In light of the foregoing, BIO-key contends that ComnetiX committed a clear and fundamental breach of the May 2006 Agreement when ComnetiX breached its exclusivity obligations to BIO-key under the May 2006 Agreement in respect of the L-1 transaction.
When ComnetiX committed this fundamental breach of the May 2006 Agreement, the May 2006 Agreement was at an end and BIO-key was no longer bound by the Standstill Provision.
It should be noted that there is no mention by ComnetiX in its disclosure material of its breach of a fundamental obligation of exclusivity to BIO-key nor does it appear that ComnetiX issued a press release or filed a material change report (on a public or confidential basis) with the Canadian securities regulators in respect of the May 2006 Agreement.
As such, BIO-key intends to proceed with its offer to acquire all the issued and outstanding common shares of ComnetiX dated January 19, 2007 and give ComnetiX shareholders an opportunity to consider the BIO-key offer on its merits. In addition, BIO-key intends to vigorously defend any claims made by ComnetiX, and consider its own remedies, in respect of the May 2006 Agreement.
BIO-key believes its proposed offer to acquire all the issued and outstanding common shares of ComnetiX is superior to L-1's revised proposal as it offers a significantly higher price per ComnetiX share and allows shareholders of ComnetiX to participate in the long-term potential of the combined company. In addition, BIO-key believes that the price offered by L-1 significantly undervalues ComnetiX. Industry comparables are currently commanding a multiple of 4 to 5x revenue while the revised L-1 offer for ComnetiX is remains below 2x revenue. BIO-key believes that the long-term potential of the combined company should be able to command a premium in accordance with industry comparables.
BIO-key believes a combination of the two companies will result in a strong company with the industry's most complete end-to-end solution offering to the law enforcement market and also enable the companies to: share and cross-sell more than 3000 customers; and become a platform company for further business combinations that will uniquely serve the robust and growing state, provincial and local public safety markets.