<PAGE>

              SOFTWARE DEVELOPMENT AND TECHNOLOGY LICENSE AGREEMENT

     AGREEMENT, made and entered into as of the 20th day of October 1998 (the
"Effective Date"), by and between PANASONIC COMPUTER PERIPHERALS COMPANY,
UNIT OF MATSUSHITA ELECTRIC CORPORATION OF AMERICA, a Delaware corporation
which has its principal offices at One Panasonic Way, Secaucus, New Jersey
07094 ("PCPC"), and IMAGEWARE SOFTWARE, INC., a California corporation which
has its principal offices at 15373 Innovation Drive, Suite 120, San Diego,
California 92128 ("ImageWare").

     WHEREAS, PCPC is engaged in the marketing and distribution of a series
of motion image printers; and

     WHEREAS, PCPC desires to have developed a software program that will
take advantage of the capabilities of such motion image printers; and

     WHEREAS, ImageWare represents that it has the expertise to develop such
a software program; and

     WHEREAS, ImageWare represents that it owns certain object layering
technology useful in the development of such a software program; and

     WHEREAS, ImageWare desires to develop such a software program for, and
license its object layering technology to, PCPC, upon the terms and
conditions hereinafter set forth;

     NOW, THEREFORE, in consideration of the mutual covenants and promises
herein set forth, the parties hereby agree as follows:

1.   DEFINITIONS

The following capitalized terms, when used in this Agreement, shall have the
meanings ascribed to them in this Section 1:

1.1  "Bundled Product" shall mean a Motion Printer combined with one copy of
     the Product in object code form and shipped with the Motion Printer in the
     same packaging.

1.2  "Intellectual Property" shall mean all intellectual property other
     than the Technology owned by ImageWare prior to the Effective Date or
     licensed to ImageWare by a third party, and used in the development of the
     Product.

1.3  "Motion Printer" shall mean the Panasonic motion image printer described
     in Exhibit A hereto.


[Confidential treatment requested for certain portions of this Exhibit]



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1.4  "Motion Printer DLL" shall mean a certain dynamic link library to be
     lent to ImageWare by PCPC pursuant hereto.

1.5  "Product" shall mean the software program to be developed by ImageWare
     pursuant to this Agreement in accordance with the Specifications,
     together with user manuals, other documentation and any other ancillary
     materials to be developed by ImageWare pursuant hereto.

1.6  "Specifications" shall mean the specifications for the Product set forth
     in Exhibit B hereto, together with any additional specifications or
     modifications to the specifications set forth in Exhibit B that may be
     agreed to in writing by the parties during the term of this Agreement.

1.7  "Technology" shall mean the object layering technology described and
     claimed in U.S. Patent No. 5,577,179.

1.8  Other capitalized terms shall have the meanings ascribed to them in the
     body of this Agreement.

2.   TERM AND TERMINATION

2.1  This Agreement shall have an Initial Term of three years, commencing
     with the Effective Date. Each contract year shall commence with the
     Effective date or the anniversary thereof. Provided that PCPC provides
     written notice to ImageWare at least 60 days before the expiration of
     the Initial Term of its desire to renew the Agreement, ImageWare shall
     negotiate in good faith with PCPC the terms for renewal of the Agreement
     for periods beyond the Initial Term.  As long as such negotiations
     continue, the Agreement shall remain in effect upon the terms applicable
     to the third contract year, notwithstanding the expiration of the
     Initial Term.

2.2  PCPC may, at its sole option and election, TERMINATE this Agreement
     effective AS OF THE END OF ANY CONTRACT YEAR upon written notice to
     ImageWare, provided that PCPC shall have tendered to ImageWare the
     minimum Per-Copy Fee FOR THE SUBSEQUENT CONTRACT YEAR.

2.3  Either party may terminate this Agreement immediately upon written
     notice and without further obligation in the event of a material breach
     of this Agreement by the other party, which breach is not cured within
     30 days after the nonbreaching party shall have given written notice of
     such breach.

3.   DEVELOPMENT.

3.1  ImageWare shall undertake and complete development of the Product in
     accordance with the Specifications set forth in Exhibit B hereto, as
     well as any other applicable Specifications.

3.2  PCPC shall lend to ImageWare all hardware reasonably required for
     testing the Product, including at minimum a printer, scanner and video
     capture card.  ImageWare shall maintain

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     such hardware in the same condition in which it was furnished, normal wear
     and tear excepted, and shall return such hardware to PCPC upon Acceptance
     of the Product by PCPC, unless otherwise agreed upon by the parties based
     upon the need to have ImageWare perform additional support and testing of
     the Product. ImageWare shall maintain all-risk insurance insuring such
     hardware for its replacement value. PCPC shall retain all right, title and
     interest in such hardware, and ImageWare shall not encumber such hardware
     in any way nor make it available to any third party except for approved
     subcontractors.

3.3  ImageWare shall use all commercially reasonable efforts to complete the
     development of the Product within 60 days of the Effective Date. PCPC shall
     provide such support and assistance as may be reasonably required by
     ImageWare. Upon completion of the development of the Product, ImageWare
     shall deliver the Product to PCPC. In the event that ImageWare fails to
     develop and deliver the Product within such 60-day period, provided that
     PCPC has fulfilled all of its obligations hereunder, (a) the Development
     Fee, as defined below, shall be reduced by the amount of $5,000.00, up to a
     maximum of $40,000; (b) the Annual Fee, as defined below, shall be reduced
     by the amount of $1,250.00, up to a maximum of $10,000.00; and (c) the
     Per-Copy Fee, as defined below, shall be reduced by the amount of $1.00, up
     to a maximum of $7.50, for each week after the expiration of such 60-day
     period during which the Product has not been delivered. In the event that
     the Product has not been developed and delivered within 150 days of the
     Effective Date, PCPC may, at its sole option and election, terminate this
     Agreement without further obligation, in which case, ImageWare shall refund
     all monies paid by PCPC.

3.4  Upon ImageWare's delivery of the Product to PCPC, PCPC shall have a period
     of 30 days (the "Acceptance Period") to test the Product for conformity to
     the Specifications. In the event that the Product operates in conformity
     with the Specifications during the Acceptance Period, PCPC shall notify
     ImageWare in writing that Acceptance has occurred. In the event that the
     Product does not operate in conformity with the Specifications, PCPC shall
     so notify ImageWare in writing setting forth with reasonable specificity
     the nature of such nonconformity. In such event, ImageWare shall correct
     the nonconformity within 30 days of receipt of such notice, and shall
     deliver the corrected Product to PCPC, and the Acceptance Period shall
     recommence. In the event that the Product still fails to operate in
     conformity with the Specifications after the second Acceptance Period has
     run, PCPC may, at its sole option and election, (a) afford ImageWare
     additional opportunities to correct the nonconformity, to be followed by
     additional Acceptance Periods, subject to the procedure set forth in this
     paragraph, or (b) terminate this Agreement without further obligation, in
     which case, ImageWare shall refund all monies paid by PCPC.

4.   OWNERSHIP OF INTELLECTUAL PROPERTY.

4.1  Except for such rights as are expressly granted to PCPC in this Agreement,
     ImageWare shall retain all right, title and interest in the Technology and
     the Intellectual Property, including such elements and portions of the
     Technology or the Intellectual Property as may be incorporated into the
     Product, and this Agreement conveys no other right, title or interest in
     the Technology or the Intellectual Property.


<PAGE>

4.2  PCPC shall provide to ImageWare hereunder the Motion Printer DLL for use in
     the development of, and for inclusion in, the Product. ImageWare agrees to
     treat the Motion Printer DLL as confidential in accordance with the
     provisions of Section 11 hereof; (b) to use the Motion Printer DLL only for
     the purposes set forth in this Agreement; and (c) not to reverse engineer,
     reverse compile or disassemble the Motion Printer DLL. Upon the expiration
     or termination of this Agreement, ImageWare shall return to PCPC or destroy
     all copies of the Motion Printer DLL then in its possession, including
     without limitation copies stored on computers and magnetic or optical
     media. Except for such rights as are expressly granted to ImageWare in this
     Agreement, PCPC or its licensor shall retain all right, title and interest
     in and to the Motion Printer DLL, and this Agreement conveys no other
     right, title or interest in the Motion Printer DLL.

4.3  The parties expressly recognize that additional intellectual or other
     property rights may be created in the performance of this Agreement. The
     parties expressly agree that all right, title and interest (including
     patent rights, copyrights, trade secret rights and any other rights
     throughout the world) in and to the Product and in and to any object code,
     source code, inventions, works of authorship, mask works, derivative or
     collective works and any ideas or information created, conceived or reduced
     to practice by ImageWare or PCPC relating to the Product in the course of
     performance of this Agreement (the "Work Product") shall belong to PCPC.
     The Work Product shall be deemed work made for hire pursuant to the
     copyright laws of the United States.

4.4  To the extent that PCPC does not obtain all right, title and interest in
     the Work Product pursuant to the foregoing paragraph, ImageWare agrees to
     assign, or cause its employees, agents and contractors to assign all such
     Work Product to PCPC and to execute all documents and perform all acts, or
     cause its employees, agents and contractors to execute all documents and
     perform all acts require to effectuate such assignment. ImageWare shall
     cooperate with PCPC to patent, copyright or otherwise protect the Work
     Product in the United States and elsewhere. PCPC shall bear the costs of
     applying for, prosecuting, securing and maintaining such protection. PCPC
     shall have the exclusive right to enforce and defend the intellectual
     property rights in the Work Product.

4.5  All applicable PCPC and ImageWare patent and copyright notices relating to
     the Product will be incorporated as part of the Product and displayed
     prominently when the application is initially started by a user.

5.   LICENSE OF THE TECHNOLOGY

5.1  ImageWare acknowledges that PCPC intends to engage in the following
     activities with respect to the Product:

     (a)  combine copies of the Product, in object code form, with Motion
          Printers to create Bundled Products;
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     (b)  distribute Bundled Products to distributors, other resellers and end
          users;

     (c)  distribute the Product, in object code form only, to distributors and
          resellers and permit such distributors and resellers to reproduce
          copies of the Product and combine such copies with Motion Printers
          supplied by PCPC for resale to resellers and end users;

     (d)  distribute the Product, in object code form only, to end users and
          permit such end users to reproduce copies of the Product for use with
          Motion Printers purchased from PCPC;

     (e)  use the Product for demonstration and internal business purposes and
          to support, maintain, modify, enhance, upgrade and update the Product;

     (f)  reproduce copies of the Product to make possible or facilitate any of
          the activities described in this paragraph;

     (g)  sublicense to affiliates of PCPC, any or all of the rights granted in
          this Section, provided that such affiliates shall agree to be bound by
          the terms of this Agreement.

5.2  ImageWare hereby grants to PCPC an exclusive license in the United States,
     its territories and Canada to use the Technology to the extent necessary
     for PCPC or its distributors, resellers, end users and sublicensees to
     perform any of the activities described in the preceding paragraph.
     ImageWare further agrees that it shall extend the foregoing license,
     without additional charge, to a list of additional territories
     substantially identical to the list of territories set forth in Exhibit C
     hereto, as soon as ImageWare shall have reasonably determined the
     appropriate territorial scope of its intellectual property protection for
     the Technology, but in no event more than 90 days from the latest date of
     execution of this Agreement unless the parties shall have agreed in writing
     to a later date. In the event that ImageWare has not provided written
     confirmation of the extension of such license within such 90-day period,
     such license shall be deemed to have been extended to the territories set
     forth in Exhibit C as of the date of expiration of such 90-day period.
     ImageWare further agrees that it shall not during the term of this
     Agreement make the Technology available to any third party for use in
     connection with products competitive with the Product. ImageWare further
     grants to PCPC a nonexclusive license everywhere in the world to use the
     Intellectual Property to the extent necessary for PCPC or its distributors,
     resellers, end users and sublicensees to perform any of the activities
     described in the preceding paragraph.

6.   PAYMENT AND PAYMENT SCHEDULE.

6.1  PCPC shall pay ImageWare for the development and other services
     performed hereunder and for the rights granted by ImageWare hereunder, as
     follows:


<PAGE>

     (a)  A Development Fee of [Confidential Treatment requested by ImageWare
          Systems, Inc.], payable in three installments, as follows:

          As of the Effective Date:         [Confidential Treatment requested
                                            by ImageWare Systems, Inc.]

          30 days after the Effective Date: [Confidential Treatment requested
                                            by ImageWare Systems, Inc.]

          30 days after Acceptance          [Confidential Treatment requested
                                            by ImageWare Systems, Inc.]

     (b)  An Exclusivity Fee of [Confidential Treatment requested by ImageWare
          Systems, Inc.] per year, payable at the commencement of each contract
          year; the initial Exclusivity Fee payment shall be due upon Acceptance
          of the Product by PCPC.

     (c)  A fee of [Confidential Treatment requested by ImageWare Systems, Inc.]
          Per-Copy Fee for each copy of the Product distributed by PCPC or
          reproduced by PCPC's distributors, resellers, end users or
          sublicensees with PCPC's permission. This Per-Copy Fee shall be
          subject to a minimum payment for each contract year, as follows:

          Contract year 1:            [Confidential Treatment requested
                                      by ImageWare Systems, Inc.]

          Contract year 2:            [Confidential Treatment requested
                                      by ImageWare Systems, Inc.]

          Contract year 3:            [Confidential Treatment requested
                                      by ImageWare Systems, Inc.]

          PCPC shall remit the accrued Per-Copy Fees at the end of each
          contract-year quarter. At the conclusion of each contract year, PCPC
          shall remit any remaining difference between the Per-Copy Fees
          remitted during such contract year and the minimum payment for such
          contract year.

     (d)  Travel and living expenses of ImageWare's employees incurred in the
          performance of ImageWare's obligations under this Agreement. Such
          expenses shall be subject to PCPC's prior approval, and shall conform
          to PCPC's internal travel and living expense policies.

7.   SUPPORT.

During the first contract year, ImageWare shall provide up to 100 hours of
programming and support services as requested in writing from time to time by
PCPC. Upon any such request from PCPC, ImageWare shall promptly furnish PCPC
with a written statement of the timetable for providing such services. Services
in excess of 100 hours shall be billable at the rate of $110.00 per hour, except
as otherwise agreed in writing by the parties. Any portion of the 100 hours not
used during the first contract year will not be carried over to subsequent
contract year.

8.   WARRANTIES AND REPRESENTATIONS

8.1  ImageWare warrants for a period of ninety (90) days following the first
     shipment of the Product to an end user that the Product will substantially
     conform to the Specifications. ImageWare will correct at its own expense
     any nonconformity that occurs during such ninety (90)-day period.

8.2  ImageWare warrants that the services performed hereunder will be performed
     in a professional and workmanlike manner in accordance with the highest
     industry standards.
<PAGE>

8.3  Each party represents and warrants to the other that the execution,
     delivery and performance of this Agreement do not require the
     authorization or approval of any third party and do not violate any
     contract or other obligation of such party and that such party knows of
     no circumstances existing as of the Effective Date or the date on which
     it executes this Agreement that would prevent its performance of this
     Agreement.

9.   INDEMNIFICATION

9.1  Except to the extent set forth to the contrary in this Section 9,
     ImageWare agrees to indemnify and hold PCPC harmless against all claims
     that the Technology, the Intellectual Property and/or the Product
     infringes any patent, copyright, trade secret, mask work or any other
     property rights of third parties. ImageWare hereby represents that it
     has no knowledge of any such claim of infringement. ImageWare shall
     assume the defense of any suit, action, proceeding or objection based on
     any such claim of infringement brought against PCPC specifically
     relating to the Technology, the Intellectual Property and/or the
     Product, by counsel retained at ImageWare's own expense, and shall pay
     any damages assessed against or otherwise payable by PCPC in any such
     suit as a result of the final disposition of any such claim, suit,
     action, proceeding or objection, provided PCPC, upon receiving notice
     thereof, promptly notifies ImageWare of such claim or of the
     commencement of any such suit, action, proceeding or objection, or
     threats thereof, and ImageWare is afforded the opportunity, in its sole
     and absolute discretion, to determine the manner in which such claim,
     suit, action, proceeding or objection shall be handled or otherwise
     disposed of. PCPC shall give ImageWare the cooperation ImageWare
     requires, at ImageWare's sole cost and expense for all reasonable and
     direct costs and expenses incurred by PCPC, except for salaries of the
     employees of PCPC and fees and expenses of any counsel retained by PCPC
     in the defense of any such claim, suit, action, proceeding or objection.

9.2  Notwithstanding the foregoing, PCPC may be represented in any such suit
     by its own counsel at its own cost and expense; provided, however, that
     PCPC shall not consent to any judgment or decree in any such suit or pay
     or agree to pay any sum of money or agree to do any other act in
     compromise of any such claim of a third party without first obtaining
     ImageWare's consent thereto in writing.

9.3  In the event that the use or sale of the Technology, the Intellectual
     Property and/or the Product, or any part thereof, is preliminarily or
     permanently enjoined by reason of infringement of any third party
     patent, copyright, trade secret, mask work or other property right,
     ImageWare shall, at ImageWare's sole cost and expense, take any one of
     the following actions in ImageWare's sole and absolute discretion: (a)
     procure for PCPC the right to continue the use and/or sale of the
     Technology, the Intellectual Property and/or the Product; or (b) modify
     the Technology, the Intellectual Property and/or the Product so it
     becomes non-infringing; or (c) authorize PCPC to return the enjoined
     Technology, the Intellectual Property and/or the Product theretofore
     paid for by PCPC and agree to refund to PCPC the full price paid by PCPC
     hereunder and any reasonable and necessary direct transportation costs
     associated with such return.


<PAGE>

9.4  Notwithstanding any other provision of this Agreement, the provisions of
     this Section 9 shall not apply to any designs, specifications or
     modifications originating with PCPC, whether or not accepted by
     ImageWare, or performed by PCPC without ImageWare's written approval, or
     to the combination of the Technology, the Intellectual Property and/or
     the Product with other products not supplied by ImageWare; but, rather,
     PCPC shall indemnify and hold ImageWare harmless and defend ImageWare
     against all claims that the same infringe any patent, copyright, trade
     secret, mask work or other property rights of third parties in
     accordance with the terms and provisions of this Section 9.

9.5  ImageWare's and PCPC's obligations set forth in this Section 9 shall
     survive the expiration or termination of this Agreement.

10.  LIMITATION OF LIABILITY

IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR LOSS OF PROFIT, OR
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, ARISING UNDER THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREUNDER, EVEN IF SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES OR LOSS.

11.  NONDISCLOSURE

11.1 Each party agrees to keep, and to cause it employees, agents and
     contractors to keep, any information that is disclosed to it hereunder
     by the other party, and which is designated in writing as confidential
     or which is or should in good faith be known by the other party to be
     confidential ("Confidential Information"), confidential, and to use such
     information only for the purposes described herein. The parties further
     agree that both the Motion Printer DLL and all information developed by
     ImageWare for PCPC hereunder (including without limitation the Work
     Product, but excluding the Technology and the Intellectual Property)
     shall be deemed to be the Confidential Information of PCPC without the
     requirement of a written designation. Each party shall take, and shall
     cause its employees, agents and contractors to take, all reasonable
     steps necessary to safeguard the confidentiality of such information
     from and against disclosures thereof. Neither party shall make, nor
     permit anyone to make, any copies of such information without the other
     party's prior written consent, and the other party shall return, and
     shall cause its employees to return, all copies of such information in
     its possession to the other party upon request therefor or upon any
     termination or cancellation of this Agreement. Nothing contained in this
     Agreement shall be construed as granting or conferring any rights on
     either party, by license or otherwise, with respect to any of such
     information. Each party's obligations under this paragraph shall survive
     indefinitely the termination of this Agreement or until such information
     is made public other than through the acts of either party.

<PAGE>

11.2 The obligations of this Section 11 shall not apply to information that
     either party can demonstrate (a) is or has become readily available
     without restriction through no fault of that party or its employees or
     agents; (b) is received without restriction from a third party lawfully
     in possession of such information and lawfully empowered to disclose
     such information, (c) was rightfully in the possession of either party
     without restriction prior to its disclosure by the other party; or (d)
     was independently developed by employees or consultants of either party
     without access to Confidential Information of the other party.

12.  INDEPENDENT CONTRACTOR

The parties are, and shall at all times during the term of this Agreement be
deemed to be, independent contractors, and nothing in this Agreement shall in
any way be deemed or construed to constitute either party as an agent or
employee of the other, nor shall either party have the right or authority to
act for, incur, assume or create any obligation, responsibility or liability,
express or implied, in the name of, or on behalf of, the other party, or to
bind the other party in any manner whatsoever. The employees of one party
shall be deemed to be the agents, servants and employees of that party only,
and the other party shall incur no obligations or liabilities of any kind,
nature or sort, express or implied, by virtue of, or with respect to, the
conduct of such employees.

13.  ASSIGNMENT; MODIFICATION

13.1 Neither this Agreement, nor any of the rights or interests of either
     party hereunder, may be assigned, transferred or, by operation of law or
     otherwise, except upon the express prior written consent of the other
     party.

13.2 None of the terms of this Agreement can be waived or modified, except in
     writing signed by both parties. The failure of either party hereto to
     enforce, or the delay by either party in enforcing, any of its rights
     under this Agreement shall not be deemed a continuing waiver or a
     modification thereof and either party may, within the time provided by
     applicable law, commence appropriate legal proceedings to enforce any or
     all such rights.

14.  ENTIRE AGREEMENT

This Agreement sets forth the entire understanding, and hereby supersedes any
and all prior agreements, oral or written, heretofore made, between the
parties with respect to the subject matter of this Agreement, and there are
no representations, warranties, covenants, agreements or understandings, oral
or otherwise, express or implied, affecting this Agreement not expressly set
forth herein.

15.  GOVERNING LAW

This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York, without regard to its conflict-of-laws rules.

<PAGE>

16.  SEVERABILITY

Both parties agree that the provisions of this Agreement are severable and
should any of the provisions be finally held by a court of proper
jurisdiction to be invalid, the remainder of this Agreement shall be in full
force and effect.

17.  DISPUTE RESOLUTION

In the event of a dispute hereunder, the parties agree to use reasonable
efforts to negotiate a resolution to such dispute for a period of 30 days, or
such longer period as the parties may agree upon. If no resolution is agreed
upon after 15 days of such negotiation, each party shall involve a senior
executive of such party in the negotiation for the remainder of the 30-day or
other agreed-upon period.


IN WITNESS WHEREOF, the parties have hereunto set their hands and seals.


IMAGEWARE SOFTWARE, INC.              PANASONIC COMPUTER PERIPHERALS
                                      COMPANY, UNIT OF MATSUSHITA
                                      ELECTRIC CORPORATION OF AMERICA


By: /s/ Jim Miller                    By: /s/ J.H. Cullen
   -------------------------------       -------------------------------
Name: Jim Miller                      Name: J.H. Cullen
     -----------------------------         -----------------------------
Title: President & CEO                Title: VP & GM
      ----------------------------          ----------------------------
Date: Oct. 20, 1998                   Date: 11-12-98
     -----------------------------         -----------------------------

<PAGE>

                                                         ORIGINAL

SPECIFICATIONS FOR PANASONIC MIP PROGRAM.

This RFP is an adjunct to the current Swing Studio Program. Panasonic
believes the current Swing Studio application contains the basic tools
required for an MIP Studio System. The implementation of the GUI is/may not
suited best considering our target user. Several usability features need to
be improved. There are also other key features which need to be added. This
RFQ includes current Swing Studio functionality, and requirements for an
upgrade to that application.

APPLICATION SCOPE
It is our intent to eventually have three tiers of application scope. First
is to fully develop the Swing Studio type application. Secondly we will
create a distinct, idiot proof, path through the application. Third will be
to strip it down to deliver a kiosk based system.

STUDIO SYSTEM TARGET USER:
Little or no Computer Experience.
Learning curve should be several hours

SYSTEM REQUIREMENTS:

Windows 98 or Windows NT Operating System
Minimum  RAM (TBD)
Pentium 266 MHz or better Higher
Possible Multiple VGA Display Support Under Windows 98 (Windows NT?)
     Display 1 is operator, Display 2 is Audience / Attract Screen
Consider GUI resolution, Kiosk have support for "NTSC grade monitor? Graphics
     development?
Highly Efficient Print Spooling / Buffer
"Smart" Multiple MIP Printer Support
Hide-able Tool Bar
Status Bar
Direct menu access any module screen
Floating Toolbars (if applicable)
Undo Function where applicable
Cursor change to "Busy" during any system processing

GUI DESIGN REQUIREMENTS:

GENERAL LOOK & FEEL
Two operation modes. Standard and step through card creation.
    Kiosk mode may be developed independently.
Textured Background Graphics (user changeable for each module)
User selectable button Fonts & some System Colors
Bright colors, fun fonts,
3D Buttons, animated/not animated
Auto Hi-Lite Selections
"Mouse-Over" Action descriptions.
Audible response to user input (could be theme oriented)
Customizable scrolling marquee - subtle attract loop during work in progress
Basic application designed in 640x480. When running in 800x600 remainder of
    desktop becomes attract loop area.


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                                                         ORIGINAL

SPECIFIC USER INTERFACE REQUIREMENTS

Print UI displays slide based graphical representation of up to six frames
     which will be output to the MIP.
Card Editor should also support less than six frames (Still frame modes for 2
     or 3 images.
Support for these graphic functions required:
Ability to easily load pre-designed "Template" frames and backgrounds
Key, Layer & Overlay, Move to front & back of imported sprites
Moveable sprites, Path Based Animation
Copy & Paste a sprite from one frame to another (keep relative position &
     display position coordinates in status bar)
maintain exact size & position from one frame to another
Output Preview Function
Basic Image Painting tools
Rotateable & Resizable Text & sprite insertion
Additional
Simple Image Morphing Engine (IE Power Goo)
Label print option (adhesive label on back of card)
Key Function
Easily paste a face, captured from the scanner or video, into a cutout card.
     Luminance key is required, chroma key may be desirable in future.
Editing Functions
When a card is "saved" and closed, the user should be able to re-open the
     card and have the ability to continue editing the objects on the card.
     Sprites, pictures and text must remain individual objects. Only output
     should be converted to bitmap.

STANDARD GUI SCREENS FOR OPERATOR MODE:

TEMPLATE SELECTION SCREEN

Similar to Swing Studio
Six to nine templates displayed
Selected Frame or background animates in left hand pane when selected.


NAME\DATE TEXT ENTRY SCREEN (DEPENDS ON EVENT OR ATTRACTION)

Text can be positioned in default location or moved by dragging. Cursor
     nudging should be supported.
Random text insertion, right click to select applied frames.
Supports all available fonts on system including symbols
"Jiggle" text supported (nudging between frames, "Simpsons Effect")
Text for optional label printer would be entered here also.

VIDEO CAPTURE SCREEN

Video for Windows or WDM Driver model
Microsoft Direct Show Compliant or upgrade
Supports PCI, Parallel & USB camera technologies
Multiple video source selection.
Video Key Function
Input Selection (based on capture device)
Capture Frame Rate Selection
Step capture mode with audible cue (beep-beep-bong). Used for "X marks the
     spot" staged motion
Manual Image Selection will show up to 30 thumbnails of
     captured video.
     Operator selects frames by highlighting them with the mouse
Access to all VFW video adjustment controls
Real time display of image in preview mode, access to adjustment of,
brightness. Contrast saturation,
<PAGE>

SCANNING SCREEN

Preview\Pre-scan of 8.5x11" page.  Click & Drag multiple image selections
(up to 4) of image.
         Aspect ratio constraints may need to be applied for selection process.
Automated scanning tool to resizes "selections" to constrained dimensions of the
MIP Card Array of standard image scanning tools may include:
         Crop, Resize, Selection, Free-Rotate, Color saturation, Brightness,
Contrast, Sharpen, Edge blur etc.
Support Current Twain, and new proposed twain I/F
Provide Scanner bin to hold recently imported images, which will be used to
create a card

Thumnails with displayed filenames

ADJUSTEMENT/EDITING SCREENS
         For Video Capture
         For Scanning Function
         Position Adjustment for Foreground, Key Image, and Background
         Image Enhancement Screen(s) TBD Image ware recommendations

SPECIAL IMAGE EFFECTS

Place where appropriate within the application
Composite, Blend, Tone, Find Contour, Color reduction, Smooth/Sharpen, Merge,
Morph, Brightness/Contrast, Gamma,

OUTPUT PREVIEW SCREEN

Supports Image Re-ordering
Multiple Copy Selection
Individual card "image" may be double clicked and edited with specified Windows
         Image editing program.
MIP Card Print Preview will simulate Lenticular lens effect.

DATABASE SCREEN
Simple Flat File text Boolean searchable database
Application will retain card images & text information
Database fields to be determined
Card creation timer (start to finish) may required
Other statistical information may need to be added to dataset
Database should be prugable
Images from MIP Card could be sold to customer on
a floppy screen save, postcard, etc.


<PAGE>

SYSTEM RELATED OPERATIONS

SYSTEM SETTINGS - OPERATOR SETUP SCREEN

Capture & Scanning setup
Video Board setup & Key color selection
Event Triggering setup
Multimedia selections
Background music (MIDI Files)
System Event Sounds Setup (Wav or Midi Files)
Module "Wallpaper" Background setup-preset or random changing
Printer Setup Selections
Restore System Default Settings

STANDARD WINDOWS HELP SYSTEM
Windows Balloon Help - Mouse-Over where applicable
Application Status Bar - Button Function or User action hint/recommendation
User can toggle on or off
Multimedia Training Tutorial Module

IMAGE ENHANCEMENT:
Edge Smoothing
Compositing
Luminance Key
Chroma Key
Adaptive Key (Image Ware Propriety)

GENERAL PURPOSE INTERFACE - INPUT OUTPUT CONTROL
Lighting During Capture (Relay closure for Kiosk)
Attraction Look GPI (Relay closure(s) for Kiosk)
VCR MCI Control (Studio System)
Camera Zoom (Studio System - Low Priority)
Coin acceptor mechanism input interface (Kiosk Only)
We expect ImageWare recommendation for GPI interface card selection.

OTHER EXTERNAL CONTROL
Modem Callout for Supply replenishment
Joystick support (for Kiosk, possibly Studio System also)
Other Kiosk input support (Kiosk Buttons could be GPI or L & R Mouse clicks??)
Support For label printer (for back of card or customer information, mailing
  label, custom message, etc.)
Should support Seiko label printer or standard windows printer.

SCANNER CONTROL (STUDIO SYSTEM)
Twain Compliant
Full page scan preview
Selection tool for auto save and auto resize of scanned image for MIP card


<PAGE>

                                [LETTERHEAD]

               PROPOSAL FOR PANASONIC COMPUTER PERIPHERAL COMPANY

                      SWING STUDIO MIP SOFTWARE APPLICATION

                                 SCOPE OF WORK

As defined in following outline from T. Meyerhoff. This proposal is for the
first and second phase of the "three tiers" of application scope. That is to
fully develop the Swing Studio application that contains the basic tools
required for a MIP Studio System and create a distinct, "idiot proof", path
through the application. The third phase for a kiosk based system will best be
finalized after the initial phases are completed and user feedback is
considered. Also there are a number of additional issues to consider such as
coin mechanisms, I/O control, etc. We believe that we will be very well
positioned to carry out this task, but it is our understanding that the manned
applications are of priority.

In order to quote the timeframe required, we must take exception to a few items
on the list. The following will not be part of the developed product, but could
be added a later time:

1.  No Morphing capability
2.  Limited Sprite support
3.  Twain scanning only
4.  No modem call-out for supply replenishment
5.  No kiosk or Studio System components
6.  We require additional details to understand how a "MIP Card Print Preview
    will simulate Lenticular lens effect" feature
7.  Win 95 or NT version 4.0


<PAGE>

                                  [LETTERHEAD]

EXHIBIT C

IMAGEWARE SOFTWARE, INC.

Patent Number 5,577,179

Title:  Image Editing System

Status:
Issued -  United States
Pending - Japan

Application in Process:  Western Europe
                         Canada
                         New Zealand
                         Australia