EX-10..2






THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO PACIFIC BIOMETRICS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.



Right to Purchase up to 200,000 shares of Common Stock of




Pacific Biometrics, Inc. 




(subject to adjustment as provided herein)




COMMON STOCK PURCHASE WARRANT




	 	 	 
	No.      

	 	Issue Date: January 31, 2005







PACIFIC BIOMETRICS, INC., a corporation organized under the laws of the State of Delaware
(“Pacific Biometrics, Inc.”), hereby certifies that, for value received, LAURUS MASTER FUND, LTD.,
or assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the
Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from
time to time before 5:00 p.m., New York time, through the close of business January 31, 2009 (the
“Expiration Date”), up to 200,000 fully paid and nonassessable shares of Common Stock (as
hereinafter defined), $0.01 par value per share, at the applicable Exercise Price per share (as
defined below). The number and character of such shares of Common Stock and the applicable
Exercise Price per share are subject to adjustment as provided herein.



As used herein the following terms, unless the context otherwise requires, have the following
respective meanings:




(a) The term “Company” shall include Pacific Biometrics, Inc. and any corporation which
shall succeed, or assume the obligations of, Pacific Biometrics, Inc. hereunder. (b) The
term “Common Stock” includes (i) the Company’s Common Stock, par value $0.01 per share; and
(ii) any other securities into which or for which any of the securities described in (a) may
be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.




(c) The term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the holder of
the Warrant at any time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of Common
Stock or Other Securities pursuant to Section 4 or otherwise.




(d) The “Exercise Price” applicable under this Warrant shall be $1.48.




1. Exercise of Warrant.



1.1 Number of Shares Issuable upon Exercise. From and after the date hereof through
and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this
Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the
form attached hereto as Exhibit A (the “Exercise Notice”), shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.



1.2 Fair Market Value. For purposes hereof, the “Fair Market Value” of a share of
Common Stock as of a particular date (the “Determination Date”) shall mean:




(a) If the Company’s Common Stock is traded on the American Stock Exchange or another
national exchange or is quoted on the National or SmallCap Market of The Nasdaq Stock
Market, Inc.(“Nasdaq”), then the closing or last sale price, respectively, reported for the
last business day immediately preceding the Determination Date.




(b) If the Company’s Common Stock is not traded on the American Stock Exchange or
another national exchange or on the Nasdaq but is traded on the NASD OTC Bulletin Board,
then the closing price reported for the last business day immediately preceding the
Determination Date.




(c) Except as provided in clause (d) below, if the Company’s Common Stock is not
publicly traded, then as the Holder and the Company agree or in the absence of agreement by
arbitration in accordance with the rules then in effect of the American Arbitration
Association, before a single arbitrator to be chosen from a panel of persons qualified by
education and training to pass on the matter to be decided.




(d) If the Determination Date is the date of a liquidation, dissolution or winding up,
or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company’s
charter, then all amounts to be payable per share to holders of the Common Stock pursuant to
the charter in the event of such liquidation, dissolution or winding up, plus all other
amounts to be payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock
then issuable upon exercise of the Warrant are outstanding at the Determination Date.



1.3 Company Acknowledgment. The Company will, at the time of the exercise of the
Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to
afford to such holder any rights to which such holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any
such request, such failure shall not affect the continuing obligation of the Company to afford to
such holder any such rights.



1.4 Trustee for Warrant Holders. In the event that a bank or trust company shall have
been appointed as trustee for the holders of the Warrant pursuant to Subsection 3.2, such bank or
trust company shall have all the powers and duties of a warrant agent (as hereinafter described)
and shall accept, in its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may
be, on exercise of this Warrant pursuant to this Section 1.




2. Procedure for Exercise.



2.1 Delivery of Stock Certificates, Etc., on Exercise. The Company agrees that the
shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the
Holder as the record owner of such shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares in accordance herewith. As
soon as practicable after the exercise of this Warrant in full or in part, and in any event within
three (3) business days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as
such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance
with applicable securities laws, a certificate or certificates for the number of duly and validly
issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such
Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market
Value of one full share, together with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1
or otherwise.




	 	 	 	Exercise. Payment may be made in cash or by certified or official bank check
payable to the order of the Company equal to the applicable aggregate Exercise Price,
for the number of Common Shares specified in such Exercise Notice (as such exercise
number shall be adjusted to reflect any adjustment in the total number of shares of
Common Stock issuable to the Holder per the terms of this Warrant). Upon receipt by the
Company of an Exercise Notice and proper payment of the Exercise Price, the Holder
shall thereupon be entitled to receive the number of duly authorized, validly issued,
fully-paid and non-assessable shares of Common Stock (or Other Securities) determined
as provided herein.






3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.



3.1 Reorganization, Consolidation, Merger, Etc. In case at any time or from time to
time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other
person, or (c) transfer all or substantially all of its properties or assets to any other person
under any plan or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and adequate provision shall
be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in
Section 1 at any time after the consummation of such reorganization, consolidation or merger or the
effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock
(or Other Securities) issuable on such exercise prior to such consummation or such effective date,
the stock and other securities and property (including cash) to which such Holder would have been
entitled upon such consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment
thereafter as provided in Section 4.



3.2 Dissolution. In the event of any dissolution of the Company following the
transfer of all or substantially all of its properties or assets, the Company, concurrently with
any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be
delivered to the Holder the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrant pursuant to Section 3.1, or, if the Holder
shall so instruct the Company, to a bank or trust company specified by the Holder and having its
principal office in New York, NY as trustee for the Holder of the Warrant (the “Trustee”).



3.3 Continuation of Terms. Upon any reorganization, consolidation, merger or transfer
(and any dissolution following any transfer) referred to in this Section 3, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable to the shares of stock
and other securities and property receivable on the exercise of this Warrant after the consummation
of such reorganization, consolidation or merger or the effective date of dissolution following any
such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person acquiring all or substantially
all of the properties or assets of the Company, whether or not such person shall have expressly
assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not
continue in full force and effect after the consummation of the transactions described in this
Section 3, then the Company’s securities and property (including cash, where applicable) receivable
by the Holders of the Warrant will be delivered to Holder or the Trustee as contemplated by Section
3.2.



4. Extraordinary Events Regarding Common Stock. In the event that the Company shall
(a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding
Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding
shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Exercise Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as
so adjusted, shall be readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 4. The number of shares of Common Stock that the holder of
this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise
by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the
provisions of this Section 4) be in effect, and (b) the denominator is the Exercise Price in effect
on the date of such exercise.



5. Certificate as to Adjustments. In each case of any adjustment or readjustment in
the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrant, the
Company at its expense will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and
prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based, including a statement of (a) the consideration
received or receivable by the Company for any additional shares of Common Stock (or Other
Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of
Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise
Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in
effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as
provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the
holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 11
hereof).



6. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The Company will at
all times reserve and keep available, solely for issuance and delivery on the exercise of the
Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant.



7. Assignment; Exchange of Warrant. Subject to compliance with applicable securities
laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder
hereof (a “Transferor”) in whole or in part so long as (i) no assignment may be made to a
competitor of the Borrower and (ii) the Holder shall make no more than two (2) assignments hereof
in the aggregate. On the surrender for exchange of this Warrant, with the Transferor’s endorsement
in the form of Exhibit B attached hereto (the “Transferor Endorsement Form”) and together with
evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities
laws, which shall include, without limitation, the provision of a legal opinion from the
Transferor’s counsel (at the Company’s expense) that such transfer is exempt from the registration
requirements of applicable securities laws, and with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant
of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor
Endorsement Form (each a “Transferee”), calling in the aggregate on the face or faces thereof for
the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered
by the Transferor.



8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation,
on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver,
in lieu thereof, a new Warrant of like tenor.



9. Registration Rights. The Holder of this Warrant has been granted certain
registration rights by the Company. These registration rights are set forth in a Registration
Rights Agreement entered into by the Company and Purchaser dated as of even date of this Warrant.



10. Maximum Exercise. The Holder shall not be entitled to exercise this Warrant on an
exercise date, in connection with that number of shares of Common Stock which would be in excess of
the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its
affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the
exercise of this Warrant with respect to which the determination of this proviso is being made on
an exercise date, which would result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock of the Company on such date. For the
purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13d-3 thereunder. Notwithstanding the foregoing, the restriction described in this
paragraph may be revoked upon 75 days prior notice from the Holder to the Company and is
automatically null and void upon an Event of Default under the Note.



11. Warrant Agent. The Company may, by written notice to the each Holder of the
Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the
exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and
replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.



12. Transfer on the Company’s Books. Until this Warrant is transferred on the books
of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.



13. Notices, Etc. All notices and other communications from the Company to the Holder
of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at
such address as may have been furnished to the Company in writing by such Holder or, until any such
Holder furnishes to the Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.



14. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the laws of State of New York without regard to
principles of conflicts of laws. Any action brought concerning the transactions contemplated by
this Warrant shall be brought only in the state courts of New York or in the federal courts located
in the state of New York; provided, however, that the Holder may choose to waive this provision and
bring an action outside the state of New York. The individuals executing this Warrant on behalf of
the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees
and costs. In the event that any provision of this Warrant is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision of this Warrant. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision hereof. The Company acknowledges that legal
counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party shall not be applied in
the interpretation of this Warrant to favor any party against the other party.



[BALANCE OF PAGE INTENTIONALLY LEFT BLANK;




SIGNATURE PAGE FOLLOWS.]






1







IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above.



	 	 	 	 	 
	 	 	Pacific Biometrics, Inc. 

	 
	 	 	 	 
	WITNESS:

	 	

	 	

	 
	 	 	 	 
	
 
	 	By:
	 	/s/ Ronald R. Helm
	
 
	 	 	 	 
	 
	 	 	 	 
	
 
	 	Name:
	 	Ronald R. Helm
	
 
	 	 	 	 
	 
	 	 	 	 
	
 
	 	Title:
	 	Chief Executive Officer
	
 
	 	 	 	 







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EXHIBIT A




FORM OF SUBSCRIPTION




(To Be Signed Only On Exercise Of Warrant)




	 	 	 	 	 
	TO:	 	Pacific Biometrics, Inc.

	 
	 	 	 	 
	
 
	 	Attention:
	 	Chief Financial Officer







The undersigned, pursuant to the provisions set forth in the attached Warrant (No.     ),
hereby irrevocably elects to purchase      shares of the Common Stock covered by such Warrant.



The undersigned herewith makes payment of the full Exercise Price for such shares at the price
per share provided for in such Warrant, which is $1.48. Such payment takes the form of $     
in lawful money of the United States



The undersigned requests that the certificates for such shares be issued in the name of, and
delivered to      whose address is
     .



The undersigned represents and warrants that all offers and sales by the undersigned of the
securities issuable upon exercise of the within Warrant shall be made pursuant to registration of
the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”) or pursuant to
an exemption from registration under the Securities Act.



	 	 	 
	Dated:

	 	

	 
	 	 
	
 
	 	(Signature must conform to name of holder as specified on the

face of the Warrant)
	 
	 	 
	
 
	 	Address:







3




EXHIBIT B




FORM OF TRANSFEROR ENDORSEMENT




(To Be Signed Only On Transfer Of Warrant)




For value received, the undersigned hereby sells, assigns, and transfers unto the person(s)
named below under the heading “Transferees” the right represented by the within Warrant to purchase
the percentage and number of shares of Common Stock of Pacific Biometrics, Inc. into which the
within Warrant relates specified under the headings “Percentage Transferred” and “Number
Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person
Attorney to transfer its respective right on the books of Pacific Biometrics, Inc. with full power
of substitution in the premises.



	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Percentage
	Transferees	 	Address	 	Transferred	 	Number Transferred







	 	 	 
	Dated:

	 	

	 
	 	 
	
 
	 	(Signature must conform to name of holder as specified on the

face of the Warrant)
	 
	 	 
	
 
	 	Address:







	 	 	 
	 
	 	 
	 
	 	 
	
 
	 	SIGNED IN THE PRESENCE OF:
	 
	 	 
	
 
	 	(Name)
	 
	 	 
	 
	 	 
	 
	 	 
	ACCEPTED AND AGREED:

	 	

	 
	 	 
	[TRANSFEREE]

	 	

	 
	 	 
	(Name)

	 	

	 
	 	 








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