hereof (as amended, modified or supplemented from time to time,
the "Reaffirmation and Ratification Agreement Agreement") and (ix) all
other agreements related to this Agreement and the Note and referred to
herein (the preceding clauses (ii) through (ix), 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").
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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 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, 44,344,250 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
51,182 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
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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 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.
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(b) Since March 31, 2005, 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; (ii) incurred any indebtedness for money borrowed
or any other liabilities (other than ordinary course obligations or
obligations that have been paid in full) 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 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
6
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.
4.8 CHANGES. Since March 31, 2005 , 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;
(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;
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(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;
(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,
8
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 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.
9
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.
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
10
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
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.
11
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 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 or
otherwise made available to the Purchaser: (i) its Annual Reports on Form
10-KSB for its fiscal year ended December 31, 2004; and (ii) its Quarterly
Report on Form 10-QSB for its fiscal quarter ended March 31, 2005, and the
Form 8-K filings which it has made during the fiscal year 2005 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
12
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.
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
13
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, 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' 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
14
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:
"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:
15
"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."
5.9 LAURUS CONSENT. By its signature to this Agreement, Laurus, as a
Purchaser and as Collateral Agent under the
Securities Purchase Agreement
dated as of September 29, 2004 (as amended, modified and/or supplemented,
the "September Purchase Agreement") by and among the Company, Laurus and
the other Purchasers party thereto, hereby consents, in accordance with
Section 6.12(e) of the September Purchase Agreement, to the indebtedness
incurred by the Company pursuant to this Agreement and the Notes and
pursuant to the
Securities Purchase Agreement dated on or about the date
hereof (as amended, modified and/or supplemented from time to time, the
"Subordinated Purchase Agreement") by and among the Company, The Shaar Fund
Ltd., Longview Fund, L.P. and its affiliated investment funds, and the
other purchasers party thereto.
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
16
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 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 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.
17
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 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
18
(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
19
holders of its Preferred Stock to the extent that it is required to do
so, (ii) issue any preferred stock that 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.
20
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 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 ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇ LLP.
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.
21
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, 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.
22
(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 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
23
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.
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
24
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 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:
25
(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.
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 ▇▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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.
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
26
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.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
27
IN WITNESS WHEREOF, the parties hereto have executed the
SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
PURCHASER:
LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇ Grin
----------------------------------
Name: ▇▇▇▇▇ Grin
----------------------------------
Title: Manager
----------------------------------
28
COMPANY:
BIO-KEY INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------------
Title: Chairman
------------------------------------
29
SCHEDULE 1
NO. OF SHARES OF COMMON STOCK FOR
PURCHASER AMOUNT OF NOTE WHICH WARRANT EXERCISABLE:
--------- -------------- --------------------------
The Laurus Master Fund, Ltd. $ 2,000,000 444,444
30
EXHIBIT A
FORM OF CONVERTIBLE NOTE
THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY ARE SUBJECT TO THE PROVISIONS OF
THAT CERTAIN INTERCREDITOR AND SUBORDINATION AGREEMENT (AS AMENDED, MODIFIED
AND/OR SUPPLEMENTED, 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.
SECURED CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, BIO-KEY INTERNATIONAL, INC., a Delaware corporation
(the "BORROWER"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o M&C
Corporate Services Ltd., ▇.▇. ▇▇▇ ▇▇▇ G.T., ▇▇▇▇▇▇ House, South Church Street,
Grand Cayman, Cayman Islands, Fax: ▇▇▇-▇▇▇-▇▇▇▇ (the "HOLDER") or its registered
assigns or successors in interest, on order, the sum of Two Million Dollars
($2,000,000), together with any accrued and unpaid interest hereon, on June 7,
2008 (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:
ARTICLE I
INTEREST & AMORTIZATION
1.1(a) INTEREST RATE. Subject to Sections 4.11 and 5.6 hereof, interest
payable on this Note
1
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 July 1, 2005 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 October 1, 2005 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 $62,500, together with any accrued
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.
2
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 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
3
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.
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
4
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.
(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
5
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 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.
6
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.
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
7
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.
4.10.1 SEPTEMBER 2004 NOTE AND RELATED AGREEMENTS. An Event of Default,
under and as defined in any of (i) that certain Secured Convertible Term Note,
dated September 29, 2004, issued by the Borrower to the Holder (as amended,
modified or supplemented from time to time, the "September 2004 Note"), (ii) the
Purchase Agreement referred to in the September 2004 Note (as amended, modified
or supplemented from time to time, the "September 2004 Purchase Agreement") or
(iii) any Related Agreement referred to in the September 2004 Purchase
Agreement, as each are amended, modified or supplemented from time to time,
shall have occurred and be continuing.
DEFAULT RELATED PROVISIONS
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
8
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 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
9
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.]
10
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its
name effective as of this 8th day of June, 2005.
BIO-KEY INTERNATIONAL, INC.
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
WITNESS:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
11
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 June __, 2005 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:
----------------------------
12
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 June __, 2005 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:
----------------------------
13
EXHIBIT B
FORM OF WARRANT
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 444,444 Shares of Common Stock of
BIO-KEY INTERNATIONAL, INC.
(subject to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. Issue Date: June 8, 2005
BIO-KEY INTERNATIONAL, INC., a corporation organized under the laws of the
State of Delaware ("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
June 7, 2010 (the "Expiration Date"), up to 444,444 fully paid and nonassessable
shares of Common Stock (as hereinafter defined), $0.0001 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 $0.0001 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 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
2
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:
X= Y (A-B)
---------
A
3
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 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
4
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 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
5
"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 hereof for all purposes, notwithstanding any notice to the
contrary.
6
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.]
7
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
BIO-KEY INTERNATIONAL, INC.
WITNESS:
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇ ---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇ Title: Chief Executive Officer
-------------------------------------- ---------------------------------
8
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
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. BIO-key is a corporation validly existing and in good standing under
the laws of the State of Delaware.
2. BIO-key has the requisite corporate power and authority to own,
pledge, mortgage and operate its properties, to lease any properties it operates
under lease, to conduct its business as, to our knowledge, presently conducted.
3. BIO-key has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Purchase Agreement and the other
Transaction Documents. BIO-key has taken or caused to be taken all necessary
corporate action for the execution, delivery and performance of the Transaction
Documents to which BIO-key is a party.
4. Based solely upon our review of the resolutions of BIO-key's board of
directors in connection with the Purchase Agreement and the transactions
contemplated thereby, the Note Shares and the Warrant Shares, when issued
pursuant to and in accordance with the terms of the Purchase Agreement and the
other Transaction Documents and, assuming that BIO-key has received adequate
consideration therefor, upon delivery shall be validly issued and outstanding,
fully paid and non assessable.
5. The Transaction Documents are the legal, valid and binding obligations
of the Companies, enforceable against the Companies in accordance with their
respective terms.
6. The execution and delivery by each Company of the Purchase Agreement
and the other Transaction Documents and the consummation of the transactions on
its part contemplated thereby do not (a) violate the provisions of the BIO-key
Organizational Documents in the case of BIO-key or the PSG Organizational
Documents in the case of PSG or (b) violate any Massachusetts or federal law
which to our knowledge is generally applicable to transactions of the type
contemplated by the Purchase Agreement.
7. To our knowledge, except as set forth in the Purchase Agreement
(including the schedules thereto), (a) the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any contractual
preemptive rights or rights of first refusal that have not been properly waived
or complied with and (b) the sale of the Warrant and the subsequent exercise of
the Warrant for Warrant Shares are not subject to any contractual preemptive
rights or rights of first refusal that have not been properly waived or complied
with.
8. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Transaction Documents, the offer, sale and issuance
of the Securities on the Closing Date will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT").
Assuming the accuracy of the representations and warranties of the parties
contained in the Transaction Documents, to our knowledge, neither BIO-key, 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 Purchase Agreement and the other
Transaction Documents to be integrated with prior offerings by BIO-key for
purposes of the Securities Act which would prevent BIO-key from selling the
Securities pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions.
9. To our knowledge, but without having investigated any governmental
records or court dockets, and without having made any other independent
investigation, except as set forth in the Purchase Agreement (including the
schedules thereto), there is no pending or currently threatened action, suit or
proceeding before any court, governmental or regulatory authority, agency,
commission, or board of arbitration, against either Company which purports to
affect the legality, validity, or enforceability of any Transaction Document or
the performance thereof.
10. Assuming that value has been given to the Companies by the Purchaser
and that each of the Companies has rights in the Subject Collateral owned by it,
the provisions of the Security Agreement and the Pledge Agreement are sufficient
to create in favor of the Purchaser a security interest in all right, title and
interest of the Companies in those items of Subject Collateral owned by them
described in the Security Agreement and the Pledge Agreement in which a security
interest may be created under Article 9 of the Uniform Commercial Code as in
effect in The Commonwealth of Massachusetts. Upon the proper filing of the
Financing Statements in the office of the Secretary of State of Delaware with
payment of appropriate filing fees, the Purchaser shall have a perfected
security interest in its right, title and interest in the Subject Collateral
owned by each of the Companies to the extent that a security interest in such
Subject Collateral may be perfected by filing under Article 9 of the Uniform
Commercial Code as in effect in the State of Delaware.
11. PSG is a corporation validly existing and in good standing under the
laws of the State of Delaware.
12. PSG has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Transaction Documents to which it
is a party and to own, pledge, mortgage and operate its properties, to lease any
properties it operates under lease, to conduct its business as, to our
knowledge, presently conducted.
13. PSG has taken or caused to be taken all necessary corporate action for
the execution, delivery and performance of the Transaction Documents to which
PSG is a party.
14. To our knowledge, but without having made any independent
investigation, the execution, delivery and performance of the Transaction
Documents does not require the consent of any third party under any material
contract, agreement or instrument to which either Company is a party unless such
consent has previously been obtained.
2
EXHIBIT D
FORM OF ESCROW AGREEMENT
FUNDS ESCROW AGREEMENT
This Agreement (this "Agreement") is dated as of the 8th day of June, 2005
among Bio-Key International, Inc., a Delaware 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 I
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 Purchase
Agreement, the Term Note, the Term Note Warrant, and the Term Note Registration
Rights Agreement.
(e) "Escrowed Payment" means $2,000,000.
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
2
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
favor any party against the other.
ARTICLE II
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
3
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 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
4
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, 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 $1,500.
(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.
5
(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.
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.
6
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):
If to the Company, to: Bio-Key International, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇, Hall & ▇▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ , ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(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.
7
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.
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
COMPANY:
BIO-KEY INTERNATIONAL, INC.
By:
------------------------------------
Name:
Title:
PURCHASER:
LAURUS MASTER FUND, LTD.
By:
------------------------------------
Name:
Title:
ESCROW AGENT:
LOEB & LOEB LLP
By:
------------------------------------
Name:
Title:
9
SCHEDULE A TO FUNDS ESCROW AGREEMENT
PURCHASER PRINCIPAL NOTE AMOUNT
-----------------------------------------------------------------------------------------------------------------------
LAURUS MASTER FUND, LTD., Term Note in an aggregate principal amount of
c/o Ogier Fiduciary Services (Cayman) Ltd., ▇.▇. ▇▇▇ ▇▇▇▇, $2,000,000
Queensgate House, South Church Street, Grand Cayman, Cayman
Islands, British West Indies
Fax: ▇▇▇-▇▇▇-▇▇▇▇
-----------------------------------------------------------------------------------------------------------------------
TOTAL $2,000,000
-----------------------------------------------------------------------------------------------------------------------
FUND MANAGER CLOSING PAYMENT
-----------------------------------------------------------------------------------------------------------------------
LAURUS CAPITAL MANAGEMENT, L.L.C. Closing payment payable in connection with investment
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ Floor by Laurus Master Fund, Ltd. for which Laurus ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Management, L.L.C. is the Manager.
Fax: ▇▇▇-▇▇▇-▇▇▇▇
-----------------------------------------------------------------------------------------------------------------------
TOTAL $78,000
-----------------------------------------------------------------------------------------------------------------------
WARRANTS
WARRANTS IN CONNECTION WITH
WARRANT RECIPIENT OFFERING
-----------------------------------------------------------------------------------------------------------------------
LAURUS MASTER FUND, LTD. Term Note Warrant exercisable into 444,444, shares of
A Cayman Island corporation common stock of the Company issuable in connection
c/o Ogier Fiduciary Services (Cayman) Ltd., ▇.▇. ▇▇▇ ▇▇▇▇, with the Term Note.
Queensgate House, South Church Street, Grand Cayman, Cayman
Islands, British West Indies
Fax: ▇▇▇-▇▇▇-▇▇▇▇
-----------------------------------------------------------------------------------------------------------------------
TOTAL WARRANTS EXERCISABLE INTO 444,444 SHARES OF COMMON
STOCK OF THE COMPANY
-----------------------------------------------------------------------------------------------------------------------
10