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EXHIBIT 10.23

                              EMPLOYMENT AGREEMENT

         THIS AGREEMENT  (along with all Exhibits  attached  hereto  hereinafter
referred  to as the  "Agreement")  made  effective  as of January 3, 2003 by and
between BIO-key International,  Inc., a Minnesota corporation with its principal
place of business at 1285 Corporate  Center Drive,  Suite 175,  Eagan,  MN 55121
(the "Company"),  and Michael W. DePasquale  residing at 704 Michael Drive, Toms
River, NJ 08753 (the "Executive").

                                   WITNESSETH:

         WHEREAS,  the Company desires to secure the employment of the Executive
as Chief Executive  Officer in accordance with the provisions of this Agreement;
and

         WHEREAS,  the  Executive  desires  and is willing to be employed by the
Company in accordance herewith.

         NOW THEREFORE,  in  consideration  of the premises and mutual covenants
contained  herein,  and other good and valuable  consideration,  the receipt and
sufficiency of which is hereby  acknowledged,  and intending to be legally bound
hereby, the parties hereto agree as follows:

         1. EMPLOYMENT TERM. This Agreement shall remain in force and effect for
a term  commencing on the Effective Date hereof and expiring on the second (2nd)
anniversary  hereof  (the  "Term"),  or until  the  employment  relationship  is
terminated pursuant to Section 4 hereof.

         2. DUTIES; EXCLUSIVE SERVICES AND BEST EFFORTS.

                  (a) DUTIES. Executive shall hold the position of Chief
Executive Officer and to serve in such position in accordance with the Company's
Articles of Incorporation and subject By-Laws and in accordance with the
ultimate control of the Board of Directors of the Company. As Chief Executive
Officer, the Executive will have the responsibility for general management of
the day to day business and affairs of the Company, as well as any duties
assigned to the Executive by the Board of Directors of the Company.

                  (b) EXCLUSIVE SERVICES AND BEST EFFORTS.  The Executive agrees
to devote his best efforts,  energies and skill to the  faithful,  competent and
diligent  discharge  of the  duties  and  responsibilities  attributable  to his
position,  and to this end,  will devote his fulltime  attention to the business
and affairs of the  Company.  The  Executive  also agrees that he shall not take
personal  advantage  of  any  business   opportunities  that  arise  during  his
employment  that may benefit the Company.  All  material  facts  regarding  such
opportunities must be promptly reported to the Board of Directors of the Company
for its consideration. In addition, the Company acknowledges and agrees that the
Executive  shall be  permitted  to engage  in and  pursue  such  contemporaneous
activities  and interests as the Executive  may desire,  for personal  profit or
otherwise,  provided  such  activities  do not  interfere  with the  Executive's
performance of his duties and obligations hereunder.

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         3.   COMPENSATION.   On  and  after  the  commencement  of  Executive's
employment,  the  Executive  shall  receive,  for all  services  rendered to the
Company hereunder, the following:

                  (a) BASE  SALARY.  The  Executive  shall be paid a base annual
salary equal to One Hundred Fifty Thousand Dollars  ($150,000).  The Executive's
annual base salary shall be payable in equal installments in accordance with the
Company's  general salary payment  policies but no less frequently than monthly.
Executive's Base Salary may be increased  annually,  or at such other intervals,
as the Board of Directors or Compensation Committee thereof shall determine from
time to time.

                  (b)  PERFORMANCE   BONUS.  In  addition  to  Base  Salary,   a
"Performance  Bonus"  in the  amount  of up to  $150,000  shall  be  awarded  to
Executive  based on the Company  achieving the "Financial  Performance  Targets"
identified below during the year ending December 31, 2003. The Performance Bonus
shall  be paid  in  quarterly  installments  (each  a  "Quarterly  Installment")
forty-five  (45)  days  after  the  end of  the  fiscal  quarter  to  which  the
Performance Bonus relates in the amounts set forth below:

<TABLE>
<CAPTION>
<S>                                                         <C>

------------------------------------------------------------ ---------------------------------------------------------

               FINANCIAL PERFORMANCE TARGET                              AMOUNT OF QUARTERLY INSTALLMENT

------------------------------------------------------------ ---------------------------------------------------------
Gross Revenue of $300,000  during  quarter ending March 31,                          $37,500
2003
------------------------------------------------------------ ---------------------------------------------------------
Gross Revenue of $400,000  during  quarter  ending June 30,                          $37,500
2003
------------------------------------------------------------ ---------------------------------------------------------
Gross Revenue of $650,000  during quarter ending  September                          $37,500
30, 2003
------------------------------------------------------------ ---------------------------------------------------------
Gross Revenue of $900,000  during quarter  ending  December                          $37,500
31, 2003
------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
In the event that the Company does not achieve the Financial  Performance Target
for the first calendar  quarter,  Executive shall be entitled to receive 100% of
the Quarterly  Installment payable with respect to the first calendar quarter in
the event that the  Company's  gross  revenue for the six months  ended June 30,
2003 equals or exceeds $700,000 or 50% of the Quarterly Installment payable with
respect to the first  calendar  quarter in the event that  either the  Company's
gross  revenue for the nine months  ended  September  30, 2003 equals or exceeds
$1,350,000 or the Company's  gross revenue for the twelve months ended  December
31, 2003 equals or exceeds  $2,250,000.  In the event that the Company  does not
achieve  the  Financial  Performance  Target  for the second  calendar  quarter,

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Executive shall be entitled to receive 50% of the Quarterly  Installment payable
with  respect  to the  second  calendar  quarter  in the event  that  either the
Company's  gross revenue for the nine months ended  September 30, 2003 equals or
exceeds  $1,350,000 or the  Company's  gross revenue for the twelve months ended
December  31, 2003 equals or exceeds  $2,250,000.  In the event that the Company
does not  achieve  the  Financial  Performance  Target  for the  third  calendar
quarter, Executive shall be entitled to receive 50% of the Quarterly Installment
payable  with  respect  to the third  calendar  quarter  in the  event  that the
Company's  gross revenue for the twelve months ended December 31, 2003 equals or
exceeds $2,250,000.

     (c) STOCK OPTIONS. Executive shall be granted subject to the terms of a
stock option agreement to be entered into by the Company and Executive in
substantially the form attached hereto as Exhibit A, a stock option to purchase
580,000 shares of the Company's Common Stock. The options shall vest in equal
quarterly installments over a twenty four (24) month period.

     (d) DISCRETIONARY BONUS. In addition to the Base Salary and Performance
Bonus, a "Discretionary Bonus" may be awarded to Executive on the basis of merit
performance on an annual basis in the sole discretion of the Board of Directors
or Compensation Committee thereof in the form of options to purchase up to an
additional 500,000 shares of Common Stock of the Company at an exercise price
equal to the closing market price of the Company's Common Stock on the date of
grant; PROVIDED, HOWEVER, that the failure of the Company to provide any
Discretionary Bonus shall not give rise to any claim against the Company. The
amount, if any, and timing of any Discretionary Bonus, shall be determined by
the Company in its sole discretion.

     (e) BENEFITS. Executive shall not be eligible to participate in any of the
Company's employee welfare or health benefit plans (including, but not limited
to, life insurance, health, medical and dental plans). In lieu of participating
in any such plans, the Company shall pay Executive $1,000 per month in
accordance with the Company's general salary payment policies but no less
frequently than monthly.

     (f) VACATION. The Executive shall be eligible for four (4) weeks of paid
vacation each year of his employment hereunder. The Executive shall be permitted
to carry over and accrue unused vacation time for a period of up to two years.

     (g) EXPENSES. Subject to and in accordance with the Company's policies and
procedures, and, upon presentation of itemized accounts, the Executive shall be
reimbursed by the Company for reasonable and necessary business-related
expenses, which expenses are incurred by the Executive on behalf of the Company.

     (h) DEDUCTIONS FROM SALARY AND BENEFITS. The Company will withhold from any
salary or benefits payable to the Executive all federal, state, local, and other
taxes and other amounts as required by law, rule or regulation.

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         4.  TERMINATION.  This  Agreement  may  be  terminated  by  either  the
Executive  or the Company at any time,  subject only to the  provisions  of this
Section 4.

                  (a) VOLUNTARY  TERMINATION.  If Executive  terminates  his own
employment,  the Company shall be released from any and all further  obligations
under  this  Agreement,  except  that  the  Company  shall be  obligated  to pay
Executive his salary and benefits owing to Executive  through the effective date
of termination.  Executive shall also be entitled to any  reimbursement  owed in
accordance with Section 3(h). Executive's obligations under Sections 5, 7, 8 and
9 hereof and shall  survive  the  termination  of  Executive's  employment,  and
Executive shall remain bound thereby.

                  (b) DEATH.  This Agreement  shall terminate on the date of the
Executive's death, in which event salary,  benefits,  and reimbursable  expenses
owing to the Executive  through the date of the Executive's  death shall be paid
to his estate.

                  (c) DISABILITY.  If, during the term of this Agreement, in the
opinion of the Company, the Executive,  because of physical or mental illness or
incapacity  or  disability,  shall  become  unable to  perform,  with or without
reasonable accommodation,  substantially all of the duties and services required
of him under this  Agreement  for a period one hundred  eighty (180) days during
any  twelve-month  period,  the Company  may,  upon at least ten (10) days prior
written notice given at any time after the expiration of such one hundred eighty
(180) day period,  notify the  Executive  of its  intention  to  terminate  this
Agreement as of the date set forth in the notice.  In case of such  termination,
the Executive shall be entitled to receive salary,  benefits,  and  reimbursable
expenses  owing to the Executive  through the date of  termination.  The Company
shall have no further obligation or liability to the Executive.  The Executive's
obligations  under Sections 5, 7 8 and 9 hereof shall survive the termination of
Executive's employment, and Executive shall remain bound thereby.

                  (d)  TERMINATION BY EMPLOYER FOR CAUSE.  This Agreement may be
terminated  by the Company for "Cause" at any time.  Upon such  termination  for
"Cause",  the  Company  shall be released  from any and all further  obligations
under this  Agreement,  except that the Company  shall be  obligated  to pay the
Executive his salary and benefits  owing to the Executive  through the effective
date  of  such  termination.  The  Executive  shall  also  be  entitled  to  any
reimbursement owed in accordance with Section 3(h). The Executive's  obligations
under Sections 5, 7, 8 and 9 hereof shall survive the termination of Executive's
employment, and Executive shall remain bound thereby.

                  Cause.  "Cause"  for  Termination  shall  include,  but is not
limited to, the following conduct of the Executive:

                           (i)  Breach  of  any   material   provision  of  this
Employment Agreement by the Executive
if not cured within two (2) weeks after receiving written notice thereof;

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                    (ii) Misconduct as an Executive of the Company, including
               but not limited to, misappropriating funds or property of the
               Company; any attempt to obtain any personal profit from any
               transaction in which the Executive has an interest that is
               adverse to the Company or any breach of the duty of loyalty and
               fidelity to the Company; or any other material act or omission of
               the Executive which substantially impairs the Company's ability
               to conduct its ordinary business in its usual manner;

                    (iii) Material neglect or refusal to perform the duties
               assigned to the Executive pursuant to this Employment Agreement
               if not cured within two (2) weeks after receiving notice thereof;

                    (iv) Conviction of a felony or plea of guilty or nolo
               contendere to a felony;

                    (v) Acts of dishonesty or moral turpitude by the Executive
               that are detrimental to the Company or any other act or omission
               which subjects the Company or any of its affiliates to public
               disrespect, scandal, or ridicule, or that causes the Company to
               be in violation of governmental regulations that subjects the
               Company either to sanctions by governmental authority or to civil
               liability to its Executives or third parties;

                    (vi) Disclosure or use of confidential information of the
               Company, other than as specifically authorized and required in
               the performance of the Executive's duties.

                  (e) TERMINATION BY EMPLOYER WITHOUT CAUSE. Upon termination of
this  Agreement  without  Cause,  the Company shall be released from any and all
further  obligations  under this  Agreement,  except that the Executive shall be
paid his Base Salary through the date of termination  and continue to be paid in
the same  manner as before  termination,  an amount  equal to his  monthly  Base
Salary for a period of time equal to the greater of (i) six (6) months; and (ii)
that number of months  remaining until the end of the Term, if, and only if, the
Executive signs a valid general  release of all claims against the Company,  its
affiliates,  subsidiaries, officers, directors and agents, in a form provided by
the Company.  The Company  shall have no further  obligation or liability to the
Executive.  The Executive's  obligations under Sections 5, 7, 8 and 9 hereof and
shall survive the termination of the Executive's  employment,  regardless of the
circumstances  of any such  termination,  and the  Executive  shall remain bound
thereby.

                (f) TERMINATION BY MUTUAL AGREEMENT.   This  Agreement  may  be
terminated at any time by mutual agreement of the Executive and the Company.

         5. NON-COMPETITION AND BUSINESS OPPORTUNITIES.

                  (a)  NON-COMPETITION.   The  Executive  understands  that  the
Company  is  in  the  business  of  developing   and   licensing   finger  print
identification  technologies,   and  distributing  products  incorporating  such
technologies,  to original equipment  manufacturers and end users. The Executive
agrees that during the period of his  employment  hereunder  and for a period of

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one (1) year  thereafter,  the Executive  will not directly or  indirectly:  (i)
market,  sell or  perform  services  such as are  offered  or  conducted  by the
Company, its affiliates and subsidiaries during the period of his employment, to
any customer or client of the Company or "Prospective Customer" or client of the
Company;  or (ii)  engage,  directly or  indirectly,  whether as principal or as
agent, officer,  director,  Executive,  consultant,  shareholder,  or otherwise,
alone or in association with any other person,  corporation or other entity,  in
any  "Competing  Business".  For the purpose of this Section  5(a)  "Prospective
Customer"  shall  mean any  person  with whom the  Company  has  engaged  in any
substantial  discussion  or  negotiation  regarding  the  use of  the  Company's
products or services.  For purposes of this Section 5(a), the term "shareholder"
shall exclude any interest  owned by Employer in a public  company to the extent
the Employer owns less than ten percent (10%) of any such company's  outstanding
common stock.  For the further  purposes of this Agreement,  the term "Competing
Business" shall mean any person,  corporation or other entity  developing and/or
licensing  finger print  identification  technologies or  distributing  products
incorporating such technologies, within the United States, to original equipment
manufacturers and end users at the time of such termination or non-renewal.  Due
to the  nature of the  markets  served and the  technology  and  products  to be
developed  and  marketed by the Company  which are intended to be available on a
national  basis,  the  restrictions  set forth in this  Section  5(a) can not be
limited to a specific geographic area within the United States.

                  (b) BUSINESS  OPPORTUNITIES.  The Executive agrees that during
the period of his  employment  hereunder,  the Executive  will not take personal
advantage  of any  business  opportunities  that are  similar  or  substantially
similar  to the  business  of the  Company.  In  addition,  all  material  facts
regarding any such business  opportunities  must be promptly and fully disclosed
by the  Executive  to the Board of Directors  as soon as the  Executive  becomes
aware of any  opportunity,  and in no event  later than  forty-eight  (48) hours
after  learning  of such  opportunity.  Business  opportunities  covered by this
Section 5(b) shall include,  but are not limited to,  opportunities  relating to
the development and licensing of finger print identification technologies or the
distribution of products  incorporating  such technologies to original equipment
manufacturers and end users.

                  (c)  NON-SOLICITATION.  The  Executive  agrees that during the
period of employment hereunder and for a period of one (1) year thereafter,  the
Executive will not request or otherwise attempt to induce or influence, directly
or indirectly,  any present  customer,  distributor or supplier,  or Prospective
Customer,  distributor or supplier,  of the Company,  or other persons sharing a
business  relationship  with the Company to cancel,  to limit or postpone  their
business  with the  Company,  or  otherwise  take  action  which might be to the
material  disadvantage  of the  Company.  The  Executive  agrees that during the
period of  employment  hereunder  and for a period  of one (1) year  thereafter,
Executive will not hire or solicit for  employment,  directly or indirectly,  or
induce or actively attempt to influence, hire or solicit, any Executive,  agent,
officer,  director,  contractor,  consultant or other business  associate of the
Company  to  terminate  his or  her  employment  or  discontinue  such  person's
consultant, contractor or other business association with the Company.

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                  (d) SCOPE. The parties hereto agree that, due to the nature of
the  Company's  business,  the  duration  and scope of the  non-competition  and
non-solicitation  provisions set forth above are  reasonable.  In the event that
any court  determines  that the duration or the geographic  scope,  or both, are
unreasonable  and that such  provisions  are to that extent  unenforceable,  the
parties hereto agree that such provisions  shall remain in full force and effect
for the greatest  time period and in the greatest  area that would not render it
unenforceable.  The parties intend that the non-competition and non-solicitation
provisions herein shall be deemed to be a series of separate covenants,  one for
each and every  county of each and every  state of the United  States of America
and each and every  political  subdivision of each and every country outside the
United States of America where this  provision is intended to be effective.  The
Executive  agrees that damages are an  inadequate  remedy for any breach of such
provisions  and that the  Company,  shall,  whether  or not it is  pursuing  any
potential  remedies  at law,  be  entitled  to seek in any  court  of  competent
jurisdiction,  equitable  relief  in  the  form  of  preliminary  and  permanent
injunctions  without bond or other security upon any actual or threatened breach
of either of these competition  provisions.  If the Executive shall violate this
Section 5, the  duration of this  Section 5  automatically  shall be extended as
against  the  Executive  for a  period  equal to the  period  during  which  the
Executive  shall  have  been in  violation  of this  Section  5.  The  covenants
contained  in this  Section  5 are  deemed to be  material  and the  Company  is
entering into this Agreement relying on such covenants.

         6.  REPRESENTATIONS  AND  WARRANTIES OF THE  EXECUTIVE.  The Executive,
hereby represents and warrants to the Company as follows:  (i) The Executive has
the legal capacity and unrestricted  right to execute and deliver this Agreement
and to perform all of his obligations hereunder; (ii) the execution and delivery
of this  Agreement  by the  Executive  and the  performance  of his  obligations
hereunder  will not violate or be in conflict  with any fiduciary or other duty,
instrument,  agreement,  document,  arrangement, or other understanding to which
Executive  is a party or by which he is or may be bound or  subject;  and  (iii)
except as set forth in Exhibit B attached  hereto,  the Executive is not a party
to any instrument, agreement, document, arrangement,  including, but not limited
to,  invention  assignment  agreement,   confidential   information   agreement,
non-competition  agreement,  non-solicitation  agreement, or other understanding
with any person  (other than the Company)  requiring or  restricting  the use or
disclosure of any  confidential  information or the provision of any employment,
consulting or other services.

           7. DISCLOSURE OF INNOVATIONS; ASSIGNMENT OF OWNERSHIP OF INNOVATIONS;
PROTECTION OF CONFIDENTIAL INFORMATION. Executive hereby represents and warrants
to the Company that Executive understands that the Company is in the business of
developing  and  licensing  finger  print   identification   technologies,   and
distributing  products  incorporating such  technologies,  to original equipment
manufacturers  and end users and that  Executive  may have  access to or acquire
information  with  respect  to  Confidential  Information  (as  defined  below),
including  software,  processes  and  methods,  development  tools,  scientific,
technical and/or business innovations.

     (a) DISCLOSURE OF INNOVATIONS. Executive agrees to disclose in writing to
the Company all inventions, improvements and other innovations of any kind that

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Executive may make, conceive, develop or reduce to practice, alone or jointly
with others, during the term of Executive's employment with the Company, whether
or not such inventions, improvements or other innovations are related to and
grow out of Executive's work for the Company and whether or not they are
eligible for patent, copyright, trademark, trade secret or other legal
protection ("Innovations"). Examples of Innovations shall include, but are not
limited to, discoveries, research, inventions, formulas, techniques, processes,
know-how, marketing plans, new product plans, production processes, advertising,
packaging and marketing techniques and improvements to computer hardware or
software.

     (b) ASSIGNMENT OF OWNERSHIP OF INNOVATIONS. Executive agrees that all
Innovations will be the sole and exclusive property of the Company and Executive
hereby assigns all of Executive's rights, title or interest in the Innovations
and in all related patents, copyrights, trademarks, trade secrets, rights of
priority and other proprietary rights to the Company. At the Company's request
and expense, during and after the period of Executive's employment with the
Company, Executive will assist and cooperate with the Company in all respects
and will execute documents, and, subject to Executive's reasonable availability,
give testimony and take further acts requested by the Company to obtain,
maintain, perfect and enforce for the Company patent, copyright, trademark,
trade secret and other legal protection for the Innovations. Executive hereby
appoints an authorized officer of the Company as Executive's attorney-in-fact to
execute documents on his behalf for this purpose. Executive has attached hereto
as Exhibit C a list of Innovations as of the date hereof which belong to
Executive and which are not assigned to the Company hereunder (the "Prior
Innovations"), or, if no such list is attached, Executive represents that there
are no Prior Innovations.

     (c) PROTECTION OF CONFIDENTIAL INFORMATION OF THE COMPANY. Executive
understands that Executive's work as an Executive of the Company creates a
relationship of trust and confidence between Executive and the Company. During
and after the period of Executive's employment with the Company, Executive will
not use or disclose or allow anyone else to use or disclose any "Confidential
Information" (as defined below) relating to the Company, its products, services,
suppliers or customers except as may be necessary in the performance of
Executive's work for the Company or as may be specifically authorized in advance
by appropriate officers of the Company. "Confidential Information" shall
include, but not be limited to, information consisting of research and
development, patents, trademarks and copyrights and applications thereto,
technical information, computer programs, software, methodologies, innovations,
software tools, know-how, knowledge, designs, drawings, specifications,
concepts, data, reports, processes, techniques, documentation, pricing,
marketing plans, customer and prospect lists, trade secrets, financial
information, salaries, business affairs, suppliers, profits, markets, sales
strategies, forecasts, Executive information and any other information not
available to the general public, whether written or oral, which Executive knows
or has reason to know the Company would like to treat as confidential for any
purpose, such as maintaining a competitive advantage or avoiding undesirable
publicity. Executive will keep Confidential Information secret and will not
allow any unauthorized use of the same, whether or not any document containing
it is marked as confidential. These restrictions, however, will not apply to
Confidential Information that has become known to the public generally through
no fault or breach of Executive's or that the Company regularly gives to third
parties without restriction on use or disclosure.

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         8.       WORK MADE FOR HIRE.

                  (a) WORK  MADE FOR  HIRE.  Executive  further  recognizes  and
understands that  Executive's  duties at the Company may include the preparation
of materials,  including without limitation  written or graphic  materials,  and
that any such materials conceived or written by Executive shall be done as "work
made for  hire" as  defined  and used in the  Copyright  Act of 1976,  17 U.S.C.
ss.ss.  1 ET SEQ.  In the  event of  publication  of such  materials,  Executive
understands  that  since the work is a "work made for hire",  the  Company  will
solely  retain  and own  all  rights  in  said  materials,  including  right  of
copyright.  In the event  that any of such  works  shall be deemed by a court of
competent  jurisdiction  not to be a "work made for hire," this Agreement  shall
operate as an  irrevocable  assignment by Executive to the Company of all right,
title and  interest in and to such works,  including,  without  limitation,  all
worldwide  copyright  interests  therein,  in  perpetuity.  The fact  that  such
copyrightable works are created by Executive outside of the Company's facilities
or other  than  during  Executive's  working  hours with the  Company  shall not
diminish the  Company's  right with respect to such works which  otherwise  fall
within this  paragraph.  Executive  agrees to execute and deliver to the Company
such  further  instruments  or  documents  as may be requested by the Company in
order to effectuate the purposes of this paragraph.

                  (b) DISCLOSURE OF WORKS AND  INVENTIONS/ASSIGNMENT OF PATENTS.
In consideration of the promises set forth herein,  Executive agrees to disclose
promptly to the  Company,  or to such  person  whom the  Company  may  expressly
designate  for  this  specific  purpose  (its  "Designee"),  any and all  works,
inventions,   discoveries  and  improvements  authored,  conceived  or  made  by
Executive  during the  period of  employment  and  related  to the  business  or
activities of the Company, and Executive hereby assigns and agrees to assign all
of  Executive's  interest in the  foregoing  to the Company or to its  Designee.
Executive  agrees  that,  whenever  he is  requested  to do so by  the  Company,
Executive  shall  execute  any  and  all  applications,   assignments  or  other
instruments  which the  Company  shall  deem  necessary  to apply for and obtain
Letters  Patent or Copyrights of the United States or any foreign  country or to
otherwise  protect  the  Company's  interest  therein.  Such  obligations  shall
continue  beyond the  termination  or  nonrenewal of  Executive's  employment or
service with respect to any works,  inventions,  discoveries and/or improvements
that are  authored,  conceived  of, or made by  Executive  during  the period of
Executive's  employment  or  service,  and  shall be  binding  upon  Executive's
successors,   assigns,   executors,   heirs,   administrators   or  other  legal
representatives.

         9. COMPANY PROPERTY.  All records,  files,  lists,  including  computer
generated lists, drawings, documents,  software,  documents,  equipment, models,
binaries, object modules,  libraries,  source code and similar items relating to
the  Company's  business  that the  Executive  shall prepare or receive from the
Company and all  Confidential  Information  shall remain the Company's  sole and
exclusive  property  ("Company  Business  Property").  Upon  termination of this
Agreement,  the Executive  shall promptly  return to the Company all property of

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the  Company  in  his  possession,  including  Company  Business  Property.  The
Executive further represents that he will not copy or cause to be copied,  print
out,  or cause to be printed  out any Company  Business  Property  other than as
specifically  authorized  and  required in the  performance  of the  Executive's
duties.  The Executive  additionally  represents  that, upon  termination of his
employment  with the  Company,  he will not  retain in his  possession  any such
Company  Business  Property;  PROVIDED,  HOWEVER,  that the  Executive  shall be
entitled to inspect,  copy and retain copies of documents in any personnel  file
relating to his employment which is maintained by the Company.

         10.  COOPERATION.  The Executive and Company agree that during the term
of Executive's  employment they shall, at the request of the other Party, render
all assistance and perform all lawful acts that each Party  considers  necessary
or advisable in connection  with any  litigation  involving  either Party or any
director, officer, Executive,  shareholder,  agent, representative,  consultant,
client, or vendor of the Company. Executive shall be entitled to all protections
afforded  officers,  agents  and  directors  under  the  Company's  Articles  of
Incorporation  and Bylaws.  The Company shall  maintain a Directors and Officers
Liability Insurance Policy.

         11.  EMPLOYMENT  DISPUTE  SETTLEMENT  PROCEDURE/WAIVER  OF RIGHTS.  The
Executive  and the Company  each agree that,  in the event  either party (or its
representatives, successors or assigns) brings an action in a court of competent
jurisdiction  relating  to the  Executive's  recruitment,  employment  with,  or
termination of employment from the Company,  each party in such action agrees to
waive  his,  her or its right to a trial by jury,  and  further  agrees  that no
demand, request or motion will be made for trial by jury.

The parties  hereto further agree that, in the event that either seeks relief in
a court of competent  jurisdiction for a dispute covered by this Agreement,  any
other  Agreement  between the  Executive and the Company or which relates to the
Executive's recruitment,  employment with, or termination of employment from the
Company, the defendant or third-party  defendant in such action may, at any time
within sixty (60) days of the service of the complaint, third-party complaint or
cross-claim  upon such party, at his, her or its option,  require all or part of
the dispute to be arbitrated by one  arbitrator in accordance  with the rules of
the  American  Arbitration  Association.  The  parties  agree that the option to
arbitrate  any dispute is governed by the Federal  Arbitration  Act. The parties
understand and agree that, if the other party  exercises his, her or its option,
any dispute  arbitrated  will be heard  solely by the  arbitrator,  and not by a
court. Judgment upon the award rendered, however, may be entered in any court of
competent  jurisdiction.  The cost of such arbitration shall be borne equally by
the parties.

This dispute resolution  agreement will cover all matters directly or indirectly
related to the Executive's recruitment,  employment or termination of employment
by the Company;  including,  but not limited to, claims  involving  laws against
discrimination  whether brought under federal and/or state law and/or local law,
and/or  claims  involving  co-Executives  but  excluding  Worker's  Compensation
Claims.  Nothing  contained  in this  Section  11 shall  limit  the right of the
Company to enforce by court injunction or other equitable relief the Executive's
obligations under Sections 5, 7, 8 and 9 hereof.

                                       10
<PAGE>

The right to a trial,  and to a trial by jury,  is of value.

          THE EXECUTIVE MAY WISH TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS
          AGREEMENT. IF SO, THE EXECUTIVE SHOULD TAKE A COPY OF THIS AGREEMENT
          WITH HIM. HOWEVER, THE EXECUTIVE WILL NOT BE OFFERED EMPLOYMENT UNTIL
          THIS AGREEMENT IS SIGNED AND RETURNED TO EMPLOYER.

         12. CHOICE OF LAW AND JURISDICTION.  This Agreement shall be construed,
interpreted and the rights of the parties determined in accordance with the laws
of the  State  of  Minnesota.  Each of the  parties  hereto  hereby  irrevocably
consents and submits to the  exclusive  jurisdiction  of the state courts of the
State of Minnesota,  and of the United States District Court for the District of
Minnesota in connection with any suit,  action,  or other proceeding  concerning
this Agreement or  enforcement  of Sections 5, 7, 8 and 9 hereof.  The Executive
waives and agrees not to assert any defense  that the court lacks  jurisdiction,
venue is improper,  inconvenient  forum or otherwise.  The Executive  waives the
right to a jury trial and agrees to accept  service of process by certified mail
at the Executive's last known address.

         13.  SUCCESSORS  AND ASSIGNS.  Neither this  Agreement,  nor any of the
Executive's rights, powers, duties or obligations hereunder,  may be assigned by
the Executive.  This Agreement shall be binding upon and inure to the benefit of
the  Executive and his heirs and legal  representatives  and the Company and its
successors.  Successors of the Company shall include,  without  limitation,  any
company or companies,  individuals,  groups, associations,  partnerships,  firm,
venture or other  entity or party  acquiring,  directly  or  indirectly,  all or
substantially   all  of  the   assets  of  the   Company,   whether  by  merger,
consolidation,  purchase,  lease or otherwise. Any such successor referred to in
this paragraph shall  thereafter be deemed "the Company" for the purpose hereof.
All covenants and restrictions upon the Executive hereunder,  including, but not
limited to Sections 5, 7, 8 and 9 hereof,  are  specifically  assignable  by the
Company.

         14. WAIVER.  Any waiver or consent from the Company with respect to any
term or  provision  of this  Agreement  or any other  aspect of the  Executive's
conduct or employment  shall be effective only in the specific  instance and for
the  specific  purpose  for which given and shall not be deemed,  regardless  of
frequency given, to be a further or continuing waiver or consent. The failure or
delay of the  Company  at any time or times to  require  performance  of,  or to
exercise  any of its  powers,  rights or  remedies  with  respect to any term or
provision of this  Agreement or any other aspect of the  Executive's  conduct or
employment in no manner (except as otherwise  expressly  provided  herein) shall
affect  the  Company's  right  at a  later  time to  enforce  any  such  term or
provision.

         15. NOTICES. All notices,  requests,  demands, and other communications
hereunder  must be in  writing  and shall be  deemed to have been duly  given if
delivered by hand or mailed within the continental United States by first class,
registered mail, return receipt requested, postage and registry fees prepaid, to
the applicable party and addressed as follows:

                                       11
<PAGE>

                  (a)      If to the Company:

                           BIO-key International, Inc.
                           1285 Corporate Center Drive, Suite 175
                           Eagan, MN 55121
                           Attn:  Board of Directors
                           With a copy to:

                           Buchanan Ingersoll Professional Corporation
                           Eleven Penn Center
                           1845 Market Street
                           Philadelphia, PA   19103
                           Attn:  Vincent A. Vietti, Esquire

                  (b)      If to the Executive:

                           Michael W. DePasquale
                           704 Michael Drive
                           Toms River, NJ 08753

         16. Construction of Agreement.

                  (a)  SEVERABILITY.  In the  event  that any one or more of the
provisions  of  this  Agreement  shall  be  held  to  be  invalid,   illegal  or
unenforceable,  the  validity,  legality  or  enforceability  of  the  remaining
provisions shall not in any way be affected or impaired thereby.

                  (b)  HEADINGS.   The  descriptive   headings  of  the  several
paragraphs of this Agreement are inserted for  convenience of reference only and
shall not constitute a part of this Agreement.

     17. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement, including all Exhibits
which shall form parts hereof, contains the entire agreement of the parties
concerning the Executive's employment and all promises, representations,
understandings, arrangements and prior agreements on such subject are merged
herein and superseded hereby. The provisions of this Agreement may not be
amended, modified, repealed, waived, extended or discharged except by an
agreement in writing signed by the party against whom enforcement of any
amendment, modification, repeal, waiver, extension or discharge is sought. No
person acting other than pursuant to a resolution of the Board of Directors
shall have authority on behalf of the Company to agree to amend, modify, repeal,
waive, extend or discharge any provision of this Agreement or anything in
reference thereto or to exercise any of the Company's rights to terminate or to
fail to extend this Agreement.

                                       12
<PAGE>

     18. SURVIVAL. The Executive's obligations under Paragraphs 5, 7, 8 and 9
shall survive and continue pursuant to the terms and conditions of this
Agreement following specific termination.

     19. UNDERSTANDING. The Executive represents and agrees that he fully
understands his rights to discuss all aspects of this Agreement with his private
attorney, that to the extent he desires, he availed himself of this right, that
he has carefully read and fully understands all of the provisions of this
Agreement, that he is competent to execute this Agreement, that his decision to
execute this Agreement has not been obtained by any duress and that he freely
and voluntarily enters into this Agreement, and that he has read this document
in its entirety and fully understands the meaning, intent, and consequences of
this Agreement.

     20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.

     21. INJUNCTIVE RELIEF. The Executive hereby agrees and acknowledges that in
the event of a breach or threatened breach of this Agreement by the Executive,
the Company may suffer irreparable harm and monetary damages alone would not
adequately compensate the Company. Accordingly, the Company will therefore be
entitled to injunctive relief to enforce this Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       13
<PAGE>

         IN WITNESS  WHEREOF,  the  Company  has  caused  this  Agreement  to be
executed and attested by its duly authorized officers, and the Executive has set
his hand, all as of the day and year first above written.

                               BIO-KEY INTERNATIONAL, INC.

                               By:    /S/ THOMAS J. COLATOSTI
                                     --------------------------------------
                               Name:  THOMAS J. COLATOSTI
                                     --------------------------------------
                               Title: CHAIRMAN OF THE BOARD OF DIRECTORS
                                     --------------------------------------

                               EXECUTIVE

                                       /S/ MICHAEL W. DEPASQUALE
                                      ------------------------------------
                                       Michael W. DePasquale

                                       14
<PAGE>
<TABLE>
<CAPTION>

                                    EXHIBIT B

         LIST OF PRIOR CONFIDENTIALITY AND/OR NONCOMPETITION AGREEMENTS

     COMPANY;                    DATE OF EMPLOYMENT;
 COMPANY ADDRESS             EFFECTIVE DATES OF AGREEMENT      BRIEF DESCRIPTION
--------------------------- -------------------------------  -------------------------
<S>                              <C>                            <C>

   PRISM ESOLUTIONS          FEBRUARY 2001- AUGUST 2002        CONFIDENTIALITY AND NON
   512 TOWNSHIP LINE ROAD                                      SOLICITATION AGREEMENT
   BLUE BELL, PA                                               ONE YEAR POST EMPLOYMENT
                                                               ISO 9000/14000 WEB
                                                               TECHNOLOGIES

   Date: ________________
                                                              -----------------------------------------------------
                                                              Executive's Signature

</TABLE>

<PAGE>

                                    EXHIBIT C

                               PRIOR INNOVATIONS:

                                      NONE.

<PAGE><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>

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