EXHIBIT 10.17
SECURITIES EXCHANGE AGREEMENT
THIS SECURITIES EXCHANGE AGREEMENT, dated March 3, 2004 (this
"Agreement"), is entered into by and between BIO-KEY INTERNATIONAL, INC., a
Minnesota corporation with headquarters located at 0000 Xxxxxxxxx Xxxxxx Xxxxx,
Xxxxx Xx. 000, Xxxxx, Xxxxxxxxx 00000 (the "Company"), and The Shaar Fund, Ltd.
(the "Investor").
W I T N E S S E T H:
WHEREAS, the Company and the Investor are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Investor is the record and beneficial owner of, among
other securities of the Company, (i) (a) a Secured Note, dated November 26,
2001, in the original principal amount of Four Million Ninety Two Thousand Nine
Hundred and Twenty Dollars ($4,092,920), with an outstanding principal balance
of One Million Five Hundred Fifty Three Thousand Nine Hundred Eighty Two Dollars
and Thirty Eight Cents ($1,553,982.38), as amended to date (the "Note"); (b)
Secured Notes issued between March 2002 and August 2002 in the aggregate
principal amount of One Million Eighty Thousand Dollars ($1,080,000), as amended
to date (the "Advance Notes"); (c) a Secured Note in the principal amount of
Seven Hundred and Fifty Thousand Dollars ($750,000) dated August 28, 2002, as
amended to date (the "August Note"); and (d) a Secured Note in the principal
amount of Two Million Three Hundred and Fifty Thousand Dollars ($2,350,000)
dated January 27, 2003, with an outstanding principal balance of Two Million
Three Hundred Fifty Two Thousand Two Hundred and Fifty Dollars ($2,352,250) (the
"January Note and together with the Note, the Advance Notes and the August Note,
collectively, the "Notes).
WHEREAS, the Investor and the Company each wish that, upon the terms
and subject to the conditions of this Agreement, the Investor exchange the Notes
together with all accrued and unpaid interest on the Notes to the date hereof in
the aggregate amount of Seven Hundred Fifty Eight Thousand Three Hundred One
Dollars and Fifty One Cents ($758,301.51) (the "Exchanged Securities"), for
Sixty Five Thousand (65,000) shares of the Company's Series C Convertible
Preferred Stock, $.01 par value per share (the "Series C Shares"), at the
purchase price of $100 per share; and
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. CERTAIN DEFINITIONS.
Certain Definitions. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:
(i) "Affiliate" means, with respect to a specific Person
referred to in the relevant provision, another Person who or which controls or
is controlled by or is under common control with such specified Person.
(ii) "Certificate" means the certificate evidencing the Series
C Shares duly executed on behalf of the Company.
(iii) "Certificate of Designation" means the Certificate of
Designation of the Series C Shares in substantially the form attached hereto as
Exhibit A.
(iv) "Common Stock" means the Company's common stock, par
value $.01 per share.
(v) "Control Person" means the Company (or any subsidiary or
predecessor entity) or any Affiliate of the Company (or any subsidiary or
predecessor entity) or any Person under control (as defined in the '33 Act) of
or common control with any of the foregoing.
(vi) "Conversion Shares" means the shares of Common Stock
issuable upon conversion of the Series C Shares.
(vii) "Exchanged Securities" means the Notes together with all
accrued and unpaid interest thereon in the aggregate amount of Six Million Five
Hundred Thousand Thirteen Dollars and Eighty Nine Cents ($6,500,013.89) to be
surrendered by the Investor pursuant to this Agreement.
(viii) "Notes" means (a) a Secured Note, dated November 26,
2001, in the original principal amount of Four Million Ninety Two Thousand Nine
Hundred and Twenty Dollars ($4,092,920), with an outstanding principal balance
of One Million Five Hundred Fifty Three Thousand Nine Hundred Eighty Two Dollars
and Thirty Eight Cents ($1,553,982.38), as amended to date; (b) Secured Notes
issued between March 2002 and August 2002 in the aggregate principal amount of
One Million Eighty Thousand Dollars ($1,080,000), as amended to date; (c) a
Secured Note in the principal amount of Seven Hundred and Fifty Thousand Dollars
($750,000) dated August 28, 2002, as amended to date; and (d) a Secured Note in
the principal amount of Two Million Three Hundred and Fifty Thousand Dollars
($2,350,000) dated January 27, 2003, with an outstanding principal balance of
Two Million Three Hundred Fifty Two Thousand Two Hundred and Fifty Dollars
($2,352,250).
(ix) "Person" means any living person or entity, including,
but not limited to, a corporation, partnership, limited liability company, or
trust.
(x) "Related Agreements" means the Certificate of Designation
and the Registration Rights Agreement.
(xi) "Securities" means the Series C Shares and the Conversion
Shares.
(xii) "Series C Shares" means the Sixty Five Thousand (65,000)
Series C Shares to be issued to the Investor pursuant to this Agreement at the
per share purchase price of $100.00.
2. EXCHANGE AND ISSUANCE. Subject to the terms and conditions of this
Agreement and the Certificate of Designation, the Company agrees to issue to the
Investor Sixty Five Thousand (65,000) Series C Shares at a per share purchase
price of $100.00, with such rights preferences and designations as set forth in
the Certificate of Designation attached as Exhibit A hereto in exchange for the
Investor agreeing to surrender and cancel the Exchanged Securities.
3. [INTENTIONALLY OMITTED]
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that:
(a) The Company has the corporate power and authority to enter into
this Agreement and the Related Agreements and to perform its obligations
hereunder and thereunder. The execution and delivery by the Company of this
Agreement and the Related Agreements 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
Related Agreements 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).
(b) The execution, delivery and performance by the Company of this
Agreement and the Related Agreements 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 Related Agreements 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 Related
Agreements or the taking of any action contemplated hereunder or thereunder,
except for Federal and State Blue Sky securities law filings.
(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 Related Agreements 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,
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") or in Schedule 4(h) hereto, 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
September 30, 2003, nor is the Company in default under, or an Event of Default
has occurred in respect of any prior agreement between the Company and the
Investor.
(i) 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 (each a "Control 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 Control 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 Control Person was convicted in a criminal proceeding
or is a named subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses);
(3) Such Control 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;
(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. The Company agrees to indemnify the Investor
against and hold the Investor 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.
(k) The Company acknowledges and agrees that as of the date hereof,
the sale by the Investor of the Series C Shares, and upon issuance, the
Conversion Shares may be affected by the Investor pursuant to Rule 144(k) under
the 1933 Act.
(l) All information relating to or concerning the Company set forth
in the Company's SEC Filings is true and correct in all material respects and
does not fail to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading. The Company is not in possession of, nor has the
Company or its agents disclosed to Investor, any material non-public information
that (i) if disclosed, would reasonably be expected to have a materially adverse
effect on the price of the Common Stock or (ii) according to applicable law,
rule or regulation, should have been disclosed publicly by the Company prior to
the date hereof but which has not been so disclosed.
(m) Except for that certain Secured Note, dated October 31, 2003, in
the principal amount of up to $2,500,000.00 as amended to date, the Company does
not have any outstanding debt security which, by its terms, is convertible into
or exchangeable for any Common Stock of the Company.
5. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor hereby
represents and warrants to the Company that:
(a) The Investor has the corporate power and authority to enter into
this Agreement and the Related Agreements to which it is a party and to perform
its obligations hereunder and thereunder. The execution and delivery by the
Investor of this Agreement and the Related Agreements to which it is a party and
the consummation by the Investor of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of the Investor. This Agreement and the Related Agreements to which it is a
party have been duly executed and delivered by the Investor and constitute valid
and binding obligations of the Investor, 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).
(b) The execution, delivery and performance by the Investor of this
Agreement and the Related Agreements to which it is a party 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 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 Related Agreements to which it is a party.
(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 Related
Agreements to which it is a party 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
merits and risks of this investment.
(f) The Investor is acquiring 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, subject to the provisions of this Agreement
and the Registration Rights Agreement, 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) The Investor is (i) an "accredited investor" within the meaning
of Rule 501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Series C Shares, and (iv) able to afford the loss of its
investment in the Series C Shares.
(h) The Investor acknowledges that it has been given an opportunity
to ask questions of and to receive answers from the Company's executive
officers, directors and management personnel concerning the terms and conditions
of the Series C Shares to be issued to the Investor by the Company.
(i) The 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 Company. The Investor agrees to indemnify the Company
against and hold the Company 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. COVENANTS OF THE COMPANY. The Company covenants and agrees that, so
long as any of the Securities shall be outstanding, except as otherwise required
under the Related Agreements, the Company:
(a) shall promptly pay and discharge all lawful taxes, assessments
and governmental charges or levies imposed upon it or upon its income and
profits, or upon any of its property, before the same shall become in default as
well as all lawful material claims for labor, materials and supplies which, if
unpaid, might become a lien or charge upon such properties or any part thereof;
provided, however, that it shall not be required to pay and discharge any such
tax, assessment, charge, levy or claim so long as the validity thereof shall be
contested in good faith by appropriate proceedings, and the Company shall set
aside on its books adequate reserves with respect to any such tax, assessment,
charge, levy or claim so contested.
(b) shall implement and maintain a standard system of accounting in
accordance with generally accepted accounting principles ("GAAP").
(c) shall do, or cause to be done, all things that may be necessary
to (i) maintain its due organization, valid existence and good standing under
the laws of its state of incorporation; (ii) preserve and keep in full force and
effect all qualifications, registrations and licenses in those jurisdictions in
which the failure to do so could or would have a material adverse effect; (iii)
maintain its power or authority to carry on its business as now conducted; and
(iv) use its best efforts to keep available the services of its key present
employees and agents and maintain its current relations with suppliers,
customers, distributors and joint venture partners (subject to the business
judgment of executive management).
(d) each its officers, directors, employees and agents shall in no
event disclose non-public information to the Investor, advisors to or
representatives of the Investor, unless prior to disclosure of such information,
the Company identifies such information as being non-public information and
provides the Investor, such advisors and representatives with the opportunity in
writing to accept or refuse to accept such non-public information for review and
the Investor in writing agrees to accept such non-public information. The
Company may, as a condition to disclosing any non-public information hereunder,
require the Investor's advisors and representatives to enter into a
confidentiality agreement in form and substance reasonably satisfactory to the
Company and the Investor.
(e) shall not, without first obtaining the approval of the holders
of a majority of the then outstanding Series C Shares: (1) sell, exchange or
dispose of any material assets (including, but limited to, pursuant to a stock
dividend, spinoff or similar transaction) of the Company other than in the
ordinary course of the Company's business;
(2) except for the proposed acquisition of Public Safety
Group, Inc.("PSG"), acquire a material amount of assets, other than in
the ordinary course of the Company's business, or engage in a merger,
plan of reorganization, consolidation or other similar transaction; or
(3) incur or guaranty any indebtedness exceeding $50,000 in
the aggregate, other than with respect to trade and other payables
incurred in the ordinary course of the Company's business, which
consent shall not be unreasonably withheld by the Investor.
7. RELEASE. Effective upon the mutual execution hereof, the Company and
the Investor, for itself and on behalf of all affiliated persons and entities,
representatives, and all predecessors in interest, successors and assigns
(collectively, the "Releasing Parties"), hereby releases and forever discharges
each of the other party, and its direct and indirect partners, officers,
directors, employees, affiliates, representatives, agents, trustees,
beneficiaries, predecessors in interest, successors in interest and nominees of
and from any and all claims, demands, actions and causes of action, whether
known or unknown, fixed or contingent, arising prior to the date of execution of
this Agreement, that the Company may have had, may now have or may hereafter
acquire with respect to any matters whatsoever under, relating to or arising
from any prior agreement between the parties hereto including that certain
Registration Rights Agreement, dated as of November 26, 2001, which agreement
shall be terminated upon the mutual execution hereof and replaced by that
certain Registration Rights Agreement of even date herewith (collectively
referred to as the "Prior Agreements). Each Releasing Party also fully waives
any offsets it may have with respect to the amounts owed under the Prior
Agreements. Nothing herein shall release or discharge the Company from any
obligations contained in any agreement relating to the Investor's investments or
loans to the Company not exchanged pursuant to this Agreement or apply to limit
the enforcement by the Investor of any rights represented by such agreements
following the date hereof. Additionally, each party represents, warrants and
covenants that it has not, and at the time this release becomes effective will
not have, sold, assigned, transferred, or otherwise conveyed to any other person
or entity all or any portion of its rights, claims, demands, actions, or causes
of action herein released.
8. INDEMNIFICATION. If (i) the Investor becomes involved in any
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 by this Agreement, the Related Agreements or the Prior
Agreements, or if such 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 by the this
Agreement, the Related Agreements or the Prior Agreements, 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, hearing, trials,
and other proceedings relating to the subject matter of this Agreement, the
Related Agreements or the Prior Agreements. The indemnification and
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise, 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 this Agreement, the
Related Agreements or the Prior Agreements. Notwithstanding the foregoing, the
indemnification provisions contained within this Section 8 shall not apply (i)
to any action, proceeding, or investigation which is based on or relating to (A)
the Investor's trading activities; (B) the Investor's violation of the
Securities Act, the Exchange Act, any state securities laws or any rule or
regulation there under, including, but not limited to, the Investor's use of
material non-public information; (C) actions which are not in compliance with
any obligation of the Investor under this Agreement, the Related Agreements or
the Prior Agreements, or (ii) to any indemnity or undertaking by the Investor in
favor of the Company in connection with any lost, stolen, or missing notes or
certificates evidencing other securities.
9. ADDITIONAL AGREEMENTS.
(a) The Securities may only be disposed of pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from or in a transaction not subject to the registration
requirements thereof. In connection with any transfer of any Securities other
than pursuant to an effective registration statement or to the Company, the
Company may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the Securities Act. Notwithstanding
the foregoing, the Company hereby consents to and agrees to register (i) any
transfer of Securities by the Investor to an Affiliate of the Investor, or any
transfers among any such Affiliates, and (ii) any transfer by the Investor to
any investment entity under common management with the Investor, provided in
each case of clauses (i) and (ii) the transferee certifies to the Company that
it is an "accredited investor" as defined in Rule 501(a) under the Securities
Act and provides an opinion of counsel reasonably satisfactory to the Company,
to the effect that such transfer does not require registration under the
Securities Act. Any such transferee shall have the rights of the Investor under
this Agreement and the Registration Rights Agreement.
(b) The Company acknowledges that the issuance of Conversion Shares
upon (i) conversion of the Series C Shares may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue Conversion Shares in accordance with the Certificate of Designation is
without regard to the effect of any such dilution.
(c) Reference is made to the Registration Rights Agreement attached
to this Agreement as Exhibit C. The Company acknowledges that the Investor has
certain rights under the Registration Rights Agreement with respect to the
Conversion Shares.
(d) The Investor acknowledges and agrees that, upon issuance
pursuant to this Agreement, the Series C Shares (and any Conversion Shares
issued upon conversion of the Series C Shares) shall have endorsed thereon a
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the Series C Shares and the Conversion Shares until
such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR UPON
RECEIPT BY THE ISSUER HEREOF OF AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE ISSUER, THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
REGISTRATION."
(e) Reference is hereby made to the following securities of the
Company which were issued to and currently held of record and beneficially by
the Investor: (i) Secured Convertible Note in the principal amount of up to
$2,500,000 dated October 31, 2003, as amended to date (the "October Note"); and
(ii) Certificate of Designation of Series B Convertible Preferred Stock (the
"Series B Preferred" and together with the October Note and Series C Shares
collectively, the "Convertible Securities"). The Company may issue approximately
2,500,000 shares of Common Stock (subject to adjustment based on the trading
price of the Common Stock, but in no event shall the Company issue more than
3,000,000 shares of Common Stock) to acquire PSG (the "PSG Shares"). The
issuance of the PSG Shares could result in a reduction in the conversion ratio
or conversion price applicable to the Convertible Securities. Investor hereby
WAIVES the application of any and all provisions of the Convertible Securities
which would reduce the conversion ratio or conversion price applicable to the
Convertible Securities as a result of the issuance of the PSG Shares such that
the forgoing issuance shall not effect the conversion ratio or conversion price
applicable to any of the Convertible Securities.
10. CLOSING. The Closing of the exchange of securities hereunder shall
occur simultaneous with the execution of this Agreement. The Closing shall be
conditioned upon the Company's filing of the Certificate of Designation with the
Minnesota Secretary of State. At the Closing, the Investor shall deliver the
Notes to the Company against delivery of the Series C Shares by the Company to
Investor.
11. GOVERNING LAW: MISCELLANEOUS.
(a) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws, 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
CONVENIENS, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, the Company shall reimburse the Investor for
any reasonable legal fees and disbursements incurred by the Investor in
enforcement of or protection of any of its rights under any of the Related
Agreements.
(b) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(c) This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
(d) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(e) A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
(f) This Agreement may be signed in one or more counterparts, each
of which shall be deemed an original.
(g) The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
(h) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction. 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.
(i) This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
(j) This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
12. NOTICES. Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of:
(a) the date delivered, if delivered by personal delivery as
against written receipt therefore or by confirmed facsimile transmission,
(b) the seventh business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail, or
(c) the third business day after mailing by domestic or
international express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: Bio-key International, Inc.
0000 Xxxxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxx, Xxxxxxxxx 00000
Attn: Chief Executive Officer
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxxx Gadon & Xxxxx, P.C.,
0000 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxxxx, XX 00000;
Attn: Xxxxxxx X. Xxxxxx, Esquire
Telephone No.:(000) 000-0000
Telecopier No.: (000) 000-0000
INVESTOR: The Shaar Fund, Ltd.
Xxxx Xxxxxxxxx 0
Xxxxxxx
Xxxxxxxxxxx Antilles
Telephone No.: 000-0-000-0000
Telecopier No.: 599-9-732-2225
with copies to:
Xxxxxxxx Capital Management, LLC
000 Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
and
Xxxxxxx, Xxxxx & Xxxxxxxxx, LLP
000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attn: Xxx X. Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Investor's representations, warranties and covenants herein shall survive the
execution and delivery of this Agreement, the delivery of the Series C Shares
and shall inure to the benefit of the Investor and the Company and their
respective successors and assigns.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Investor and the Company by one of their respective officers thereunto duly
authorized as of the date first above written.
THE SHAAR FUND, LTD.
By: /s/
----------------------------------
Name: InterCaribbean Services Ltd.
------------------------------
Title: Director
------------------------------
BIO-KEY INTERNATIONAL, INC.
By: /s/ Xxxx Xxxxx
----------------------------------
Name: Xxxx Xxxxx
------------------------------
Title: CFO
------------------------------
