EXHIBIT 10.25
NOTE PURCHASE AGREEMENT
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THIS NOTE PURCHASE AGREEMENT ("Agreement") is dated January 27, 2003, by
and between BIO-KEY INTERNATIONAL, INC., a Minnesota corporation with
headquarters located at 0000 Xxxxxxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxx,
Xxxxxxxxx 00000(xxx "Company"), and THE SHAAR FUND LTD. (the "Investor").
W I T N E S S E T H
WHEREAS, the Company wishes to induce the Investor to loan to the Company,
and the Investor is willing to loan to the Company, subject to the terms and
conditions set forth herein, up to Two Million Three Hundred and Fifty Thousand
and 00/100 ($2,350,000.00) Dollars.
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreement contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. LOAN.
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(a) Subject to the terms and conditions set forth herein, the
Investor shall loan up to Two Million Three Hundred Fifty Thousand and 00/100
($2,350,000.00) Dollars to the Company by advancing (the "Initial Advance") to
the Company $600,000 on the date hereof, and subject to the conditions set forth
in Sections 1(b) and 1(c) below, advancing (each an "Advance" and collectively,
the "Advances") an additional $190,000 on the first day of each month commencing
February 1, 2003 and terminating October 1, 2003, and advancing an additional
$40,000 on November 1, 2003.
(b) Upon each funding of an Advance hereunder, the Company shall
deliver a Certificate of an executive officer of the Company, substantially in
the form annexed hereto as Exhibit A.
(c) The Investor shall not be obligated to make any Advances under
Paragraph 1(a) hereof, unless: (i) all representations and warranties made by
the Company shall be true and correct in all material respects, as if same were
made on the date of such Advance; (ii) the Company shall be in material
compliance with all other obligations under this Agreement, (iii) the proceeds
of such Advance are used solely for the purpose set forth in Section 6 of this
Agreement; and (iv) the Market Price per share of common stock, $.01 par value
per share, of the Company ("Common Shares") for the calendar month preceding the
Advance exceeds $1.00. Notwithstanding the foregoing, the Investor may, in its
sole discretion, agree to fund other Advances submitted by the Company, in such
amounts as it may determine from time to time. To the extent that Advances or
other funding is made available by the Investor or its affiliates from the date
hereof until November 1, 2003, the Investor's obligation to fund Advances shall
be reduced accordingly. As used herein, "Market Price" per Common Share means
the average of the closing bid prices of the Common Shares as reported by
Bloomberg LP for the principal market on which the Company's Common Stock is
trade.
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2. NOTE.
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(a) The Initial Advance and the Advances shall be evidenced by a
Secured Convertible Promissory Note (the "Note") payable to the order of the
Investor or its assignees in substantially the form attached hereto as Exhibit
B.
(b) The Company is in need of additional capital and is attempting
to obtain such financing through the issuance of additional equity securities of
the Company in a private placement transaction. In the event that, on or before
June 30, 2004 (the "Financing Date"), the Company completes a private placement
of equity securities of the Company (the "Current Financing Securities") for an
aggregate sale price of at least $5,000,000 (the "Transaction"), upon the
closing of the Transaction, some or all of the principal of, or the interest due
on, the Note, or both, shall, at the option of the Investor, either (i) be
converted into shares of Current Financing Securities at a conversion price
equal to the price per share at which the Current Financing Securities are
issued (such price subject to adjustment for stock splits, stock dividends and
the like), and on the additional terms and conditions applicable generally to
the Transaction, or (ii) immediately be paid in cash. In lieu thereof, the
Investor may, at its option, at any time and from time to time, elect to convert
some or all of the then outstanding principal and interest of the Note into
shares of Common Stock at conversion price of $0.75 per share or into shares of
the Company's Series B 9% Convertible Preferred Stock, $.01 par value per share
(the "Series B Shares"), at a conversion price of $100.00 per share.
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3. CLOSING. The Company agrees to issue and sell to the Investor,
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and, subject to and in reliance upon the representations, warranties, terms and
conditions contained herein, the Investor, agrees to purchase the Note. Such
purchase and sale shall take place at a closing (the "Closing") to be conducted
by wire transfer and facsimile transmission. At the Closing, the Company will
deliver the Note to the Investor against payment by the Purchaser of $500,000 to
the Company by wire transfer of immediately available United States fund
delivery of that certain promissory note dated January 7, 2003 in the principal
amount of $50,000 and delivery of that certain Promissory Note dated January 13,
2003 in the principal amount of $50,000.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
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represents and warrants to the Investor that:
(a) The Company has the corporate power and authority to enter
into this Agreement and to perform its obligations hereunder and thereunder.
The execution and delivery by the Company of this Agreement and the Note and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of the
Company. This Agreement and the Note have been duly executed and delivered by
the Company and constitute valid and binding obligations of the Company
enforceable against it in accordance with their respective terms, subject to the
effects of any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and to the application of
equitable principles in any proceeding (legal or equitable).
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(b) The execution, delivery and performance by the Company of this
Agreement and the Note and the consummation of the transactions contemplated
hereby and thereby do not and will not breach or constitute a default under any
applicable law or regulation or of any agreement, judgment, order, decree or
other instrument binding on the Company which breach or default could reasonably
by expected to have a material adverse effect on the Company.
(c) The Company is in material compliance with all applicable
laws, regulations, judgments, decrees and orders material to the conduct of its
business.
(d) There is no pending, or to the knowledge of the Company,
threatened, judicial, administrative or arbitral action, claim, suit, proceeding
or investigation against or involving the Company, which might affect the
validity or enforceability of this Agreement or the Note or which involves the
Company and which if adversely determined, could reasonably be expected to have
a material adverse effect on the Company.
(e) No consent or approval of, or exemption by, or filing with,
any party or governmental or public body or authority is required in connection
with the execution, delivery and performance under this Agreement or the Note,
except for Federal and State Blue Sky securities law filings, and required
filings pursuant to the Security Interest Provisions.
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(f) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Minnesota. The
Company is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its current ownership or leasing of
any properties or its ownership or leasing of any properties or the character of
its operations as currently conducted requires such qualification or licensing,
except where the failure to be so qualified would not have a material adverse
effect on the Company. The Company has all corporate power and authority, and
has obtained all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies necessary to own or lease its properties and conduct its
business other than those authorizations, approvals and such other documents the
lack of which could not reasonably be expected to have a material adverse effect
on the Company.
(g) The execution, delivery and performance of this Agreement by
the Company and the Note to be delivered hereunder and the consummation of the
transactions contemplated hereby and thereby will not: (i) violate any provision
of the Company's Articles of Incorporation or Bylaws, (ii) violate, conflict
with or result in the breach of any of the terms of, result in a material
modification of the effect of, otherwise, give any other contracting party the
right to terminate, or constitute (or with notice or lapse of time or both
constitute) a default under, any contract or other agreement to which the
Company is a party or by or to which the Company or any of the Company's assets
or properties may be bound or subject, (iii) violate any order, judgment,
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injunction, award or decree of any court, arbitrator or governmental or
regulatory body by which the Company, or the assets or properties of the Company
are bound, (iv) to the Company's knowledge, violate any statute, law or
regulation.
(h) Except as set forth in the Company's filings with the
Securities and Exchange Commission (the "SEC Filings"), there has been no
material change in the capitalization, assets, or liabilities of the Company
since the issuance of the financial statements, for the period ending December
31, 2001, delivered to Investor, nor is the Company in default under, or an
Event of Default has occurred in respect of any agreement existing between the
Company and the Investor.
(i) Except as set forth in the SEC Filings, none of the following
has occurred during the past five (5) years with respect to the Company (or any
subsidiary or predecessor entity) or control person of the Company (a "Person"):
(1) A petition under the federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of such Person, or
any partnership in which he was a general partner at or within two years before
the time of such filing, or any corporation or business association of which he
was an executive officer at or within two years before the time of such filing;
(2) Such Person was convicted in a criminal proceeding or is a
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named subject of a pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) Such Person was the subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or otherwise
limiting, the following activities:
(i) Acting, as an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance company, as
a futures commission merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, any other person regulated by the
Commodity Futures Trading Commission ("CFTC") or engaging in or continuing any
conduct or practice in connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal commodities laws;
(4) Such person was the subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated, of any federal or state
authority barring, suspending or otherwise limiting for more than 60 days the
right of such person to engage in any activity described in paragraph (3) of
this item, or to be associated with persons engaged in any such activity;
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(5) Such person was found by a court of competent jurisdiction in
a civil action or by the CFTC or SEC to have violated any federal or state
securities law, and the judgment in such civil action or finding by the CFTC or
SEC has not been subsequently reversed, suspended, or vacated.
(j) The Company has had no dealings in connection with this
transaction with any finder or broker who will demand payment of any fee or
commission from the Investor. Each party agrees to indemnify the other against
and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered in connection with this Agreement or the transactions
contemplated hereby.
5. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor hereby
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represents and warrants to the Company that:
(a) The Investor has the corporate power and authority to enter
into this Agreement and to perform its obligations hereunder. The execution and
delivery by the Investor of this Agreement and the consummation by the Investor
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Investor. This Agreement has been
duly executed and delivered by the Investor and constitutes the valid and
binding obligation of the Investor, enforceable against it in accordance with
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its terms, subject to the effects of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and to the application of equitable principles in any proceeding (legal or
equitable).
(b) The execution, delivery and performance by the Investor of
this Agreement and the consummation of the transactions contemplated hereby does
not and will not breach or constitute a default under any applicable law or
regulation or of any agreement, judgment, order, decree or other instrument
binding on the Investor.
(c) There is no pending, or to the knowledge of the Investor,
threatened, judicial, administrative or arbitral action, claim, suit, proceeding
or investigation which might affect the validity or enforceability of this
Agreement or the Note.
(d) No consent or approval of, or exemption by, or filing with,
any party of governmental or public body or authority is required in connection
with the execution, delivery and performance under this Agreement or the Note or
the taking of any action contemplated hereunder or thereunder.
(e) The Investor has prior substantial investment experience,
including investment in non-listed and non-registered securities and has had the
opportunity to engage the services of an investment advisor, attorney or
accountant to read all of the documents furnished or made available by the
Company to the Investor in connection with this investment and to evaluate the
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merits and risks of this investment. Investor is an "accredited investor" as
that term is defined under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations thereunder.
(f) Such Investor is acquiring the Note and the shares of Common
Stock of the Company or Series B Shares issuable upon conversion of the Note
(collectively, the "Securities") for its own account for investment purposes
only and not with a view to or for distributing or reselling such Securities or
any part thereof or interest therein, without prejudice, however, to such
Investor's right, at all times to sell or otherwise dispose of all or any part
of such Securities pursuant to an effective registration statement under the
Securities Act and in compliance with applicable state securities laws or under
an exemption from such registration.
(g) Investor has had no dealings in connection with this
transaction with any finder or broker who will demand payment of any fee or
commission from the Investor. Each party agrees to indemnify the other against
and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered in connection with this Agreement or the transactions
contemplated hereby.
6. USE OF PROCEEDS. The Company will use the proceeds received
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hereunder for general working capital purposes. Unless specifically consented
to in advance in each instance by the Investor, the Company shall not, directly
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or indirectly, use such proceeds for the repayment of any outstanding loan by
the Company, or the redemption of any equity securities.
7. WAIVER OF CERTAIN ANTI DILUTION PROVISIONS. Reference is hereby
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made to the following securities of the Company which were issued to the
Investor on or about November 26, 2001: (a) Convertible Debenture Due September
30, 2003 (the "Debenture"); (b) Secured Note due September 30, 2003 (the
"Secured Note"); (c) Secured Note due September 30, 2003 (the "Advance Note");
and (d) Certificate of Designation of Series B Convertible Preferred Stock (the
"Series B Preferred" and together with the Debenture, Secured Note and Advance
Note, collectively the "Prior Securities"). The issuance of the Note, the
issuance of options (the "CEO Options") to the Chief Executive Officer of the
Corporation to purchase 580,000 shares of Common Stock and the issuance of the
options to the Chairman of the Board of Directors of the Company to purchase up
to 650,000 shares of Common Stock (the "Chairman Options" and together with the
CEO Options, the "Options") could result in a reduction in the conversion ratios
or conversion prices applicable to the Prior Securities. The Holder hereby
WAIVES the application of any and all provisions of the Prior Securities which
would reduce the conversion ratio or conversion price applicable to the Prior
Securities as a result of the issuance of the Note, the Options or the issuance
of shares of capital stock of the Company upon conversion thereof, such that the
forgoing issuances shall not effect the conversion or exercise ratios or
conversion prices applicable to any of the Prior Securities.
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8. INDEMNIFICATION. If (i) the Investor becomes involved in any
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capacity in any action, proceeding or investigation brought by any stockholder
of the Company, in connection with or as a result of the consummation of the
transactions contemplated hereby or if the Investor is impleaded in any such
action, proceeding or investigation by any person, or (ii) the Investor becomes
involved in any capacity in any action, proceeding or investigation brought by
the Securities and Exchange Commission, any self-regulatory organization or
other body having jurisdiction, against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated hereby, or if the Investor is impleaded in any such action,
proceeding or investigation by any person, then in any such case, the Company
hereby agrees to indemnify, defend and hold harmless the Investor from and
against and in respect of all losses, claims, liabilities, damages or expenses
resulting from, imposed upon or incurred by the Investor, directly or
indirectly, and reimburse such Investor for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, the Company
will reimburse the Investor for reasonable internal and overhead costs for the
time of any officers or employees of the Investor devoted to appearing and
preparing to appear as witnesses, assisting in preparation for hearings, trials
or pretrial matters, or otherwise with respect to inquiries, hearings, trials,
and other proceedings relating to the subject matter of this Agreement. The
indemnification and reimbursement obligations of the Company under this
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paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any affiliates of the
Investor who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Investor and any such affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Investor, any such affiliate and any such
person. The Company also agrees that neither the Investor nor any such
affiliate, partner, director, agent, employee or controlling person shall have
any liability to the Company or any person asserting claims on behalf of or in
right of the Company in connection with or as a result of the consummation of
the Agreement, except as provided in or contemplated by the Agreement.
Notwithstanding the foregoing, the indemnification agreement contained within
this Section 8 shall not apply (i) to any action, proceeding, or investigation
which is based on or relating to (A) Investor's trading activities; (B)
Investor's violation of the Securities Act, the Securities Exchange Act of 1934,
as amended, any state securities laws or any rule or regulation thereunder,
including, but not limited to, Investor's use of material non-public
information; or (C) actions which are not in compliance with any obligation of
Investor under the Agreement, or (ii) to any indemnity or undertaking by
Investor in favor of the Company in connection with any lost, stolen, or missing
certificates evidencing securities of the Company.
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9. ASSIGNMENT. Subject to compliance with applicable securities
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law, this Agreement may be assigned by the Investor to transferees or assignees
of the Note, provided that the Company is, prior to or simultaneously with such
transfer, furnished with written notice of the name and address of such
transferee or assignee, and such assignee agrees in writing to be bound by the
terms hereof and provided further that, if the Note is only assigned or
transferred in part, then such assignment shall only be made in part on an
appropriate proportionate basis.
10. REGISTRATION RIGHTS. The Company acknowledges that the Investor
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has certain rights under that certain Registration Rights Agreement (the
"Registration Rights Agreement") dated as of November 26, 2001 by and between
the Company and Investor and that certain Note Purchase Agreement dated as of
August 28, 2002 (the "August Agreement") with respect to Common Shares issuable
upon conversion or exercise, as applicable, of the Prior Securities and that
Note dated August 28, 2002 in the principal amount of $750,000 (the "August
Note"). Pursuant to the Registration Rights Agreement, as amended by the August
Agreement, the Company is obligated to file an additional registration statement
(the "Additional Registration Statement") with the SEC to cover the public
resale of Common Shares issuable upon conversion of the Advance Notes issued
pursuant to that certain Funding Agreement dated as of November 26, 2001 by and
between the Company and Investor or upon conversion of the August Note. This
Agreement shall be deemed to amend the Registration Rights Agreement and August
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Agreement to provide (i) that such Additional Registration Statement shall be
required to be filed on the earlier of (X) June 30, 2003 and (Y) sixty (60) days
after the date on which Investor demands that the Additional Registration
Statement be filed with the SEC pursuant to notice delivered not earlier than
March 31, 2003; and (ii) that such Additional Registration Statement shall
include the shares of Common Stock upon conversion of the Note, unless such
shares are covered by a different registration statement.
11. SECURITY INTEREST PROVISIONS. The obligation of the Company for payment
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of principal, interest and all other sums hereunder are further secured by
Security Interest Provisions between the Company and the Holder as set forth in
the Annex to that certain Secured Note of the Company dated November 26, 2001
issued to Holder in the principal amount of $4,092,920, with the same force and
effect as if annexed hereto.
12. NOTICES. Any notice required or permitted hereunder shall be given
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in writing (unless otherwise specified herein) and shall be deemed effectively
given upon personal delivery or seven business days after deposit in the United
States Postal Service, by (a) advance copy by fax, and (b) mailing by express
courier or registered or certified mail with postage and fees prepaid, addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by ten days advance written
notice to each of the other parties hereto.
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COMPANY: BIO-Key International, Inc.
0000 Xxxxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxx, Xxxxxxxxx 00000
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxxx X. Xxxxxx, Esq.
Eleven Penn Center
14th Floor
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
000-000-0000 (Philadelphia) Fax
PURCHASER: The Shaar Fund Ltd.
Xxxx Xxxxxxxxx 0
Xxxxxxx
Xxxxxxxxxxx Antilles
(Tel: 000-0-000-0000)
(Fax: 000-0-000-0000)
with copies (which shall not constitute notice) to:
Xxxxxxxx Capital Management, LLC
Suite 2210
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Phone number: 000-000-0000
Fax number: 000-000-0000
and
Xxxxxxx and Prager LLP
00 Xxxxxxxx
Xxx Xxxx, XX 00000
13. SEVERABILITY. If a court of competent jurisdiction determines
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that any provision of this Agreement is invalid, unenforceable or illegal for
any reason, such determination shall not affect or impair the validity, legality
and enforceability of the other provisions of this Agreement. If any such
invalidity, unenforceability or illegality of a provision of this Agreement
becomes known or apparent to any of the parties hereto, the parties shall
negotiate promptly and in good faith in an attempt to make appropriate changes
and adjustments to such provision specifically and this Agreement generally to
achieve as closely as possible, consistent with applicable law, the intent and
spirit of such provision specifically and this Agreement generally.
14. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
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counterparts, each of which shall be deemed an original, but all of which
together shall constitute the same Agreement.
15. EXPENSES. The Company shall pay all fees and disbursements of the
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Investor with respect to the preparation and enforcement of this Agreement.
16. GOVERNING LAW. This Agreement and the Note shall be governed by
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and construed in accordance with the laws of the State of New York, except to
the extent that the Minnesota Business Corporation Act would apply to the
internal corporate governance of the Company. Each of the parties consents to
the jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions.
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17. JURY TRIAL WAIVER. The Company and Investor hereby waive a trial
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by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other in respect of any matter arising out of or in
connection with the Agreement.
18. ENTIRE AGREEMENT. This Agreement supercedes any prior agreement
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between the parties with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
BIO-KEY INTERNATIONAL, INC.
By: /s/ Xxxx Xxxxx
---------------------------------
Name: Xxxx Xxxxx
Title: Chief Financial Officer
THE SHAAR FUND LTD.
By: /s/
-------------------------------
Name: InterCaribbean Services Ltd.
Title: Director
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EXHIBIT A
CERTIFICATE OF OFFICER
OF
BIO-KEY INTERNATIONAL, INC.
The undersigned, the Chief Financial Officer of BIO-Key International, Inc,
a Minnesota corporation (the "Company"), hereby certifies that:
1. The representations and warranties of the Company set forth in a
certain Agreement (the "Agreement"), dated the 27th day of January, 2003 by and
between the Company and The Shaar Fund Ltd. ("Investor"), are each true and
correct in all material respects on and as of the date hereof with the same
effect as if made on and as of the date hereof.
2. The Company has performed and complied with all the agreements,
obligations, and conditions required by the Agreement to be performed and
complied with by the Company on or before the date hereof.
3. The proceeds of the Advance will be utilized solely in accordance
with the Section 6 of the Agreement.
IN WITNESS WHEREOF, the undersigned has hereunto affixed his hand as of the
23 day of January, 2003.
BIO-KEY INTERNATIONAL, INC.
By: /s/ Xxxx Xxxxx
--------------------------
Officer
EXHIBIT B
FORM OF NOTE
