8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 10, 2006

BIO-key International, Inc.

(Exact name of registrant as specified in its charter)

Delaware	1-13463	41-1741861
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

3349 Highway 138, Building D, Suite B

Wall, NJ 07719

(Address of principal executive offices)

(732) 359-1100

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.Entry into Material Definitive Agreements

1.             Amendment and Waiver of Secured Convertible Notes.  Effective as of August 10, 2006, BIO-key International, Inc. (the “Company”) entered into an Amendment and Waiver (the “Secured Notes Amendment and Waiver”) with Laurus Master Fund Ltd. (“Laurus”) in connection with the Secured Convertible Notes (the “Secured Notes”) currently held by Laurus.

Under the Secured Notes Amendment and Waiver, the Secured Notes issued by the Company to Laurus on September 29, 2004 in the aggregate original principal amount of $5,000,000 (the “2004 Senior Note”) and on June 8, 2005 in the aggregate original principal amount of $2,000,000 (the “2005 Senior Note”) were amended as follows: (i) the principal amounts due and payable under the 2004 Senior Note and the 2005 Senior Note for the months of August and September 2006, respectively, shall be paid in shares of the Company’s Common Stock priced at $0.50 per share, and (ii) the principal amount due and payable under the 2004 Senior Note for the months of October, November and December 2006 is deferred until January 1, 2008, the final maturity date of the 2004 Senior Note, and the principal amount due and payable under the 2005 Senior Note for the months of October, November and December 2006 is deferred until December 1, 2008, the final maturity date of the 2005 Senior Note.

The Company also issued 150,000 shares (the “Laurus Shares”) of its Common Stock to Laurus in connection with the Secured Notes Amendment and Waiver.  The Company entered into a Registration Rights Agreement dated as of August 10, 2006 (the “Laurus Registration Rights Agreement”) with Laurus, pursuant to which the Company has agreed to file a registration statement with the Securities and Exchange Commission (the “Commission”) covering the resale of the Laurus Shares.

The foregoing description does not purport to be a complete statement of the parties’ rights and obligations under the Secured Notes Amendment and Waiver and the Laurus Registration Rights Agreement and the transactions contemplated thereby or a complete explanation of the material terms thereof.  The foregoing description is qualified in its entirety by reference to the provisions of the Secured Notes Amendment and Waiver and the Registration Rights Agreement attached as Exhibits 99.1 and 99.2, respectively, to this Current Report on Form 8-K.

2.             Exchange of Subordinated Convertible Promissory Notes.  Effective as of August 10, 2006, the Company also entered into a Securities Exchange Agreement (the “Securities Exchange Agreement”) with certain holders (the “Subordinated Note Holders”) of its outstanding Subordinated Convertible Promissory Notes (the “Subordinated Notes”).

Under the Securities Exchange Agreement, the Subordinated Notes were exchanged for shares (the “Series C Shares”) of the Company’s Series C Convertible Preferred Stock, which shares are initially convertible into Common Stock at $0.50 per share, having an aggregate value equal to the principal amount outstanding under the Subordinated Notes, plus accrued and unpaid interest thereon, and certain liquidated damages payments owed by the Company to the Subordinated Note Holders.  The Company entered into a Registration Rights Agreement dated

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as of August 10, 2006 (the “Exchange Registration Rights Agreement”) with the Subordinated Note Holders, pursuant to which the Company has agreed to file a registration statement with the Commission covering the resale of the shares of Common Stock underlying the Series C Shares.

The foregoing description does not purport to be a complete statement of the parties’ rights and obligations under the Securities Exchange Agreement and the Exchange Registration Rights Agreement and the transactions contemplated thereby or a complete explanation of the material terms thereof.  The foregoing description is qualified in its entirety by reference to the provisions of the Securities Exchange Agreement, the Certificate of Designation and the Exchange Registration Rights Agreement attached as Exhibits 99.3, 99.4 and 99.5, respectively, to this Current Report on Form 8-K.

3.             Securities Purchase Agreements.  The Company also entered into (i) a Securities Purchase Agreement (the “Trellus Securities Purchase Agreement”), dated as of August 10, 2006, with Trellus Partners, L.P. (“Trellus”) and (ii) a Securities Purchase Agreement (the “Shaar Securities Purchase Agreement”), dated as of August 10, 2006, with The Shaar Fund, Ltd. (“Shaar”).

Under the Trellus Securities Purchase Agreement, the Company (i) issued and sold 3,000,000 shares of its Common Stock (the “Trellus Shares”) to Trellus, at a purchase price of $0.50 per share, for an aggregate purchase price of $1,500,000 and (ii) issued a warrant to Trellus (the “Trellus Warrant”) to purchase up to an aggregate of 400,000 shares of the Company’s Common Stock at an exercise price of $0.75 per share.  The proceeds from this transaction will be used for general working capital purposes.  The Company entered into a Registration Rights Agreement dated as of August 10, 2006 (the “Trellus Registration Rights Agreement”) with Trellus, pursuant to which the Company has agreed to file a registration statement with the Commission covering the resale of the Trellus Shares and the shares of Common Stock underlying the Trellus Warrants.

Under the Shaar Securities Purchase Agreement, the Company agreed to (i) issue and sell 1,000,000 shares of its Common Stock (the “Shaar Shares”) to Shaar, at a purchase price of $0.50 per share, for an aggregate purchase price of $500,000 and (ii) issue a warrant to Shaar (the “Shaar Warrant”) to purchase up to an aggregate of 133,000 shares of the Company’s Common Stock at an exercise price of $0.75 per share.  The proceeds from this transaction will be used for general working capital purposes.  The Company entered into a Registration Rights Agreement dated as of August 10, 2006 (the “Shaar Registration Rights Agreement”) with Shaar, pursuant to which the Company has agreed to file a registration statement with the Commission covering the resale of the Shaar Shares and the shares of Common Stock underlying the Shaar Warrants.

The foregoing description does not purport to be a complete statement of the parties’ rights and obligations under the Trellus Securities Purchase Agreement and the Shaar Securities Purchase Agreement and the transactions contemplated thereby or a complete explanation of the material terms thereof.  The foregoing description is qualified in its entirety by reference to the provisions of the Trellus Securities Purchase Agreement, the Form of Trellus Warrant, the Trellus Registration Rights Agreement, the Shaar Securities Purchase Agreement, the Form of

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Shaar Warrant and the Shaar Registration Rights Agreement attached as Exhibits 99.6, 99.7, 99.8, 99.9, 99.10 and 99.11, respectively, to this Current Report.

Item 3.02               Unregistered Sales of Equity Securities

The disclosures in Item 1.01 above are incorporated in this Item 3.02 by reference.

The securities described in Item 1.01 were issued to accredited investors in private placement transactions exempt from registration under the Securities Act pursuant to Rule 506 of Regulation D thereunder.  Such securities have not been registered under the Securities Act or applicable state securities laws and may not be offered or sold in the United States absent registration under the Securities Act and applicable state securities laws or an applicable exemption from registration requirements.  The Company has agreed to file a registration statement with the Commission covering the resale of the subject securities.

Item 9.01.              Financial Statements and Exhibits

(a)           Exhibits.  The following Exhibits are attached to this Current Report on Form 8-K:

Exhibit No.:	Description:
Exhibit 99.1	Amendment and Waiver, dated as of August 10, 2006, by and between the Company and Laurus Master Fund, Ltd.
Exhibit 99.2	Registration Rights Agreement, dated as of August 10, 2006, by and between the Company and Laurus Master Fund, Ltd.
Exhibit 99.3	Securities Exchange Agreement, dated as of August 10, 2006, by and among the Company, The Shaar Fund Ltd., Longview Fund, L.P., Longview Special Finance and certain other holders of the Company’s Subordinated Convertible Promissory Notes
Exhibit 99.4	Certificate of Designation of the Series C Convertible Preferred Stock of the Company
Exhibit 99.5	Registration Rights Agreement, dated as of August 10, 2006, by and among the Company, The Shaar Fund Ltd., Longview Fund, L.P., Longview Special Finance and certain other holders of the Company’s Subordinated Convertible Promissory Notes
Exhibit 99.6	Securities Purchase Agreement, dated as of August 10, 2006, by and between the Company and Trellus Partners, L.P.
Exhibit 99.7	Form of Common Stock Purchase Warrant issued pursuant to the Securities Purchase Agreement, dated as of August 10, 2006, by and between the Company and Trellus Partners, L.P.
Exhibit 99.8	Registration Rights Agreement, dated as of August 10, 2006, by and between the Company and Trellus Partners, L.P.

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Exhibit 99.9	Securities Purchase Agreement, dated as of August 10, 2006, by and between the Company and The Shaar Fund Ltd.
Exhibit 99.10	Form of Common Stock Purchase Warrant to be issued pursuant to the Securities Purchase Agreement, dated as of August 10, 2006, by and between the Company and The Shaar Fund Ltd.
Exhibit 99.11	Registration Rights Agreement, dated as of August 10, 2006, by and between the Company and The Shaar Fund Ltd.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

August 16, 2006	BIO-KEY INTERNATIONAL, INC.
	By:	/s/ Thomas J. Colatosti
		Thomas J. Colatosti
		Chairman

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EXHIBIT INDEX

Exhibit No.:	Description:
Exhibit 99.1	Amendment and Waiver, dated as of August 10, 2006, by and between the Company and Laurus Master Fund, Ltd.
Exhibit 99.2	Registration Rights Agreement, dated as of August 10, 2006, by and between the Company and Laurus Master Fund, Ltd.
Exhibit 99.3	Securities Exchange Agreement, dated as of August 10, 2006, by and among the Company, The Shaar Fund Ltd., Longview Fund, L.P., Longview Special Finance and certain other holders of the Company’s Subordinated Convertible Promissory Notes
Exhibit 99.4	Certificate of Designation of the Series C Convertible Preferred Stock of the Company
Exhibit 99.5	Registration Rights Agreement, dated as of August 10, 2006, by and among the Company, The Shaar Fund Ltd., Longview Fund, L.P., Longview Special Finance and certain other holders of the Company’s Subordinated Convertible Promissory Notes
Exhibit 99.6	Securities Purchase Agreement, dated as of August 10, 2006, by and between the Company and Trellus Partners, L.P.
Exhibit 99.7	Form of Common Stock Purchase Warrant issued pursuant to the Securities Purchase Agreement, dated as of August 10, 2006, by and between the Company and Trellus Partners, L.P.
Exhibit 99.8	Registration Rights Agreement, dated as of August 10, 2006, by and between the Company and Trellus Partners, L.P.
Exhibit 99.9	Securities Purchase Agreement, dated as of August 10, 2006, by and between the Company and The Shaar Fund Ltd.
Exhibit 99.10	Form of Common Stock Purchase Warrant to be issued pursuant to the Securities Purchase Agreement, dated as of August 10, 2006, by and between the Company and The Shaar Fund Ltd.
Exhibit 99.11	Registration Rights Agreement, dated as of August 10, 2006, by and between the Company and The Shaar Fund Ltd.

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EX-99.1

Exhibit 99.1

AMENDMENT AND WAIVER

This Amendment and Waiver (the “Amendment and Waiver”) is entered into by and between BIO-KEY INTERNATIONAL, INC., a Delaware corporation (the “Borrower”), and Laurus Master Fund, Ltd. (“Laurus”), and is effective as of the 10th day of August, 2006.

WHEREAS, the Borrower issued a Secured Convertible Note to 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 “September 2004 Note”), payable in full on January 1, 2008 (the “September Note Maturity Date”);

WHEREAS, the Borrower issued a Secured Convertible Note 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 “June 2005 Note”), payable in full on December 1, 2008 (the “June Note Maturity Date”) (the September 2004 Note and the June 2005 Note are collectively referred to as the “Notes”; capitalized terms not otherwise defined herein shall have the meanings given to them in the Notes);

WHEREAS, the parties wish to amend the Notes to provide that the Principal Amounts due and payable under the September 2004 Note and the June 2005 Note for the months of August and September 2006, respectively, shall be paid in shares of Common Stock priced at $0.50 per share (subject to adjustment as provided in the Notes);

WHEREAS, the parties wish to further amend the Notes to defer the payment of (i) the Principal Amount due and payable under the September 2004 Note for the months of October, November and December 2006 until the September Note Maturity Date, and (ii) the Principal Amount due and payable under the June 2005 Note for the months of October, November and December 2006 until the June Note Maturity Date;

WHEREAS, the Borrower has agreed to issue 150,000 newly issued restricted shares of Common Stock (the “Shares”) to Laurus, with registration rights to be granted to Laurus with respect to the Shares as provided herein; and

WHEREAS, Laurus has agreed to (i) unconditionally and irrevocably waive the provisions of Section 3.4(b)(C) of each Note regarding the adjustment of the Fixed Conversion Price (as defined in each such Note), in each case solely with respect to the issuance of the Shares, and (ii) waive all penalties arising out of certain obligations of the Borrower with respect to the registration of certain securities of the Borrower with the Securities and Exchange Commission (the “SEC”).

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.    September 2004 Note. With respect to the September 2004 Note, the parties hereby agree that (i) the Principal Amount due and payable for the months of August and

September 2006 shall be paid in shares of Common Stock priced at $0.50 per share (subject to adjustment as provided in the Notes) and (ii) the Principal Amount due and payable for the months of October, November and December 2006 (collectively, the “September Note Deferred Amount”) is hereby deferred until the September Note Maturity Date, at which time the September Note Deferred Amount shall be paid in full along with the final payment due on such date pursuant to the September 2004 Note.  Notwithstanding the foregoing, (x) the Borrower shall remain obligated to pay all interest when due under the September 2004 Note and (y) the limitations set forth in Section 3.2 of the September 2004 Note shall continue to apply.

2.    June 2005 Note.  With respect to the June 2005 Note, the parties hereby agree that (i) the Principal Amount due and payable for the months of August and September 2006 shall be paid in shares of Common Stock priced at $0.50 per share (subject to adjustment as provided in the Notes) and (ii) the Principal Amount due and payable for the months of October, November and December 2006 (collectively, the “June Note Deferred Amount”) is hereby deferred until the June Note Maturity Date, at which time the June Note Deferred Amount shall be paid in full along with the final payment due on such date pursuant to the June 2005 Note.  Notwithstanding the foregoing, (x) the Borrower shall remain obligated to pay all interest when due under the June 2005 Note and (y) the limitations set forth in Section 3.2 of the June 2005 Note shall continue to apply.

3.    Issuance of Shares; Rule 144.

       (a)           As consideration for the foregoing, the Borrower hereby agrees to issue the Shares to Laurus as of the date hereof.  The Borrower shall deliver to Laurus an original, newly issued stock certificate evidencing the Shares within five (5) business days after the date hereof.

       (b)           This Amendment and Waiver, 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 Amendment and Waiver, 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 Amendment and Waiver, 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

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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 Amendment and Waiver and the Registration Rights Agreement (as defined herein below).  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 COMPANY 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 (as defined in the Registration Rights Agreement) 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.

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(d)           The Borrower acknowledges that all of the Common Stock issuable upon the conversion of the Notes shall be deemed to have been acquired at the same time as the Notes for purposes of Rule 144 under the Securities Act of 1933, as amended.

4.    Registration Rights.  The Borrower hereby grants registration rights to Laurus with respect to the Shares pursuant to a Registration Rights Agreement dated as of even date herewith, in the form attached as Exhibit A hereto, between Laurus and the Borrower (the “Registration Rights Agreement”).

5.    Conversion Price.  Laurus hereby unconditionally and irrevocably waives the provisions of Section 3.4(b)(C) of each Note regarding any adjustment of the Fixed Conversion Price (as defined in each such Note) that would otherwise be triggered as a result of the issuance of the Shares.  The waiver contained in this Section 6 relates exclusively to the securities described herein, and shall not apply to any other subsequent issuances of any Common Stock or other securities by the Borrower.

6.    Waiver of Penalties.  Laurus hereby agrees to waive all penalties as of the date hereof under Section 2(b)(ii) of the Registration Rights Agreements between the Borrower and Laurus dated as of June 8, 2005 and September 29, 2004, respectively.

7.    Securities Purchase Agreement.  Laurus hereby acknowledges and consents to the Borrower entering into (a) Securities Purchase Agreements dated on or about the date hereof (the “Securities Purchase Agreement”) by and among the Borrower, Trellus Partners, L.P. and The Shaar Fund, Ltd. (the “Common Stock Purchasers”), pursuant to which the Borrower will agree to issue shares of Common Stock to the Common Stock Purchasers for an aggregate purchase price of $2,000,000 and (b) the Securities Exchange Agreement dated on or about the date hereof (the “Securities Exchange Agreement”) by and among the Borrower, The Shaar Fund, Ltd., Longview Fund, L.P. and the other parties thereto (collectively, the “Subordinated Purchasers”), pursuant to which the Subordinated Purchasers will agree to exchange all Subordinated Convertible Promissory Notes held by them for shares of the Borrower’s Series C Convertible Preferred Stock, $.0001 par value per share (the “Series C Preferred Stock”).

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

9.    Governing Law.  This Amendment and Waiver 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.

10.  Facsimile Signatures; Counterparts.  This Amendment and Waiver 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.

* * * * *

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment and Waiver 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
LAURUS MASTER FUND, LTD.
By:	/s/ David Grin
Name: David Grin
Title: Director

EXHIBIT A

FORM OF REGISTRATION RIGHTS AGREEMENT

EX-99.2

Exhibit 99.2

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into as of August 10, 2006 by and among BIO-key International, Inc., a Delaware corporation (the “Company”), and each of the Purchasers listed on Exhibit A hereto (the “Purchasers”).

This Agreement is made pursuant to each Amendment and Waiver dated as of the date hereof, by and between each Purchaser and the Company (collectively, the “Amendment and Waivers,” and each individually, an “Amendment and Waiver”).

The Company and each of the Purchasers hereby agree as follows:

1.             Definitions.  As used in this Agreement, the following terms shall have the following meanings:

“Commission” means the Securities and Exchange Commission.

“Common Stock” means shares of the Company’s common stock, par value $0.0001 per share.

“Effectiveness Date” means with respect to the initial Registration Statement required to be filed hereunder, a date no later than one hundred twenty (120) days following the Filing Date.

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor statute.

“Filing Date” means, with respect to the initial Registration Statement required to be filed hereunder, January 1, 2007.

“Holder” or “Holders” means the Purchasers or any of their respective affiliates or transferees to the extent any of them hold Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 5(c).

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule

430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Registrable Securities” means the shares of Common Stock issued to the Purchasers pursuant to each respective Amendment and Waiver.

“Registration Statement” means each registration statement required to be filed hereunder, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act” means the Securities Act of 1933, as amended, and any successor statute.

“Trading Market” means any of the NASD OTC Bulletin Board, NASDAQ SmallCap Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange.

2.             Registration.

(a)           On or prior to the Filing Date the Company shall prepare and file with the Commission a Registration Statement covering the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form SB-2 (except if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2, in which case such registration shall be on another appropriate form in accordance herewith).  The Company shall cause the Registration Statement to become effective and remain

effective as provided herein.  The Company shall use its reasonable commercial efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the Effectiveness Date.  The Company shall use its reasonable commercial efforts to keep the Registration Statement continuously effective under the Securities Act until the date which is the earlier date of when (i) all Registrable Securities have been sold or (ii) all Registrable Securities may be sold immediately without registration under the Securities Act and without volume restrictions pursuant to Rule 144(k), as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Holders (the  “Effectiveness Period”).

(b)           Within three business days of the Effectiveness Date, the Company shall cause its counsel to issue a blanket opinion to the transfer agent stating that the shares are subject to an effective registration statement and can be reissued free of restrictive legend upon notice of a sale by such Purchaser and confirmation by such Purchaser that it has complied with the prospectus delivery requirements, provided that the Company has not advised the transfer agent orally or in writing that the opinion has been withdrawn. Copies of the blanket opinion required by this Section  2(c) shall be delivered to such Purchaser within the time frame set forth above.

3.             Registration Procedures.  If and whenever the Company is required by the provisions hereof to effect the registration of any Registrable Securities under the Securities Act, the Company will, as expeditiously as possible:

(a)           prepare and file with the Commission the Registration Statement with respect to such Registrable Securities, respond as promptly as possible to any comments received from the Commission, and use its best efforts to cause the Registration Statement to become and remain effective for the Effectiveness Period with respect thereto, and promptly provide to the Purchaser copies of all filings and Commission letters of comment relating thereto;

(b)           prepare and file with the Commission such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by the Registration Statement and to keep such Registration Statement effective until the expiration of the Effectiveness Period;

(c)           furnish or make available  to the Holders such number of copies of the Registration Statement and the Prospectus included therein (including each preliminary Prospectus) as the Holders reasonably may request to facilitate the public sale or disposition of the Registrable Securities covered by the Registration Statement;

(d)           use its commercially reasonable efforts to register or qualify the Holder’s Registrable Securities covered by the Registration Statement under the securities or “blue sky” laws of such jurisdictions within the United States as the Holder may reasonably request, provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction;

(e)           list the Registrable Securities covered by the Registration Statement with any securities exchange on which the Common Stock of the Company is then listed;

(f)            immediately notify the Holders at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the Prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and

(g)           make available for inspection by the Holders and any attorney, accountant or other agent retained by the Holders, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the attorneys, accountants or agents of the Holders.

4.             Registration Expenses.  All expenses relating to the Company’s compliance with Sections 2 and 3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or “blue sky” laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars, fees of, and disbursements incurred by, one counsel for the Holders (to the extent such counsel is required due to Company’s failure to meet any of its obligations hereunder), are called “Registration Expenses”. All selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any special counsel to the Holders beyond those included in Registration Expenses, are called “Selling Expenses.”   The Company shall only be responsible for all Registration Expenses and shall not be responsible for any Selling Expenses.

5.             Indemnification.

(a)           In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless each Holder, and its officers, directors and each other person, if any, who controls such Holder within the meaning of the Securities Act, against any losses,

claims, damages or liabilities, joint or several, to which such Holder, or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Holders, and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of the Holders or any such person in writing specifically for use in any such document.

(b)           In the event of a registration of the Registrable Securities under the Securities Act pursuant to this Agreement, each Holder will indemnify and hold harmless the Company, and its officers, directors and each other person, if any, who controls the Company within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact which was furnished in writing by such Holder to the Company expressly for use in (and such information is contained in) the Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that such Holder will be liable in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing to the Company by or on behalf of such Holder specifically for use in any such document.  Notwithstanding the provisions of this paragraph, such Holder shall not be required to indemnify any person or entity in excess of the amount of the aggregate net proceeds received by such Holder in respect of Registrable Securities in connection with any such registration under the Securities Act.

(c)           Promptly after receipt by a party entitled to claim indemnification hereunder (an “Indemnified Party”) of notice of the commencement of any action, such Indemnified Party shall, if a claim for indemnification in respect thereof is to be made against a party hereto obligated to indemnify such Indemnified Party (an “Indemnifying Party”), notify the Indemnifying Party in writing thereof, but the omission so to notify the Indemnifying Party shall not relieve it from any liability which it may have to such Indemnified Party other than under this Section 5(c) and shall only relieve it from any liability which it may have to such Indemnified Party under this Section 5(c) if and to the extent the Indemnifying Party is prejudiced by such omission. In case any such action shall be brought against any Indemnified Party and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such Indemnified Party, and, after notice from the Indemnifying Party to such Indemnified Party of its election so to assume and undertake the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party under this Section 5(c) for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof; if the Indemnified Party retains its own counsel, then the Indemnified Party shall pay all fees, costs and expenses of such counsel, provided, however, that, if the defendants in any such action include both the indemnified party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, the Indemnified Party shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred.

(d)           In order to provide for just and equitable contribution in the event of joint liability under the Securities Act in any case in which either (i) a Holder, or any officer, director or controlling person of such Holder, makes a claim for indemnification pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of such Holder or such officer, director or controlling person of such Holder in circumstances for which indemnification is provided under this Section 5; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, provided, however, that, in any such case, (A) such Holder will not be required to contribute any amount in excess of the public offering price of all such securities offered by it pursuant to such Registration Statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

6.             Representations and Warranties.

(a)           The Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and, except with respect to any matters which the Company has previously disclosed in writing to the Purchaser or in any of its public filings pursuant to the Exchange Act, the Company has timely filed all proxy statements, reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act.  The Company has filed (i) its Annual Report on Form 10-KSB/A for its fiscal year ended December 31, 2005 and (ii) its Quarterly Report on Form 10-QSB/A for the fiscal quarter ended March 31, 2006 (collectively, the “SEC Reports”). Each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed) and fairly present in all material respects the financial condition, the results of operations and the cash flows of the Company and its subsidiaries, on a consolidated basis, as of, and for, the periods presented in each such SEC Report.

(b)           The Common Stock is traded on the Over the Counter Bulletin Board (“OTCBB”)  and satisfies all requirements for the continuation of such trading.  The Company has not received any notice that its Common Stock will be ineligible to be traded  on the OTCBB  (except for prior notices which have been fully remedied) or that the Common Stock does not meet all requirements for the continuation of such trading.

(c)           Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the securities pursuant to the Amendment and Waivers to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Common Stock pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings.

(d)           The Registrable Securities are all restricted securities under the Securities Act as of the date of this Agreement.  The Company will not issue any stop transfer order or other order impeding the sale and delivery of any of the Registrable Securities at such time as such Registrable Securities are registered for public sale or an exemption from registration is available, except as required by federal or state securities laws.

(e)           Except for agreements made in the ordinary course of business, there is no agreement that has not been filed with the Commission as an exhibit to a registration statement or to a form required to be filed by the Company under the Exchange Act, the breach of which could reasonably be expected to have a material and adverse effect on the Company and its subsidiaries, or would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement in any material respect.

7.             Miscellaneous.

(a)           Remedies.  In the event of a breach by the Company or by a Holder, of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.

(b)           No Piggyback on Registrations.  Except as and to the extent specified in Schedule 7(b)(i) hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right for inclusion of shares in the Registration Statement to any of its security holders. Except as and to the extent specified in Schedule 7(b)(ii) hereto and as set forth in the Company’s public filings pursuant to the Exchange Act, the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been fully satisfied.

(c)           Compliance.  Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.

(d)           Discontinued Disposition.  Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of a Discontinuation Event (as defined below), such Holder will forthwith discontinue disposition of such Registrable Securities under the applicable Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.  For purposes of this Section 7(d), a “Discontinuation Event” shall mean (i) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); (ii) any request by the Commission or any other Federal or state governmental authority for amendments or supplements to such Registration Statement or Prospectus or for additional information; (iii) the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and/or (v) the occurrence of any event or passage of time that makes the financial statements included in such Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(e)           Piggy-Back Registrations.  If at any time (i) prior to the Filing Date and (ii) during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity

securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within fifteen days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered to the extent the Company may do so without violating registration rights of others which exist as of the date of this Agreement, subject to customary underwriter cutbacks applicable to all holders of registration rights and subject to obtaining any required the consent of any selling stockholder(s) to such inclusion under such registration statement.

(f)            Amendments and Waivers.  The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by (i) the Company and (ii) Laurus Master Fund, Ltd..  Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

(g)           Notices.  Any notice or request hereunder may be given to the Company or the Purchaser at the respective addresses set forth below or as may hereafter be specified in a notice designated as a change of address under this Section 7(g).  Any notice or request hereunder shall be given by registered or certified mail, return receipt requested, hand delivery, overnight mail, Federal Express or other national overnight next day carrier (collectively, “Courier”) or telecopy (confirmed by mail).  Notices and requests shall be, in the case of those by hand delivery, deemed to have been given when delivered to any party to whom it is addressed, in the case of those by mail or overnight mail, deemed to have been given three (3) business days after the date when deposited in the mail or with the overnight mail carrier, in the case of a Courier, the next business day following timely delivery of the package with the Courier, and, in the case of a telecopy, when confirmed.  The address for such notices and communications shall be as follows:

If to the Company: BIO-key International, Inc.
300 Nickerson Road
Marlborough, MA 01752
Attention: Chief Financial Officer
Facsimile:  (508) 460-4098

	with a copy to:
	Choate, Hall & Stewart LLP Two International Place Boston, MA 02110
	Attention: Charles J. Johnson Facsimile: (617) 248-4000
If to a Purchaser:	To the address set forth under such Purchaser name on the signature pages hereto.
If to any other Person who is
then the registered Holder:	To the address of such Holder as it appears in the stock transfer books of the Company

or such other address as may be designated in writing hereafter in accordance with this Section 7(g) by such Person.

(h)           Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder.  Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Notes with the prior written consent of the Company, which consent shall not be unreasonably withheld.

(i)            Execution and Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)            Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the

adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Proceeding is improper.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of a Transaction Document, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

(k)           Cumulative Remedies.  The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(l)            Severability.  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(m)          Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

BIO-KEY INTERNATIONAL, INC.
By:	/s/ Thomas J. Colatosti
Name:	Thomas J. Colatosti
Title:	Chairman

Counterpart Signature Page to Registration Rights Agreement

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

LAURUS MASTER FUND, LTD.
By:	/s/ David Grin
Name:	David Grin
Title:	Director
Address for Notices:
825 Third Avenue - 14th Floor
New York, NY 10022
Attention:		David Grin
Facsimile:		212-541-4434

Counterpart Signature Page to Registration Rights Agreement

EXHIBIT A

Laurus Master Fund, Ltd.

EX-99.3

Exhibit 99.3

BIO-KEY INTERNATIONAL, INC.

SECURITIES EXCHANGE AGREEMENT

as of August 10, 2006

TABLE OF CONTENTS

1.	Agreement to Exchange	2
2.	Closing, Delivery and Payment	2
	2.1 Closing	2
	2.2 Delivery	2
3.	Representations and Warranties of the Company	3
	3.1 Organization, Good Standing and Qualification	3
	3.2 Subsidiaries	3
	3.3 Capitalization; Voting Rights	3
	3.4 Authorization; Binding Obligations	4
	3.5 Liabilities	5
	3.6 Agreements; Action	5
	3.7 Obligations to Related Parties	6
	3.8 Changes	6
	3.9 Title to Properties and Assets; Liens, Etc	8
	3.10 Intellectual Property	8
	3.11 Compliance with Other Instruments	9
	3.12 Litigation	9
	3.13 Tax Returns and Payments	9
	3.14 Employees	10
	3.15 Registration Rights and Voting Rights	10
	3.16 Compliance with Laws; Permits	11
	3.17 Environmental and Safety Laws	11
	3.18 Valid Offering	11
	3.19 Full Disclosure	11
	3.20 Insurance	12
	3.21 SEC Reports	12
	3.22 Listing	12
	3.23 No Integrated Offering	12
	3.24 Holding Period	13
	3.25 Stop Transfer	13
	3.26 Dilution	13
	3.27 Patriot Act	13
4.	Representations and Warranties of the Purchasers	14
	4.1 No Shorting	14
	4.2 Requisite Power and Authority	14
	4.3 Investment Representations	14
	4.4 Purchaser Bears Economic Risk	14
	4.5 Acquisition for Own Account	15
	4.6 Purchaser Can Protect Its Interest	15
	4.7 Accredited Investor	15
	4.8 No Additional Consideration	15
	4.9 Exculpation Among Purchasers	15
	4.10 Legends	15
5.	Covenants of the Company	16

i

	5.1 Stop-Orders	16
	5.2 Trading	16
	5.3 Market Regulations	16
	5.4 Access to Facilities	16
	5.5 Taxes	17
	5.6 Insurance	17
	5.7 Intellectual Property	17
	5.8 Properties	18
	5.9 Confidentiality	18
	5.10 Required Approvals	18
	5.11 Reissuance of Securities	19
	5.12 Legal Opinion	20
	5.13 Reporting Requirements	20
	5.14 Reservation of Shares	20
6.	Covenants of the Purchaser	20
	6.1 Regulation M	20
7.	Covenants of the Company and Purchaser Regarding Indemnification	20
	7.1 Company Indemnification	21
	7.2 Purchaser’s Indemnification	21
8.	Conversion of Convertible Shares	21
	8.1 Mechanics of Conversion	21
9.	Registration Rights	23
10.	Miscellaneous	24
	10.1 Governing Law	24
	10.2 Survival	24
	10.3 Successors	24
	10.4 Entire Agreement	25
	10.5 Severability	25
	10.6 Amendment and Waiver	25
	10.7 Delays or Omissions	25
	10.8 Notices	25
	10.9 Attorneys’ Fees	26
	10.10 Titles and Subtitles	27
	10.11 Facsimile Signatures; Counterparts	27
	10.12 Broker’s Fees	27
	10.13 Construction	27

ii

LIST OF EXHIBITS

Certificate of Designation	Exhibit A
Form of Conversion Notice	Exhibit B
Form of Legal Opinion	Exhibit C

iii

SECURITIES EXCHANGE AGREEMENT

This SECURITIES EXCHANGE AGREEMENT (this “Agreement”) is made effective as of August 10, 2006, among BIO-KEY INTERNATIONAL, INC., a Delaware corporation (the “Company”), and each of the undersigned holders of Subordinated Convertible Promissory Notes of the Company (sometimes hereinafter collectively referred to as the “Purchasers”).

RECITALS

WHEREAS, the Company issued Subordinated Convertible Promissory Notes in the aggregate original principal amount of $4,950,000 on September 29, 2004 to certain of the Purchasers, which were amended on August 31, 2005 and January 23, 2006 to, among other things, extend the maturity date of the Notes to January 1, 2009, fix the interest rate of the Notes at fifteen percent (15%) and defer certain payments due under the Notes until the maturity date (as amended, the “September 2004 Notes”);

WHEREAS, the Company issued Subordinated Convertible Promissory Notes in the aggregate original principal amount of $3,244,723 on May 31, 2005 to certain of the Purchasers, which were amended on August 31, 2005 and January 23, 2006 to, among other things, extend the maturity date of the Notes to January 1, 2009, fix the interest rate of the Notes at fifteen percent (15%) and defer certain payments due under the Notes until the maturity date (as amended, the “May 2005 Notes”) (the September 2004 Notes and the May 2005 Notes are collectively referred to as the “Notes” and capitalized terms not otherwise defined herein have the meanings given to them in the Notes);

WHEREAS, the Company issued Convertible Term Notes in the aggregate principal amount of $1,000,000 that are convertible into its Series B Convertible Preferred Stock on January 23, 2006 to certain of the Purchasers (the “January 2006 Notes”);

WHEREAS, the Company and certain of the Purchasers entered into a Registration Rights Agreement, dated September 29, 2004, as amended, with respect to the September 2004 Notes, a Registration Rights Agreement, dated May 31, 2005, as amended, with respect to the May 2005 Notes, and a Registration Rights Agreement, dated January 31, 2006, with respect to the January 2006 Notes (together, the “Registration Rights Agreements”);

WHEREAS, the Purchasers claim that the Company owes liquidated damages (“Liquidated Damages”) pursuant to the Registration Rights Agreements, the amount of which is in dispute;

WHEREAS, the Company and the Purchasers desire that the Notes be exchanged for shares (“Shares”) of the Company’s Series C Convertible Preferred Stock, $.0001 par value per share (the “Series C Preferred Stock”) having a value equal to, for each Purchaser, (i) the aggregate principal amount outstanding under the Notes, plus accrued and unpaid interest, as set forth next to each Purchaser’s name on Schedule 1 attached hereto, and (ii) the amount of Liquidated Damages set forth next to each Purchaser’s name on such Schedule 1 (collectively, the “Exchange Consideration”); and that the value of the Series C Preferred Stock is $10.00 per Share;

WHEREAS, the rights and preferences of the Series C Preferred Stock are set forth in the Certificate of Designation to be filed with the Secretary of State of the State of Delaware in the form attached hereto as Exhibit A (the “Certificate of Designation”)

WHEREAS, the Company is entering into a Securities Purchase Agreement (collectively, the “Securities Purchase Agreements”) as of the date hereof with each of Trellus Partners, L.P. and The Shaar Fund, Ltd., pursuant to which the Company will agree to issue and sell to such purchasers up to 4,000,000 shares of Common Stock at a purchase price of $0.50 for an aggregate purchase price equal to $2,000,000, and issue to the Common Stock Purchasers warrants to purchase up to an aggregate of 533,333 shares of Common Stock at an exercise price of $0.75; and

WHEREAS, the Company authorizes the issuance of the Shares, which shall be convertible into shares of the Company’s common stock, $0.0001 par value per share (the “Common Stock”) at an initial fixed conversion price of $0.50 per share of Common Stock (“Fixed Conversion Price”) on the terms and conditions set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises, representations, warranties and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.             Agreement to Exchange.  Pursuant to the terms and conditions set forth in this Agreement, on the Closing Date (as defined herein below), in full settlement of the Company’s obligations (as of the Closing Date) under the Notes and the Liquidated Damages, the Company agrees to issue the number of Shares to each Purchaser as set forth opposite such Purchaser’s name on Schedule 1.  The offer to exchange the Notes for the Exchange Consideration on the Closing Date shall be known as the “Exchange Offer.”  Other than as set forth in this Agreement, the Exchange Offer shall be without any additional consideration payable to or by the Purchasers or the Company.  Collectively, the Shares and the Common Stock issuable upon conversion of the Series C Preferred Stock (the “Conversion Shares”) are referred to as the “Securities.”

2.             Closing, Delivery and Payment.

2.1           Closing.  Subject to (a) each Purchaser’s acceptance of the Exchange Offer (it being understood, however, that Albert Fried will not be participating in the Exchange Offer), (b) the execution and delivery of  the Securities Purchase Agreements by all parties thereto, (c) the Company’s receipt of the $1,500,000 cash purchase price pursuant to the Securities Purchase Agreement dated as of the date hereof with Trellus Partners, L.P., and (d) the other terms and conditions herein, the closing of the transactions contemplated hereby (the “Closing”), shall take place on the date hereof, or at such other time or place as the Company and the Purchasers may mutually agree (such date is hereinafter referred to as the “Closing Date”).

2.2           Delivery.  At the Closing on the Closing Date, the Company will deliver to the Purchasers, among other things, the Shares, and each Purchaser will deliver to the

2

Company, among other things, the Exchange Consideration, as evidenced by delivery of the Notes for cancellation on the Company’s corporate and financial record books.

3.             Representations and Warranties of the Company.  The Company hereby represents and warrants to the Purchasers as of the date hereof as follows (which representations and warranties are supplemented by the Company’s filings under the Securities Exchange Act of 1934 (the “Exchange Act”) made up to three (3) business days prior to the date hereof (collectively, the “Exchange Act Filings”), public access to copies of such filings having been made available to the Purchasers; provided, however, that if there is any discrepancy between the description included on a Schedule delivered by the Company hereunder and the Exchange Act Filings, such description on the Schedule shall govern):

3.1           Organization, Good Standing and Qualification.  Each of the Company and each of its Subsidiaries is a corporation, partnership or limited liability company, as the case may be, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each of the Company and each of its Subsidiaries has the corporate power and authority to own and operate its properties and assets, to execute and deliver (i) this Agreement, (ii) the Shares, (iii) the Registration Rights Agreement relating to the Conversion Shares dated as of the date hereof between the Company and the Purchasers (as amended, modified or supplemented from time to time, the “Registration Rights Agreement”), and (iv) any other agreements related to this Agreement and the Shares referred to herein (the preceding clauses (ii) through (iv), collectively, the “Related Agreements”), to issue the Shares and Conversion Shares, and to carry out the provisions of this Agreement and the Related Agreements and to carry on its business as presently conducted.  Each of the Company and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation, partnership or limited liability company, as the case may be, in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so has not, or could not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, assets, liabilities, condition (financial or otherwise), properties or operations of the Company and it Subsidiaries, taken individually and as a whole (a “Material Adverse Effect”).

3.2           Subsidiaries.  Each direct and indirect Subsidiary of the Company, the direct owner of such Subsidiary and its percentage ownership thereof, is set forth on Schedule 3.2.  For the purpose of this Agreement, a “Subsidiary” of any person or entity means (i) a corporation or other entity whose shares of stock or other ownership interests having ordinary voting power (other than stock or other ownership interests having such power only by reason of the happening of a contingency that has not yet occurred) to elect a majority of the directors of such corporation, or other persons or entities performing similar functions for such person or entity, are owned, directly or indirectly, by such person or entity or (ii) a corporation or other entity in which such person or entity owns, directly or indirectly, more than 50% of the equity interests at such time.

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3.3           Capitalization; Voting Rights.

(a)           The authorized capital stock of the Company, as of the date hereof consists of 175,000,000 shares, of which 170,000,000 are shares of Common Stock, par value $0.0001 per share, 48,766,494 shares of which are issued and outstanding, and 5,000,000 are shares of preferred stock, par value $0.0001 per share, 100,000 shares of which have been designated Series A Convertible Preferred Stock, 35,557 of which shares are issued and outstanding; 1,000,000 shares of which have been designated Series B Convertible Preferred Stock, all of which shares are issued and outstanding; and 600,000 shares of which have been designated Series C Convertible Preferred Stock, none of which shares are issued and outstanding.  The authorized capital stock of each Subsidiary of the Company is set forth on Schedule 3.3.

(b)           Except as disclosed on Schedule 3.3 or as disclosed in any Exchange Act Filings, other than:  (i) the shares reserved for issuance under the Company’s stock option plans; and (ii) shares which may be granted pursuant to this Agreement and the Related Agreements, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or stockholder agreements, or arrangements or agreements of any kind for the purchase or acquisition from the Company of any of its securities. Except as disclosed on Schedule 3.3, neither the Exchange Offer nor issuance of the Shares, nor the issuance of any of the Conversion Shares, nor the consummation of any transaction contemplated hereby will result in a change in the price or number of any securities of the Company issuable or outstanding, under anti-dilution or other similar provisions contained in or affecting any such securities.

(c)           All issued and outstanding shares of the Company’s Common Stock:  (i) have been duly authorized and validly issued and are fully paid and nonassessable; and (ii) were issued in compliance with all applicable state and federal laws concerning the issuance of securities.

(d)           The rights, preferences, privileges and restrictions of the shares of Common Stock are as stated in the Company’s Certificate of Incorporation, including its Certificates of Designation (the “Charter”).  The Securities have been duly and validly reserved for issuance and, when issued in compliance with the provisions of this Agreement and the Company’s Charter, the Securities will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Securities may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed.

3.4           Authorization; Binding Obligations.  All corporate, partnership or limited liability company, as the case may be, action on the part of the Company and each of its Subsidiaries (including the respective officers and directors) necessary for the authorization of this Agreement and the Related Agreements, the performance of all obligations of the Company and its Subsidiaries hereunder and under the other Related Agreements and, the authorization, sale, issuance and delivery of the Securities has been

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taken or will be taken prior to the Closing.  This Agreement and the Related Agreements, when executed and delivered and to the extent it is a party thereto, will be valid and binding obligations of each of the Company and each of its Subsidiaries, enforceable against each such person in accordance with their terms, except:

(a)           as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights; and

(b)           general principles of equity that restrict the availability of equitable or legal remedies.

Except as set forth on Schedule 3.3, the issuance of the Shares and the subsequent conversion of the Series C Preferred Stock into Conversion Shares are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with prior to the Closing.

3.5           Liabilities.  Neither the Company nor any of its Subsidiaries has any contingent liabilities, except current liabilities incurred in the ordinary course of business and liabilities disclosed in any Exchange Act Filings.

3.6           Agreements; Action.  Except as set forth on Schedule 3.6 or as disclosed in any Exchange Act Filings:

(a)           there are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company or any of its Subsidiaries is a party or by which it is bound which may involve: (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $50,000 (other than obligations of, or payments to, the Company arising from purchase or sale agreements entered into in the ordinary course of business); or (ii) the transfer or license of any patent, copyright, trade secret or other proprietary right to or from the Company (other than licenses arising from the purchase of “off the shelf” or other standard products); or (iii) provisions restricting the development, manufacture or distribution of the Company’s products or services; or (iv) indemnification by the Company with respect to infringements of proprietary rights.

(b)           Since March 31, 2006, neither the Company nor any of its Subsidiaries has:  (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock; (ii) incurred any indebtedness for money borrowed or any other liabilities (other than ordinary course obligations or obligations that have been paid in full) individually in excess of $50,000 or, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $100,000 in the aggregate; (iii) made any loans or advances to any person not in excess, individually or in the aggregate, of $100,000, other than ordinary course advances for travel expenses; or (iv) sold,

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exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business.

(c)           For the purposes of subsections (a) and (b) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections.

3.7           Obligations to Related Parties.  Except as set forth on Schedule 3.7 or as disclosed in any Exchange Act Filings, there are no obligations of the Company or any of its Subsidiaries to officers, directors, stockholders or employees of the Company or any of its Subsidiaries other than:

(a)           for payment of salary for services rendered and for bonus payments;

(b)           reimbursement for reasonable expenses incurred on behalf of the Company and its Subsidiaries; and

(c)           for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company).

Except as described above or set forth on Schedule 3.7 or as disclosed in any Exchange Act Filings, none of the officers, directors or, to the best of the Company’s knowledge, key employees or stockholders of the Company or any members of their immediate families, are indebted to the Company, individually or in the aggregate, in excess of $50,000 or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, other than passive investments in publicly traded companies (representing less than one percent (1%) of such company) which may compete with the Company. Except as described above, no officer, director or stockholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company and no agreements, understandings or proposed transactions are contemplated between the Company and any such person.  Except as set forth on Schedule 3.7 or as disclosed in any Exchange Act Filings, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.

3.8           Changes.  Since March 31, 2006, except as disclosed in any Exchange Act Filing or in any Schedule to this Agreement or to any of the Related Agreements, there has not been:

(a)           any change in the business, assets, liabilities, condition (financial or otherwise), properties, operations or prospects of the Company or any of its Subsidiaries, which individually or in the aggregate has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

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(b)           any resignation or termination of any officer, key employee or group of employees of the Company or any of its Subsidiaries;

(c)           any material change, except in the ordinary course of business, in the contingent obligations of the Company or any of its Subsidiaries by way of guaranty, endorsement, indemnity, warranty or otherwise;

(d)           any damage, destruction or loss, whether or not covered by insurance, has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(e)           any waiver by the Company or any of its Subsidiaries of a valuable right or of a material debt owed to it;

(f)            any direct or indirect loans made by the Company or any of its Subsidiaries to any stockholder, employee, officer or director of the Company or any of its Subsidiaries, other than advances made in the ordinary course of business;

(g)           any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder of the Company or any of its Subsidiaries;

(h)           any declaration or payment of any dividend or other distribution of the assets of the Company or any of its Subsidiaries;

(i)            any labor organization activity related to the Company or any of its Subsidiaries;

(j)            any debt, obligation or liability incurred, assumed or guaranteed by the Company or any of its Subsidiaries, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business;

(k)           any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets owned by the Company or any of its Subsidiaries;

(l)            any change in any material agreement to which the Company or any of its Subsidiaries is a party or by which either the Company or any of its Subsidiaries is bound which either individually or in the aggregate has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(m)          any other event or condition of any character that, either individually or in the aggregate, has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; or

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(n)           any arrangement or commitment by the Company or any of its Subsidiaries to do any of the acts described in subsection (a) through (m) above.

3.9           Title to Properties and Assets; Liens, Etc.  Except as set forth on Schedule 3.9, each of the Company and each of its Subsidiaries has good and marketable title to its properties and assets, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than:

(a)           those resulting from taxes which have not yet become due;

(b)           minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company or any of its Subsidiaries; and

(c)           those that have otherwise arisen in the ordinary course of business.

All facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by the Company and its Subsidiaries are in good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used.  Except as set forth on Schedule 3.9, the Company and its Subsidiaries are in compliance with all material terms of each lease to which it is a party or is otherwise bound.

3.10         Intellectual Property.

(a)           Each of the Company and each of its Subsidiaries owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and to the Company’s knowledge, as presently proposed to be conducted (the “Intellectual Property”), without any known infringement of the rights of others.  There are no outstanding options, licenses or agreements of any kind relating to the foregoing proprietary rights, nor is the Company or any of its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of “off the shelf” or standard products.

(b)           Neither the Company nor any of its Subsidiaries has received any communications alleging that the Company or any of its Subsidiaries has violated any of the patents, trademarks, service marks, trade names, copyrights, licenses or trade secrets or other proprietary rights of any other person or entity, nor is the Company or any of its Subsidiaries aware of any basis therefor.

(c)           The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its employees made prior to their employment by the Company or any of its Subsidiaries, except

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for inventions, trade secrets or proprietary information that have been rightfully assigned to the Company or any of its Subsidiaries.

3.11         Compliance with Other Instruments.  Neither the Company nor any of its Subsidiaries is in violation or default of (x) any term of its Charter or Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture, contract, agreement or instrument to which it is party or by which it is bound or of any judgment, decree, order or writ, which violation or default, in the case of this clause (y), has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.  The execution, delivery and performance of and compliance with this Agreement and the Related Agreements to which it is a party, and the issuance and sale of the Securities by the Company each pursuant hereto and thereto, will not, with or without the passage of time or giving of notice, result in any such material violation, or be in conflict with or constitute a default under any such term or provision, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or any of its Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties.

3.12         Litigation.  Except as set forth on Schedule 3.12 hereto or as disclosed in any Exchange Act Filings, there is no action, suit, proceeding or investigation pending or, to the Company’s knowledge, currently threatened against the Company or any of its Subsidiaries that prevents the Company or any of its Subsidiaries from entering into this Agreement or the other Related Agreements, or from consummating the transactions contemplated hereby or thereby, or which has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or any change in the current equity ownership of the Company or any of its Subsidiaries, nor is the Company aware that there is any basis to assert any of the foregoing. Neither the Company nor any of its Subsidiaries is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality.  There is no action, suit, proceeding or investigation by the Company or any of its Subsidiaries currently pending or which the Company or any of its Subsidiaries intends to initiate.

3.13         Tax Returns and Payments.  Each of the Company and each of its Subsidiaries has timely filed all tax returns (federal, state and local) required to be filed by it.  All taxes shown to be due and payable on such returns, any assessments imposed, and all other taxes due and payable by the Company or any of its Subsidiaries on or before the Closing, have been paid or will be paid prior to the time they become delinquent.  Except as set forth on Schedule 3.13, neither the Company nor any of its Subsidiaries has been advised:

(a)           that any of its returns, federal, state or other, have been or are being audited as of the date hereof; or

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(b)           of any deficiency in assessment or proposed judgment to its federal, state or other taxes.

The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for.

3.14         Employees.  Except as set forth on Schedule 3.14, neither the Company nor any of its Subsidiaries has any collective bargaining agreements with any of its employees.  There is no labor union organizing activity pending or, to the Company’s knowledge, threatened with respect to the Company or any of its Subsidiaries.  Except as disclosed in the Exchange Act Filings or on Schedule 3.14, neither the Company nor any of its Subsidiaries is a party to or bound by any currently effective employment contract, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement.  To the Company’s knowledge, no employee of the Company or any of its Subsidiaries, nor any consultant with whom the Company or any of its Subsidiaries has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company or any of its Subsidiaries because of the nature of the business to be conducted by the Company or any of its Subsidiaries; and to the Company’s knowledge the continued employment by the Company or any of its Subsidiaries of its present employees, and the performance of the Company’s and its Subsidiaries’ contracts with its independent contractors, will not result in any such violation.  Neither the Company nor any of its Subsidiaries is aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or any of its Subsidiaries.  Neither the Company nor any of its Subsidiaries has received any notice alleging that any such violation has occurred.  Except for employees who have a current effective employment agreement with the Company or any of its Subsidiaries, no employee of the Company or any of its Subsidiaries has been granted the right to continued employment by the Company or any of its Subsidiaries or to any material compensation following termination of employment with the Company or any of its Subsidiaries.  Except as set forth on Schedule 3.14, the Company is not aware that any officer, key employee or group of employees intends to terminate his, her or their employment with the Company or any of its Subsidiaries, nor does the Company or any of its Subsidiaries have a present intention to terminate the employment of any officer, key employee or group of employees.

3.15         Registration Rights and Voting Rights.  Except as set forth on Schedule 3.15, neither the Company nor any of its Subsidiaries is presently under any obligation, and neither the Company nor any of its Subsidiaries has granted any rights, to register any of the Company’s or its Subsidiaries’ presently outstanding securities or any of its securities that may hereafter be issued other than pursuant to the Registration Rights Agreement.  Except as set forth on Schedule 3.15, to the Company’s knowledge, no stockholder of the Company or any of its Subsidiaries has entered into any agreement with respect to the voting of equity securities of the Company or any of its Subsidiaries.

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3.16         Compliance with Laws; Permits.  Neither the Company nor any of its Subsidiaries is in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties which has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.  No governmental orders, permissions, consents, approvals or authorizations are required to be obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this Agreement or any other Related Agreement and the issuance of any of the Securities, except such as has been duly and validly obtained or filed, or with respect to any filings that must be made after the Closing, as will be filed in a timely manner.  Each of the Company and its Subsidiaries has all material franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.17         Environmental and Safety Laws.  Neither the Company nor any of its Subsidiaries is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. Except as set forth on Schedule 3.17, no Hazardous Materials (as defined below) are used or have been used, stored, or disposed of by the Company or any of its Subsidiaries or, to the Company’s knowledge, by any other person or entity on any property owned, leased or used by the Company or any of its Subsidiaries. For the purposes of the preceding sentence, “Hazardous Materials” shall mean:

(a)           materials which are listed or otherwise defined as “hazardous” or “toxic” under any applicable local, state, federal and/or foreign laws and regulations that govern the existence and/or remedy of contamination on property, the protection of the environment from contamination, the control of hazardous wastes, or other activities involving hazardous substances, including building materials; or

(b)           any petroleum products or nuclear materials.

3.18         Valid Offering.  Assuming the accuracy of the representations and warranties of the Purchasers contained in this Agreement, the Exchange Offer and issuance of the Securities will be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws.

3.19         Full Disclosure.  Each of the Company and each of its Subsidiaries has provided the Purchasers with all information requested by the Purchasers in connection with its decision to participate in the Exchange Offer, including all information the Company and its Subsidiaries reasonably believe is reasonably necessary to make such investment decision. Neither this Agreement, the Related Agreements, the exhibits and

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schedules hereto and thereto nor any other document delivered by the Company or any of its Subsidiaries to Purchasers or their attorneys or agents in connection herewith or therewith or with the transactions contemplated hereby or thereby, contain any untrue statement of a material fact nor omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading.  Any financial projections and other estimates provided to the Purchasers by the Company or any of its Subsidiaries were based on the Company’s and its Subsidiaries’ experience in the industry and on assumptions of fact and opinion as to future events which the Company or any of its Subsidiaries, at the date of the issuance of such projections or estimates, believed to be reasonable.

3.20         Insurance.  Each of the Company and each of its Subsidiaries has general commercial, product liability, fire and casualty insurance policies with coverages which the Company believes are customary for companies similarly situated to the Company and its Subsidiaries in the same or similar business.

3.21         SEC Reports.  Except as set forth on Schedule 3.21, the Company has filed all proxy statements, reports and other documents required to be filed by it under the Exchange Act.  The Company has provided public access to copies of or otherwise made available to the Purchaser: (i) its Annual Report on Form 10-KSB for its fiscal year ended December 31, 2005, as amended; (ii) its Quarterly Report on Form 10-QSB for its fiscal quarter ended March 31, 2006; and (iii) the Form 8-K filings which it has made during the fiscal year 2006 up to three (3) business days prior to the date hereof (collectively, the “SEC Reports”). Except as set forth on Schedule 3.21, each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading

3.22         Listing.  The Common Stock is quoted or listed on the NASD Over the Counter Bulletin Board (“OTCBB”) and satisfies all requirements for the continuation of such trading.  The Company will cause the Common Stock to remain eligible to trade on the OTCBB and meet all requirements for such trading.

3.23         No Integrated Offering.  Neither the Company, nor any of its Subsidiaries or affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Securities pursuant to this Agreement or any of the Related Agreements to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Securities pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions or impair the exemptions set forth in Section 3.18, nor will the Company or any of its affiliates or Subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings.

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3.24         Holding Period.  The Company acknowledges that, for purposes of Rule 144 under the Securities Act, the Purchasers may consider the holding period of the Shares issued by the Company against receipt of the Notes surrendered in exchange therefor pursuant to and in accordance with this Agreement to have begun as of the date such Purchasers acquired the Notes so surrendered.

3.25         Stop Transfer.  The Securities are restricted securities as of the date of this Agreement.  Neither the Company nor any of its Subsidiaries will issue any stop transfer order or other order impeding the sale and delivery of any of the Securities at such time as the Securities are registered for public sale or an exemption from registration is available, except as required by state and federal securities laws.

3.26         Dilution.  The Company specifically acknowledges that its obligation to issue the shares of Common Stock upon conversion of the Series C Preferred Stock is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.

3.27         Patriot Act.  The Company certifies that, to the best of Company’s knowledge, neither the Company nor any of its Subsidiaries has been designated, and is not owned or controlled, by a “suspected terrorist” as defined in Executive Order 13224.  The Company hereby acknowledges that each Purchaser seeks to comply with all applicable laws concerning money laundering and related activities.  In furtherance of those efforts, the Company hereby represents, warrants and agrees that:  (i) none of the cash or property that the Company or any of its Subsidiaries will pay or will contribute to such Purchaser has been or shall be derived from, or related to, any activity that is deemed criminal under United States law; and (ii) no contribution or payment by the Company or any of its Subsidiaries to such Purchaser, to the extent that they are within the Company’s and/or its Subsidiaries’ control shall cause Purchaser to be in violation of the United States Bank Secrecy Act, the United States International Money Laundering Control Act of 1986 or the United States International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001.  The Company shall promptly notify the Purchasers if any of these representations ceases to be true and accurate regarding the Company or any of its Subsidiaries.  The Company agrees to provide the Purchasers any additional information regarding the Company or any of its Subsidiaries that the Purchasers deem necessary or convenient to ensure compliance with all applicable laws concerning money laundering and similar activities.  The Company understands and agrees that if at any time it is discovered that any of the foregoing representations are incorrect, or if otherwise required by applicable law or regulation related to money laundering similar activities, the Purchasers may undertake appropriate actions to ensure compliance with each applicable law or regulation, including but not limited to segregation and/or redemption of the Purchasers’ investment in the Company.  The Company further understands that each Purchaser may release confidential information about the Company and its Subsidiaries and, if applicable, any underlying beneficial owners, to proper authorities if such Purchaser, in its sole discretion, determines that it is in the best interests of such Purchaser in light of relevant rules and regulations under the laws set forth in subsection (ii) above.

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4.             Representations and Warranties of the Purchasers.  Each Purchaser, severally, not jointly, hereby represents and warrants to the Company as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement):

4.1           No Shorting.  Such Purchaser or any of its affiliates will not and will not cause any person or entity, directly or indirectly, to engage in “short sales” of the Company’s Common Stock following the Effective Date of the registration of Common Stock provided for in the Registration Rights Agreement, for as long as the Shares and the Conversion Shares issued to such Purchaser or owned by such Purchaser shall be outstanding.

4.2           Requisite Power and Authority.  The Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and the Related Agreements and to carry out their provisions. All corporate action on such Purchaser’s part required for the lawful execution, if any, and delivery of this Agreement and the Related Agreements have been or will be effectively taken prior to the Closing. Upon their execution and delivery, this Agreement and the Related Agreements will be valid and binding obligations of such Purchaser, enforceable in accordance with their terms, except:

(a)           as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights; and

(b)           as limited by general principles of equity that restrict the availability of equitable and legal remedies.

4.3           Investment Representations.  Such Purchaser understands that the Securities are being offered for exchange pursuant to an exemption from registration contained in the Securities Act based in part upon such Purchaser’s representations contained in the Agreement, including, without limitation, that such Purchaser is an “accredited investor” within the meaning of Regulation D under the Securities Act.  Such Purchaser confirms that it has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to such Purchaser’s participation in the Exchange Offer, the Shares to be acquired and the Conversion Shares to be acquired upon the conversion of the Series C Preferred Stock.  Such Purchaser further confirms that it has had an opportunity to ask questions and receive answers from the Company regarding the Company’s and its Subsidiaries’ business, management and financial affairs and the terms and conditions of the Exchange Offering, the Shares and the Conversion Shares and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to such Purchaser or to which such Purchaser had access.

4.4           Purchaser Bears Economic Risk.  Such Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in

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companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Such Purchaser must bear the economic risk of this investment until the Securities are sold pursuant to: (i) an effective registration statement under the Securities Act; or (ii) an exemption from registration is available with respect to such sale.

4.5           Acquisition for Own Account.  Such Purchaser is acquiring its Shares and the Conversion Shares for such Purchaser’s own account for investment only, and not as a nominee or agent and not with a view towards or for resale in connection with their distribution.

4.6           Purchaser Can Protect Its Interest.  Such Purchaser represents that by reason of its, or of its management’s, business and financial experience, such Purchaser has the capacity to evaluate the merits and risks of its investment in the Shares and the Conversion Shares to protect its own interests in connection with the transactions contemplated in this Agreement and the Related Agreements.  Further, such Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement or the Related Agreements.

4.7           Accredited Investor.  Such Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act.

4.8           No Additional Consideration.  Such Purchaser represents that it has not received any additional consideration with respect to its participation in the Exchange Offer other than as contemplated by this Agreement.

4.9           Exculpation Among Purchasers.  Such Purchaser acknowledges that it is not relying upon any person, firm or corporation, other than the Company as expressly set forth herein, in making its investment or decision to invest in the Company.  Such Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with its participation in the Exchange Offer.

4.10         Legends.  The Shares and the Conversion Shares, if not issued by DWAC system (as hereinafter defined), shall bear a legend which shall be in substantially the following form until such shares are covered by an effective registration statement filed with the SEC:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL

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REASONABLY SATISFACTORY TO BIO-KEY INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

5.             Covenants of the Company.  The Company covenants and agrees with the Purchasers as follows:

5.1           Stop-Orders.  The Company will advise the Purchasers on the same business day it receives notice of issuance by the Securities and Exchange Commission (the “SEC”), any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.

5.2           Trading.  The Company shall promptly secure the listing or trading of the Conversion Shares on the OTCBB  (the “Principal Market”) upon which shares of Common Stock are traded (subject to official notice of issuance) and shall maintain such trading so long as any other shares of Common Stock shall be so traded. The Company will maintain the trading of its Common Stock on the Principal Market, and will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers (“NASD”) and any other exchanges on which the Company’s common stock is listed or traded, as applicable.

5.3           Market Regulations.  The Company shall notify the SEC, NASD and applicable state authorities, in accordance with their requirements, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to the Purchasers and promptly provide copies thereof to the Purchasers.

5.4           Access to Facilities.  Each of the Company and each of its Subsidiaries will permit any representatives designated by (i) The Shaar Fund, Ltd., (ii) Longview Fund, L.P. (in each case, so long as such Purchaser holds any Shares) and (iii) the Purchasers holding at least 51% of the then aggregate outstanding Shares, upon reasonable notice and during normal business hours, at such person’s expense and accompanied by a representative of the Company, to:

(a)           visit and inspect any of the properties of the Company or any of its Subsidiaries;

(b)           examine the corporate and financial records of the Company or any of its Subsidiaries (unless such examination is not permitted by federal, state or local law or by contract) and make copies thereof or extracts therefrom; and

(c)           discuss the affairs, finances and accounts of the Company or any of its Subsidiaries with the directors, officers and independent accountants of the Company or any of its Subsidiaries.

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Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries will provide any material, non-public information to any Purchaser unless such Purchaser agrees in writing to receive such information or signs a confidentiality agreement and otherwise complies with Regulation FD, under the federal securities laws.

5.5           Taxes.  Each of the Company and each of its Subsidiaries will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company and its Subsidiaries; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company and/or such Subsidiary shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company and its Subsidiaries will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor.

5.6           Insurance.  Each of the Company and its Subsidiaries will keep its assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in similar business similarly situated as the Company and its Subsidiaries; and the Company and its Subsidiaries will maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner which the Company reasonably believes is customary for companies in similar business similarly situated as the Company and its Subsidiaries and to the extent available on commercially reasonable terms. At the Company’s and each of its Subsidiaries’ joint and several cost and expense in amounts and with carriers reasonably acceptable to Purchasers, the Company and each of its Subsidiaries shall (i) keep all its insurable properties and properties in which it has an interest insured against the hazards of fire, flood, sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and for such amounts, as is customary in the case of companies engaged in businesses similar to the Company’s or the respective Subsidiary’s including business interruption insurance; (ii) maintain a bond in such amounts as is customary in the case of companies engaged in businesses similar to the Company’s or the respective Subsidiary’s insuring against larceny, embezzlement or other criminal misappropriation of insured’s officers and employees who may either singly or jointly with others at any time have access to the assets or funds of the Company or any of its Subsidiaries either directly or through governmental authority to draw upon such funds or to direct generally the disposition of such assets; (iii) maintain public and product liability insurance against claims for personal injury, death or property damage suffered by others; (iv) maintain all such worker’s compensation or similar insurance as may be required under the laws of any state or jurisdiction in which the Company or the respective Subsidiary is engaged in business; and (v) if requested, furnish Purchasers with copies of all policies and evidence of the maintenance of such policies at least thirty (30) days before any expiration date.

5.7           Intellectual Property.  Each of the Company and each of its Subsidiaries shall maintain in full force and effect its existence, rights and franchises and all licenses

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and other rights to use Intellectual Property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business.

5.8           Properties.  Each of the Company and each of its Subsidiaries will keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and each of the Company and each of its Subsidiaries will at all times comply with each provision of all leases to which it is a party or under which it occupies property if the breach of such provision could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

5.9           Confidentiality.  The Company agrees that it will not disclose, and will not include in any public announcement, the name of any Purchaser, unless expressly agreed to by such Purchaser or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement.  Notwithstanding the foregoing, the Company may disclose each Purchaser’s identity and the terms of this Agreement to its current and prospective debt and equity financing sources and to obtain waivers of anti-dilution adjustment provisions related to the Company’s outstanding securities as set forth in Schedule 3.3.

5.10         Required Approvals.  For so long as twenty-five percent (25%) of the shares of Series C Preferred Stock issued hereunder are outstanding, the Company, without the prior written consent of the Purchasers, shall not, and shall not permit any of its Subsidiaries to:

(a)

(i)            directly or indirectly declare or pay any dividends, other than dividends paid to the Company or any of its wholly-owned Subsidiaries or to the holders of its Preferred Stock to the extent that it is required to do so,

(ii)           issue any preferred stock that is redeemable, or

(iii)          redeem any of its preferred stock or other equity interests, except for the Company’s Series A Preferred Stock and Series B Preferred Stock, in each case to the extent that it is required to do so pursuant to the Charter;

(b)           liquidate, dissolve or effect a material reorganization (it being understood that in no event shall the Company dissolve, liquidate or merge with any other person or entity (unless the Company is the surviving entity);

(c)           become subject to (including, without limitation, by way of amendment to or modification of) any agreement or instrument which by its terms would (under any circumstances) restrict the Company’s or any of its Subsidiaries

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right to perform the provisions of this Agreement, any Related Agreement or any of the agreements contemplated hereby or thereby;

(d)           materially alter or change the scope of the business of the Company and its Subsidiaries taken as a whole;

(e)

(i)            create, incur, assume or suffer to exist any indebtedness (exclusive of trade debt and debt incurred to finance the purchase of equipment (not in excess of five percent (5%) of the fair market value of the Company’s and its Subsidiaries’ assets) whether secured or unsecured other than (x) the Company’s indebtedness disclosed in any Exchange Act Filing, (y) indebtedness set forth on Schedule 3.6 attached hereto and made a part hereof and any refinancings or replacements thereof on terms no less favorable to the Purchaser than the indebtedness being refinanced or replaced, and (z) any debt incurred in connection with the purchase of assets in the ordinary course of business, or any refinancings or replacements thereof on terms no less favorable to the Purchaser than the indebtedness being refinanced or replaced;

(ii)           cancel or prepay any debt owing to it in excess of $50,000 in the aggregate during any 12 month period;

(iii)          assume, guarantee, endorse or otherwise become directly or contingently liable in connection with any obligations of any other Person, except the endorsement of negotiable instruments by the Company for deposit or collection or similar transactions in the ordinary course of business or guarantees of indebtedness otherwise permitted to be outstanding pursuant to this clause (e); and

(f)            create or acquire any Subsidiary after the date hereof unless (i) such Subsidiary is a wholly-owned Subsidiary of the Company and (ii) and, to the extent required by the Purchasers, satisfies each condition of this Agreement and the Related Agreements as if such Subsidiary were a Subsidiary on the Closing Date.

5.11         Reissuance of Securities.  The Company agrees to reissue certificates representing the Securities without the legends set forth in Section 4.10 above at such time as:

(a)           the holder thereof is permitted to dispose of such Securities pursuant to Rule 144(d) or Rule 144(k) under the Securities Act; or

(b)           upon resale subject to an effective registration statement after such Securities are registered under the Securities Act.

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The Company agrees to cooperate with the Purchasers in connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow such resales provided the Company and its counsel receive reasonably requested representations from the selling Purchaser and broker, if any.

5.12         Legal Opinion.  On the Closing Date, the Company will deliver to the Purchaser an opinion in the form attached hereto as Exhibit C.  The Company will provide, at the Company’s expense, such other legal opinions in the future as are deemed necessary by the Purchasers (and acceptable to the Purchasers) in connection with the conversion of the Series C Preferred Stock, including without limitation as to the removal of legends, as appropriate.

5.13         Reporting Requirements.  The Company will timely file with the SEC all reports required to be filed pursuant to the Exchange Act and refrain from terminating its status as an issuer required by the Exchange Act to file reports thereunder even if the Exchange Act or the rules or regulations thereunder would permit such termination.

5.14         Reservation of Shares.  The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Shares and payment of dividends thereon, such number of its shares of Common Stock as shall from time to time be sufficient to effect (i) the conversion of all outstanding Shares and (ii) the payment of three (3) years of dividends less any dividends previously paid on the Shares as provided in the Certificate of Designation.  All such Conversion Shares reserved for issuance shall be allocated among the Purchasers on a pro rata basis based on the amount of Shares held by such Purchasers.

5.15         Securities Purchase Agreement.  In the event that the purchase and sale of Common Stock pursuant to the Securities Purchase Agreement dated as of the date hereof by and between the Company and The Shaar Fund, Ltd. is not fully consummated by September 10, 2007, (a) this Agreement shall terminate and be of no further force or effect, (b) the Exchange Offer will automatically, without any action required by any party hereto, be rescinded, and all Exchange Consideration will revert to Purchasers, and (c) all parties hereto will be restored to their respective positions as of the date hereof as though this Agreement had not been entered into by the parties.

6.             Covenants of the Purchaser.  Each Purchaser covenants and agrees with the Company as follows:

6.1           Regulation M.  Such Purchaser acknowledges and agrees that Regulation M promulgated under the Exchange Act will apply to any sales of the Company’s Common Stock, and the Purchaser will, and will cause each of its affiliates and its investment partners to, comply with Regulation M in all respects during such time as they may be engaged in a distribution of shares of the Company’s Common Stock.

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7.             Covenants of the Company and Purchaser Regarding Indemnification.

7.1           Company Indemnification.  The Company agrees to indemnify, hold harmless, reimburse and defend each Purchaser, each of such Purchaser’s officers, directors, agents, affiliates, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Purchaser which results, arises out of or is based upon: (i) any misrepresentation by the Company or any of its Subsidiaries or breach of any warranty by the Company or any of its Subsidiaries in this Agreement, any other Related Agreement or in any exhibits or schedules attached hereto or thereto; or (ii) any breach or default in performance by Company or any of its Subsidiaries of any covenant or undertaking to be performed by Company or any of its Subsidiaries hereunder, under any other Related Agreement or any other agreement entered into by the Company and/or any of its Subsidiaries and such Purchaser relating hereto or thereto.

7.2           Purchaser’s Indemnification.  Each Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company and each of the Company’s officers, directors, agents, affiliates, control persons and principal shareholders, at all times against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Company which results, arises out of or is based upon: (i) any misrepresentation by such Purchaser or breach of any warranty by such Purchaser in this Agreement or in any exhibits or schedules attached hereto or any Related Agreement; or (ii) any breach or default in performance by such Purchaser of any covenant or undertaking to be performed by such Purchaser hereunder, or any other agreement entered into by the Company and such Purchaser relating hereto.  Notwithstanding the provisions of this paragraph, such Purchaser shall not be required to indemnify any person or entity in excess of the amount of the aggregate net proceeds received by such Purchaser in respect of Registrable Securities (as defined in the Registration Rights Agreement) in connection with any registration under the Securities Act.

8.             Conversion of Convertible Shares

8.1           Mechanics of Conversion.

(a)           Provided a Purchaser has notified the Company of such Purchaser’s intention to sell the Conversion Shares and the Conversion Shares are included in an effective registration statement or are otherwise exempt from registration when sold:  (i) upon the conversion of the Series C Preferred Stock or part thereof, the Company shall, at its own cost and expense, take all necessary action (including the issuance of an opinion of counsel reasonably acceptable to such Purchaser following a request by the Purchaser) to assure that the Company’s transfer agent shall issue shares of the Company’s Common Stock in the name of such Purchaser (or its nominee) or such other persons as designated by such Purchaser in accordance with Section 8.1(b) hereof and in such denominations to be specified representing the number of Conversion Shares issuable upon such conversion; and (ii) the Company warrants that no instructions other than these instructions have been or will be given to the transfer agent of the Company’s Common Stock and that after the Effectiveness Date (as defined in

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the Registration Rights Agreement) the Conversion Shares issued will be freely transferable subject to the prospectus delivery requirements of the Securities Act and the provisions of this Agreement, and will not contain a legend restricting the resale or transferability of the Conversion Shares.

(b)           A Purchaser will give notice of its decision to exercise its right to convert its Series C Preferred Stock or part thereof by telecopying or otherwise delivering an executed and completed notice of the number of shares to be converted to the Company, which notice shall be in the form attached to the Series C Preferred Stock or attached hereto as Exhibit B, as applicable (the “Notice of Conversion”).  The Purchaser will not be required to surrender its Series C Preferred Stock until the Purchaser receives a credit to the account of the Purchaser’s prime broker through the DWAC system (as defined below) representing the Conversion Shares, or, in the event that the Conversion Shares are not electronically transferable, until such Purchaser actually receives the certificates representing the Conversion Shares.  Each date on which a Notice of Conversion is telecopied or delivered to the Company in accordance with the provisions hereof shall be deemed a “Conversion Date.”  Pursuant to the terms of the Notice of Conversion, the Company will issue instructions to the transfer agent accompanied by an opinion of counsel within one (1) business day of the date of the delivery to the Company of the  Notice of Conversion and shall cause the transfer agent to transmit the certificates representing the Conversion Shares to the Purchaser by (i) crediting the account of the Purchaser’s prime broker with the Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”) system or (ii) in the event that the Conversion Shares are not electronically transferable, by delivery of the certificates via overnight courier, in each case within three (3) business days after receipt by the Company of the Notice of Conversion (the “Delivery Date”).

(c)           The Company understands that a delay in the delivery of the Conversion Shares in the form required pursuant to Section 8 hereof beyond the applicable Delivery Date could result in economic loss to the applicable Purchaser.  In the event that the Company fails to direct its transfer agent to deliver the Conversion Shares to such Purchaser via the DWAC system within the time frame set forth in Section 8.1(b) above and the Conversion Shares are not delivered to such Purchaser by the Delivery Date, as compensation to such Purchaser for such loss, the Company agrees to pay late payments to such Purchaser for late issuance of the Conversion Shares in the form required pursuant to Section 8 hereof upon conversion of the Series C Preferred Stock in the amount equal to the greater of:  (i) one percent (1%) of the face amount of the shares of Series C Preferred Stock held by such Purchaser per business day after the Delivery Date, or (ii) such Purchaser’s actual damages from such delayed delivery.  Notwithstanding the foregoing, the Company will not owe such Purchaser any late payments if the delay in the delivery of the Conversion Shares beyond the Delivery Date is the result of any action or inaction of such Purchaser in violation of its obligations under this Agreement or any of the Related Agreements.  The Company shall pay any payments incurred under this Section in

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immediately available funds upon demand and, in the case of actual damages, accompanied by reasonable documentation of the amount of such damages.

(d)           In addition to any other rights available to the Purchasers, if the Company fails to deliver to a Purchaser such certificate or certificates pursuant to Section 8(b) by the Delivery Date and if within seven (7) business days after the Delivery Date, the Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of the Common Stock which the Purchaser anticipated receiving upon such conversion (a “Buy-In”), then the Company shall pay in cash to the Purchaser (in addition to any remedies available to or elected by the Purchaser) within five (5) business days after written notice from the Purchaser, the amount by which (A) the Purchaser’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the stated value of the shares of Series C Preferred Stock, as applicable, for which such conversion was not timely honored, together with interest thereon at a rate of 10% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty).  For example, if the Purchaser purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of stated value of Series C Preferred Stock, the Company shall be required to pay the Purchaser $1,000, plus interest.  The Purchaser shall provide the Company written notice indicating the amounts payable to the Purchaser in respect of the Buy-In.

(e)           In the event a Purchaser shall elect to convert any part of the Shares, the Company may not refuse conversion based on any claim that the Purchaser or any one associated or affiliated with the Purchaser has been engaged in any violation of law, or for any other reason, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or part of such Securities shall have been sought and obtained by the Company and the Company has posted a surety bond for the benefit of such Purchaser in the amount of 120% of the amount of such Securities which are sought to be subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Purchaser to the extent Purchaser obtains judgment.

Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law.  In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum amount permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to a Purchaser and thus refunded to the Company.

9.             Registration Rights.  The Company hereby grants registration rights to the Purchasers pursuant to a Registration Rights Agreement dated as of even date herewith between the Company and the Purchasers.

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10.           Miscellaneous.

10.1         Governing Law.  THIS AGREEMENT AND EACH RELATED 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.  ANY ACTION BROUGHT BY ANY PARTY AGAINST ANOTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK, IN EACH CASE SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN.  ALL PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY.  IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW.  ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT.

10.2         Survival.  The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchasers and for one year after the date of the closing of the transactions contemplated hereby to the extent provided therein. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument.

10.3         Successors.  Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Securities from time to time, other than the holders of Common Stock which has been sold by a Purchaser pursuant to Rule 144 or an effective registration statement.  No Purchaser may assign its rights hereunder to a competitor of the Company.  The Company may not assign its rights hereunder to a third party without obtaining the consent of The Shaar Fund, Ltd., Longview Fund, L.P. (in each case, so long as such Purchaser holds any Shares) and the Purchasers holding at least 51% of the then aggregate outstanding Shares, such consent not to be unreasonably withheld or delayed.

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10.4         Entire Agreement.  This Agreement, the Related Agreements, the exhibits and schedules hereto and thereto and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein.

10.5         Severability.  In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

10.6         Amendment and Waiver.

(a)           This Agreement may be amended or modified only upon the written consent of (i) the Company, (ii) The Shaar Fund, Ltd., (iii) Longview Fund, L.P. (in each case, so long as such Purchaser holds any Shares) and (iv) the Purchasers holding at least 51% of the then aggregate outstanding Shares.

(b)           The obligations of the Company and the rights of the Purchasers under this Agreement may be waived only with the written consent of (i) the Company, (ii) The Shaar Fund, Ltd., (iii) Longview Fund, L.P. (in each case, so long as such Purchaser holds any Shares) and (iv) the Purchasers holding at least 51% of the then aggregate outstanding Shares.

(c)           The obligations of the Purchasers and the rights of the Company under this Agreement may be waived only with the written consent of the Company.

(d)           Each reference contained in the Certificate of Designation to a requirement that the Company obtain the approval of the holders of the then outstanding shares of the Series C Preferred Stock shall be deemed to require the written consent of (i) The Shaar Fund, Ltd., (ii) Longview Fund, L.P. (in each case, so long as such Purchaser holds any Shares) and (iii) the Purchasers holding at least 51% of the then aggregate outstanding Shares.

10.7         Delays or Omissions.  It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement or the Related Agreements, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring.  All remedies, either under this Agreement or the Related Agreements, by law or otherwise afforded to any party, shall be cumulative and not alternative.

10.8         Notices.  All notices required or permitted hereunder shall be in writing and shall be deemed effectively given:

(a)           upon personal delivery to the party to be notified;

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(b)           when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day;

(c)           three (3) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or

(d)           one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.

All communications shall be sent as follows:

If to the Company, to:

BIO-Key International, Inc.

300 Nickerson Road

Marlborough, MA 01752

Attention:  Chief Financial Officer

Facsimile:  (508) 460-4098

with a copy to:

Choate, Hall & Stewart LLP

Two International Place

Boston, MA  02110

Attention:  Charles J. Johnson, Esq.

Facsimile:  617-248-4000

If to a Purchaser, to the address set forth on such Purchaser’s signature page hereto.

or at such other addresses as the Company or the Purchasers may designate by written notice to the other parties hereto given in accordance herewith.

10.9         Attorneys’ Fees.  Upon and subject to the Closing, (i) the Company shall pay the reasonable fees and expenses of Grushko & Mittman, P.C., special counsel to Longview Fund, L.P. and Longview Special Finance, incurred in connection with the negotiation, execution and delivery of this Agreement by such Purchasers, and (ii) the Company shall pay the reasonable fees and expenses of Meltzer, Lippe, Goldstein & Breitstone, LLP, special counsel to Shaar, incurred in connection with the negotiation, execution and delivery of this Agreement by such Purchaser, in each case up to a maximum of $7,500.  In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including, without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

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10.10       Titles and Subtitles.  The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

10.11       Facsimile Signatures; Counterparts.  This 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.

10.12       Broker’s Fees.  Except as set forth on Schedule 10.12 hereof, each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker’s or finder’s fee or any other commission directly or indirectly in connection with the transactions contemplated herein.  Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation by such party in this Section 10.12 being untrue.

10.13       Construction.  Each party acknowledges that its legal counsel participated in the preparation of this Agreement and the Related Agreements and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Agreement to favor any party against the other.

(The remainder of this page is intentionally left blank.)

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IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES EXCHANGE AGREEMENT as of the date set forth in the first paragraph hereof.

COMPANY
BIO-KEY INTERNATIONAL, INC.
By:	/s/ Thomas J. Colatosti
	Name: Thomas J. Colatosti
	Title: Chairman

Signature Page to Securities Exchange Agreement

IN WITNESS WHEREOF, the parties have executed this SECURITIES EXCHANGE AGREEMENT as of the date set forth in the first paragraph hereof.

THE SHAAR FUND, LTD.
By:	SS&C Fund Services (BVI) United
By:	/s/ Andy Senior
	Name: Andy Senior
	Title: Director
Address for Notices:
The Shaar Fund, Ltd.
c/o SS&C Fund Services N.V.
Pareraweg 45
Curacao, Netherlands Antilles
Attn: Maarten Robberts
Facsimile No.: 599-9 434-3560
with copies to:
Levinson Capital Management, LLC
350 Fifth Avenue, Suite 2210
New York, New York 10118
and
Meltzer, Lippe, Goldstein & Breitstone, LLP
190 Willis Avenue
Mineola, NY 11501
Attention:		Ira R. Halperin, Esq.
Facsimile:		516-747-0653

Signature Page to Securities Exchange Agreement

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES EXCHANGE AGREEMENT as of the date set forth in the first paragraph hereof.

LONGVIEW FUND, LP
By:	/s/ S. Michael Rudolph
	Name: S. Michael Rudolph
	Title: CFO
Address for Notices:
with copies to:
Barbara Mittman, Esq.
Grushko & Mittman, P.C.
551 Fifth Avenue, Suite 1601
New York, NY 10176
(212) 697-3575 (Fax)

Signature Page to Securities Exchange Agreement

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES EXCHANGE AGREEMENT as of the date set forth in the first paragraph hereof.

LONGVIEW SPECIAL FINANCE
By:	/s/ Francis Horn
	Name: Francis Horn
	Title: Director
Address for Notices:
with copies to:
Barbara Mittman, Esq.
Grushko & Mittman, P.C.
551 Fifth Avenue, Suite 1601
New York, NY 10176
(212) 697-3575 (Fax)

Signature Page to Securities Exchange Agreement

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES EXCHANGE AGREEMENT as of the date set forth in the first paragraph hereof.

CORDILLERA FUND, L.P.
By:	ACCF GenPar, L.P., its General Partner
By:	Andrew Carter Capital, Inc., its General Partner
By:	/s/ Stephen J. Carter
	Name: Stephen J. Carter
	Title: Co-CEO
Address for Notices:

Signature Page to Securities Exchange Agreement

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES EXCHANGE AGREEMENT as of the date set forth in the first paragraph hereof.

INVESTORS MANAGEMENT CORPORATION
By:	/s/ Richard P. Urquart
	Name: Richard P. Urquart
	Title: Vice President
Address for Notices:

Signature Page to Securities Exchange Agreement

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES EXCHANGE AGREEMENT as of the date set forth in the first paragraph hereof.

THE TOCQUEVILLE FUND
By:	/s/ Robert Kleinschmmidt
	Name: Robert Kleinschmmidt
	Title: President
Address for Notices:

Signature Page to Securities Exchange Agreement

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES EXCHANGE AGREEMENT as of the date set forth in the first paragraph hereof.

TOCQUEVILLE AMERIQUE VALUE FUND
By:	/s/ Robert Kleinschmmidt
	Name: Robert Kleinschmmidt
	Title: President
Address for Notices:

Signature Page to Securities Exchange Agreement

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES EXCHANGE AGREEMENT as of the date set forth in the first paragraph hereof.

MASON SEXTON IRA
By:	/s/ Mason Sexton
	Name: Mason Sexton
	Title: Managing Director
Address for Notices:

Signature Page to Securities Exchange Agreement

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES EXCHANGE AGREEMENT as of the date set forth in the first paragraph hereof.

/s/ Douglass Bermingham

     Douglass Bermingham

Address for Notices:

Signature Page to Securities Exchange Agreement

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES EXCHANGE AGREEMENT as of the date set forth in the first paragraph hereof.

THE CCJ TRUST
By:	ATC Trustees (Bahamas) Limited
By:	/s/ Wendy L. Miller
	Name: Wendy L. Miller
	Title: Trustee
Address for Notices:

Signature Page to Securities Exchange Agreement

EXHIBIT A

CERTIFICATE OF DESIGNATION

A-1

EXHIBIT B

FORM OF CONVERSION NOTICE

(To be executed by the Purchaser in order to convert all or part of the Series C Preferred Stock into Common Stock)

[Name and Address of Purchaser]

The Undersigned hereby converts                shares of the Company’s Series C Preferred Stock (the “Conversion Amount”) on [specify applicable Conversion Date] issued by BIO-KEY INTERNATIONAL, INC. (the “Company”) into               shares of Common Stock of the Company on and subject to the conditions set forth in the Securities Exchange Agreement dated as of              , 2006 by and among the Company, Shaar and the other Purchasers named therein and the Company’s Certificate of Incorporation, including its Certificates of Designation.

The Conversion Amount comprises:

              shares in respect of shares of Series C Preferred Stock; and

              shares in respect of accrued dividends

1.             Date of Conversion:                            _______________________

2.             Total Shares of Common Stock To Be Delivered:           _______________________

[PURCHASER]

By:

Name:

Title:

B-1

EXHIBIT C

FORM OF LEGAL OPINION

C-1

SCHEDULE 1

Series C Shares to be Issued

Purchaser	Outstanding Principal Amount		Accrued and Unpaid Interest(1)		Liquidated Damages		Total Exchange Consideration		Number of Series C Shares
The Shaar Fund, Ltd.
Sept. 2004 Notes	$	970,310	$	20,098	N/A		$	990,408	99,041
May 2005 Notes	$	1,194,723	$	113,233	$	102,746	$	1,410,702	141,071
Longview Fund, L.P.
May 2005 Notes	$	1,500,000	$	175,167	$	160,000	$	1,835,167	183,517
Longview Special Finance
Sept. 2004 Notes	$	220,625	$	4,167	N/A		$	224,792	22,480
May 2005 Notes	$	250,000	$	29,312	$	26,667	$	305,979	30,598
Cordillera Fund, L.P.
Sept. 2004 Notes	$	62,500	$	1,212	N/A		$	63,712	6,372
Investors Management Company
Sept. 2004 Notes	$	162,500	$	3,349	N/A		$	165,849	16,585
The Tocqueville Fund
Sept. 2004 Notes	$	390,625	$	7,378	N/A		$	398,003	39,801
The Tocqueville Amerique Value Fund
Sept. 2004 Notes	$	156,250	$	3,221	N/A		$	159,471	15,948
Mason Sexton IRA
May 2005 Notes	$	50,000	$	5,414	$	5,333	$	60,747	6,075
Douglass Bermingham
May 2005 Notes	$	50,000	$	5,414	$	5,333	$	60,747	6,075
The CCJ Trust
May 2005 Notes	$	200,000	$	23,356	$	21,333	$	244,689	24,469

(1)Accrued and unpaid interest is listed through August 10, 2006 and will accrue thereafter at 0.0472% per day.

Schedule 1

C-1

EX-99.4

Exhibit 99.4

Certificate of Designation
of the Preferred Stock of
BIO-key International, Inc.
to be Designated
Series C Convertible Preferred Stock

The undersigned officer of BIO-key International, Inc., a Delaware corporation (the “Corporation”), does hereby certify that the following resolutions were adopted by the Board of Directors of the Corporation (the “Board”) in accordance with Section 151 of the General Corporation Law of Delaware on August 3, 2006:

RESOLVED:    That, in accordance with the Certificate of Incorporation of the Corporation (the “Charter”), a series of the Preferred Stock, $.0001 par value per share, of the Corporation (the “Preferred Stock”), be and it hereby is established, consisting of 600,000 shares, to be designated “Series C Convertible Preferred Stock”; and that, subject to 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 C Convertible Preferred Stock shall be as follows:

Section 1.  Designation and Amount.

The shares of such series shall be designated as the “Series C Convertible Preferred Stock” (the “Series C Shares”) and the number of shares initially constituting such series shall be 600,000 which may be issued in whole or fractional shares.

Section 2.  Dividends and Distributions.

(a)            The holders of outstanding Series C Shares shall be entitled to receive preferential dividends out of any funds of the Corporation at a rate of fifteen percent (15%) of the Series C Original Issue Price (as defined below) per annum on each outstanding Series C Share, which dividends shall be fully cumulative and shall be payable as set forth herein.  The Corporation shall not declare, pay or set aside any dividend on shares (the “Series A Shares”) of its Series A Convertible Preferred Stock, $.0001 par value per share (the “Series A Preferred Stock”) or shares (the “Series B Shares”) of its Series B Convertible Preferred Stock, $.0001 par value per share (“Series B Preferred Stock”), unless the Corporation shall simultaneously declare, pay or set aside the dividends on the Series C Shares prior and in preference to any declaration or payment of any dividend or other distribution on the Common Stock, $.0001 par value per share, of the Corporation (the “Common Stock”) or any other securities of the Corporation.  The dividends on the Series C Shares shall accrue from the date of issuance of each share and shall be payable quarterly on December 1, March 1, June 1 and September 1 of each year (each a “Dividend Date”) commencing on September 1, 2006, except that if any such date is a Saturday, Sunday or legal holiday (a “Non-Business Day”) then such dividend shall be payable on the next day that is not a Saturday, Sunday or legal holiday on which banks in the State of Delaware are permitted to be closed (a “Business Day”) to holders of record as they appear on the stock books of the Corporation on the applicable record date, which shall be 10 days preceding the Dividend Date, as fixed by the Board of Directors (the “Record Date”).

(b)            The dividends on the Series C Shares shall be payable, at the election of the Corporation, in cash or shares of Common Stock (the “Series C Payments-in-Kind”) in

accordance with this Section 2(b).  The amount of dividends payable on the Series C Shares for any period that is shorter or longer than 30 days shall be computed on the basis of a 360-day year of twelve 30-day months.  Each Series C Payment-in-Kind shall be equal in amount to that number of shares of Common Stock for which the dividend is paid that is equal in number to (i) the aggregate cash dividends payable with respect to such Series C Shares on the Record Date, divided by (ii) the average closing bid price for one share of Common Stock, as reported by Bloomberg, L.P. (or such successor to its function of reporting share prices) during the ten (10) consecutive trading day period ending on the Record Date.  Certificates representing the Common Stock issuable in payment of any Series C Payment-in-Kind shall be delivered to each holder entitled to receive such Series C Payment-in-Kind (in appropriate denominations) on the Dividend Date.  Notwithstanding anything to the contrary herein, if at any time the Corporation is unable for any reason to pay dividends on the Series C Shares in shares of Common Stock, such dividends shall be paid in cash.  In the event that a default on the part of the Corporation hereunder or under the Securities Exchange Agreement or the Related Agreements (as defined in the Securities Exchange Agreement), including without limitation any Event of Default, as such term was used in the Notes (as defined in the Securities Exchange Agreement), exists and is continuing, unless such default is cured within any applicable cure period or is otherwise waived in writing by the Holder in whole or in part at the holder’s option, the dividends on the Series C Shares shall accrue at a rate of seventeen percent (17%) of the Series C Original Issue Price per annum on each outstanding Series C Share until such default is cured or waived.

(c)            Notwithstanding anything to the contrary herein, the Corporation may not exercise its rights under Sections 2(b), 5(h) or 7(a) in each case without the consent of such holders unless (i) either (x) an effective current Registration Statement (as defined in the Registration Rights Agreement dated as of the Series C Original Issue Date by and among the Corporation and the holders of the Series C Shares) covering the shares of Common Stock to be issued in connection with satisfaction of such obligations exists or (y) an exemption from registration of the Common Stock is available pursuant to Rule 144(k) of the Securities Act and (ii) no default on the part of the Corporation hereunder or under the Securities Exchange Agreement or the Related Agreements (as defined in the Securities Exchange Agreement), including without limitation any Event of Default, as such term was used in the Notes (as defined in the Securities Exchange Agreement), exists and is continuing, unless such default is cured within any applicable cure period or is otherwise waived in writing by the holder in whole or in part at the holder’s option.

(d)            The holders of Series C Shares shall not be entitled to receive any dividends or other distributions with respect to the Series C Shares except as provided in this Certificate of Designation of Series C Shares and the Securities Exchange Agreement dated as of the Series C Original Issue Date by and among the Corporation and the holders of the Series C Shares (the “Securities Exchange Agreement”).

Section 3.  Voting Rights.

Except as provided (a) by applicable law, (b) in the Securities Exchange Agreement or (c) in this Certificate of Designation, the holders of the Series C Shares shall have no voting rights.

2

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

If the Corporation shall adopt a plan of liquidation or of dissolution, or commence a voluntary case under the federal bankruptcy laws or any other applicable state or federal bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in any involuntary case under such law or to the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due and on account of such event the Corporation shall liquidate, dissolve or wind up, or upon any other liquidation, dissolution or winding up of the Corporation, or, unless approved by the holders of the outstanding Series C Shares, engage in a merger, plan of reorganization or consolidation in which the Corporation is not the surviving entity, then and in that event, no distribution shall be made to the holders of shares of Common Stock, Series A Preferred Stock or Series B Preferred Stock unless, prior thereto, the holders of the Series C Shares shall have received an amount in cash or equivalent value in securities or other consideration equal to the Liquidation Preference thereof on a pari passu basis with the liquidation preference paid to the holders of then outstanding Series A Preferred Stock and Series B Preferred Stock.

If upon any liquidation, dissolution, winding up, merger, plan of reorganization or consolidation, the amount so payable or distributable does not equal or exceed the liquidation preference of the Series A Shares, the Series B Shares and the Series C Shares, then, and in that event, the amount of cash so payable, and amount of securities or other consideration so distributable, shall be shared ratably among the holders of the Series A Shares, the Series B Shares and the Series C Shares.  For the purposes hereof, the term “Liquidation Preference” shall mean $10.00 per share with respect to each of the Series C Shares, plus any and all accrued unpaid dividends thereon, whether or not declared.

Section 5.  Conversion.

(a) (i)  Subject to the provisions for adjustment hereinafter set forth and the limitation of the number of shares of Common Stock issuable upon conversion set forth in Section 5(a)(ii) below, commencing upon issuance, each Series C Share and accrued dividend amount with respect thereto (whether or not declared) shall be convertible in the manner hereinafter set forth into fully paid and nonassessable shares of Common Stock, at the option of the holder thereof, at any time by delivery to the Company of a written notice of conversion by facsimile or otherwise not less than one (1) business day prior to the date upon which such conversion shall occur to the principal office of the Corporation or any transfer agent for the Series C Shares, into the number of fully paid and nonassessable shares of Common Stock which results from dividing the “Series C Original Issue Price” (as defined below) by the “Conversion Price” (as defined below).  The “Series C Original Issue Price” is equal to $10.00 per Series C Share.  The initial “Conversion Price” shall be equal to $0.50.  Upon conversion, all accrued but unpaid dividends on the Series C Shares (whether or not declared) shall be paid in shares of Common Stock in the manner provided for Series C Payment-in-Kind in Section 2(b) and subject to the restrictions set forth in Section 2(c); provided, that the date of conversion of such Series C Shares shall be the “Record Date” for the purpose of calculating the Series C Payment-in-Kind.

(ii)  Notwithstanding anything contained herein to the contrary, in no event (except while there is outstanding a tender offer for any or all of the shares of the Corporation’s Common Stock) shall (x) any holder of any Series C Shares be entitled to convert Series C Shares, (y) the Corporation have the obligation to issue shares upon such conversion of any

3

Series C Shares or in payment of any Series C Payment-in-Kind, or (z) the Company be able to exercise its rights under Sections 2(b), 5(h) or 7(a), to the extent that, after such conversion the sum of (A) the number of shares of Common Stock beneficially owned by such holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Series C Shares or unexercised portion of any warrants or other securities convertible into shares of Common Stock of the Corporation beneficially owned by such holder), and (B) the number of shares of Common Stock issuable upon the conversion of the Series C Shares with respect to which the determination of this proviso is being made, would result in beneficial ownership by such holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Corporation (after taking into account the shares to be issued to such holder upon such conversion).  For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), except as otherwise provided in clause (A) of such sentence.  Notwithstanding the foregoing, the restriction described in this paragraph may be increased up to 9.99% upon 61 days prior notice from the holder to the Corporation.  Further, each holder of Series C Shares may elect to convert such shares and/or convert or exercise any other convertible or exchangeable instrument in order to become the beneficial owner of up to 4.99% of the outstanding shares of Common Stock of the Corporation.

(b)          Adjustments to Conversion Price:

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

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

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

(C)            “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Section 5(b)(iii), deemed to be issued) by the Corporation after the Series C Original Issue Date (as defined below), other than shares of Common Stock issued or issuable:

(i)            upon conversion of the Series A Shares, the Series B Shares or the Series C Shares in accordance with their current terms;

(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 written obligation, agreement or commitment to which the Corporation was a party as of the Series C Original Issue Date (as defined below), as disclosed by reference in the Securities Exchange Agreement (as defined below);

(iv)          pursuant to a stock option plan or stock purchase plan or other employee stock incentive plan approved by the Board of Directors consistent with the Corporation’s past practices (provided, however that the Corporation may not amend any current options, warrants, or other obligations to issue shares set forth in clauses (ii) and (iii) without the prior written consent of

4

(x) The Shaar Fund, Ltd., (y) Longview Fund, L.P. and (z) holders of at least 51% of the then aggregate outstanding Series C Shares); or

(vi)          pursuant to an acquisition by the Company, whether structured as an asset purchase, stock purchase or merger (but not pursuant to any financing obtained by the Company to complete such an acquisition).

(D)            “Series C Original Issue Date” shall mean the date on which the Series C Shares were first issued pursuant to the Securities Exchange Agreement.

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

(iii)          Deemed Issue of Additional Shares of Common Stock:

(A)           Options and Convertible Securities:  In the event the Corporation at any time or from time to time on or after the Series C Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the exercise of such Options and conversion or exchange of such Convertible Securities shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have 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 Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which 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 subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;

(ii)           if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Corporation, or change in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon, shall, upon any such decrease becoming effective, be recomputed to reflect such decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; and

(iii)          no readjustment pursuant to clause (ii) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower

5

of (1) the Conversion Price on the original adjustment date or (2) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date and any issuance issued for no consideration shall be deemed issued at par value, or $.0001 whichever is less.

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

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

(A)          Cash and Property:  Such consideration shall:

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

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

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

(B)          Options and Convertible Securities.  The consideration per share received by the Corporation for Additional Shares of Common 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 or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by

(ii)            the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision

6

contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

(vi)          Other Adjustments:

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

(B)          Reclassifications:  In the case, at any time after the date hereof, of any capital reorganization or any reclassification of the stock of the Corporation (other than as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Corporation with or into another person (other than a consolidation or merger (i) in which the Corporation is the continuing entity and which does not result in any change in the Common Stock or (ii) which is treated as a liquidation pursuant to Section 4 hereof), the Series C Shares shall, after such reorganization, reclassification, consolidation or merger be convertible into the kind and number of shares of stock or other securities or property of the Corporation or otherwise to which such holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation or merger such holder had converted its Series C Shares into Common Stock.  The provisions of this Section 5(B) shall similarly apply to successive reorganizations, reclassifications, consolidations or mergers.

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

(d)          Miscellaneous.

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

(ii)    The holders of at least 50% of the then aggregate outstanding Series C Shares shall have the right to challenge any determination 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 an independent appraiser selected jointly by the Board of Directors and the challenging parties, the cost of such appraisal to be borne equally by the Corporation and the challenging parties.

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

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

(f)           Reservation of Stock Issuable Upon Conversion.  The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Series C Shares and payment of dividends thereon, such number of its shares of Common Stock as shall from time to time be sufficient to effect (i) the conversion of all outstanding Series C Shares and (ii) the payment of three (3) years of dividends less any dividends previously paid on the Series C Shares as provided in Section 2(b).  If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding Series C Shares and the payment of such dividends, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.  If the Corporation at any time fails to reserve such number of shares of its authorized but unissued Common Stock as shall be sufficient for such purposes, the dividends on the Series C Shares pursuant to Section 2(a) shall accrue at a rate of seventeen percent (17%) of the Series C Original Issue Price per annum on each outstanding Series C Share until such time as the Corporation has reserved such number of shares as shall be sufficient for such purposes.

(g)          Mechanics of Conversion.

(i)            In the event that a holder of Series C Shares elects to convert all or a portion of the outstanding Series C Shares then held by it into Common Stock in accordance herewith, such holder shall give notice of such election by delivering a written notice of conversion in the form attached as Exhibit B to the Securities Exchange Agreement (“Notice of Conversion”) by facsimile or otherwise to the Corporation, which Notice of Conversion shall provide a breakdown in reasonable detail of the number of Series C Shares and accrued dividends being converted.  Each date on which a Notice of Conversion is delivered or telecopied to the Corporation in accordance with the provisions hereof shall be deemed a Conversion Date.  No certificate representing Series C Shares shall be required to be surrendered to the Corporation until all such shares have been converted in accordance herewith.

(ii)           Pursuant to the terms of the Notice of Conversion, the Corporation will issue instructions to the transfer agent accompanied by an opinion of counsel, if required under applicable securities laws, within one (1) business day of the date of the delivery to the Corporation of the  Notice of Conversion  and shall cause the transfer agent to transmit the certificates representing the shares of Common Stock issuable upon such conversion to such holder by (A) crediting the account of such holder’s designated broker with the Depository Trust Corporation (“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”) system or (B) in the event that the Conversion Shares are not electronically transferable, by delivery of the certificates via overnight courier, in each case within three (3) business days after receipt by the Corporation of the Notice of Conversion.  In the case of the exercise of the conversion rights set forth herein the conversion privilege shall be deemed to have been exercised and the shares of

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Common Stock issuable upon such conversion shall be deemed to have been issued upon the date of receipt by the Corporation of the Notice of Conversion.  Such holder shall be treated for all purposes as the record holder of such Common Stock, unless the holder provides the Corporation written instructions to the contrary.

(h)          Mandatory Conversion.

(i)            If during the thirty (30) consecutive trading day period occurring prior to January 1, 2009, the average closing bid price for one share of Common Stock, as reported by Bloomberg, L.P. (or such successor to its function of reporting share prices), is at least $1.20 (subject to proportionate adjustment in the event of any stock splits or similar events), all outstanding Series C Shares shall automatically be converted into shares of Common Stock, at the then effective conversion rate.  Upon conversion, all accrued but unpaid dividends on the Series C Shares (whether or not declared) shall be paid in shares of Common Stock in the manner provided for Series C Payment-in-Kind in Section 2(b); provided, that the date of conversion of such Series C Shares shall be the “Record Date” for the purpose of calculating the Series C Payment-in-Kind.

(ii)           Notice of such mandatory conversion (“Mandatory Conversion Notice”) shall be given, if at all, by the Corporation with respect to the Series C Shares within three (3) business days after January 1, 2009 and shall be delivered in the manner set forth in Section 7(a)(ii) to each holder of record (at the close of business on December 31, 2008) of the Series C Shares, for the purpose of notifying such holder of the redemption to be effected.  Upon receipt of such notice, each holder of the Series C Shares shall surrender his, her or its certificate or certificates for all such shares to the Corporation at the place designated in such notice, and shall receive from the Corporation, within ten (10) business days after receipt by the Corporation of such certificates, certificates for the number of shares of Common Stock to which such holder is entitled pursuant to this Section 5 (which shares shall not bear any restrictive legends).  If any holder does not receive such certificates from the Corporation within such ten (10) day period, such holder may, at its option, cancel such mandatory conversion as to its outstanding Series C Shares.  Subject to the preceding sentence, upon conversion, all outstanding Series C Shares shall be deemed to have been converted into shares of Common Stock, which shall be deemed to be outstanding of record, and all rights with respect to the Series C Shares so converted, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates therefor, to receive certificates for the number of shares of Common Stock into which such Series C Shares has been converted, and payment of any declared but unpaid dividends thereon.

Section 6.  Reports as to Adjustments.

Whenever the Conversion Price or the type of securities, cash or other property into which the Series C Shares may be converted is adjusted as provided in Section 5 hereof, the Corporation shall promptly mail to the holders of record of the outstanding Series C Shares at their respective addresses as the same shall appear in the Corporation’s stock records, a notice stating that the Conversion Price has been adjusted and setting forth the new number of shares of Common Stock (or describing the new stock, securities, cash or other property) into which each Series C Share is convertible as a result of such adjustment, a brief statement of the facts requiring such adjustment and the computation thereof and when such adjustment became effective.

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Section 7.  Redemption.

(a)    Optional Redemption.

(i)     The Corporation may, at its election, redeem all remaining outstanding Series C Shares, or any portion thereof (to the extent that the funds of the Corporation are legally available for redemption of such Series C Shares), by paying to each holder of such Series C Shares an amount in cash equal to $12.00 per Series C Share, together with all accrued and unpaid dividends thereon in cash (whether or not declared) (the “Optional Redemption Price”) outstanding on the Optional Redemption Payment Date; provided, however, that in no event may the Corporation pay the holders of Series C Shares any amount in respect of the exercise of any such Optional Redemption (of all or any portion of the Series C Shares) unless the Corporation shall have first, until the Discharge of the Senior Claims, (a) prepaid the Laurus Note by an amount equal to the aggregate amount to be paid to the holders of Series C Shares in connection with such Optional Redemption (the “Prepayment Amount”) as provided in the Laurus Note and (b) deposited additional cash collateral in an amount equal to the Prepayment Amount with Aether as provided in the Aether Note.  Each of the terms “Aether”, “Aether Note”, “Discharge of Senior Claims”, “Laurus Note” has the meaning given to such term in the Subordination Agreement, dated as of September 30, 2004.

(ii)    Notice of redemption (“Optional Redemption Notice”) shall be given by the Corporation with respect to the Series C Shares being redeemed pursuant to Section 7(a) specifying the date for such optional redemption (the “Optional Redemption Payment Date”) which date shall be ten (10) business days after the date of the Redemption Notice (the “Optional Redemption Period”).  The Optional Redemption Notice shall be delivered in the manner set forth in Section 10.8 of the Securities Exchange Agreement to each holder of record (at the close of business on the business day preceding the day on which such notice is given) of the Series C Shares, for the purpose of notifying such holder of the redemption to be effected.  A Notice of Redemption shall not be effective with respect to any portion of the Series C Shares for which the holder has a pending election to convert pursuant to Section 5(a)(i), or for conversions initiated or made by the holder pursuant to Section 5(a)(i) during the Redemption Period.

(iii)   Upon receipt of an Optional Redemption Notice, each holder of Series C Shares shall have ten (10) business days to convert such holder’s Series C Shares into Common Stock pursuant to Section 5 hereof.

(iv)   On the Optional Redemption Payment Date, the Corporation shall pay by cash or wire transfer of immediately available funds to the person whose name appears on the certificate or certificates of the Series C Shares that (a) shall not have been converted pursuant to Section 5 hereof and (b) shall have been surrendered to the Corporation in the manner and at the place designated in the Optional Redemption Notice, the Optional Redemption Price, and thereupon each surrendered certificate shall be canceled.

(v)    From and after the Optional Redemption Payment Date, unless there shall have been a default in payment of the Optional Redemption Price, all rights of the holders of the Series C Shares (except the right to receive the Optional Redemption Price subsequent to the Optional Redemption Date upon surrender of their certificate or certificates) shall cease with

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respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.  If for any reason the Corporation shall not have paid the Optional Redemption Price to the holders of Series C Shares on the Optional Redemption Payment Date, then (a) such Redemption Notice will be null and void at the Holder’s election and (b) the Corporation shall no longer have the Optional Redemption rights set forth herein.

(b)    Mandatory Redemption.

(i)     Prior to January 1, 2009 (the “Mandatory Redemption Date”), there shall be no redemption of the Series C Shares, except as provided in Section 7(a).  If during the thirty (30) consecutive trading day period occurring prior to the Mandatory Redemption Date, the average closing bid price for one share of Common Stock, as reported by Bloomberg, L.P. (or such successor to its function of reporting share prices), is less than $1.20 (subject to proportionate adjustment in the event of any stock splits or similar events) (the “Period”), the Corporation shall, within ten (10) days after the Mandatory Redemption Date, redeem all remaining outstanding Series C Shares by paying to each holder of such Series C Shares an amount in cash equal to $10.00 per Series C Share, together with all accrued and unpaid dividends thereon in cash (whether or not declared) (the “Mandatory Redemption Price”).

(ii)    Notice of redemption (“Mandatory Redemption Notice”) shall be given by the Corporation or any holder with respect to the Series C Shares within fifteen (15) business days after the Period and shall be delivered in the manner set forth in Section 10.8 of the Securities Exchange Agreement, to each holder of record (at the close of business on the business day preceding the day on which notice is given) of the Series C Shares, for the purpose of notifying such holder of the redemption to be effected.

(iii)   On the Mandatory Redemption Date, the Corporation shall pay by cash or wire transfer of immediately available funds to the person whose name appears on the certificate or certificates of the Series C Shares that shall not have been converted pursuant to Section 5 hereof the Mandatory Redemption Price.  Within fifteen (15) business days after the Mandatory Redemption Date, all such certificates shall have been surrendered to the Corporation in the manner and at the place designated in the Mandatory Redemption Notice, and thereupon each surrendered certificate shall be canceled.

(iv)   If the funds of the Corporation legally available for redemption of the Series C Shares are insufficient to redeem the total number of Series C Shares outstanding on the Mandatory Redemption Date, the Series C Shares shall be redeemed (on a pro rata basis from the holders of the Series C Shares, from time to time), to the extent the Corporation is legally permitted to do so, and the redemption obligations of the Corporation hereunder will be a continuing obligation until the Corporation’s redemption of all of the Series C Shares.  Pending such total redemption, any outstanding shares of Series C Preferred Stock shall remain convertible in accordance herewith.

(v)    From and after the Mandatory Redemption Date, unless there shall have been a default in payment of the Mandatory Redemption Price, all rights of the holders of the Series C Shares (except the right to receive the Mandatory Redemption Price subsequent to the Mandatory Redemption Date upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.  If for any reason

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the Corporation shall not have paid the Mandatory Redemption Price to the holders of Series C Shares on the Mandatory Redemption Date, at the option of such holders, all rights of the holders of the Series C Shares and obligations of the Corporation provided herein shall continue until the Mandatory Redemption Price is paid in full.

Section 8.  Reacquired Shares.

Any Series C Shares converted, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof, and, if necessary to provide for the lawful purchase of such shares, the capital represented by such shares shall be reduced in accordance with the General Corporation Law of Delaware.  All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock, $.0001 par value per share, of the Corporation and may be reissued as part of another series of Preferred Stock, $.0001 par value per share, of the Corporation.

Section 9.  Protective Provisions.  So long as any of the Series C Shares are outstanding, the Corporation shall not, without first obtaining the approval of the holders of the then outstanding Series C Shares:

(a)            alter or change the rights, preferences or privileges of the Series C Shares;

(b)            create or issue any new class or series of capital stock that is pari passu with, or has a preference over, the Series C Shares as to payment of dividends, or any other term superior or having an adverse effect on the Series C Shares or the distribution of assets upon liquidation, dissolution or winding up of the Corporation (“Senior Securities”), or alter or change the rights, preferences or privileges of any Senior Securities so as to affect adversely the Series C Shares;

(c)            increase the authorized number of shares of Series C Shares;

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

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

(f)             authorize, create, designate, issue or sell any class or series of preferred stock of the Corporation (including, but not limited to, Series C Shares or other shares of preferred stock or treasury stock) or rights, options, warrants or other securities convertible into or exercisable or exchangeable for Common Stock (other than any such rights, options, warrants or other securities convertible into or exercisable or exchangeable for Common Stock issued to employees of the Corporation in the ordinary course of their employment) or any debt security which by its terms is convertible into or exchangeable for any Common Stock of the Corporation.

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

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FURTHER

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

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IN WITNESS WHEREOF, BIO-key International, Inc. has caused this Certificate of Designation to be signed by its duly authorized officer on this 9th day of August, 2006.

BIO-KEY INTERNATIONAL, INC.
By:	/s/ Thomas J. Colatosti
	Thomas J. Colatosti
	Chairman and Co-Chief Executive Officer

EX-99.5

Exhibit 99.5

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into effective as of August 10, 2006, by and among BIO-key International, Inc., a Delaware corporation (the “Company”), and each of the other parties signatory hereto as Purchasers (collectively, the “Purchasers” and each a “Purchaser”).

This Agreement is made pursuant to the Securities Exchange Agreement, dated as of the date hereof, by and among the Purchasers and the Company (as amended, modified or supplemented from time to time, the “Securities Exchange Agreement”), and pursuant to the Series C Preferred Stock referred to therein.

The parties to this Agreement hereby agree as follows:

1.             Definitions.  Capitalized terms used and not otherwise defined herein that are defined in the Securities Exchange Agreement shall have the meanings given to such terms in the Securities Exchange Agreement.  As used in this Agreement, the following terms shall have the following meanings:

“Commission” means the Securities and Exchange Commission.

“Common Stock” means shares of the Company’s common stock, par value $0.0001 per share.

“Effectiveness Date” means (i) with respect to the initial Registration Statement required to be filed hereunder, a date no later than ninety (90) days from the Filing Date and (ii) with respect to each additional Registration Statement required to be filed hereunder, a date no later than ninety (90) days following the applicable Filing Date.

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor statute.

“Exchange Consideration” shall have the meaning set forth in the Securities Exchange Agreement.

“Filing Date” means, with respect to (i) the initial Registration Statement required to be filed hereunder, a date no later than thirty (30) days from the date of this Agreement and (ii) with respect to shares of Common Stock issuable to a Holder as a result of adjustments to the Conversion Price of the Series C Preferred Stock made pursuant to the Certificate of Designation or otherwise, thirty (30) days after the date of such adjustment.

“Holder” or “Holders” means the Purchasers or any of their respective affiliates or transferees to the extent any of them hold Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 5(c).

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Registrable Securities” means the shares of Common Stock issued or issuable upon the conversion of the Series C Preferred Stock issued by the Company to the Purchasers and its affiliates, designees or transferees.

“Registration Statement” means each registration statement required to be filed hereunder, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act” means the Securities Act of 1933, as amended, and any successor statute.

“Securities Exchange Agreement” means the agreement dated as of the date hereof between the parties hereto calling for the issuance by the Company of Series C Preferred Stock.

“Series C Preferred Stock” shall have the meaning set forth in the Securities Exchange Agreement.

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“Trading Market” means any of the NASD OTC Bulletin Board, NASDAQ SmallCap Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange.

2.             Registration.

(a)           On or prior to the Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form SB-2 (except if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2, in which case such registration shall be on another appropriate form in accordance herewith).  The Company shall cause the Registration Statement to become effective and remain effective as provided herein.  The Company shall use its reasonable commercial efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the Effectiveness Date.  The Company shall use its reasonable commercial efforts to keep the Registration Statement continuously effective under the Securities Act until the date which is the earlier date of when (i) all Registrable Securities have been sold or (ii) all Registrable Securities may be sold immediately without registration under the Securities Act and without volume restrictions pursuant to Rule 144(k), as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Holders (the “Effectiveness Period”).

(b)           If: (i) the Registration Statement is not filed on or prior to the Filing Date; (ii) the Registration Statement is not declared effective by the Commission by the Effectiveness Date; (iii) after the Registration Statement is filed with and declared effective by the Commission, the Registration Statement ceases to be effective (by suspension or otherwise) as to all Registrable Securities to which it is required to relate at any time prior to the expiration of the Effectiveness Period (without being succeeded immediately by an additional registration statement filed and declared effective) for a period of time which shall exceed 30 days in the aggregate per year or more than 20 consecutive calendar days (defined as a period of 365 days commencing on the date the Registration Statement is declared effective); or (iv) the Common Stock is not listed or quoted, or is suspended from trading on any Trading Market for a period of three (3) consecutive Trading Days (provided the Company shall not have been able to cure such trading suspension within 30 days of the notice thereof or list the Common Stock on another Trading Market); (any such failure or breach being referred to as an “Event,” and for purposes of clause (i) or (ii) the date on which such Event occurs, or for purposes of clause (iii) the date which such 30 day or 20 consecutive day period (as the case may be) is exceeded, or for purposes of clause (iv) the date on which such three (3) Trading Day period is exceeded, being referred to as “Event Date”), then until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 2.0% for each thirty (30) day period (prorated for partial periods) on a daily basis of the face amount of the shares of Series C Preferred Stock held by such Holder (up to an aggregate maximum amount equal to ten percent (10%) of the initial stated value of the shares of Series C Preferred Stock held by such Holder).  While

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such Event continues, such liquidated damages shall be paid not less often than each thirty (30) days.  Any unpaid liquidated damages as of the date when an Event has been cured by the Company shall be paid within three (3) days following the date on which such Event has been cured by the Company.

(c)           Within three business days of the Effectiveness Date, the Company shall cause its counsel to issue a blanket opinion in substantially the form attached hereto as Exhibit A to the transfer agent stating that the shares are subject to an effective registration statement and can be reissued free of restrictive legend upon notice of a sale by a Holder and confirmation by such Holder that it has complied with the prospectus delivery requirements, provided that the Company has not advised the transfer agent orally or in writing that the opinion has been withdrawn. Copies of the blanket opinion required by this Section 2(b) shall be delivered to such Holder within the time frame set forth above.

3.             Registration Procedures.  If and whenever the Company is required by the provisions hereof to effect the registration of any Registrable Securities under the Securities Act, the Company will, as expeditiously as possible:

(a)           Prepare and file with the Commission the Registration Statement with respect to such Registrable Securities, respond as promptly as possible to any comments received from the Commission, and use its best efforts to cause the Registration Statement to become and remain effective for the Effectiveness Period with respect thereto, and promptly provide to the Holder copies of all filings and Commission letters of comment relating thereto;

(b)           Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective at all times during the Effectiveness Period, and, during the Effectiveness Period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement;

(c)           The Company shall permit a single firm of counsel designated by the Holders to review the Registration Statement and all amendments and supplements thereto a reasonable period of time (but not less than five (5) business days) prior to their filing with the SEC, and not file any document in a form to which such counsel reasonably objects. If such counsel objects, the Filing Date shall be extended by the number of days from the date the Registration Statement was delivered to such counsel to the date such counsel no longer objects;

(d)           Notify each Holder, such Holder’s legal counsel identified to the Company (which, until further notice, shall be deemed to be Meltzer, Lippe, Goldstein & Breitstone, LLP, Attn:  Ira R. Halperin, Esq. (the “Holder’s Counsel”)), and any

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managing underwriter immediately (and, in the case of (i)(A) below, not less than five (5) days prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) business day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) whenever the SEC notifies the Company whether there will be a “review” of such Registration Statement; (C) whenever the Company receives (or a representative of the Company receives on its behalf) any oral or written comments from the SEC relating to a Registration Statement (copies or, in the case of oral comments, summaries of such comments shall be promptly furnished by the Company to the Holders); and (D) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) (within two (2) hours) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) if at any time any of the representations or warranties of the Company contained in any agreement (including any underwriting agreement) contemplated hereby ceases to be true and correct in all material respects; (v) (within two (2) hours) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (vi) (within two (2) hours) of the occurrence of any event that to the best knowledge of the Company makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In addition, the Company shall furnish the Holders with copies of all intended written responses to the comments contemplated in clause (C) of this Section 3(d) not later than three (3) business days in advance of the filing of such responses with the SEC so that the Holders shall have the opportunity to comment thereon;

(e)           Furnish to each Holder and such Holder’s Counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one (1) copy of the Registration Statement, each preliminary prospectus and prospectus, and each amendment or supplement thereto, and (ii) such number of copies of a prospectus, and all amendments and supplements thereto and such other documents, as such Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder;

(f)            As promptly as practicable after becoming aware thereof, notify each Holder of the happening of any event of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated

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therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement or other appropriate filing with the SEC to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to each Holder as such Holder may reasonably request;

(g)           As promptly as practicable after becoming aware thereof, notify each Holder who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the SEC of a Notice of Effectiveness or any notice of effectiveness or any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time;

(h)           Use its reasonable efforts to secure and maintain the designation of all the Registrable Securities covered by the Registration Statement on the “OTC Bulletin Board Market” of the National Association of Securities Dealers Automated Quotations System (“NASDAQ”) within the meaning of Rule 11Aa2-1 of the SEC under the Exchange Act, and the quotation of the Registrable Securities on the OTC Bulletin Board Market;

(i)            use its commercially reasonable efforts to register or qualify the Holder’s Registrable Securities covered by the Registration Statement under the securities or “blue sky” laws of such jurisdictions within the United States as the Holder may reasonably request, provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction;

(j)            Provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than three (3) days after the effective date of the Registration Statement; and

(k)           Cooperate with the Holders to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts as the case may be, as the Holders may reasonably request, and, within three (3) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the  Registrable Securities (with copies to the Holders whose Registrable  Securities are included in such Registration Statement) an appropriate instruction and opinion of such counsel.

4.             Registration Expenses.  All expenses relating to the Company’s compliance with Sections 2 and 3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or “blue sky” laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars, fees of, and disbursements incurred by, one counsel for the Holders (to the extent such counsel is required due to Company’s failure to meet any of its

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obligations hereunder), are called “Registration Expenses”. All selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any special counsel to the Holders beyond those included in Registration Expenses, are called “Selling Expenses.”  The Company shall only be responsible for all Registration Expenses and shall not be responsible for any Selling Expenses.

5.             Indemnification.

(a)           In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless each Holder, and its officers, directors, employees, agents and each other person, if any, who controls such Holder within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Holder, or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or arise out of the Company’s violation of any federal or state securities laws, and will reimburse the Holder, and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of the Holders or any such person in writing specifically for use in any such document.

(b)           In the event of a registration of the Registrable Securities under the Securities Act pursuant to this Agreement, each Holder will indemnify and hold harmless the Company, and its officers, directors, employees, agents and each other person, if any, who controls the Company within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact which was furnished in writing by such Holder to the Company expressly for use in (and such information is contained in) the Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that such Holder will

7

be liable in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing to the Company by or on behalf of such Holder specifically for use in any such document.  Notwithstanding the provisions of this paragraph, such Holder shall not be required to indemnify any person or entity in excess of the amount of the aggregate net proceeds received by such Holder in respect of Registrable Securities in connection with any such registration under the Securities Act.

(c)           Promptly after receipt by a party entitled to claim indemnification hereunder (an “Indemnified Party”) of notice of the commencement of any action, such Indemnified Party shall, if a claim for indemnification in respect thereof is to be made against a party hereto obligated to indemnify such Indemnified Party (an “Indemnifying Party”), notify the Indemnifying Party in writing thereof, but the omission so to notify the Indemnifying Party shall not relieve it from any liability which it may have to such Indemnified Party other than under this Section 5(c) and shall only relieve it from any liability which it may have to such Indemnified Party under this Section 5(c) if and to the extent the Indemnifying Party is prejudiced by such omission. In case any such action shall be brought against any Indemnified Party and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such Indemnified Party, and, after notice from the Indemnifying Party to such Indemnified Party of its election so to assume and undertake the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party under this Section 5(c) for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof; if the Indemnified Party retains its own counsel, then the Indemnified Party shall pay all fees, costs and expenses of such counsel, provided, however, that, if the defendants in any such action include both the indemnified party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, the Indemnified Party shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred.

(d)           In order to provide for just and equitable contribution in the event of joint liability under the Securities Act in any case in which either (i) a Holder, or any officer, director or controlling person of such Holder, makes a claim for indemnification pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of such Holder or such officer, director or controlling person of such Holder in circumstances for which indemnification is provided under this Section 5; then, and in each such case, the

8

Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, provided, however, that, in any such case, (A) such Holder will not be required to contribute any amount in excess of the public offering price of all such securities offered by it pursuant to such Registration Statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

6.             Representations and Warranties.

(a)           The Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and, except with respect to certain matters which the Company has disclosed to the Purchaser on Schedule 3.21 to the Securities Exchange Agreement or in any of its public filings pursuant to the Exchange Act, the Company has timely filed all proxy statements, reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act.  The Company has filed (i) its Annual Report on Form 10-KSB for its fiscal year ended December 31, 2005, (ii) its Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 2006 and (iii) the Form 8-K filings which it has made during the fiscal year 2006 to date (collectively, the “SEC Reports”).  Each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed) and fairly present in all material respects the financial condition, the results of operations and the cash flows of the Company and its subsidiaries, on a consolidated basis, as of, and for, the periods presented in each such SEC Report.

(b)           The Company’s Common Stock is traded on the NASD Over the Counter Bulletin Board  and satisfies all requirements for the continuation of such trading.  The Company has not received any notice that its Common Stock will be ineligible to trade (except for prior notices that have been fully remedied) or that its Common Stock does not meet all requirements for such trading.

9

(c)           Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Securities pursuant to the Securities Exchange Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Common Stock pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings.

(d)           The Series C Preferred Stock and the shares of Common Stock which the Holder may acquire upon conversion of the Series C Preferred Stock are all restricted securities under the Securities Act as of the date of this Agreement.  The Company will not issue any stop transfer order or other order impeding the sale and delivery of any of the Registrable Securities at such time as such Registrable Securities are registered for public sale or an exemption from registration is available, except as required by federal or state securities laws.

(e)           The Company understands the nature of the Registrable Securities issuable upon the conversion of the Series C Preferred Stock and recognizes that the issuance of such Registrable Securities may have a potential dilutive effect.  The Company specifically acknowledges that its obligation to issue the Registrable Securities is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.

(f)            Except for agreements made in the ordinary course of business, there is no agreement that has not been filed with the Commission as an exhibit to a registration statement or to a form required to be filed by the Company under the Exchange Act, the breach of which could reasonably be expected to have a material and adverse effect on the Company and its subsidiaries, or would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement in any material respect.

(g)           The Company will at all times have authorized and reserved a sufficient number of shares of Common Stock for the full conversion of the Series C Preferred Stock.

7.             Miscellaneous.

(a)           Remedies.  In the event of a breach by the Company or by a Holder, of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.

(b)           No Piggyback on Registrations.  Except as and to the extent specified in Schedule 7(b)(i) hereto, neither the Company nor any of its security holders (other than

10

the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right for inclusion of shares in the Registration Statement to any of its security holders. Except as and to the extent set forth on Schedule 7(b)(ii) and as set forth in the Company’s public filings pursuant to the Exchange Act, the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been fully satisfied.

(c)           Compliance.  Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.

(d)           Discontinued Disposition.  Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of a Discontinuation Event (as defined below), such Holder will forthwith discontinue disposition of such Registrable Securities under the applicable Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.  For purposes of this Section 7(d), a “Discontinuation Event” shall mean (i) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); (ii) any request by the Commission or any other Federal or state governmental authority for amendments or supplements to such Registration Statement or Prospectus or for additional information; (iii) the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and/or (v) the occurrence of any event or passage of time that makes the financial statements included in such Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(e)           Reserved.

11

(f)            Amendments and Waivers.  The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the (i) Company, (ii) The Shaar Fund, Ltd., (iii) Longview Fund, L.P., and (iv) the Holders of at least 51% in interest of the then outstanding Registrable Securities.  Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

(g)           Notices.  Any notice or request hereunder may be given to the Company or the Holder at the respective addresses set forth below or as may hereafter be specified in a notice designated as a change of address under this Section 7(g) in accordance with the procedures set forth in the Securities Exchange Agreement.

If to the Company:

BIO-key International, Inc.

300 Nickerson Road

Marlborough, MA 01752

Attention:  Chief Financial Officer

Facsimile:  (508) 460-4098

with a copy to:

Choate, Hall & Stewart LLP

2 International Place

Boston, MA  02110

Attention:  Charles J. Johnson, Esq.

Facsimile:  (617) 248-4000

If to a Purchaser:

To the address set forth under such Purchaser name on Schedule 2 to the Securities Exchange Agreement.

If to any other Person who is then the registered Holder:

To the address of such Holder as it appears in the stock transfer books of the Company

or such other address as may be designated in writing hereafter in accordance with this Section 7(g) by such Person.

12

(h)           Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder.  Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Notes and the Securities Exchange Agreement with the prior written consent of the Company, which consent shall not be unreasonably withheld.

(i)            Execution and Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)            Governing Law.  THIS 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.  ANY ACTION BROUGHT BY ANY PARTY AGAINST ANOTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK IN EACH CASE SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN.  ALL PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY.  IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW.  ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT.

(k)           Cumulative Remedies.  The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(l)            Severability.  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining

13

terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(m)          Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(Balance of page intentionally left blank; signature page follows.)

14

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

BIO-KEY INTERNATIONAL, INC.
By:	/s/ Thomas J. Colatosti
	Name: Thomas J. Colatosti
	Title: Chairman

Signature Page to Registration Rights Agreement

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

THE SHAAR FUND, LTD.
By:	SS&C Fund Services (BVI) United
By:	/s/ Andy Senior
	Name: Andy Senior
	Title: Director
Address for Notices:
The Shaar Fund, Ltd.
c/o SS&C Fund Services N.V.
Pareraweg 45
Curacao, Netherlands Antilles
Attn: Maarten Robberts
Facsimile No.: 599-9 434-3560
with copies to:
Levinson Capital Management, LLC
350 Fifth Avenue, Suite 2210
New York, New York 10118
and
Meltzer, Lippe, Goldstein & Breitstone, LLP
190 Willis Avenue
Mineola, NY 11501
Attention:		Ira R. Halperin, Esq.
Facsimile:		516-747-0653

Signature Page to Registration Rights Agreement

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

LONGVIEW FUND, LP
By:	/s/ S. Michael Rudolph
	Name: S. Michael Rudolph
	Title: CFO
Address for Notices:
with copies to:
Barbara Mittman, Esq.
Grushko & Mittman, P.C.
551 Fifth Avenue, Suite 1601
New York, NY 10176
(212) 697-3575 (Fax)

Signature Page to Registration Rights Agreement

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

LONGVIEW SPECIAL FINANCE
By:	/s/ Francis Horn
	Name: Francis Horn
	Title: Director
Address for Notices:
with copies to:
Barbara Mittman, Esq.
Grushko & Mittman, P.C.
551 Fifth Avenue, Suite 1601
New York, NY 10176
(212) 697-3575 (Fax)

Signature Page to Registration Rights Agreement

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

CORDILLERA FUND, L.P.
By:	ACCF GenPar, L.P., its General Partner
By:	Andrew Carter Capital, Inc., its General
Partner
By:	/s/ Stephen J. Carter
	Name: Stephen J. Carter
	Title: Co-CEO
Address for Notices:

Signature Page to Registration Rights Agreement

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

INVESTORS MANAGEMENT CORPORATION
By:	/s/ Richard P. Urquart
	Name: Richard P. Urquart
	Title: Vice President
Address for Notices:

Signature Page to Registration Rights Agreement

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

THE TOCQUEVILLE FUND
By:	/s/ Robert Kleinschmmidt
	Name: Robert Kleinschmmidt
	Title: President
Address for Notices:

Signature Page to Registration Rights Agreement

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

TOCQUEVILLE AMERIQUE VALUE FUND
By:	/s/ Robert Kleinschmmidt
	Name: Robert Kleinschmmidt
	Title: President
Address for Notices:

Signature Page to Registration Rights Agreement

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

MASON SEXTON IRA
By:	/s/ Mason Sexton
	Name: Mason Sexton
	Title: Managing Director
Address for Notices:

Signature Page to Registration Rights Agreement

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

/s/ Douglass Bermingham
	Douglass Bermingham
Address for Notices:

Signature Page to Registration Rights Agreement

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

THE CCJ TRUST
By:	ATC Trustees (Bahamas) Limited
By:	/s/ Wendy L. Miller
	Name: Wendy L. Miller
	Title: Trustee
Address for Notices:

EXHIBIT A

[Month  __, 2006]

[Continental Stock Transfer

   & Trust Company

Two Broadway

New York, NY  10004

Attn:  William Seegraber]

Re:          [Company Name] Registration Statement on Form SB-2

Ladies and Gentlemen:

As counsel to [company name], a Delaware corporation (the “Company”), we have been requested to render our opinion to you in connection with the resale by the individuals or entitles listed on Schedule A attached hereto (the “Selling Stockholders”), of an aggregate of [amount] shares (the “Shares”) of the Company’s Common Stock.

A Registration Statement on Form SB-2 under the Securities Act of 1933, as amended (the “Act”), with respect to the resale of the Shares was declared effective by the Securities and Exchange Commission on [date].  Enclosed is the Prospectus dated [date].  We understand that the Shares are to be offered and sold in the manner described in the Prospectus.

Based upon the foregoing, upon request by the Selling Stockholders at any time while the registration statement remains effective, it is our opinion that the Shares have been registered for resale under the Act and new certificates evidencing the Shares upon their transfer or re-registration by the Selling Stockholders may be issued without restrictive legend.  We will advise you if the registration statement is not available or effective at any point in the future.

Very truly yours,

[Company counsel]

Schedule A

Selling Stockholder Shares Being Offered

EX-99.6

Exhibit 99.6

BIO-KEY INTERNATIONAL, INC.

SECURITIES PURCHASE AGREEMENT

as of August 10, 2006

TABLE OF CONTENTS

1. Agreement to Sell and Purchase	1
1.1 Shares	1
1.2 Warrant	1
2. Closing, Delivery and Payment	2
2.1 Closing	2
2.2 Delivery	2
3. Representations and Warranties of the Company	2
3.1 Organization, Good Standing and Qualification	2
3.2 Subsidiaries	2
3.3 Capitalization; Voting Rights.	3
3.4 Authorization; Binding Obligations	4
3.5 Liabilities	4
3.6 Agreements; Action	4
3.7 Obligations to Related Parties	5
3.8 Changes	6
3.9 Title to Properties and Assets; Liens, Etc	7
3.10 Intellectual Property.	7
3.11 Compliance with Other Instruments	8
3.12 Litigation	8
3.13 Tax Returns and Payments	9
3.14 Employees	9
3.15 Registration Rights and Voting Rights	10
3.16 Compliance with Laws; Permits	10
3.17 Environmental and Safety Laws	10
3.18 Valid Offering	11
3.19 Full Disclosure	11
3.20 Insurance	11
3.21 SEC Reports	11
3.22 Listing	12
3.23 No Integrated Offering	12
3.24 Stop Transfer	12
3.25 Dilution	12
3.26 Patriot Act	12
4. Representations and Warranties of the Purchaser	13
4.1 Requisite Power and Authority	13
4.2 Investment Representations	13
4.3 Purchaser Bears Economic Risk	14
4.4 Acquisition for Own Account	14
4.5 Purchaser Can Protect Its Interest	14
4.6 Accredited Investor	14
4.7 Legends.	14
5. Covenants of the Company	15
5.1 Stop-Orders	15

i

5.2 Trading	15
5.3 Market Regulations	15
5.4 Use of Funds	15
5.5 Access to Facilities	15
5.6 Taxes	16
5.7 Insurance	16
5.8 Intellectual Property	17
5.9 Properties	17
5.10 Confidentiality	17
5.11 Reissuance of Securities	17
5.12 Margin Stock	18
6. Covenants of the Purchaser	18
6.1 Confidentiality	18
6.2 Non-Public Information	18
6.3 Regulation M	18
7. Covenants of the Company and Purchaser Regarding Indemnification	18
7.1 Company Indemnification	18
7.2 Purchaser’s Indemnification	18
8. Registration Rights	19
9. Miscellaneous	19
9.1 Governing Law	19
9.2 Survival	19
9.3 Successors	20
9.4 Entire Agreement	20
9.5 Severability	20
9.6 Amendment and Waiver.	20
9.7 Delays or Omissions	20
9.8 Notices	20
9.9 Attorneys’ Fees	21
9.10 Titles and Subtitles	21
9.11 Facsimile Signatures; Counterparts	22
9.12 Broker’s Fees	22
9.13 Construction	22

Exhibits and Schedules

Exhibit A	Form of Warrant
Schedule 1	Shares and Warrant Purchased
Schedule 2	Names and Address of Purchaser

ii

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is made and entered into as of August 10, 2006, by and among BIO-key International, Inc., a Delaware corporation (the “Company”) and Trellus Partners, L.P., (the “Purchaser”).

RECITALS

WHEREAS, the Company has authorized the issuance and sale to the Purchaser of 3,000,000 shares (the “Shares”) of the Company’s common stock, $0.0001 par value per share (the “Common Stock”), at a purchase price of $0.50 per share, for an aggregate purchase price equal to $1,500,000;

WHEREAS, the Company wishes to issue to the Purchaser a warrant in the form attached hereto as Exhibit A (as amended, modified or supplemented from time to time, the “Warrant”) to purchase up to an aggregate of 400,000 shares of Common Stock in connection with the Purchaser’s purchase of the Shares;

WHEREAS, the Purchaser desire to purchase the Shares and the Warrant on the terms and conditions set forth herein; and

WHEREAS, the Company desires to issue and sell the Shares and the Warrant to the Purchaser on the terms and conditions set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises, representations, warranties and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Agreement to Sell and Purchase.

1.1Shares.  Pursuant to the terms and conditions set forth in this Agreement, on the Closing Date (as defined herein below), the Company agrees to issue and sell to the Purchaser, and the Purchaser hereby agrees to purchase from the Company, the Shares for an aggregate purchase price of $1,500,000 (the “Aggregate Purchase Price”) in accordance with the terms of this Agreement.

1.2Warrant.  Pursuant to the terms and conditions set forth in this Agreement, on the Closing Date, the Company will issue and deliver to the Purchaser a Warrant to purchase up to that number of shares of Common Stock set forth opposite the Purchaser’s name on Schedule 1 in connection with the Offering pursuant to Section 1 hereof with an exercise price of $0.75 per share (subject to adjustment as provided for therein.)  The Warrant shall be delivered on the Closing Date.  All the representations, covenants, warranties, undertakings, and indemnification, and other rights made or granted to or for the benefit of the Purchaser by the Company are hereby also made and granted in respect of the Warrant and shares of the Company’s Common Stock issuable upon exercise of

each Warrant (the “Warrant Shares”).  The issuance and sale of the Shares and the Warrant on the Closing Date shall be known as the “Offering.”  The Shares, the Warrant and the Warrant Shares are collectively referred to as the “Securities.”

2.Closing, Delivery and Payment.

2.1Closing.  Subject to the terms and conditions herein, the closing of the transactions contemplated hereby (the “Closing”), shall take place on the date hereof, or at such other time or place as the Company and the Purchaser may mutually agree (such date is hereinafter referred to as the “Closing Date”).

2.2Delivery.  At the Closing on the Closing Date, the Company will deliver to the Purchaser, among other things, the Shares and the Warrant, and the Purchaser will deliver to the Company, among other things, the Aggregate Purchase Price by certified funds or wire transfer.

3.Representations and Warranties of the Company.  The Company hereby represents and warrants to the Purchaser as of the date hereof as follows (which representations and warranties are supplemented by the Company’s filings (collectively, the “Exchange Act Filings”) made pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), public access to copies of such filings having been made available to the Purchaser):

3.1Organization, Good Standing and Qualification.  Each of the Company and each of its Subsidiaries is a corporation, partnership or limited liability company, as the case may be, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each of the Company and each of its Subsidiaries has the corporate power and authority to own and operate its properties and assets, to execute and deliver (i) this Agreement, (ii) the Shares and the Warrant, (iii) the Registration Rights Agreement relating to the Shares and Warrant Shares dated as of the date hereof between the Company and the Purchaser (as amended, modified or supplemented from time to time, the “Registration Rights Agreement”), and (iv) any other agreements related to this Agreement and the Securities and referred to herein (the preceding clauses (ii) through (iv), collectively, the “Related Agreements”); to issue and sell the Securities; to carry out the provisions of this Agreement and the Related Agreements; and to carry on its business as presently conducted.  Each of the Company and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation, partnership or limited liability company, as the case may be, in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so has not, or could not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, assets, liabilities, condition (financial or otherwise), properties or operations of the Company and it Subsidiaries, taken individually and as a whole (a “Material Adverse Effect”).

3.2Subsidiaries.  Each direct and indirect Subsidiary of the Company, the direct owner of such Subsidiary and its percentage ownership thereof, is set forth on

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Schedule 3.2.  For the purpose of this Agreement, a “Subsidiary” of any person or entity means (i) a corporation or other entity whose shares of stock or other ownership interests having ordinary voting power (other than stock or other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the directors of such corporation, or other persons or entities performing similar functions for such person or entity, are owned, directly or indirectly, by such person or entity or (ii) a corporation or other entity in which such person or entity owns, directly or indirectly, more than 50% of the equity interests at such time.

3.3Capitalization; Voting Rights.

(a)The authorized capital stock of the Company, as of the date hereof consists of 175,000,000 shares, of which 170,000,000 are shares of Common Stock, par value $0.0001 per share, 48,766,494 shares of which are issued and outstanding, and 5,000,000 are shares of preferred stock, par value $0.01 per share, of which 100,000 shares have been designated Series A Convertible Preferred Stock, 35,557 of which shares are issued and outstanding, and 1,000,000 shares have been designated Series B Convertible Preferred Stock, all of which shares are issued and outstanding.  The authorized capital stock of each Subsidiary of the Company is set forth on Schedule 3.3.

(b)Except as disclosed on Schedule 3.3 or as disclosed in any Exchange Act Filings, other than:  (i) the shares reserved for issuance under the Company’s stock option plans; and (ii) shares which may be granted pursuant to this Agreement and the Related Agreements, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or stockholder agreements, or arrangements or agreements of any kind for the purchase or acquisition from the Company of any of its securities. Except as disclosed on Schedule 3.3 or as disclosed in any Exchange Act Filings, neither the offer, issuance or sale of any of the Securities, nor the consummation of any transaction contemplated hereby will result in a change in the price or number of any securities of the Company outstanding, under anti-dilution or other similar provisions contained in or affecting any such securities.

(c)All issued and outstanding shares of the Company’s Common Stock:  (i) have been duly authorized and validly issued and are fully paid and nonassessable; and (ii) were issued in compliance with all applicable state and federal laws concerning the issuance of securities.

(d)The rights, preferences, privileges and restrictions of the shares of Common Stock are as stated in the Company’s Certificate of Incorporation, including its Certificates of Designation (the “Charter”).  The Shares and Warrant Shares have been duly and validly reserved for issuance.  When issued in compliance with the provisions of this Agreement and the Company’s Charter, the Shares and Warrant Shares will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Shares

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and Warrant Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed.

3.4Authorization; Binding Obligations.  All corporate, partnership or limited liability company, as the case may be, action on the part of the Company and each of its Subsidiaries (including the respective officers and directors) necessary for the authorization of this Agreement and the Related Agreements, the performance of all obligations of the Company and its Subsidiaries hereunder and under the other Related Agreements at the Closing and, the authorization, sale, issuance and delivery of the Securities has been taken or will be taken prior to the Closing.  This Agreement and the Related Agreements, when executed and delivered and to the extent it is a party thereto, will be valid and binding obligations of each of the Company and each of its Subsidiaries, enforceable against each such person in accordance with their terms, except:

(a)as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights; and

(b)general principles of equity that restrict the availability of equitable or legal remedies.

Except as set forth on Schedule 3.3, the issuance and sale of the Shares and the Warrant and subsequent exercise of the Warrant are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with.

3.5Liabilities.  Neither the Company nor any of its Subsidiaries has any contingent liabilities, except current liabilities incurred in the ordinary course of business and liabilities disclosed in any Exchange Act Filings.

3.6Agreements; Action.  Except as set forth on Schedule 3.6 or as disclosed in any Exchange Act Filings:

(a)there are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company or any of its Subsidiaries is a party or by which it is bound which may involve: (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $50,000 (other than obligations of, or payments to, the Company arising from purchase or sale agreements entered into in the ordinary course of business); or (ii) the transfer or license of any patent, copyright, trade secret or other proprietary right to or from the Company (other than licenses arising from the purchase of “off the shelf” or other standard products); or (iii) provisions restricting the development, manufacture or distribution of the Company’s products or services; or (iv) indemnification by the Company with respect to infringements of proprietary rights.

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(b)Since March 31, 2006, neither the Company nor any of its Subsidiaries has:  (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock; (ii) incurred any indebtedness for money borrowed or any other liabilities (other than ordinary course obligations or obligations that have been paid in full) individually in excess of $50,000 or, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $100,000 in the aggregate; (iii) made any loans or advances to any person not in excess, individually or in the aggregate, of $100,000, other than ordinary course advances for travel expenses; or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business.

(c)For the purposes of subsections (a) and (b) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections.

3.7Obligations to Related Parties.  Except as set forth on Schedule 3.7 or as disclosed in any Exchange Act Filings, there are no obligations of the Company or any of its Subsidiaries to officers, directors, stockholders or employees of the Company or any of its Subsidiaries other than:

(a)for payment of salary for services rendered and for bonus payments;

(b)reimbursement for reasonable expenses incurred on behalf of the Company and its Subsidiaries;

(c)for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company); and

(d)obligations listed in the Company’s financial statements or disclosed in any of its Exchange Act Filings.

Except as described above or set forth on Schedule 3.7 or as disclosed in any Exchange Act Filings, none of the officers, directors or, to the best of the Company’s knowledge, key employees or stockholders of the Company or any members of their immediate families, are indebted to the Company, individually or in the aggregate, in excess of $50,000 or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, other than passive investments in publicly traded companies (representing less than one percent (1%) of such company) which may compete with the Company. Except as described above, no officer, director or stockholder, or any member of their

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immediate families, is, directly or indirectly, interested in any material contract with the Company and no agreements, understandings or proposed transactions are contemplated between the Company and any such person.  Except as set forth on Schedule 3.7 or as disclosed in any Exchange Act Filings, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.

3.8Changes.  Since March 31, 2006, except as disclosed in any Exchange Act Filing or in any Schedule to this Agreement or to any of the Related Agreements, there has not been:

(a)any change in the business, assets, liabilities, condition (financial or otherwise), properties, operations or prospects of the Company or any of its Subsidiaries, which individually or in the aggregate has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(b)any resignation or termination of any officer, key employee or group of employees of the Company or any of its Subsidiaries;

(c)any material change, except in the ordinary course of business, in the contingent obligations of the Company or any of its Subsidiaries by way of guaranty, endorsement, indemnity, warranty or otherwise;

(d)any damage, destruction or loss, whether or not covered by insurance, has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(e)any waiver by the Company or any of its Subsidiaries of a valuable right or of a material debt owed to it;

(f)any direct or indirect loans made by the Company or any of its Subsidiaries to any stockholder, employee, officer or director of the Company or any of its Subsidiaries, other than advances made in the ordinary course of business;

(g)any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder of the Company or any of its Subsidiaries;

(h)any declaration or payment of any dividend or other distribution of the assets of the Company or any of its Subsidiaries;

(i)any labor organization activity related to the Company or any of its Subsidiaries;

(j)any debt, obligation or liability incurred, assumed or guaranteed by the Company or any of its Subsidiaries, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business;

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(k)any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets owned by the Company or any of its Subsidiaries;

(l)any change in any material agreement to which the Company or any of its Subsidiaries is a party or by which either the Company or any of its Subsidiaries is bound which either individually or in the aggregate has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(m)any other event or condition of any character that, either individually or in the aggregate, has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; or

(n)any arrangement or commitment by the Company or any of its Subsidiaries to do any of the acts described in subsection (a) through (m) above.

3.9Title to Properties and Assets; Liens, Etc.  Except as set forth on Schedule 3.9, each of the Company and each of its Subsidiaries has good and marketable title to its properties and assets, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than:

(a)those resulting from taxes which have not yet become delinquent;

(b)minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company or any of its Subsidiaries; and

(c)those that have otherwise arisen in the ordinary course of business.

All facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by the Company and its Subsidiaries are in good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used.  Except as set forth on Schedule 3.9, the Company and its Subsidiaries are in compliance with all material terms of each lease to which it is a party or is otherwise bound.

3.10Intellectual Property.

(a)Each of the Company and each of its Subsidiaries owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and to the Company’s knowledge, as presently proposed to be conducted (the “Intellectual Property”), without any known infringement of the rights of others.  There are no outstanding options, licenses or agreements of any kind relating to the foregoing proprietary rights, nor is the Company or any of its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the patents,

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trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of “off the shelf” or standard products.

(b)Neither the Company nor any of its Subsidiaries has received any communications alleging that the Company or any of its Subsidiaries has violated any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity, nor is the Company or any of its Subsidiaries aware of any basis therefor.

(c)The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its employees made prior to their employment by the Company or any of its Subsidiaries, except for inventions, trade secrets or proprietary information that have been rightfully assigned to the Company or any of its Subsidiaries.

3.11Compliance with Other Instruments.  Neither the Company nor any of its Subsidiaries is in violation or default of (x) any term of its Charter or Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture, contract, agreement or instrument to which it is party or by which it is bound or of any judgment, decree, order or writ, which violation or default, in the case of this clause (y), has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.  The execution, delivery and performance of and compliance with this Agreement and the Related Agreements to which it is a party, and the issuance and sale of the Securities by the Company each pursuant hereto and thereto, will not, with or without the passage of time or giving of notice, result in any such material violation, or be in conflict with or constitute a default under any such term or provision, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or any of its Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties.

3.12Litigation.  Except as set forth on Schedule 3.12 hereto or as disclosed in any Exchange Act Filings, there is no action, suit, proceeding or investigation pending or, to the Company’s knowledge, currently threatened against the Company or any of its Subsidiaries that prevents the Company or any of its Subsidiaries from entering into this Agreement or the other Related Agreements, or from consummating the transactions contemplated hereby or thereby, or which has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or any change in the current equity ownership of the Company or any of its Subsidiaries, nor is the Company aware that there is any basis to assert any of the foregoing. Neither the Company nor any of its Subsidiaries is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality.  There is no action, suit, proceeding or investigation by the Company or

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any of its Subsidiaries currently pending or which the Company or any of its Subsidiaries intends to initiate.

3.13Tax Returns and Payments.  Each of the Company and each of its Subsidiaries has timely filed all tax returns (federal, state and local) required to be filed by it.  All taxes shown to be due and payable on such returns, any assessments imposed, and all other taxes due and payable by the Company or any of its Subsidiaries on or before the Closing, have been paid or will be paid prior to the time they become delinquent.  Except as set forth on Schedule 3.13, neither the Company nor any of its Subsidiaries has been advised:

(a)that any of its returns, federal, state or other, have been or are being audited as of the date hereof; or

(b)of any deficiency in assessment or proposed judgment to its federal, state or other taxes.

The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for.

3.14Employees.  Except as set forth on Schedule 3.14, neither the Company nor any of its Subsidiaries has any collective bargaining agreements with any of its employees.  There is no labor union organizing activity pending or, to the Company’s knowledge, threatened with respect to the Company or any of its Subsidiaries.  Except as disclosed in the Exchange Act Filings or on Schedule 3.14, neither the Company nor any of its Subsidiaries is a party to or bound by any currently effective employment contract, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement.  To the Company’s knowledge, no employee of the Company or any of its Subsidiaries, nor any consultant with whom the Company or any of its Subsidiaries has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company or any of its Subsidiaries because of the nature of the business to be conducted by the Company or any of its Subsidiaries; and to the Company’s knowledge the continued employment by the Company or any of its Subsidiaries of its present employees, and the performance of the Company’s and its Subsidiaries’ contracts with its independent contractors, will not result in any such violation.  Neither the Company nor any of its Subsidiaries is aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or any of its Subsidiaries.  Neither the Company nor any of its Subsidiaries has received any notice alleging that any such violation has occurred.  Except for employees who have a current effective employment agreement with the Company or any of its Subsidiaries, no employee of the Company or any of its Subsidiaries has been granted the right to continued employment by the Company or any of its Subsidiaries or to any material

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compensation following termination of employment with the Company or any of its Subsidiaries.  Except as set forth on Schedule 3.14, the Company is not aware that any officer, key employee or group of employees intends to terminate his, her or their employment with the Company or any of its Subsidiaries, nor does the Company or any of its Subsidiaries have a present intention to terminate the employment of any officer, key employee or group of employees.

3.15Registration Rights and Voting Rights.  Except as set forth on Schedule 3.15 and except as disclosed in any Exchange Act Filings, neither the Company nor any of its Subsidiaries is presently under any obligation, and neither the Company nor any of its Subsidiaries has granted any rights, to register any of the Company’s or its Subsidiaries’ presently outstanding securities or any of its securities that may hereafter be issued other than pursuant to the Registration Rights Agreement (as defined herein below).  Except as set forth on Schedule 3.15 and except as disclosed in any Exchange Act Filings, to the Company’s knowledge, no stockholder of the Company or any of its Subsidiaries has entered into any agreement with respect to the voting of equity securities of the Company or any of its Subsidiaries.

3.16Compliance with Laws; Permits.  Neither the Company nor any of its Subsidiaries is in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties which has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.  No governmental orders, permissions, consents, approvals or authorizations are required to be obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this Agreement or any other Related Agreement and the issuance of any of the Securities, except such as has been duly and validly obtained or filed, or with respect to any filings that must be made after the Closing, as will be filed in a timely manner.  Each of the Company and its Subsidiaries has all material franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.17Environmental and Safety Laws.  Neither the Company nor any of its Subsidiaries is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. Except as set forth on Schedule 3.17, no Hazardous Materials (as defined below) are used or have been used, stored, or disposed of by the Company or any of its Subsidiaries or, to the Company’s knowledge, by any other person or entity on any property owned, leased or used by the Company or any of its Subsidiaries. For the purposes of the preceding sentence, “Hazardous Materials” shall mean:

(a)materials which are listed or otherwise defined as “hazardous” or “toxic” under any applicable local, state, federal and/or foreign laws and

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regulations that govern the existence and/or remedy of contamination on property, the protection of the environment from contamination, the control of hazardous wastes, or other activities involving hazardous substances, including building materials; or

(b)any petroleum products or nuclear materials.

3.18Valid Offering.  Assuming the accuracy of the representations and warranties of the Purchaser contained in this Agreement, the offer, sale and issuance of the Securities will be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws.

3.19Full Disclosure.  Each of the Company and each of its Subsidiaries has provided the Purchaser with all information requested by the Purchaser in connection with its decision to purchase the Shares and the Warrant, including all information the Company and its Subsidiaries believe is reasonably necessary to make such investment decision.  Neither this Agreement, the Related Agreements, the exhibits and schedules hereto and thereto nor any other document delivered by the Company or any of its Subsidiaries to the Purchaser or their attorneys or agents in connection herewith or therewith or with the transactions contemplated hereby or thereby, contain any untrue statement of a material fact nor omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading.  Any financial projections and other estimates provided to the Purchaser by the Company or any of its Subsidiaries were based on the Company’s and its Subsidiaries’ experience in the industry and on assumptions of fact and opinion as to future events which the Company or any of its Subsidiaries, at the date of the issuance of such projections or estimates, believed to be reasonable.

3.20Insurance.  Each of the Company and each of its Subsidiaries has general commercial, product liability, fire and casualty insurance policies with coverages which the Company believes are customary for companies similarly situated to the Company and its Subsidiaries in the same or similar business.

3.21SEC Reports.  Except as set forth on Schedule 3.21, the Company has filed all proxy statements, reports and other documents required to be filed by it under the Exchange Act.  The Company has provided public access to copies of or otherwise made available to the Purchaser:  (i) its Annual Report on Form 10-KSB for its fiscal year ended December 31, 2005, as amended; (ii) its Quarterly Report on Form 10-QSB for its fiscal quarter ended March 31, 2006; and (iii) the Form 8-K filings which it has made during the fiscal year 2006 to date (collectively, the “SEC Reports”). Except as set forth on Schedule 3.21, each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted

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to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

3.22Listing.  The Company’s Common Stock is  traded on the NASD Over the Counter Bulletin Board (“OTCBB”) and satisfies all requirements for the continuation of such trading.  The Company has not received any notice that its Common Stock will be ineligible to trade or that its Common Stock does not meet all requirements for such trading.

3.23No Integrated Offering.  Neither the Company, nor any of its Subsidiaries or affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Securities pursuant to this Agreement or any of the Related Agreements to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Securities pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will the Company or any of its affiliates or Subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings.

3.24Stop Transfer.  The Securities are restricted securities as of the date of this Agreement.  Neither the Company nor any of its Subsidiaries will issue any stop transfer order or other order impeding the sale and delivery of any of the Securities at such time as the Securities are registered for public sale or an exemption from registration is available, except as required by state and federal securities laws.

3.25Dilution.  The Company specifically acknowledges that its obligation to issue the Warrant Shares is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.

3.26Patriot Act.  The Company certifies that, to the best of Company’s knowledge, neither the Company nor any of its Subsidiaries has been designated, and is not owned or controlled, by a “suspected terrorist” as defined in Executive Order 13224.  The Company hereby acknowledges that the Purchaser seek to comply with all applicable laws concerning money laundering and related activities.  In furtherance of those efforts, the Company hereby represents, warrants and agrees that:  (i) none of the cash or property that the Company or any of its Subsidiaries will pay or will contribute to the Purchaser has been or shall be derived from, or related to, any activity that is deemed criminal under United States law; and (ii) no contribution or payment by the Company or any of its Subsidiaries to the Purchaser, to the extent that they are within the Company’s and/or its Subsidiaries’ control shall cause the Purchaser to be in violation of the United States Bank Secrecy Act, the United States International Money Laundering Control Act of 1986 or the United States International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001.  The Company shall promptly notify the Purchaser if any of these representations ceases to be true and accurate regarding the Company or any

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of its Subsidiaries.  The Company agrees to provide the Purchaser any additional information regarding the Company or any of its Subsidiaries that the Purchaser deem necessary or convenient to ensure compliance with all applicable laws concerning money laundering and similar activities.  The Company understands and agrees that if at any time it is discovered that any of the foregoing representations are incorrect, or if otherwise required by applicable law or regulation related to money laundering similar activities, the Purchaser may undertake appropriate actions to ensure compliance with each applicable law or regulation, including but not limited to segregation and/or redemption of the Purchaser’s investment in the Company.  The Company further understands that the Purchaser may release confidential information about the Company and its Subsidiaries and, if applicable, any underlying beneficial owners, to proper authorities if the Purchaser, in its sole discretion, determines that it is in the best interests of the Purchaser in light of relevant rules and regulations under the laws set forth in subsection (ii) above.

4.Representations and Warranties of the Purchaser.  The Purchaser hereby represents and warrants to the Company as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement):

4.1Requisite Power and Authority.  The Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and the Related Agreements and to carry out their provisions. All corporate action on the Purchaser’s part required for the lawful execution, if any, and delivery of this Agreement and the Related Agreements have been or will be effectively taken prior to the Closing.  Upon their execution and delivery, this Agreement and the Related Agreements will be valid and binding obligations of the Purchaser, enforceable in accordance with their terms, except:

(a)as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights; and

(b)as limited by general principles of equity that restrict the availability of equitable and legal remedies.

4.2Investment Representations.  The Purchaser understands that the Securities are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon the Purchaser’s representations contained in the Agreement, including, without limitation, that the Purchaser is an “accredited investor” within the meaning of Regulation D under the Securities Act.  The Purchaser confirms that it has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the Shares and the Warrant.  The Purchaser further confirms that it has had an opportunity to ask questions and receive answers from the Company regarding the Company’s and its Subsidiaries’ business, management and financial affairs and the terms and conditions of the Offering and the Shares and the Warrant and to obtain

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additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Purchaser or to which the Purchaser had access.

4.3Purchaser Bears Economic Risk.  The Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests.  The Purchaser must bear the economic risk of this investment until the Securities are sold pursuant to: (i) an effective registration statement under the Securities Act; or (ii) an exemption from registration is available with respect to such sale.

4.4Acquisition for Own Account.  The Purchaser is acquiring the Securities for the Purchaser’s own account for investment only, and not as a nominee or agent and not with a view towards or for resale in connection with their distribution.

4.5Purchaser Can Protect Its Interest.  The Purchaser represents that by reason of its, or of its management’s, business and financial experience, the Purchaser has the capacity to evaluate the merits and risks of its investment in the Securities and to protect its own interests in connection with the transactions contemplated in this Agreement and the Related Agreements.  Further, the Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement or the Related Agreements.

4.6Accredited Investor.  The Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act.

4.7Legends.

(a)The Shares and Warrant Shares shall bear a legend which shall be in substantially the following form unless and until such shares are covered by an effective registration statement filed with the SEC:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIO-KEY INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

(b)The Warrant shall bear substantially the following legend:

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“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIO-KEY INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

5.Covenants of the Company.  The Company covenants and agrees with the Purchaser as follows:

5.1Stop-Orders.  The Company will advise the Purchaser promptly after it receives notice of issuance by the Securities and Exchange Commission (the “SEC”), any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.

5.2Trading.  The Company shall promptly secure the trading of the Shares and Warrant Shares on the OTCBB (the “Principal Market”) upon which shares of Common Stock are traded (subject to official notice of issuance) and shall maintain such trading so long as any other shares of Common Stock shall be so traded.  The Company will maintain the trading of its Common Stock on the Principal Market, and will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers (“NASD”) and such exchanges, as applicable.

5.3Market Regulations.  The Company shall notify the SEC, NASD and applicable state authorities, in accordance with their requirements, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to the Purchaser and promptly provide copies thereof to the Purchaser.

5.4Use of Funds.  The Company agrees that it will use the proceeds of the sale of the Shares and the Warrant for general working capital purposes only.

5.5Access to Facilities.  Each of the Company and each of its Subsidiaries will permit any representatives designated by the Purchaser, upon reasonable notice and

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during normal business hours, at such person’s expense and accompanied by a representative of the Company, to:

(a)visit and inspect any of the properties of the Company or any of its Subsidiaries;

(b)examine the corporate and financial records of the Company or any of its Subsidiaries (unless such examination is not permitted by federal, state or local law or by contract) and make copies thereof or extracts therefrom; and

(c)discuss the affairs, finances and accounts of the Company or any of its Subsidiaries with the directors, officers and independent accountants of the Company or any of its Subsidiaries.

Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries will provide any material, non-public information to the Purchaser unless the Purchaser sign a confidentiality agreement and otherwise complies with Regulation FD, under the federal securities laws.

5.6Taxes.  Each of the Company and each of its Subsidiaries will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company and its Subsidiaries; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company and/or such Subsidiary shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company and its Subsidiaries will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor.

5.7Insurance.  Each of the Company and its Subsidiaries will keep its assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in similar business similarly situated as the Company and its Subsidiaries; and the Company and its Subsidiaries will maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner which the Company reasonably believes is customary for companies in similar business similarly situated as the Company and its Subsidiaries and to the extent available on commercially reasonable terms. At the Company’s and each of its Subsidiaries’ joint and several cost and expense in amounts and with carriers reasonably acceptable to the Purchaser, the Company and each of its Subsidiaries shall (i) keep all its insurable properties and properties in which it has an interest insured against the hazards of fire, flood, sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and for such amounts, as is customary in the case of companies engaged in businesses similar to the Company’s or

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the respective Subsidiary’s including business interruption insurance; (ii) maintain a bond in such amounts as is customary in the case of companies engaged in businesses similar to the Company’s or the respective Subsidiary’s insuring against larceny, embezzlement or other criminal misappropriation of insured’s officers and employees who may either singly or jointly with others at any time have access to the assets or funds of the Company or any of its Subsidiaries either directly or through governmental authority to draw upon such funds or to direct generally the disposition of such assets; (iii) maintain public and product liability insurance against claims for personal injury, death or property damage suffered by others; (iv) maintain all such worker’s compensation or similar insurance as may be required under the laws of any state or jurisdiction in which the Company or the respective Subsidiary is engaged in business; and (v) if requested, furnish the Purchaser with copies of all policies and evidence of the maintenance of such policies at least thirty (30) days before any expiration date.

5.8Intellectual Property.  Each of the Company and each of its Subsidiaries shall maintain in full force and effect its existence, rights and franchises and all licenses and other rights to use Intellectual Property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business.

5.9Properties.  Each of the Company and each of its Subsidiaries will keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and each of the Company and each of its Subsidiaries will at all times comply with each provision of all leases to which it is a party or under which it occupies property if the breach of such provision could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

5.10Confidentiality.  The Company agrees that it will not disclose, and will not include in any public announcement, the name of the Purchaser, unless expressly agreed to by the Purchaser or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement.  Notwithstanding the foregoing, the Company may disclose the Purchaser’s identity and the terms of this Agreement to its current and prospective debt and equity financing sources and to obtain waivers of anti-dilution adjustment provisions related to certain of the Company’s outstanding securities.

5.11Reissuance of Securities.  The Company agrees to reissue certificates representing the Securities without the legends set forth in Section 4.7 above at such time as:

(a)the holder thereof is permitted to dispose of such Securities pursuant to Rule 144(b) or Rule 144(k) under the Securities Act; or

(b)upon resale subject to an effective registration statement after such Securities are registered under the Securities Act.

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The Company agrees to cooperate with the Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow such resales provided the Company and its counsel receive reasonably requested representations from the selling Purchaser and broker, if any.

5.12Margin Stock.  The Company will not permit any of the proceeds of the Shares or the Warrant to be used directly or indirectly to “purchase” or “carry” “margin stock” or to repay indebtedness incurred to “purchase” or “carry” “margin stock” within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect.

6.Covenants of the Purchaser.  Each of the Purchaser covenants and agrees as to itself with the Company as follows:

6.1Confidentiality.  The Purchaser agrees that it will not disclose, and will not include in any public announcement, the name of the Company, unless expressly agreed to by the Company or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement.

6.2Non-Public Information.  The Purchaser agrees not to effect any sales in the shares of the Company’s Common Stock while in possession of material, non-public information regarding the Company if such sales would violate applicable securities law.

6.3Regulation M.  The Purchaser acknowledges and agrees that Regulation M promulgated under the Exchange Act will apply to any sales of the Company’s Common Stock, and the Purchaser will, and will cause each of its affiliates and its investment partners to, comply with Regulation M in all respects during such time as they may be engaged in a distribution of shares of the Company’s Common Stock.

7.Covenants of the Company and Purchaser Regarding Indemnification.

7.1Company Indemnification.  The Company agrees to indemnify, hold harmless, reimburse and defend the Purchaser, the Purchaser’s officers, directors, agents, affiliates, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Purchaser which results, arises out of or is based upon: (i) any misrepresentation by the Company or any of its Subsidiaries or breach of any warranty by the Company or any of its Subsidiaries in this Agreement, any other Related Agreement or in any exhibits or schedules attached hereto or thereto; or (ii) any breach or default in performance by Company or any of its Subsidiaries of any covenant or undertaking to be performed by Company or any of its Subsidiaries hereunder, under any other Related Agreement or any other agreement entered into by the Company and/or any of its Subsidiaries and the Purchaser relating hereto or thereto.  Notwithstanding the foregoing, the Company shall not be required to indemnify any person or entity for an amount in excess of the Aggregate Purchase Price.

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7.2Purchaser’s Indemnification.  The Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company and each of the Company’s officers, directors, agents, affiliates, control persons and principal shareholders, at all times against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Company which results, arises out of or is based upon: (i) any misrepresentation by the Purchaser or breach of any warranty by the Purchaser in this Agreement or in any exhibits or schedules attached hereto or any Related Agreement; or (ii) any breach or default in performance by the Purchaser of any covenant or undertaking to be performed by the Purchaser hereunder, or any other agreement entered into by the Company and the Purchaser relating hereto.

8.Registration Rights.  The Company hereby grants registration rights to the Purchaser pursuant to a Registration Rights Agreement dated as of even date herewith between the Company and the Purchaser (the “Registration Rights Agreement”).

9.Miscellaneous.

9.1Governing Law.  THIS AGREEMENT AND EACH RELATED 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.  ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK, IN EACH CASE SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN.  BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY.  IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW.  ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT.

9.2Survival.  The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchaser and for one year after the date of the closing of the transactions contemplated hereby to the extent provided therein.  All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and

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warranties by the Company hereunder solely as of the date of such certificate or instrument.

9.3Successors.  Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Securities from time to time, other than the holders of Common Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective registration statement.  The Purchaser may not assign its rights hereunder to a competitor of the Company.

9.4Entire Agreement.  This Agreement, the Related Agreements, the exhibits and schedules hereto and thereto and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein.

9.5Severability.  In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

9.6Amendment and Waiver.

(a)This Agreement may be amended or modified only upon the written consent of the Company and the Purchaser.

(b)The obligations of the Company and the rights of the Purchaser under this Agreement may be waived only with the written consent of the Purchaser.

(c)The obligations of the Purchaser and the rights of the Company under this Agreement may be waived only with the written consent of the Company.

9.7Delays or Omissions.  It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement or the Related Agreements, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring.  All remedies, either under this Agreement or the Related Agreements, by law or otherwise afforded to any party, shall be cumulative and not alternative.

9.8Notices.  All notices required or permitted hereunder shall be in writing and shall be deemed effectively given:

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(a)upon personal delivery to the party to be notified;

(b)when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day;

(c)three (3) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or

(d)one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.

All communications shall be sent as follows:

If to the Company, to:

BIO-Key International, Inc.
300 Nickerson Road
Marlborough, MA 01752
Attention:  Chief Financial Officer
Facsimile:  (508) 460-4098

with a copy to:

Choate, Hall & Stewart LLP
Two International Place
Boston, MA  02110
Attention:  Charles J. Johnson, Esq.
Facsimile:  617-248-4000

If to the Purchaser, to the address of the Purchaser set forth on Schedule 2 hereto.

or at such other addresses as the Company or the Purchaser may designate by written notice to the other parties hereto given in accordance herewith.

9.9Attorneys’ Fees.  In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including, without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

9.10Titles and Subtitles.  The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

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9.11Facsimile Signatures; Counterparts.  This 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.

9.12Broker’s Fees.  Each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker’s or finder’s fee or any other commission directly or indirectly in connection with the transactions contemplated herein.  Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section 9.12 being untrue.

9.13Construction.  Each party acknowledges that its legal counsel participated in the preparation of this Agreement and the Related Agreements and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Agreement to favor any party against the other.

(The remainder of this page is intentionally left blank)

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IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.

COMPANY
BIO-KEY INTERNATIONAL, INC.
By:	/s/ Thomas J. Colatosti
	Name: Thomas J. Colatosti
	Title: Chairman

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.

PURCHASER
TRELLUS PARTNERS, L.P.
By:	/s/ Adam Usdan
	Name: Adam Usdan
	Title: President

EXHIBIT A
Form of Warrant

SCHEDULE 1

Shares and Warrant Purchased

Purchaser	Shares		Warrant Shares	Aggregate Purchase Price
Trellus Partners, L.P.	$	1,500,000	400,000	$	1,500,000

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SCHEDULE 2

Names and Address of Purchaser

Trellus Partners, L.P.
350 Madison Avenue, 9th Floor
New York, NY  10017
Attn:   Tony Miller, C.F.O.
Facsimile: 212-389-8798

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EX-99.7

Exhibit 99.7

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIO-KEY INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

Right to Purchase up to 400,000 Shares of Common Stock of
BIO-Key International, Inc.
(subject to adjustment as provided herein)

COMMON STOCK PURCHASE WARRANT

No. 06-4 Issue Date: as of August 10, 2006

BIO-KEY INTERNATIONAL, INC., a corporation organized under the laws of the State of Delaware (“BIO-Key International, Inc.”), hereby certifies that, for value received, Trellus Partners, L.P., or assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through the close of business August 10, 2011 (the “Expiration Date”), up to 400,000 fully paid and nonassessable shares of Common Stock (as hereinafter defined), $0.0001 par value per share, at the applicable Exercise Price per share (as defined below).  The number and character of such shares of Common Stock and the applicable Exercise Price per share are subject to adjustment as provided herein.

As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)The term “Company” shall include BIO-Key International, Inc. and any corporation which shall succeed, or assume the obligations of, BIO-Key International, Inc.  hereunder.

(b)The term “Common Stock” includes (i) the Company’s Common Stock, par value $0.0001 per share; and (ii) any other securities into which or for which any of the securities described in (a) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.

(c)The term “Other Securities” refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise.

(d)The “Exercise Price” applicable under this Warrant shall be $0.75.

1.Exercise of Warrant.

1.1Number of Shares Issuable upon Exercise.  From and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the “Exercise Notice”), shares of Common Stock of the Company, subject to adjustment pursuant to Section 4.

1.2Fair Market Value.  For purposes hereof, the “Fair Market Value” of a share of Common Stock as of a particular date (the “Determination Date”) shall mean:

(a)If the Company’s Common Stock is traded on the American Stock Exchange or  another national exchange or is quoted on the National or SmallCap Market of The Nasdaq Stock Market, Inc.(“Nasdaq”), then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date.

(b)If the Company’s Common Stock is not traded on the American Stock Exchange or another national exchange or on the Nasdaq but is traded on the NASD OTC Bulletin Board, then the mean of the average of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date.

(c)Except as provided in clause (d) below, if the Company’s Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then in effect of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided.

(d)If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company’s charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of the Warrant are outstanding at the Determination Date.

1.3Company Acknowledgment.  The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights.

1.4Trustee for Warrant Holders.  In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrant pursuant to Subsection 3.2,

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such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1.

2.Procedure for Exercise.

2.1Delivery of Stock Certificates, Etc., on Exercise.  The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares in accordance herewith.  As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise.

2.2Exercise.  Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common Stock and/or Common Stock receivable upon exercise of the Warrant in accordance with the formula set forth below, or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein.  Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Exercise Notice in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:

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X = Y	(A-B)
	A

Where X =the number of shares of Common Stock to be issued to the Holder

Y =the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)

A =the Fair Market Value of one share of the Company’s Common Stock (at the date of such calculation)

B =Exercise Price (as adjusted to the date of such calculation)

3.Effect of Reorganization, Etc.; Adjustment of Exercise Price.

3.1Reorganization, Consolidation, Merger, Etc.  In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, the Company shall have delivered the Holder written notice thereof not less than 10 days’ prior thereto, and proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4.

3.2Dissolution.  In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, concurrently with any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be delivered to the Holder the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrant pursuant to Section 3.1, or, if the Holder shall so instruct the Company, to a bank or trust company specified by the Holder and having its principal office in New York, NY as trustee for the Holder of the Warrant (the “Trustee”).

3.3Continuation of Terms.  Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person

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acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4.  In the event this Warrant does not continue in full force and effect after the consummation of the transactions described in this Section 3, then the Company’s securities and property (including cash, where applicable) receivable by the Holders of the Warrant will be delivered to Holder or the Trustee as contemplated by Section 3.2.

3.4Share Issuances.  In the event that the Company shall at any time prior to the Expiration Date issue any shares of Common Stock or securities convertible into Common Stock to a person other than the Holder (except (i) pursuant to options, warrants, or other obligations to issue shares outstanding on the date hereof as disclosed to Holder in writing; (ii) pursuant to options that may be issued under any stock option plan adopted by the Borrower; or (iii) pursuant to an acquisition by the Company, whether structured as an asset purchase, stock purchase or merger) for a consideration per share (the “Offer Price”) less than the $0.75, then the Exercise Price shall be immediately reset to such lower Offer Price at the time of issuance of such securities.

4.Extraordinary Events Regarding Common Stock.  In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4.  The number of shares of Common Stock that the holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be increased to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Exercise Price in effect on the date of such exercise.

5.Certificate as to Adjustments.  In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or

5

readjusted as provided in this Warrant.  The Company will forthwith mail a copy of each such certificate to the holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 11 hereof).

6.Reservation of Stock, Etc., Issuable on Exercise of Warrant.  The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant.

7.Assignment; Exchange of Warrant.  Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”) in whole or in part.  On the surrender for exchange of this Warrant, with the Transferor’s endorsement in the form of Exhibit B attached hereto (the “Transferor Endorsement Form”) and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws (at the Company’s expense) that such transfer is exempt from the registration requirements of applicable securities laws, and with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a “Transferee”), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor.

8.Replacement of Warrant.  On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

9.Registration Rights.  The Holder of this Warrant has been granted certain registration rights by the Company.  These registration rights are set forth in a Registration Rights Agreement entered into by the Company and Purchaser dated as of even date of this Warrant.

10.Maximum Exercise.  In no event shall the Holder be entitled to exercise this Warrant with respect to any shares of Common Stock or shall the Company have the obligation to issue any such shares to the extent that, after such exercise and issuance, the Holder would be deemed to be the beneficial owner of more than 4.99% of the outstanding shares of Common Stock.   For purposes of  this section , beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.  Notwithstanding the foregoing, the restriction described in this paragraph may be revoked upon 61 days prior notice from the Holder to the Company.  Notwithstanding the foregoing, the Holder may elect to convert this Warrant and/or convert or exercise any other convertible or exchangeable instrument in order to become the beneficial owner of up to 4.99% of the outstanding shares of Common Stock.

6

11.Warrant Agent.  The Company may, by written notice to each Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

12.Transfer on the Company’s Books.  Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.

13.Notices, Etc.  All notices and other communications from the Company to the Holder of this Warrant shall be delivered by facsimile or by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company.

14.Governing Law.  THIS WARRANT 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.  ANY ACTION BROUGHT BY S ANY PARTY AGAINST ANOTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK IN EACH CASE SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN.  ALL PARTIES AND THE INDIVIDUALS EXECUTING THIS WARRANT ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY.  IN THE EVENT THAT ANY PROVISION OF THIS WARRANT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW.  ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS WARRANT.

15.Miscellaneous.  This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.  The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof.  The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision hereof.  The Company acknowledges that legal counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Warrant to favor any party against the other party.

(Balance of page intentionally left blank; signature page follows.)

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IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above.

BIO-KEY INTERNATIONAL, INC.
By:	/s/ Thomas J. Colatosti
	Name: Thomas J. Colatosti
	Title: Chairman

Signature page to Trellus Warrant

EXHIBIT A

FORM OF SUBSCRIPTION
(To Be Signed Only On Exercise Of Warrant)

TO:BIO-Key International, Inc.
300 Nickerson Road
Marlborough, MA  01752
Attention:  Chief Financial Officer

The undersigned, pursuant to the provisions set forth in the attached Warrant (No.        ), hereby irrevocably elects to purchase (check applicable box):

o                 shares of the Common Stock covered by such Warrant; or

othe maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $                      .  Such payment takes the form of (check applicable box or boxes):

o$                     in lawful money of the United States; and/or

othe cancellation of such portion of the attached Warrant as is exercisable for a total of                shares of Common Stock (using a Fair Market Value of $               per share for purposes of this calculation); and/or

the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2.2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2; and/or

The undersigned requests that the certificates for such shares be issued in the name of, and delivered to                                                                                              whose address is                                                                                                                                                       .

A-1

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”) or pursuant to an exemption from registration under the Securities Act.

Dated:
	(Signature must conform to name of holder as specified on the face of the Warrant)
	Address:

A-2

EXHIBIT B

FORM OF TRANSFEROR ENDORSEMENT
(To Be Signed Only On Transfer Of Warrant)

For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees” the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of BIO-Key International, Inc. into which the within Warrant relates specified under the headings “Percentage Transferred” and “Number Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of BIO-Key International, Inc.  with full power of substitution in the premises.

Transferees Address Percentage
Transferred Number
Transferred

Dated:
	(Signature must conform to name of holder as specified on the face of the Warrant)
	Address:
	SIGNED IN THE PRESENCE OF:
	(Name)
ACCEPTED AND AGREED:
[TRANSFEREE]
(Name)

B-1

EX-99.8

Exhibit 99.8

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into as of August 10, 2006 by and between BIO-key International, Inc., a Delaware corporation (the “Company”), and Trellus Partners, L.P. (the “Purchaser”).

This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, by and between the Purchaser and the Company (as amended, modified or supplemented from time to time, the “Securities Purchase Agreement”).

The Company and Purchaser hereby agree as follows:

1.Definitions.  Capitalized terms used and not otherwise defined herein that are defined in the Securities Purchase Agreement shall have the meanings given such terms in the Securities Purchase Agreement.  As used in this Agreement, the following terms shall have the following meanings:

“Commission” means the Securities and Exchange Commission.

“Common Stock” means shares of the Company’s common stock, par value $0.0001 per share.

“Effectiveness Date” means with respect to the initial Registration Statement required to be filed hereunder, a date no later than one hundred twenty (120) days following the Filing Date.

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor statute.

“Filing Date” means, with respect to the initial Registration Statement required to be filed hereunder, a date no later than thirty days from the date of this Agreement.

“Holder” or “Holders” means the Purchaser or any of its respective affiliates or transferees to the extent any of them hold Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 5(c).

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Registrable Securities” means the shares of Common Stock issued to the Purchaser pursuant to the Securities Purchase Agreement and Warrant Shares.

“Registration Statement” means each registration statement required to be filed hereunder, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act” means the Securities Act of 1933, as amended, and any successor statute.

“Trading Market” means any of the NASD OTC Bulletin Board, NASDAQ SmallCap Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange.

2.Registration.

(a)On or prior to the Filing Date the Company shall prepare and file with the Commission a Registration Statement covering the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form SB-2 (except if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2, in which case such registration shall be on another appropriate form in accordance herewith).  The Company shall cause the Registration Statement to become effective and remain effective as provided herein.  The Company shall use its reasonable commercial efforts to cause the Registration Statement to be

declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the Effectiveness Date.  The Company shall use its reasonable commercial efforts to keep the Registration Statement continuously effective under the Securities Act until the date which is the earlier date of when (i) all Registrable Securities have been sold or (ii) all Registrable Securities may be sold immediately without registration under the Securities Act and without volume restrictions pursuant to Rule 144(k), as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Holders (the “Effectiveness Period”).

(c)Within three business days of the Effectiveness Date, the Company shall cause its counsel to issue a blanket opinion, to the transfer agent stating that the shares are subject to an effective registration statement and can be reissued free of restrictive legend upon notice of a sale by such Purchaser and confirmation by such Purchaser that it has complied with the prospectus delivery requirements, provided that the Company has not advised the transfer agent orally or in writing that the opinion has been withdrawn.  Copies of the blanket opinion required by this Section 2(c) shall be delivered to such Purchaser within the time frame set forth above.

3.Registration Procedures.  If and whenever the Company is required by the provisions hereof to effect the registration of any Registrable Securities under the Securities Act, the Company will, as expeditiously as possible:

(a)prepare and file with the Commission the Registration Statement with respect to such Registrable Securities, respond as promptly as possible to any comments received from the Commission, and use its best efforts to cause the Registration Statement to become and remain effective for the Effectiveness Period with respect thereto, and promptly provide to the Purchaser copies of all filings and Commission letters of comment relating thereto;

(b)prepare and file with the Commission such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by the Registration Statement and to keep such Registration Statement effective until the expiration of the Effectiveness Period;

(c)furnish or make available to the Holders such number of copies of the Registration Statement and the Prospectus included therein (including each preliminary Prospectus) as the Holders reasonably may request to facilitate the public sale or disposition of the Registrable Securities covered by the Registration Statement;

(d)use its commercially reasonable efforts to register or qualify the Holder’s Registrable Securities covered by the Registration Statement under the securities or “blue sky” laws of such jurisdictions within the United States as the Holder may reasonably request, provided, however, that the Company shall not for any such purpose be required

to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction;

(e)list the Registrable Securities covered by the Registration Statement with any securities exchange on which the Common Stock of the Company is then listed;

(f)immediately notify the Holders at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the Prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and

(g)make available for inspection by the Holders and any attorney, accountant or other agent retained by the Holders, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the attorneys, accountants or agents of the Holders.

4.Registration Expenses.  All expenses relating to the Company’s compliance with Sections 2 and 3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or “blue sky” laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars, fees of, and disbursements incurred by, one counsel for the Holders (to the extent such counsel is required due to Company’s failure to meet any of its obligations hereunder), are called “Registration Expenses”.  All selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any special counsel to the Holders beyond those included in Registration Expenses, are called “Selling Expenses.”  The Company shall only be responsible for all Registration Expenses and shall not be responsible for any Selling Expenses.

5.Indemnification.

(a)In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless each Holder, and its officers, directors and each other person, if any, who controls such Holder within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Holder, or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based

upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Holders, and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of the Holders or any such person in writing specifically for use in any such document.

(b)In the event of a registration of the Registrable Securities under the Securities Act pursuant to this Agreement, each Holder will indemnify and hold harmless the Company, and its officers, directors and each other person, if any, who controls the Company within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact which was furnished in writing by such Holder to the Company expressly for use in (and such information is contained in) the Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that such Holder will be liable in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing to the Company by or on behalf of such Holder specifically for use in any such document.  Notwithstanding the provisions of this paragraph, such Holder shall not be required to indemnify any person or entity in excess of the amount of the aggregate net proceeds received by such Holder in respect of Registrable Securities in connection with any such registration under the Securities Act.

(c)Promptly after receipt by a party entitled to claim indemnification hereunder (an “Indemnified Party”) of notice of the commencement of any action, such Indemnified Party shall, if a claim for indemnification in respect thereof is to be made against a party hereto obligated to indemnify such Indemnified Party (an “Indemnifying Party”), notify the Indemnifying Party in writing thereof, but the omission so to notify the Indemnifying Party shall not relieve it from any liability which it may have to such Indemnified Party other than under this Section 5(c) and shall only relieve it from any liability which it may have to such Indemnified Party under this Section 5(c) if and to the extent the Indemnifying Party is prejudiced by such omission.  In case any such action shall be brought against any Indemnified Party and it shall notify the Indemnifying Party

of the commencement thereof, the Indemnifying Party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such Indemnified Party, and, after notice from the Indemnifying Party to such Indemnified Party of its election so to assume and undertake the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party under this Section 5(c) for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof; if the Indemnified Party retains its own counsel, then the Indemnified Party shall pay all fees, costs and expenses of such counsel, provided, however, that, if the defendants in any such action include both the indemnified party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, the Indemnified Party shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred.

(d)In order to provide for just and equitable contribution in the event of joint liability under the Securities Act in any case in which either (i) a Holder, or any officer, director or controlling person of such Holder, makes a claim for indemnification pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of such Holder or such officer, director or controlling person of such Holder in circumstances for which indemnification is provided under this Section 5; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, provided, however, that, in any such case, (A) such Holder will not be required to contribute any amount in excess of the public offering price of all such securities offered by it pursuant to such Registration Statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

6.Representations and Warranties.

(a)The Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and, except with respect to any matters which the Company has previously disclosed in writing to the Purchaser or in any of its public filings pursuant to the Exchange Act, the Company has timely filed all proxy statements,

reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act.  The Company has filed (i) its Annual Report on Form 10-KSB for its fiscal year ended December 31, 2005, as amended, and (ii) its Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 2006 (collectively, the “SEC Reports”).  Each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed) and fairly present in all material respects the financial condition, the results of operations and the cash flows of the Company and its subsidiaries, on a consolidated basis, as of, and for, the periods presented in each such SEC Report.

(b)The Common Stock is traded on the Over the Counter Bulletin Board (“OTCBB”) and satisfies all requirements for the continuation of such trading.  The Company has not received any notice that its Common Stock will be ineligible to be traded on the OTCBB (except for prior notices which have been fully remedied) or that the Common Stock does not meet all requirements for the continuation of such trading.

(c)Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Securities pursuant to the Securities Purchase Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Common Stock pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings.

(d)The Registrable Securities are all restricted securities under the Securities Act as of the date of this Agreement.  The Company will not issue any stop transfer order or other order impeding the sale and delivery of any of the Registrable Securities at such time as such Registrable Securities are registered for public sale or an exemption from registration is available, except as required by federal or state securities laws.

(e)Except for agreements made in the ordinary course of business, there is no agreement that has not been filed with the Commission as an exhibit to a registration

statement or to a form required to be filed by the Company under the Exchange Act, the breach of which could reasonably be expected to have a material and adverse effect on the Company and its subsidiaries, or would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement in any material respect.

7.Miscellaneous.

(a)Remedies.  In the event of a breach by the Company or by a Holder, of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.

(b)No Piggyback on Registrations.  Except as and to the extent specified in Schedule 7(b)(i) hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right for inclusion of shares in the Registration Statement to any of its security holders.  Except as and to the extent specified in Schedule 7(b)(ii) hereto and as set forth in the Company’s public filings pursuant to the Exchange Act, the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been fully satisfied.

(c)Compliance.  Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.

(d)Discontinued Disposition.  Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of a Discontinuation Event (as defined below), such Holder will forthwith discontinue disposition of such Registrable Securities under the applicable Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.  The Company may provide appropriate stop orders to enforce the provisions of this paragraph.  For purposes of this Section 7(d), a “Discontinuation Event” shall mean (i) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); (ii) any request by the Commission or any other Federal or state governmental authority for amendments or supplements to such Registration Statement or Prospectus or for additional information; (iii) the issuance

by the Commission of any stop order suspending the effectiveness of such Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and/or (v) the occurrence of any event or passage of time that makes the financial statements included in such Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(e)Piggy-Back Registrations.  If at any time (i) prior to the Filing Date and (ii) during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within fifteen days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered to the extent the Company may do so without violating registration rights of others which exist as of the date of this Agreement, subject to customary underwriter cutbacks applicable to all holders of registration rights and subject to obtaining any required the consent of any selling stockholder(s) to such inclusion under such registration statement.

(f)Amendments and Waivers.  The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by (i) the Company and (ii) Trellus Partners, L.P..  Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

(g)           Notices.  Any notice or request hereunder may be given to the Company or the Purchaser at the respective addresses set forth below or as may hereafter be specified in a notice designated as a change of address under this Section 7(g).  Any notice or request hereunder shall be given by registered or certified mail, return receipt requested, hand delivery, overnight mail, Federal Express or other national overnight next day carrier (collectively, “Courier”) or telecopy (confirmed by mail).  Notices and requests shall be, in the case of those by hand delivery, deemed to have been given when delivered to any party to whom it is addressed, in the case of those by mail or overnight mail, deemed to have been given three (3) business days after the date when deposited in the mail or with the overnight mail carrier, in the case of a Courier, the next business day following timely delivery of the package with the Courier, and, in the case of a telecopy, when confirmed.  The address for such notices and communications shall be as follows:

If to the Company:	BIO-key International, Inc. 300 Nickerson Road Marlborough, MA 01752 Attention:   Chief Financial Officer Facsimile:  (508) 460-4098
	with a copy to:
	Choate, Hall & Stewart LLP Two International Place Boston, MA 02110 Attention: Charles J. Johnson Facsimile:(617) 248-4000
If to a Purchaser:	Trellus Partners, L.P. 350 Madison Avenue, 9th Floor New York, NY 10017 Attention: Facsimile:
If to any other Person who is then the registered Holder:	To the address of such Holder as it appears in the stock transfer books of the Company

or such other address as may be designated in writing hereafter in accordance with this Section 7(g) by such Person.

(h)           Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder.  Neither party may assign its rights or obligations hereunder without the prior written consent of the other party.

(i)            Execution and Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an

original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)            Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan.  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Proceeding is improper.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.  If either party shall commence a Proceeding to enforce any provisions of a Transaction Document, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

(k)           Cumulative Remedies.  The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(l)            Severability.  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction.  It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(m)          Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

BIO-KEY INTERNATIONAL, INC.
By:	/s/ Thomas J. Colatosti
Name:	Thomas J. Colatosti
Title:	Chairman

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

TRELLUS PARTNERS, L.P.
By:	/s/ Adam Usden
Name:	Adam Usden
Title:	President

EX-99.9

Exhibit 99.9

BIO-KEY INTERNATIONAL, INC.

SECURITIES PURCHASE AGREEMENT

as of August 10, 2006

TABLE OF CONTENTS

1. Agreement to Sell and Purchase	1
1.1 Shares	1
1.2 Warrant	1
2. Closing, Delivery and Payment	2
2.1 Closing	2
2.2 Delivery	2
3. Representations and Warranties of the Company	2
3.1 Organization, Good Standing and Qualification	2
3.2 Subsidiaries	3
3.3 Capitalization; Voting Rights.	3
3.4 Authorization; Binding Obligations	4
3.5 Liabilities	4
3.6 Agreements; Action	4
3.7 Obligations to Related Parties	5
3.8 Changes	6
3.9 Title to Properties and Assets; Liens, Etc	7
3.10 Intellectual Property	7
3.11 Compliance with Other Instruments	8
3.12 Litigation	8
3.13 Tax Returns and Payments	9
3.14 Employees	9
3.15 Registration Rights and Voting Rights	10
3.16 Compliance with Laws; Permits	10
3.17 Environmental and Safety Laws	10
3.18 Valid Offering	11
3.19 Full Disclosure	11
3.20 Insurance	11
3.21 SEC Reports	11
3.22 Listing	12
3.23 No Integrated Offering	12
3.24 Stop Transfer	12
3.25 Dilution	12
3.26 Patriot Act	12
4. Representations and Warranties of the Purchaser	13
4.1 Requisite Power and Authority	13
4.2 Investment Representations	13
4.3 Purchaser Bears Economic Risk	14
4.4 Acquisition for Own Account	14
4.5 Purchaser Can Protect Its Interest	14
4.6 Accredited Investor	14
4.7 Legends	14
5. Covenants of the Company	15
5.1 Stop-Orders	15

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5.2 Trading	15
5.3 Market Regulations	15
5.4 Use of Funds	16
5.5 Access to Facilities	16
5.6 Taxes	16
5.7 Insurance	16
5.8 Intellectual Property	17
5.9 Properties	17
5.10 Confidentiality	17
5.11 Reissuance of Securities	17
5.12 Margin Stock	18
6. Covenants of the Purchaser	18
6.1 Confidentiality	18
6.2 Non-Public Information	18
6.3 Regulation M	18
7. Covenants of the Company and Purchaser Regarding Indemnification	18
7.1 Company Indemnification	18
7.2 Purchaser’s Indemnification	19
8. Registration Rights	19
9. Miscellaneous	19
9.1 Governing Law	19
9.2 Survival	19
9.3 Successors	20
9.4 Entire Agreement	20
9.5 Severability	20
9.6 Amendment and Waiver	20
9.7 Delays or Omissions	20
9.8 Notices	21
9.9 Attorneys’ Fees	21
9.10 Titles and Subtitles	22
9.11 Facsimile Signatures; Counterparts	22
9.12 Broker’s Fees	22
9.13 Construction	22

Exhibits and Schedules

Exhibit A                Form of Warrant

Schedule 1             Shares and Warrant Purchased

Schedule 2             Names and Address of Purchaser

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SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is made and entered into as of August 10, 2006, by and among BIO-key International, Inc., a Delaware corporation (the “Company”) and The Shaar Fund Ltd. (the “Purchaser”).

RECITALS

WHEREAS, the Company has authorized the issuance and sale to the Purchaser of 1,000,000 shares (the “Shares”) of the Company’s common stock, $0.0001 par value per share (the “Common Stock”), at a purchase price of $0.50 per share, for an aggregate purchase price equal to $500,000;

WHEREAS, the Company wishes to issue to the Purchaser a warrant in the form attached hereto as Exhibit A (as amended, modified or supplemented from time to time, the “Warrant”) to purchase up to an aggregate of 133,000 shares of Common Stock in connection with the Purchaser’s purchase of the Shares;

WHEREAS, the Purchaser desire to purchase the Shares and the Warrant on the terms and conditions set forth herein; and

WHEREAS, the Company desires to issue and sell the Shares and the Warrant to the Purchaser on the terms and conditions set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises, representations, warranties and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Agreement to Sell and Purchase.

1.1Shares.  Pursuant to the terms and conditions set forth in this Agreement, on the Closing Date (as defined herein below), the Company agrees to issue and sell to the Purchaser, and the Purchaser hereby agrees to purchase from the Company, the Shares for an aggregate purchase price of $500,000 (the “Aggregate Purchase Price”) in accordance with the terms of this Agreement.

1.2Warrant.  Pursuant to the terms and conditions set forth in this Agreement, on the Closing Date, the Company will issue and deliver to the Purchaser a Warrant to purchase up to that number of shares of Common Stock set forth opposite the Purchaser’s name on Schedule 1 in connection with the Offering pursuant to Section 1 hereof with an exercise price of $0.75 per share (subject to adjustment as provided for therein.)  All the representations, covenants, warranties, undertakings, and indemnification, and other rights made or granted to or for the benefit of the Purchaser by the Company are hereby also made and granted in respect of the Warrant and shares of the Company’s Common Stock issuable upon exercise of each Warrant (the “Warrant Shares”).  The issuance and

sale of the Shares and the Warrant on the Closing Date shall be known as the “Offering.”  The Shares, the Warrant and the Warrant Shares are collectively referred to as the “Securities.”

2.Closing, Delivery and Payment.

2.1Closing.  Subject to the terms and conditions herein, the transactions contemplated hereby shall take place at a closing (the “Closing”) at such time or place as the Company and the Purchaser may mutually agree (each, a “Closing Date”); provided that the date of the Closing (the “Closing Date”) shall be no later than September [9], 2006.

2.2Delivery.  At the Closing, the Company will deliver to the Purchaser, among other things, the number of Shares purchased on such Closing Date and the Warrant, and the Purchaser will deliver to the Company, among other things, the Aggregate Purchase Price by (i) certified funds or wire transfer, (ii) by application of (a) accrued and unpaid interest owed to the Purchaser by the Company pursuant to any subordinated promissory notes held by the Purchaser and/or (b) accrued and unpaid dividends owed to the Purchaser pursuant to any shares of preferred stock of the Company held by the Purchaser, or (iii) by any combination of the foregoing methods.

3.Representations and Warranties of the Company.  The Company hereby represents and warrants to the Purchaser as of the date hereof as follows (which representations and warranties are supplemented by the Company’s filings (collectively, the “Exchange Act Filings”) made pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), public access to copies of such filings having been made available to the Purchaser):

3.1Organization, Good Standing and Qualification.  Each of the Company and each of its Subsidiaries is a corporation, partnership or limited liability company, as the case may be, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each of the Company and each of its Subsidiaries has the corporate power and authority to own and operate its properties and assets, to execute and deliver (i) this Agreement, (ii) the Shares and the Warrant, (iii) the Registration Rights Agreement relating to the Shares and Warrant Shares dated as of the date hereof between the Company and the Purchaser (as amended, modified or supplemented from time to time, the “Registration Rights Agreement”), and (iv) any other agreements related to this Agreement and the Securities and referred to herein (the preceding clauses (ii) through (iv), collectively, the “Related Agreements”); to issue and sell the Securities; to carry out the provisions of this Agreement and the Related Agreements; and to carry on its business as presently conducted.  Each of the Company and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation, partnership or limited liability company, as the case may be, in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so has not, or could not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, assets, liabilities, condition (financial

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or otherwise), properties or operations of the Company and it Subsidiaries, taken individually and as a whole (a “Material Adverse Effect”).

3.2Subsidiaries.  Each direct and indirect Subsidiary of the Company, the direct owner of such Subsidiary and its percentage ownership thereof, is set forth on Schedule 3.2.  For the purpose of this Agreement, a “Subsidiary” of any person or entity means (i) a corporation or other entity whose shares of stock or other ownership interests having ordinary voting power (other than stock or other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the directors of such corporation, or other persons or entities performing similar functions for such person or entity, are owned, directly or indirectly, by such person or entity or (ii) a corporation or other entity in which such person or entity owns, directly or indirectly, more than 50% of the equity interests at such time.

3.3Capitalization; Voting Rights.

(a)The authorized capital stock of the Company, as of the date hereof consists of 175,000,000 shares, of which 170,000,000 are shares of Common Stock, par value $0.0001 per share, 48,766,494 shares of which are issued and outstanding, and 5,000,000 are shares of preferred stock, par value $0.01 per share, of which 100,000 shares have been designated Series A Convertible Preferred Stock, 35,557 of which shares are issued and outstanding, and 1,000,000 shares have been designated Series B Convertible Preferred Stock, all of which shares are issued and outstanding.  The authorized capital stock of each Subsidiary of the Company is set forth on Schedule 3.3.

(b)Except as disclosed on Schedule 3.3 or as disclosed in any Exchange Act Filings, other than:  (i) the shares reserved for issuance under the Company’s stock option plans; and (ii) shares which may be granted pursuant to this Agreement and the Related Agreements, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or stockholder agreements, or arrangements or agreements of any kind for the purchase or acquisition from the Company of any of its securities. Except as disclosed on Schedule 3.3 or as disclosed in any Exchange Act Filings, neither the offer, issuance or sale of any of the Securities, nor the consummation of any transaction contemplated hereby will result in a change in the price or number of any securities of the Company outstanding, under anti-dilution or other similar provisions contained in or affecting any such securities.

(c)All issued and outstanding shares of the Company’s Common Stock:  (i) have been duly authorized and validly issued and are fully paid and nonassessable; and (ii) were issued in compliance with all applicable state and federal laws concerning the issuance of securities.

(d)The rights, preferences, privileges and restrictions of the shares of Common Stock are as stated in the Company’s Certificate of Incorporation,

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including its Certificates of Designation (the “Charter”).  The Shares and Warrant Shares have been duly and validly reserved for issuance.  When issued in compliance with the provisions of this Agreement and the Company’s Charter, the Shares and Warrant Shares will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Shares and Warrant Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed.

3.4Authorization; Binding Obligations.  All corporate, partnership or limited liability company, as the case may be, action on the part of the Company and each of its Subsidiaries (including the respective officers and directors) necessary for the authorization of this Agreement and the Related Agreements, the performance of all obligations of the Company and its Subsidiaries hereunder and under the other Related Agreements at the Closing and, the authorization, sale, issuance and delivery of the Securities has been taken or will be taken prior to the Closing.  This Agreement and the Related Agreements, when executed and delivered and to the extent it is a party thereto, will be valid and binding obligations of each of the Company and each of its Subsidiaries, enforceable against each such person in accordance with their terms, except:

(a)as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights; and

(b)general principles of equity that restrict the availability of equitable or legal remedies.

Except as set forth on Schedule 3.3, the issuance and sale of the Shares and the Warrant and subsequent exercise of the Warrant are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with.

3.5Liabilities.  Neither the Company nor any of its Subsidiaries has any contingent liabilities, except current liabilities incurred in the ordinary course of business and liabilities disclosed in any Exchange Act Filings.

3.6Agreements; Action.  Except as set forth on Schedule 3.6 or as disclosed in any Exchange Act Filings:

(a)there are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company or any of its Subsidiaries is a party or by which it is bound which may involve: (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $50,000 (other than obligations of, or payments to, the Company arising from purchase or sale agreements entered into in the ordinary course of business); or (ii) the transfer or license of any patent, copyright, trade secret or other proprietary right to or from the Company (other than licenses arising from the

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purchase of “off the shelf” or other standard products); or (iii) provisions restricting the development, manufacture or distribution of the Company’s products or services; or (iv) indemnification by the Company with respect to infringements of proprietary rights.

(b)Since March 31, 2006, neither the Company nor any of its Subsidiaries has:  (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock; (ii) incurred any indebtedness for money borrowed or any other liabilities (other than ordinary course obligations or obligations that have been paid in full) individually in excess of $50,000 or, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $100,000 in the aggregate; (iii) made any loans or advances to any person not in excess, individually or in the aggregate, of $100,000, other than ordinary course advances for travel expenses; or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business.

(c)For the purposes of subsections (a) and (b) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections.

3.7Obligations to Related Parties.  Except as set forth on Schedule 3.7 or as disclosed in any Exchange Act Filings, there are no obligations of the Company or any of its Subsidiaries to officers, directors, stockholders or employees of the Company or any of its Subsidiaries other than:

(a)for payment of salary for services rendered and for bonus payments;

(b)reimbursement for reasonable expenses incurred on behalf of the Company and its Subsidiaries;

(c)for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company); and

(d)obligations listed in the Company’s financial statements or disclosed in any of its Exchange Act Filings.

Except as described above or set forth on Schedule 3.7 or as disclosed in any Exchange Act Filings, none of the officers, directors or, to the best of the Company’s knowledge, key employees or stockholders of the Company or any members of their immediate families, are indebted to the Company, individually or in the aggregate, in excess of $50,000 or have any

5

direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, other than passive investments in publicly traded companies (representing less than one percent (1%) of such company) which may compete with the Company. Except as described above, no officer, director or stockholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company and no agreements, understandings or proposed transactions are contemplated between the Company and any such person.  Except as set forth on Schedule 3.7 or as disclosed in any Exchange Act Filings, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.

3.8Changes.  Since March 31, 2006, except as disclosed in any Exchange Act Filing or in any Schedule to this Agreement or to any of the Related Agreements, there has not been:

(a)any change in the business, assets, liabilities, condition (financial or otherwise), properties, operations or prospects of the Company or any of its Subsidiaries, which individually or in the aggregate has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(b)any resignation or termination of any officer, key employee or group of employees of the Company or any of its Subsidiaries;

(c)any material change, except in the ordinary course of business, in the contingent obligations of the Company or any of its Subsidiaries by way of guaranty, endorsement, indemnity, warranty or otherwise;

(d)any damage, destruction or loss, whether or not covered by insurance, has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(e)any waiver by the Company or any of its Subsidiaries of a valuable right or of a material debt owed to it;

(f)any direct or indirect loans made by the Company or any of its Subsidiaries to any stockholder, employee, officer or director of the Company or any of its Subsidiaries, other than advances made in the ordinary course of business;

(g)any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder of the Company or any of its Subsidiaries;

(h)any declaration or payment of any dividend or other distribution of the assets of the Company or any of its Subsidiaries;

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(i)any labor organization activity related to the Company or any of its Subsidiaries;

(j)any debt, obligation or liability incurred, assumed or guaranteed by the Company or any of its Subsidiaries, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business;

(k)any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets owned by the Company or any of its Subsidiaries;

(l)any change in any material agreement to which the Company or any of its Subsidiaries is a party or by which either the Company or any of its Subsidiaries is bound which either individually or in the aggregate has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(m)any other event or condition of any character that, either individually or in the aggregate, has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; or

(n)any arrangement or commitment by the Company or any of its Subsidiaries to do any of the acts described in subsection (a) through (m) above.

3.9Title to Properties and Assets; Liens, Etc.  Except as set forth on Schedule 3.9, each of the Company and each of its Subsidiaries has good and marketable title to its properties and assets, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than:

(a)those resulting from taxes which have not yet become delinquent;

(b)minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company or any of its Subsidiaries; and

(c)those that have otherwise arisen in the ordinary course of business.

All facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by the Company and its Subsidiaries are in good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used.  Except as set forth on Schedule 3.9, the Company and its Subsidiaries are in compliance with all material terms of each lease to which it is a party or is otherwise bound.

3.10Intellectual Property.

(a)Each of the Company and each of its Subsidiaries owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade

7

names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and to the Company’s knowledge, as presently proposed to be conducted (the “Intellectual Property”), without any known infringement of the rights of others.  There are no outstanding options, licenses or agreements of any kind relating to the foregoing proprietary rights, nor is the Company or any of its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of “off the shelf” or standard products.

(b)Neither the Company nor any of its Subsidiaries has received any communications alleging that the Company or any of its Subsidiaries has violated any of the patents, trademarks, service marks, trade names, copyrights, licenses or trade secrets or other proprietary rights of any other person or entity, nor is the Company or any of its Subsidiaries aware of any basis therefor.

(c)The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its employees made prior to their employment by the Company or any of its Subsidiaries, except for inventions, trade secrets or proprietary information that have been rightfully assigned to the Company or any of its Subsidiaries.

3.11Compliance with Other Instruments.  Neither the Company nor any of its Subsidiaries is in violation or default of (x) any term of its Charter or Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture, contract, agreement or instrument to which it is party or by which it is bound or of any judgment, decree, order or writ, which violation or default, in the case of this clause (y), has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.  The execution, delivery and performance of and compliance with this Agreement and the Related Agreements to which it is a party, and the issuance and sale of the Securities by the Company each pursuant hereto and thereto, will not, with or without the passage of time or giving of notice, result in any such material violation, or be in conflict with or constitute a default under any such term or provision, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or any of its Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties.

3.12Litigation.  Except as set forth on Schedule 3.12 hereto or as disclosed in any Exchange Act Filings, there is no action, suit, proceeding or investigation pending or, to the Company’s knowledge, currently threatened against the Company or any of its Subsidiaries that prevents the Company or any of its Subsidiaries from entering into this Agreement or the other Related Agreements, or from consummating the transactions

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contemplated hereby or thereby, or which has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or any change in the current equity ownership of the Company or any of its Subsidiaries, nor is the Company aware that there is any basis to assert any of the foregoing. Neither the Company nor any of its Subsidiaries is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality.  There is no action, suit, proceeding or investigation by the Company or any of its Subsidiaries currently pending or which the Company or any of its Subsidiaries intends to initiate.

3.13Tax Returns and Payments.  Each of the Company and each of its Subsidiaries has timely filed all tax returns (federal, state and local) required to be filed by it.  All taxes shown to be due and payable on such returns, any assessments imposed, and all other taxes due and payable by the Company or any of its Subsidiaries on or before the Closing, have been paid or will be paid prior to the time they become delinquent.  Except as set forth on Schedule 3.13, neither the Company nor any of its Subsidiaries has been advised:

(a)that any of its returns, federal, state or other, have been or are being audited as of the date hereof; or

(b)of any deficiency in assessment or proposed judgment to its federal, state or other taxes.

The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for.

3.14Employees.  Except as set forth on Schedule 3.14, neither the Company nor any of its Subsidiaries has any collective bargaining agreements with any of its employees.  There is no labor union organizing activity pending or, to the Company’s knowledge, threatened with respect to the Company or any of its Subsidiaries.  Except as disclosed in the Exchange Act Filings or on Schedule 3.14, neither the Company nor any of its Subsidiaries is a party to or bound by any currently effective employment contract, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement.  To the Company’s knowledge, no employee of the Company or any of its Subsidiaries, nor any consultant with whom the Company or any of its Subsidiaries has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company or any of its Subsidiaries because of the nature of the business to be conducted by the Company or any of its Subsidiaries; and to the Company’s knowledge the continued employment by the Company or any of its Subsidiaries of its present employees, and the performance of the Company’s and its Subsidiaries’ contracts with its independent contractors, will not result in any such violation.  Neither the Company nor any of its Subsidiaries is aware that any of its employees is obligated under any contract (including licenses, covenants or commitments

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of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or any of its Subsidiaries.  Neither the Company nor any of its Subsidiaries has received any notice alleging that any such violation has occurred.  Except for employees who have a current effective employment agreement with the Company or any of its Subsidiaries, no employee of the Company or any of its Subsidiaries has been granted the right to continued employment by the Company or any of its Subsidiaries or to any material compensation following termination of employment with the Company or any of its Subsidiaries.  Except as set forth on Schedule 3.14, the Company is not aware that any officer, key employee or group of employees intends to terminate his, her or their employment with the Company or any of its Subsidiaries, nor does the Company or any of its Subsidiaries have a present intention to terminate the employment of any officer, key employee or group of employees.

3.15Registration Rights and Voting Rights.  Except as set forth on Schedule 3.15 and except as disclosed in any Exchange Act Filings, neither the Company nor any of its Subsidiaries is presently under any obligation, and neither the Company nor any of its Subsidiaries has granted any rights, to register any of the Company’s or its Subsidiaries’ presently outstanding securities or any of its securities that may hereafter be issued other than pursuant to the Registration Rights Agreement (as defined herein below).  Except as set forth on Schedule 3.15 and except as disclosed in any Exchange Act Filings, to the Company’s knowledge, no stockholder of the Company or any of its Subsidiaries has entered into any agreement with respect to the voting of equity securities of the Company or any of its Subsidiaries.

3.16Compliance with Laws; Permits.  Neither the Company nor any of its Subsidiaries is in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties which has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.  No governmental orders, permissions, consents, approvals or authorizations are required to be obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this Agreement or any other Related Agreement and the issuance of any of the Securities, except such as has been duly and validly obtained or filed, or with respect to any filings that must be made after the Closing, as will be filed in a timely manner.  Each of the Company and its Subsidiaries has all material franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.17Environmental and Safety Laws.  Neither the Company nor any of its Subsidiaries is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. Except as set forth on Schedule 3.17, no Hazardous Materials (as defined

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below) are used or have been used, stored, or disposed of by the Company or any of its Subsidiaries or, to the Company’s knowledge, by any other person or entity on any property owned, leased or used by the Company or any of its Subsidiaries. For the purposes of the preceding sentence, “Hazardous Materials” shall mean:

(a)materials which are listed or otherwise defined as “hazardous” or “toxic” under any applicable local, state, federal and/or foreign laws and regulations that govern the existence and/or remedy of contamination on property, the protection of the environment from contamination, the control of hazardous wastes, or other activities involving hazardous substances, including building materials; or

(b)any petroleum products or nuclear materials.

3.18Valid Offering.  Assuming the accuracy of the representations and warranties of the Purchaser contained in this Agreement, the offer, sale and issuance of the Securities will be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws.

3.19Full Disclosure.  Each of the Company and each of its Subsidiaries has provided the Purchaser with all information requested by the Purchaser in connection with its decision to purchase the Shares and the Warrant, including all information the Company and its Subsidiaries believe is reasonably necessary to make such investment decision.  Neither this Agreement, the Related Agreements, the exhibits and schedules hereto and thereto nor any other document delivered by the Company or any of its Subsidiaries to the Purchaser or their attorneys or agents in connection herewith or therewith or with the transactions contemplated hereby or thereby, contain any untrue statement of a material fact nor omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading.  Any financial projections and other estimates provided to the Purchaser by the Company or any of its Subsidiaries were based on the Company’s and its Subsidiaries’ experience in the industry and on assumptions of fact and opinion as to future events which the Company or any of its Subsidiaries, at the date of the issuance of such projections or estimates, believed to be reasonable.

3.20Insurance.  Each of the Company and each of its Subsidiaries has general commercial, product liability, fire and casualty insurance policies with coverages which the Company believes are customary for companies similarly situated to the Company and its Subsidiaries in the same or similar business.

3.21SEC Reports.  Except as set forth on Schedule 3.21, the Company has filed all proxy statements, reports and other documents required to be filed by it under the Exchange Act.  The Company has provided public access to copies of or otherwise made available to the Purchaser:  (i) its Annual Report on Form 10-KSB for its fiscal year

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ended December 31, 2005, as amended; (ii) its Quarterly Report on Form 10-QSB for its fiscal quarter ended March 31, 2006; and (iii) the Form 8-K filings which it has made during the fiscal year 2006 to date (collectively, the “SEC Reports”). Except as set forth on Schedule 3.21, each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

3.22Listing.  The Company’s Common Stock is  traded on the NASD Over the Counter Bulletin Board (“OTCBB”) and satisfies all requirements for the continuation of such trading.  The Company has not received any notice that its Common Stock will be ineligible to trade or that its Common Stock does not meet all requirements for such trading.

3.23No Integrated Offering.  Neither the Company, nor any of its Subsidiaries or affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Securities pursuant to this Agreement or any of the Related Agreements to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Securities pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will the Company or any of its affiliates or Subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings.

3.24Stop Transfer.  The Securities are restricted securities as of the date of this Agreement.  Neither the Company nor any of its Subsidiaries will issue any stop transfer order or other order impeding the sale and delivery of any of the Securities at such time as the Securities are registered for public sale or an exemption from registration is available, except as required by state and federal securities laws.

3.25Dilution.  The Company specifically acknowledges that its obligation to issue the Warrant Shares is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.

3.26Patriot Act.  The Company certifies that, to the best of Company’s knowledge, neither the Company nor any of its Subsidiaries has been designated, and is not owned or controlled, by a “suspected terrorist” as defined in Executive Order 13224.  The Company hereby acknowledges that the Purchaser seek to comply with all applicable laws concerning money laundering and related activities.  In furtherance of those efforts, the Company hereby represents, warrants and agrees that:  (i) none of the cash or property that the Company or any of its Subsidiaries will pay or will contribute to the Purchaser has been or shall be derived from, or related to, any activity that is deemed

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criminal under United States law; and (ii) no contribution or payment by the Company or any of its Subsidiaries to the Purchaser, to the extent that they are within the Company’s and/or its Subsidiaries’ control shall cause the Purchaser to be in violation of the United States Bank Secrecy Act, the United States International Money Laundering Control Act of 1986 or the United States International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001.  The Company shall promptly notify the Purchaser if any of these representations ceases to be true and accurate regarding the Company or any of its Subsidiaries.  The Company agrees to provide the Purchaser any additional information regarding the Company or any of its Subsidiaries that the Purchaser deem necessary or convenient to ensure compliance with all applicable laws concerning money laundering and similar activities.  The Company understands and agrees that if at any time it is discovered that any of the foregoing representations are incorrect, or if otherwise required by applicable law or regulation related to money laundering similar activities, the Purchaser may undertake appropriate actions to ensure compliance with each applicable law or regulation, including but not limited to segregation and/or redemption of the Purchaser’s investment in the Company.  The Company further understands that the Purchaser may release confidential information about the Company and its Subsidiaries and, if applicable, any underlying beneficial owners, to proper authorities if the Purchaser, in its sole discretion, determines that it is in the best interests of the Purchaser in light of relevant rules and regulations under the laws set forth in subsection (ii) above.

4.Representations and Warranties of the Purchaser.  The Purchaser hereby represents and warrants to the Company as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement):

4.1Requisite Power and Authority.  The Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and the Related Agreements and to carry out their provisions. All corporate action on the Purchaser’s part required for the lawful execution, if any, and delivery of this Agreement and the Related Agreements have been or will be effectively taken prior to the Closing.  Upon their execution and delivery, this Agreement and the Related Agreements will be valid and binding obligations of the Purchaser, enforceable in accordance with their terms, except:

(a)as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights; and

(b)as limited by general principles of equity that restrict the availability of equitable and legal remedies.

4.2Investment Representations.  The Purchaser understands that the Securities are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon the Purchaser’s representations contained in the Agreement, including, without limitation, that the Purchaser is an

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“accredited investor” within the meaning of Regulation D under the Securities Act.  The Purchaser confirms that it has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the Shares and the Warrant.  The Purchaser further confirms that it has had an opportunity to ask questions and receive answers from the Company regarding the Company’s and its Subsidiaries’ business, management and financial affairs and the terms and conditions of the Offering and the Shares and the Warrant and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Purchaser or to which the Purchaser had access.

4.3Purchaser Bears Economic Risk.  The Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests.  The Purchaser must bear the economic risk of this investment until the Securities are sold pursuant to: (i) an effective registration statement under the Securities Act; or (ii) an exemption from registration is available with respect to such sale.

4.4Acquisition for Own Account.  The Purchaser is acquiring the Securities for the Purchaser’s own account for investment only, and not as a nominee or agent and not with a view towards or for resale in connection with their distribution.

4.5Purchaser Can Protect Its Interest.  The Purchaser represents that by reason of its, or of its management’s, business and financial experience, the Purchaser has the capacity to evaluate the merits and risks of its investment in the Securities and to protect its own interests in connection with the transactions contemplated in this Agreement and the Related Agreements.  Further, the Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement or the Related Agreements.

4.6Accredited Investor.  The Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act.

4.7Legends.

(a)The Shares and Warrant Shares shall bear a legend which shall be in substantially the following form unless and until such shares are covered by an effective registration statement filed with the SEC:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION

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STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIO-KEY INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

(b)The Warrant shall bear substantially the following legend:

“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIO-KEY INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

5.Covenants of the Company.  The Company covenants and agrees with the Purchaser as follows:

5.1Stop-Orders.  The Company will advise the Purchaser promptly after it receives notice of issuance by the Securities and Exchange Commission (the “SEC”), any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.

5.2Trading.  The Company shall promptly secure the trading of the Shares and Warrant Shares on the OTCBB (the “Principal Market”) upon which shares of Common Stock are traded (subject to official notice of issuance) and shall maintain such trading so long as any other shares of Common Stock shall be so traded.  The Company will maintain the trading of its Common Stock on the Principal Market, and will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers (“NASD”) and such exchanges, as applicable.

5.3Market Regulations.  The Company shall notify the SEC, NASD and applicable state authorities, in accordance with their requirements, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for

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the legal and valid issuance of the Securities to the Purchaser and promptly provide copies thereof to the Purchaser.

5.4Use of Funds.  The Company agrees that it will use the proceeds of the sale of the Shares and the Warrant for general working capital purposes only.

5.5Access to Facilities.  Each of the Company and each of its Subsidiaries will permit any representatives designated by the Purchaser, upon reasonable notice and during normal business hours, at such person’s expense and accompanied by a representative of the Company, to:

(a)visit and inspect any of the properties of the Company or any of its Subsidiaries;

(b)examine the corporate and financial records of the Company or any of its Subsidiaries (unless such examination is not permitted by federal, state or local law or by contract) and make copies thereof or extracts therefrom; and

(c)discuss the affairs, finances and accounts of the Company or any of its Subsidiaries with the directors, officers and independent accountants of the Company or any of its Subsidiaries.

Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries will provide any material, non-public information to the Purchaser unless the Purchaser sign a confidentiality agreement and otherwise complies with Regulation FD, under the federal securities laws.

5.6Taxes.  Each of the Company and each of its Subsidiaries will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company and its Subsidiaries; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company and/or such Subsidiary shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company and its Subsidiaries will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor.

5.7Insurance.  Each of the Company and its Subsidiaries will keep its assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in similar business similarly situated as the Company and its Subsidiaries; and the Company and its Subsidiaries will maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner which the Company reasonably believes is customary for companies in similar business similarly situated as the Company and its Subsidiaries and to the extent available on commercially reasonable terms. At the Company’s and each of

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its Subsidiaries’ joint and several cost and expense in amounts and with carriers reasonably acceptable to the Purchaser, the Company and each of its Subsidiaries shall (i) keep all its insurable properties and properties in which it has an interest insured against the hazards of fire, flood, sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and for such amounts, as is customary in the case of companies engaged in businesses similar to the Company’s or the respective Subsidiary’s including business interruption insurance; (ii) maintain a bond in such amounts as is customary in the case of companies engaged in businesses similar to the Company’s or the respective Subsidiary’s insuring against larceny, embezzlement or other criminal misappropriation of insured’s officers and employees who may either singly or jointly with others at any time have access to the assets or funds of the Company or any of its Subsidiaries either directly or through governmental authority to draw upon such funds or to direct generally the disposition of such assets; (iii) maintain public and product liability insurance against claims for personal injury, death or property damage suffered by others; (iv) maintain all such worker’s compensation or similar insurance as may be required under the laws of any state or jurisdiction in which the Company or the respective Subsidiary is engaged in business; and (v) if requested, furnish the Purchaser with copies of all policies and evidence of the maintenance of such policies at least thirty (30) days before any expiration date.

5.8Intellectual Property.  Each of the Company and each of its Subsidiaries shall maintain in full force and effect its existence, rights and franchises and all licenses and other rights to use Intellectual Property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business.

5.9Properties.  Each of the Company and each of its Subsidiaries will keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and each of the Company and each of its Subsidiaries will at all times comply with each provision of all leases to which it is a party or under which it occupies property if the breach of such provision could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

5.10Confidentiality.  The Company agrees that it will not disclose, and will not include in any public announcement, the name of the Purchaser, unless expressly agreed to by the Purchaser or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement.  Notwithstanding the foregoing, the Company may disclose the Purchaser’s identity and the terms of this Agreement to its current and prospective debt and equity financing sources and to obtain waivers of anti-dilution adjustment provisions related to certain of the Company’s outstanding securities.

5.11Reissuance of Securities.  The Company agrees to reissue certificates representing the Securities without the legends set forth in Section 4.7 above at such time as:

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(a)the holder thereof is permitted to dispose of such Securities pursuant to Rule 144(b) or Rule 144(k) under the Securities Act; or

(b)upon resale subject to an effective registration statement after such Securities are registered under the Securities Act.

The Company agrees to cooperate with the Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow such resales provided the Company and its counsel receive reasonably requested representations from the selling Purchaser and broker, if any.

5.12Margin Stock.  The Company will not permit any of the proceeds of the Shares or the Warrant to be used directly or indirectly to “purchase” or “carry” “margin stock” or to repay indebtedness incurred to “purchase” or “carry” “margin stock” within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect.

5.13Reservation of Shares.  The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Warrant Shares, such number of its shares of Common Stock as shall from time to time be sufficient to effect the exercise of all outstanding Warrants held by the Purchaser.

6.Covenants of the Purchaser.  Each of the Purchaser covenants and agrees as to itself with the Company as follows:

6.1Confidentiality.  The Purchaser agrees that it will not disclose, and will not include in any public announcement, the name of the Company, unless expressly agreed to by the Company or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement.

6.2Non-Public Information.  The Purchaser agrees not to effect any sales in the shares of the Company’s Common Stock while in possession of material, non-public information regarding the Company if such sales would violate applicable securities law.

6.3Regulation M.  The Purchaser acknowledges and agrees that Regulation M promulgated under the Exchange Act will apply to any sales of the Company’s Common Stock, and the Purchaser will, and will cause each of its affiliates and its investment partners to, comply with Regulation M in all respects during such time as they may be engaged in a distribution of shares of the Company’s Common Stock.

7.Covenants of the Company and Purchaser Regarding Indemnification.

7.1Company Indemnification.  The Company agrees to indemnify, hold harmless, reimburse and defend the Purchaser, the Purchaser’s officers, directors, agents, affiliates, control persons, and principal shareholders, against any claim, cost, expense,

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liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Purchaser which results, arises out of or is based upon: (i) any misrepresentation by the Company or any of its Subsidiaries or breach of any warranty by the Company or any of its Subsidiaries in this Agreement, any other Related Agreement or in any exhibits or schedules attached hereto or thereto; or (ii) any breach or default in performance by Company or any of its Subsidiaries of any covenant or undertaking to be performed by Company or any of its Subsidiaries hereunder, under any other Related Agreement or any other agreement entered into by the Company and/or any of its Subsidiaries and the Purchaser relating hereto or thereto.

7.2Purchaser’s Indemnification.  The Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company and each of the Company’s officers, directors, agents, affiliates, control persons and principal shareholders, at all times against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Company which results, arises out of or is based upon: (i) any misrepresentation by the Purchaser or breach of any warranty by the Purchaser in this Agreement or in any exhibits or schedules attached hereto or any Related Agreement; or (ii) any breach or default in performance by the Purchaser of any covenant or undertaking to be performed by the Purchaser hereunder, or any other agreement entered into by the Company and the Purchaser relating hereto.  Notwithstanding the provisions of this paragraph, the Purchaser shall not be required to indemnify any person or entity in excess of the amount of the aggregate net proceeds received by the Purchaser in respect of Registrable Securities (as defined in the Registration Rights Agreement) in connection with any registration under the Securities Act.

8.Registration Rights.  The Company hereby grants registration rights to the Purchaser pursuant to a Registration Rights Agreement dated as of even date herewith between the Company and the Purchaser (the “Registration Rights Agreement”).

9.Miscellaneous.

9.1Governing Law.  THIS AGREEMENT AND EACH RELATED 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.  ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK, IN EACH CASE SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN.  BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY.  IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID

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OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW.  ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT.

9.2Survival.  The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchaser and for one year after the date of the closing of the transactions contemplated hereby to the extent provided therein.  All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument.

9.3Successors.  Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Securities from time to time, other than the holders of Common Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective registration statement.  The Purchaser may not assign its rights hereunder to a competitor of the Company.

9.4Entire Agreement.  This Agreement, the Related Agreements, the exhibits and schedules hereto and thereto and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein.

9.5Severability.  In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

9.6Amendment and Waiver.

(a)This Agreement may be amended or modified only upon the written consent of the Company and the Purchaser; provided that the Company may terminate this Agreement at any time without the written consent of the Purchaser.

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(b)The obligations of the Company and the rights of the Purchaser under this Agreement may be waived only with the written consent of the Purchaser.

(c)The obligations of the Purchaser and the rights of the Company under this Agreement may be waived only with the written consent of the Company.

9.7Delays or Omissions.  It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement or the Related Agreements, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring.  All remedies, either under this Agreement or the Related Agreements, by law or otherwise afforded to any party, shall be cumulative and not alternative.

9.8Notices.  All notices required or permitted hereunder shall be in writing and shall be deemed effectively given:

(a)upon personal delivery to the party to be notified;

(b)when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day;

(c)three (3) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or

(d)one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.

All communications shall be sent as follows:

If to the Company, to:

BIO-Key International, Inc.
300 Nickerson Road
Marlborough, MA 01752
Attention:  Chief Financial Officer
Facsimile:  (508) 460-4098

with a copy to:

Choate, Hall & Stewart LLP
Two International Place
Boston, MA  02110
Attention:  Charles J. Johnson, Esq.

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Facsimile:  617-248-4000

If to the Purchaser, to the address of the Purchaser set forth on Schedule 2 hereto.

or at such other addresses as the Company or the Purchaser may designate by written notice to the other parties hereto given in accordance herewith.

9.9Attorneys’ Fees.  In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including, without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

9.10Titles and Subtitles.  The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

9.11Facsimile Signatures; Counterparts.  This 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.

9.12Broker’s Fees.  Each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker’s or finder’s fee or any other commission directly or indirectly in connection with the transactions contemplated herein.  Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section 9.12 being untrue.

9.13Construction.  Each party acknowledges that its legal counsel participated in the preparation of this Agreement and the Related Agreements and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Agreement to favor any party against the other.

(The remainder of this page is intentionally left blank)

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IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.

COMPANY
BIO-KEY INTERNATIONAL, INC.
By:	/s/ Thomas J. Colatosti
	Name: Thomas J. Colatosti
	Title: Chairman

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.

PURCHASER
THE SHAAR FUND LTD.
By: SS&C Fund Services (BVI) United
By:	/s/ Andy Senior
	Name: Andy Senior
	Title: Director

EXHIBIT A
Form of Warrant

SCHEDULE 1

Shares and Warrant Purchased

Purchaser	Shares		Warrant Shares	Aggregate Purchase Price
The Shaar Fund Ltd.	$	500,000	133,000	$	500,000

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SCHEDULE 2

Names and Address of Purchaser

The Shaar Fund Ltd.
c/o SS&C Fund Services N.V.
Pareraweg 45
Curacao, Netherlands Antilles
Attn:   Maarten Robberts
Facsimile: 599 9 434 3560

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EX-99.10

Exhibit 99.10

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIO-KEY INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

Right to Purchase up to 133,333 Shares of Common Stock of
BIO-Key International, Inc.
(subject to adjustment as provided herein)

COMMON STOCK PURCHASE WARRANT

No. 06-5 Issue Date: as of                          , 2006    

BIO-KEY INTERNATIONAL, INC., a corporation organized under the laws of the State of Delaware (“BIO-Key International, Inc.”), hereby certifies that, for value received, The Shaar Fund Ltd., or assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through the close of business                          , 2011 (the “Expiration Date”), up to 133,333 fully paid and nonassessable shares of Common Stock (as hereinafter defined), $0.0001 par value per share, at the applicable Exercise Price per share (as defined below).  The number and character of such shares of Common Stock and the applicable Exercise Price per share are subject to adjustment as provided herein.

As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)The term “Company” shall include BIO-Key International, Inc. and any corporation which shall succeed, or assume the obligations of, BIO-Key International, Inc.  hereunder.

(b)The term “Common Stock” includes (i) the Company’s Common Stock, par value $0.0001 per share; and (ii) any other securities into which or for which any of the securities described in (a) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.

(c)The term “Other Securities” refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise.

(d)The “Exercise Price” applicable under this Warrant shall be $0.75.

1.Exercise of Warrant.

1.1Number of Shares Issuable upon Exercise.  From and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the “Exercise Notice”), shares of Common Stock of the Company, subject to adjustment pursuant to Section 4.

1.2Fair Market Value.  For purposes hereof, the “Fair Market Value” of a share of Common Stock as of a particular date (the “Determination Date”) shall mean:

(a)If the Company’s Common Stock is traded on the American Stock Exchange or  another national exchange or is quoted on the National or SmallCap Market of The Nasdaq Stock Market, Inc.(“Nasdaq”), then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date.

(b)If the Company’s Common Stock is not traded on the American Stock Exchange or another national exchange or on the Nasdaq but is traded on the NASD OTC Bulletin Board, then the mean of the average of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date.

(c)Except as provided in clause (d) below, if the Company’s Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then in effect of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided.

(d)If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company’s charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of the Warrant are outstanding at the Determination Date.

1.3Company Acknowledgment.  The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its

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continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights.

1.4Trustee for Warrant Holders.  In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrant pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1.

2.Procedure for Exercise.

2.1Delivery of Stock Certificates, Etc., on Exercise.  The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares in accordance herewith.  As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise.

2.2Exercise.  Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common Stock and/or Common Stock receivable upon exercise of the Warrant in accordance with the formula set forth below, (iii) by application of (a) accrued and unpaid interest owed to the Holder by the Company pursuant to any subordinated promissory notes held by the Holder and/or (b) accrued and unpaid dividends owed to the Holder pursuant to any shares of preferred stock of the Company held by the Holder or (iv) by a combination of any of the foregoing methods, for the number of Common Shares specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein.  Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the

3

Company together with the properly endorsed Exercise Notice in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:

X = Y	(A-B)
	A
Where X =		the number of shares of Common Stock to be issued to the Holder
Y =		the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)
A =		the Fair Market Value of one share of the Company’s Common Stock (at the date of such calculation)
B =		Exercise Price (as adjusted to the date of such calculation)

3.Effect of Reorganization, Etc.; Adjustment of Exercise Price.

3.1Reorganization, Consolidation, Merger, Etc.  In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, the Company shall have delivered the Holder written notice thereof not less than 10 days’ prior thereto, and proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4.

3.2Dissolution.  In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, concurrently with any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be delivered to the Holder the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrant pursuant to Section 3.1, or, if the Holder shall so instruct the Company, to a bank or trust company specified by the Holder and having its principal office in New York, NY as trustee for the Holder of the Warrant (the “Trustee”).

3.3Continuation of Terms.  Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the

4

consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4.  In the event this Warrant does not continue in full force and effect after the consummation of the transactions described in this Section 3, then the Company’s securities and property (including cash, where applicable) receivable by the Holders of the Warrant will be delivered to Holder or the Trustee as contemplated by Section 3.2.

3.4Share Issuances.  In the event that the Company shall at any time prior to the Expiration Date issue any shares of Common Stock or securities convertible into Common Stock to a person other than the Holder (except (i) pursuant to options, warrants, or other obligations to issue shares outstanding on the date hereof as disclosed to Holder in writing; (ii) pursuant to options that may be issued under any stock option plan adopted by the Borrower; or (iii) pursuant to an acquisition by the Company, whether structured as an asset purchase, stock purchase or merger) for a consideration per share (the “Offer Price”) less than the $0.75, then the Exercise Price shall be immediately reset to such lower Offer Price at the time of issuance of such securities.

4.Extraordinary Events Regarding Common Stock.  In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4.  The number of shares of Common Stock that the holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be increased to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Exercise Price in effect on the date of such exercise.

5.Certificate as to Adjustments.  In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number

5

of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant.  The Company will forthwith mail a copy of each such certificate to the holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 11 hereof).

6.Reservation of Stock, Etc., Issuable on Exercise of Warrant.  The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant.

7.Assignment; Exchange of Warrant.  Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”) in whole or in part.  On the surrender for exchange of this Warrant, with the Transferor’s endorsement in the form of Exhibit B attached hereto (the “Transferor Endorsement Form”) and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws (at the Company’s expense) that such transfer is exempt from the registration requirements of applicable securities laws, and with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a “Transferee”), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor.

8.Replacement of Warrant.  On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

9.Registration Rights.  The Holder of this Warrant has been granted certain registration rights by the Company.  These registration rights are set forth in a Registration Rights Agreement entered into by the Company and Purchaser dated as of even date of this Warrant.

10.Maximum Exercise.  In no event shall the Holder be entitled to exercise this Warrant with respect to any shares of Common Stock or shall the Company have the obligation to issue any such shares to the extent that, after such exercise and issuance, the Holder would be deemed to be the beneficial owner of more than 4.99% of the outstanding shares of Common Stock.   For purposes of  this section , beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.  Notwithstanding the foregoing, the restriction described in this paragraph may be revoked upon 61 days prior notice from the Holder to the Company.  Notwithstanding the foregoing, the Holder may elect to convert this Warrant and/or convert or exercise any other convertible or exchangeable instrument

6

in order to become the beneficial owner of up to 4.99% of the outstanding shares of Common Stock.

11.Warrant Agent.  The Company may, by written notice to each Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

12.Transfer on the Company’s Books.  Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.

13.Notices, Etc.  All notices and other communications from the Company to the Holder of this Warrant shall be delivered by facsimile or by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company.

14.Governing Law.  THIS WARRANT 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.  ANY ACTION BROUGHT BY S ANY PARTY AGAINST ANOTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK IN EACH CASE SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN.  ALL PARTIES AND THE INDIVIDUALS EXECUTING THIS WARRANT ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY.  IN THE EVENT THAT ANY PROVISION OF THIS WARRANT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW.  ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS WARRANT.

15.Miscellaneous.  This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.  The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof.  The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision hereof.  The Company acknowledges that legal counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule

7

of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Warrant to favor any party against the other party.

(Balance of page intentionally left blank; signature page follows.)

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IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above.

BIO-KEY INTERNATIONAL, INC.
By:	/s/ Thomas J. Colatosti
	Name: Thomas J. Colatosti
	Title: Chairman

Signature page to Shaar Warrant

EXHIBIT A

FORM OF SUBSCRIPTION
(To Be Signed Only On Exercise Of Warrant)

TO:BIO-Key International, Inc.
300 Nickerson Road
Marlborough, MA  01752
Attention:  Chief Financial Officer

The undersigned, pursuant to the provisions set forth in the attached Warrant (No.        ), hereby irrevocably elects to purchase (check applicable box):

o                 shares of the Common Stock covered by such Warrant; or

othe maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $                      .  Such payment takes the form of (check applicable box or boxes):

o$                     in lawful money of the United States; and/or

othe cancellation of such portion of the attached Warrant as is exercisable for a total of                shares of Common Stock (using a Fair Market Value of $               per share for purposes of this calculation); and/or

othe cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2.2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2; and/or

The undersigned requests that the certificates for such shares be issued in the name of, and delivered to                                                                                              whose address is                                                                                                                                                       .

A-1

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”) or pursuant to an exemption from registration under the Securities Act.

Dated:
	(Signature must conform to name of holder as specified on the face of the Warrant)
	Address:

A-2

EXHIBIT B

FORM OF TRANSFEROR ENDORSEMENT
(To Be Signed Only On Transfer Of Warrant)

For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees” the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of BIO-Key International, Inc.  into which the within Warrant relates specified under the headings “Percentage Transferred” and “Number Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of BIO-Key International, Inc.  with full power of substitution in the premises.

Transferees Address Percentage
Transferred Number
Transferred

Dated:
	(Signature must conform to name of holder as specified on the face of the Warrant)
	Address:
	SIGNED IN THE PRESENCE OF:
	(Name)
ACCEPTED AND AGREED:
[TRANSFEREE]
(Name)

B-1

EX-99.11

Exhibit 99.11

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into as of August 10, 2006 by and between BIO-key International, Inc., a Delaware corporation (the “Company”), and The Shaar Fund, Ltd. (the “Purchaser”).

This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, by and between the Purchaser and the Company (as amended, modified or supplemented from time to time, the “Securities Purchase Agreement”).

The Company and Purchaser hereby agree as follows:

1.Definitions.  Capitalized terms used and not otherwise defined herein that are defined in the Securities Purchase Agreement shall have the meanings given such terms in the Securities Purchase Agreement.  As used in this Agreement, the following terms shall have the following meanings:

“Commission” means the Securities and Exchange Commission.

“Common Stock” means shares of the Company’s common stock, par value $0.0001 per share.

“Effectiveness Date” means with respect to the initial Registration Statement required to be filed hereunder, a date no later than one hundred twenty (120) days following the Filing Date.

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor statute.

“Filing Date” means, with respect to the initial Registration Statement required to be filed hereunder, a date no later than thirty days from the date of this Agreement.

“Holder” or “Holders” means the Purchaser or any of its respective affiliates or transferees to the extent any of them hold Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 5(c).

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Registrable Securities” means the shares of Common Stock issued to the Purchaser pursuant to the Securities Purchase Agreement and Warrant Shares.

“Registration Statement” means each registration statement required to be filed hereunder, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act” means the Securities Act of 1933, as amended, and any successor statute.

“Trading Market” means any of the NASD OTC Bulletin Board, NASDAQ SmallCap Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange.

2.Registration.

(a)On or prior to the Filing Date the Company shall prepare and file with the Commission a Registration Statement covering the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form SB-2 (except if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2, in which case such registration shall be on another appropriate form in accordance herewith).  The Company shall cause the Registration Statement to become effective and remain effective as provided herein.  The Company shall use its reasonable commercial efforts to cause the Registration Statement to be

declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the Effectiveness Date.  The Company shall use its reasonable commercial efforts to keep the Registration Statement continuously effective under the Securities Act until the date which is the earlier date of when (i) all Registrable Securities have been sold or (ii) all Registrable Securities may be sold immediately without registration under the Securities Act and without volume restrictions pursuant to Rule 144(k), as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Holders (the “Effectiveness Period”).

(c)Within three business days of the Effectiveness Date, the Company shall cause its counsel to issue a blanket opinion, to the transfer agent stating that the shares are subject to an effective registration statement and can be reissued free of restrictive legend upon notice of a sale by such Purchaser and confirmation by such Purchaser that it has complied with the prospectus delivery requirements, provided that the Company has not advised the transfer agent orally or in writing that the opinion has been withdrawn.  Copies of the blanket opinion required by this Section 2(c) shall be delivered to such Purchaser within the time frame set forth above.

3.Registration Procedures.  If and whenever the Company is required by the provisions hereof to effect the registration of any Registrable Securities under the Securities Act, the Company will, as expeditiously as possible:

(a)prepare and file with the Commission the Registration Statement with respect to such Registrable Securities, respond as promptly as possible to any comments received from the Commission, and use its best efforts to cause the Registration Statement to become and remain effective for the Effectiveness Period with respect thereto, and promptly provide to the Purchaser copies of all filings and Commission letters of comment relating thereto;

(b)prepare and file with the Commission such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by the Registration Statement and to keep such Registration Statement effective until the expiration of the Effectiveness Period;

(c)furnish or make available to the Holders such number of copies of the Registration Statement and the Prospectus included therein (including each preliminary Prospectus) as the Holders reasonably may request to facilitate the public sale or disposition of the Registrable Securities covered by the Registration Statement;

(d)use its commercially reasonable efforts to register or qualify the Holder’s Registrable Securities covered by the Registration Statement under the securities or “blue sky” laws of such jurisdictions within the United States as the Holder may reasonably request, provided, however, that the Company shall not for any such purpose be required

to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction;

(e)list the Registrable Securities covered by the Registration Statement with any securities exchange on which the Common Stock of the Company is then listed;

(f)immediately notify the Holders at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the Prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and

(g)make available for inspection by the Holders and any attorney, accountant or other agent retained by the Holders, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the attorneys, accountants or agents of the Holders.

4.Registration Expenses.  All expenses relating to the Company’s compliance with Sections 2 and 3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or “blue sky” laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars, fees of, and disbursements incurred by, one counsel for the Holders (to the extent such counsel is required due to Company’s failure to meet any of its obligations hereunder), are called “Registration Expenses”.  All selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any special counsel to the Holders beyond those included in Registration Expenses, are called “Selling Expenses.”  The Company shall only be responsible for all Registration Expenses and shall not be responsible for any Selling Expenses.

5.Indemnification.

(a)In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless each Holder, and its officers, directors and each other person, if any, who controls such Holder within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Holder, or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based

upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Holders, and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of the Holders or any such person in writing specifically for use in any such document.

(b)In the event of a registration of the Registrable Securities under the Securities Act pursuant to this Agreement, each Holder will indemnify and hold harmless the Company, and its officers, directors and each other person, if any, who controls the Company within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact which was furnished in writing by such Holder to the Company expressly for use in (and such information is contained in) the Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that such Holder will be liable in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing to the Company by or on behalf of such Holder specifically for use in any such document.  Notwithstanding the provisions of this paragraph, such Holder shall not be required to indemnify any person or entity in excess of the amount of the aggregate net proceeds received by such Holder in respect of Registrable Securities in connection with any such registration under the Securities Act.

(c)Promptly after receipt by a party entitled to claim indemnification hereunder (an “Indemnified Party”) of notice of the commencement of any action, such Indemnified Party shall, if a claim for indemnification in respect thereof is to be made against a party hereto obligated to indemnify such Indemnified Party (an “Indemnifying Party”), notify the Indemnifying Party in writing thereof, but the omission so to notify the Indemnifying Party shall not relieve it from any liability which it may have to such Indemnified Party other than under this Section 5(c) and shall only relieve it from any liability which it may have to such Indemnified Party under this Section 5(c) if and to the extent the Indemnifying Party is prejudiced by such omission.  In case any such action shall be brought against any Indemnified Party and it shall notify the Indemnifying Party

of the commencement thereof, the Indemnifying Party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such Indemnified Party, and, after notice from the Indemnifying Party to such Indemnified Party of its election so to assume and undertake the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party under this Section 5(c) for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof; if the Indemnified Party retains its own counsel, then the Indemnified Party shall pay all fees, costs and expenses of such counsel, provided, however, that, if the defendants in any such action include both the indemnified party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, the Indemnified Party shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred.

(d)In order to provide for just and equitable contribution in the event of joint liability under the Securities Act in any case in which either (i) a Holder, or any officer, director or controlling person of such Holder, makes a claim for indemnification pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of such Holder or such officer, director or controlling person of such Holder in circumstances for which indemnification is provided under this Section 5; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, provided, however, that, in any such case, (A) such Holder will not be required to contribute any amount in excess of the public offering price of all such securities offered by it pursuant to such Registration Statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

6.Representations and Warranties.

(a)The Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and, except with respect to any matters which the Company has previously disclosed in writing to the Purchaser or in any of its public filings pursuant to the Exchange Act, the Company has timely filed all proxy statements,

reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act.  The Company has filed (i) its Annual Report on Form 10-KSB for its fiscal year ended December 31, 2005, as amended, and (ii) its Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 2006 (collectively, the “SEC Reports”).  Each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed) and fairly present in all material respects the financial condition, the results of operations and the cash flows of the Company and its subsidiaries, on a consolidated basis, as of, and for, the periods presented in each such SEC Report.

(b)The Common Stock is traded on the Over the Counter Bulletin Board (“OTCBB”) and satisfies all requirements for the continuation of such trading.  The Company has not received any notice that its Common Stock will be ineligible to be traded on the OTCBB (except for prior notices which have been fully remedied) or that the Common Stock does not meet all requirements for the continuation of such trading.

(c)Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Securities pursuant to the Securities Purchase Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Common Stock pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings.

(d)The Registrable Securities are all restricted securities under the Securities Act as of the date of this Agreement.  The Company will not issue any stop transfer order or other order impeding the sale and delivery of any of the Registrable Securities at such time as such Registrable Securities are registered for public sale or an exemption from registration is available, except as required by federal or state securities laws.

(e)Except for agreements made in the ordinary course of business, there is no agreement that has not been filed with the Commission as an exhibit to a registration

statement or to a form required to be filed by the Company under the Exchange Act, the breach of which could reasonably be expected to have a material and adverse effect on the Company and its subsidiaries, or would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement in any material respect.

7.Miscellaneous.

(a)Remedies.  In the event of a breach by the Company or by a Holder, of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.

(b)No Piggyback on Registrations.  Except as and to the extent specified in Schedule 7(b)(i) hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right for inclusion of shares in the Registration Statement to any of its security holders.  Except as and to the extent specified in Schedule 7(b)(ii) hereto and as set forth in the Company’s public filings pursuant to the Exchange Act, the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been fully satisfied.

(c)Compliance.  Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.

(d)Discontinued Disposition.  Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of a Discontinuation Event (as defined below), such Holder will forthwith discontinue disposition of such Registrable Securities under the applicable Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.  The Company may provide appropriate stop orders to enforce the provisions of this paragraph.  For purposes of this Section 7(d), a “Discontinuation Event” shall mean (i) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); (ii) any request by the Commission or any other Federal or state governmental authority for amendments or supplements to such Registration Statement or Prospectus or for additional information; (iii) the issuance

by the Commission of any stop order suspending the effectiveness of such Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and/or (v) the occurrence of any event or passage of time that makes the financial statements included in such Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(e)Piggy-Back Registrations.  If at any time (i) prior to the Filing Date and (ii) during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within fifteen days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered to the extent the Company may do so without violating registration rights of others which exist as of the date of this Agreement, subject to customary underwriter cutbacks applicable to all holders of registration rights and subject to obtaining any required the consent of any selling stockholder(s) to such inclusion under such registration statement.

(f)Amendments and Waivers.  The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by (i) the Company and (ii) The Shaar Fund, Ltd.  Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

(g)Notices.  Any notice or request hereunder may be given to the Company or the Purchaser at the respective addresses set forth below or as may hereafter be specified in a notice designated as a change of address under this Section 7(g).  Any notice or request hereunder shall be given by registered or certified mail, return receipt requested, hand delivery, overnight mail, Federal Express or other national overnight next day carrier (collectively, “Courier”) or telecopy (confirmed by mail).  Notices and requests shall be, in the case of those by hand delivery, deemed to have been given when delivered to any party to whom it is addressed, in the case of those by mail or overnight mail, deemed to have been given three (3) business days after the date when deposited in the mail or with the overnight mail carrier, in the case of a Courier, the next business day following timely delivery of the package with the Courier, and, in the case of a telecopy, when confirmed.  The address for such notices and communications shall be as follows:

If to the Company:	BIO-key International, Inc. 300 Nickerson Road Marlborough, MA 01752 Attention:       Chief Financial Officer Facsimile:      (508) 460-4098
	with a copy to:
	Choate, Hall & Stewart LLP Two International Place Boston, MA 02110 Attention: Charles J. Johnson Facsimile:(617) 248-4000
If to a Purchaser:	The Shaar Fund, Ltd. c/o SS&C Fund Services N.V. Pareraweg 45 Curacao, Netherlands Antilles Attn: Maarten Robberts Facsimile No.: 599-9 434-3560
If to any other Person who is then the registered Holder:	To the address of such Holder as it appears in the stock transfer books of the Company

or such other address as may be designated in writing hereafter in accordance with this Section 7(g) by such Person.

(h)Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder.  Neither party may assign its rights or obligations hereunder without the prior written consent of the other party.

(i)Execution and Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan.  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Proceeding is improper.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.  If either party shall commence a Proceeding to enforce any provisions of this Agreement, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

(k)Cumulative Remedies.  The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(l)Severability.  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction.  It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining

terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(m)Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

BIO-KEY INTERNATIONAL, INC.
By:	/s/ Thomas J. Colatosti
Name:	Thomas J. Colatosti
Title:	Chairman

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

THE SHAAR FUND, LTD.
By: SS&C Fund Services (BVI) United
By:	/s/ Andy Senior
Name:	Andy Senior
Title:	Director