**EXHIBIT 10.86**

 

**THESECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENTUNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144,OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESESECURITIES, REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION ANDPROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.**

 

OPTION TO PURCHASE COMMON STOCK

OF

**BIO-key International, Inc.**

Void after

 

This certifies that, for value received,            (“Holder”), is entitled, subject to the terms set forth below, to purchase from**BIO-key International****, Inc.**, a Delaware corporation (the “Company”), sharesof the common stock, $.0001 par value per share, of the Company (“Common Stock”),as constituted on the date hereof (the “Option Issue Date”), with the Notice ofExercise attached hereto duly executed, and simultaneous payment therefor inlawful money of the United States or as otherwise provided in Section 3hereof, at the Exercise Price then in effect. The number, character andExercise Price of the shares of Common Stock issuable upon exercise hereof aresubject to adjustment as provided herein.

 

1.                                       **Term of Option**. Subject to compliance with the vestingprovisions identified at Section 2.3 hereof, this Option shall beexercisable, in whole or in part, during the term commencing on the Option IssueDate and ending at 5:00 p.m. EST on              (the“Option Expiration Date”) and shall be void thereafter.

 

2.                                       **Number of Shares, Exercise Priceand Vesting Provisions**.

 

2.1                                 **Number of Shares**. The number of shares of Common Stockwhich may be purchased pursuant to this Option shall be               shares(the “Shares”), subject, however, to adjustment pursuant to Section 11hereof.

 

2.2                                 **Exercise Price**. The Exercise Price at which thisOption, or portion thereof, may be exercised shall be $            (1) perShare, subject, however, to adjustment pursuant to Section 11 hereof.

 

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(1) The last saleprice of the Company’s common stock as reported on the OTC Bulletin Board onthe Option Issue Date.

 

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2.3                                 **Vesting.**** **This Option shall vest in accordance with thefollowing schedule:

 

(i)                                                   Sharesshall vest on         ;and

 

(ii)                                                Sharesshall vest on         .

 

3.                                       **Exercise of Option**.

 

3.1                                 **Payment of Exercise Price**. Subject to the terms hereof, thepurchase rights represented by this Option are exercisable by the Holder inwhole or in part, at any time, or from time to time, by the surrender of thisOption and the Notice of Exercise annexed hereto duly completed and executed onbehalf of the Holder, at the office of the Company (or such other office oragency of the Company as it may designate by notice in writing to theHolder at the address of the Holder appearing on the books of the Company)accompanied by payment of the Exercise Price in full (i) in cash or bybank or certified check for the Shares with respect to which this Option isexercised; (ii) by delivery to the Company of shares of the Company’sCommon Stock having a Fair Market Value (as defined below) equal to theaggregate Exercise Price of the Shares being purchased which Holder is therecord and beneficial owner of and which have been held by the Holder for atleast six (6) months; (iii) if the Shares are eligible for publicresale, by delivering to the Company a Notice of Exercise together with anirrevocable direction to a broker-dealer registered under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), to sell a sufficientportion of the Shares and deliver the sales proceeds directly to the Company topay the Exercise Price; or (iv) by any combination of the procedures setforth in subsections (i), (ii) and (iii) of this Section 3.1.

 

3.2                                 **Fair Market Value.**If previously owned shares of CommonStock are tendered as payment of the Exercise Price, the value of such sharesshall be the “Fair Market Value” of such shares on the trading date immediatelypreceding the date of exercise. For the purpose of this Agreement, the “FairMarket Value” shall be:

 

(a)                                  If the Common Stock is admitted toquotation on the National Association of Securities Dealers Automated QuotationSystem (“NASDAQ”), the Fair Market Value on any given date shall be theaverage of the highest bid and lowest asked prices of the Common Stock asreported for such date or, if no bid and asked prices were reported for suchdate, for the last day preceding such date for which such prices were reported;

 

(b)                                 If the Common Stock is admitted totrading on a United States securities exchange or the NASDAQ National MarketSystem, the Fair Market Value on any date shall be the closing price reportedfor the Common Stock on such exchange or system for such date or, if no saleswere reported for such date, for the last day preceding such date for which asale was reported;

 

(c)                                  If the Common Stock is traded in theover-the-counter market and not on any national securities exchange nor in theNASDAQ Reporting System, the Fair Market 

 

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Value shall be theaverage of the mean between the last bid and ask prices per share, as reportedby the National Quotation Bureau, Inc., or an equivalent generallyaccepted reporting service, or if not so reported, the average of the closingbid and asked prices for a share as furnished to the Company by any member ofthe National Association of Securities Dealers, Inc., selected by theCompany for that purpose; or

 

(d)                                 If the Fair Market Value of the CommonStock cannot be determined on the basis previously set forth in this definitionon the date that the Fair Market Value is to be determined, the Board ofDirectors of the Company shall in good faith determine the Fair Market Value ofthe Common Stock on such date.

 

If the tender ofpreviously owned shares would result in an issuance of a whole number of Sharesand a fractional Share of Common Stock, the value of such fractional shareshall be paid to the Company in cash or by check by the Holder.

 

### **3.3****                              ****Termination of Employment; Death.**

###  

### (a)**                                 **If Holder shall cease to be employed bythe Company, all Options to which Holder is then entitled to exercise may beexercised only within ninety (90) days after the termination of employment andprior to the Option Termination Date or, if such termination was due todisability or retirement (as hereinafter defined), within one (1) year aftertermination of employment and prior to the Option Termination Date. Notwithstandingthe foregoing, in the event that any termination of employment shall be forCause as that term is defined in any employment agreement by and between theHolder and the Company, then this Option shall forthwith terminate.

###  

### (b)                                 If Holder shall die while employed by theCompany and prior to the Option Termination Date, any Options then exercisable may beexercised only within one (1) year after Holder’s death, prior to the OptionTermination Date and only by the Holder’s personal representative or personsentitled thereto under the Holder’s will or the laws of descent anddistribution.

###  

(c)                                  ThisOption may not be exercised for more Shares (subject to adjustment asprovided in Section 11 hereof) after the termination of the Holder’semployment or death, as the case may be, than the Holder was entitled topurchase thereunder at the time of the termination of the Holder’s employmentor death.

 

3.4                                 **Exercise Date; Delivery of Certificates.**This Option shallbe deemed to have been exercised immediately prior to the close of business onthe date of its surrender for exercise as provided above, and Holder shall betreated for all purposes as the holder of record of such Shares as of the closeof business on such date. As promptly as practicable on or after such date andin any event within ten (10) days thereafter, the Company at its expenseshall issue and deliver to the Holder a certificate or certificates for thenumber of Shares issuable upon such exercise. In the event that this Option isexercised in part, the Company at its expense will execute and deliver a newOption of like tenor exercisable for the number of shares for which this Optionmay then be exercised.

 

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4.                                       **No Fractional Shares or Scrip**. No fractional shares or scriprepresenting fractional shares shall be issued upon the exercise of this Option.In lieu of any fractional share to which the Holder would otherwise be entitled,the Company shall make a cash payment equal to the Exercise Price multiplied bysuch fraction.

 

5.                                       **Replacement of Option**. On receipt of evidence reasonablysatisfactory to the Company of the loss, theft, destruction or mutilation ofthis Option and, in the case of loss, theft or destruction, on delivery of anindemnity agreement reasonably satisfactory in form and substance to theCompany or, in the case of mutilation, on surrender and cancellation of thisOption, the Company at its expense shall execute and deliver, in lieu of thisOption, a new Option of like tenor and amount.

 

6.                                       **Rights of Stockholder**. Except as otherwise contemplatedherein, the Holder shall not be entitled to vote or receive dividends or bedeemed the holder of Common Stock or any other securities of the Company that may atany time be issuable on the exercise hereof for any purpose, nor shall anythingcontained herein be construed to confer upon the Holder, as such, any of therights of a stockholder of the Company or any right to vote for the election ofdirectors or upon any matter submitted to stockholders at any meeting thereof,or to give or withhold consent to any corporate action (whether upon anyrecapitalization, issuance of stock, reclassification of stock, change of par value,or change of stock to no par value, consolidation, merger, conveyance orotherwise) or to receive notice of meetings, or to receive dividends orsubscription rights or otherwise until the Option shall have been exercised asprovided herein.

 

7.                                       **Transfer of Option**.

 

7.1.                              **Non-Transferability**. This Option shall not be assigned,transferred, pledged or hypothecated in any way, nor subject to execution,attachment or similar process, otherwise than by will or by the laws of descentand distribution. Any attempted assignment, transfer, pledge, hypothecation orother disposition of this Option contrary to the provisions hereof, and thelevy of an execution, attachment, or similar process upon the Option, shall benull and void and without effect.

 

7.2.                              **Compliance with Securities Laws;Restrictions on Transfers.**In addition to restrictions on transfer of this Optionand Shares set forth in Section 7.1 above.

 

(a)                                  The Holder of this Option, by acceptancehereof, acknowledges that this Option and the Shares to be issued upon exercisehereof are being acquired solely for the Holder’s own account and not as anominee for any other party, and for investment (unless such shares are subjectto resale pursuant to an effective prospectus), and that the Holder will not offer,sell or otherwise dispose of any Shares to be issued upon exercise hereofexcept under circumstances that will not result in a violation of applicablefederal and state securities laws. Upon exercise of this Option, the Holdershall, if requested by the Company, confirm in writing, in a form satisfactoryto the Company, that the Shares of Common Stock so purchased are being acquiredsolely for the Holder’s own account and not as a nominee for any other party,for investment (unless such shares are subject to resale pursuant to aneffective prospectus), and not with a view toward distribution or resale.

 

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(b)                                 Neither this Option nor any share ofCommon Stock issued upon exercise of this Option may be offered for saleor sold, or otherwise transferred or sold in any transaction which wouldconstitute a sale thereof within the meaning of the 1933 Act, unless (i) suchsecurity has been registered for sale under the 1933 Act and registered orqualified under applicable state securities laws relating to the offer an saleof securities; (ii) exemptions from the registration requirements of the1933 Act and the registration or qualification requirements of all such statesecurities laws are available and the Company shall have received an opinion ofcounsel satisfactory to the Company that the proposed sale or other dispositionof such securities may be effected without registration under the 1933 Actand would not result in any violation of any applicable state securities lawsrelating to the registration or qualification of securities for sale, suchcounsel and such opinion to be satisfactory to the Company. The Holder of thisOption, by acceptance hereof, acknowledges that the Company has no obligationto file a registration statement with the Securities and Exchange Commission orany state securities commission to register the issuance of the Shares uponexercise hereof or the sale or transfer of the Shares after issuance.

 

(c)                                  All Shares issued upon exercise hereofshall be stamped or imprinted with a legend in substantially the following form (inaddition to any legend required by state securities laws).

 

**THESECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENTUNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144,OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESESECURITIES, REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION ANDPROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.**

 

(d)                                 Holder recognizes that investing in theOption and the Shares involves a high degree of risk, and Holder is in afinancial position to hold the Option and the Shares indefinitely and is ableto bear the economic risk and withstand a complete loss of its investment inthe Option and the Shares. The Holder is a sophisticated investor and iscapable of evaluating the merits and risks of investing in the Company. TheHolder has had an opportunity to discuss the Company’s business, management andfinancial affairs with the Company’s management, has been given full andcomplete access to information concerning the Company, and has utilized suchaccess to its satisfaction for the purpose of obtaining information orverifying information and has had the opportunity to inspect the Company’soperation. Holder has had the opportunity to ask questions of, and receiveanswers from the management of the Company (and any person acting on itsbehalf) concerning the Option and the Shares and the agreements andtransactions contemplated hereby, and to obtain any additional information asHolder may have requested in making its investment decision.

 

(e)                                  Holder acknowledges and represents: (i) thathe has been afforded the opportunity to review and is familiar with thebusiness prospects and finances of the Company and has based his decision toinvest solely on the information contained therein and has not been 

 

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furnished with anyother literature, prospectus or other information except as included in suchreports; (ii) he maintains his domicile and is not a transient ortemporary resident at the address on the books and records of the Company; (iii) heunderstands that no federal or state agency has approved or disapproved theOption or Shares or made any finding or determination as to the fairness of theOption and Common Stock for investment; and (iv) that the Company has madeno representations, warranties, or assurances as to (A) the future tradingvalue of the Common Stock, (B) whether there will be a public market forthe resale of the Common Stock or (C) the filing of a registrationstatement with the Securities and Exchange Commission or any state securitiescommission to register the issuance of the Shares upon exercise hereof or thesale or transfer of the Shares after issuance.

 

8.                                       **Reservation and Issuance ofStock; Payment of Taxes.**

 

(a)                                  The Company covenants that during theterm that this Option is exercisable, the Company will reserve from itsauthorized and unissued Common Stock a sufficient number of shares to providefor the issuance of the Shares upon the exercise of this Option, and from timeto time will take all steps necessary to amend its Certificate of Incorporationto provide sufficient reserves of shares of Common Stock issuable upon the exerciseof the Option.

 

(b)                                 The Company further covenants that allshares of Common Stock issuable upon the due exercise of this Option will befree and clear from all taxes or liens, charges and security interests createdby the Company with respect to the issuance thereof, however, the Company shallnot be obligated or liable for the payment of any taxes, liens or charges ofHolder, or any other party contemplated by Section 7, incurred inconnection with the issuance of this Option or the Common Stock upon the dueexercise of this Option. The Company agrees that its issuance of this Optionshall constitute full authority to its officers who are charged with the dutyof executing stock certificates to execute and issue the necessary certificatesfor the shares of Common Stock upon the exercise of this Option. The CommonStock issuable upon the due exercise of this Option, will, upon issuance inaccordance with the terms hereof, be duly authorized, validly issued, fullypaid and non-assessable.

 

(c)                                  Upon exercise of the Option, the Companyshall have the right to require the Holder to remit to the Company an amountsufficient to satisfy federal, state and local tax withholding requirementsprior to the delivery of any certificate for Shares of Common Stock purchasedpursuant to the Option, if in the opinion of counsel to the Company suchwithholding is required under applicable tax laws.

 

(d)                                 If Holder is obligated to pay the Companyan amount required to be withheld under applicable tax withholding requirementsmay pay such amount (i) in cash; (ii) in the discretion of theBoard of Directors of the Company, through the delivery to the Company ofpreviously-owned shares of Common Stock having an aggregate Fair Market Valueequal to the tax obligation provided that the previously owned shares deliveredin satisfaction of the withholding obligations must have been held by theHolder for at least six (6) months; (iii) in the discretion of theBoard of Directors of the Company, through the withholding of Shares of CommonStock otherwise issuable to the Holder in connection with the Option exercise;or (iv) 

 

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in the discretionof the Board of Directors of the Company, through a combination of theprocedures set forth in subsections (i), (ii) and (iii) of this Section 8(d).

 

9.                                       **Notices.**

 

(a)                                  Whenever the Exercise Price or number ofshares purchasable hereunder shall be adjusted pursuant to Section 11hereof, the Company shall issue a certificate signed by its Chief FinancialOfficer setting forth, in reasonable detail, the event requiring theadjustment, the amount of the adjustment, the method by which such adjustmentwas calculated, and the Exercise Price and number of shares purchasablehereunder after giving effect to such adjustment, and shall cause a copy ofsuch certificate to be mailed (by first-class mail, postage prepaid) tothe Holder of this Option.

 

(b)                                 All notices, advices and communicationsunder this Option shall be deemed to have been given, (i) in the case ofpersonal delivery, on the date of such delivery and (ii) in the case ofmailing, on the third business day following the date of such mailing,addressed as follows:

 
|   | If to the Company:               |
|--------|----------------------------------|
|   |                             |
|   | BIO-key International, Inc. |
|   | 300 Nickerson Road               |
|   | Marlborough, MA 01752            |
|   |                             |
|   | With a copy to:                  |
|   |                             |
|   | Choate, Hall & Stewart  |
|   | Two International Place          |
|   | Boston, MA 02110                 |
|   | Attn.: Charles Johnson           |
|   |                             |
|   | and to the Holder:               |
|   |                             |
|   | Name:                            |
|   | Address:                         |
|   | City/State/Zip:                  |

 

Either of the Company or the Holder may from timeto time change the address to which notices to it are to be mailed hereunder bynotice in accordance with the provisions of this Paragraph 9.

 

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10.                                 **Amendments.**

 

(a)                                  Any term of this Option may beamended with the written consent of the Company and the Holder. Any amendmenteffected in accordance with this Section 10 shall be binding upon theHolder, each future holder and the Company.

 

(b)                                 No waivers of, or exceptions to, anyterm, condition or provision of this Option, in any one or more instances,shall be deemed to be, or construed as, a further or continuing waiver of anysuch term, condition or provision.

 

11.                                 **Adjustments**. The number of Shares of Common Stockpurchasable hereunder and the Exercise Price is subject to adjustment from timeto time upon the occurrence of certain events, as follows:

 

11.1.                        **Reorganization, Merger or Sale ofAssets**. If at anytime while this Option, or any portion thereof, is outstanding and unexpiredthere shall be (i) a reorganization (other than a combination,reclassification, exchange or subdivision of shares otherwise provided forherein); or (ii) a merger or consolidation of the Company in which theshares of the Company’s capital stock outstanding immediately prior to themerger are converted by virtue of the merger into other property, whether inthe form of securities, cash or otherwise, then, as a part of suchreorganization, merger, or consolidation, lawful provision shall be made sothat the holder of this Option shall upon such reorganization, merger, orconsolidation, have the right by exercising such Option, to purchase the kindand number of shares of Common Stock or other securities or property (includingcash) otherwise receivable upon such reorganization, merger or consolidation bya holder of the number of shares of Common Stock that might have been purchasedupon exercise of such Option immediately prior to such reorganization, mergeror consolidation. The foregoing provisions of this Section 11.1 shallsimilarly apply to successive reorganizations, consolidations or mergers. Ifthe per-share consideration payable to the Holder hereof for shares inconnection with any such transaction is in a form other than cash ormarketable securities, then the value of such consideration shall be determinedin good faith by the Company’s Board of Directors. In all events, appropriateadjustment (as determined in good faith by the Company’s Board of Directors)shall be made in the application of the provisions of this Option with respectto the rights and interests of the Holder after the transaction, to the endthat the provisions of this Option shall be applicable after that event, asnear as reasonably may be, in relation to any shares or other propertydeliverable after that event upon exercise of this Option.

 

11.2.                        **Reclassification**. If the Company, at any time while thisOption, or any portion thereof, remains outstanding and unexpired, byreclassification of securities or otherwise, shall change any of the securitiesas to which purchase rights under this Option exist into the same or adifferent number of securities of any other class or classes, this Optionshall thereafter represent the right to acquire such number and kind ofsecurities as would have been issuable as the result of such change withrespect to the securities that were subject to the purchase rights under thisOption immediately prior to such reclassification or other change and theExercise Price therefor shall be appropriately adjusted, all subject to furtheradjustment as provided in this Section 11.

 

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11.3.                        **Split, Subdivision or Combinationof Shares**. If theCompany at any time while this Option, or any portion thereof, remainsoutstanding and unexpired shall split, subdivide or combine the securities asto which purchase rights under this Option exist, into a different number ofsecurities of the same class, the Exercise Price and the number of sharesissuable upon exercise of this Option shall be proportionately adjusted.

 

11.4.                        **Adjustments for Dividends inStock or Other Securities or Property**. If while this Option, or any portion hereof, remainsoutstanding and unexpired the holders of the securities as to which purchaserights under this Option exist at the time shall have received, or, on or afterthe record date fixed for the determination of eligible Stockholders, shallhave become entitled to receive, without payment therefor, other or additionalstock or other securities or property (other than cash) of the Company by wayof dividend, then and in each case, this Option shall represent the right toacquire, in addition to the number of shares of the security receivable uponexercise of this Option, and without payment of any additional considerationtherefor, the amount of such other or additional stock or other securities orproperty (other than cash) of the Company that such holder would hold on thedate of such exercise had it been the holder of record of the securityreceivable upon exercise of this Option on the date hereof and had thereafter,during the period from the date hereof to and including the date of suchexercise, retained such shares and/or all other additional stock, othersecurities or property available by this Option as aforesaid during suchperiod.

 

11.5                           **Good Faith.**The Company will not, by any voluntaryaction, avoid or seek to avoid the observance or performance of any of theterms to be observed or performed hereunder by the Company, but will at alltimes in good faith assist in the carrying out of all the provisions of this Section 11and in the taking of all such action as may be necessary or appropriate inorder to protect the rights of the Holder of this Option against impairment.

 

# 12.                                 **FundamentalTransaction**. For purposes of this Section 12, a “FundamentalTransaction” shall mean (i) the dissolution or liquidation of the Company;(ii) a merger, reorganization or consolidation in which the Company isacquired by another person or entity (other than a holding company orsubsidiary formed by the Company); (iii) the sale of all or substantiallyall of the assets of the Company to any person or persons; or (iv) thesale in a single transaction or a series of related transactions of votingstock representing more than fifty percent (50%) of the voting power of alloutstanding shares of the Company to any person or persons. In the event of aFundamental Transaction, this Option shall automatically become immediatelyexercisable in full, and shall be deemed to have attained such status immediatelyprior to the Fundamental Transaction. Holder shall be given at least 15 daysprior written notice of a Fundamental Transaction and shall be permitted toexercise any vested Options during this 15 day period (including those Optionsvesting as a result of the provisions of this Section 12). In the event ofa Fundamental Transaction, any Options which are neither assumed or substitutedfor in connection with the Fundamental Transaction nor exercised as of the dateof the Fundamental Transaction, shall terminate and cease to be outstandingeffective as of the date of the Fundamental Transaction, unless otherwiseprovided by the Board of Directors of the Company.

#  

13.                                 **Severability**. Whenever possible, each provision ofthis Option shall be interpreted in such manner as to be effective and validunder applicable law, but if any provision 

 

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of this Option is held to be invalid, illegal orunenforceable in any respect under any applicable law or rule in any jurisdiction,such invalidity, illegality or unenforceability shall not affect the validity,legality or enforceability of any other provision of this Option in suchjurisdiction or affect the validity, legality or enforceability of anyprovision in any other jurisdiction, but this Option shall be reformed,construed and enforced in such jurisdiction as if such invalid, illegal orunenforceable provision had never been contained herein.

 

14.                                 **Governing Law.**The corporate law of the Commonwealth ofMassachusetts shall govern all issues and questions concerning the relativerights of the Company and its stockholders. All other questions concerning theconstruction, validity, interpretation and enforceability of this Option andthe exhibits and schedules hereto shall be governed by, and construed inaccordance with, the laws of the Commonwealth of Massachusetts, without givingeffect to any choice of law or conflict of law rules or provisions(whether of the Commonwealth of Massachusetts or any other jurisdiction) thatwould cause the application of the laws of any jurisdiction other than the Commonwealthof Massachusetts.

 

15.                                 **Jurisdiction**. The Holder and the Company agree tosubmit to personal jurisdiction and to waive any objection as to venue in thefederal or state courts of Massachusetts. Service of process on the Company orthe Holder in any action arising out of or relating to this Option shall beeffective if mailed to such party at the address listed in Section 9hereof.

 

16.                                 **Arbitration**. If a dispute arises as tointerpretation of this Option, it shall be decided finally by three arbitratorsin an arbitration proceeding conforming to the Rules of the AmericanArbitration Association applicable to commercial arbitration. The arbitratorsshall be appointed as follows: one by the Company, one by the Holder and thethird by the said two arbitrators, or, if they cannot agree, then the thirdarbitrator shall be appointed by the American Arbitration Association. Thethird arbitrator shall be chairman of the panel and shall be impartial. Thearbitration shall take place in Middlesex County, Massachusetts. The decisionof a majority of the arbitrators shall be conclusively binding upon the partiesand final, and such decision shall be enforceable as a judgment in any court ofcompetent jurisdiction. Each party shall pay the fees and expenses of thearbitrator appointed by it, its counsel and its witnesses. The parties shallshare equally the fees and expenses of the impartial arbitrator.

 

17.                                 **Intentionally omitted.**

 

18.                                 **Successors and Assigns.**This Option shall inure to the benefit ofand be binding on the respective successors, assigns and legal representativesof the Holder and the Company.

 

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INWITNESS WHEREOF, the Company and Holder have caused this Option to be executedas of               .

 
|   | **BIO-key International, Inc.** |
|--------|--------------------------------------|
|   | ** **                           |
|   |                                 |   |
|   | By:                                  |   |
|   |                                 | Name: |   |
|   |                                 | Title: | Chief Financial  Officer |
|        |                                      |  |  |  |

 

AGREED AND ACCEPTED:

 
| Holder:   |   |   |   |
|-----------|--------|--------|--------|
|      |   |
|      |   |
| Signature |   |

 

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NOTICE OF EXERCISE

 

TO:  

 

(1)                                  The undersigned hereby elects to purchase                shares of Common Stock of **Bio-key International, Inc.**pursuant to the terms of the attached Option, and tenders herewithpayment of the purchase price for such shares in full in the following manner(please check one of the following choices):

 
|   | o      | In Cash                                |
|--------|--------|----------------------------------------|
|   |   |                                   |
|   | o      | Cashless exercise through a broker; or |
|   |   |                                   |
|   | o      | Delivery of previously owned shares.   |

 

(2)                                  In exercising this Option, theundersigned hereby confirms and acknowledges that the shares of Common Stock tobe issued upon conversion thereof are being acquired solely for the account ofthe undersigned and not as a nominee for any other party, and for investment(unless such shares are subject to resale pursuant to an effective prospectus),and that the undersigned will not offer, sell or otherwise dispose of any suchshares of Common Stock except under circumstances that will not result in aviolation of the Securities Act of 1933, as amended, or any state securitieslaws.

 

(3)                                  Please issue a certificate orcertificates representing said shares of Common Stock in the name of theundersigned.

 

 
|   |        |   |   |
|--------|-------------|--------|--------|
|   |        |   |   |
|   |        |   |   |
|   |        |   |   |
| (Date) | (Signature) |

 

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