Exhibit 10.1

IMAGEWARE SYSTEMS, INC.
 
SECURITIES PURCHASE AGREEMENT
 
 
This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of September 10,
2018, is made by and among ImageWare Systems, Inc., a corporation organized
under the laws of the State of Delaware (the “Company”), and each of the
purchasers (individually, a “Purchaser” and collectively the “Purchasers”) set
forth on the signature pages hereto (each, a “Signature Page” and collectively
the “Signature Pages”).
 
RECITALS
 
WHEREAS, the Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D (“Regulation D”), as promulgated by the United
States Securities and Exchange Commission (the “SEC”) under the Securities Act
of 1933, as amended (including the rules and regulations promulgated thereunder,
the “Securities Act”);
 
WHEREAS, upon satisfaction of certain conditions, the Purchasers, severally and
not jointly, desire to purchase, and the Company desires to issue and sell to
the Purchasers, upon the terms and subject to the conditions set forth in this
Agreement, an aggregate of One Thousand, (1,000) shares of the Company’s Series
C Convertible Preferred Stock, par value $0.01 per share (the “Preferred
Stock”), for $10,000 per share, which Preferred Stock shall have the rights,
preferences and privileges set forth in the Company’s Certificate of
Designations, Preferences and Rights of Series C Convertible Preferred Stock
(the “Certificate of Designation”) filed with the Secretary of State for the
State of Delaware on September 10, 2018, in the form of Exhibit A attached
hereto;
 
WHEREAS, the shares of common stock of the Company, par value $0.01 per share
(the “Common Stock”), issuable upon conversion of the Preferred Stock are
referred to herein as the “Conversion Shares”. The Preferred Stock and the
Conversion Shares are collectively referred to herein as the “Securities” and
each of them may individually be referred to herein as a “Security”, and the
shares of Common Stock issued or issuable to the holders of Preferred Stock as
dividends in accordance with the terms and conditions set forth in the
Certificate of Designation are referred to herein as “Dividend Shares”;
 
WHEREAS, in connection with the execution of this Agreement, the parties hereto
will execute and deliver a Registration Rights Agreement, in the form attached
hereto as Exhibit B (the “Registration Rights Agreement”), pursuant to which the
Company has agreed to provide certain registration rights under the Securities
Act and the rules and regulations promulgated thereunder, and applicable state
securities laws; and
 
WHEREAS, in connection with the execution of this Agreement, the Company has
entered into an Escrow Agreement, dated as of August 29, 2018 (an executed copy
of which is attached hereto as Exhibit C, the “Escrow Agreement”), with
Northland Securities, Inc., a Minnesota corporation, and Midwest Bank, a
Minnesota banking corporation (the “Escrow Agent”), pursuant to which the Escrow
Agent will act as Escrow Agent with respect to the transactions contemplated by
this Agreement. This Agreement, the Certificate of Designation, the Registration
Rights Agreement and the Escrow Agreement are collectively referred to herein as
the “Transaction Documents.”
 
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Purchasers hereby agree as
follows:
 
 
 
-1-

 
 
1. PURCHASE AND SALE OF SECURITIES.
 
(a) Purchase and Sale of Securities. Subject to the terms and conditions hereof,
at the Closing (as defined in Section 1(b) below), the Company shall issue and
sell to each Purchaser, and each Purchaser, severally and not jointly, shall
purchase from the Company, such number of shares of Preferred Stock as is set
forth on such Purchaser’s Signature Page, for a purchase price (as to each
Purchaser, the “Purchase Price”) equal to $10,000 per share of Preferred Stock.
 
(b) The Closing. Closing of the transactions contemplated hereby (the “Closing”)
shall occur on the date 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 Purchasers’ obligation to
deliver the Purchase Price of the Preferred Stock to the Escrow Agent, as set
forth in Section 7, and (ii) the Company’s obligations to deliver the Preferred
Stock set forth in Section 6, in each case, have been satisfied or waived. The
day on which the Closing occurs shall be the “Closing Date”.
 
2. PURCHASER’S REPRESENTATIONS AND WARRANTIES.
 
Each Purchaser, severally, but not jointly, represents and warrants to the
Company as follows:
 
(a) Purchase for Own Account, Etc. Such Purchaser is purchasing the Securities
for such Purchaser’s own account for investment purposes only and not with a
view towards the public sale or distribution thereof, except pursuant to sales
that are exempt from the registration requirements of the Securities Act and/or
sales registered under the Securities Act. Such Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company, and is capable of evaluating the
merits and risks of its investment in the Company. Such Purchaser understands
that it must bear the economic risk of this investment indefinitely, unless the
Securities are registered pursuant to the Securities Act and any applicable
state securities or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of registering the
resale of any such Securities other than as contemplated by the Registration
Rights Agreement. Notwithstanding anything in this Section 2(a) to the contrary,
by making the representations herein, such Purchaser does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption from the registration requirements under
the Securities Act.
 
(b) Accredited Investor Status. Such Purchaser is an “Accredited Investor”, as
that term is defined in Rule 501(a) of Regulation D.
 
(c) Reliance on Exemptions. Such Purchaser understands that the Securities are
being offered and sold to such Purchaser in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws, and that the Company is relying upon the truth and accuracy of, and such
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities.
 
(d) Information. All materials relating to the business, finances and operations
of the Company (including the Company’s most recent Annual Report on Form 10-K
and most recent Quarterly Report on Form 10-Q) and materials relating to the
offer and sale of the Securities which have been specifically requested by such
Purchaser or its counsel have been made available to such Purchaser and its
counsel, if any. Neither such inquiries nor any other investigation conducted by
such Purchaser or its counsel or any of such Purchaser’s representatives shall
modify, amend or affect such Purchaser’s right to rely on the Company’s
representations and warranties contained in Section 3 below. Such Purchaser
understands that its investment in the Securities involves a high degree of
risk, including the risk of loss of its entire investment in the Securities.
 
 
 
-2-

 
 
(e) Governmental Review. Such Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
 
(f) Transfer or Resale. Such Purchaser understands that (i) except as provided
in the Registration Rights Agreement, the sale or resale of the Securities have
not been and are not being registered under the Securities Act or any state
securities laws, and the Securities may not be transferred unless (A) the
transfer is made pursuant to and as set forth in an effective registration
statement under the Securities Act covering the Securities; or (B) such
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; or (C) sold under and in compliance with Rule 144 promulgated
under the Securities Act (including any successor rule, “Rule 144”); or (D) sold
or transferred to an affiliate of such Purchaser that agrees to sell or
otherwise transfer the Securities only in accordance with the provisions of this
Section 2(f) and that is an Accredited Investor; and (ii) neither the Company
nor any other person is under any obligation to register the Securities under
the Securities Act or any state securities laws (other than pursuant to the
terms of the Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a bona fide margin account or other lending
arrangement, provided such pledge is consistent with applicable laws, rules and
regulations.
 
(g) [Reserved].
 
(h) Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Purchaser and are valid and binding agreements of such Purchaser
enforceable against such Purchaser in accordance with their terms, except as
such enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors’ rights and
remedies.
 
(i) Residency. Such Purchaser is a resident of the jurisdiction set forth under
such Purchaser’s name on the Signature Page hereto executed by such Purchaser.
 
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
 
Except as set forth on the Disclosure Schedule attached to this Agreement (the
“Disclosure Schedule”), the Company represents and warrants to each Purchaser as
follows:
 
(a) Organization and Qualification; Subsidiaries. The Company and each of its
subsidiaries (collectively, the “Subsidiaries”) is a corporation duly organized
and validly existing in good standing under the laws of the jurisdiction in
which it is incorporated or organized, and has the requisite corporate power to
own its properties and to carry on its business as now being conducted. The
Company and each of its Subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted by it makes such qualification necessary and where the
failure so to qualify would have, or would reasonably be expected to result in,
a Material Adverse Effect. For purposes of this Agreement, “Material Adverse
Effect” means any material adverse effect on (i) the Securities or the Dividend
Shares, (ii) the ability of the Company to perform its obligations under this
Agreement or the other Transaction Documents or (iii) the business, operations,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole. Other than the
Subsidiaries set forth on the Disclosure Schedule, the Company has no
subsidiaries.
 
 
 
-3-

 
 
(b) Authorization; Enforcement. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents, to issue and sell the Preferred
Stock in accordance with the terms hereof, to issue the Conversion Shares upon
conversion of the Preferred Stock in accordance with the terms thereof and to
issue the Dividend Shares in accordance with the Certificate of Designation and
the Company’s Certificate of Incorporation as in effect on the date hereof
(“Certificate of Incorporation”); (ii) the execution, delivery and performance
of this Agreement and the other Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Preferred Stock and the
issuance and reservation for issuance of the Conversion Shares and the Dividend
Shares) have been duly authorized by the Company’s Board of Directors and no
further consent or authorization of the Company, its Board of Directors, any
committee of the Board of Directors or any of the stockholders of the Company is
required, and (iii) this Agreement constitutes, and, upon execution and delivery
by the Company of the other Transaction Documents, such Transaction Documents
will constitute, valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors’ rights and
remedies. Neither the execution, delivery or performance by the Company of its
obligations under this Agreement or the other Transaction Documents, nor the
consummation by it of the transactions contemplated hereby or thereby
(including, without limitation, the issuance of the Preferred Stock, or the
issuance or reservation for issuance of the Conversion Shares and the Dividend
Shares) requires any consent or authorization of the Company’s stockholders.
 
(c) Capitalization. The capitalization of the Company as of the date hereof,
including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company’s stock option plans, all securities exercisable or exchangeable
for, or convertible into, any shares of capital stock of the Company
(“Convertible Securities”), the number of shares issuable and reserved for
issuance pursuant to Convertible Securities, any shares of capital stock and the
number of shares reserved for issuance upon conversion of the Preferred Stock,
is set forth in Section 3(c) of the Disclosure Schedule. All of such outstanding
shares of capital stock have been, or upon issuance in accordance with the terms
of any such Convertible Securities will be, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company (including the
Conversion Shares and the Dividend Shares) are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens or
encumbrances. Except as set forth in Section 3(c) of the Disclosure Schedule,
(i) there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
nor are any such issuances or arrangements contemplated, (ii) there are no
agreements or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of its or their securities under the
Securities Act (except the Registration Rights Agreement); (iii) there are no
outstanding securities or instruments of the Company which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
redeem any security of the Company; and (iv) the Company does not have any
shareholder rights plan, “poison pill” or other anti-takeover plans or similar
arrangements. Section 3(c) of the Disclosure Schedule sets forth all of the
securities or instruments issued by the Company or any of its Subsidiaries that
contain anti-dilution or similar provisions that will be triggered by, and all
of the resulting adjustments that will be made to such securities and
instruments as a result of, the issuance of the Securities and the Dividend
Shares in accordance with the terms of this Agreement or the Certificate of
Designation. The Company has no knowledge of any voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among any of the security holders of the Company relating to the
securities of the Company held by them. The Company can furnish, upon request,
true and correct copies of the Company’s Certificate of Incorporation, the
Company’s Bylaws as in effect on the date hereof (the “Bylaws”), and all other
instruments and agreements governing any Convertible Securities. The Company or
one of its Subsidiaries has the unrestricted right to vote, and (subject to
limitations imposed by applicable law) to receive dividends and distributions
on, all capital securities of its Subsidiaries as owned by the Company or any
such Subsidiary.
 
 
 
-4-

 
 
(d) Issuance of Securities. The Preferred Stock is duly authorized and, upon
issuance in accordance with the terms of this Agreement and the Certificate of
Designation, (i) will be validly issued and free from all taxes, liens, claims,
transfer restrictions, and encumbrances (other than restrictions on transfer
contained in this Agreement or the Certificate of Designation), (ii) will not be
subject to preemptive rights, rights of first refusal or other similar rights of
stockholders of the Company or any other Person (as defined below) and (iii)
will not impose personal liability on any holder thereof. The Conversion Shares
and the Dividend Shares are duly authorized and reserved for issuance, and, upon
issuance of the Dividend Shares or conversion of the Preferred Stock, in each
case in accordance with the terms of the Certificate of Designation, (x) will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims, transfer restrictions, and encumbrances (other than restrictions on
transfer contained in this Agreement), (y) will not be subject to preemptive
rights, rights of first refusal or other similar rights of stockholders of the
Company or any other Person and (z) will not impose personal liability upon any
holder thereof. Except for the filing of any notice prior or subsequent to the
Closing Date that may be required under applicable state and/or federal
securities laws (or comparable laws of any other jurisdiction), no
authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, commission, board,
bureau, agency, instrumentality or other third party, is or will be necessary
for, or in connection with, the execution and delivery by the Company of this
Agreement, the offer, issue, sale, execution or delivery of the Securities and
the Dividend Shares, or the performance by the Company of its obligations under
this Agreement. No “bad actor” disqualifying event described in Rule
506(d)(1)(i)-(viii) of the Securities Act (a “Disqualification Event”) is
applicable to the Company or, to the Company’s knowledge, any Person listed in
the first paragraph of Rule 506(d)(1), except for a Disqualification Event as to
which Rule 506(d)(2)(ii–iv) or (d)(3), is applicable. “Person” means an
individual, partnership, corporation, unincorporated organization, joint stock
company, limited liability company, association, trust, joint venture or any
other entity, or a governmental agency or political subdivision thereof.
 
(e) No Conflicts. Except as set forth in Section 3(e) of the Disclosure
Schedule, the execution, delivery and performance of this Agreement and the
other Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Preferred Stock, and the issuance and
reservation for issuance of the Conversion Shares and the Dividend Shares) will
not (i) result in a violation of the Certificate of Incorporation or Bylaws,
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and state
securities laws, rules and regulations and rules and regulations of any
self-regulatory organizations to which either the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected, or (iv) result in the imposition of a mortgage, pledge, security
interest, encumbrance, charge or other lien on any asset of the Company or any
Subsidiary.
 
(f) Compliance. Neither the Company nor any of its Subsidiaries is in violation
of its Certificate of Incorporation, Bylaws or other organizational documents,
and neither the Company nor any of its Subsidiaries is in default (and no event
has occurred that with notice or lapse of time or both would put the Company or
any of its Subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party. The
businesses of the Company and its Subsidiaries are not being conducted, and
shall not be conducted so long as any Purchaser (or any of its respective
affiliates) owns any of the Securities or Dividend Shares, in violation of any
law, ordinance or regulation of any governmental entity, except for possible
violations the sanctions for which either singly or in the aggregate have not
had and would not materially affect the Company or any of its Subsidiaries.
Neither the Company, nor any of its Subsidiaries, nor any director, officer,
agent, employee or other Person acting on behalf of the Company or any
Subsidiary has, in the course of his actions for, or on behalf of, the Company,
used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity, made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds, violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state,
 
 
 
-5-

 
 
provincial or foreign governmental or regulatory authorities that are material
to the conduct to their business, and neither the Company nor any of its
Subsidiaries has received any notice of proceeding relating to the revocation or
modification of any such certificate, authorization or permit. The Company has
complied in all material respects with and is not in default or violation in any
material respect of, and is not, to the Company’s knowledge, under investigation
with respect to or has not been, to the knowledge of the Company, threatened to
be charged with or given notice of any violation of, any applicable federal,
state, local or foreign law, statute, ordinance, license, rule, regulation,
policy or guideline, order, demand, writ, injunction, decree or judgment of any
federal, state, local or foreign governmental or regulatory authority. Except
for statutory or regulatory restrictions of general application, no federal,
state, local or foreign governmental or regulatory authority has placed any
material restriction on the business or properties of the Company or any of its
Subsidiaries.
 
(g) SEC Documents, Financial Statements. The Company has timely filed (within
applicable extension periods) all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
Securities Act and/or the Securities Exchange Act of 1934, as amended (including
the rules and regulations promulgated thereunder, the “Exchange Act”) (all of
the foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents incorporated by
reference therein, the “SEC Documents”). As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
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 light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings made prior to
the date hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC applicable with respect thereto. Such financial statements have been
prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”), consistently applied, during the periods involved (except as may be
otherwise indicated in such financial statements or the notes thereto or, in the
case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to immaterial year-end audit adjustments). Except
as set forth in the financial statements of the Company included in the Select
SEC Documents (as defined below), the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such financial statements and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under GAAP to be reflected in such financial
statements, which liabilities and obligations referred to in clauses (i) and
(ii), individually or in the aggregate, are not material to the financial
condition or operating results of the Company. For purposes of this Agreement,
“Select SEC Documents” means the Company’s (A) Annual Report on Form 10-K for
the fiscal year ended December 31, 2017, (B) Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 2018, and (C) all Current Reports on Form 8-K
filed since August 9, 2018.
 
(h) Absence of Certain Changes. Since June 30, 2018, (i) there has not been any
change in the capital stock (other than pursuant to the Company’s stock plans
pursuant to the Company’s Approved Share Plan (as defined below), pursuant to
the conversion or exercise of outstanding securities that are convertible into
or exercisable for Common Stock, or pursuant to publicly disclosed equity or
debt financings) or long-term debt of the Company, or any dividend or
distribution of any kind declared, set aside for payment, paid or made by the
Company on any class of capital stock; (ii) neither the Company nor any of its
Subsidiaries has entered into any transaction or agreement that is material to
the Company or any of its Subsidiaries taken as a whole or incurred any
liability or obligation, direct or contingent, that is material to the Company
or any of its Subsidiaries and, except as contemplated by this Agreement, has
made any material change or amendment to a material contract or arrangement by
which the Company or any of its Subsidiaries or any of their respective assets
or properties is bound or subject; (iii) neither the Company nor any of its
Subsidiaries has sustained any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor disturbance or dispute or any action, order or
decree of any court or arbitrator or governmental or regulatory authority; and
(iv)
 
 
 
-6-

 
 
there has been no material adverse change and no material adverse development in
the business, properties, operations, prospects, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole. Neither the Company nor any of its Subsidiaries has taken any steps,
and does not currently expect to take any steps, to seek protection pursuant to
any bankruptcy or receivership law, nor does the Company or any of its
Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings with respect to the Company or
any of its Subsidiaries. For purposes of this Section 3(h), “Approved Share
Plan” shall mean the Company’s Amended and Restated 1999 Stock Award Plan.
 
(i) Transactions With Affiliates. None of the officers, directors, or employees
of the Company or any of its Subsidiaries, or any of their family members, is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for ordinary course services solely in their capacity as officers,
directors or employees), including, without limitation, any contract, agreement
or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director, employee or family
member or any corporation, partnership, trust or other entity in which any such
officer, director, employee or family member has an ownership interest of five
percent or more or is an officer, director, trustee or partner.
 
(j) Absence of Litigation. Except as disclosed in the Select SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
(including, without limitation, the SEC) pending or affecting the Company, any
of its Subsidiaries, or any of their respective directors or officers in their
capacities as such. To the knowledge of the Company or any of its Subsidiaries,
there are no actions, suits, proceedings, inquiries or investigations before or
by any court, public board, government agency, self-regulatory organization or
body (including, without limitation, the SEC) threatened against the Company,
any of its Subsidiaries, or any of their respective directors or officers in
their capacities as such, which, if determined adversely, could, either
individually or in the aggregate, be material to the Company or any of its
Subsidiaries. There are no facts which, if known by a potential claimant or
governmental authority, could give rise to a claim or proceeding which, if
asserted or conducted with results unfavorable to the Company or any of its
Subsidiaries, could reasonably be expected to be material to the Company or any
of its Subsidiaries.
 
(k) Intellectual Property. Each of the Company and its Subsidiaries owns or is
duly licensed (and, in such event, has the unfettered right to grant
sublicenses) to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, inventions, discoveries, processes, scientific, technical,
engineering and marketing data, object and source codes, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, “Intellectual Property”) used in or
necessary for the conduct of its business as now being conducted and as
presently contemplated to be conducted in the future (collectively, the “Company
Intellectual Property”). Section 3(k) of the Disclosure Schedule sets forth a
list of all material Company Intellectual Property owned and/or used by the
Company or any of its Subsidiaries in its business. Except as set forth on the
Disclosure Schedule, there are no rights of third parties to any of the Company
Intellectual Property except through licensing agreements. Except as set forth
on the Disclosure Schedule, there are no outstanding options, licenses or
agreements of any kind relating to the Company Intellectual Property, nor is the
Company or any of its Subsidiaries bound by or a party to any options, licenses
or agreements of any kind with respect to the Intellectual Property of any other
Person (collectively, the “Third Party License Agreements”) other than such
licenses or agreements arising from the purchase of generally available
products, as to which the aggregate consideration paid by or due from the
Company or any of its Subsidiaries does not exceed $25,000 in value, or “off the
shelf” products. All of the Third Party License Agreements are valid, binding
and in full force and effect in all material respects and to the Company’s
knowledge enforceable by the Company or its applicable Subsidiary in accordance
with their respective terms in all material respects, subject to general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors’ rights and remedies. Neither the Company nor any of
its Subsidiaries is in material breach of any such Third Party License
Agreements. To the Company’s knowledge, no other party to any of the Third Party
License Agreements is in material default thereunder. Neither the Company nor
any Subsidiary of the Company infringes or is in conflict with any right of any
other Person with respect to any third party Intellectual Property. Neither the
Company nor any of its Subsidiaries has received written notice of any pending
 
 
 
-7-

 
 
conflict with or infringement upon any third party Intellectual Property. There
is no pending or, to the Company’s knowledge, threatened action, suit,
proceeding or claim by others challenging the Company’s or any of its
Subsidiaries’ ownership of or licensing rights in or to any Company Intellectual
Property. Neither the Company nor any of its Subsidiaries has entered into any
consent agreement, indemnification agreement, forbearance to sue or settlement
agreement with respect to the validity of the Company’s or its Subsidiaries’
ownership of or right to use its Company Intellectual Property and there is no
reasonable basis for any such claim to be successful. The rights of the Company
and its Subsidiaries in the Company Intellectual Property are valid and
enforceable and no registration relating thereto has lapsed, expired or been
abandoned or canceled or is the subject of cancellation or other adversarial
proceedings, and all applications therefor are pending and in good standing. The
Company and its Subsidiaries have taken all reasonable steps required to perfect
their ownership of and interest in the Company Intellectual Property and has
taken reasonable security measures to protect the secrecy, confidentiality and
value of all of the Company Intellectual Property. The Company and its
Subsidiaries have complied, in all material respects, with their respective
contractual obligations relating to the protection of the Company Intellectual
Property used pursuant to licenses. No Person is infringing on or violating the
Company Intellectual Property owned or used by the Company or its Subsidiaries.
The Company and its Subsidiaries have used Company IP Counsel (as defined below)
for all Intellectual Property matters since December 31, 2011 and, since such
date, neither the Company nor any of its Subsidiaries has consulted any other
counsel with respect to any Intellectual Property matters.
 
(l) Title. The Company and its Subsidiaries have good and marketable title in
fee simple to all real property and good and merchantable title to all personal
property owned by them that is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such 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 its Subsidiaries. Any real property and facilities held under
lease by the Company and its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not materially interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.
 
(m) Tax Status. Except as set forth in Section 3(m) of the Disclosure Schedule,
the Company and each of its Subsidiaries has made or filed all foreign, U.S.
federal, state, provincial and local income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges due and owing, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to any statute of limitations relating to the assessment or
collection of any foreign, federal, state, provincial or local tax. None of the
Company’s tax returns is presently being audited by any taxing authority.
 
(n) Key Employees. Each of the Company’s and its Subsidiaries’ directors and
officers and any Key Employee (as defined below) is currently serving the
Company or its Subsidiaries in the capacity disclosed in the Select SEC
Documents. No Key Employee is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each Key Employee does not subject the Company or any of its Subsidiaries to
any material liability with respect to any of the foregoing matters. No Key
Employee has, to the knowledge of the Company and its Subsidiaries, any
intention to terminate or limit his employment with, or services to, the Company
or any of its Subsidiaries, nor is any such Key Employee subject to any
constraints which would cause such employee to be unable to devote his full time
and attention to such employment or services. For purposes of this Agreement,
“Key Employee” means the persons listed in Section 3(n) of the Disclosure
Schedule and any individual who assumes or performs any of the duties of a Key
Employee.
 
 
 
-8-

 
 
(o) Employee Relations. (i) No application or petition for certification of a
collective bargaining agent is pending and none of the employees of Company or
any of its Subsidiaries are or have been represented by any union or other
bargaining representative and no union has attempted to organize any group of
the Company's or any of its Subsidiaries’ employees, and no group of the
Company's or any of its Subsidiaries’ employees has sought to organize
themselves into a union or similar organization for the purpose of collective
bargaining. The Company and its Subsidiaries believe that their relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
Securities Act) has notified the Company or any of its Subsidiaries that such
officer intends to leave the Company or any of its Subsidiaries or otherwise
terminate such officer’s employment with the Company or any of its Subsidiaries.
The Company and its Subsidiaries are in compliance with all federal, state and
local laws and regulations and, to the Company’s knowledge, all foreign laws and
regulations, in each case respecting employment and employment practices, terms
and conditions of employment and wages and hours, except where failure to be in
compliance would not, either individually or in the aggregate, be material to
the Company or any of its Subsidiaries.
 
(p) Insurance. The Company and each of its Subsidiaries has in force fire,
casualty, product liability and other insurance policies, with extended
coverage, sufficient in amount to allow it to replace any of its material
properties or assets which might be damaged or destroyed or sufficient to cover
liabilities to which the Company or any of its Subsidiaries may reasonably
become subject, and such types and amounts of other insurance with respect to
its business and properties, on both a per occurrence and an aggregate basis, as
are customarily carried by Persons engaged in the same or similar business as
the Company and its Subsidiaries. No default or event has occurred that could
give rise to a default under any such policy.
 
(q) Environmental Matters. The Company and each of its Subsidiaries is in
compliance with all foreign, federal, state and local rules, laws and
regulations relating to the use, treatment, storage and disposal of Hazardous
Substances (as defined below) and protection of health and safety or the
environment which are applicable to its business. There is no environmental
litigation or other environmental proceeding pending or threatened by any
governmental or regulatory authority or others with respect to the current or
any former business of the Company or any of its Subsidiaries or any partnership
or joint venture currently or at any time affiliated with the Company or any of
its Subsidiaries. No state of facts exists as to environmental matters or
Hazardous Substances that involves the reasonable likelihood of a material
capital expenditure by the Company or any of its Subsidiaries. No Hazardous
Substances have been treated, stored or disposed of, or otherwise deposited, in
or on the properties owned or leased by the Company or any of its Subsidiaries
or by any partnership or joint venture currently or at any time affiliated with
the Company or any of its Subsidiaries in violation of any applicable
environmental laws. The environmental compliance programs of the Company and
each of its Subsidiaries comply in all respects with all environmental laws,
whether foreign, federal, state, provincial or local, currently in effect. For
purposes of this Agreement, “Hazardous Substances” means any substance, waste,
contaminant, pollutant or material that has been determined by any governmental
authority to be capable of posing a risk of injury to health, safety, property
or the environment.
 
(r) Listing. The Company is not in violation of the listing requirements of the
OTCQB Marketplace (the “OTCQB”) on which it trades, does not reasonably
anticipate that the Common Stock will be delisted by the OTCQB for the
foreseeable future, and has not received any notice regarding the possible
delisting of the Common Stock from the OTCQB. The issuance and sale of the
Preferred Stock and the transactions contemplated by the Transaction Documents
do not contravene the rules and regulations of the OTCQB.
 
(s) No General Solicitation or Integrated Offering. Neither the Company nor any
Person acting for the Company has conducted any “general solicitation” (as such
term is defined in Regulation D) with respect to any of the Securities and/or
Dividend Shares being offered hereby. 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 require registration of the
Securities and/or Dividend Shares being offered hereby under the Securities Act
or cause this offering of Securities and/or Dividend Shares to be integrated
with any prior offering of securities of the Company for purposes of the
Securities Act, which result of such integration would require registration
under the Securities Act, or any applicable stockholder approval provisions.
 
 
 
-9-

 
 
(t) No Brokers. Other than the fees and expenses of Northland Securities, Inc.,
no brokerage or finder’s fees or commissions are or will be payable by the
Company or any Subsidiary to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other third party with
respect to the transactions contemplated by the Transaction Documents. The
Purchasers shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other third parties for fees of a type
contemplated in this Section 3(t) that may be due in connection with the
transactions contemplated by the Transaction Documents.
 
(u) Acknowledgment Regarding Securities. The number of Conversion Shares
issuable upon conversion of the Preferred Stock may increase in certain
circumstances. The Company’s directors and executive officers have studied and
fully understand the nature of the Securities being sold hereunder. The Company
acknowledges that its obligation to issue (i) Conversion Shares upon conversion
of the Preferred Stock and (ii) the Dividend Shares, in each case, in accordance
with the Certificate of Designation, is absolute and unconditional, regardless
of the dilution that such issuance may have on the ownership interests of other
stockholders and the availability of remedies provided for in this Agreement
relating to a failure or refusal to issue Conversion Shares and Dividend Shares
to the extent required by the Certificate of Designation. Taking the foregoing
into account, the Company’s Board of Directors has determined in its good faith
business judgment that the issuance of the Preferred Stock hereunder and the
consummation of the other transactions contemplated hereby are in the best
interests of the Company and its stockholders.
 
(v) Internal Control over Financial Reporting. The Company maintains a system of
internal control over financial reporting (as such term is defined in Rule
13a-15(f) of the Exchange Act) that complies with the requirements of the
Exchange Act and has been designed by the Company’s principal executive officer
and principal financial officer, or under their supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
GAAP. The Company does not have any material weaknesses in its internal control
over financial reporting. Since the date of the latest audited financial
statements included in the Select SEC Documents, there has been no change in the
Company’s internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.
 
(w) Disclosure Controls and Procedures. The Company maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15(e) of the
Exchange Act) that comply with the requirements of the Exchange Act. Such
disclosure controls and procedures have been designed to ensure that material
information relating to the Company is accumulated and communicated to the
Company’s management, including the Company’s principal executive officer and
principal financial officer, by others within those entities.
 
(x) Sarbanes-Oxley Compliance. The Company and the Company’s directors and
officers, in their capacities as such, are in compliance with any provision of
the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in
connection therewith (“SOX”), including Section 402 related to loans and
Sections 302 and 906 related to certifications, and neither the Company nor any
of its officers has received notice from any governmental entity questioning or
challenging the accuracy, completeness, content, form or manner of filing or
submission of such certifications. The Company has no reasonable basis to
believe that it will not continue to be in compliance with SOX as in effect on
the Closing Date (including, without limitation, the requirements of Section 404
thereof).
 
(y) Disclosure. All information relating to or concerning the Company and/or any
of its Subsidiaries set forth in this Agreement or provided to the Purchasers
pursuant to Section 2(d) hereof or otherwise by the Company in connection with
the transactions contemplated hereby is true and correct in all material
respects and the Company has not omitted to state any material fact necessary in
order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or its
Subsidiaries or their respective businesses, properties, prospects, operations
or financial conditions, which has not been publicly disclosed but, under
applicable law, rule or regulation, would be required to be disclosed by the
Company in a registration statement filed on the date hereof by the Company
under the Securities Act with respect to a primary issuance of the Company’s
securities.
 
 
 
-10-

 
 
(z) Absence of Indebtedness. On the Closing Date, as a result of the
transactions contemplated by this Agreement, neither the Company nor any
Subsidiary shall have any indebtedness for borrowed money that would be required
to be disclosed by the Company on a balance sheet prepared in accordance with
GAAP. Section 3(z) of the Disclosure Schedule sets for the indebtedness for
borrowed money of the Company and its Subsidiaries as of immediately prior to
the Closing Date.
 
(aa) No Registration. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 2 hereof, it is not necessary,
in connection with the issuance and sale of the Preferred Stock to the
Purchasers, the issuance of the Conversion Shares upon conversion of the
Preferred Stock or the issuance of the Dividend Shares pursuant to the terms of
the Certificate of Designation and the Certificate of Incorporation, in each
case in the manner contemplated by this Agreement and the other Transaction
Documents, to register the Preferred Stock, the Conversion Shares or the
Dividend Shares under the Securities Act, except for any registration that is
required under the terms of the Registration Rights Agreement.
 
(bb) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of its representatives or agents in connection with the Transaction Documents
and the transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities. The Company further represents to each
Purchaser that the Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.
 
(cc) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding, it is understood
and acknowledged by the Company that: (i) none of the Purchasers has been asked
by the Company to agree, nor has any Purchaser agreed, to desist from purchasing
or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities
for any specified term, (ii) past or future open market or other transactions by
any Purchaser, specifically including, without limitation, short sales or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company’s
publicly-traded securities, and (iii) each Purchaser shall not be deemed to have
any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and acknowledges that
(y) one or more Purchasers may engage in hedging activities at various times
during the period that the Securities are outstanding, and (z) such hedging
activities (if any) could reduce the value of the existing stockholders' equity
interests in the Company at and after the time that the hedging activities are
being conducted. The Company acknowledges that such aforementioned hedging
activities do not constitute a breach of any of the Transaction Documents.
 
4. COVENANTS.
 
(a) Form D: Blue Sky Laws. The Company shall timely file with the SEC a Form D
with respect to the Securities as required under Regulation D and provide a copy
thereof to any Purchaser promptly upon request of such Purchaser. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to each
Purchaser pursuant to this Agreement under applicable securities or “blue sky”
laws of the states of the United States or obtain exemption therefrom, and shall
provide evidence of any such action so taken to each Purchaser on or prior to
the Closing Date. Within four business days after the Closing Date, the Company
shall file a Form 8-K with the SEC concerning this Agreement and the
transactions contemplated hereby, which Form 8-K shall attach this Agreement and
its Exhibits as exhibits to such Form 8-K (the “8-K Filing”). The Company shall
provide the Purchasers with a copy of the 8-K Filing at least two (2) business
days prior to the filing of the 8-K Filing for the Purchasers’ review and
comment, it being understood that nothing contained herein shall prevent the
Company from filing such 8-K Filing within four (4) business days after the
Closing Date. The Company shall consider in good faith the comments received by
 
 
 
-11-

 
 
the Purchasers or their counsel to the 8-K Filing and shall incorporate the same
into the 8-K Filing unless the Company, acting in good faith, has a reasonable
basis for not incorporating any such comments, in which case the Company shall
consult with the Purchasers or their counsel with respect to such comments.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Purchaser, or include the name of any Purchaser in any filing with the
SEC or any regulatory agency or trading market (including, without limitation,
on any signature page to any Transaction Document), without the prior written
consent of such Purchaser, except (i) as required by federal securities law in
connection with any registration statement contemplated by the Registration
Rights Agreement and (ii) to the extent such disclosure is required by law, in
which case the Company shall provide the applicable Purchaser(s) with prior
notice of such disclosure permitted under this clause (ii). From and after the
8-K Filing, the Company hereby represents and acknowledges to the Purchasers
that no Purchaser shall be in possession of any material nonpublic information
received from the Company, any of its Subsidiaries or any of its respective
officers, directors, employees or agents, that is not disclosed in the 8-K
Filing. In addition, effective upon the 8-K Filing, the Company acknowledges and
agrees that any and all confidentiality or similar obligations under any
agreement, whether written or oral, between the Company, any of its Subsidiaries
or any of their respective officers, directors, agents, employees or affiliates
on the one hand, and any of the Purchasers or any of their affiliates on the
other hand, shall terminate. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents not to, provide any Purchaser with any material nonpublic information
regarding the Company or any of its Subsidiaries from and after the 8-K Filing
without the express written consent of such Purchaser. The Company understands
and confirms that each 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 a Purchaser without such
Purchaser’s express written 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 affiliates, or any of their respective officers,
directors, agents or employees or affiliates, or a duty to the Company, any of
its Subsidiaries or affiliates or any of their respective officers, directors,
agents or employees 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 of its Subsidiaries or affiliates, the Company shall simultaneously file
such notice with the SEC pursuant to a Current Report on Form 8-K. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company or its
affiliates.
 
(b) Reporting Status. So long as any Purchaser (or any of its affiliates)
beneficially owns any of the Securities or Dividend Shares, the Company
covenants to maintain the registration of the Common Stock under Section 12(b)
or 12(g) of the Exchange Act and shall timely file all reports required to be
filed with the SEC pursuant to the Exchange Act even if the Company is not then
subject to the reporting requirements of the Exchange Act, and the Company shall
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination. In addition, the Company shall take all actions
necessary to meet the “registrant eligibility” requirements set forth in the
general instructions to Form S-1 or any successor form thereto, to continue to
be eligible to register the resale of its Common Stock on a registration
statement on Form S-1 under the Securities Act.
 
(c) Use of Proceeds. The Company shall use the proceeds from the sale and
issuance of the Preferred Stock for general corporate purposes and working
capital; provided that such proceeds shall not be used to (i) pay dividends,
except for dividends paid or payable to holders of the Company’s Series B
Convertible Redeemable Preferred Stock; (ii) purchase debt or equity securities
of any entity (including redeeming the Company’s own securities), except for (A)
evidences of indebtedness issued or fully guaranteed by the United States of
America and having a maturity of not more than one year from the date of
acquisition, (B) certificates of deposit, notes, acceptances and repurchase
agreements having a maturity of not more than one year from the date of
acquisition issued by a bank organized in the United States, (C) the
highest-rated commercial paper having a maturity of not more than one year from
the date of acquisition, and (D) “Money Market” fund shares, or money market
accounts fully insured by the Federal Deposit Insurance Corporation and
sponsored by banks and other financial institutions, provided that the
investments consist principally of the types of investments described in clauses
(A), (B), or (C) above; or (iii) make any investment not directly related to the
current business of the Company.
 
 
 
-12-

 
 
(d) Listing. The Company shall maintain, so long as any Purchaser (or any of its
affiliates) beneficially owns any Securities or Dividend Shares, the listing of
all Dividend Shares, if any, and Conversion Shares from time to time issuable
upon conversion of the Preferred Stock on each national securities exchange,
automated quotation system or electronic bulletin board on which shares of
Common Stock are currently listed. The Company will use its best efforts to
continue the listing and trading of its Common Stock on the OTCQB, the NASDAQ
Capital Market (“NASDAQ”) or the NYSE MKT Exchange (“NYSE MKT”), as applicable.
 
(e) Corporate Existence. So long as any Purchaser (or any of its affiliates)
beneficially owns any Securities or Dividend Shares, the Company shall maintain
its corporate existence, and in the event of a merger, consolidation or sale of
all or substantially all of the Company’s assets, the Company shall ensure that
the surviving or successor entity in such transaction and, if an entity
different from the successor or acquiring entity, the entity whose securities
into which the Common Stock shall become convertible or exchangeable in such
transaction (i) expressly assumes in writing, for the benefit of the Purchasers,
the Company’s obligations under this Agreement and the other Transaction
Documents and the agreements and instruments entered into in connection herewith
and therewith regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and available for
issuance in order to effect the conversion of all the Preferred Stock
outstanding as of the date of such transaction and (ii) except in the event of a
merger, consolidation of the Company into any other corporation, or the sale or
conveyance of all or substantially all of the assets of the Company where the
consideration consists solely of cash, the surviving or successor entity and, if
an entity different from the successor or acquiring entity, the entity whose
securities into which the Common Stock shall become convertible or exchangeable
in such transaction, is a publicly traded corporation whose common stock is
listed for quotation or trading on the OTCQB, NASDAQ or NYSE MKT.
 
(f) No Integrated Offerings. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of the Securities to be integrated with
any other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
 
(g) Legal Compliance. The Company shall conduct its business and the business of
its Subsidiaries in compliance with all laws, ordinances or regulations of
governmental entities applicable to such businesses, except where the failure to
do so would not be material to the Securities, the Dividend Shares or the
business, operations, properties, prospects, condition (financial or otherwise)
or results of operations of the Company and its Subsidiaries.
 
(h) Press Release. Neither the Purchasers nor the Company may issue any press
release (whether or not included in the 8-K Filing) relating to the transactions
contemplated by this Agreement or any other Transaction Document without the
prior written approval of the Purchasers, in the case of a press release issued
by the Company, or the Company, in the case of a press release issued by any
Purchaser, in each case, such approval not to be withheld, conditioned or
delayed by any such Person.
 
(i) Legends. Each Purchaser agrees to the imprinting, so long as is required by
this Section 4(i), of a legend on any of the Securities or Dividend Shares in
the following form:
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR IN ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED
HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS. THE SECURITIES REPRESENTED HEREBY MAY
BE PLEDGED IN ACCORDANCE WITH THE TERMS OF THE SECURITIES PURCHASE AGREEMENT,
DATED AS OF SEPTEMBER 10, 2018, IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
WITH A REGISTERED BROKER-DEALER OR OTHER LENDING ARRANGEMENT WITH A FINANCIAL
INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT.
 
 
 
-13-

 
 
The Company acknowledges and agrees that a 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 and/or Dividend
Shares to a financial institution that is an “accredited investor” as defined in
Rule 501(a) under the Securities Act and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities and/or
Dividend Shares 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 and/or Dividend Shares may reasonably request in connection with a
pledge or transfer of the Securities and/or Dividend Shares, including, if the
Securities and/or Dividend Shares are subject to registration pursuant to the
Registration Rights Agreement, 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.
 
Instruments (including statements related to book-entry accounts), whether
certificated or uncertificated, evidencing the Securities and/or Dividend Shares
shall not contain any legend (including the legend set forth above in this
Section 4(i)), and the Company shall take all actions that are necessary to
remove any such legend, (i) while a registration statement (including, without
limitation, the registration statement contemplated by the Registration Rights
Agreement) covering the resale of such Securities and/or Dividend Shares is
effective under the Securities Act, (ii) following any sale of such Securities
and/or Dividend Shares pursuant to Rule 144, (iii) if such Securities and/or
Dividend Shares are eligible for sale under Rule 144 (whether or not such
Securities and/or Dividend Shares are being sold under Rule 144 at the
applicable time), without the requirement for the Company to be in compliance
with the current public information required under Rule 144 as to such
Securities and/or Dividend Shares and without volume or manner-of-sale
restrictions, (iv) the holder of any such Securities and/or Dividend Shares
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or transfer of such Security and/or Dividend Share may be made
without registration under the Securities Act; or (v) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the SEC). Promptly
after such time as such legend is no longer required, the Company shall cause
its counsel to issue a legal opinion to its transfer agent if required by the
transfer agent to effect the removal of the legend hereunder, or to a Purchaser
upon request. The Company agrees that following such time as such legend is no
longer required, it will, no later two (2) business days following the delivery
by a Purchaser to the Company or its transfer agent of an instrument (including
statements related to book-entry accounts), whether certificated or
uncertificated, representing Securities and/or Dividend Shares, as the case may
be, issued with (or subject to) a restrictive legend, deliver or cause to be
delivered to such Purchaser an instrument (including statements related to
book-entry accounts), whether certificated or uncertificated, representing such
Securities and/or Dividend Shares that is free from all restrictive and other
legends.
 
(j) Shareholder Rights Plan. No claim will be made or enforced by the Company
or, with the consent of the Company, any other Person, that any Purchaser is an
“acquiring person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities and/or Dividend Shares under
the Transaction Documents or under any other agreement between the Company and
the Purchasers.
 
 
 
-14-

 
 
5. TRANSFER AGENT INSTRUCTIONS.
 
(a) Upon conversion of the Preferred Stock by any Person or the issuance of any
Dividend Shares, (i) if the DTC Transfer Conditions (as defined below) are
satisfied, the Company shall cause its transfer agent to electronically transmit
all Conversion Shares and/or Dividend Shares, as applicable, by crediting the
account of such Person or its nominee with the Depository Trust Company (“DTC”)
through its Deposit Withdrawal Agent Commission system; or (ii) if the DTC
Transfer Conditions are not satisfied, the Company shall issue and deliver, or
instruct its transfer agent to issue and deliver, certificates or statements
related to book-entry accounts (subject to the legend and other applicable
provisions hereof and the Certificate of Designation), registered in the name of
such Person or its nominee, representing the Conversion Shares and/or the
Dividend Shares, as applicable. Even if the DTC Transfer Conditions are
satisfied, any Person effecting a conversion of Preferred Stock or receiving
Dividend Shares may instruct the Company to deliver to such Person or its
nominee physical certificates representing the Conversion Shares and/or Dividend
Shares, as applicable, in lieu of delivering such shares by way of DTC transfer.
For purposes of this Agreement, “DTC Transfer Conditions” means that (A) the
Company’s transfer agent is participating in the DTC Fast Automated Securities
Transfer program and (B) the certificates for the Conversion Shares and/or
Dividend Shares, as applicable, required to be delivered are not required to
bear a legend pursuant to Section 4(i) and the Person effecting such conversion
or exercise is not then required to return such certificate for the placement of
a legend thereon.
 
(b) The Company warrants that no instruction other than such instructions
referred to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof in the case of the transfer of the Conversion Shares and/or
Dividend Shares prior to registration of the Conversion Shares and/or Dividend
Shares under the Securities Act or without an exemption therefrom, shall be
given by the Company to its transfer agent and that the Conversion Shares and/or
Dividend Shares shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement. Nothing in this
Section shall affect in any way the Purchasers’ obligations and agreement set
forth in Section 4(i) hereof to resell the Securities and/or Dividend Shares
pursuant to an effective registration statement or under an exemption from the
registration requirements of applicable securities law.
 
(c) If any Purchaser provides the Company and the transfer agent with an opinion
of counsel, which opinion of counsel shall be in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
the Securities and/or Dividend Shares to be sold or transferred may be sold or
transferred pursuant to an exemption from registration, or any Purchaser
provides the Company with reasonable assurances that such Securities and/or
Dividend Shares may be sold under Rule 144 (whether or not such Securities
and/or Dividend Shares are actually being sold at the applicable time), the
Company shall permit the transfer and, in the case of the Conversion Shares
and/or Dividend Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by the
Purchasers. Nothing in this Section 5(c) shall alter, modify, reduce, supersede
or otherwise change the obligations of the Company under Section 4(i).
 
6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.
 
The obligation of the Company hereunder to issue and sell the Preferred Stock to
each Purchaser is subject to the satisfaction, on or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:
 
(a) Each Purchaser shall have executed such Purchaser’s Signature Page to this
Agreement and each other Transaction Document to which such Purchaser is a party
and delivered the same to the Company.
 
(b) Each Purchaser shall have delivered to Escrow Agent the full amount of such
Purchaser’s applicable Purchase Price on the Closing Date in accordance with
Section 1(b) hereof and the wire transfer instructions set forth on Exhibit D.
 
 
 
-15-

 
 
(c) The Company and Northland Securities, Inc., with the written consent of the
Required Purchasers (which consent may be via e-mail), shall have delivered a
joint written notice to the Escrow Agent notifying the Escrow Agent that the
conditions precedent to the Closing have been satisfied or waived and
instructing the Escrow Agent to release and disburse the Escrow Funds (as
defined in the Escrow Agreement) to the Company.
 
(d) The representations and warranties of each Purchaser shall be true and
correct as of the date when made and on the Closing Date as though made at that
time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date), and such Purchaser shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser on or
prior to the Closing Date.
 
(e) No statute, rule, regulation, executive order, decree, ruling, injunction,
action or proceeding shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
 
7. CONDITIONS TO THE PURCHASER’S OBLIGATION TO PURCHASE.
 
The obligation of each Purchaser hereunder to purchase the Preferred Stock on
the Closing Date is subject to the satisfaction of each of the following
conditions, provided that such conditions are for each Purchaser’s individual
and sole benefit and may be waived by such Purchaser at any time in such
Purchaser’s sole discretion:
 
(a) The Company shall have executed such Purchaser’s Signature Page to this
Agreement and each other Transaction Document to which the Company is a party
and delivered executed originals of the same to such Purchaser.
 
(b) All consents, approvals and waivers required for the consummation of the
transactions contemplated hereby shall have been obtained.
 
(c) The Company shall have delivered to such Purchaser (i) duly executed
certificates (or, if the shares of Preferred Stock are not represented by
certificates, duly executed statements related to book-entry accounts)
representing the Preferred Stock for the number of shares of Preferred Stock
being purchased by such Purchaser on the Closing Date, registered in such
Purchaser’s name, and (ii) evidence of the filing and acceptance of the
Certificate of Designation from the Secretary of State of Delaware.
 
(d) The Common Stock shall be authorized for quotation and listed on the OTCQB
and trading in the Common Stock (or on the OTCQB generally) shall not have been
suspended by the SEC or the OTCQB.
 
(e) The representations and warranties of the Company shall be true and correct
as of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as of such date)
and the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company on or prior
to the Closing Date. In connection with the issuance of the Preferred Stock on
the Closing Date, such Purchaser shall have received a certificate, executed by
the Chief Executive Officer of the Company after reasonable investigation, dated
as of the Closing Date to the foregoing effect.
 
(f) No statute, rule, regulation, executive order, decree, ruling, injunction,
action or proceeding shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, challenges or prohibits the consummation
of, any of the transactions contemplated by this Agreement.
 
 
 
-16-

 
 
(g) Such Purchaser shall have received an opinion of the Company’s counsel,
Disclosure Law Group, a professional corporation, dated as of the Closing Date,
addressed to such Purchaser in form and substance reasonably satisfactory to
Stroock & Stroock & Lavan LLP, as counsel to certain Purchasers.
 
(h) Such Purchaser shall have received an opinion of the Company’s intellectual
property counsel, San Diego IP Law Group LLP (“Company IP Counsel”), dated as of
the Closing Date, addressed to such Purchaser in form and substance reasonably
satisfactory to Stroock & Stroock & Lavan LLP, as counsel to certain Purchasers.
 
(i) There shall have been no material adverse changes and no material adverse
developments in the business, properties, operations, prospects, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole, since the date hereof, and no information that
is materially adverse to the Company and of which such Purchaser is not
currently aware shall come to the attention of such Purchaser.
 
(j) Such Purchaser shall have received a copy of resolutions, duly adopted by
the Board of Directors of the Company, which shall be in full force and effect
at the time of the Closing, authorizing the execution, delivery and performance
by the Company of this Agreement and the other Transaction Documents and the
consummation by the Company of the transactions contemplated hereby and thereby,
certified as such by the Secretary or Assistant Secretary of the Company on or
before the Closing Date, and such other documents they reasonably request in
connection with the issuance of the Preferred Stock on the Closing Date.
 
(k) The Company shall have paid (or shall pay concurrently with the Closing) the
reasonable fees and disbursements of Stroock & Stroock & Lavan LLP, as counsel
to certain Purchasers.
 
(l) The aggregate Purchase Price for all the Preferred Stock purchased by other
Purchasers who are not affiliates of such Purchaser shall have been, or
concurrently with the Closing will be, delivered to the Escrow Agent by wire
transfer of immediately available funds in accordance with the wire transfer
instructions set forth in Exhibit D.
 
(m) The Company and Northland Securities, Inc., with the written consent of the
Required Purchasers (which consent may be via e-mail), shall have delivered a
joint written notice to the Escrow Agent notifying the Escrow Agent that the
conditions precedent to the Closing have been satisfied or waived and
instructing the Escrow Agent to release and disburse the Escrow Funds to the
Company.
 
(n) The transactions contemplated by (i) that certain Exchange Agreement, dated
September 10, 2018, by and between the Company and Charles Crocker and (ii) that
certain Exchange Agreement, dated September 10, 2018, by and between the Company
and Neal Goldman shall have occurred, or concurrently with the Closing, will
occur.
 
(o) The Amendment No. 1 to the Certificate of Designations, Preferences and
Rights of the Series A Convertible Preferred Stock in the form of Exhibit E
attached hereto shall have been duly executed by the Company and duly filed with
the Secretary of State of Delaware, and the Purchasers shall have received
evidence of such execution and filing, and no other amendments, supplements or
other modifications to the Company’s Certificate of Incorporation shall have
been made since February 9, 2018.
 
8. GOVERNING LAW; MISCELLANEOUS.
 
(a) Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company and
each Purchaser irrevocably consent to the exclusive jurisdiction of the United
States federal courts and the state courts located in the County of New York,
State of New York, in any suit or proceeding based on or arising under this
Agreement and irrevocably agree that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the Company mailed by
first class mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
right of any Purchaser to serve process in any other manner permitted by law.
The Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
 
 
 
-17-

 
 
(b) Counterparts. This Agreement may be executed in two or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party. This Agreement, once executed by a party, may be delivered to the
other parties hereto by facsimile transmission or electronic mail of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
 
(c) Construction. Whenever the context requires, the gender of any word used in
this Agreement includes the masculine, feminine or neuter, and the number of any
word includes the singular or plural. Unless the context otherwise requires, all
references to articles and sections refer to articles and sections of this
Agreement, and all references to schedules are to schedules attached hereto,
each of which is made a part hereof for all purposes. The descriptive headings
of the several articles and sections of this Agreement are inserted for purposes
of reference only, and shall not affect the meaning or construction of any of
the provisions hereof.
 
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
 
(e) Entire Agreement; Amendments. This Agreement and the other Transaction
Documents (including any schedules and exhibits hereto and thereto) contain the
entire understanding of the Purchasers, the Company, their affiliates and
persons acting on their behalf with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor the Purchasers make any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived other than by an instrument in writing signed by the party to be charged
with enforcement, and no provision of this Agreement may be amended other than
by an instrument in writing signed by the Company and each Purchaser.
 
(f) Notices. Any notices required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally, by responsible overnight carrier or by
confirmed facsimile or by electronic mail (“e-mail”), and shall be effective
five days after being placed in the mail, if mailed, or upon receipt or refusal
of receipt, if delivered personally or by responsible overnight carrier or
confirmed facsimile, or when sent if sent by e-mail, in each case addressed to a
party. The initial addresses for such communications shall be as follows, and
each party shall provide notice to the other parties of any change in such
party’s address:
 
(i) If to the Company:
 
ImageWare Systems, Inc.
10815 Rancho Bernardo Road
Suite 310
San Diego, California 92127
E-mail: wgw@iwsinc.com
Attention: Chief Financial Officer
 
with a copy simultaneously transmitted by like means (which transmittal shall
not constitute notice hereunder) to:
 
Disclosure Law Group, a professional corporation
600 West Broadway, Suite 700
San Diego, CA 92101
Telephone: (619) 272-7062
Facsimile: (619) 330-2101
E-Mail: drumsey@disclosurelawgroup.com
Attention: Daniel W. Rumsey, Esq.
 
(ii) If to any Purchasers, to the address set forth under such Purchaser’s name
on the Signature Page hereto executed by such Purchaser.
 
 
 
-18-

 
 
(g) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. Except as
provided herein, the Company shall not assign this Agreement or any rights or
obligations hereunder. Any Purchaser may assign or transfer the Securities
pursuant to the terms of this Agreement and of such Securities. Any Purchaser
may assign such Purchaser’s rights and obligations hereunder or thereunder to
any Person to whom such Purchaser assigns or transfers any Securities and/or
Dividend Shares (any such assignee thereafter becoming a “Purchaser” hereunder).
In addition, and notwithstanding anything to the contrary contained in this
Agreement or the other Transaction Documents, the Securities may be pledged and
all rights of any Purchaser under this Agreement or any other Transaction
Document may be assigned, without further consent of the Company, to a bona fide
pledgee in connection with such Purchaser’s margin or brokerage account or any
other lending arrangement with a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act.
 
(h) 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 that each Indemnitee that is not a party to this Agreement shall
be a third party beneficiary of Section 8(k).
 
(i) Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 2, 3, 4, 5 and 8 hereof shall
survive the Closing Date notwithstanding any due diligence investigation
conducted by or on behalf of, or any knowledge of, any Purchaser, and such
representations, warranties, agreements and covenants are part of the basis of
the bargain contemplated by this Agreement. Moreover, none of the
representations and warranties made by the Company herein shall act as a waiver
of any rights or remedies any Purchaser may have under applicable U.S. federal
or state securities laws.
 
(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
 
(k) Indemnification. In consideration of each Purchaser’s execution and delivery
of this Agreement and the other Transaction Documents and purchase of the
Securities hereunder, and in addition to all of the Company’s other obligations
under this Agreement and the other Transaction Documents, from and after the
Closing Date, the Company shall defend, protect, indemnify and hold harmless
each Purchaser and each other holder of the Securities and/or Dividend Shares
and all of their stockholders, partners, members, officers, directors, employees
and direct or indirect investors and any of the foregoing Persons’ agents or
other representatives, including, without limitation, those retained in
connection with the transactions contemplated by this Agreement (collectively,
the “Indemnitees”), from and against any and all actions, causes of action,
suits, judgments, claims, losses, costs, penalties, fees, liabilities, amounts
paid in settlements, and damages (including diminution in value of the
Securities and Dividend Shares), and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to any action for which
indemnification hereunder is sought), whether or not involving a third party
claim, and including reasonable attorneys’ fees and disbursements (the
“Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement, any other
Transaction Document or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, any other Transaction
Document or any other certificate, instrument or document contemplated hereby or
thereby or (iii) any cause of action, suit or claim brought or made against such
Indemnitee by any Person (including for these purposes a derivative action
brought on behalf of the Company) and arising out of or resulting from (A) the
execution, delivery, performance or enforcement of this Agreement, any other
Transaction Document or any other certificate, instrument or document
contemplated hereby or thereby, (B) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
and sale of the Securities, or (C) the status of such Purchaser or holder of the
Securities and/or Dividend Shares as an investor in the Company, and shall
reimburse each such Indemnitee for the reasonable costs and expenses as they are
incurred in connection with investigating, monitoring, responding to or
defending any of the foregoing. To the extent that the foregoing undertaking by
the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
 
 
 
-19-

 
 
(l) Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement and the other
Transaction Documents. As such, the language used herein and therein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
 
(m) Knowledge. As used in this Agreement, the term “knowledge” of any Person
shall mean and include (i) with respect to the Company, the actual knowledge of
any of the Company’s officers or directors and (ii) that knowledge which a
reasonably prudent business person could have obtained in the management of his
or her business affairs after making due inquiry and exercising due diligence
which a prudent business person should have made or exercised, as applicable,
with respect thereto.
 
(n) Exculpation Among Purchasers. The Company acknowledges that the obligations
of each Purchaser under this Agreement and each of the other Transaction
Documents are several and not joint with the obligations of any other Purchaser,
and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under the Transaction Documents. Each
Purchaser acknowledges that it has independently evaluated the merits of the
transactions contemplated by this Agreement and the other Transaction Documents,
that it has independently determined to enter into the transactions contemplated
hereby and thereby, that it is not relying on any advice from or evaluation by
any other Purchaser, and that it is not acting in concert with any other
Purchaser in making its purchase of securities hereunder or in monitoring its
investment in the Company. The Purchasers and the Company agree that no action
taken by any Purchaser pursuant hereto or the other Transaction Documents shall
be deemed to constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Purchasers
are in any way acting in concert or would deem such Purchasers to be members of
a “group” for purposes of Section 13(d) of the Exchange Act, and the Purchasers
have not agreed to act together for the purpose of acquiring, holding, voting or
disposing of equity securities of the Company. The Company has elected to
provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to do so
by the Purchasers. The Company acknowledges that such procedure with respect to
the Transaction Documents in no way creates a presumption that the Purchasers
are in any way acting in concert or as a “group” for purposes of Section 13(d)
of the Exchange Act with respect to the Transaction Documents or the
transactions contemplated hereby or thereby. Each Purchaser acknowledges that it
has been represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents. It is expressly understood and agreed
that each provision contained in this Agreement is between the Company and a
Purchaser, solely, and not between the Company and the Purchasers collectively
and not between and among the Purchasers.
 
(o) Business Days and Trading Days. For purposes of this Agreement, the term
“business day” means any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law, regulation or executive order to close, and the term “trading day” means
any day on which the OTCQB or, if the Common Stock is not then traded on the
OTCQB, the principal national securities exchange, automated quotation system or
other trading market where the Common Stock is then listed, quoted or traded, is
open for trading.
 
(p) Termination. This Agreement may be terminated at any time prior to the
Closing by the written notice of the Required Purchasers to the Company if the
Closing shall not have occurred on or before September 11, 2018. Any such
termination shall be effective immediately upon delivery of such notice to the
Company, unless such notice provides for a different time for termination. If
this Agreement is terminated prior to the Closing, then the Company shall
promptly (but in no event later than one (1) business day after the date of such
termination) deliver written notice to the Escrow Agent that the “Termination
Date” (as defined in the Escrow Agreement) has occurred and instruct the Escrow
Agent to, and otherwise cause the Escrow Agent to, refund to the Purchasers all
amounts deposited into the Escrow Account (as defined in the Escrow Agreement)
by the Purchasers in accordance with the terms of the Escrow Agreement. The
Company shall not amend or permit any other Person to amend the Escrow Agreement
without the prior written consent of the Required Purchasers. “Required
Purchasers” shall mean the Purchasers who have agreed to purchase at least a
majority of the Securities to be sold hereunder.
 
 
 
-20-

 
 
(q) Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary (including the requirement of the Company to pay the
reasonable fees and disbursements of Stroock & Stroock & Lavan LLP, as counsel
to certain Purchasers as set forth in Section 7(k) above), 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, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities and/or Dividend
Shares to the Purchasers.
 
(r) Specific Performance. The Company and each of the Purchasers acknowledge and
agree that (a) irreparable damage would occur in the event that any of the
provisions of this Agreement are not performed in accordance with their specific
terms or are otherwise breached, and (b) remedies at law would not be adequate
to compensate the non-breaching party. Accordingly, the Company and each of the
Purchasers agree that each of them shall have the right, in addition to any
other rights and remedies existing in its favor, to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce its
rights and obligations hereunder not only by an action or actions for damages
but also by an action or actions for specific performance, injunctive and/or
other equitable relief. The right to equitable relief, including specific
performance or injunctive relief, shall exist notwithstanding, and shall not be
limited by, any other provision of this Agreement. The Company and each of the
Purchasers hereby waives any defense that a remedy at law is adequate and any
requirement to post bond or other security in connection with actions instituted
for injunctive relief, specific performance or other equitable remedies.
 
 
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
 
-21-

 
 
IN WITNESS WHEREOF, the Purchasers and the Company have caused this Agreement to
be duly executed as of the date first above written.
 
IMAGEWARE SYSTEMS, INC.
 
 
By:                                                                            
Name:
Title:
 
PURCHASER:
 
 
(Print or Type Name of Purchaser)
 
 
By:                                                                            
Name:
Title:
 
ADDRESS:                      
 
 
Telephone:                                                      
Facsimile:                                                      
E-Mail:                                                      
Attention:                                                      
 

AGGREGATE SUBSCRIPTION AMOUNT:
 
Number of shares of Preferred
Stock:                                                                                                            
Purchase Price ($10,000 per share of Preferred
Stock):                                                                                                                      
 
 
 
 
-22-

 

 
EXHIBIT A
 
Certificate of Designations
 
 
 
-23-

 

 
EXHIBIT B
 
Registration Rights Agreement
 
 
 
 
-24-

 

 
EXHIBIT C
 
Escrow Agreement
 
 
 
 
-25-

 

 
EXHIBIT D
 
Wire Instructions
 
 
 
 
-26-