**Exhibit3.7**

 

**Certificateof Designation**

**of thePreferred Stock of**

**BlO-keyInternational, Inc.**

**to beDesignated Series D****7% Convertible**

**PreferredStock**

 

The undersigned officerof BlO-key International, Inc., a Delaware corporation (the “Corporation”),does hereby certify that the following resolutions were adopted by the Board ofDirectors of the Corporation (the “Board”) in accordance with Section 151of the General Corporation Law of Delaware on November 9, 2009:

 

RESOLVED:                               That, in accordance with the Certificateof Incorporation of the Corporation (the “Charter”), a series of thePreferred Stock, $.0001 par value per share, of the Corporation (the “PreferredStock”), be and it hereby is established, consisting of 100,000 shares, tobe designated “Series D 7% Convertible Preferred Stock”; and that, subjectto the limitations provided by law and the Charter, the powers, designations,preferences and relative, participating, optional or other special rights of,and the qualifications, limitations or restrictions upon, the Series D 7%Convertible Preferred Stock shall be as follows:

 

Section 1.  Designationand Amount.

 

The shares of such seriesshall be designated as the “Series D 7% Convertible Preferred Stock” (the “Series DShares”) and the number of shares initially constituting such series shallbe One Hundred Thousand (100,000) which may be issued in whole or fractionalshares.

 

Section 2.  Dividendsand Distributions.

 

(a)                                The holders of Series D Shares shallbe entitled to receive dividends, when and as declared by the Board, at a rateof seven percent (7%) per annum of the liquidation preference of $100 pershare, which shall be fully cumulative, prior and in preference to anydeclaration or payment of any dividend or other distribution on the Common Stock,$.0001 par value per share, of the Corporation (the “Common Stock”). Nodividend shall be declared and/or paid on any shares of Common Stock unless adividend is also declared and/or paid on the Series D Shares. Thedividends on the Series D Shares shall accrue from the date of issuance ofeach share and shall be payable semi-annually on June 15 and December 15of each year (each a “Dividend Date”) commencing on June 15, 2010,except that if any such date is a Saturday, Sunday or legal holiday (a “Non-BusinessDay”) then such dividend shall be payable on the next day that is not aSaturday, Sunday or legal holiday on which banks in the State of Delaware arepermitted to be closed (a “Business Day”) to holders of record as theyappear on the stock books of the Corporation on the applicable record date,which shall be not more than 60 nor less than 10 days preceding the paymentdate for such dividends, as fixed by the Board of Directors (the “RecordDate”). The dividends shall be payable in shares of Common Stock (the “Series DPayments-in-Kind”) in accordance with Section 2 (b) below. Theamount of dividends payable on the Series D Shares for any period that isshorter or longer than 30 days shall be computed on the basis of a 360-day yearof twelve 30-day months.

 

(b)                               Each Series D Payment-in-Kind shallbe equal in amount to that number of shares of Common Stock for which thedividend is paid that is equal in number to (i) the aggregate cashdividends payable with respect to such Series D Shares on the Record Date,divided by (ii) the Conversion Price. Certificates representing the CommonStock issuable in payment of any Series D Payment-in-Kind shall bedelivered to each holder entitled to receive such Series D Payment-in-Kind(in appropriate denominations) on the Dividend Date.

 

(c)                                The holders of Series D Shares shallnot be entitled to receive any dividends or other distributions except asprovided in this Certificate of Designation of Series D Shares.

 

Section 3.

 

Except as provided byapplicable law or in this Certificate of Designation, the holders of the Series DShares shall have no voting rights.

 

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Section 4.  Liquidation,Dissolution, Winding Up or Certain Mergers or Consolidations.

 

If the Corporation shalladopt a plan of liquidation or of dissolution, or commence a voluntary caseunder the federal bankruptcy laws or any other applicable state or federalbankruptcy, insolvency or similar law, or consent to the entry of an order forrelief in any involuntary case under such law or to the appointment of areceiver, liquidator, assignee, custodian, trustee or sequestrator (or similarofficial) of the Corporation or of any substantial part of its property, ormake an assignment for the benefit of its creditors, or admit in writing itsinability to pay its debts generally as they become due and on account of suchevent the Corporation shall liquidate, dissolve or wind up, or upon any otherliquidation, dissolution or winding up of the Corporation, or, unless approvedby the holders of the outstanding Series D Shares, engage in a merger,plan of reorganization or consolidation in which the entity is not thesurviving Corporation, then and in that event, no distribution shall be made tothe holders of shares of Common Stock unless, prior thereto, the holders of theSeries D Shares shall have received an amount in cash or equivalent valuein securities or other consideration equal to the Liquidation Preferencethereof.

 

If upon any liquidation, dissolution, winding up,merger, plan of reorganization or consolidation, the amount so payable ordistributable does not equal or exceed the Liquidation Preference of the Series DShares, then, and in that event, the amount of cash so payable, and amount ofsecurities or other consideration so distributable, shall be shared ratablyamong the holders of the Series D Shares. For the purposes hereof, theterm “Liquidation Preference” shall mean $100 per share with respect toeach of the Series D Shares, plus any and all accrued unpaid dividendsthereon.

 

Section 5.  Conversion.

 

(a)                                 (i)  Subject to the provisions foradjustment hereinafter set forth and the limitation of the number of shares ofCommon Stock issuable upon conversion set forth in Section 5(a)(ii) below,commencing upon issuance, each Series D Share shall be convertible in themanner hereinafter set forth into fully paid and nonassessable shares of CommonStock, at the option of the holder thereof, at any time at the principal officeof the Corporation or any transfer agent for the Series D Shares, into thenumber of fully paid and nonassessable shares of Common Stock which resultsfrom dividing the “Conversion Price” (as defined below) into the LiquidationPreference. The initial “Conversion Price” shall be equal to $0.30. Uponconversion, all accrued or declared but unpaid dividends on the Series DShares shall be paid in shares of Common Stock in the manner provided for Series DPayment-in-Kind in Section 2(b); provided, that the date ofconversion of such Series D Shares shall be the “Record Date” for thepurpose of calculating the Series D Payment-in-Kind.

 

(ii)  Notwithstanding anything contained hereinto the contrary, in no event (except while there is outstanding a tender offerfor any or all of the shares of the Corporation’s Common Stock) shall anyholder of any Series D Shares be entitled to convert Series D Shares,or shall the Corporation have the obligation to issue shares upon suchconversion or in payment of any Series D Payment-in-Kind, to the extentthat, after such conversion the sum of (A) the number of shares of CommonStock beneficially owned by such holder and its affiliates (other than sharesof Common Stock which may be deemed beneficially owned through the ownership ofthe unconverted portion of the Series D Shares or unexercised portion ofany warrants or other securities convertible into shares of Common Stock of theCorporation beneficially owned by such holder), and (B) the number ofshares of Common Stock issuable upon the conversion of the Series D Shareswith respect to which the determination of this proviso is being made, wouldresult in beneficial ownership by such holder and its affiliates of more than4.99% of the outstanding shares of Common Stock of the Corporation (after takinginto account the shares to be issued to such Holder upon such conversion). Forpurposes of the proviso to the immediately preceding sentence, beneficialownership shall be determined in accordance with Section 13(d) of theSecurities Exchange Act of 1934, as amended (the “1934 Act”), except asotherwise provided in clause (A) of such sentence.

 

(b)                                Adjustments to Conversion Price:

 

(i)                                    The following definitions shall apply forpurposes of this Section:

 

(A)                              “Options” shall mean rights, options orwarrants to subscribe for, purchase or otherwise acquire either Common Stock orConvertible Securities.

 

(B)                                “Convertible Securities” shall mean anyevidences of indebtedness, shares or other securities convertible into orexchangeable for Common Stock.

 

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(C)                                “Additional Shares of Common Stock” shallmean all shares of Common Stock issued

 

(or, pursuant to Section 5(b)(iii), deemed to beissued) by the Corporation after the Series D Original Issue Date (asdefined below), other than shares of Common Stock issued or issuable:

 

(i)                                     upon conversion of Series D Shares;

 

(ii)                                  in a transaction described in Section 5(b)(vi);

 

(iii)                               pursuant to the terms of any stock grant,option, warrant, employment agreement, convertible debt or other writtenobligation, agreement or commitment to which the Corporation was a party as ofthe Series D Original Issue Date (as defined below);

 

(iv)                              by way of dividend or other distributionon shares of Common Stock excluded from the definition of Additional Shares ofCommon Stock by the foregoing clauses (i), (ii) or (iii);

 

(v)                                 to consultants or other people providingservices to the Corporation so long as such issuances do not exceed FiveHundred Thousand (500,000) shares of Common Stock (or options or warrants topurchase same) in the aggregate; or

 

(vi)                              pursuant to a stock option plan or stockpurchase plan or other employee stock incentive program or agreement approvedby the Board of Directors so long as such issuances do not exceed One Million(1,000,000) shares of Common Stock (or options or warrants to purchase same) inthe aggregate.

 

(D)                               “Series D Original Issue Date” shallmean the date on which the first Series D Share was issued.

 

(ii)                                 No Adjustment of Conversion Price: No adjustment in the Conversion Priceshall be made in respect of the issuance of Additional Shares of Common Stockunless the consideration per share for an Additional Share of Common Stockissued or deemed to be issued by the Corporation is issued for consideration lessthan the Conversion Price in effect on the date of such issuance.

 

(iii)                              Deemed Issue of Additional Shares ofCommon Stock:

 

(A)                              Options and Convertible Securities: In the event the Corporation at anytime or from time to time after the Series D Original Issue Date shallissue any Options or Convertible Securities or shall fix a record date for thedetermination of holders of any class of securities entitled to receive anysuch Options or Convertible Securities, then the maximum number of shares of CommonStock issuable upon the exercise of such Options or, in the case of ConvertibleSecurities and Options therefore, the exercise of such Options and conversionor exchange of such Convertible Securities shall be deemed to be AdditionalShares of Common Stock issued as of the time of such issue or, in case such arecord date shall have been fixed, as of the close of business on such recorddate, provided that Additional Shares of Common Stock shall not be deemed tohave been issued unless the consideration per share (determined pursuant to Section 5(b)(v) hereof)of such Additional Shares of Common Stock would be less than the ConversionPrice in effect on the date of and immediately prior to such issue, or suchrecord date, as the case may be, and provided further that in any such case inwhich Additional Shares of Common Stock are deemed to be issued:

 

(i)                                     except as provided in Section 5(b)(iii)(A)(ii) hereof,no further adjustment in the Conversion Price shall be made upon the subsequentissue of Convertible Securities or shares of Common Stock upon the exercise ofsuch Options or conversion or exchange of such Convertible Securities;

 

(ii)                                  if such Options or Convertible Securitiesby their terms provide, with the passage of time or otherwise, for any changein the consideration payable to the Corporation, or change in the number ofshares of Common Stock issuable, upon the exercise, conversion or exchangethereof (other than under or by reason of provisions designed to protectagainst dilution), 

 

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the Conversion Pricecomputed upon the original issue thereof (or upon the occurrence of a recorddate with respect thereto) and any subsequent adjustments based thereon, shall,upon any such increase or decrease becoming effective, be recomputed to reflectsuch increase or decrease insofar as it affects such Options or the rights ofconversion or exchange under such Convertible Securities; and

 

(iii)                               no readjustment pursuant to clause (ii) aboveshall have the effect of increasing the Conversion Price to an amount whichexceeds the lower of (1) the Conversion Price on the original adjustmentdate or (2) the Conversion Price that would have resulted from anyissuance of Additional Shares of Common Stock between the original adjustmentdate and such readjustment date.

 

(iv)                              Adjustment of Conversion Rate UponIssuance of Additional Shares of Common Stock: In the event the Corporation shall issue AdditionalShares of Common Stock without consideration or for a consideration per shareless than the Conversion Price in effect on the date of and immediately priorto such issue, then and in each such event the Conversion Price shallautomatically be reduced to a price equal to the lowest per share considerationreceived or to be received by the Corporation in connection with such issuance.

 

(v)                                 Determination of Consideration. For purposes of this Section, theconsideration received by the Corporation for the issuance of any AdditionalShares of Common Stock shall be computed as follows:

 

(A)                              Cash and Property: Such considerationshall:

 

(i)                                     insofar as it consists of cash, becomputed at the aggregate amount of cash received by the Corporation;

 

(ii)                                  insofar as it consists of property otherthan cash, be computed at the fair value thereof at the time of such issue, asdetermined by the Board of Directors in the good faith exercise of itsreasonable business judgment; and

 

(iii)                               in the event Additional Shares of CommonStock are issued together with other shares or securities or other assets ofthe Corporation for consideration which covers both, be the proportion of suchconsideration so received, computed as provided in clauses (i) and (ii) above,as determined by the Board of Directors in the good faith exercise of itsreasonable business judgment.

 

(B)                                Options and Convertible Securities. Theconsideration per share received by the Corporation for Additional Shares ofCommon Stock deemed to have been issued pursuant to Section 5(b) (iii)(A),relating to Options and Convertible Securities, shall be determined by dividing

 

(i)                                     the total amount, if any, received orreceivable by the Corporation as consideration for the issue of such Options orConvertible Securities, plus the minimum aggregate amount of additionalconsideration (as set forth in the instruments relating thereto, without regardto any provision contained therein for a subsequent adjustment of suchconsideration) payable to the Corporation upon the exercise of such Options orthe conversion or exchange of such Convertible Securities, or in the case ofOptions for Convertible Securities, the exercise of such Options forConvertible Securities and the conversion or exchange of such ConvertibleSecurities, by

 

(ii)                                  the maximum number of shares of CommonStock (as set forth in the instruments relating thereto, without regard to anyprovision contained therein for a subsequent adjustment of such number)issuable upon the exercise of such Options or the conversion or exchange ofsuch Convertible Securities.

 

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(vi)                              Other Adjustments:

 

(A)                              Subdivisions, Combinations, orConsolidations of Common Stock: In the event the outstanding shares of CommonStock shall be subdivided, combined or consolidated, by stock split, stockdividend, combination or like event, into a greater or lesser number of sharesof Common Stock, the Conversion Price in effect immediately prior to suchsubdivision, combination, consolidation or stock dividend shall, concurrentlywith the effectiveness of such subdivision, combination or consolidation, beproportionately adjusted.

 

(B)                                Reclassifications: In the case, at anytime after the date hereof, of any capital reorganization or anyreclassification of the stock of the Corporation (other than as a result of astock dividend or subdivision, split-up or combination of shares), or theconsolidation or merger of the Corporation with or into another person (otherthan a consolidation or merger (i) in which the Corporation is thecontinuing entity and which does not result in any change in the Common Stockor (ii) which is treated as a liquidation pursuant to Section 4hereof), the Series D Shares shall, after such reorganization,reclassification, consolidation or merger be convertible into the kind andnumber of shares of stock or other securities or property of the Corporation orotherwise to which such holder would have been entitled if immediately prior tosuch reorganization, reclassification, consolidation or merger such holder hadconverted its Series D Shares into Common Stock. The provisions of this Section 5(b) shallsimilarly apply to successive reorganizations, reclassifications,consolidations or mergers.

 

(c)                                 Fractional Shares. In lieu of any fractional shares towhich the holder of a Series D Share would otherwise be entitled uponconversion, the Corporation shall pay cash equal to such fraction multiplied bythe fair market value of one share of Common Stock as determined by the Boardof Directors in the good faith exercise of its reasonable business judgment.

 

(d)                                Miscellaneous:

 

(i)                                    All calculations under this Section 5shall be made to the nearest cent or to the nearest one hundredth (1/100) of ashare, as the case may be.

 

(ii)                                 The holders of at least 50% of theoutstanding Series D Shares shall have the right to challenge anydetermination by the Board of Directors of fair market value pursuant to this Section 5,in which case such determination of fair market value shall be made by anindependent appraiser selected jointly by the Board of Directors and thechallenging parties, the cost of such appraisal to be borne equally by theCorporation and the challenging parties.

 

(iii)                              No adjustment in the Conversion Priceneed be made if such adjustment would result in a change in such ConversionPrice of less than $0.01. Any adjustment of less than $0.01 which is not madeshall be carried forward and shall be made at the time of and together with anysubsequent adjustment which, on a cumulative basis, amounts to an adjustment of$0.01 or more in the Conversion Rate.

 

(e)                                 No Impairment. The Corporation will not, through anyreorganization, recapitalization, transfer of assets, consolidation, merger,dissolution, issue or sale of securities or any other voluntary action, avoidor seek to avoid the observance or performance of any of the terms to beobserved or performed hereunder by the Corporation, but will at all times ingood faith assist in the carrying out of all the provisions of this Section 5and in the taking of all such action as may be necessary or appropriate inorder to protect the conversion rights of the holders of the Series DShares against impairment.

 

(f)                                   Reservation of Stock Issuable UponConversion. TheCorporation shall at all times reserve and keep available out of its authorizedbut unissued shares of Common Stock, solely for the purpose of effecting theconversion of the Series D Shares and payment of dividends thereon, suchnumber of its shares of Common Stock as shall from time to time be sufficientto effect (i) the conversion of all outstanding Series D Shares and (ii) thepayment of three (3) years of dividends less any dividends previously paidon the Series D Shares as provided in Section 2(b). If at any timethe number of authorized but unissued shares of Common Stock shall not be sufficientto effect the conversion of all then outstanding Series D Shares and thepayment of such dividends, the Corporation will 

 

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take such corporate action as may, in the opinion of its counsel, benecessary to increase its authorized but unissued shares of Common Stock tosuch number of shares as shall be sufficient for such purposes.

 

Section 6.  Reportsas to Adjustments.

 

Whenever the Conversion Price or the type ofsecurities, cash or other property into which the Series D Shares may beconverted is adjusted as provided in Section 5 hereof, the Corporationshall promptly mail to the holders of record of the outstanding Series DShares at their respective addresses as the same shall appear in the Corporation’sstock records, a notice stating that the Conversion Price has been adjusted andsetting forth the new number of shares of Common Stock (or describing the newstock, securities, cash or other property) into which each Series D Shareis convertible as a result of such adjustment, a brief statement of the factsrequiring such adjustment and the computation thereof and when such adjustmentbecame effective.

 

Section 7. Mandatory Redemption.

 

(a)                                 On December 31, 2010 (the “MandatoryRedemption Date”), the Corporation shall redeem all remaining outstanding Series DShares at $100 per Series D Share, together with all accrued and unpaiddividends thereon (the “Mandatory Redemption Price”), in cash, to theMandatory Redemption Date.  Except as setforth in this Section, the Series D Shares shall not be subject toredemption.

 

(b)                                Notice of redemption (“MandatoryRedemption Notice”) shall be given by the Corporation with respect to the Series DShares within ten (10) days prior to the Mandatory Redemption Date andshall be delivered by mail, first class postage prepaid, to each holder ofrecord (at the close of business on the business day preceding the day on whichnotice is given) of the Series D Shares, at the address last shown on therecords of the Corporation for such holder or given by the holder to theCorporation, for the purpose of notifying such holder of the redemption to beeffected.

 

(c)                                 On the Mandatory Redemption Date, theCorporation shall pay by cash or wire transfer of immediately available fundsto the person whose name appears on the certificate or certificates of the Series DShares that (i) shall not have been converted pursuant to Section 5hereof and (ii) shall have been surrendered to the Corporation in themanner and at the place designated in the Mandatory Redemption Notice, theMandatory Redemption Price, and thereupon each surrendered certificate shall becanceled.

 

(d)                                If the funds of the Corporation legallyavailable for redemption of the Series D Shares are insufficient to redeemthe total number of Series D Shares outstanding on the  Mandatory Redemption Date, the Series DShares shall be redeemed (on a pro rata basis from the holders of the Series DShares, from time to time), to the extent the Corporation is legally permittedto do so, the redemption obligations of the Corporation hereunder will be acontinuing obligation until the Corporation’s redemption of all of the Series DShares, and all rights of the holders of the Series D Shares and allobligations of the Corporation provided herein shall continue until the Series DShares are redeemed  in full.

 

(e)                                 From and after the Mandatory RedemptionDate, unless there shall have been a default in payment of the MandatoryRedemption Price, all rights of the holders of the Series D Shares (exceptthe right to receive the Mandatory Redemption Price subsequent to the MandatoryRedemption Date upon surrender of their certificate or certificates) shallcease with respect to such shares, and such shares shall not thereafter betransferred on the books of the Corporation or be deemed to be outstanding forany purpose whatsoever. If for any reason the Corporation shall not have paidthe Mandatory Redemption Price to the holders of Series D Shares on theMandatory Redemption Date, (i) the Series D Shares outstanding atsuch date shall accrue dividends at a rate of nine percent (9%) per annum ofthe Liquidation Preference from the Mandatory Redemption Date until theMandatory Redemption Price is paid in full and (ii) all rights of theholders of the Series D Shares and obligations of the Corporation providedherein shall continue until the Mandatory Redemption Price is paid in full.

 

Section 8.  ReacquiredShares.

 

Any Series D Sharesconverted, purchased or otherwise acquired by the Corporation in any mannerwhatsoever shall be retired and canceled promptly after the acquisitionthereof, and, if necessary to provide for the lawful purchase of such shares,the capital represented by such shares shall be reduced in accordance with theGeneral Corporation Law of Delaware. All such shares shall upon theircancellation become authorized but unissued 

 

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shares of Preferred Stock, $.0001 par value per share, of theCorporation and may be reissued as part of another series of Preferred Stock,$.0001 par value per share, of the Corporation.

 

Section 9.  ProtectiveProvisions. So long as any shares of Series D Shares are outstanding,the Corporation shall not, without first obtaining the approval of the holdersof a majority of the then outstanding Series D Shares:

 

(a)                                 alter or change the rights, preferencesor privileges of the Series D Shares;

 

(b)                                 create or issue any new class or seriesof capital stock that is pari passu with, or has a preference over, the Series DShares as to payment of dividends or the distribution of assets uponliquidation, dissolution or winding up of the Corporation (“SeniorSecurities”), or alter or change the rights, preferences or privileges ofany Senior Securities so as to affect adversely the Series D Shares;

 

(c)                                  increase the authorized number of sharesof Series D Shares;

 

(d)                                 do any act or thing not authorized orcontemplated by this Certificate of Designation which would result in taxationof the holders of shares of the Series D Shares under Section 305 ofthe Internal Revenue Code of 1986, as amended (or any comparable provision ofthe Internal Revenue Code as hereafter from time to time amended);

 

(e)                                  engage in a reverse stock split or othersimilar transaction with respect to the Common Stock;

 

(f)                                    authorize, create, designate, issue orsell any class or series of preferred stock of the Corporation (including, butnot limited to, Series D Shares or other shares of preferred stock ortreasury stock) or rights, options, warrants or other securities convertibleinto or exercisable or exchangeable for Common Stock (other than any suchrights, options, warrants or other securities convertible into or exercisableor exchangeable for Common Stock issued to employees of the Corporation in theordinary course of their employment or consultants pursuant to Section 5(b)(i)(C)(v))or any debt security which by its terms is convertible into or exchangeable forany Common Stock of the Corporation.

 

The approval requirementcontained in this Section 9 shall apply to any action taken by officers,directors or shareholders of the Corporation resulting in any of the effectsdescribed in clauses (a) - (f) above, regardless of the form suchaction takes.

 

FURTHER RESOLVED:                                           That such certificate of designation be,and it hereby is, approved and adopted by the Board; and that the officers ofthe Corporation, or any of them, hereby are authorized and directed to executeand file such certificate of designation with the Secretary of State of the Stateof Delaware; that the Board hereby is authorized to issue such shares of Series D7% Convertible Preferred Stock from time to time and for such consideration andon such terms as the Board may determine; and that a sufficient number ofshares of Common Stock hereby is reserved for issuance upon conversion of the Series D7% Convertible Preferred Stock.

 

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IN WITNESS WHEREOF,BlO-key International, Inc. has caused this certificate to be signed by aduly authorized officer thereof on this         day of December, 2009.

 
|   | BIO-KEY INTERNATIONAL, INC. |
|--------|-----------------------------|
|   |                        |
|   |                        |   |
|   | By:                         |   |
|   |                        | Name: |
|   |                        | Title: |

 

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