Exhibit
10.2


 


EXHIBIT
A


 


NEITHER
THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS.  THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH SECURITIES.


 


BIO-KEY INTERNATIONAL, INC.


 


WARRANT


 




	
  Warrant No.
  [  ]

  	
   

  	
  Dated:  March 31, 2004

  






 


BIO-key
International, Inc., a Minnesota corporation (the “Company”), hereby certifies that, for value received, [Name of
Holder] or its registered assigns (the “Holder”),
is entitled to purchase from the Company up to a total of
[          ] shares of common
stock, $.01 par value per share (the “Common
Stock”), of the Company (each such share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal
to $1.755 per share (as adjusted from time to time as provided in Section 9,
the “Exercise Price”), at any time
and from time to time from and after the date hereof and through and including
the date that is five (5) years from the Effective Date (the “Expiration Date”), and subject to the
following terms and conditions.  This
Warrant (this “Warrant”) is one of
a series of similar warrants issued pursuant to that certain Securities
Purchase Agreement, dated as of the date hereof, by and among the Company and
the Purchasers identified therein (the “Purchase
Agreement”).  All such
warrants are referred to herein, collectively, as the “Warrants.”


 


1.             Definitions.  In addition to the terms defined elsewhere
in this Warrant, capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Purchase Agreement.


 


2.             Registration
of Warrant.  The Company shall
register this Warrant, upon records to be maintained by the Company for that
purpose (the “Warrant Register”), in the name of
the record Holder hereof from time to time. 
The Company may deem and treat the registered Holder


 

















 


of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or
any distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.


 


3.             Registration
of Transfers.  The Company shall
register the transfer of any portion of this Warrant in the Warrant Register,
upon surrender of this Warrant, with the Form of Assignment attached hereto
duly completed and signed, to the Transfer Agent or to the Company at its
address specified herein.  Upon any such
registration or transfer, a new warrant to purchase Common Stock, in substantially
the form of this Warrant (any such new warrant, a “New Warrant”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder.  The acceptance of the New Warrant by the
transferee thereof shall be deemed the acceptance by such transferee of all of
the rights and obligations of a holder of a Warrant.


 


4.             Exercise
and Duration of Warrants.


 


(a)           This
Warrant shall be exercisable by the registered Holder at any time and from time
to time on or after the date hereof to and including the Expiration Date.  At 6:30 P.M., New York City time on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall
be and become void and of no value; provided that, if the average of the
Closing Prices for the five Trading Days immediately prior to (but not
including) the Expiration Date exceeds the Exercise Price on the Expiration Date,
then this Warrant shall be deemed to have been exercised in full (to the extent
not previously exercised) on a “cashless exercise” basis at 6:30 P.M. New York
City time on the Expiration Date if a “cashless exercise” may occur at such
time pursuant to Section 10 below. 
Notwithstanding anything to the contrary herein, the Expiration Date
shall be extended for each day following the Effective Date that the
Registration Statement is not effective.


 


(b)           A
Holder may exercise this Warrant by delivering to the Company (i) an exercise
notice, in the form attached hereto (the “Exercise Notice”),
appropriately completed and duly signed, and (ii) payment of the Exercise
Price for the number of Warrant Shares as to which this Warrant is being
exercised (which may take the form of a “cashless exercise” if so indicated in
the Exercise Notice and if a “cashless exercise” may occur at such time
pursuant to this Section 10 below), and the date such items are delivered to
the Company (as determined in accordance with the notice provisions hereof) is
an “Exercise Date.”  The Holder shall not be required to deliver
the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise
Notice shall have the same effect as cancellation of the original Warrant and
issuance of a New Warrant evidencing the right to purchase the remaining number
of Warrant Shares.


 


5.             Delivery
of Warrant Shares.


 


(a)           Upon
exercise of this Warrant, the Company shall promptly (but in no event later
than three Trading Days after the Exercise Date) issue or cause to be issued
and cause to be delivered to or upon the written order of the Holder and in
such name or names as the Holder may designate, a certificate for the Warrant
Shares issuable upon such exercise, free of restrictive legends unless a
registration statement covering the resale of the Warrant Shares and


 

















 


naming the
Holder as a selling stockholder thereunder is not then effective and the
Warrant Shares are not freely transferable without volume restrictions pursuant
to Rule 144 under the Securities Act. 
The Holder, or any Person so designated by the Holder to receive Warrant
Shares, shall be deemed to have become holder of record of such Warrant Shares
as of the Exercise Date.  The Company
shall, upon request of the Holder, use its best efforts to deliver Warrant
Shares hereunder electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions.


 


(b)           This
Warrant is exercisable, either in its entirety or, from time to time, for a
portion of the number of Warrant Shares. 
Upon surrender of this Warrant following one or more partial exercises,
the Company shall issue or cause to be issued, at its expense, a New Warrant
evidencing the right to purchase the remaining number of Warrant Shares.


 


(c)           In
addition to any other rights available to a Holder, if the Company fails to
deliver to the Holder a certificate representing Warrant Shares by the third
Trading Day after the date on which delivery of such certificate is required by
this Warrant, and if after such third Trading Day the Holder purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares that the Holder anticipated
receiving from the Company (a “Buy-In”),
then the Company shall, within three Trading Days after the Holder’s request
and in the Holder’s discretion, either (i) pay cash to the Holder in an amount
equal to the Holder’s total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver
such certificate (and to issue such Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Stock and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock, times (B) the Closing Price on the date
of the event giving rise to the Company’s obligation to deliver such
certificate.


 


(d)           The
Company’s obligations to issue and deliver Warrant Shares in accordance with
the terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation
of law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of Warrant Shares.  Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the
Warrant  as required pursuant to the
terms hereof.


 


6.             Charges,
Taxes and Expenses.   Issuance and
delivery of certificates for shares of Common Stock upon exercise of this
Warrant shall be made without charge to the Holder for any issue or transfer
tax, withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the


 

















 


Company;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the registration of any
certificates for Warrant Shares or Warrants in a name other than that of the
Holder or an Affiliate thereof.  The
Holder shall be responsible for all other tax liability that may arise as a
result of holding or transferring this Warrant or receiving Warrant Shares upon
exercise hereof.


 


7.             Replacement
of Warrant.  If this Warrant is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation hereof, or in
lieu of and substitution for this Warrant, a New Warrant, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable bond or indemnity, if requested.  Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.


 


8.             Reservation
of Warrant Shares.  The Company
covenants that it will at all times reserve and keep available out of the
aggregate of its authorized but unissued and otherwise unreserved Common Stock,
solely for the purpose of enabling it to issue Warrant Shares upon exercise of
this Warrant as herein provided, the number of Warrant Shares which are then
issuable and deliverable upon the exercise of this entire Warrant, free from
preemptive rights or any other contingent purchase rights of persons other than
the Holder (after giving effect to the adjustments and restrictions of Section
9, if any). The Company covenants that all Warrant Shares so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable. 
The Company will take all such
action as may be necessary to assure that such shares of Common Stock may be
issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any securities exchange or automated
quotation system upon which the Common Stock may be listed.


 


9.             Certain
Adjustments.  The Exercise Price and
number of Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section 9.


 


(a)           Stock
Dividends and Splits.  If the
Company, at any time while this Warrant is outstanding, (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class of
capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii)
combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Exercise Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i)
of this paragraph shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination.


 


(b)           Pro
Rata Distributions.  If the Company,
at any time while this Warrant is outstanding, distributes generally to all
holders of Common Stock (i) evidences of its


 

















 


indebtedness,
(ii) any security (other than a distribution of Common Stock covered by the
preceding paragraph), (iii) rights or warrants to subscribe for or
purchase any security, or (iv) any other asset (in each case, “Distributed Property”), then in each such case the Exercise
Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution shall be adjusted (effective
on such record date) to equal the product of such Exercise Price times a
fraction of which the denominator shall be the average of the Closing Prices
for the five Trading Days immediately prior to (but not including) such record
date and of which the numerator shall be such average less the then fair market
value of the Distributed Property distributed in respect of  one outstanding share of Common Stock, as
determined by the Company’s independent certified public accountants that
regularly examine the financial statements of the Company, (an “Appraiser”).  In such
event, the Holder, after receipt of the determination by the Appraiser, shall
have the right to select an additional appraiser (which shall be a nationally
recognized accounting firm), in which case such fair market value shall be
deemed to equal the average of the values determined by each of the Appraiser
and such appraiser.  As an alternative
to the foregoing adjustment to the Exercise Price, at the request of the Holder
delivered before the 90th day after such record date, the Company will deliver
to such Holder, within five Trading Days after such request (or, if later, on
the effective date of such distribution), the Distributed Property that such
Holder would have been entitled to receive in respect of the Warrant Shares for
which this Warrant could have been exercised immediately prior to such record
date.  If such Distributed Property is
not delivered to a Holder pursuant to the preceding sentence, then upon
expiration of or any exercise of the Warrant that occurs after such record
date, such Holder shall remain entitled to receive, in addition to the Warrant
Shares otherwise issuable upon such exercise (if applicable), such Distributed
Property.


 


(c)           Fundamental
Transactions.  If, at any time while
this Warrant is outstanding, (i) the Company effects any merger or
consolidation of the Company with or into another Person, (ii) the Company
effects any sale of all or substantially all of its assets in one or a series
of related transactions, (iii) any tender offer or exchange offer (whether by
the Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (iv) the Company effects any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property (other than as a result of a subdivision or combination of shares of
Common Stock covered by Section 9(a) above) (in any such case, a “Fundamental Transaction”), then the Holder shall have the
right thereafter to receive, upon exercise of this Warrant, the same amount and
kind of securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of the number of Warrant
Shares then issuable upon exercise in full of this Warrant (the “Alternate Consideration”). 
The aggregate Exercise Price for this Warrant will not be affected by
any such Fundamental Transaction, but the Company shall apportion such
aggregate Exercise Price among the Alternate Consideration in a reasonable
manner reflecting the relative value of any different components of the
Alternate Consideration.  If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this
Warrant following such Fundamental Transaction.  At the Holder’s request, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a
new warrant consistent with


 

















 


the foregoing
provisions and evidencing the Holder’s right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof.  The terms of any agreement pursuant to which
a Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(c) and insuring that the Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction. If any Fundamental Transaction constitutes or results in a Change
of Control, then at the request of the Holder delivered before the 90th day
after such Fundamental Transaction, the Company (or any such successor or
surviving entity) will purchase the Warrant from the Holder for a purchase
price, payable in cash within five Trading Days after such request (or, if
later, on the effective date of the Fundamental Transaction), equal to the
Black-Scholes value of the remaining unexercised portion of this Warrant on the
date of such request.


 


(d)           Subsequent
Equity Sales.


 


(i)            If, at any time on or
prior to March 31, 2005, the Company or any Subsidiary issues additional shares
of Common Stock or rights, warrants, options or other securities or debt
convertible, exercisable or exchangeable for shares of Common Stock or
otherwise entitling any Person to acquire shares of Common Stock (collectively,
“Common Stock Equivalents”) at an
effective net price to the Company per share of Common Stock (the “Effective Price”) less than the Exercise Price (as adjusted
hereunder to such date), then the Exercise Price shall be reduced to equal the
Effective Price.  For purposes of this
paragraph, in connection with any issuance of any Common Stock Equivalents, (A)
the maximum number of shares of Common Stock potentially issuable at any time
upon conversion, exercise or exchange of such Common Stock Equivalents (the “Deemed Number”) shall be deemed to be outstanding upon
issuance of such Common Stock Equivalents, (B) the Effective Price applicable
to such Common Stock shall equal the minimum dollar value of consideration
payable to the Company to purchase such Common Stock Equivalents and to
convert, exercise or exchange them into Common Stock (net of any discounts,
fees, commissions and other expenses), divided by the Deemed Number, and (C) no
further adjustment shall be made to the Exercise Price upon the actual issuance
of Common Stock upon conversion, exercise or exchange of such Common Stock
Equivalents.


 


(ii)           If, at any time while
this Warrant is outstanding, the Company or any Subsidiary issues Common Stock
Equivalents with an Effective Price or a number of underlying shares that
floats or resets or otherwise varies or is subject to adjustment based
(directly or indirectly) on market prices of the Common Stock (a “Floating Price Security”), then for purposes of applying the
preceding paragraph in connection with any subsequent exercise, the Effective
Price will be determined separately on each Exercise Date and will be deemed to
equal the lowest Effective Price at which any holder of such Floating Price
Security is entitled to acquire Common Stock on such Exercise Date (regardless
of whether any such holder actually acquires any shares on such date).


 


(iii)          Notwithstanding the
foregoing, no adjustment will be made under this paragraph (d) in respect of
any Excluded Stock.


 

















 


(e)           Number
of Warrant Shares.  Simultaneously
with any adjustments to the Exercise Price pursuant to paragraphs (a) or (b) of
this Section, the number of Warrant Shares that may be purchased upon exercise
of this Warrant shall be increased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the increased
number of Warrant Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.


 


(f)            Calculations.  All calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of a share, as
applicable.  The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.


 


(g)           Notice
of Adjustments.  Upon the occurrence
of each adjustment pursuant to this Section 9, the Company at its
expense will promptly compute such adjustment in accordance with the terms of
this Warrant and prepare a certificate setting forth such adjustment, including
a statement of the adjusted Exercise Price and adjusted number or type of
Warrant Shares or other securities issuable upon exercise of this Warrant (as
applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based.  Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company’s Transfer Agent.


 


(h)           Notice
of Corporate Events.  If the Company
(i) declares a dividend or any other distribution of cash, securities or other
property in respect of its Common Stock, including without limitation any
granting of rights or warrants to subscribe for or purchase any capital stock
of the Company or any Subsidiary, (ii) authorizes or approves, enters into any
agreement contemplating or solicits stockholder approval for any Fundamental
Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the
Holder a notice describing the material terms and conditions of such
transaction, at least 20 calendar days prior to the applicable record or
effective date on which a Person would need to hold Common Stock in order to
participate in or vote with respect to such transaction, and the Company will
take all steps reasonably necessary in order to insure that the Holder is given
the practical opportunity to exercise this Warrant prior to such time so as to
participate in or vote with respect to such transaction; provided, however,
that the failure to deliver such notice or any defect therein shall not affect
the validity of the corporate action required to be described in such notice.


 


10.           Payment
of Exercise Price.  The Holder shall
pay the Exercise Price in immediately available funds; provided, however, that
the Holder may satisfy its obligation to pay the Exercise Price through a
“cashless exercise,” at any time that the Registration Statement covering the
resale of Warrant Shares is not effective, in which event the Company shall
issue to the Holder the number of Warrant Shares determined as follows:


 


	
   

  	
  X = Y
  [(A-B)/A]

  
	
  where:

  	
   

  
	
   

  	
  X = the
  number of Warrant Shares to be issued to the Holder.

  



 

















 


	
   

  	
  Y = the
  number of Warrant Shares with respect to which this Warrant is being
  exercised.

  
	
   

  	
   

  
	
   

  	
  A = the
  average of the Closing Prices for the five Trading Days immediately prior to
  (but not including) the Exercise Date.

  
	
   

  	
   

  
	
   

  	
  B = the
  Exercise Price.

  



 


For purposes
of Rule 144 promulgated under the Securities Act, it is intended, understood
and acknowledged that the Warrant Shares issued in a cashless exercise
transaction shall be deemed to have been acquired by the Holder, and the
holding period for the Warrant Shares shall be deemed to have commenced, on the
date this Warrant was originally issued pursuant to the Purchase Agreement.


 


11.           Call
Right.  Subject to the provisions of
this Section 11, if the average of the VWAP for any 10 (ten) consecutive
Trading Days exceeds 250% of the Exercise Price (the “Threshold Price”), then the Company will
have the right, but not obligation (the “Call
Right”), on 45 Trading Days prior written notice to the Holder, to
redeem up to 50% of the  unexercised
portion of this Warrant for which an Exercise Notice has not yet been delivered
(the “Call Amount”).


 


(a)           To
exercise this Call Right, the Company shall deliver to the Holder (a) an irrevocable
written notice (a “Call Notice”),
indicating the Call Amount and (b) an Exchange Warrant (as defined below).  The date that the Company delivers the Call
Notice to the Holders will be referred to as the “Call Date.” Within forty-five (45) Trading Days of receipt of
the Call Notice, the Holder shall exercise this Warrant for up to the Call
Amount in accordance with Section 4(b) above. 
Any portion of the Call Amount that is not exercised by 6:30 p.m. (New York
City time) on the 45th Trading Day following the date of receipt of the Call
Notice (the “Redemption Date”) shall be
cancelled.  Any unexercised portion of
this Warrant to which the Call Notice does not pertain (the “Remaining Portion”) will be unaffected by such Call
Notice.  The Company covenants and
agrees that it will honor any Exercise Notice with respect to the Call Amount
that are tendered from the Call Date through and including 6:30 p.m. (New York
City time) on the Redemption Date.


 


(b)           Notwithstanding
anything to the contrary set forth in this Warrant, the Company may not require
the cancellation of any unexercised Call Amount (and any Call Notice will be
void), unless from the beginning of the ten (10) consecutive Trading Days used
to determine whether the Common Stock has achieved the Threshold Price through
the Redemption Date (the “Call Period”)
(i) the VWAP for each Trading Day during such Call Period exceeds the Threshold
Price, (ii) the Company shall have honored in accordance with the terms of this
Warrant any Exercise Notice delivered by 6:30 p.m. (New York City time) on the
Redemption Date, and (iii) the Registration Statement shall be effective as to
all Warrant Shares and the Prospectus thereunder available for use by the
Holder for the resale all such Warrant Shares.


 

















 


12.           Limitation on Exercise.


 


(a)           Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired by the Holder upon any exercise of this Warrant (or
otherwise in respect hereof) shall be limited to the extent necessary to insure
that, following such exercise (or other issuance), the total number of shares
of Common Stock then beneficially owned by such Holder and its Affiliates and
any other Persons whose beneficial ownership of Common Stock would be aggregated
with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not
exceed 4.999% (the “Maximum Percentage”) of the total number of
issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such exercise).  For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder.  Each delivery
of an Exercise Notice hereunder will constitute a representation by the Holder
that it has evaluated the limitation set forth in this paragraph and determined
that issuance of the full number of Warrant Shares requested in such Exercise
Notice is permitted under this paragraph. 
The Company’s obligation to issue shares of Common Stock in excess of
the limitation referred to in this Section shall be suspended (and shall not
terminate or expire notwithstanding any contrary provisions hereof) until such
time, if any, as such shares of Common Stock may be issued in compliance with
such limitation, but in no event later than the Expiration Date.  By written notice to the Company, the Holder
may waive the provisions of this Section or increase or decrease the Maximum
Percentage to any other percentage specified in such notice, but (i) any such
waiver or increase will not be effective until the 61st day after such notice
is delivered to the Company, and (ii) any such waiver or increase or decrease
will apply only to the Holder and not to any other holder of Warrants.


 


(b)           Notwithstanding
anything to the contrary contained herein, if the Trading Market is the New
York Stock Exchange or any other market or exchange with similar applicable
rules, then the maximum number of shares of Common Stock that the Company may
issue pursuant to the Transaction Documents at an effective purchase price less
than the Closing Price on the Trading Day immediately preceding the Closing
Date equals 19.99% of the outstanding shares of Common Stock immediately
preceding the Closing Date  (the “Issuable
Maximum”), unless the Company obtains stockholder approval in
accordance with the rules and regulations of such Trading Market.  If, at the time any Holder requests an
exercise of any of the Warrants, the Actual Minimum (excluding any shares issued
or issuable at an effective purchase price in excess of the Closing Price on
the Trading Day immediately preceding the Closing Date) exceeds the Issuable
Maximum (and if the Company has not previously obtained the required
stockholder approval), then the Company shall issue to the Holder requesting
such exercise a number of shares of Common Stock not exceeding such Holder’s
pro-rata portion of the Issuable Maximum (based on such Holder’s share
(vis-à-vis other Holders) of the aggregate purchase price paid under the
Purchase Agreement and taking into account any Warrant Shares previously issued
to such Holder).  For the purposes
hereof, “Actual Minimum” shall
mean, as of any date, the maximum aggregate number of shares of Common Stock
then issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise in full of
all Warrants, without giving effect to (x) any limits on the number of shares
of Common Stock that may be owned by a Holder at any one time, or (y) any
additional Underlying Shares that could be issuable as a result of any future
possible adjustments made under Section 9(d).


 

















 


13.           Fractional
Shares.  The Company shall not be
required to issue or cause to be issued fractional Warrant Shares on the
exercise of this Warrant.  If any
fraction of a Warrant Share would, except for the provisions of this Section,
be issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded up to the nearest whole share.


 


14.           Notices.  Any and all notices or other communications
or deliveries hereunder (including without limitation any Exercise Notice)
shall be in writing and shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section prior to 6:30 p.m.
(New York City time) on a Trading Day, (ii) the next Trading Day after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section on a day that is not a Trading
Day or later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the
Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom
such notice is required to be given. 
The address for such notices or communications shall be as set forth in
the Purchase Agreement.


 


15.           Warrant
Agent.  The Company shall serve as
warrant agent under this Warrant.  Upon
30 days’ notice to the Holder, the Company may appoint a new warrant
agent.  Any corporation into which the
Company or any new warrant agent may be merged or any corporation resulting
from any consolidation to which the Company or any new warrant agent shall be a
party or any corporation to which the Company or any new warrant agent
transfers substantially all of its corporate trust or stockholders services
business shall be a successor warrant agent under this Warrant without any
further act.  Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder’s
last address as shown on the Warrant Register.


 


16.           Miscellaneous.


 


(a)           Subject
to the restrictions on transfer set forth on the first page hereof, this
Warrant may be assigned by the Holder. 
This Warrant may not be assigned by the Company except to a successor in
the event of a Fundamental Transaction. 
This Warrant shall be binding on and inure to the benefit of the parties
hereto and their respective successors and assigns.  Subject to the preceding sentence, nothing in this Warrant shall
be construed to give to any Person other than the Company and the Holder any
legal or equitable right, remedy or cause of action under this Warrant.  This Warrant may be amended only in writing
signed by the Company and the Holder and their successors and assigns.


 


(b)           The
Company will not, by amendment of its governing documents or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder against impairment.  Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any Warrant Shares above the amount payable
therefor on such exercise, (ii) will take all such action as may be reasonably


 

















 


necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares on the exercise of this Warrant, and (iii)
will not close its stockholder books or records in any manner which interferes
with the timely exercise of this Warrant.


 


(c)           Governing Law; Venue; Waiver Of Jury Trial.  all
questions concerning the construction, validity, enforcement and interpretation
of this warrant shall be governed by and construed and enforced in accordance
with the laws of the state of new york. 
each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the city of new york, borough of
manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the transaction
documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper.  each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.  the company hereby waives all rights to a trial by jury.


 


(d)           The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.


 


(e)           In
case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]


 

















 


IN WITNESS
WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of the date first indicated above.


 


 


	
   

  	
  BIO-KEY INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:
  Michael W. DePasquale

  
	
   

  	
  Title: Chief
  Executive Officer

  



 

















 


FORM OF EXERCISE NOTICE


 


(To be
executed by the Holder to exercise the right to purchase shares of Common Stock
under the foregoing Warrant)


 


To:  [COMPANY]


 


The
undersigned is the Holder of Warrant No.
              
(the “Warrant”) issued by
[Company], a Delaware corporation (the “Company”).  Capitalized terms used herein and not
otherwise defined have the respective meanings set forth in the Warrant.


 


1.             The Warrant is
currently exercisable to purchase a total of
                              
Warrant Shares.


 


2.             The undersigned Holder
hereby exercises its right to purchase
                              
Warrant Shares pursuant to the Warrant.


 


3.             The Holder intends
that payment of the Exercise Price shall be made as (check one):


 


                “Cash Exercise” under
Section 10


 


                “Cashless Exercise” under
Section 10


 


4.             If the holder has
elected a Cash Exercise, the holder shall pay the sum of
$                    
to the Company in accordance with the terms of the Warrant.


 


5.             Pursuant to this
exercise, the Company shall deliver to the holder
                              
Warrant Shares in accordance with the terms of the Warrant.


 


6.             Following this
exercise, the Warrant shall be exercisable to purchase a total of
                           
Warrant Shares.


 


 


	
  Dated:

  	
   

  	
  ,

  	
   

  	
   

  	
  Name of
  Holder:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Print)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature
  must conform in all respects to name of holder as specified on the face of
  the Warrant)

  
										



 

















 


FORM OF ASSIGNMENT


 


[To be
completed and signed only upon transfer of Warrant]


 


FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
                                                         
the right represented by the within Warrant to purchase                                    
shares of Common Stock of [Company] to which the within Warrant relates and
appoints
                                   
attorney to transfer said right on the books of [Company] with full power of
substitution in the premises.


 


	
  Dated:

  	
   

  	
  ,

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature
  must conform in all respects to name of holder as specified on the face of
  the Warrant)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address of
  Transferee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  In the
  presence of: