Document:

exv10w1

 

Exhibit 10.1

BlO-key International, Inc.

3349 Highway 138

Building D Suite B

Wall, NJ 07719

January 23, 2006

Aether
Systems, Inc.

621 E. Pratt Street, Suite 601

Baltimore, Maryland 21202

     Ladies and Gentlemen:

1.
References.

     Reference
is made to that certain letter agreement dated as of September 30, 2004 (the
“Agreement”) by and between BlO-key International,
Inc. (“BIO-key”) and Aether Systems, Inc.
(“Aether”) relating to BlO-key’s deposit with Aether of $1,000,000 in cash to serve as part of the
collateral supporting Aether’s letter of credit in favor of Hamilton County, Ohio (such $1,000,000,
the “Hamilton Cash Collateral”).

     Reference is made to that certain sublease dated as of September 30, 2004 by and between
BlO-key and Aether relating to the sublease of premises known as Marlborough Corporate Place III in
Marlborough, Massachusetts (the “Sublease”).

     Reference is made to that certain subordinated secured promissory note dated as of September
30, 2004 issued by BlO-key and Public Safety Group, Inc. in favor of
Aether (the “Note”).

     Reference is made to that certain letter agreement dated as of September 30, 2004 (the
“Side-Letter”) by and between BlO-key and Aether relating to the Glenborough Letter of Credit
Number 3038323 (the “Glenborough LC”)

     Capitalized terms used in this letter agreement without definition shall have the respective
meanings ascribed to them in the Agreement, the Sublease, the Note or the Side-Letter, as
applicable.

2. Return of Hamilton Cash Collateral.

     At the request of BlO-key, and in consideration of agreements, and subject to the satisfaction
of the conditions, set forth in this letter agreement, Aether shall allow for the return to BlO-key
of up to 100% of the Hamilton Cash Collateral as follows:

a. Aether will remit to BlO-key, from time to time, such portion of the Hamilton Cash
Collateral (up to 100% of the Hamilton Cash Collateral, in the aggregate) as is equal to the amount
received by Aether from BlO-key, following the Effective Date (as defined below) of this letter
agreement, of (i) Rent and

 

 

Additional Rent under the Sublease, and (ii) interest and Hamilton Fees under the Note. Aether
will remit the requisite portion of the Hamilton Cash Collateral to BlO-key within two business
days of the later of (i) BlO-key’s written request therefor and (ii) Aether’s receipt of a payment
from BlO-key that entitles BIO-key to receive a return of any portion of the Hamilton Cash
Collateral.

b. Aether will retain custody and control of the Hamilton Cash Collateral in
accordance with, and subject to, the Agreement, and in no event shall the
payments by Aether to BlO-key pursuant to subsection (a) above exceed
$1,000,000 or include the funds held by Aether as a deposit under the Sublease.

c. The provisions of this paragraph 2 shall terminate and shall have no
further force or effect if BlO-key defaults on, or fails to make timely payments
under, the Agreement, the Note, the Sublease, the APA (as defined below) or any
of the other Ancillary Agreements (as such term is defined in the APA).

3.
Representations and Warranties of BIO-key.

     BlO-key hereby represents and warrants to Aether that, as of the date hereof, it (i) has
delivered to Aether a true and complete copy of BlO-key’s cash-flows statement for the period ended
December 31, 2005 to June 30, 2006, (ii) has not received any notice, nor does it have any reason to
believe, that it is currently in default under the Hamilton Sales Agreement (as that term is used
in the Agreement), and (iii) has obtained all necessary approvals required to be obtained by
BlO-key in connection with the execution and delivery of this letter agreement and the transactions
contemplated hereby.

4. Conditions to Aether’s Obligations.

     BlO-key and Aether hereby acknowledge and agree that Aether has entered into this letter
agreement at the request of BlO-key and nothing hereunder relinquishes or reduces Aether’s right to
seek recovery for breaches or violations of this letter agreement, the Agreement, the Asset
Purchase Agreement, dated as of August 16, 2004, by and among Aether, Cerulean Technologies, Inc.,
SunPro, Inc. and BlO-key (the “APA”), the Sublease, the Note (including with respect to all
collateral securing the Note) or any of the other Ancillary Agreements.

     Aether’s obligations under this letter agreement are subject to (i) the representations and
warranties of BlO-key set forth in paragraph 4 above being true and correct, (ii) BlO-key’s receipt
of at least $1,000,000 in additional equity or unsecured debt
financing from The Shaar Fund, Ltd.
and/or other institutional financiers; provided, that such additional financing shall not require
any waiver or consent by Aether, in its capacity as a creditor of BIO-Key, or any amendment of any
of the Note or any of the related credit documents to which Aether is party, except, in each case,
as shall be acceptable to Aether in its sole discretion, (iii) BlO-key’s using reasonable
commercial efforts to obtain terms more favorable to BlO-key under its currently outstanding
institutional debt financings and using reasonable commercial efforts to obtain a forbearance
agreement with The Shaar Fund and Laurus Master Fund Ltd. relating to payments of principal during
2006 under Bio-Key’s existing financing arrangements, excluding payments made under the Note, (iv)
the execution by BlO-key and delivery to Aether of an amendment to

 

 

the Note giving effect to the matters specified in paragraph 5 below, (v) the receipt of all
necessary consents to permit the foregoing amendment to the Note, and (vi) payment by BIO-key to
Aether of an amount equal to the reasonable legal fees incurred by Aether in connection with the
execution and delivery of this Agreement. The “Effective Date” of this letter agreement shall be
the date on which the last of these conditions shall have been satisfied.

5. Amendment of the Note.

     As a material inducement to Aether to enter into this letter agreement, the parties have
agreed to amend the Note as follows:

a.
The principal amount due and payable to Aether under the Note shall be increased from $6,884,588 to $7,884,558.

b. No interest shall accrue on the Note following the Effective Date with
respect to amounts in excess of $6,884,588 , unless and only to the extent that
BlO-key receives payment from Aether pursuant to paragraph 2 of this letter
agreement.

c. If Aether, in its sole discretion, agrees to extend the Hamilton LC beyond
December 31, 2006 and to extend the payment date under the Note to correspond
to such extension, then BlO-key hereby agrees to pay Aether a letter of credit fee
equal to 2% of the amount of the Hamilton LC (the “LC
Extension Fee”), which
shall be payable on the effective date of such extension by Aether. If Aether
should decide to extend the Hamilton LC for more than six months (either in a
single extension or as a result of multiple extensions), an additional LC Extension
Fee will be due and payable on each six-month anniversary of such extension
period following December 31, 2006, and each LC Extension Fee shall be deemed
earned when due and shall not be subject to any pro-ration or reduction if the
Hamilton LC or the Note is terminated, expires, is drawn upon or is reduced in
amount any time prior to six months following the date of payment of an LC
Extension Fee. For the avoidance of doubt, the LC Extension Fee shall be in
addition to, and not in lieu of, the Hamilton Fees. Notwithstanding anything to
the contrary in this paragraph 4(c), if (i) BlO-key is able to reduce the amount
outstanding under the Hamilton LC by at least fifty -percent (50%) as of
September 30, 2006 and (ii) BlO-key has timely made all payments required
under the Note and the Sublease in accordance with the terms of such agreements,
the initial LC Extension Fee shall be equal to 1% of the amount of the Hamilton
LC (the “Reduced LC Extension Fee”). If BlO-key qualifies for the Reduced LC
Extension Fee and if Aether should decide to extend the Hamilton LC for more
than six months (either in a single extension or as a result of multiple extensions),
BlO-key will be required to pay the full LC Extension Fee on each six-month
anniversary of such extension period following December 31, 2006.

d. If Aether, in its sole discretion, agrees to extend the Hamilton LC beyond
December 31, 2006, the termination date of the Note shall be automatically

 

 

extended to such date that is thirty (30) days following the extended expiration date of the
Hamilton LC. In the case of multiple extensions of the Hamilton LC by Aether, the termination date
of the Note shall automatically be extended to such date that is thirty (30) days following such
extended expiration date of the Hamilton LC.

e. In no event shall the Note terminate less than thirty (30) days after the expiration
of the Hamilton LC.

6.
Amendment of the Side-Letter.

     As a material inducement to Aether to enter into this letter agreement, the parties have
agreed to amend the Side-Letter as follows:

a. If BlO-key defaults on, or fails to make timely payments under, the
Agreement, the Note, the Sublease, the APA or any of the other Ancillary
Agreements, Aether shall have the right to draw on the Cash Collateral (as
defined in the Side-Letter) to satisfy any outstanding amounts due from BlO-key
to Aether. Aether’s ability to draw on the Cash Collateral in the event of a default
or failure to pay by BlO-key shall be in addition to and not in lieu of Aether’s
right to draw on Cash Collateral if the landlord draws on the Glenborough LC.

b. The undrawn balance of the Cash Collateral, if any, shall be transferred to
BlO-key upon the termination of the Glenborough LC.

7.
Other Agreements and Obligations Not Affected.

     All other current agreements and obligations between the parties remain in full force and
effect and are not affected by this letter agreement.

	 	 	 	 	 
	 	Sincerely,

BIO-KEY INTERNATIONAL, INC.

 	 
	 	By:  	/s/ Thomas J. Colatosti
 	 
	 	 	Thomas J. Colatosti, Chairman 	 
	 	 	 	 
	 

Agreed and
accepted by a duly authorized officer 
of the undersigned:

	 	 	 	 	 
	AETHER SYSTEMS, INC.  
	 
	 	 	 	 
	By:

	 	[ILLEGIBLE]                                        	 	 
	 

	 	Name:	 	 
	 

	 	Title:exv10w2

 

Exhibit 10.2

AMENDMENT NO. 1 TO 

SUBORDINATED SECURED PROMISSORY NOTE 

     This
Amendment No. 1 to Subordinated Secured Promissory Note (the
“Amendment”) is entered into
by and among BlO-key International, Inc., a Delaware corporation
(“BIO-key”), Public Safety Group,
Inc., a Delaware corporation (“PSG” and, together
with BlO-key, the “Makers”), and Aether Systems,
Inc., a Delaware corporation (“Aether”), and is effective as of the 23rd day of January, 2006.

     WHEREAS, the Makers issued a Subordinated Secured Convertible Note to Aether on September
30, 2004 in the aggregate original principal amount of $6,884,588 (the
“Note”; all capitalized terms
used herein without definition shall have the meanings set forth in the Note)

     WHEREAS, the Makers have received consent to amend the Note from Laurus Master Fund, Ltd.
(“Laurus”) as required by Section 5.3 of that certain Intercreditor Agreement by and among Laurus,
Aether, BlO-key and PSG dated as of September 30, 2004; and

     WHEREAS, the parties now wish to amend the Note as set forth in this Amendment.

     NOW, THEREFORE, in consideration of the mutual promises set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:

     1. Maximum
Principal Amount. The Note is hereby amended by deleting all
references therein to “$6,884,588”, and replacing them with “$7,884,588”.

     2. Interest
Payments. No interest shall accrue on the Note following the date of
this Amendment with respect to amounts in excess of $6,884,588, unless and only to the
extent that BlO-key receives payment from Aether pursuant to paragraph 2 of the letter
agreement dated as of January 23, 2006 by and between BlO-key
and Aether (the “Letter
Agreement”).

     3. Extension of Hamilton LC.

         (a) If Aether, in its sole discretion, agrees to extend the Hamilton LC beyond
December 31, 2006 and to extend the payment date under the Note to correspond to such extension,
then BlO-key hereby agrees to pay Aether a letter of credit fee equal to 2% of the amount of the
Hamilton LC (the “LC Extension Fee”), which shall be payable on the effective date of such
extension by Aether. If Aether should decide to extend the Hamilton LC for more than six months
(either in a single extension or as a result of multiple extensions), an additional LC Extension
Fee will be due and payable on each six-month anniversary of such extension period following
December 31, 2006, and each LC Extension Fee shall be deemed earned when due and shall not be
subject to any pro-ration or reduction if the Hamilton LC or the Note is terminated, expires, is
drawn upon or is reduced in amount any time prior to six months following the date of payment of an
LC Extension Fee. For the avoidance of doubt, the LC Extension Fee shall be in addition to, and not
in lieu of, the

 

 

Hamilton Fees. Notwithstanding anything to the contrary in this paragraph 3(a), if (i) BIO-key
is able to reduce the amount outstanding under the Hamilton LC by at least fifty-percent (50%) as
of September 30, 2006 and (ii) BlO-key has timely made all payments required under the Note and the
Sublease in accordance with the terms of such agreements, the initial LC Extension Fee shall be
equal to 1% of the amount of the Hamilton LC (the “Reduced LC Extension Fee
 ”). If BlO-key
qualifies for the Reduced LC Extension Fee and if Aether should decide to extend the Hamilton LC
for more than six months (either in a single extension or as a result of multiple extensions),
BlO-key will be required to pay the full LC Extension Fee on each six-month anniversary of such
extension period following December 31, 2006.

     (b) If Aether, in its sole discretion, agrees to extend the Hamilton LC beyond
December 31, 2006, the termination date of the Note shall be automatically extended to such
date that is thirty (30) days following the extended expiration date of the Hamilton LC. In
the
case of multiple extensions of the Hamilton LC by Aether, the termination date of the Note
shall automatically be extended to such date that is thirty (30) days following such extended
expiration date of the Hamilton LC.

     (c) In no event shall the Note terminate less than thirty (30) days after the
expiration of the Hamilton LC.

     4. No
Other Amendments. Except as expressly set forth in this Amendment, no
other term or provision of the Note is hereby amended or affected in any way, and the Note
shall remain in full force and effect after the date hereof.

     5. Governing
Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles of conflicts
of laws.

     6. Facsimile
Signatures; Counterparts. This Amendment may be executed by
facsimile signatures and in any number of counterparts, each of which shall be an original,
but
all of which together shall constitute one instrument.

*****

2

 

     IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a sealed instrument as
of the date set forth in the first paragraph hereof.

	 	 	 	 	 	 	 
	 	 	BIO-KEY INTERNATIONAL, INC.
	 
	 	 	 	 	 	 
	 

	 	By:       /s/ Thomas J. Colatosti	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Thomas J. Colatosti
	 	 	Title: Chairman
	 
	 	 	 	 	 	 
	 	 	PUBLIC SAFETY GROUP,
INC.
	 
	 	 	 	 	 	 
	 

	 	By:       /s/ Thomas J. Colatosti	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Thomas J. Colatosti
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	AETHER SYSTEMS, INC.
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

3

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