**Exhibit10.85**

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**SECURITIESEXCHANGE AGREEMENT**

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This Securities ExchangeAgreement (the “**Agreement**”) is entered into as of November 12,2009 by and among BIO-key International, Inc., a Delaware corporation (the“**Company**”), The Shaar Fund, Ltd. (“**Shaar**”), Thomas J. Colatosti (“**TJC**”and, together with Shaar, collectively the “**Holders**”and individually a “**Holder**”).

 

**Introduction**

 

At the request of theCompany, Shaar (a) has extended the due date of the Company’s EightPercent (8%) Promissory Note Due November 3, 2009, in the principal amountof $1,000,000, pursuant to a Note Amendment and Extension Agreement dated as ofNovember 3, 2009 between the Company and Shaar, and (b) has made abridge loan to the Company in the principal amount of $750,000, evidenced by theCompany’s Six Percent (6%) Promissory Note dated November 12, 2009, and,in consideration thereof, the Company has agreed to enter into this Agreement.

 

Shaar is the holder of27,932 shares, and TJC is the holder of 2,625 shares (collectively the “**Exchanged Shares**”), of the Company’s Series AConvertible Preferred Stock, $0.0001 par value per share (the “**Series A Preferred Stock**”).  The Company and the Holders desire toexchange (a) all dividends accrued and unpaid on their Exchanged Sharesfor the Convertible Notes (as defined below) to and including the Closing Date(as defined below), and the Company and (b) the Exchanged Shares for theCompany’s Series D Convertible Preferred Stock, $0.0001 par value pershare (the “**Series D Preferred Stock**”),and the Warrants (as defined below) on the terms and conditions set forth inthis Agreement.

 

NOW, THEREFORE, inconsideration of the foregoing and the mutual covenants contained herein, andfor other good and valuable consideration, the receipt and sufficiency of whichis hereby acknowledged, the parties hereto agree as follows:

 

**1.****                                     ****Exchangeof the Exchanged Shares for the Notes, the Series D Preferred Stock andthe Warrants****.**

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## **1.1.****                           ****Authorization of the Notes.**  The Company has authorized theissuance of  Seven Percent (7%)Convertible Promissory Notes in the respective principal amounts set forth in Section 3.5 below in the formattached hereto as **Exhibit A**(the “**Convertible****Notes**”) to Shaar on the terms andconditions set forth in this Agreement. Each Holder hereby consents to the issuance of his or its ConvertibleNote, and the indebtedness represented thereby, on the terms and  conditions set forth in this Agreement.

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**1.2****                              ****Authorizationof the Series D Preferred Stock. ** The Company has authorized, approved and adoptedthe Certificate of Designation of the Series D Preferred Stock of theCompany, consisting of 100,000 shares, in the form attached hereto as **Exhibit B** (the “**Series D****Certificateof Designation**”), and has authorized the issuance of 27,932shares of the Series D Preferred Stock to Shaar and 2,625 shares of the Series DPreferred Stock to TJC, in exchange for the Series A Preferred Stock ownedby the respective Holders.

 

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**1.3****                              ****Authorizationof the Warrant.**  The Companyhas authorized the issuance of Warrants to purchase up to 5,000,000 shares ofthe Company’s Common Stock, $0.0001 par value per share (“**Common Stock**”),in the form attached hereto as **Exhibit C**(the “**Warrants**”), including up to 4,750,000shares to Shaar and up to 250,000 shares to TJC on the terms and conditions setforth in this Agreement.

 

**1.4****                              ****TheExchange.**  In exchangefor the delivery by the Holders of the Exchanged Shares, the Company agrees, infull settlement of the Company’s obligations (as of the Closing Date) under theSeries A Certificate of Designation (as defined below) and the ExchangedShares, to issue and deliver to the Holders his or its Convertible Note, the Series DPreferred Stock and the Warrants (the “**Exchange**”).** **Other than as setforth in this Agreement, the Exchange shall be made without any additionalconsideration payable to or by the Holders or the Company.  As used herein, “**Series ACertificate of Designation**” means the Certificate of Designation ofthe Company filed with the Secretary of State of the State of Delaware on July 28,2004, which provides for the designation ofthe rights and preferences of the Series A Preferred Stock.

 

**1.5****                              ****Closing.**  The closing of the Exchange on the terms andconditions set forth in this Agreement (the “**Closing**”)shall take place remotely via the exchange of documents and signatures at 10:00 a.m.EST on the date that is five (5) days after the satisfaction or waiver ofall of the conditions set forth in Section 4 hereof, or on such other dateas the parties hereto may agree (the “**Closing Date**”).

 

**1.6****                              ****ClosingDocuments and Payments.**  Atthe Closing, (a) the Company shall deliver to the Holders the ConvertibleNotes,  the Series D Preferred Stockand the Warrants and (b) each Holder shall deliver to the Company stockcertificate(s) representing its or his Exchanged Shares, together with aduly executed transfer power transferring its or his Exchanged Shares to theCompany for cancellation.

 

**2.****                                     ****Representationsand Warranties of the Holder****.**  The Holders, severally and not jointly, eachrepresents and warrants to the Company as follows:

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## **2.1.****                           ****Title.**  Each Holder has good title to his or its  Exchanged Shares free and clear of any andall restrictions, encumbrances, liens, rights, title or interests of others,other than restrictions under applicable securities laws.

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## **2.2.****                           ****Authority.**  Each Holder has the requisite power andauthority to enter into this Agreement and to consummate the transactionscontemplated hereby and to deliver his or its Exchanged Shares to the Companyin accordance herewith.

 

**3.****                                     ****Representationsand Warranties of the Company****.**  The Company represents and warrants to theHolder as follows:

 

## **3.1.****                           ****Entity Matters. **The Company is dulyorganized and validly existing in good standing under the laws of the State ofDelaware, has all requisite power and authority to conduct its business and toown its property as the same is and shall be conducted or owned, and isqualified to do business as a foreign corporation in all locations requiredunder the laws of each

 

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## jurisdictionin which it does business and under which the failure so to qualify and remainin good standing would have a material adverse effect on the Company.  The execution of this Agreement, theConvertible Notes, the Series D Preferred Stock and the Warrants (collectively,the “**Exchange Documents**”) will notviolate the Company’s Certificate of Incorporation or By-Laws.

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## **3.2.****                           ****No Violation**.  The performance by the Company of the Company’sobligations hereunder or under any other Exchange Document does not constitutea violation of any law, order, regulation, contract, or agreement to which theCompany is a party or by which the Company or the Company’s property may bebound and does not require any filing or registration with, or any permit,license, consent, or approval of, any governmental agency or regulatoryauthority, other than the filing of the Series D Certificate ofDesignation with the Secretary of State of the State of Delaware, or thewaiver, consent or approval of any other party which has not been or will notbe duly obtained as of the Closing Date.

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## **3.3.****                           ****No Litigation**.  There is no litigation or arbitration pendingor, to the Company’s knowledge, threatened against the Company which, if adversely decided, couldmaterially impair the ability of the Company to pay and perform the Company’sobligations under any Exchange Document.

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## **3.4.****                           ****Exchange Documents Enforceable. **The ExchangeDocuments have been duly authorized, executed, and delivered by the Company andare legal, valid, and binding instruments, enforceable against the Company inaccordance with their respective terms, except as limited by applicablebankruptcy, insolvency, reorganization, moratorium or other laws of generalapplication affecting enforcement of creditors’ rights andgeneral principles of equity that restrict the availability ofequitable or legal remedies.

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## **3.5.****                           ****Amount ofNotes**.  Theprincipal amount of the Convertible Note to be issued to each Holder will beequal to the aggregate amount of all accrued and unpaid dividends on suchHolder’s Exchanged Shares to and including the Closing Date.

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**4.****                                     ****ConditionsPrecedent to the Holders’ Obligations****.**  it shall be a condition precedent to each ofthe Holders’ obligations under this Agreement that all of the followingrequirements are satisfied:

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## **4.1.****                           ****Representations and Warranties**.  All representations and warranties made by oron behalf of the Company shall be true, correct and complete in all materialrespects on and as of the Closing Date.

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## **4.2.****                           ****Sale of the Company’s Law Enforcement Division**.  The closing of the sale of theCompany’s Law Enforcement Division to InterAct911 Mobile Systems, Inc.(the “**Buyer**”) pursuant to thatcertain Asset Purchase Agreement dated as of August 13, 2009 (as amended,restated, supplemented or otherwise modified from time to time, the “**Asset Purchase Agreement**”) by and betweenthe Company and the Buyer shall have occurred.

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## **4.3.****                           ****Redemption of Series B and Series C PreferredStock**.  Alloutstanding shares of the Company’s Series B Convertible PreferredStock, $0.0001 par value per share (“**Series BPreferred Stock**”), and Series C Convertible Preferred Stock,$0.0001 par value per share

 

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## (“**Series C Preferred Stock**”), shall have been redeemed inaccordance with the terms of Section 7(a) of the Certificate ofDesignation for the Series B Preferred Stock and Section 7(a) ofthe Certificate of Designation for the Series C Preferred Stock, respectively.  The partiesacknowledge and agree that in the event that any holder of Series B Preferred Stock or Series C Preferred Stock (other thanthe Holders) has his or its shares redeemed on terms more favorable than thosecontained in the Certificate of Designation with respect to such series, eachHolder shall be entitled to have its or his shares of Series B PreferredStock and/or Series C Preferred Stock, as applicable, redeemed on the mostfavorable terms afforded to any other such holder.

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## **4.4.****                           ****Officer’s Certificate**.  An officer of the Companyshall deliver to the Holders a certificate certifying that the conditionsspecified in Sections 4.1, 4.2 and 4.3 hereof have been satisfied.

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## **4.5.****                           ****Additional Conditions Precedent**.  Each Holder shall have received each of thefollowing, as applicable:

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### (a)                                  the ConvertibleNote executed and delivered by the Company in favor of such Holder;

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### (b)                                 certificatesfor their respective shares of Series D Preferred Stock executed anddelivered by the Company;

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### (c)                                  their respective Warrants executed and delivered by the Company; and

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### (d)                                 Such other andfurther documents, agreements and instruments as the Holders or their counselmay reasonably require to evidence, confirm or give effect to the undertakingsof the Company set forth herein.

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**5.****                                     ****Miscellaneous****.**

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## **5.1.        ****Governing Law**. THIS AGREEMENT AND EACH OTHER EXCHANGE AGREEMENT SHALL BE GOVERNED BYAND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUTREGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY ANY PARTY AGAINST ANOTHER CONCERNING THETRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EACH OTHER EXCHANGE AGREEMENTSHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTSLOCATED IN THE STATE OF NEW YORK, IN EACH CASE SITTING IN THE CITY OF NEW YORK,BOROUGH OF MANHATTAN.  ALL PARTIES ANDTHE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE OTHER EXCHANGE AGREEMENTS ONBEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS ANDWAIVE TRIAL BY JURY.  IN THE EVENT THATANY PROVISION OF THIS AGREEMENT OR ANY OTHER EXCHANGE AGREEMENT DELIVERED INCONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE ORRULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THATIT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TOCONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH MAY PROVE INVALID OR

 

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## UNENFORCEABLE UNDER ANY LAWSHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THISAGREEMENT OR ANY OTHER EXCHANGE AGREEMENT.

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## **5.2.****                           ****Termination**.  This Agreement shall terminate and be of nofurther force or effect if the Closing (as defined in the Asset PurchaseAgreement) shall not have been consummated by January 31, 2010; provided,however, that in such event, the Company agrees to issue to theShaar a Warrant in the form of the Warrant to purchase up to 2,000,000 shares ofCommon Stock at an exercise price of $0.30 per share.

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## **5.3.****                           ****Survival**.  Therepresentations, warranties, covenants and agreements made herein shall surviveany investigation made by the Holders and for one year after the date of theclosing of the transactions contemplated hereby.  All statements as to factual matterscontained in any certificate or other instrument delivered by or on behalf ofthe Company pursuant hereto in connection with the transactions contemplatedhereby shall be deemed to be representations and warranties by the Companyhereunder solely as of the date of such certificate or instrument, unlessotherwise specified therein.

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## **5.4.****                           ****Successors**.  Except asotherwise expressly provided herein, the provisions hereof shall inure to thebenefit of, and be binding upon, the successors, heirs, executors andadministrators of the parties hereto.  NoHolder may assign its rights hereunder to a competitor of the Company.  The Company may not assign its rights ordelegate its obligations hereunder to a third party without obtaining theconsent of the Holders, such consent not to be unreasonably withheld ordelayed.

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## **5.5.****                           ****Entire Agreement**.  ThisAgreement, the other Exchange Documents, the exhibits and schedules hereto andthereto and the other documents delivered pursuant hereto constitute the fulland entire understanding and agreement between the parties with regard to thesubjects hereof and no party shall be liable or bound to any other in anymanner by any representations, warranties, covenants and agreements except asspecifically set forth herein and therein.

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## **5.6.****                           ****Omitted**.

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## **5.7.****                           ****Amendments and Waivers**.  This Agreement may be amended or modifiedonly upon the written consent of the Company and Shaar.

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## **5.8.****                           ****Delays or Omissions**.  Itis agreed that no delay or omission to exercise any right, power or remedyaccruing to any party, upon any breach, default or noncompliance by anotherparty under this Agreement or the other Exchange Documents, shall impair anysuch right, power or remedy, nor shall it be construed to be a waiver of anysuch breach, default or noncompliance, or any acquiescence therein, or of or inany similar breach, default or noncompliance thereafter occurring.  All remedies, either under this Agreement orthe other Exchange Documents, by law or otherwise afforded to any party, shallbe cumulative and not alternative.

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## **5.9.****                           ****Notices**.  All noticesand other communications given or made pursuant to this Agreement shall be inwriting and shall be deemed effectively given upon the earlier of actualreceipt or:  (a) personal deliveryto the party to be notified, (b) when sent, if sent by electronic

 

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## mail or facsimile duringnormal business hours of the recipient, and if not sent during normal businesshours, then on the recipient’s next business day, (c) five (5) daysafter having been sent by registered or certified mail, return receiptrequested, postage prepaid, or (d) one (1) business day after depositwith a nationally recognized overnight courier, freight prepaid, specifyingnext business day delivery, with written verification of receipt.  All communications shall be sent to therespective parties at the following addresses or to such other e-mail address,facsimile number or address as subsequently modified by written notice given inaccordance with this Section:

 
| If  to the Company or to TJC, to: or c/o             |   | BIO-key  International, Inc.                                                                                                                                                      |
|------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                 |   | 3349  Highway 138                                                                                                                                                                      |
|                                                 |   | Building  D, Suite B                                                                                                                                                              |
|                                                 |   | Wall,  NJ 07719                                                                                                                                                                        |
|                                                 |   | Attn:  Chief Executive Officer                                                                                                                                                         |
|                                                 |   | Facsimile:  [                            ] |
|                                                 |   |                                                                                                                                                                                   |
| with  a copy (which shall not constitute notice) to: |   | Choate,  Hall & Stewart LLP  Two International Place  Boston, MA 02110  Attention: Charles J. Johnson, Esq.  Facsimile: (617) 248-4000                                   |
|                                                 |   |                                                                                                                                                                                   |
| If to Shaar, to:                                     |   | The Shaar Fund Ltd.                                                                                                                                                                    |
|                                                 |   | c/o Maarten Robberts                                                                                                                                                                   |
|                                                 |   | SS&C Fund Services  N.V.                                                                                                                                                           |
|                                                 |   | Pareraweg 45                                                                                                                                                                           |
|                                                 |   | Curacao, Netherlands  Antilles                                                                                                                                                         |
|                                                 |   | Facsimile: (599-9)  434-3560                                                                                                                                                           |
|                                                 |   |                                                                                                                                                                                   |
| with  a copy (which shall not constitute notice) to: |   | Meltzer, Lippe,  Goldstein & Breitstone, LLP  190 Willis Avenue  Mineola, NY 11501  Attention: Ira R. Halperin, Esq.  Facsimile: (516) 747-0653                          |

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## **5.10.****                    ****Titles and Subtitles**.  The titles of the sections and subsections ofthis Agreement are for convenience of reference only and are not to beconsidered in construing this Agreement.

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## **5.11.****                    ****Facsimile Signatures; Counterparts**.  This Agreement may be executed by facsimilesignatures and in any number of counterparts, each of which shall be anoriginal, but all of which together shall constitute one instrument.

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## **5.12.****                    ****Broker’s Fees**.  Each partyhereto represents and warrants that no agent, broker, investment banker, personor firm acting on behalf of or under the authority of such party hereto is orwill be entitled to any broker’s or finder’s fee or any other commissiondirectly or indirectly in connection with the transactions contemplatedherein.  Each party hereto further agreesto

 

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## indemnify each other partyfor any claims, losses or expenses incurred by such other party as a result ofthe representation by such party in this Section 5.12 being untrue.

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## **5.13.****                    ****Construction**.  Each partyacknowledges that its legal counsel participated in the preparation of thisAgreement and the other Exchange Documents and, therefore, stipulates that the rule ofconstruction that ambiguities are to be resolved against the drafting partyshall not be applied in the interpretation of this Agreement to favor any partyagainst the other.

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[Signature pages follow]

 

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IN WITNESS WHEREOF, each of the parties hereto hasexecuted this Agreement as a sealed instrument as of the date first writtenabove. 

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

 

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|   | **THE  HOLDERS****:** |
|--------|-----------------------|
|   |                  |
|   | THE  SHAAR FUND, LTD. |
|   |                  |
|   |                  |
|   | By:                   | SS&C Fund Services N.V. |
|   |                  |   |
|   | By:                   |   |
|   |                  | Name: |
|   |                  | Title: |
|   |                  |   |
|   |                  |   |
|   |                  | /s/  Thomas J. Colatosti |
|   |                  | Thomas J. Colatosti |

 

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**Exhibit A**

 

**Form of Convertible Note**

 

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**Exhibit B**

 

**Form of Series D Certificate of Designation**

 

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**Exhibit C**

 

**Form of Warrant**

 

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