Document:

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EXHIBIT 10.21

                                                             THOMAS J. COLATOSTI
                                                             -------------------
                                                                  Optionee
                           BIO-KEY INTERNATIONAL, INC.
                           ---------------------------

                      NON-QUALIFIED STOCK OPTION AGREEMENT
                                    UNDER THE
                           BIO-KEY INTERNATIONAL, INC.
                             1999 STOCK OPTION PLAN

     This Agreement is made as of the date set forth on Schedule A hereto (the
"Grant Date") by and between Bio-key International, Inc., a Minnesota
corporation (the "Corporation"), and the person named on Schedule A hereto (the
"Optionee").

     WHEREAS, Optionee is a valuable member of the Corporation's Board of
Directors and the Corporation considers it desirable and in its best interest
that Optionee be given an inducement to acquire a proprietary interest in the
Corporation and an incentive to advance the interests of the Corporation by
granting the Optionee an option to purchase shares of common stock of the
Corporation (the "Common Stock");

     NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree that as of the Grant Date, the Corporation hereby grants Optionee an
option to purchase from it, upon the terms and conditions set forth in the
Corporation's 1999 Stock Option Plan, as amended from time to time (the "Plan"),
a copy of which is attached hereto, that number of shares of the authorized and
unissued Common Stock of the Corporation as is set forth on Schedule A hereto.

    1.     Terms of Stock Option.  The option to purchase Common Stock granted
       ---------------------
hereby is subject to the terms, conditions, and covenants set forth in the Plan
as well as the following:

     (a)  This option shall constitute a Non-Qualified Stock Option which is not
          intended to qualify under Section 422 of the Internal Revenue Code of
          1986, as amended;

     (b)  The per share exercise price for the shares subject to this option
          shall be the Fair Market Value (as defined in the Plan) of the Common
          Stock on the Grant Date, which exercise price is set forth on Schedule
          A hereto;

     (c)  This option shall vest in accordance with the vesting schedule set
          forth on Schedule A hereto; and

     (d)  No portion of this option may be exercised more than seven (7) years
          from the Grant Date.

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   2.    Payment of Exercise Price.  The option may be exercised, in part or in
        -------------------------
whole, only by written request to the Corporation accompanied by payment of the
exercise price in full either:  (i) in cash for the shares with respect to which
it is exercised; (ii) by delivering to the Corporation a notice of exercise
with an irrevocable direction to a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, to sell a sufficient portion of the shares and
deliver the sale proceeds directly to the Corporation to pay the exercise price;
or (iii) in the discretion of the Plan Administrator, by delivering previously
owned shares of Common Stock or a combination of shares and cash having an
aggregate Fair Market Value (as defined in the Plan) equal to the exercise price
of the shares being purchased; provided, however, that shares of Common Stock
                               --------- -------
delivered by the Optionee may be accepted as full or partial payment of the
exercise price for any exercise of the option hereunder only if the shares have
been held by the Optionee for at least six (6) months.

   3.    Miscellaneous.
         -------------

     (a)  This Agreement is binding upon the parties hereto and their respective
          heirs, personal representatives, successors and assigns.

     (b)  This Agreement will be governed and interpreted in accordance with the
          laws of the State of Minnesota, and may be executed in more than one
          counterpart, each of which shall constitute an original document.

     (c)  No alterations, amendments, changes or additions to this agreement
          will be binding upon either the Corporation or Optionee unless reduced
          to writing and signed by both parties.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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     In witness whereof, the parties have executed this Agreement as of the
Grant Date.
                         BIO  KEY  INTERNATIONAL,  INC.

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

                         OPTIONEE

                         /s/  Thomas  J.Colatosti
                         ---------------------------------

                                        3

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                                   SCHEDULE A

1.  Optionee:  Thomas J. Colatosti

2.  Grant Date:  September 5, 2002

3.  Number of Shares of Common Stock covered by the Option:  200,000

4.  Exercise Price (Fair Market Value of Common Stock on the Grant Date):  $.33

5.  The Option shall vest in accordance with the following schedule:

     Options vest in equal installments of 25,000 per calendar quarter over a
     two (2) year period commencing September 5, 2002.

                         /s/ G.W.
                         --------------------------------------
                         Initials of Authorized
                         Officer of BIO KEY INTERNATIONAL, INC.

                         /s/ T.J.C.
                         --------------------------------------
                         Optionee's Initials

                                        4

<PAGE><PAGE>

         EXHBIIT 10.22

         THE SECURITIES  EVIDENCED BY THIS  CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE  SECURITIES  ACT OF 1933,  AS  AMENDED,  AND MAY NOT BE SOLD,
         TRANSFERRED,  ASSIGNED OR  HYPOTHECATED  UNLESS  THERE IS AN  EFFECTIVE
         REGISTRATION  STATEMENT  UNDER 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 THESE  SECURITIES,  REASONABLY
         SATISFACTORY  TO  THE  COMPANY,   STATING  THAT  SUCH  SALE,  TRANSFER,
         ASSIGNMENT  OR  HYPOTHECATION  IS  EXEMPT  FROM  THE  REGISTRATION  AND
         PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

                         OPTION TO PURCHASE COMMON STOCK
                                       OF
                           BIO-KEY INTERNATIONAL, INC.
                          Void after September 4, 2009

         This  certifies   that,  for  value   received,   THOMAS  J.  COLATOSTI
("Holder"), is entitled,  subject to the terms set forth below, to purchase from
BIO-KEY INTERNATIONAL,  INC., a Minnesota corporation (the "Company"), shares of
the common stock, $.01 par value per share, of the Company ("Common Stock"),  as
constituted  on the date hereof (the "Option  Issue  Date"),  with the Notice of
Exercise  attached hereto duly executed,  and  simultaneous  payment therefor in
lawful money of the United States or as otherwise  provided in Section 3 hereof,
at the Exercise Price then in effect.  The number,  character and Exercise Price
of the shares of Common  Stock  issuable  upon  exercise  hereof are  subject to
adjustment as provided herein.

         1. TERM OF OPTION.  Subject to compliance  with the vesting  provisions
identified at Section 2.3 hereof, this Option shall be exercisable,  in whole or
in part,  during the term commencing on the Option Issue Date and ending at 5:00
p.m. CST on September 4, 2009 (the "Option  Expiration  Date") and shall be void
thereafter.

         2. NUMBER OF SHARES, EXERCISE PRICE AND VESTING PROVISIONS.

                  2.1  NUMBER OF SHARES.  The  number of shares of Common  Stock
which may be  purchased  pursuant  to this Option  shall be 150,000  shares (the
"Shares"), subject, however, to adjustment pursuant to Section 11 hereof.

                  2.2 EXERCISE  PRICE.  The Exercise Price at which this Option,
or  portion  thereof,  may be  exercised  shall be $0.33(1) per Share,  subject,
however, to adjustment pursuant to Section 11 hereof.

--------
1 The last sale  price of the  Company's  common  stock as  reported  on the OTC
Bulletin Board on the date of grant.

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     2.3  VESTING.  This  Option  shall vest in  accordance  with the  following
schedule:

                  Options  vest in  equal  installments  of  37,500  shares  per
                  calendar  quarter  over  a  one  (1)  year  period  commencing
                  September 5, 2002.

         3. .EXERCISE OF OPTION.

                  3.1 PAYMENT OF EXERCISE  PRICE.  Subject to the terms  hereof,
the purchase rights  represented by this Option are exercisable by the Holder in
whole or in part,  at any time,  or from time to time,  by the surrender of this
Option and the Notice of Exercise  annexed hereto duly completed and executed on
behalf of the  Holder,  at the office of the  Company  (or such other  office or
agency of the Company as it may  designate by notice in writing to the Holder at
the address of the Holder appearing on the books of the Company)  accompanied by
payment of the Exercise Price in full either (i) in cash or by bank or certified
check for the Shares  with  respect to which this Option is  exercised;  (ii) by
delivery to the Company of shares of the  Company's  Common  Stock having a Fair
Market Value (as defined  below) equal to the  aggregate  Exercise  Price of the
Shares being  purchased  which Holder is the record and beneficial  owner of and
which  have been held by the  Holder  for at least six (6)  months;  or (iii) by
delivering  to the Company a Notice of  Exercise  together  with an  irrevocable
direction to a  broker-dealer  registered  under the Securities  Exchange Act of
1934,  as amended (the  "Exchange  Act"),  to sell a  sufficient  portion of the
Shares  and  deliver  the sales  proceeds  directly  to the  Company  to pay the
Exercise  Price;  or (iv) by any  combination  of the  procedures  set  forth in
subsections (i), (ii) and (iii) of this Section 3.1.

                  3.2 FAIR MARKET VALUE.  If  previously  owned shares of Common
Stock are  tendered as payment of the Exercise  Price,  the value of such shares
shall be the "Fair Market Value" of such shares on the trading date  immediately
preceding  the date of exercise.  For the purpose of this  Agreement,  the "Fair
Market Value" shall be:

                           (a) If the Common  Stock is admitted to  quotation on
the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"),  the Fair Market Value
on any given  date  shall be the  average of the  highest  bid and lowest  asked
prices of the  Common  Stock as  reported  for such date or, if no bid and asked
prices were  reported for such date,  for the last day  preceding  such date for
which such prices were reported;

                           (b) If the Common  Stock is  admitted to trading on a
United States securities exchange or the NASDAQ National Market System, the Fair
Market  Value on any date shall be the  closing  price  reported  for the Common
Stock on such exchange or system for such date or, if no sales were reported for

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such date,  for the last day preceding  such date for which a sale was reported.
Notwithstanding the foregoing,  the Fair Market Value of the Common Stock on the
effective date of the Initial Public  Offering (as defined in Section 7.2) shall
be the offering price to the public of the Common Stock on such date;

                           (c)  If  the   Common   Stock   is   traded   in  the
over-the-counter  market and not on any national  securities exchange nor in the
NASDAQ Reporting System,  the Fair Market Value shall be the average of the mean
between  the last bid and ask prices  per share,  as  reported  by the  National
Quotation Bureau,  Inc., or an equivalent  generally accepted reporting service,
or if not so  reported,  the average of the  closing bid and asked  prices for a
share as furnished to the Company by any member of the National  Association  of
Securities Dealers, Inc., selected by the Company for that purpose; or

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

If the tender of previously  owned shares would result in an issuance of a whole
number of Shares  and a  fractional  Share of  Common  Stock,  the value of such
fractional share shall be paid to the Company in cash or by check by the Holder.

        3.3.   TERMINATION OF STATUS AS A DIRECTOR; DEATH.

                    (a)  If Holder shall cease to serve as a member of the Board
of  Directors of the  Company,  all Options to which Holder is then  entitled to
exercise  may be  exercised  only  within  ninety (90) days after such event and
prior to the Option Termination Date.

                    (b)  If Holder  shall die while  serving  as a member of the
Board of Directors of the Company and prior to the Option  Termination Date, any
Options  then  exercisable  may be  exercised  only  within  one (1) year  after
Holder's death,  prior to the Option  Termination  Date and only by the Holder's
personal  representative  or persons entitled thereto under the Holder's will or
the laws of descent and distribution.

                   (c) This Option may not be exercised for more Shares (subject
to  adjustment as provided in Section 11 hereof) after Holder ceases to serve as
a member of the Board of Directors of the Company or death,  as the case may be,
than  the  Holder  was  entitled  to  purchase  thereunder  at the  time  of the
termination of Holder's status as a member of the Board of Directors or death.

                  3.4 EXERCISE DATE; DELIVERY OF CERTIFICATES. This Option shall
be deemed to have been exercised  immediately  prior to the close of business on
the date of its  surrender for exercise as provided  above,  and Holder shall be
treated for all  purposes as the holder of record of such Shares as of the close
of business on such date. As promptly as  practicable  on or after such date and
in any event within ten (10) days  thereafter,  the Company at its expense shall
issue and deliver to the Holder a certificate or certificates  for the number of
Shares  issuable upon such exercise.  In the event that this Option is exercised
in part,  the  Company at its expense  will  execute and deliver a new Option of
like tenor  exercisable  for the number of shares for which this Option may then
be exercised.

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         4.       NO  FRACTIONAL  SHARES OR SCRIP. No fractional shares or scrip
representing 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 by
such fraction.

         5.       REPLACEMENT  OF  OPTION.  On receipt  of  evidence  reasonably
satisfactory  to the Company of the loss,  theft,  destruction  or mutilation of
this Option and, in the case of loss,  theft or  destruction,  on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Option, the
Company at its expense shall execute and deliver,  in lieu of this Option, a new
Option of like tenor and amount.

         6.       RIGHTS  OF  STOCKHOLDER.   Except  as  otherwise  contemplated
herein,  the Holder  shall not be  entitled to vote or receive  dividends  or be
deemed the holder of Common  Stock or any other  securities  of the Company that
may at any time be issuable on the exercise  hereof for any  purpose,  nor shall
anything  contained herein be construed to confer upon the Holder,  as such, any
of the  rights  of a  stockholder  of the  Company  or any right to vote for the
election  of  directors  or upon any matter  submitted  to  stockholders  at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization,  issuance of stock, reclassification of stock, change
of par  value,  or  change  of stock  to no par  value,  consolidation,  merger,
conveyance  or  otherwise)  or to  receive  notice of  meetings,  or to  receive
dividends or  subscription  rights or otherwise until the Option shall have been
exercised as provided 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 descent
and distribution.  Any attempted assignment,  transfer, pledge, hypothecation or
other disposition of this Option contrary to the provisions hereof, and the levy
of an execution,  attachment,  or similar process upon the Option, shall be null
and void and without effect.

                  7.2.   COMPLIANCE  WITH  SECURITIES   LAWS;   RESTRICTIONS  ON
TRANSFERS. In addition to restrictions on transfer of this Option and Shares set
forth in Section 7.1 above.

                           (a) The Holder of this Option, by acceptance  hereof,
acknowledges  that this Option and the Shares to be issued upon exercise  hereof
are being acquired  solely for the Holder's own account 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 Holder will not offer, sell
or  otherwise  dispose of any Shares to be issued upon  exercise  hereof  except
under  circumstances  that will not result in a violation of applicable  federal
and state  securities  laws. Upon exercise of this Option,  the Holder shall, if

                                       4
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requested  by the Company,  confirm in writing,  in a form  satisfactory  to the
Company,  that the Shares of Common Stock so purchased are being acquired solely
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 an effective
prospectus), and not with a view toward distribution or resale.

                           (b) Neither this Option nor any share of Common Stock
issued  upon  exercise  of this  Option  may be  offered  for sale or  sold,  or
otherwise  transferred or sold in any transaction  which would constitute a sale
thereof  within the meaning of the 1933 Act,  unless (i) such  security has been
registered  for sale  under  the  1933 Act and  registered  or  qualified  under
applicable  state  securities  laws relating to the offer an sale of securities;
(ii)  exemptions  from  the  registration  requirements  of the 1933 Act and the
registration or qualification requirements of all such state securities laws are
available and the Company shall have received an opinion of counsel satisfactory
to the Company that the proposed sale or other  disposition  of such  securities
may be effected without  registration under the 1933 Act and would not result in
any  violation  of  any  applicable   state  securities  laws  relating  to  the
registration  or  qualification  of securities  for sale,  such counsel and such
opinion to be satisfactory to the Company.

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

         THE SECURITIES  EVIDENCED BY THIS  CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE  SECURITIES  ACT OF 1933,  AS  AMENDED,  AND MAY NOT BE SOLD,
         TRANSFERRED,  ASSIGNED OR  HYPOTHECATED  UNLESS  THERE IS AN  EFFECTIVE
         REGISTRATION  STATEMENT  UNDER 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 THESE  SECURITIES,  REASONABLY
         SATISFACTORY  TO  THE  COMPANY,   STATING  THAT  SUCH  SALE,  TRANSFER,
         ASSIGNMENT  OR  HYPOTHECATION  IS  EXEMPT  FROM  THE  REGISTRATION  AND
         PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

                  (d) Holder  recognizes  that  investing  in the Option and the
Shares involves a high degree of risk, and Holder is in a financial  position to
hold the  Option and the Shares  indefinitely  and is able to bear the  economic
risk and  withstand  a  complete  loss of its  investment  in the Option and the
Shares. The Holder is a sophisticated  investor and is capable of evaluating the
merits and risks of investing in the Company.  The Holder has had an opportunity
to discuss the Company's  business,  management  and financial  affairs with the
Company's  management,  has been given full and complete  access to  information
concerning the Company, and has utilized such access to its satisfaction for the
purpose  of  obtaining  information  or  verifying  information  and has had the
opportunity to inspect the Company's  operation.  Holder has had the opportunity
to ask questions of, and receive answers from the management of the Company (and
any person  acting on its behalf)  concerning  the Option and the Shares and the
agreements and transactions  contemplated  hereby,  and to obtain any additional
information as Holder may have requested in making its investment decision.

                                       5
<PAGE>

                  (e) Holder  acknowledges and represents:  (i) that he has been
afforded the  opportunity to review and is familiar with the business  prospects
and finances of the Company and has based his  decision to invest  solely on the
information  contained  therein  and has  not  been  furnished  with  any  other
literature,  prospectus or other information except as included in such reports;
(ii) he is at least 21 years of age;  (iii) he has  adequate  means of providing
for his  current  needs  and  personal  contingencies;  (iv) he has no need  for
liquidity  for his  investment  in the Option or Shares;  (v) he  maintains  his
domicile  and is not a  transient  or  temporary  resident at the address on the
books and records of the Company; (vi) all of his investments and commitments to
non-liquid  assets and similar  investments  are,  after his  acquisition of the
Option and Shares,  will be  reasonable in relation to his net worth and current
needs;  (vii) he  understands  that no federal or state  agency has  approved or
disapproved the Option or Shares or made any finding or  determination as to the
fairness of the Option and Common Stock for investment; and (viii) he recognizes
that the Common Stock is not presently  eligible for public trading and that the
Company has made no representations,  warranties, or assurances as to the future
trading value of the Common Stock,  whether a public market will develop for the
resale of the Common Stock, or if developed whether it will continue.

         8.       RESERVATION AND ISSUANCE OF STOCK; PAYMENT OF TAXES.

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

                  (b) The Company  further  covenants  that all shares of Common
Stock  issuable upon the due exercise of this Option will be free and clear from
all taxes or liens,  charges and security  interests created by the Company with
respect to the issuance thereof,  however, the Company shall not be obligated or
liable for the  payment of any taxes,  liens or charges of Holder,  or any other
party  contemplated  by Section 7, incurred in  connection  with the issuance of
this  Option or the  Common  Stock upon the due  exercise  of this  Option.  The
Company agrees that its issuance of this Option shall  constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Common Stock upon
the exercise of this Option.  The Common Stock issuable upon the due exercise of
this Option,  will, upon issuance in accordance  with the terms hereof,  be duly
authorized, validly issued, fully paid and non-assessable.

                  (c) Upon  exercise of the Option,  the Company  shall have the
right to require  the Holder to remit to the  Company  an amount  sufficient  to
satisfy  federal,  state  and local tax  withholding  requirements  prior to the
delivery of any certificate for Shares of Common Stock purchased pursuant to the
Option, if in the opinion of counsel to the Company such withholding is required
under applicable tax laws.

                  (d) If  Holder  is  obligated  to pay the  Company  an  amount
required to be withheld under  applicable tax withholding  requirements  may pay
such amount (i) in cash; (ii) in the discretion of the Board of Directors of the
Company,  through  the  delivery to the  Company of  previously-owned  shares of
Common Stock having an aggregate  Fair Market Value equal to the tax  obligation

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provided  that the  previously  owned shares  delivered in  satisfaction  of the
withholding  obligations  must have been held by the Holder for at least six (6)
months;  (iii) in the  discretion  of the  Board of  Directors  of the  Company,
through the  withholding  of Shares of Common  Stock  otherwise  issuable to the
Holder in connection with the Option exercise;  or (iv) in the discretion of the
Board of Directors of the Company,  through a combination  of the procedures set
forth in subsections (i), (ii) and (iii) of this Section 8(d).

         9.       NOTICES.

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

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

                           If to the Company:

                           BIO-key International, Inc.
                           1285 Corporate Center Drive
                           Suite 175
                           Eagan, MN 55121

                           With a copy to:

                           Buchanan Ingersoll Professional Corporation
                           11 Penn Center, 14th Floor
                           1835 Market Street
                           Philadelphia, Pa.  19103
                           Attn.:  Vincent A. Vietti, Esquire

                           and to the Holder:

                           Thomas J. Colatosti
                           188 East Emerson Road
                           Lexington, MA 02420

                                       7
<PAGE>

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

         10.      AMENDMENTS.

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

                  (b) No waivers of, or  exceptions  to, any term,  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 any such term,  condition or
provision.

         11.      ADJUSTMENTS.  The number of Shares of Common Stock purchasable
hereunder and the Exercise Price is subject to adjustment from time to time upon
the occurrence of certain events, as follows:

                  11.1. REORGANIZATION, MERGER OR SALE OF ASSETS. If at any time
while this Option,  or any portion  thereof,  is outstanding and unexpired there
shall  be (i) a  reorganization  (other  than a  combination,  reclassification,
exchange or  subdivision  of shares  otherwise  provided for herein);  or (ii) a
merger or  consolidation  of the  Company in which the  shares of the  Company's
capital  stock  outstanding  immediately  prior to the merger are  converted  by
virtue of the merger  into other  property,  whether in the form of  securities,
cash  or  otherwise,  then,  as  a  part  of  such  reorganization,  merger,  or
consolidation,  lawful provision shall be made so that the holder of this Option
shall upon such  reorganization,  merger,  or  consolidation,  have the right by
exercising  such  Option,  to  purchase  the kind and number of shares of Common
Stock or other securities or property (including cash) otherwise receivable upon
such reorganization, merger or consolidation by a holder of the number of shares
of Common  Stock that might have been  purchased  upon  exercise  of such Option
immediately prior to such reorganization, merger or consolidation. The foregoing
provisions   of  this  Section  11.1  shall   similarly   apply  to   successive
reorganizations,  consolidations  or  mergers.  If the  per-share  consideration
payable to the Holder hereof for shares in connection with any such  transaction
is in a form other than cash or  marketable  securities,  then the value of such
consideration  shall  be  determined  in good  faith by the  Company's  Board of
Directors. In all events, appropriate adjustment (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 respect to the rights and interests of the Holder
after the  transaction,  to the end that the  provisions of this Option shall be
applicable  after that event,  as near as reasonably  may be, in relation to any
shares or other  property  deliverable  after that event upon  exercise  of this
Option.

                  11.2. RECLASSIFICATION. If the Company, at any time while this
Option,  or  any  portion  thereof,   remains  outstanding  and  unexpired,   by
reclassification of securities or otherwise,  shall change any of the securities
as to which purchase rights under this Option exist into the same or a different
number of securities of any other class or classes, this Option shall thereafter
represent  the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the  securities  that
were subject to the purchase rights under this Option  immediately prior to such
reclassification  or other  change  and the  Exercise  Price  therefor  shall be
appropriately  adjusted,  all subject to further  adjustment as provided in this
Section 11.

                                       8
<PAGE>

                  11.3.  SPLIT,  SUBDIVISION OR  COMBINATION  OF SHARES.  If the
Company  at any  time  while  this  Option,  or  any  portion  thereof,  remains
outstanding and unexpired shall split, subdivide or combine the securities as to
which  purchase  rights  under this Option  exist,  into a  different  number of
securities  of the same  class,  the  Exercise  Price  and the  number of shares
issuable upon exercise of this Option shall be proportionately adjusted.

                  11.4.  ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER  SECURITIES
OR PROPERTY.  If while this Option, or any portion hereof,  remains  outstanding
and unexpired the holders of the  securities as to which  purchase  rights under
this Option  exist at the time shall have  received,  or, on or after the record
date fixed for the  determination  of eligible  Stockholders,  shall have become
entitled to receive,  without  payment  therefor,  other or additional  stock or
other  securities  or  property  (other  than  cash)  of the  Company  by way of
dividend,  then and in each  case,  this  Option  shall  represent  the right to
acquire,  in addition to the number of shares of the  security  receivable  upon
exercise of this Option,  and without  payment of any  additional  consideration
therefor,  the amount of such other or additional  stock or other  securities or
property  (other  than cash) of the Company  that such holder  would hold on the
date  of  such  exercise  had it been  the  holder  of  record  of the  security
receivable  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 such
exercise,  retained  such  shares  and/or  all  other  additional  stock,  other
securities or property available by this Option as aforesaid during such period.

                  11.5  GOOD  FAITH.  The  Company  will not,  by any  voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed  hereunder by the Company,  but will at all times in
good faith assist in the carrying out of all the  provisions  of this Section 11
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of this Option against impairment.

         12.      FUNDAMENTAL  TRANSACTION.  For  purposes of this Section 12, a
"Fundamental  Transaction"  shall mean (i) the dissolution or liquidation of the
Company; (ii) a merger,  reorganization or consolidation in which the Company is
acquired by another person or entity (other than a holding company formed by the
Company);  (iii)  the  sale of all or  substantially  all of the  assets  of the
Company to any person or persons;  or (iv) the sale in a single transaction or a
series of related  transactions  of voting  stock  representing  more than fifty
percent  (50%) of the voting power of all  outstanding  shares of the Company to
any person or persons.  In the event of a Fundamental  Transaction,  this Option
shall automatically become immediately  exercisable in full, and shall be deemed
to have attained such status  immediately prior to the Fundamental  Transaction.
Holder  shall be given at least 15 days prior  written  notice of a  Fundamental
Transaction and shall be permitted to exercise any vested Options during this 15
day period  (including  those Options  vesting as a result of the  provisions of
this Section 12). In the event of a Fundamental  Transaction,  any Options which
are  neither  assumed or  substituted  for in  connection  with the  Fundamental
Transaction nor exercised as of the date of the Fundamental  Transaction,  shall
terminate  and  cease  to  be  outstanding  effective  as of  the  date  of  the
Fundamental Transaction,  unless otherwise provided by the Board of Directors of
the Company.

                                       9
<PAGE>

         13.      SEVERABILITY. Whenever possible, each provision of this Option
shall  be  interpreted  in  such  manner  as to be  effective  and  valid  under
applicable  law,  but if any  provision  of this  Option is held to be  invalid,
illegal or  unenforceable 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 such  jurisdiction or affect the validity,  legality or enforceability of any
provision  in any  other  jurisdiction,  but  this  Option  shall  be  reformed,
construed  and  enforced in such  jurisdiction  as if such  invalid,  illegal or
unenforceable provision had never been contained herein.

         14.      GOVERNING  LAW.  The  corporate  law of the State of Minnesota
shall govern all issues and  questions  concerning  the  relative  rights of the
Company and its stockholders.  All other questions  concerning the construction,
validity,  interpretation and enforceability of this Option and the exhibits and
schedules  hereto shall be governed by, and  construed in accordance  with,  the
laws of the State of  Minnesota,  without  giving effect to any choice of law or
conflict of law rules or  provisions  (whether of the State of  Minnesota or any
other  jurisdiction)  that  would  cause  the  application  of the  laws  of any
jurisdiction other than the State of Minnesota.

         15.      JURISDICTION.  The Holder and the  Company  agree to submit to
personal  jurisdiction  and to waive any objection as to venue in the federal or
state  courts of  Minnesota.  Service of process on the Company or the Holder in
any action  arising  out of or relating to this  Option  shall be  effective  if
mailed to such party at the address listed in Section 9 hereof.

         16.     ARBITRATION.  If a dispute arises as to interpretation of this
Option,  it shall be decided  finally  by three  arbitrators  in an  arbitration
proceeding  conforming  to the  Rules of the  American  Arbitration  Association
applicable  to commercial  arbitration.  The  arbitrators  shall be appointed as
follows:  one by the  Company,  one by the  Holder and the third by the said two
arbitrators,  or,  if they  cannot  agree,  then the third  arbitrator  shall be
appointed by the American Arbitration Association. The third arbitrator shall be
chairman of the panel and shall be impartial.  The arbitration  shall take place
in Minneapolis,  Minnesota.  The decision of a majority of the arbitrators shall
be conclusively  binding upon the parties and final,  and such decision shall be
enforceable  as a judgment in any court of  competent  jurisdiction.  Each party
shall pay the fees and expenses of the  arbitrator  appointed by it, its counsel
and its witnesses.  The parties shall share equally the fees and expenses of the
impartial arbitrator.

         17.      CORPORATE POWER; AUTHORIZATION;  ENFORCEABLE OBLIGATIONS.  The
execution,  delivery  and  performance  by the Company of this  Option:  (i) are
within the  Company's  corporate  power;  (ii) have been duly  authorized by all
necessary or proper  corporate  action;  (iii) are not in  contravention  of the
Company's  certificate of incorporation or bylaws;  (iv) will not violate in any
material respect, any law or regulation, including any and all Federal and state
securities   laws,  or  any  order  or  decree  of  any  court  or  governmental
instrumentality;  and (v) will not, in any material  respect,  conflict  with or
result  in the  breach or  termination  of, or  constitute  a default  under any
agreement  or other  material  instrument  to which the Company is a party or by
which the Company is bound.

                                       10
<PAGE>

         18.      SUCCESSORS AND ASSIGNS. This Option shall inure to the benefit
of  and  be   binding  on  the   respective   successors,   assigns   and  legal
representatives of the Holder and the Company.

         19.      COUNTERPARTS.  This  Option  may be  executed  in two or  more
counterparts and delivered via facsimile, each of which shall be deemed to be an
original,  and all of  which  together  shall be  deemed  to be one and the same
instrument.

         IN WITNESS  WHEREOF,  the Company and Holder have caused this Option to
be executed on this 5th day of September, 2002.

                                      BIO-KEY INTERNATIONAL, INC.

                                      By: /S/ GARY WENDT
                                         -----------------------
                                               Gary Wendt
                                               Chief Financial Officer

AGREED AND ACCEPTED:

THOMAS J. COLATOSTI

/S/ THOMAS J. COLATOSTI
-----------------------
     Signature

                                       11
<PAGE>

                               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  herewith  payment of the purchase price for such shares in
full in the following manner (please check one of the following choices):

       [  ]        In Cash

       [  ]        Cashless exercise through a broker; or

       [  ]        Delivery of previously owned Shares.

         (2) In exercising  this Option,  the  undersigned  hereby  confirms and
acknowledges  that the  shares of  Common  Stock to be  issued  upon  conversion
thereof are being acquired  solely for the account of the 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 such shares of Common  Stock
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.

         (3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned.

                                          THOMAS J. COLATOSTI

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

<PAGE>

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