Exhibit 10.1
 
SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this “Agreement”) is dated as of September
7, 2016, between ImageWare Systems, Inc., a Delaware corporation (the
“Company”), and CAP 1 LLC, a Delaware limited liability company (the
“Purchaser”).
 
WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule
506 promulgated thereunder, the Company desires to issue and sell to Purchaser,
and Purchaser desires to purchase from the Company, securities of the Company as
more fully described in this Agreement.
 
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and Purchaser agree as
follows:
 
ARTICLE I.
DEFINITIONS
 
1.1           Definitions.  In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) the following terms have the meanings set forth in this Section
1.1:
 
“Action” means any action, suit, inquire, lawsuit, arbitration, audit, notice of
violation, proceeding, litigation, citation, summons, subpoena or investigation
of any nature, civil, criminal, administrative, regulatory or otherwise, in any
case by or before any Governmental Authority and whether at Law or in equity.
 
“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person.  For purposes of this definition, “control” of a Person means the power,
direct or indirect, to direct or cause the direction of the management and
policies of such Person whether through ownership of voting securities or
ownership interests, including ownership by trusts with substantially the same
beneficial interests, by contract or otherwise.  In addition, since the
Purchaser is a “family office” (as defined in Rule 202(a)(11)(G)-1 under the
Investment Advisers Act of 1940 (the “Rule”)), an Affiliate of the Purchaser
shall include any of the Purchaser’s “family clients” (as defined in the Rule)
and any Affiliates of such “family clients”.
 
“Board of Directors” means the board of directors of the Company.
 
“Certificate of Designation” means the Certificate of Designations, Preferences
and Rights of the Series F Convertible Preferred Stock of the Company (“Series F
Preferred”) filed with the Secretary of State for the State of Delaware on
September 2, 2016, in the form of Exhibit A attached hereto.
 
“Closing Date” means the Trading Day on which all of the Transaction Documents
have been executed and delivered by the applicable parties thereto in connection
with the Closing, and all conditions precedent to (i) the Purchaser’s obligation
to pay the Subscription Amount, and (ii) the Company’s obligations to deliver
the Securities, in each case, have been satisfied or waived.
 
“Commission” means the United States Securities and Exchange Commission.
 

 
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“Common Stock” means the common stock of the Company, par value $0.01 per share,
and any other class of securities into which such securities may hereafter be
reclassified or changed.
 
“Common Stock Equivalents” means any securities of the Company which would
entitle the holder thereof to acquire at any time Common Stock, including,
without limitation, any debt, preferred stock, right, option, warrant or other
instrument that is at any time convertible into or exercisable or exchangeable
for, or otherwise entitles the holder thereof to receive, Common Stock.
 
“Company Counsel” means Disclosure Law Group, with offices located at One
America Plaza, 600 West Broadway, Suite 700, San Diego, California 92101.
 
“Conversion Price” shall have the meaning ascribed to such term in the
Certificate of Designation.
 
“Conversion Shares” means the shares of Common Stock issued and issuable upon
conversion of the Series F Preferred and, except with respect to Registration
Rights, Registrable Securities and Registration Statement, issuable in lieu of
the cash payment of dividends on the Series F Preferred in accordance with the
terms of the Certificate of Designation.

“Disclosure Schedules” means the Disclosure Schedule hereto delivered by the
Company concurrently with the execution and delivery of this Agreement.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

“Filing Deadline” means October 15, 2016.

“Governmental Authority” means any supranational, national, federal, state,
municipal, local or foreign government or political subdivision thereof, or any
agency or instrumentality of such government or political subdivision, or any
self-regulated organization or other non-governmental regulatory authority or
quasi-governmental authority including a national securities exchange), or any
agency, arbitrator, court, commission, tribunal of competent jurisdiction or
other similar entity, domestic or foreign whether legislative, judicial or
executive.

“Law” means any statute, law, ordinance, regulation, rule, code, order,
constitution, treaty, common law, judgment, injunction decree, restriction,
other requirement or rule of law of any Governmental Authority.

“Liens” means a lien (statutory or other), charge, claim, pledge, security
interest, community property interest, option, mortgage, easement, encumbrance,
right of first refusal, preemptive right, encroachment, right of way, or
restriction of any kind, including any restriction on use, voting, transfer,
receipt of income or exercise of any other attribute of ownership.  “Lien” shall
not include any provision of the Transaction Documents, the Company’s
certificate of incorporation or bylaws, or any restrictions imposed by
applicable federal and state securities Laws.

 
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“Material Adverse Effect” means any event, occurrence, fact, condition, or
change that has or would reasonably be expected to have, individually or in the
aggregate, a material adverse effect on (a) the business, results of operations,
condition (financial or otherwise) or assets of the Company and its Subsidiaries
taken as a whole, (b) the rights of the Purchaser under any Transaction
Document, or (c) the ability of the Company to comply with any of its
obligations under any Transaction Document but none of the following, either
alone or in combination, shall be deemed to constitute, or be taken into account
in determining whether there has been, such a material adverse effect: any
event, occurrence, fact, condition or change (i) resulting from general
economic, political, banking, financial or securities market conditions,
including interest or exchange rates, to the extent such event, occurrence,
fact, condition or change does not have a materially disproportionate effect on
the Company and its Subsidiaries taken as a whole, (ii) affecting companies in
the industry in which Company conducts its business, to the extent such event,
occurrence, fact, condition or change does not have a materially
disproportionate effect on the Company and its Subsidiaries taken as a whole,
(iii) resulting from the announcement or performance of this Agreement or the
transactions contemplated by the Transaction Documents, (iv) national or
international political or social conditions, including the engagement by the
United States in hostilities, whether or not pursuant to the declaration of a
national emergency or war, or the occurrence of any military or terrorist attack
upon the United States, or any of its territories, possessions, or diplomatic or
consular offices or upon any military installation, equipment or personnel of
the United States to the extent such event, occurrence, fact, condition or
change does not have a materially disproportionate effect on the Company and its
Subsidiaries taken as a whole, (v) changes in United States generally accepted
accounting principles, (vi) changes in Law or other binding directives issued by
any Governmental Authority to the extent such event, occurrence, fact, condition
or change does not have a materially disproportionate effect on the Company and
its Subsidiaries taken as a whole, (vii) resulting from any action taken (A) by
the Company at Purchaser’s written request or as required by this Agreement
and/or any other Transaction Document, or (B) by Purchaser or its Affiliates
with respect to the Company or the transactions contemplated by the Transaction
Documents and/or (viii) related solely to the Purchaser (and not to the Company
or any of its Subsidiaries) that effects its rights under any Transaction
Document.

“OFAC” means the Office of Foreign Assets Control of the U.S. Treasury
Department.

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.11.

“Registration Rights” shall mean the registration rights set forth in Section
4.5.

“Registrable Securities” means (a) all of the shares of Common Stock then issued
and issuable upon conversion in full of the Series F Preferred (assuming on such
date the shares of Series F Preferred are converted in full without regard to
any conversion limitations therein), and (b) any securities issued or then
issuable upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to the foregoing pursuant to Section 5(d) of the
Certificate of Designation; provided, however, that any such Registrable
Securities shall cease to be Registrable Securities (and the Company shall not
be required to maintain the effectiveness of any, or file another, Registration
Statement hereunder with respect thereto) for so long as (a) a Registration
Statement with respect to the sale of such Registrable Securities is declared
effective by the Commission under the Securities Act and such Registrable
Securities have been disposed of by the holder in accordance with such effective
Registration Statement, (b) such Registrable Securities have been previously
sold in accordance with Rule 144, or (c) such securities become eligible for
resale without volume or manner-of-sale restrictions and without current public
information pursuant to Rule 144 as set forth in a written opinion letter to
such effect, addressed, delivered and acceptable to the Transfer Agent and the
affected holders, as reasonably determined by the Company, upon the advice of
counsel to the Company.

 
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“Registration Statement” means a registration statement meeting the requirements
set forth in Section 4.5 and covering the resale of the Conversion Shares by
Purchaser.

“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents, including any Conversion Shares issuable upon
conversion in full of all shares of Series F Preferred, ignoring any conversion
limits set forth therein, and assuming that all dividends are paid in shares of
Common Stock until the fifth anniversary of the Closing Date.
 
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended or interpreted from time to time, or
any similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

“Securities” means the Series F Preferred and the Conversion Shares.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

“Series F Preferred” means the up to Two Thousand (2,000) shares of the
Company’s Series F Convertible Series F Preferred issued hereunder having the
rights, preferences and privileges set forth in the Certificate of Designation,
in the form of Exhibit A hereto.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).

“Stated Value” means One Thousand Dollars ($1,000) per share of Series F
Preferred.

“Subscription Amount” shall have the meaning ascribed to such term in Section
2.1.

“Subsidiary” means, with respect to any Person, any other Person of which a
majority of the outstanding shares or other equity interests having the power to
vote for directors or comparable managers are owned, directly or indirectly, by
the first Person.

“Taxes” means all federal, state, local, foreign and other income, gross
receipts, sales, use, production, value added, ad valorem, transfer, franchise,
registration, profits, withholding, payroll, employment, unemployment, excise,
stamp, premium, property (real or personal), windfall profits taxes, customs,
duties or other taxes of any kind whatsoever, together with any interest,
additions or penalties with respect thereto and any interest in respect of such
additions or penalties.

“Tax Return” means any return, declaration, report, claim for refund,
information return or other document filed or required to be filed with any
Governmental Authority, including any schedule or attachment thereto, and
including any amendment thereof.

 
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“Trading Day” means a day on which the principal Trading Market is open for
trading.

“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE
MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to
any of the foregoing).

“Transaction Documents” means this Agreement, the Certificate of Designation,
all exhibits and schedules thereto and hereto and any other documents or
agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Computershare, the current transfer agent of the Company,
with a mailing address of 8742 Lucent Boulevard, Suite 225, Highlands Ranch,
Colorado and a facsimile number of (303) 262-0610, and any successor transfer
agent of the Company.
 
ARTICLE II.
PURCHASE AND SALE
 
2.1 Closing.  On the Closing Date (the “Closing”), upon the terms and subject to
the conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and the Purchaser agrees to purchase, an aggregate of Two Thousand (2,000)
shares of Series F Preferred with an aggregate Stated Value equal to Two Million
Dollars ($2,000,000) (the “Subscription Amount”).  The Purchaser shall deliver
to the Company, via wire transfer or a certified check, immediately available
funds equal to the Subscription Amount pursuant to Section 2.2(b)(ii) and the
other deliverable items set forth in Section 2.2(b) deliverable at the Closing
and the Company shall deliver to the Purchaser its shares of Series F Preferred
pursuant to Section 2.2(a)(iii) and the other items set forth in Section 2.2(a)
deliverable at the Closing.  Upon satisfaction of the covenants and conditions
set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of
Company Counsel or such other location as the parties shall mutually
agree.  Either party may terminate this Agreement if the Closing has not
occurred prior to September 16, 2016.
 
2.2  
Deliveries.

 
(a) On or prior to the Closing, the Company shall deliver or cause to be
delivered to the Purchaser the following:
 
(i) this Agreement duly executed by the Company;
 
(ii) a legal opinion of Company Counsel, dated as of the Closing Date, in form
and substance reasonably acceptable to Purchaser and Company; and
 
(iii) a certificate evidencing the Series F Preferred, registered in the name of
the Purchaser and evidence of the filing and acceptance of the Certificate of
Designation from the Delaware Division of Corporations.
 
(b) On or prior to the Closing, the Purchaser shall deliver or cause to be
delivered to the Company, the following:
 
(i) this Agreement duly executed by Purchaser; and
 
(ii) the Subscription Amount by wire transfer.
 

 
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2.3  
Closing Conditions.

 
(a) The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:
 
(i) the accuracy in all material respects (or, to the extent representations or
warranties are qualified by materiality or Material Adverse Effect, in all
respects) on the Closing Date of the representations and warranties of the
Purchaser contained herein (unless as of a specific date therein in which case
they shall be accurate as of such date);
 
(ii) all obligations, covenants and agreements of the Purchaser required to be
performed at or prior to the Closing Date shall have been performed; and
 
(iii) the delivery by the Purchaser of the items set forth in Section 2.2(b) of
this Agreement.
 
(b) The obligation of the Purchaser hereunder in connection with the Closing is
subject to the following conditions being met:
 
(i) the accuracy in all material respects (or, to the extent representations or
warranties are qualified by materiality or Material Adverse Effect, in all
respects) when made and on the Closing Date of the representations and
warranties of the Company contained herein (unless as of a specific date
therein);
 
(ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;
 
(iii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;
 
(iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof; and
 
(v) from the date hereof to the Closing Date, trading in the Common Stock shall
not have been suspended by the Commission or the Company’s principal Trading
Market and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg L.P. shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any financial
market which, in each case, in the reasonable judgment of Purchaser, makes it
impracticable or inadvisable to purchase the Securities at the Closing.
 

 
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
 
3.1           Representations and Warranties of the Company.  Except as set
forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a
part hereof and shall qualify any representation or otherwise made herein to the
extent of the disclosure contained in the corresponding section of the
Disclosure Schedules, the Company hereby makes the following representations and
warranties to the Purchaser:
 
(a) Subsidiaries.  All of the direct and indirect subsidiaries of the Company
are set forth on Schedule 3.1(a) of the Disclosure Schedule.  The Company owns,
directly or indirectly, all of the capital stock or other equity interests of
each Subsidiary free and clear of any Liens, and all of the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
 
(b) Organization and Qualification; Material Permits.  The Company and each of
the Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the Laws of jurisdiction of its
incorporation or organization, with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.  Neither Company nor any Subsidiary is in violation nor default of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.  Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have a Material Adverse Effect and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.  Further, the Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
 
(c) Authorization; Enforcement.  The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
this Agreement and each of the other Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder.  The execution and delivery
of this Agreement and each of the other Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of the Company, and no
further action is required by the Company, the Board of Directors or the
Company’s stockholders in connection herewith or therewith other than in
connection with the Required Approvals.  This Agreement and each other
Transaction Document to which it is a party has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except: (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other Laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by Laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable Law.
 

 
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(d) No Conflicts.  The execution, delivery and performance by the Company of
this Agreement and the other Transaction Documents to which it is a party, the
issuance and sale of the Securities and the consummation by it of the
transactions contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter
documents, (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any Law to which the Company is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or any Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.
 
(e) Filings, Consents and Approvals.  The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any Governmental Authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than: (i) the filing of the Registration Statement
with the Commission pursuant to the Registration Rights, and (ii) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the “Required Approvals”).
 
(f) Issuance of the Securities.  The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents.  The Conversion Shares, when issued in
accordance with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the Company
other than restrictions on transfer provided for in the Transaction Documents.
 

 
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(g) Capitalization.  The capitalization of the Company is as set forth on
Schedule 3.1(g) of the Disclosure Schedule.  Except as set forth on Schedule
3.1(g) of the Disclosure Schedule, the Company has not issued any capital stock
since its most recently filed periodic report under the Exchange Act, other than
pursuant to the exercise of employee stock options under the Company’s stock
option plans, the issuance of shares of Common Stock to employees pursuant to
the Company’s employee stock purchase plans and pursuant to the conversion
and/or exercise of Common Stock Equivalents outstanding as of the date of the
most recently filed periodic report under the Exchange Act.  Except as set forth
on Schedule 3.1(g) of the Disclosure Schedule, no Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents.  Except as set forth on Schedule 3.1(g) of the Disclosure Schedule or
as a result of the purchase and sale of the Securities, there are no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock or the capital
stock of any Subsidiary, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock Equivalents or capital
stock of any Subsidiary.  Except as set forth on Schedule 3.1(g) of the
Disclosure Schedule, the issuance and sale of the Securities will not obligate
the Company or any Subsidiary to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under any of such securities. Except as set forth on
Schedule 3.1(g) of the Disclosure Schedule, there are no outstanding securities
or instruments of the Company or any Subsidiary that contain any redemption or
similar provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
redeem a security of the Company or such Subsidiary. The Company does not have
any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement. All of the outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, and none
of such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities.  No further approval or
authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities.  There are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company’s stockholders.
 
(h) SEC Reports; Financial Statements.  The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by Law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing.  Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.
 

 
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(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the
date of the latest audited financial statements included within the SEC Reports,
except as specifically disclosed in a subsequent SEC Report filed prior to the
date hereof: (i) there has been no event, occurrence or development that has had
or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice, and (B) liabilities not
required to be reflected in the Company’s financial statements pursuant to GAAP
or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock, and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company stock
option plans.  The Company does not have pending before the Commission any
request for confidential treatment of information.  Except for the issuance of
the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i)
of the Disclosure Schedule, no event, liability, fact, circumstance, occurrence
or development has occurred or exists or is reasonably expected to occur or
exist with respect to the Company or its Subsidiaries or their respective
businesses, prospects, properties, operations, assets or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws at the time this representation is made or deemed made that has
not been publicly disclosed at least one Trading Day prior to the date that this
representation is made.
 
(j) Litigation.  There is no Action or, to the knowledge of the Company, Action
pending or threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any Governmental Authority which
(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities, or (ii) could, if there were
an unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect.  Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty.  There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission or other Governmental Authority involving the Company or any current
or former director or officer of the Company.  The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company under the Exchange Act or the Securities Act.
 
(k) Compliance.  Neither the Company nor any Subsidiary: (i) is in default under
or in violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company
or any Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
judgment, decree or order of any Governmental Authority, or (iii) is or has been
in violation of any Law, including without limitation all foreign, federal,
state and local laws relating to taxes, environmental protection, occupational
health and safety, product quality and safety and employment and labor matters,
except in each case as could not have or reasonably be expected to result in a
Material Adverse Effect.
 

 
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(l) Title to Assets.  The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
except for (i) Liens as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries, and (ii) Liens for the payment of
federal, state or other taxes, for which appropriate reserves have been made
therefor in its financial statements in accordance with GAAP and, the payment of
which is neither delinquent nor subject to penalties.  Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance.
 
(m) Intellectual Property.  The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights as described
in the SEC Reports as necessary or required for use in connection with their
respective businesses and which the failure to so have could have a Material
Adverse Effect (collectively, the “Intellectual Property Rights”).  None of, and
neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of, the Intellectual Property Rights has expired, terminated
or been abandoned, or is expected to expire or terminate or be abandoned, within
two (2) years from the date of this Agreement.  Neither the Company nor any
Subsidiary has received, since the date of the latest audited financial
statements included within the SEC Reports, a written notice of a claim or
otherwise has any knowledge that the Intellectual Property Rights violate or
infringe upon the rights of any Person, except as could not have reasonably be
expected to have a Material Adverse Effect.  To the knowledge of the Company,
all such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.  The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
 
(n) Certain Fees.  No brokerage or finder’s fees or commissions are or will be
payable by the Company or any Subsidiary to any broker, financial advisor,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents.  The Purchaser shall
have no obligation with respect to any fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this Section
3.1(n) that may be due in connection with the transactions contemplated by the
Transaction Documents.
 
(o) Private Placement. Assuming the accuracy of the Purchaser’s representations
and warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the
Purchaser as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.
 
(p) No Other Registration Rights.  Except as set forth on Schedule 3.1(p) of the
Disclosure Schedule, no Person has any right to cause the Company or any
Subsidiary to effect registration under the Securities Act of any securities of
the Company or any Subsidiary.
 

 
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(q) Listing and Maintenance Requirements.  The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration.  The Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements. The Common Stock is currently eligible for
electronic transfer through the Depository Trust Company or another established
clearing corporation and the Company is current in payment of the fees to the
Depository Trust Company (or such other established clearing corporation) in
connection with such electronic transfer.
 
(r) Disclosure.  Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms
that neither it nor any other Person acting on its behalf has provided the
Purchaser or its agents or counsel with any information that it believes
constitutes or might constitute material, non-public information.  The Company
understands and confirms that the Purchaser will rely on the foregoing
representation in effecting transactions in securities of the Company.  All of
the disclosure furnished by or on behalf of the Company to the Purchaser
regarding the Company and its Subsidiaries, their respective businesses and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.  The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made,
not misleading.  The Company acknowledges and agrees that the Purchaser does not
make or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.
 
(s) No Integrated Offering. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.
 
(t) No General Solicitation.  Neither the Company nor any Person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising.  The Company has offered the
Securities for sale only to the Purchaser and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.
 

 
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(u) Taxes.  Each of the Company and its Subsidiaries has timely filed (taking
into account all extensions for filing) all material Tax Returns that it was
required to file.  All such Tax Returns are complete and correct in all material
respects.  All Taxes due and owing by the Company or any of its Subsidiaries
(whether or not shown on any Tax Return) have been timely paid other than any
Tax which the Company or any of its Subsidiaries is contesting in good faith by
appropriate procedures and for which adequate accruals or reserves (as
determined in accordance with GAAP) have been established in the financial
statements of the Company or the applicable Subsidiary.  Each of the Company and
its Subsidiaries has complied with all withholding and information reporting
requirements imposed by applicable law.  No extensions or waivers of statutes of
limitations have been given or requested with respect to any Taxes of the
Company or any of its Subsidiaries.  There are no pending or threatened
lawsuits, audits, investigations, claims, proposals or assessments for or
relating to any Taxes of the Company or any of its Subsidiaries.  No claim has
been made in writing by any Governmental Authority that the Company or any of
its Subsidiaries is subject to Tax in a jurisdiction in which it does not file
Tax Returns.  Neither the Company nor any of its Subsidiaries has been a member
of an affiliated, combined, consolidated or unitary Tax group for Tax purposes,
other than the group of which the Company is the common parent.  Neither the
Company nor any of its Subsidiaries has any liability for Taxes of any Person
(other than the Company and its Subsidiaries) under Treasury Regulations Section
1.1502-6 (or any corresponding provision of state, local or foreign Law), as
transferee or successor, by contract or otherwise.
 
3.2           Representations and Warranties of the Purchaser.  Purchaser hereby
represents and warrants as of the date hereof and as of the Closing Date to the
Company as follows (unless as of a specific date therein):
 
(a) Organization; Authority.  Purchaser is a limited liability company
duly  formed, validly existing and in good standing under the Laws of State of
Delaware with full right, corporate, partnership, limited liability company or
similar power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and
performance by Purchaser of the transactions contemplated by the Transaction
Documents have been duly authorized by all necessary corporate, partnership,
limited liability company or similar action, as applicable, on the part of
Purchaser.  Each Transaction Document to which it is a party has been duly
executed by Purchaser, and when delivered by Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation of
Purchaser, enforceable against it in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other Laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by Laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable Law.
 
(b) Own Account. Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law, and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting Purchaser’s right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws). Purchaser is acquiring the
Securities hereunder in the ordinary course of its business.
 
(c) Purchaser Status.  At the time Purchaser was offered the Securities, it was,
and as of the date hereof it is, and on each date on which it converts any
shares of Series F Preferred, it will be an “accredited investor” as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.
 
 
 
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(d) Experience of Purchaser. Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. Purchaser is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to afford a
complete loss of such investment.
 
(e) No Disqualification Events. Purchaser is not subject to any of the “Bad
Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the
Securities Act (a “Disqualification Event”), except for a Disqualification Event
covered by Rule 506(d)(2) or (d)(3).
 
(f) General Solicitation. Purchaser is not, to Purchaser’s knowledge, purchasing
the Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
 
(g) Access to Information. Purchaser acknowledges that it has had the
opportunity to review the Transaction Documents (including all exhibits and
schedules thereto), the SEC Reports and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities; (ii) access to information about the Company and its
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. 
 
(h) Certain Transactions and Confidentiality.  Other than consummating the
transactions contemplated hereunder, Purchaser has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
Purchaser, executed any purchases or sales, including Short Sales, of the
securities of the Company during the period commencing as of the time that
Purchaser first received a term sheet (written or oral) from the Company or any
other Person representing the Company setting forth the material pricing terms
of the transactions contemplated hereunder and ending immediately prior to the
execution hereof.  Notwithstanding the foregoing, in the event Purchaser is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of Purchaser’s assets, the representation set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement.  Other than to other Persons party to this Agreement
or to Purchaser’s representatives, including, without limitation, its officers,
directors, partners, legal and other advisors, employees, agents and Affiliates,
Purchaser has maintained the confidentiality of all disclosures made to it in
connection with this transaction (including the existence and terms of this
transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing
contained herein shall constitute a representation or warranty, or preclude any
actions, with respect to the identification of the availability of, or securing
of, available shares to borrow in order to effect Short Sales or similar
transactions in the future.
 
The Company acknowledges and agrees that the representations contained in this
Section 3.2 shall not modify, amend or affect Purchaser’s right to rely on the
Company’s representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction Document or
any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated hereby.

 
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ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
 
4.1           Transfer Restrictions.
 
(a) The Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company or
to an Affiliate of the Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act.  As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights and
obligations of the Purchaser under this Agreement.
 
(b) The Purchaser agrees to the imprinting, so long as is required by this
Section 4.1, of a legend on any of the Securities in the following form:
 
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH
A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
 
The Company acknowledges and agrees that the Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties.  Such a pledge
or transfer would not be subject to approval of the Company and no legal opinion
of legal counsel of the pledgee, secured party or pledgor shall be required in
connection therewith.  Further, no notice shall be required of such pledge.  The
Company will execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a pledge
or transfer of the Securities, including, if the Securities are subject to
registration pursuant to the Registration Rights, the preparation and filing of
any required prospectus supplement under Rule 424(b)(3) under the Securities Act
or other applicable provision of the Securities Act to appropriately amend the
list of selling stockholders thereunder.
 

 
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(c) Certificates evidencing the Conversion Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof): (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, (ii) following
any sale of such Conversion Shares pursuant to Rule 144, (iii) if such
Conversion Shares are eligible for sale under Rule 144 or (iv) if such legend is
not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission).  The Company shall cause its counsel to issue a legal opinion to
the Transfer Agent promptly if required by the Transfer Agent to effect the
removal of the legend hereunder.  If all or any shares of Series F Preferred are
converted at a time when there is an effective registration statement to cover
the resale of the Conversion Shares, or if such Conversion Shares may be sold
under Rule 144 and the Company is then in compliance with the current public
information required under Rule 144, or if the Conversion Shares may be sold
under Rule 144 without the requirement for the Company to be in compliance with
the current public information required under Rule 144 as to such Conversion
Shares and without volume or manner-of-sale restrictions or if such legend is
not otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission) then such Conversion Shares shall be issued free of all
legends.  The Company agrees that following the effective date of any
registration statement or at such time as such legend is no longer required
under this Section 4.1(c), it will, no later than three Trading Days following
the delivery by the Purchaser to the Company or the Transfer Agent of a
certificate representing Conversion Shares, as applicable, issued with a
restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver
or cause to be delivered to Purchaser a certificate representing such shares
that is free from all restrictive and other legends.  The Company may not make
any notation on its records or give instructions to the Transfer Agent that
enlarge the restrictions on transfer set forth in this Section 4.  Certificates
for Conversion Shares subject to legend removal hereunder shall be transmitted
by the Transfer Agent to the Purchaser by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company System as directed by
Purchaser.  The Company shall use best efforts to cause the Registration
Statement to be declared effective as soon as reasonably practicable after its
filing with the Commission and to keep the Registration Statement) registering
the issuance or resale of the Conversion Shares effective until all Conversion
Shares may be sold freely without registration or any volume or manner of sale
limitations.
 
(d) The Purchaser agrees with the Company that Purchaser will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a Registration Statement,
they will be sold in compliance with the plan of distribution set forth therein,
and acknowledges that the removal of the restrictive legend from certificates
representing Securities as set forth
 
4.2           Acknowledgment of Dilution.  The parties acknowledge that the
issuance of the Securities will result in substantial dilution of the
outstanding shares of Common Stock.  The Company acknowledges that its
obligations under the Transaction Documents, including, without limitation, its
obligation to issue the Conversion Shares pursuant to the Transaction Documents,
are unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of the
substantial dilutive effect that such issuance may have on the ownership of the
other stockholders of the Company.
 
4.3           Furnishing of Information.  Until the earliest of the time that
Purchaser does not own any Securities, the Company covenants to maintain the
registration of the Conversion Shares under Section 12(b) or 12(g) of the
Exchange Act and to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act even if the Company
is not then subject to the reporting requirements of the Exchange Act.
 
 
 
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4.4           Use of Proceeds.  The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and shall not use
such proceeds: (a) for the satisfaction of any portion of the Company’s debt
(other than payment of trade payables in the ordinary course of the Company’s
business and prior practices), (b) for the redemption of any Common Stock or
Common Stock Equivalents, (c) for the settlement of any outstanding litigation
or (d) in violation of FCPA or OFAC regulations.
 
4.5           Registration Rights.
 
(a)           On or before the Filing Deadline, the Company shall prepare and
file with the Commission one Registration Statement on Form S-3, or such other
form that may be available to the Company, covering the resale of all of the
Registrable Securities.  The Purchaser shall not be named as an “underwriter” in
the Registration Statement without the Purchaser’s prior written consent.  Such
Registration Statement also shall cover, to the extent allowable under the
Securities Act (including Rule 416), such indeterminate number of additional
shares of Common Stock resulting from stock splits, stock dividends or similar
transactions with respect to the Registrable Securities.  Such Registration
Statement shall not include any shares of Common Stock or other securities for
the account of any other holder without the prior written consent of the
Purchaser. Such Registration Statement, except for information provided by the
Purchaser or any transferee of the Purchaser, shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statement therein, in light of the
circumstances under which they were made, not misleading.
 
(b) If at any time the Commission takes the position that the offering of some
or all of the Conversion Shares in a Registration Statement is not eligible to
be made on a delayed or continuous basis under the provisions of Rule 415 under
the Securities Act or requires any Purchaser to be named as an “underwriter”,
the Company shall use its best efforts to persuade the Commission that the
offering contemplated by the Registration Statement is a valid secondary
offering and not an offering “by or on behalf of the issuer” as defined in Rule
415 and the Holder is not an “underwriter”.  In the event that, despite the
Company’s best efforts and compliance with the terms of this Section 4.5(b), the
Commission refuses to alter its position, the Company shall (i) remove from the
Registration Statement such portion of the Conversion Shares and/or (ii) agree
to such restrictions and limitations on the registration and resale of the
Conversion Shares as the Commission may require to assure the Company’s
compliance with the requirements of Rule 415; provided, however, that the
Company shall not agree to name Purchaser as an “underwriter” in such
Registration Statement without the prior written consent of Purchaser.
 
4.6           Certain Transactions and Confidentiality. The Purchaser covenants
that neither it, nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any purchases or sales, including Short
Sales, of any of the Company’s securities during the period commencing with the
execution of this Agreement and ending at such time that the transactions
contemplated by this Agreement are first publicly announced pursuant to the
initial press release issued pursuant to Section 4.9.  The Purchaser covenants
that until such time as the transactions contemplated by this Agreement are
publicly disclosed by the Company pursuant to the initial press release issued
pursuant to Section 4.9, Purchaser will maintain the confidentiality of the
existence and terms of this transaction and the information included in the
Transaction Documents and the Disclosure Schedules.  Notwithstanding the
foregoing, and notwithstanding anything contained in this Agreement to the
contrary, the Company expressly acknowledges and agrees that (i) Purchaser makes
no representation, warranty or covenant hereby that it will not engage in
effecting transactions in any securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release issued pursuant to Section 4.9, (ii)
Purchaser shall not be restricted or prohibited from effecting any transactions
in any securities of the Company in accordance with applicable securities laws
from and after the time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release issued pursuant
to Section 4.9, and (iii) Purchaser shall not have any duty of confidentiality
or duty not to trade in the securities of the Company to the Company after the
issuance of the initial press release issued pursuant to Section 4.9. 
Notwithstanding the foregoing, in the event Purchaser is a multi-managed
investment vehicle whereby separate portfolio managers manage separate portions
of Purchaser’s assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions of
Purchaser’s assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
 
4.7           Form D; Blue Sky Filings.  The Company agrees to timely file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof, promptly upon request of Purchaser. The Company shall
take such action as the Company shall reasonably determine is necessary in order
to obtain an exemption for, or to qualify the Securities for, sale to the
Purchaser at the Closing under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of Purchaser.
 
4.8           Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities for purposes of the rules and regulations of any Trading
Market such that it would require shareholder approval prior to the closing of
such other transaction unless shareholder approval is obtained before the
closing of such subsequent transaction.
 
4.9           Public Announcements.  No party hereto shall issue any press
release or make any other public announcement or disclosure with respect to this
Agreement and the transactions contemplated by the Transaction Documents without
the prior written consent of the other party, except for any press release,
public announcement or other public disclosure that is required by Law, or
securities exchange to which the relevant party is subject, in which case the
party required to make the release or announcement shall use its reasonable best
efforts to allow the other party reasonable time to comment on such release or
announcement in advance of such issuance.  Prior to making any such required
disclosure the disclosing party shall have given written notice to the
non-disclosing party describing in reasonable detail the proposed content of
such disclosure and shall permit the non-disclosing party to review and comment
upon the form and substance of such disclosure.
 
 
 
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4.10          Non-Public Information.  Except with respect to the public
announcements disclosed pursuant to Section 4.9, the Company covenants and
agrees that neither it, nor any other Person acting on its behalf will provide
the Purchaser or its agents or counsel with any information that constitutes, or
the Company reasonably believes constitutes, material non-public information,
unless prior thereto such Purchaser shall have consented to the receipt of such
information and agreed with the Company to keep such information
confidential.  The Company understands and confirms that the Purchaser shall be
relying on the foregoing covenant in effecting transactions in securities of the
Company.  To the extent that the Company delivers any material, non-public
information to the Purchaser without such Purchaser’s consent, the Company
hereby covenants and agrees that such Purchaser shall not have any duty of
confidentiality to the Company, any of its Subsidiaries, or any of their
respective officers, directors, agents, employees or Affiliates, or a duty to
the Company, any of its Subsidiaries or any of their respective officers,
directors, agents, employees or Affiliates not to trade on the basis of, such
material, non-public information, provided that the Purchaser shall remain
subject to applicable law.  To the extent that any notice provided pursuant to
any Transaction Document constitutes, or contains, material, non-public
information regarding the Company or any Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K.  The Company understands and confirms that the Purchaser shall be
relying on the foregoing covenant in effecting transactions in securities of the
Company.
 
4.11           Indemnification of Purchaser.   Subject to the provisions of this
Section 4.11, the Company will indemnify and hold Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against the
Purchaser Parties in any capacity, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Purchaser Party, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser Party’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser Party may have with
any such stockholder or any violations by such Purchaser Party of state or
federal securities laws or any conduct by such Purchaser Party which constitutes
fraud, gross negligence, willful misconduct or malfeasance).  If any action
shall be brought against any Purchaser Party in respect of which indemnity may
be sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing reasonably acceptable to the
Purchaser Party.  Any Purchaser Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Purchaser Party
except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of counsel, a material
conflict on any material issue between the position of the Company and the
position of such Purchaser Party, in which case the Company shall be responsible
for the reasonable fees and expenses of no more than one such separate
counsel.  The Company will not be liable to any Purchaser Party under this
Agreement (y) for any settlement by a Purchaser Party effected without the
Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (z) to the extent, but only to the extent that a loss, claim, damage
or liability is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by such Purchaser
Party in this Agreement or in the other Transaction Documents. The
indemnification required by this Section 4.11 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills are received or are incurred.  The indemnity agreements contained
herein shall be in addition to any cause of action or similar right of any
Purchaser Party against the Company or others and any liabilities the Company
may be subject to pursuant to law.
 
4.12          Reservation of Required Minimum Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, a sufficient number of shares
of Common Stock for the purpose of enabling the Company to issue Conversion
Shares at least equal to the Required Minimum on the date hereof.
 
4.13.           Listing of Common Stock. The Company hereby agrees to use best
efforts to maintain the listing or quotation of the Common Stock on the Trading
Market on which it is currently listed, and concurrently with the Closing, the
Company shall apply to list or quote all of the Conversion Shares on such
Trading Market and promptly secure the listing of all of the Conversion Shares
on such Trading Market.  The Company further agrees, if the Company applies to
have the Common Stock traded on any other Trading Market, it will then include
in such application all of the Conversion Shares, and will take such other
action as is necessary to cause all of the Conversion Shares to be listed or
quoted on such other Trading Market as promptly as possible.  The Company will
then take all action reasonably necessary to continue the listing and trading of
its Common Stock on a Trading Market and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
the Trading Market.
 
 
 
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ARTICLE V.
MISCELLANEOUS
 
5.1           Fees and Expenses.  At the Closing, the Company has agreed to
reimburse Purchaser up to Five Thousand Dollars ($5,000) for the reasonable
legal fees and expenses of its counsel.  In lieu of the foregoing payment, the
Subscription Amount that Purchaser is to pay at the Closing should be reduced by
the amount of such reimbursement in lieu thereof.  Except as expressly set forth
in the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.  The Company
shall pay all Transfer Agent fees (including, without limitation, any fees
required for same-day processing of any instruction letter delivered by the
Company and any conversion or exercise notice delivered by the Purchaser).  The
Company shall pay when due all transfer, documentary, sales, use, stamp,
registration, value added and other such Taxes and fees (including any penalties
and interest) incurred in connection with the delivery of any Securities to the
Purchaser and otherwise in connection with the transactions contemplated by this
Agreement (including any real property transfer Tax and any other similar
Tax).  The Company shall, at its own expense, timely file any Tax Return or
other document with respect to such Taxes or fees (and the Purchaser shall
cooperate with respect thereto as necessary)..
 
5.2.           Tax Treatment of Series F Preferred.  The Company shall treat the
Series F Preferred as equity for U.S. federal income tax purposes and shall file
all of its Tax Returns in a manner that is consistent with such treatment.
 
5.3           Entire Agreement.  The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
 
5.4           Notices.  Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of: (a) the date of
transmission, if such notice or communication is delivered via facsimile or
email attachment at the facsimile number or email address as set forth on the
signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on
a Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile or email attachment at the
facsimile number or email address as set forth on the signature pages attached
hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City
time) on any Trading Day, (c) the second (2nd)  Trading Day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service or
(d) upon actual receipt by the party to whom such notice is required to be
given.  The address for such notices and communications shall be as set forth on
the signature pages attached hereto. To the extent that any notice provided
pursuant to any Transaction Document constitutes, or contains, material,
non-public information regarding the Company or any of the Subsidiaries, the
Company shall simultaneously file such notice with the Commission pursuant to a
Current Report on Form 8-K.
 
 
 
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5.5           Amendments; Waivers.  No provision of this Agreement may be
waived, modified, supplemented or amended except in a written instrument signed,
in the case of an amendment, by the Company and the holders beneficially owing
at least a majority in interest of the Securities then outstanding or, in the
case of a waiver, by the party against whom enforcement of any such waived
provision is sought; provided, that if any amendment, modification or waiver
disproportionately and adversely impacts the Purchaser (or group of Purchasers),
the consent of such disproportionately impacted Purchaser (or group of
Purchasers) shall also be required.  No waiver of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right.
 
5.6           Headings.  The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
 
5.7           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns.  The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser (other than by
merger).  Purchaser may assign any or all of its rights under this Agreement to
any Person to whom Purchaser assigns or transfers any Securities, provided that
such transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
Purchaser.
 
5.8           No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11 and this
Section 5.8.
 
5.9           Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal Laws of
the State of New York, without regard to the principles of conflicts of Law
thereof.  Each party agrees that all legal Proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
partners, members, employees or agents) shall be commenced exclusively in the
state and federal courts sitting in the City of New York, Borough of
Manhattan.  Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City of New York for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Action or Proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, that such
Action or Proceeding is improper or is an  inconvenient venue for such
Proceeding.  Each party hereby irrevocably waives personal service of process
and consents to process being served in any such Action or Proceeding by mailing
a copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by Law.   If any party hereto shall commence an Action or
Proceeding to enforce any provisions of the Transaction Documents, then, in
addition to the obligations of the Company under Section 4.11, the prevailing
party in such Action or Proceeding shall be reimbursed by the non-prevailing
party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such Action or
Proceeding.
 
 
 
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5.10           Survival.  The representations, warranties, covenants and
agreements  contained herein shall survive the Closing and the delivery of the
Securities.
 
5.11           Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to each other party, it being understood that the
parties need not sign the same counterpart.  In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.
 
5.12           Severability.  If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
 
5.13           Construction. The parties agree that each of them and/or their
respective counsel have reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
amendments thereto. In addition, each and every reference to share prices and
shares of Common Stock in any Transaction Document shall be subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.
 
5.14           WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.
 

 
(Signature Pages Follow)

 
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 

IMAGEWARE SYSTEMS, INC.
 
Address for Notice:
 
10815 Rancho Bernardo Road
Suite 310
San Diego, California 92127
 
By:__________________________________________
     Name:  S. James Miller
     Title: Chief Executive Officer
Fax: 858-673-1770
 
Email: jmiller@iwsinc.com

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
 

 
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[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 
Name of Purchaser: CAP 1 LLC
Signature of Authorized Signatory of Purchaser:
____________________________________
Name of Authorized Signatory: _______________________________________
Title of Authorized Signatory: ___________________________________________
Email Address of Authorized Signatory: ______________________________________
Facsimile Number of Authorized Signatory: ___________________________________

Address for Notice to Purchaser:

Address for Delivery of Securities to Purchaser (if not same as address for
notice):

Subscription Amount: ________
Shares of Series F Preferred: _________
EIN Number: _____________________________

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