EX-10..8






FUNDS ESCROW AGREEMENT




This Agreement (this “Agreement”) is dated as of the 31st day of January, 2005 among Pacific
Biometrics, Inc., a Delaware corporation (the “Company”), Laurus Master Fund, Ltd. (the
"Purchaser”), and Loeb & Loeb LLP (the “Escrow Agent”):



W I T N E S S E T H:




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 common stock purchase warrants (collectively, the “Term Note Warrants”) 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 Warrants (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 Warrants, and the Term Note Registration Rights Agreement.




(e) “Escrowed Payment” means $1,500,000.



1.2. Entire Agreement. This Agreement constitutes the entire agreement among the
parties hereto with respect to the matters contained herein and supersedes all prior agreements,
understandings, negotiations and discussions of the parties, whether oral or written. There are no
warranties, representations and other agreements made by the parties in connection with the subject
matter hereof except as specifically set forth in this Agreement.



1.3. Extended Meanings. In this Agreement words importing the singular number include
the plural and vice versa; words importing the masculine gender include the feminine and neuter
genders. The word “person” includes an individual, body corporate, partnership, trustee or trust
or unincorporated association, executor, administrator or legal representative.



1.4. Waivers and Amendments. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended, and the terms and conditions hereof may be waived, in each case
only by a written instrument signed by all parties hereto, or, in the case of a waiver, by the
party waiving compliance. Except as expressly stated herein, no delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any right, power or privilege hereunder preclude any other or
future exercise of any other right, power or privilege hereunder.



1.5. Headings. The division of this Agreement into articles, sections, subsections
and paragraphs and the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this Agreement.



1.6. Law Governing this Agreement; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws. With respect to any suit, action or proceeding relating to this
Agreement or to the transactions contemplated hereby (“Proceedings”), each party hereto irrevocably
submits to the exclusive jurisdiction of the courts of the County of New York, State of New York
and the United States District court located in the county of New York in the State of New York.
Each party hereto hereby irrevocably and unconditionally (a) waives trial by jury in any Proceeding
relating to this Agreement and for any related counterclaim and (b) waives any objection which it
may have at any time to the laying of venue of any Proceeding brought in any such court, waives any
claim that such Proceedings have been brought in an inconvenient forum and further waives the right
to object, with respect to such Proceedings, that such court does not have jurisdiction over such
party. As between the Company and the Purchaser, the prevailing party shall be entitled to recover
from the other party its reasonable attorneys’ fees and costs. In the event that any provision of
this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable,
then the remainder of this Agreement shall not be affected and shall remain in full force and
effect.



1.7. Construction. Each party acknowledges that its legal counsel participated in the
preparation of this Agreement and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to 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 David Grin and/or Eugene Grin (each of whom is a director of the
Purchaser) indicating that all closing conditions relating to the Documents have been satisfied and
directing that the Escrowed Payment be disbursed by the Escrow Agent in accordance with the Joint
Instructions, then the Escrowed Payment shall be deemed released from escrow and shall be promptly
disbursed in accordance with the Joint Instructions. The Joint Instructions shall include, without
limitation, Escrow Agent’s authorization to retain from the Escrowed Payment Escrow Agent’s fee for
acting as Escrow Agent hereunder and the Closing Payment for delivery to Laurus Capital Management,
LLC in accordance with the Joint Instructions.



(b) Upon receipt by the Escrow Agent of a final and non-appealable judgment, order, decree or
award of a court of competent jurisdiction (a “Court Order”) relating to the Escrowed Payment, the
Escrow Agent shall remit the Escrowed Payment in accordance with the Court Order. Any Court Order
shall be accompanied by an opinion of counsel for the party presenting the Court Order to the
Escrow Agent (which opinion shall be satisfactory to the Escrow Agent) to the effect that the court
issuing the Court Order is a court of competent jurisdiction and that the Court Order is final and
non-appealable.



3.2. Acknowledgement of Company and Purchaser; Disputes. The Company and the
Purchaser acknowledge that the only terms and conditions upon which the Escrowed Payment are to be
released from escrow are as set forth in Sections 3 and 4 of this Agreement. The Company and the
Purchaser reaffirm their agreement to abide by the terms and conditions of this Agreement with
respect to the release of the Escrowed Payment. Any dispute with respect to the release of the
Escrowed Payment shall be resolved pursuant to Section 4.2 or by written agreement between the
Company and Purchaser.



ARTICLE IV




CONCERNING THE ESCROW AGENT




4.1. Duties and Responsibilities of the Escrow Agent. The Escrow Agent’s duties and
responsibilities shall be subject to the following terms and conditions:



(a) The Purchaser and the Company acknowledge and agree that the Escrow Agent (i) shall not be
required to inquire into whether the Purchaser, the Company or any other party is entitled to
receipt of any Document or all or any portion of the Escrowed Payment; (ii) shall not be called
upon to construe or review any Document or any other document, instrument or agreement entered into
in connection therewith; (iii) shall be obligated only for the performance of such duties as are
specifically assumed by the Escrow Agent pursuant to this Agreement; (iv) may rely on and shall be
protected in acting or refraining from acting upon any written notice, instruction, instrument,
statement, request or document furnished to it hereunder and believed by the Escrow Agent in good
faith to be genuine and to have been signed or presented by the proper person or party, without
being required to determine the authenticity or correctness of any fact stated therein or the
propriety or validity or the service thereof; (v) may assume that any person purporting to give
notice or make any statement or execute any document in connection with the provisions hereof has
been duly authorized to do so; (vi) shall not be responsible for the identity, authority or rights
of any person, firm or company executing or delivering or purporting to execute or deliver this
Agreement or any Document or any funds deposited hereunder or any endorsement thereon or assignment
thereof; (vii) shall not be under any duty to give the property held by Escrow Agent hereunder any
greater degree of care than Escrow Agent gives its own similar property; and (viii) may consult
counsel satisfactory to Escrow Agent (including, without limitation, Loeb & Loeb, LLP or such other
counsel of Escrow Agent’s choosing), the opinion of such counsel to be full and complete
authorization and protection in respect of any action taken, suffered or omitted by Escrow Agent
hereunder in good faith and in accordance with the opinion of such counsel.



(b) The Purchaser and the Company acknowledge that the Escrow Agent is acting solely as a
stakeholder at their request and that the Escrow Agent shall not be liable for any action taken by
Escrow Agent in good faith and believed by Escrow Agent to be authorized or within the rights or
powers conferred upon Escrow Agent by this Agreement. The Purchaser and the Company hereby,
jointly and severally, indemnify and hold harmless the Escrow Agent and any of Escrow Agent’s
partners, employees, agents and representatives from and against any and all actions taken or
omitted to be taken by Escrow Agent or any of them hereunder and any and all claims, losses,
liabilities, costs, damages and expenses suffered and/or incurred by the Escrow Agent arising in
any manner whatsoever out of the transactions contemplated by this Agreement and/or any transaction
related in any way hereto, 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.



(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.



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 (i) the agreement in writing
of the Purchaser and Company; (ii) the resignation of the Escrow Agent in accordance with the
terms hereof; or (iii) the date ten (10) days after the date hereof.



5.2. Notices. All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly given one (1) day
after being sent by telecopy (with copy delivered by overnight courier, regular or certified mail):



(a) If to the Company, to:



	 
	 

	Pacific Biometrics, Inc.

220 W. Harrison Street

Seattle, WA 98119

Attention: Ronald R. Helm

Facsimile: (206) 298 – 9838

	 

	with a copy to:

	 

	Cairncross & Hempelmann, P.S

524 Second Avenue, Suite 500

Seattle, Washington 9810

	 

	Attention: Tim Woodland, Esq.

Facsimile: (206) 254-4524








(b) If to the Purchaser, to:




LAURUS MASTER FUND, LTD.




c/o Ironshore Corporate Services Ltd.




P.O. Box 1234 G.T., Queensgate House, South Church Street




Grand Cayman, Cayman Islands




Fax: 212-541-4434


Attention: John Tucker, Esq.



(c) If to the Escrow Agent, to:




Loeb & Loeb LLP




345 Park Avenue




New York, New York 10154




Fax: (212) 407-4990


Attention: Scott J. Giordano, Esq.



or to such other address as any of them shall give to the others by notice made pursuant to this
Section 5.2.



5.3. Interest. The Escrowed Payment shall not be held in an interest bearing account
nor will interest be payable in connection therewith.



5.4. Assignment; Binding Agreement. Neither this Agreement nor any right or
obligation hereunder shall be assignable by any party without the prior written consent of the
other parties hereto. This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective legal representatives, successors and assigns.



5.5. Invalidity. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal, or unenforceable
in any respect for any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.



5.6. Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by different signatories hereto on separate counterparts, each of which, when so
executed, shall be deemed an original, but all such counterparts shall constitute but one and the
same agreement. This Agreement may be executed by facsimile transmission.



1



IN WITNESS WHEREOF, the parties hereto have executed this Funds Escrow Agreement as of the
date and year first above written.



	 	 	 
	COMPANY:

	 	

	 
	 	 
	PACIFIC BIOMETRICS, INC.

	 
	 	 
	By:

Name:

Title:

	 	/s/ Ronald R. Helm

Ronald R. Helm

Chief Executive Officer








	 	 	 	PURCHASER:






LAURUS MASTER FUND, LTD.




By: /s/




	 	 	 	Name:






Title:




ESCROW AGENT:




LOEB & LOEB LLP




By: /s/




	 	 	 	Name:






Title:



2



SCHEDULE A TO FUNDS ESCROW AGREEMENT




	 	 	 	 	 
	PURCHASER
	 	PRINCIPAL NOTE AMOUNT

	 	 	 
	LAURUS MASTER FUND, LTD.,
c/o Ironshore Corporate Services
Ltd., P.O. Box 1234 G.T.,
Queensgate House, South Church
Street, Grand Cayman, Cayman
Islands
	 	Term Note in an aggregate

	Fax: 345-949-9877
	 	principal amount of $1,500,000

	 	 	 	 	 
	TOTAL
	 	$	1,500,000	 
	 
	 	 	 	 







	 	 	 	 	 
	FUND MANAGER	 	CLOSING PAYMENT
	 
	 	Closing payment payable in

	 
	 	connection with investment

	LAURUS CAPITAL MANAGEMENT, L.L.C.
	 	by Laurus Master Fund, Ltd.

	825 Third Avenue, 14th Floor
	 	for which Laurus Capital

	New York, New York 10022
	 	Management, L.L.C. is the

	Fax: 212-541-4434
	 	Manager.

	 
	 	 	 	 
	TOTAL
	 	$	52,500	 
	 
	 	 	 	 







WARRANTS



	 	 	 
	 	 	WARRANTS IN CONNECTION WITH
	WARRANT RECIPIENT	 	OFFERING
	LAURUS MASTER FUND, LTD.

A Cayman Island corporation

c/o Ironshore Corporate Services Ltd.

P.O. Box 1234 G.T.

Queensgate House, South Church Street

Grand Cayman, Cayman Islands

Fax: 345-949-9877

	 	



Term Note Warrant exercisable

into 326,087 shares of common

stock of the Company issuable

in connection with the Term

Note.
	 

	 	

	 
	 	 
	TOTAL

	 	Warrants exercisable into

326,087 shares of common

stock of the Company
	 

	 	 
	 
	 	 








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