Exhibit 10.2

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE
“LAWS”). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF EITHER (I) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE LAWS, OR (II) AN
OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE LAWS.

 

DATE:  JULY 7, 2009

 

U.S. $1,000,000.00

 

BIO-KEY INTERNATIONAL, INC.

 

EIGHT PERCENT (8%) PROMISSORY NOTE DUE NOVEMBER 3, 2009

 

FOR VALUE RECEIVED, BIO-KEY INTERNATIONAL, INC., a corporation duly organized
and validly existing under the laws of the State of Delaware, U.S.A. (the
“Company”) promises to pay to the order of THE SHAAR FUND, LTD., the registered
holder hereof and its successors and assigns (the “Holder”), One Million Dollars
($1,000,000), and to pay interest on the principal sum outstanding, at the rate
of eight percent (8%) per annum due and payable on the date that is 120 days
from the date of this Note (the “Maturity Date”).  Accrual of interest on the
outstanding principal amount, payable in cash, shall commence on the date hereof
and shall continue until payment in full of the outstanding principal amount has
been made or duly provided for. The interest so payable will be paid to the
person in whose name this Note (or one or more predecessor Notes) is registered
on the records of the Company regarding registration of the Note (the “Note
Register”).

 

The principal of, and interest on, this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing on
the Note Register of the Company as designated in writing by the Holder hereof
from time to time. The Company will pay the outstanding principal of and any and
all accrued and unpaid interest due upon this Note on the Maturity Date to the
record Holder of this Note as of the fifth (5th) business day prior to the
Maturity Date and addressed to such Holder at the last address appearing on the
Note Register. The forwarding of such funds shall constitute a payment of
outstanding principal and interest hereunder and shall satisfy and discharge the
liability for principal and interest on this Note to the extent of the sum
represented by such payment plus any amounts so deducted or withheld. Except as
herein provided, this Note may not be prepaid without the prior written consent
of the Holder.

 

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This Note is subject to the following additional provisions:

 

1.             Note Exchangeable.            The Note is exchangeable at any
time for an equal aggregate principal amount of Notes of different authorized
denominations, as requested by the Holder surrendering the same without the
Company’s written consent. No service charge will be made for such registration
or transfer or exchange.

 

2.             Withholding.         The Company shall be entitled to withhold
from all payments of principal or interest pursuant to this Note any amounts
required to be withheld under the applicable provisions of the United States
income tax or other applicable laws at the time of such payments.

 

3.             Transfer/Exchange of Note; Legend.

 

(a)           This Note has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the “1933 Act”) and
applicable state securities laws. Prior to due presentment for transfer of this
Note, the Company and any agent of the Company may treat the person in whose
name this Note is duly registered on the Company’s Note Register as the owner
hereof for the purpose of receiving payment as herein provided and for all other
purposes, whether or not his Note be overdue, and neither the Company nor any
such agent shall be affected or bound by notice to the contrary.  If presentment
for transfer is made, the parties agree hereunder to execute any and all
documents necessary to effectuate said transfer within thirty (30) days of
presentment.

 

(b)           The Holder understands and acknowledges by its acceptance hereof
that (i) except as provided herein, this Note has not been and is not being
registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (a) subsequently
registered thereunder, or (b) pursuant to an exemption from such registration;
(ii) any sale of such securities made in reliance on Rule 144 promulgated under
the 1933 Act may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other regulation and/or exemption under the 1933
Act or the rules and regulations of the United States Securities and Exchange
Commission (the “SEC”) thereunder; and (iii) neither the Company nor any other
person is under any obligation, other than as provided herein to register such
securities under the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.

 

4.             Prepayment by the Company.  The Company shall have the right (but
not the obligation) to prepay all or any portion of this Note, provided the
Company is not then in violation of any of its obligations under this Note.

 

5.             Payment Default.  If the Company fails to pay all outstanding
amounts due to Holder on account of this Note on or before the Maturity Date
(the “Payment Default”), then, notwithstanding other provisions of this Note,
the following provisions will apply:

 

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(a)           This Note, and all rights and obligations of the Company and the
Holder hereunder, will automatically terminate.

 

(b)           Simultaneously with the termination of this Note under
Section 5(a), the Company will issue to the Holder a new secured promissory note
in the form of Annex A hereto, pursuant to which (i) the principal amount due
thereunder shall be equal to the outstanding amount due under this Note upon the
Payment Default (including, but not limited to, all principal and accrued but
unpaid interest), (ii) the outstanding principal shall accrue interest at an
interest rate in excess of the interest rate provided herein, (iii) the
principal amount and all accrued interest will be due and payable to the Holder
on the date that is 120 days from the issuance of the note, (iv) if unpaid at
maturity, the Holder shall have the option to convert anytime thereafter the
outstanding principal and accrued but unpaid interest into shares of the
Company’s common stock, and (v) the outstanding amount due thereunder shall be
secured by a security interest in all of the Company’s assets.

 

6.             General Default.  If one or more of the following described
“Events of Default” shall occur:

 

(a)           Any of the representations or warranties made by the Company
herein, or in any certificate or financial or other written statement heretofore
or hereafter furnished by or on behalf of the Company in connection with the
execution and delivery of this Note shall be false or misleading in any material
respect at the time made and the Holder shall have provided seven (7) days prior
written notice to the Company of the alleged misrepresentation or breach of
warranty and the same shall continue uncured for a period of seven (7) days
after such written notice from the Holder; or

 

(b)           The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or obligation
of the Company under this Note and such failure shall continue uncured for a
period of seven (7) days after written notice from the Holder of such failure;
or

 

(c)           The Company shall either:  (i) become insolvent; (ii) admit in
writing its inability to pay its debts generally or as they become due;
(iii) make an assignment for the benefit of creditors or commence proceedings
for its dissolution; or (iv) apply for, or consent to the appointment of, a
trustee, liquidator, or receiver for its or for a substantial part of its
property or business; or

 

(d)           A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without the
Company’s consent and such appointment is not discharged within sixty (60) days
after such appointment; or

 

(e)           Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company and
shall not be dismissed within sixty (60) days thereafter; or

 

(f)            After the date of this Note, any money judgment, writ or note of
attachment, or similar process in excess of One Hundred Thousand Dollars
($100,000.00) in the aggregate shall be

 

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entered or filed against the Company or any of its properties or assets and
shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen
(15) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or

 

(g)           Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty days after
such institution or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in, any such
proceeding; or

 

(h)           After the date of this Note, the Company shall make any payments
on any other loan or outstanding debt other than (i) approx. $180,000 due to
Data Radio pursuant to an outstanding Company note, or (ii) trade payables in
the ordinary course of business;

 

then, or at any time thereafter, and in any and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
in one instance shall not be deemed to be a waiver in another instance or for
any other prior or subsequent Event of Default) at the option of the Holder and
in the Holder’s sole discretion, the Holder may immediately accelerate the
maturity hereof, whereupon all principal and interest hereunder shall be
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived by the Company, anything
herein or in any Note or other instrument contained to the contrary
notwithstanding, and the Holder may immediately, and upon the expiration of any
period of grace, enforce any and all of the Holder’s rights and remedies
provided herein or any other rights or remedies afforded by law or equity.  In
addition, the Company shall pay interest on overdue principal and (to the
fullest extent permitted by law) on overdue interest at a rate of four (4%)
percent of the then applicable interest rate per annum, payable in cash.

 

7.             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 Company to the Holder and thus refunded to the
Company.

 

8.             Obligations of the Company herein are Unconditional.  No
provision of this Note shall alter or impair the obligation of the Company,
which obligation is absolute and unconditional, to repay the principal amount of
this Note at the time, place, rate, and in the coin currency, hereinabove
stated. This Note and all other Notes now or hereafter issued in replacement of
this Note on the same or similar terms are direct obligations of the Company.
This Note ranks at least equally with all other Notes now or hereafter issued
under the terms set forth herein.

 

9.             Note Holder Not Deemed a Stockholder.  No Holder, as such, of
this Note shall be entitled to vote or receive dividends or be deemed the holder
of shares of the Company for any purpose, nor shall anything contained in this
Note be construed to confer upon the Holder hereof, as such, any of the rights
of a stockholder of the Company or any right to vote, give or withhold

 

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consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise. Notwithstanding the foregoing, the Company will provide the Holder
with copies of the same notices and other information given to the stockholders
of the Company generally, contemporaneously with the giving thereof to the
stockholders.

 

10.          Restrictive Covenant.   After the date of this Note, the Company
shall not make any payments on any other loan or outstanding debt other than
(i) approx. $180,000 due to Data Radio pursuant to an outstanding Company note,
or (ii) trade payables in the ordinary course of business.

 

11.          No Limitation on Corporate Action.                No provisions of
this Note and no right or option granted or conferred hereunder shall in any way
limit, affect or abridge the exercise by the Company of any of its corporate
rights or powers to recapitalize, amend its Certificate of Incorporation,
reorganize, consolidate or merge with or into another corporation, or to
transfer all or any part of its property or assets, or the exercise of any other
of its corporate rights and powers.

 

12.          Waiver of Demand, Presentment, Etc.  The Company hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereunder, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder.

 

13.          Failure or Delay Not Waiver.  No failure or delay on the part of
the Holder 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.

 

14.          Attorney’s Fees.  The Company agrees to pay all costs and expenses,
including without limitation reasonable attorney’s fees, which may be incurred
by the Holder in collecting any amount due under this Note or in enforcing any
of Holder’s rights as described herein.

 

15.          Access to Books and Records.  The Holder will have the right to
inspect and audit the Company’s original books, records, and documents at any
time and from time to time, during normal business hours, upon reasonable notice
to the Company.

 

16.          Enforceability.     In case any provision of this Note is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby.

 

17.          Governing Law.  This Note shall be governed by and construed in
accordance with the laws of the state of New York without giving effect to
applicable principles of conflict of law. Each of the parties submits to the
exclusive jurisdiction of the state and federal courts of

 

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New York County, New York in connection with any dispute arising under this Note
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 Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under this Note.

 

18.          NOTICES.  ALL NOTICES AND OTHER COMMUNICATIONS GIVEN OR MADE
PURSUANT TO THIS NOTE SHALL BE IN WRITING AND SHALL BE DEEMED EFFECTIVELY GIVEN
UPON THE EARLIER OF ACTUAL RECEIPT OR:  (A) PERSONAL DELIVERY TO THE PARTY TO BE
NOTIFIED, (B) WHEN SENT, IF SENT BY ELECTRONIC MAIL OR FACSIMILE DURING NORMAL
BUSINESS HOURS OF THE RECIPIENT, AND IF NOT SENT DURING NORMAL BUSINESS HOURS,
THEN ON THE RECIPIENT’S NEXT BUSINESS DAY, (C) FIVE (5) DAYS AFTER HAVING BEEN
SENT BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID,
OR (D) ONE (1) BUSINESS DAY AFTER DEPOSIT WITH A NATIONALLY RECOGNIZED OVERNIGHT
COURIER, FREIGHT PREPAID, SPECIFYING NEXT BUSINESS DAY DELIVERY, WITH WRITTEN
VERIFICATION OF RECEIPT.  ALL COMMUNICATIONS SHALL BE SENT TO THE RESPECTIVE
PARTIES AT THE FOLLOWING ADDRESSES OR TO SUCH OTHER E-MAIL ADDRESS, FACSIMILE
NUMBER OR ADDRESS AS SUBSEQUENTLY MODIFIED BY WRITTEN NOTICE GIVEN IN ACCORDANCE
WITH THIS SECTION 18:

 

If to the Borrower, to:

BIO-key International, Inc.

 

3349 Highway 138

 

Building D, Suite B

 

Wall, NJ 07719

 

Attn: Chief Executive Officer

 

Facsimile: [                            ]

 

 

with a copy (which shall not constitute notice) to:

Choate, Hall & Stewart LLP

 

Two International Place

 

Boston, MA 02110

 

Attention: Charles J. Johnson, Esq.

 

Facsimile: (617) 248-4000

 

 

If to the Holder, to:

The Shaar Fund Ltd.

 

c/o Maarten Robberts

 

SS&C Fund Services N.V.

 

Pareraweg 45

 

Curacao, Netherlands Antilles

 

Facsimile: (599-9) 434-3560

 

 

with a copy (which shall not constitute notice) to:

Meltzer, Lippe, Goldstein & Breitstone, LLP

 

190 Willis Avenue

 

Mineola, NY 11501

 

Attention: Ira R. Halperin, Esq.

 

Facsimile: (516) 747-0653

 

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19.          Assignment.  This Note shall not be assigned by the Company without
the prior written consent of the Holder.  This Note shall bind the Company and
its successors and permitted assigns and shall inure to the benefit of the
Holder and its successors and assigns.

 

20.          AMENDMENT PROVISION.  THIS NOTE MAY BE AMENDED OR MODIFIED ONLY
UPON THE WRITTEN CONSENT OF THE COMPANY AND THE HOLDER.

 

21.          ENTIRE AGREEMENT.                THIS NOTE AND CONSTITUTES THE FULL
AND ENTIRE UNDERSTANDING BETWEEN THE COMPANY AND THE HOLDER WITH RESPECT TO THE
SUBJECT MATTER HEREOF AND THEREOF. NEITHER THIS NOTE NOR ANY TERM HEREOF MAY BE
AMENDED, WAIVED, DISCHARGED OR TERMINATED OTHER THAN BY A WRITTEN INSTRUMENT
SIGNED BY THE COMPANY AND THE HOLDER.

 

22.          Waiver of Jury Trial.   THE COMPANY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER
THIS NOTE OR ANY OTHER INSTRUMENT,  DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO
THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE; AND THE BORROWER HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THIS WAIVER OF THE RIGHT TO TRIAL
BY JURY.

 

[REMINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized, all as of the date first hereinabove
written.

 

 

 

BIO-KEY INTERNATIONAL, INC

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

State of New York

)

 

 

) ss:

 

County of                  

)

 

 

On the          day of July, 2009 before me, the undersigned, personally
appeared                             , personally known to me or proved to me on
the basis of satisfactory evidence to be the individual whose name is subscribed
to the within instrument and acknowledged to me that he/she executed the same in
his/her capacity, and that by his/her signature on the instrument, the
individual, or the person upon behalf of which the individual acted, executed
the instrument.

 

 

 

 

Notary Public

 

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