Document:

Exhibit 10.98

Sublease

THIS SUBLEASE (this
“Sublease”) is made and entered into as of the [20] day of September, 2004, by
and between Aether Systems, Inc., a Delaware corporation (hereinafter called “Sublandlord”),
and BIO-Key International, Inc., a Minnesota corporation (hereinafter called “Subtenant”);

W  I  T
N  E  S  S  E  T  H:

WHEREAS, by that
certain Lease dated May 31, 2001, as amended by that certain Addendum to Lease
dated May 31, 2001, a copy of which is attached hereto as Exhibit A and by this
reference made a part hereof (hereinafter called the “Prime Lease”),
Glenborough Fund IX, LLC, a Delaware limited liability company (hereinafter,
together with its successors and assigns, called “Landlord”), leased to
Sublandlord approximately 38,390 square feet on the 1st floor (Suite 8768) (hereinafter called the “Premises”)
in the building commonly known as Marlborough Corporate Place III, in
Marlborough, Massachusetts (hereinafter called the “Building”), for a term
commencing on June 1, 2001, and ending on August 31, 2008; and

WHEREAS, subject to
the consent of Landlord, Subtenant desires to sublease from Sublandlord, and
Sublandlord desires to sublease to Subtenant, the Premises, subject to the
Prime Lease, all upon the terms and subject to the conditions and provisions
hereinafter set forth;

NOW, THEREFORE, in
consideration of the foregoing and of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, Sublandlord and
Subtenant hereby agree as follows:

1.                                       Demise; Use.  Sublandlord hereby subleases to Subtenant and
Subtenant hereby subleases from Sublandlord the Premises for the term and
rental and upon the other terms and conditions hereinafter set forth, to be
used and occupied by Subtenant solely for the purposes allowed in the Prime
Lease.  Capitalized terms not otherwise
defined in this Sublease shall have the meaning ascribed to such term in the
Prime Lease.

2.                                       Term. 
The term of this Sublease shall commence (the “Commencement Date”) on
the later of (i) September [20], 2004 and (ii) the date Landlord consents to
this Sublease, and, unless sooner terminated pursuant to the provisions hereof,
shall terminate on the earlier of August 30, 2008, and the prior termination of
the term of the Prime Lease.  As used
herein, the phrase “Lease Year” shall mean the twelve calendar month period
commencing on the Commencement Date (or, if the Commencement Date is not the
first day of a calendar month, then commencing on the first day of the calendar
month during which the Commencement Date occurs) and each anniversary thereof,
except that the last Lease Year may not be twelve calendar months and shall
terminate on the last day of the term of this Sublease.  If for any reason Sublandlord is delayed in
delivering possession of the Premises to Subtenant on the Commencement Date,
Sublandlord shall not incur any liability to Subtenant on account thereof,

but
the Commencement Date shall be deferred until delivery of possession of the
Premises is tendered to Subtenant.

3.                                       Base Rent.

(a)                                  Subtenant
shall pay to Sublandlord annual base rental (hereinafter called “Base Rent”)
for the Premises as follows:

	
  Time Period

  	
   

  	
  Annual Base

  Rent Rate

  	
   

  	
  Monthly

  Installments

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  September 30,
  2004 through August 31, 2005

  	
   

  	
  $

  	
  1,113,310.00

  	
   

  	
  $

  	
  92,775.83

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  September 1,
  2005 through August 31, 2006

  	
   

  	
  $

  	
  1,151,700.00

  	
   

  	
  $

  	
  95,975.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  September 1,
  2006 through August 31, 2007

  	
   

  	
  $

  	
  1,190,090.00

  	
   

  	
  $

  	
  99,174.17

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  September 1, 2007
  through August 30, 2008

  	
   

  	
  $

  	
  1,228,480.00

  	
   

  	
  $

  	
  102,373.33

  	
   

  

 

Annual Base Rent shall be
due and payable in twelve equal installments. 
Each such installment shall be due and payable in advance on the fifth
day prior to the first day of each calendar month of the term hereof.  If the term of this Sublease commences on a
day other than the first day of a month or ends on a day other than the last
day of a month, Base Rent for such month shall be prorated; prorated Base Rent
for any such partial first month of the term hereof shall be paid on the date
on which the term commences.

(b)                                 All
Base Rent and additional rent shall be paid without notice or demand, without
setoff, deduction or abatement (except as expressly provided herein)
whatsoever, and shall be paid to Sublandlord at its office at 11460 Cronridge
Drive, Owings Mills, Maryland 21117, or at such other place as Sublandlord may
designate by notice to Subtenant.  Base
Rent for any partial calendar month shall be prorate based on a thirty (30) day
month.  Upon execution of this Sublease
by Subtenant, Subtenant shall deliver to Sublandlord a check in the amount of
the first full monthly installment of Base Rent.  If the Commencement Date is other than the
first day of a calendar month, Sublandlord shall apply any excess payment of
the first monthly installment of Base Rent to the next monthly installment of
Base Rent payable under this Sublease.

4.                                       Additional Rent; Payments; Interest.

(a)                                  Subtenant
shall also pay all Additional Rent (as defined in the Prime Lease), and all
other amounts payable by Sublandlord under the Prime Lease which are
attributable to the Premises or attributable to Subtenant, its agents,
employees, customers or invitees.  By way
of example and not by way of limitation, charges by Landlord for furnishing air
conditioning or heating to the Premises at times in addition to those certain
times specified in

 2
 

the Prime
Lease, costs incurred by Landlord in repairing damage to the Building caused by
an employee of Subtenant, increased insurance premiums due as a result of
Subtenant’s use of the Premises, and amounts expended or incurred by Landlord
on account of any default by Subtenant which gives rise to a default under the
Prime Lease would be amounts payable by Subtenant pursuant to this
Subsection 4(a).

(b)                                 Each
amount due to pursuant to Subsection 4(a) above and each other amount payable
by Subtenant hereunder, unless a date for payment of such amount is provided
for elsewhere in this Sublease, shall be due and payable on the tenth day
following the date on which Landlord or Sublandlord has given written notice to
Subtenant of the amount thereof, but in no event later than the date on which
any such amount is due and payable under the Prime Lease.

(c)                                  All
amounts other than Base Rent payable to Sublandlord under this Sublease shall
be deemed to be additional rent due under this Sublease.  All past due installments of Base Rent and
additional rent shall bear interest from the date due until paid at the rate of
5% per annum.

(d)                                 Subtenant
shall pay Landlord on the due dates for services requested by Subtenant which
are billed by Landlord directly to Subtenant rather than Sublandlord.

5.                                       Condition of Premises and Construction of
Improvements.

(a)                                  The
Premises shall be delivered to Subtenant in their “as is”, “where is”
condition.  Subtenant’s taking possession
of the Premises shall be conclusive evidence as against Subtenant that the
Premises were in good order and satisfactory condition when Subtenant took
possession.  No promise of Sublandlord to
alter, remodel or improve the Premises, and no representation respecting the
condition of the Premises or the Building have been made by Sublandlord to
Subtenant.  Upon the expiration of the
term hereof, or upon any earlier termination of the term hereof or of Subtenant’s
right to possession, Subtenant shall surrender the Premises is such condition
as required under the Prime Lease.

6.                                       The Prime Lease.

(a)                                  This
Sublease and all rights of Subtenant hereunder and with respect to the Premises
are subject to the terms, conditions and provisions of the Prime Lease.  Subtenant hereby assumes and agrees to
perform faithfully and be bound by, with respect to the Premises, all of
Sublandlord’s obligations, covenants, agreements and liabilities under the Prime
Lease and all terms, conditions, provisions and restrictions contained in the
Prime Lease.

(b)                                 Without
limitation of the foregoing:

(i)                                     In
the event that Subtenant desires to make any alterations or improvements to the
Premises, Subtenant shall comply with the provisions and requirements of the
Prime Lease with respect to such alterations or improvements, including,
without limitation, obtaining any consent of the Landlord which may be required
under the Prime Lease.  In the event that
the Landlord’s consent is required in connection with any proposed alteration
or improvement, Subtenant shall also obtain Sublandlord’s prior approval of
such alteration or improvement, which approval shall

 3
 

not be unreasonably withheld,
conditioned or delayed by Sublandlord;

(ii)                                  If Subtenant desires
to take any other action and the Prime Lease would require that Sublandlord
obtain the consent of Landlord before undertaking any action of the same kind,
Subtenant shall not undertake the same without the prior written consent of
Sublandlord, which consent shall not be unreasonably withheld, conditioned or
delayed.  Sublandlord may condition its
consent on the consent of Landlord being obtained and may require Subtenant to
contact Landlord directly for such consent and pay all reasonable costs and
expenses associated with requesting such consent;

(iii)                               All rights given to
Landlord and its agents and representatives by the Prime Lease to enter the
premises covered by the Prime Lease shall inure to the benefit of Sublandlord
and their respective agents and representatives with respect to the Premises;

(iv)                              To the extent not
inconsistent with the terms of this Sublease, Sublandlord shall also have all
other rights, and all privileges, options, reservations and remedies, granted
or allowed to, or held by, Landlord under the Prime Lease;

(v)                                 Subtenant shall
maintain insurance of the kinds and in the amounts required to be maintained by
Sublandlord under the Prime Lease.  All
policies of liability insurance shall name as additional insureds the Landlord
and Sublandlord and their respective officers, directors or partners, as the
case may be, and the respective agents and employees of each of them;

(vi)                              Subtenant shall not do
anything or suffer or permit anything to be done which could result in a
default under the Prime Lease or permit the Prime Lease to be cancelled or
terminated; and

(vii)                           Subtenant shall have the
right to install signage in accordance with Section 40 of the Prime Lease.

(c)                                  Notwithstanding
anything contained herein or in the Prime Lease which may appear to be to the
contrary, Sublandlord and Subtenant hereby agree as follows:

(i)                                     Subtenant
shall not assign, mortgage, pledge, hypothecate or otherwise transfer or permit
the transfer of this Sublease or any interest of Subtenant in this Sublease, by
operation of law or otherwise, or permit the use of the Premises or any part
thereof by any persons other than Subtenant and Subtenant’s employees, or
sublet the Premises or any part thereof without
(i) the prior written consent of Sublandlord which consent shall not be
unreasonably withheld, conditioned or delayed and (ii) if required by the terms
of the Prime Lease, the prior written consent of the Landlord;

 4
 

(ii)                                  neither rental nor
other payments hereunder shall abate by reason of any damage to or destruction
of the Premises, the premises subject to the Prime Lease, or the Building or
any part thereof, unless, and then only to the extent that, rental and such
other payments actually abate under the Prime Lease with respect to the
Premises on account of such event;

(iii)                               Subtenant shall not have
any right to any portion of the proceeds of any award for a condemnation or
other taking, or a conveyance in lieu thereof, of all or any portion of the
Building or the Premises except to the extent that Sublandlord has a right to
such proceeds pursuant to the terms of the Prime Lease;

(iv)                              Subtenant shall not have
any right to exercise or have Sublandlord exercise any option under the Prime
Lease, including, without limitation, any option to extend the term of the
Prime Lease or right of first offer to lease additional space; and

(v)                                 In the event of any
conflict between the terms, conditions and provisions of the Prime Lease and of
this Sublease, the terms, conditions and provisions of this Sublease shall, in
all instances, govern and control.

(d)                                 It
is expressly understood and agreed that Sublandlord does not assume and shall
not have any of the obligations or liabilities of Landlord under the Prime
Lease and that Sublandlord is not making the representations or warranties, if
any, made by Landlord in the Prime Lease. 
With respect to work, services, repairs and restoration or the
performance of other obligations required of Landlord under the Prime Lease,
Sublandlord’s only obligations with respect thereto shall be to promptly
request the same, upon written request from Subtenant, and to use commercially
reasonable efforts to obtain the same from Landlord, any costs related to such
efforts to be paid by Subtenant.  If
Sublandlord fails to use such efforts, Subtenant shall be entitled to seek to
obtain same from Landlord.  Sublandlord
shall not be liable in damages, nor shall rent abate hereunder, for or on
account of any failure by Landlord to perform the obligations and duties
imposed on it under the Prime Lease; provided however, Subtenant shall be
entitled any abatement rights that Sublandlord actually receives as tenant
under the Prime Lease.

(e)                                  Nothing
contained in this Sublease shall be construed to create privity of estate or
contract between Subtenant and Landlord, except the agreements of Subtenant in
Sections 10 and 11 hereof in favor of Landlord, and then only to the
extent of the same.

(f)                                    Sublandlord
warrants and represents to Subtenant the following, each of which warranties and
representations shall be deemed remade and repeated as of the Commencement
Date:  (i) the copy of the Prime Lease
attached hereto as Exhibit A is a true and complete copy of the Prime Lease
including all amendments thereto, (ii) the Prime Lease is in full force and
effect, (iii) Sublandlord has not received a notice of default or notice of
termination with respect to the Lease which has not been cured, (iv)
Sublandlord is neither in default of nor has Sublandlord breached any of its
material covenants, agreements or obligations under the Prime Lease, (v) to
Sublandlord’s knowledge, Landlord is neither in default of nor has

 5
 

Landlord
breached any of its material covenants, agreements or obligations under the
Prime Lease, (vi) Sublandlord’s interest in the Prime Lease has not been
conveyed, transferred, assigned, pledged or otherwise encumbered, and (vii) all
amounts due and payable by Sublandlord under the Lease, including any Base Rent
and Additional Rent, have been paid through August 31, 2004.

(g)                                 Subject
to Subtenant’s obligations hereunder, Sublandlord shall, in its capacity as
tenant under the Prime Lease, perform and fulfill all of its covenants,
obligations and agreements under the Prime Lease in accordance with the
provisions thereof in all material respects, and shall not do anything which
would cause the Prime Lease to be terminated or forfeited.  Sublandlord shall indemnify and hold
Subtenant harmless from and against any and all claims, liabilities, losses, damage,
demands, expenses (including, without limitation, reasonable attorney’s fees),
actions and causes of action of any kind whatsoever that Subtenant may suffer,
incur or be liable by reason of any breach or default on the part of
Sublandlord or its employees or agents, in its capacity as tenant under the
Prime Lease which is not caused by Subtenant or its default hereunder, by
reason of which the Lease may be terminated or forfeited.  Sublandlord covenants that it will not enter
into any agreement that will modify or amend the Prime Lease so as to adversely
affect Subtenant’s right to use and occupy the Subleased Premises or any other
rights of Subtenant under this Sublease, or increase or materially affect the
obligations of Subtenant under this Sublease. 
Further, Sublandlord will promptly provide Subtenant with copies of all
written notices of default that Sublandlord delivers to, or receives from, the
Landlord under the Prime Lease.

(h)                                 Subtenant
shall not be responsible for constructing or completing any of the tenant
improvements set forth in Exhibit D to the Prime Lease.

7.                                       Default by Subtenant.

(a)                                  Upon
the happening of any of the following:

(i)                                     Subtenant
fails to pay any Base Rent, Additional Rent, or any other charge when due, and
such failure continues for five (5) days after written notice thereof from
Sublandlord to Subtenant (after two (2) such notices in any calendar year,
failure to pay Base Rent shall be a default with no notice required);

(ii)                                  Subtenant abandons
the Premises and fails to pay Base Rent;

(iii)                               Subtenant fails to promptly
and fully perform or observe any other covenant or agreement set forth in this
Sublease and such failure continues for twenty (20) days after written notice
thereof from Sublandlord to Subtenant; provided, however, if such failure is
not susceptible of being cure within twenty (20) days, there shall be no
default so long as Subtenant commences the cure of such failure within said
20-day period and thereafter diligently prosecutes the same to completion; or

 6
 

(iv)                              any other event occurs
which involves Subtenant or the Premises and which would constitute a default
under the Prime Lease if it involved Sublandlord or the premises covered by the
Prime Lease;

Subtenant shall be deemed
to be in default hereunder, and Sublandlord may exercise, without limitation of
any other rights and remedies available to it hereunder or at law or in equity,
any and all rights and remedies of Landlord set forth in the Prime Lease in the
event of a default by Sublandlord thereunder.

(b)                                 In
the event Subtenant fails or refuses to make any payment or perform any
covenant or agreement to be performed hereunder by Subtenant, Sublandlord may
make such payment or undertake to perform such covenant or agreement (but shall
not have any obligation to Subtenant to do so). 
In such event, amounts so paid and amounts expended in undertaking such
performance, together with all costs, expenses and reasonable attorneys’ fees
incurred by Sublandlord in connection therewith, shall be additional rent
hereunder.

8.                                       Nonwaiver.  Failure of Sublandlord to declare any default
or delay in taking any action in connection therewith shall not waive such
default.  No receipt of moneys by
Sublandlord from Subtenant after the termination in any way of the term or of Subtenant’s
right of possession hereunder or after the giving of any notice shall
reinstate, continue or extend the term or affect any notice given to Subtenant
or any suit commenced or judgment entered prior to receipt of such moneys.

9.                                       Cumulative Rights and Remedies.  All rights and remedies of Sublandlord under
this Sublease shall be cumulative and none shall exclude any other rights or
remedies allowed by law.

10.                                 Waiver of Claims and Indemnity.

(a)                                  Subtenant
hereby releases and waives any and all claims against Landlord and Sublandlord
and each of their respective officers, directors, partners, agents and
employees for injury or damage to person, property or business sustained in or
about the Building, the premises subject to the Prime Lease, or the Premises by
Subtenant other than by reason of negligence or wilful misconduct and except in
any case which would render this release and waiver void under law.

(b)                                 Except
to the extent caused by the gross negligence or wilful misconduct of
Sublandlord or any of its officers, directors, partners, employees or agents,
Subtenant agrees to indemnify, defend and hold harmless Landlord and its
beneficiaries, Sublandlord and the managing agent of the Building and each of
their respective officers, directors, partners, agents and employees, from and
against any and all claims, demands, costs and expenses of every kind and
nature, including reasonable attorneys’ fees and litigation expenses, arising
from Subtenant’s occupancy of the Premises, Subtenant’s construction of any
leasehold improvements in the Premises or from any breach or default on the
part of Subtenant in the performance of any agreement or covenant of Subtenant
to be performed or performed under this Sublease or pursuant to the terms of
this Sublease, or from any act or neglect of Subtenant or its agents, officers,
employees, guests, servants, invitees or customers in or about the
Premises.  In case any such proceeding is
brought against any of said indemnified parties, Subtenant covenants, if

 7
 

requested by
Sublandlord, to defend such proceeding at its sole cost and expense by legal
counsel reasonably satisfactory to Sublandlord.

11.                                 Waiver of Subrogation.  Anything in this Sublease to the contrary
notwithstanding, Sublandlord and Subtenant each hereby waive any and all rights
of recovery, claims, actions or causes of action against the other and the
officers, directors, partners, agents and employees of each of them, and
Subtenant hereby waives any and all rights of recovery, claims, actions or
causes of action against Landlord and its agents and employees for any loss or
damage that may occur to the Premises or the premises covered by the Prime
Lease, or any improvements thereto, or any personal property of any person
therein or in the Building, by reason of fire, the elements or any other cause
insured against under valid and collectible fire and extended coverage
insurance policies, regardless of cause or origin, including negligence, except
in any case which would render this waiver void under law, to the extent that
such loss or damage is actually recovered under said insurance policies.

12.                                 Brokerage Commissions.  Each party hereby represents and warrants to
the other that it has had no dealings with any real estate broker or agent in
connection with this Sublease, and that it knows of no other real estate broker
or agent who is or might be entitled to a commission in connection with this
Sublease.  Each party agrees to protect,
defend, indemnify and hold the other harmless from and against any and all claims
inconsistent with the foregoing representations and warranties for any
brokerage, finder’s or similar fee or commission in connection with this
Sublease, if such claims are based on or relate to any act of the indemnifying
party which is contrary to the foregoing representations and warranties.

13.                                 Successors and Assigns.  This Sublease shall be binding upon and inure
to the benefit of the successors and assigns of Sublandlord and shall be
binding upon and inure to the benefit of the successors of Subtenant and, to
the extent any such assignment may be approved, Subtenant’s assigns.  The provisions of Subsection 6(e) and
Sections 10 and 11 hereof shall inure to the benefit of the successors and
assigns of Landlord.

14.                                 Entire Agreement.  This Sublease contains all the terms,
covenants, conditions and agreements between Sublandlord and Subtenant relating
in any manner to the rental, use and occupancy of the Premises.  No prior agreement or understanding
pertaining to the same shall be valid or of any force or effect.  The terms, covenants and conditions of this
Sublease cannot be altered, changed, modified or added to except by a written
instrument signed by Sublandlord and Subtenant.

15.                                 Notices.

(a)                                  In
the event any notice from the Landlord or otherwise relating to the Prime Lease
is delivered to the Premises or is otherwise received by Subtenant, Subtenant
shall, as soon thereafter as possible, but in any event within twenty-four
(24) hours, deliver such notice to Sublandlord if such notice is written or
advise Sublandlord thereof by telephone if such notice is oral.

(b)                                 Notices
and demands required or permitted to be given by either party to the other with
respect hereto or to the Premises shall be in writing and shall not be
effective for any purpose unless the same shall be served either by personal
delivery with a receipt requested,

 8
 

by overnight
air courier service or by United States certified or registered mail, return
receipt requested, postage prepaid; provided, however, that all notices of
default shall be served either by personal delivery with a receipt requested or
by overnight air courier service, addressed as follows:

if to Sublandlord:                                                                                                    Aether
Systems, Inc.

11460 Cronridge Drive

Owings Mills, Maryland  21117

Attention: David C. Reymann

if to Subtenant:                                                                                                              BIO-key
International, Inc.

1285 Corporate Center Drive

Suite 175

Eagen, MN  55121

Attention: Chief Executive Officer

Notices and demands shall
be deemed to have been given two (2) days after mailing, if mailed, or, if made
by personal delivery or by overnight air courier service, then upon such
delivery.  Either party may change its
address for receipt of notices by giving notice to the other party.

16.                                 Authority of Subtenant, etc.  Subtenant represents and warrants to
Sublandlord that this Sublease has been duly authorized, executed and delivered
by and on behalf of Subtenant and constitutes the valid, enforceable and
binding agreement of Subtenant and of each party constituting Subtenant, each
of whom shall be jointly and severally liable hereunder in accordance with the
terms hereof.

17.                                 Consent of Landlord.  The obligations of Sublandlord and Subtenant
under this Sublease are conditioned and contingent upon the Landlord consenting
hereto by executing and delivering a counterpart of this Sublease.  In the event Landlord’s consent is not
obtained within thirty (30) after the date hereof, this Sublease shall
automatically terminate and become null and void, and neither Sublandlord nor
Subtenant shall have any further obligations or liability hereunder or to each
other with respect to the Premises.

18.                                 Security Deposit.  [RESERVED]

19.                                 Examination.  Submission of this instrument for examination
or signature by Subtenant does not constitute a reservation of or option for
the Premises or in any manner bind Sublandlord, and no lease, sublease or
obligation on Sublandlord shall arise until this instrument is signed and
delivered by Sublandlord and Subtenant and the consent of Landlord is obtained
as described in Section 17 above; provided, however, that the execution
and delivery by Subtenant of this Sublease to Sublandlord shall constitute an
irrevocable offer by Subtenant to sublease the Premises on the terms and
conditions herein contained, which offer may not be revoked for thirty (30)
days after such delivery.

 9
 

IN WITNESS WHEREOF,
Sublandlord and Subtenant have executed this Sublease as of the date aforesaid.

	
  

  	
  SUBLANDLORD:

  
	
   

  	
   

  
	
   

  	
  AETHER SYSTEMS,
  INC.,

  
	
   

  	
  a Delaware
  corporation

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Its:

  	
   

  	
   

  	
  Its:

  	
   

  
	
   

  	
   

  
	
   

  	
  SUBTENANT:

  
	
   

  	
  BIO-KEY INTERNATIONAL,
  INC.

  
	
   

  	
  a

  	
   

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Its:

  	
   

  	
   

  	
  Its:

  	
   

  
								

 

The undersigned Landlord
hereby consents to the foregoing Sublease, and agrees that, to the extent not
inconsistent with the terms of the Sublease, Subtenant shall have all other
rights, and all privileges, reservations and remedies, granted or allowed to,
or held by, Sublandlord as tenant under the Prime Lease.

	
  

  	
  LANDLORD:

  
	
   

  	
   

  
	
   

  	
  GLENBOROUGH FUND IX, LLC

  
	
   

  	
  a Delaware limited liability company

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Its:

  	
   

  	
   

  	
  Its:

  	
   

  
							

 

 10

EXHIBIT
A

PRIME
LEASE

(Attached)Exhibit
10.99

December 29, 2006

BIO-key International, Inc.

300 Nickerson Road

Marlborough, MA 01752

Attention: 
Chief Financial Officer

Ladies and Gentlemen:

Reference is made
to (i) the Secured Convertible Note issued by BIO-key International, Inc., a Delaware
corporation (the “Borrower”), to Laurus Master Fund, Ltd. (“Laurus”)
on September 29, 2004 in the aggregate original principal amount of $5,000,000
(as amended, modified and/or supplemented from time to time, the “2004 Note”)
pursuant to the Securities Purchase Agreement dated as of September 29, 2004 by
and between the Borrower and Laurus (as amended, modified and/or supplemented
from time to time, the “2004 Purchase Agreement”); and (ii) the Secured
Convertible Note issued by the Borrower to Laurus on June 8, 2005 in the
aggregate original principal amount of $2,000,000 (as amended, modified and/or
supplemented from time to time, the “2005 Note,” and together with the
2004 Note, the “Notes”) pursuant to the Securities Purchase Agreement
dated as of June 8, 2005 by and between the Borrower and Laurus (as amended,
modified and/or supplemented from time to time, the “2005 Purchase Agreement,”
and together with the 2004 Purchase Agreement, the “Purchase Agreements”).  All capitalized terms not otherwise defined
herein shall have the respective meanings given to them in the Notes.

Laurus and the
Borrower desire to amend the Notes to provide that, as to the Principal Amount
and all interest and fees thereon due and payable under each of the 2004 Note
and the 2005 Note for the month of January 2007 (collectively, the “January
Notes Payment”), a portion of such January Notes Payment, consisting solely
of $150,000 in Principal Amount thereof, shall be paid in 568,182 registered
and effective shares of Common Stock. 
The balance of such January Notes Payment, consisting of all remaining
Principal Amount thereof and all interest and fees thereon, shall be paid in
cash in the aggregate amount of $152,310.94. 
The parties hereto also desire to amend each of the Notes and the
Purchase Agreements to irrevocably terminate all rights and obligations of any
party hereto to convert all or any portion of the outstanding Principal Amount
of the Notes, together with any interest and fees due thereon, into shares of
the Borrower’s common stock, $.0001 par value per share (“Common Stock”),
subject to the terms and conditions contained herein.  In addition, the Borrower has agreed to issue
1,000,000 shares of Common Stock (the “Shares”) to Laurus, with certain
registration rights to be granted to Laurus with respect to the Shares, subject
to the terms and conditions contained herein.

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.                                       January
Notes Payment. With respect to the Notes, the parties to this letter
agreement hereby agree that (i) $150,000 of the January Notes Payment,
consisting solely of Principal Amount thereof, shall be paid in 568,182
registered and effective shares of Common Stock (the “Share Payment”)
and (ii) the balance of the January Notes Payment, consisting of all remaining
Principal Amount thereof and all interest and fees thereon, shall be paid in
cash in the aggregate amount of $152,310.94. 
Notwithstanding the foregoing, the limitations set forth in Section 3.2
of each Note shall continue to apply.

2.                                       Termination
of Conversion Rights and Obligations. 
Subject to the terms and conditions hereof, the parties to this letter
agreement hereby agree that as of the date hereof, except as may be necessary
to allow solely for the conversion of the Share Payment, each Note and each
Purchase Agreement is hereby amended as applicable to irrevocably terminate all
rights and obligations of any party hereto to convert all or any portion of the
outstanding principal amount of the Notes, together with any interest and fees
due thereon, into shares of Common Stock.

3.                                       Issuance
of Shares.

(a)                                  The
Borrower will issue the Shares to Laurus, upon at least 61 days’ prior written
notice delivered by Laurus to the Borrower, in exchange for the full
satisfaction of all of the Borrower’s default interest obligations to Laurus
existing as of the date hereof, which obligations are hereby acknowledged to be
equal to $622,764.21, that have been incurred by the Borrower as a result of
any Event of Default caused by the failure of the Borrower’s registration
statement (Registration No. 333-126492) to be declared effective by the
Securities and Exchange Commission (the “SEC”) on or prior to the
Effectiveness Date under the Registration Rights Agreement dated as of June 8,
2005 by and between the Borrower and Laurus and the Registration Rights
Agreement dated as of May 31, 2005 by and among the Borrower, The Shaar Fund,
Ltd. and the other Purchasers party thereto, in each case as amended, modified
and/or supplemented from time to time. 
Laurus further acknowledges and agrees that no such default obligations
shall continue to accrue from and after the date hereof solely with respect to
any such existing Event of Default.  The
Borrower shall deliver to Laurus an original, newly issued stock certificate
evidencing the Shares within five business days after the date of such
issuance.  Prior to such issuance, the
parties acknowledge and agree that Laurus is not a beneficial owner, as defined
by Rule 13d-3 of the Securities Exchange Act of 1934 (the “Exchange Act”),
of any of the Shares.

(b)                                 This
letter agreement, including but not limited to the issuance of securities
contemplated hereunder (the “Securities”), is made with Laurus in
reliance upon Laurus’ representation to the Borrower, which by Laurus’
execution of this letter agreement, Laurus hereby confirms, that the Securities
to be acquired by Laurus will be acquired for investment for Laurus’ own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Laurus has no present intention of
selling, granting any participation in, or otherwise distributing the
same.  By executing this letter
agreement, Laurus further represents that Laurus does not presently have any
contract, undertaking, agreement or arrangement with any person to sell, transfer
or grant participations to such person or to any third person, with respect to
any of the Securities.  Laurus has not
been formed for the specific purpose of acquiring the Securities.  Laurus agrees and 

acknowledges that it has had an opportunity to discuss
the Borrower’s business, management, financial affairs and the terms and
conditions of the offering of the Securities with the Borrower’s
management.  Laurus understands that the
Securities have not been, and will not be, registered under the Securities Act
of 1933, as amended (the “Securities Act”), by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of Laurus’ representations as expressed herein.  Laurus understands that the Securities are “restricted
securities” under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Laurus must hold the  Securities
indefinitely unless they are registered with the SEC and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available.  Laurus hereby
represents and warrants to the Borrower that Laurus is an “accredited investor”
as defined in Rule 501(a) of Regulation D promulgated under the Securities Act
and has knowledge and experience in financial and business matters such that it
is capable of evaluating the merits and risks of the investment to be made
hereunder.  Laurus acknowledges that the
Borrower has no obligation to register or qualify the Securities for resale
except as is otherwise set forth in this letter agreement.  Laurus further acknowledges that if an
exemption from registration or qualification is available, it may be conditioned
on various requirements including, but not limited to, the time and manner of
sale, the holding period for the Securities, and on requirements relating to
the Borrower which are outside of Laurus’ control, and which the Borrower is
under no obligation  and may not be
able to satisfy.

(c)                                  Laurus
understands that the Shares shall bear substantially the following legend:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF.  THESE SHARES
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM
SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.”

Certificates
evidencing the Shares shall not be required to contain the legend set forth
above or any other legend (i) while a registration statement covering the
resale of such Shares is effective under the Securities Act; provided that the
holder thereof covenants that in connection with each sale of such securities,
a copy of the final prospectus that forms a part of such registration statement
will be delivered in accordance with the provisions of Section 5(b)(2) of the
Securities Act, and the rules and regulations promulgated thereunder, or (ii)
following any sale of such Shares pursuant to Rule 144 under the Securities
Act, or (iii) if such Shares are eligible for sale under Rule 144(k) under the
Securities Act, or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the SEC). 
The Borrower shall cause its counsel to issue the legal opinion to
permit the removal of the legend as permitted in the immediately preceding
sentence to the Borrower’s transfer agent on the effective date of 

the
registration statement covering the resale of the Shares.  Following the effective date of such
registration statement or at such earlier time as a legend is no longer
required for the Shares, the Borrower will no later than three trading days
following the delivery by Laurus to the Borrower or the Borrower’s transfer
agent of a legended certificate representing such Shares, deliver or cause to
be delivered to Laurus a certificate representing such Shares that is free from
all restrictive and other legends.

4.                                       Registration
Rights.  If the Borrower proposes to
register (including, for this purpose, a registration effected by the Borrower
for stockholders other than Laurus) any of its stock or other securities under
the Securities Act in connection with any public offering of such securities
solely for cash, the Borrower shall, at such time, promptly give Laurus notice
of such registration.  Upon the request
of Laurus given within 20 days after such notice is given by the Borrower, the
Borrower shall cause to be registered all of the Shares that Laurus has
requested to be included in such registration. 
The Borrower shall have the right to terminate or withdraw any
registration initiated by it under this Section 4 before the effective date of
such registration, whether or not Laurus has elected to include the Shares in
such registration.  The expenses of such
withdrawn registration shall be borne by the Borrower.

5.                                       Condition
to Effectiveness.  Unless waived in
writing by Laurus, the effectiveness of Sections 2 through 4 of this letter
agreement is subject to the Borrower’s receipt of at least $2,000,000 in gross
proceeds from the new issuance of its equity securities to one or more
investors within ninety (90) days from the date hereof.

6.                                       No
Other Amendments; Further Assurances. 
Except as expressly set forth in this letter agreement, no other term or
provision of any of the Notes or the Purchase Agreements is hereby amended or
affected in any way, and the Notes and the Purchase Agreements shall remain in
full force and effect after the date hereof. 
This letter agreement, together with the Notes and the Purchase
Agreements, embodies the entire agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.  The parties hereto agree to execute all such further instruments and agreements as
may be necessary in order to more fully and effectively consummate the
transactions contemplated hereby.

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

8.                                       Facsimile
Signatures; Counterparts.  This
letter agreement 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.

* * * * *

IN WITNESS
WHEREOF, each of the undersigned has executed this letter agreement as a sealed
instrument as of the date first written above.

	
   

  	
  LAURUS MASTER FUND, LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

Acknowledged and
Agreed:

BIO-KEY
INTERNATIONAL, INC.

	
  By: 

  	
   

  	
   

  
	
  Name:

  
	
  Title:

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