<PAGE>
EXHIBIT 10.25




                             NOTE PURCHASE AGREEMENT
                             -----------------------


     THIS  NOTE  PURCHASE  AGREEMENT ("Agreement") is dated January 27, 2003, by
and  between  BIO-KEY  INTERNATIONAL,  INC.,  a  Minnesota  corporation  with
headquarters  located  at  1285  Corporate  Center  Drive,  Suite  175,  Eagan,
Minnesota  55121(the  "Company"),  and  THE  SHAAR  FUND  LTD. (the "Investor").

                               W I T N E S S E T H

     WHEREAS,  the Company wishes to induce the Investor to loan to the Company,
and  the  Investor  is  willing to loan to the Company, subject to the terms and
conditions  set forth herein, up to Two Million Three Hundred and Fifty Thousand
and  00/100  ($2,350,000.00)  Dollars.

     NOW,  THEREFORE,  for  and  in consideration of the premises and the mutual
agreement  contained  herein  and for other good and valuable consideration, the
receipt  and  sufficiency  of  which are hereby acknowledged, the parties hereto
agree  as  follows:

     1.     LOAN.
            ----

          (a)     Subject  to  the  terms  and  conditions set forth herein, the
Investor  shall  loan  up to Two Million Three Hundred Fifty Thousand and 00/100
($2,350,000.00)  Dollars  to the Company by advancing (the "Initial Advance") to
the Company $600,000 on the date hereof, and subject to the conditions set forth
in  Sections 1(b) and 1(c) below, advancing (each an "Advance" and collectively,
the "Advances") an additional $190,000 on the first day of each month commencing
February  1,  2003  and terminating October 1, 2003, and advancing an additional
$40,000  on  November  1,  2003.

<PAGE>

     (b)     Upon  each  funding of an Advance hereunder, the Company shall
deliver  a  Certificate of an executive officer of the Company, substantially in
the  form  annexed  hereto  as  Exhibit  A.

     (c)     The  Investor  shall  not  be  obligated to make any Advances under
Paragraph  1(a)  hereof,  unless: (i) all representations and warranties made by
the  Company shall be true and correct in all material respects, as if same were
made  on  the  date  of  such  Advance;  (ii)  the  Company shall be in material
compliance  with  all other obligations under this Agreement, (iii) the proceeds
of  such  Advance are used solely for the purpose set forth in Section 6 of this
Agreement;  and  (iv) the Market Price per share of common stock, $.01 par value
per share, of the Company ("Common Shares") for the calendar month preceding the
Advance  exceeds $1.00.  Notwithstanding the foregoing, the Investor may, in its
sole  discretion, agree to fund other Advances submitted by the Company, in such
amounts  as  it may determine from time to time.  To the extent that Advances or
other  funding is made available by the Investor or its affiliates from the date
hereof  until November 1, 2003, the Investor's obligation to fund Advances shall
be  reduced  accordingly.  As used herein, "Market Price" per Common Share means
the  average  of  the  closing  bid  prices  of the Common Shares as reported by
Bloomberg  LP  for  the  principal market on which the Company's Common Stock is
trade.

                                        2
<PAGE>

     2.     NOTE.
            ----
          (a)     The  Initial  Advance and the Advances shall be evidenced by a
Secured  Convertible  Promissory  Note  (the "Note") payable to the order of the
Investor  or  its assignees in substantially the form attached hereto as Exhibit
B.
          (b)     The Company is in need of additional capital and is attempting
to obtain such financing through the issuance of additional equity securities of
the Company in a private placement transaction.  In the event that, on or before
June  30, 2004 (the "Financing Date"), the Company completes a private placement
of equity securities of the Company  (the "Current Financing Securities") for an
aggregate  sale  price  of  at  least  $5,000,000  (the "Transaction"), upon the
closing of the Transaction, some or all of the principal of, or the interest due
on,  the  Note,  or  both,  shall,  at the option of the Investor, either (i) be
converted  into  shares  of  Current  Financing Securities at a conversion price
equal  to  the  price  per  share  at which the Current Financing Securities are
issued  (such  price subject to adjustment for stock splits, stock dividends and
the  like),  and  on the additional terms and conditions applicable generally to
the  Transaction,  or  (ii) immediately be paid in cash.    In lieu thereof, the
Investor may, at its option, at any time and from time to time, elect to convert
some  or  all  of  the  then outstanding principal and interest of the Note into
shares  of Common Stock at conversion price of $0.75 per share or into shares of
the  Company's Series B 9% Convertible Preferred Stock, $.01 par value per share
(the  "Series  B  Shares"),  at  a  conversion  price  of  $100.00  per  share.

                                        3
<PAGE>

     3.     CLOSING.     The  Company  agrees to issue and sell to the Investor,
            -------
and,  subject to and in reliance upon the representations, warranties, terms and
conditions  contained  herein,  the Investor, agrees to purchase the Note.  Such
purchase  and sale shall take place at a closing (the "Closing") to be conducted
by  wire  transfer  and facsimile transmission. At the Closing, the Company will
deliver the Note to the Investor against payment by the Purchaser of $500,000 to
the  Company  by  wire  transfer  of  immediately  available  United States fund
delivery  of that certain promissory note dated January 7, 2003 in the principal
amount of $50,000 and delivery of that certain Promissory Note dated January 13,
2003  in  the  principal  amount  of  $50,000.

     4.     REPRESENTATIONS  AND  WARRANTIES  OF  THE  COMPANY.  The  Company
            --------------------------------------------------
represents  and  warrants  to  the  Investor  that:

          (a)     The  Company  has  the  corporate power and authority to enter
into  this  Agreement  and  to perform its obligations hereunder and thereunder.
The execution and delivery by the Company of this Agreement and the Note and the
consummation  by the Company of the transactions contemplated hereby and thereby
have  been  duly authorized by all necessary corporate action on the part of the
Company.  This  Agreement  and the Note have been duly executed and delivered by
the  Company  and  constitute  valid  and  binding  obligations  of  the Company
enforceable against it in accordance with their respective terms, subject to the
effects  of any applicable bankruptcy, insolvency, reorganization, moratorium or
similar  laws  affecting  creditors'  rights generally and to the application of
equitable  principles  in  any  proceeding  (legal  or  equitable).

                                        4
<PAGE>

          (b)     The execution, delivery and performance by the Company of this
Agreement  and  the  Note  and the consummation of the transactions contemplated
hereby  and thereby do not and will not breach or constitute a default under any
applicable  law  or  regulation  or of any agreement, judgment, order, decree or
other instrument binding on the Company which breach or default could reasonably
by  expected  to  have  a  material  adverse  effect  on  the  Company.

          (c)     The  Company  is  in  material  compliance with all applicable
laws,  regulations, judgments, decrees and orders material to the conduct of its
business.

          (d)     There  is  no  pending,  or  to  the knowledge of the Company,
threatened, judicial, administrative or arbitral action, claim, suit, proceeding
or  investigation  against  or  involving  the  Company,  which might affect the
validity  or  enforceability of this Agreement or the Note or which involves the
Company  and which if adversely determined, could reasonably be expected to have
a  material  adverse  effect  on  the  Company.

          (e)     No  consent  or  approval of, or exemption by, or filing with,
any  party or governmental or public body or authority is required in connection
with  the  execution, delivery and performance under this Agreement or the Note,
except  for  Federal  and  State  Blue  Sky securities law filings, and required
filings  pursuant  to  the  Security  Interest  Provisions.

                                        5
<PAGE>

          (f)     The Company has been duly organized and is validly existing as
a  corporation  in  good standing under the laws of the State of Minnesota.  The
Company  is  duly  qualified  and  licensed  and  in  good standing as a foreign
corporation  in  each  jurisdiction in which its current ownership or leasing of
any properties or its ownership or leasing of any properties or the character of
its  operations as currently conducted requires such qualification or licensing,
except  where  the  failure to be so qualified would not have a material adverse
effect  on  the Company.  The Company has all corporate power and authority, and
has  obtained  all  necessary  authorizations,  approvals,  orders,  licenses,
certificates,  franchises and permits of and from all governmental or regulatory
officials  and  bodies  necessary to own or lease its properties and conduct its
business other than those authorizations, approvals and such other documents the
lack of which could not reasonably be expected to have a material adverse effect
on  the  Company.

          (g)     The  execution,  delivery and performance of this Agreement by
the  Company  and the Note to be delivered hereunder and the consummation of the
transactions contemplated hereby and thereby will not: (i) violate any provision
of  the  Company's  Articles  of Incorporation or Bylaws, (ii) violate, conflict
with  or  result  in  the  breach  of  any of the terms of, result in a material
modification  of  the effect of, otherwise, give any other contracting party the
right  to  terminate,  or  constitute  (or  with notice or lapse of time or both
constitute)  a  default  under,  any  contract  or  other agreement to which the
Company  is a party or by or to which the Company or any of the Company's assets
or  properties  may  be  bound  or  subject,  (iii) violate any order, judgment,

                                        6
<PAGE>

injunction,  award  or  decree  of  any  court,  arbitrator  or  governmental or
regulatory body by which the Company, or the assets or properties of the Company
are  bound,  (iv)  to  the  Company's  knowledge,  violate  any  statute, law or
regulation.

          (h)     Except  as  set  forth  in  the  Company's  filings  with  the
Securities  and  Exchange  Commission  (the  "SEC  Filings"),  there has been no
material  change  in  the  capitalization, assets, or liabilities of the Company
since  the  issuance of the financial statements, for the period ending December
31,  2001,  delivered  to  Investor,  nor is the Company in default under, or an
Event  of  Default has occurred in respect of any agreement existing between the
Company  and  the  Investor.

          (i)     Except  as set forth in the SEC Filings, none of the following
has  occurred during the past five (5) years with respect to the Company (or any
subsidiary or predecessor entity) or control person of the Company (a "Person"):

          (1)     A  petition  under  the  federal  bankruptcy laws or any state
insolvency  law  was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of such Person, or
any  partnership in which he was a general partner at or within two years before
the  time of such filing, or any corporation or business association of which he
was  an executive officer at or within two years before the time of such filing;

          (2)     Such  Person  was  convicted  in a criminal proceeding or is a

                                        7
<PAGE>

named subject of a pending criminal proceeding (excluding traffic violations and
other  minor  offenses);

          (3)     Such  Person was the subject of any order, judgment or decree,
not  subsequently  reversed,  suspended  or  vacated,  of any court of competent
jurisdiction,  permanently  or  temporarily  enjoining  him  from,  or otherwise
limiting,  the  following  activities:

               (i)     Acting,  as an investment advisor, underwriter, broker or
dealer  in  securities,  or as an affiliated person, director or employee of any
investment  company, bank, savings and loan association or insurance company, as
a  futures  commission  merchant, introducing broker, commodity trading advisor,
commodity  pool  operator,  floor  broker,  any  other  person  regulated by the
Commodity  Futures  Trading Commission ("CFTC") or engaging in or continuing any
conduct  or  practice  in  connection  with  such  activity;

               (ii)     Engaging  in  any  type  of  business  practice;  or

               (iii)     Engaging  in  any  activity  in  connection  with  the
purchase  or  sale  of  any  security  or  commodity  or  in connection with any
violation  of  federal  or  state  securities  laws or federal commodities laws;

          (4)     Such  person was the subject of any order, judgment or decree,
not  subsequently  reversed,  suspended  or  vacated,  of  any  federal or state
authority  barring,  suspending  or otherwise limiting for more than 60 days the
right  of  such  person  to engage in any activity described in paragraph (3) of
this  item,  or  to  be  associated  with  persons engaged in any such activity;

                                        8
<PAGE>

          (5)     Such  person was found by a court of competent jurisdiction in
a  civil  action  or  by  the  CFTC or SEC to have violated any federal or state
securities law, and the judgment in such civil action or finding by  the CFTC or
SEC  has  not  been  subsequently  reversed,  suspended,  or  vacated.

          (j)     The  Company  has  had  no  dealings  in  connection with this
transaction  with  any  finder  or  broker who will demand payment of any fee or
commission from the Investor.  Each party  agrees to indemnify the other against
and  hold  the  other  harmless  from  any  and  all  liabilities to any persons
claiming brokerage commissions or finder's fees on account of services purported
to  have  been  rendered  in  connection with this Agreement or the transactions
contemplated  hereby.

     5.     REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.  The Investor hereby
            ----------------------------------------------
represents  and  warrants  to  the  Company  that:

          (a)     The  Investor  has  the corporate power and authority to enter
into this Agreement and to perform its obligations hereunder.  The execution and
delivery  by the Investor of this Agreement and the consummation by the Investor
of  the  transactions  contemplated  hereby  have  been  duly  authorized by all
necessary corporate action on the part of the Investor.  This Agreement has been
duly  executed  and  delivered  by  the  Investor  and constitutes the valid and
binding  obligation  of  the Investor, enforceable against it in accordance with


                                        9
<PAGE>

its  terms,  subject  to  the  effects of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and  to  the  application  of  equitable  principles in any proceeding (legal or
equitable).

          (b)     The  execution,  delivery  and  performance by the Investor of
this Agreement and the consummation of the transactions contemplated hereby does
not  and  will  not  breach  or constitute a default under any applicable law or
regulation  or  of  any  agreement,  judgment, order, decree or other instrument
binding  on  the  Investor.

          (c)     There  is  no  pending,  or  to the knowledge of the Investor,
threatened, judicial, administrative or arbitral action, claim, suit, proceeding
or  investigation  which  might  affect  the  validity or enforceability of this
Agreement  or  the  Note.

          (d)     No  consent  or  approval of, or exemption by, or filing with,
any  party of governmental or public body or authority is required in connection
with the execution, delivery and performance under this Agreement or the Note or
the  taking  of  any  action  contemplated  hereunder  or  thereunder.

          (e)     The  Investor  has  prior  substantial  investment experience,
including investment in non-listed and non-registered securities and has had the
opportunity  to  engage  the  services  of  an  investment  advisor, attorney or
accountant  to  read  all  of  the  documents furnished or made available by the
Company  to  the Investor in connection with this investment and to evaluate the


                                       10
<PAGE>

merits  and  risks  of this investment.  Investor is an "accredited investor" as
that  term  is  defined  under  the  Securities  Act  of  1933,  as amended (the
"Securities  Act"),  and  the  rules  and  regulations  thereunder.

          (f)     Such  Investor  is acquiring the Note and the shares of Common
Stock  of  the  Company  or Series B Shares issuable upon conversion of the Note
(collectively,  the  "Securities")  for  its own account for investment purposes
only  and not with a view to or for distributing or reselling such Securities or
any  part  thereof  or  interest  therein,  without  prejudice, however, to such
Investor's  right,  at all times to sell or otherwise dispose of all or any part
of  such  Securities  pursuant  to an effective registration statement under the
Securities  Act and in compliance with applicable state securities laws or under
an  exemption  from  such  registration.

          (g)     Investor  has  had  no  dealings  in  connection  with  this
transaction  with  any  finder  or  broker who will demand payment of any fee or
commission from the Investor.  Each party  agrees to indemnify the other against
and  hold  the  other  harmless  from  any  and  all  liabilities to any persons
claiming brokerage commissions or finder's fees on account of services purported
to  have  been  rendered  in  connection with this Agreement or the transactions
contemplated  hereby.

     6.     USE  OF  PROCEEDS.  The  Company  will  use  the  proceeds  received
            -----------------
hereunder  for  general working capital purposes.  Unless specifically consented
to  in advance in each instance by the Investor, the Company shall not, directly

                                       11
<PAGE>

or  indirectly,  use  such proceeds for the repayment of any outstanding loan by
the  Company,  or  the  redemption  of  any  equity  securities.

     7.     WAIVER  OF  CERTAIN  ANTI  DILUTION PROVISIONS.  Reference is hereby
            ----------------------------------------------
made  to  the  following  securities  of  the  Company  which were issued to the
Investor  on or about November 26, 2001: (a) Convertible Debenture Due September
30,  2003  (the  "Debenture");  (b)  Secured  Note  due  September 30, 2003 (the
"Secured  Note");  (c) Secured Note due September 30, 2003 (the "Advance Note");
and  (d) Certificate of Designation of Series B Convertible Preferred Stock (the
"Series  B  Preferred" and together with the Debenture, Secured Note and Advance
Note,  collectively  the  "Prior  Securities").  The  issuance  of the Note, the
issuance  of  options  (the "CEO Options") to the Chief Executive Officer of the
Corporation  to  purchase 580,000 shares of Common Stock and the issuance of the
options  to the Chairman of the Board of Directors of the Company to purchase up
to  650,000 shares of Common Stock (the "Chairman Options" and together with the
CEO Options, the "Options") could result in a reduction in the conversion ratios
or  conversion  prices  applicable  to  the Prior Securities.  The Holder hereby
WAIVES  the  application of any and all provisions of the Prior Securities which
would  reduce  the  conversion ratio or conversion price applicable to the Prior
Securities  as a result of the issuance of the Note, the Options or the issuance
of shares of capital stock of the Company upon conversion thereof, such that the
forgoing  issuances  shall  not  effect  the  conversion  or  exercise ratios or
conversion  prices  applicable  to  any  of  the  Prior  Securities.

                                       12
<PAGE>

     8.     INDEMNIFICATION.   If  (i)  the  Investor  becomes  involved  in any
            ----------------
capacity  in  any action, proceeding or investigation brought by any stockholder
of  the  Company,  in  connection with or as a result of the consummation of the
transactions  contemplated  hereby  or  if the Investor is impleaded in any such
action,  proceeding or investigation by any person, or (ii) the Investor becomes
involved  in  any capacity in any action, proceeding or investigation brought by
the  Securities  and  Exchange  Commission,  any self-regulatory organization or
other  body  having  jurisdiction,  against  or  involving  the  Company  or  in
connection  with  or  as  a  result  of  the  consummation  of  the transactions
contemplated  hereby,  or  if  the  Investor  is  impleaded  in any such action,
proceeding  or  investigation  by any person, then in any such case, the Company
hereby  agrees  to  indemnify,  defend  and  hold harmless the Investor from and
against  and  in respect of all losses, claims, liabilities, damages or expenses
resulting  from,  imposed  upon  or  incurred  by  the  Investor,  directly  or
indirectly,  and  reimburse  such  Investor  for  its reasonable legal and other
expenses  (including  the cost of any investigation and preparation) incurred in
connection  therewith,  as such expenses are incurred.  In addition, the Company
will  reimburse  the Investor for reasonable internal and overhead costs for the
time  of  any  officers  or  employees  of the Investor devoted to appearing and
preparing  to appear as witnesses, assisting in preparation for hearings, trials
or  pretrial  matters, or otherwise with respect to inquiries, hearings, trials,
and  other  proceedings  relating  to  the subject matter of this Agreement. The
indemnification  and  reimbursement  obligations  of  the  Company  under  this


                                       13
<PAGE>

paragraph  shall be in addition to any liability which the Company may otherwise
have,  shall  extend upon the same terms and conditions to any affiliates of the
Investor who are actually named in such action, proceeding or investigation, and
partners,  directors, agents, employees and controlling persons (if any), as the
case  may  be, of the Investor and any such affiliate, and shall be binding upon
and  inure  to  the  benefit  of  any  successors,  assigns,  heirs and personal
representatives  of  the  Company, the Investor, any such affiliate and any such
person.  The  Company  also  agrees  that  neither  the  Investor  nor  any such
affiliate,  partner,  director, agent, employee or controlling person shall have
any  liability  to the Company or any person asserting claims on behalf of or in
right  of  the  Company in connection with or as a result of the consummation of
the  Agreement,  except  as  provided  in  or  contemplated  by  the  Agreement.
Notwithstanding  the  foregoing,  the indemnification agreement contained within
this  Section  8 shall not apply (i) to any action, proceeding, or investigation
which  is  based  on  or  relating  to  (A)  Investor's  trading activities; (B)
Investor's violation of the Securities Act, the Securities Exchange Act of 1934,
as  amended,  any  state  securities  laws or any rule or regulation thereunder,
including,  but  not  limited  to,  Investor's  use  of  material  non-public
information;  or  (C) actions which are not in compliance with any obligation of
Investor  under  the  Agreement,  or  (ii)  to  any  indemnity or undertaking by
Investor in favor of the Company in connection with any lost, stolen, or missing
certificates  evidencing  securities  of  the  Company.


                                       14
<PAGE>

     9.     ASSIGNMENT.     Subject  to  compliance  with  applicable securities
            ----------
law,  this Agreement may be assigned by the Investor to transferees or assignees
of  the Note, provided that the Company is, prior to or simultaneously with such
transfer,  furnished  with  written  notice  of  the  name  and  address of such
transferee  or  assignee, and such assignee agrees in writing to be bound by the
terms  hereof  and  provided  further  that,  if  the  Note  is only assigned or
transferred  in  part,  then  such  assignment  shall only be made in part on an
appropriate  proportionate  basis.

     10.     REGISTRATION  RIGHTS.  The  Company  acknowledges that the Investor
             ---------------------
has  certain  rights  under  that  certain  Registration  Rights  Agreement (the
"Registration  Rights  Agreement")  dated as of November 26, 2001 by and between
the  Company  and  Investor and that certain Note Purchase Agreement dated as of
August  28, 2002 (the "August Agreement") with respect to Common Shares issuable
upon  conversion  or  exercise,  as applicable, of the Prior Securities and that
Note  dated  August  28,  2002  in the principal amount of $750,000 (the "August
Note").  Pursuant to the Registration Rights Agreement, as amended by the August
Agreement, the Company is obligated to file an additional registration statement
(the  "Additional  Registration  Statement")  with  the  SEC to cover the public
resale  of  Common  Shares  issuable upon conversion of the Advance Notes issued
pursuant  to that certain Funding Agreement dated as of November 26, 2001 by and
between  the  Company  and Investor or upon conversion of the August Note.  This
Agreement  shall be deemed to amend the Registration Rights Agreement and August

                                       15
<PAGE>

Agreement  to  provide  (i) that such Additional Registration Statement shall be
required to be filed on the earlier of (X) June 30, 2003 and (Y) sixty (60) days
after  the  date  on  which  Investor  demands  that the Additional Registration
Statement  be  filed  with the SEC pursuant to notice delivered not earlier than
March  31,  2003;  and  (ii)  that  such Additional Registration Statement shall
include  the  shares  of  Common  Stock upon conversion of the Note, unless such
shares  are  covered  by  a  different  registration  statement.

   11.  SECURITY  INTEREST PROVISIONS. The obligation of the Company for payment
        -------------------------------
of  principal,  interest  and  all  other sums hereunder are further  secured by
Security  Interest Provisions between the Company and the Holder as set forth in
the  Annex  to  that certain Secured Note of the Company dated November 26, 2001
issued  to Holder in the principal amount of $4,092,920, with the same force and
effect  as  if  annexed  hereto.

   12.   NOTICES.  Any notice required or permitted hereunder shall be given
         -------
in  writing  (unless otherwise specified herein) and shall be deemed effectively
given  upon personal delivery or seven business days after deposit in the United
States  Postal  Service,  by (a) advance copy by fax, and (b) mailing by express
courier or registered or certified mail with postage and fees prepaid, addressed
to  each  of the other parties thereunto entitled at the following addresses, or
at  such  other  addresses  as a party may designate by ten days advance written
notice  to  each  of  the  other  parties  hereto.

                                       16
<PAGE>

COMPANY:       BIO-Key  International,  Inc.
               1285  Corporate  Center  Drive
               Suite  175
               Eagan,  Minnesota  55121
               Telephone  No.:  (651)  687-0414
               Telecopier  No.:  (651)  687-0515

               with  a  copy  to:

               Vincent A. Vietti, Esq.
               Eleven Penn Center
               14th Floor
               1835 Market Street
               Philadelphia, PA 19103-2895
               215-665-8760 (Philadelphia) Fax

PURCHASER:     The  Shaar  Fund  Ltd.
               Kaya  Flamboyan  9
               Curacao
               Netherlands  Antilles
               (Tel:  599-9-732-2222)
               (Fax:  599-9-732-2225)

with  copies  (which  shall  not  constitute  notice)  to:

               Levinson Capital Management, LLC
               Suite 2210
               350 Fifth Avenue
               New York, NY   10018

               Phone number: 914-395-0096
               Fax number: 914-395-0059

and

               Krieger and Prager LLP
               39 Broadway
               New York, NY   10006

     13.     SEVERABILITY.     If  a  court of competent jurisdiction determines
             ------------


                                       17
<PAGE>

that  any  provision  of this Agreement is invalid, unenforceable or illegal for
any reason, such determination shall not affect or impair the validity, legality
and  enforceability  of  the  other  provisions  of this Agreement.  If any such
invalidity,  unenforceability  or  illegality  of  a provision of this Agreement
becomes  known  or  apparent  to  any  of  the parties hereto, the parties shall
negotiate  promptly  and in good faith in an attempt to make appropriate changes
and  adjustments  to such provision specifically and this Agreement generally to
achieve  as  closely as possible, consistent with applicable law, the intent and
spirit  of  such  provision  specifically  and  this  Agreement  generally.

     14.     EXECUTION  IN  COUNTERPARTS.  This  Agreement  may  be  executed in
             ---------------------------
counterparts,  each  of  which  shall  be  deemed  an original, but all of which
together  shall  constitute  the  same  Agreement.

     15.     EXPENSES.  The  Company shall pay all fees and disbursements of the
             ---------
Investor  with  respect  to  the  preparation and enforcement of this Agreement.

     16.     GOVERNING  LAW.   This  Agreement and the Note shall be governed by
             --------------
and  construed  in  accordance with the laws of the State of New York, except to
the  extent  that  the  Minnesota  Business  Corporation  Act would apply to the
internal  corporate  governance of the Company.  Each of the parties consents to
the jurisdiction of the federal courts whose districts encompass any part of the
City  of  New  York or the state courts of the State of New York  sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby  waives, to the maximum extent permitted by law, any objection, including
any  objection  based  on  forum  non  coveniens,  to  the  bringing of any such
proceeding  in  such  jurisdictions.


                                       18
<PAGE>

     17.     JURY  TRIAL WAIVER.   The Company and Investor hereby waive a trial
             ------------------
by  jury  in  any  action,  proceeding  or counterclaim brought by either of the
parties  hereto  against the other in respect of any matter arising out of or in
connection  with  the  Agreement.

     18.     ENTIRE  AGREEMENT.   This  Agreement supercedes any prior agreement
             -----------------
between  the  parties  with  respect  to  the  subject  matter  hereof.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]













                                       19
<PAGE>

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
                              BIO-KEY INTERNATIONAL, INC.


                              By: /s/ Gary Wendt
                                 ---------------------------------
                                   Name:  Gary Wendt
                                   Title:  Chief Financial Officer


                              THE SHAAR FUND LTD.


                              By: /s/
                                  -------------------------------
                                   Name:  InterCaribbean Services Ltd.
                                   Title:  Director




                                       20
<PAGE>

                                    EXHIBIT A

                             CERTIFICATE OF OFFICER
                                       OF
                           BIO-KEY INTERNATIONAL, INC.


     The undersigned, the Chief Financial Officer of BIO-Key International, Inc,
a Minnesota corporation (the "Company"), hereby certifies that:

     1.     The representations and warranties of the Company set forth in a
certain Agreement (the "Agreement"), dated the 27th day of January, 2003 by and
between the Company and The Shaar Fund Ltd. ("Investor"), are each true and
correct in all material respects on and as of the date hereof with the same
effect as if made on and as of the date hereof.

     2.     The Company has performed and complied with all the agreements,
obligations, and conditions required by the Agreement to be performed and
complied with by the Company on or before the date hereof.

     3.     The proceeds of the Advance will be utilized solely in accordance
with the Section 6 of the Agreement.

     IN WITNESS WHEREOF, the undersigned has hereunto affixed his hand as of the
23 day of January, 2003.

                                  BIO-KEY INTERNATIONAL, INC.


                                  By: /s/ Gary Wendt
                                     --------------------------
                                      Officer

<PAGE>

                                    EXHIBIT B

                                  FORM OF NOTE








<PAGE>