**Exhibit10.1**

Standard Form of OFFICEBUILDING LEASE Developed by PORTLAND METROPOLITAN ASSOCIATION OF BUILDINGOWNERS AND MANAGERS

OFFICE LEASE

This lease, made and entered into at Portland, Oregon,this 7th day of September 2006 by and between

LANDLORD: **Union Bank of Californiaas Trustee for Quest Group Trust VII**

and

TENANT: **ImageWare Systems,Incorporated**

Landlord hereby leases to Tenant the following: approximately 3,470rentable square feet, known as **Suite     **(**the****Premises**),located at 9200 S.E. Sunnybrook Blvd., Clackamas, Oregon, containingapproximately 103,734 rentable square feet **(the Building),**calculatedusing a load factor of (15%) fifteen percent.

Tenant’sProportion Share for purposes of Section 19 shall be 3.35%.

This lease is for a term of thirty-seven (37) months commencing October1, 2006 and continuing through October 31, 2009 at a Monthly Base Rental asfollows:

| October 1, 2006 through  October 31, 2006    |   | Free Rent                                              |
|----------------------------------------------|--------|--------------------------------------------------------|
|                                         |   |                                                   |
| November 1, 2006  through September 30, 2007 |   | $6,940.00 per month ($24.00 per square foot  annually) |
|                                         |   |                                                   |
| October 1, 2007  through September 30, 2008  |   | $7,229.17 per month ($25.00 per square foot  annually) |
|                                         |   |                                                   |
| October 1, 2008  through October 31, 2009    |   | $7,373.75 per month ($25.50 per square foot  annually) |

 

Rent ispayable in advance on the first day of each month.

Landlord andTenant covenant and agree as follows:

**1.1****       Delivery of Possession.**

Should Landlord be unable to deliver possession of thePremises on the date fixed for the commencement of the term, commencement willbe deferred and Tenant shall owe no rent until notice from Landlord tenderingpossession to Tenant, unless such delay is caused by Tenant Delay as defined inthe Addendum.  If possession is not sotendered within 90 days following commencement of the term, unless due toTenant Delay, then Tenant may elect to cancel this lease by notice to Landlordwithin 10 days following expiration of the 90-day period.  Landlord shall have no liability to Tenantfor delay in delivering possession, nor shall such delay extend the term ofthis lease in any manner unless the parties execute a written extensionagreement.

**2.1****       Rent Payment.**

Tenant shall pay the Base Rent for the Premises andany additional rent provided herein without deduction or offset.  Rent for any partial month during the leaseterm shall be prorated to reflect the number of days during the month thatTenant occupies the Premises.  Additionalrent means amounts determined under Section 19 of this Lease and any other sumspayable by Tenant to Landlord under this Lease. Rent not paid when due shall bear interest at the rate ofone-and-one-half percent per month until paid. Landlord may at its option impose a late charge of $.05 for each $1 ofrent for rent payments made more than 10 days late in lieu of interest for thefirst month of delinquency, without waiving any other remedies available fordefault.  Failure to impose a late chargeshall not be a waiver of Landlord’s rights hereunder.

**3.1****       Lease Consideration.**

Upon execution of the lease Tenant has paid the BaseRent for the first full month of the lease term for which rent is payable andin addition has paid the sum of **$7,373.75** aslease consideration.  Landlord may applythe lease consideration to pay the cost of performing any obligation whichTenant fails to perform within the time required by this lease, but suchapplication by Landlord shall not be the exclusive remedy for Tenant’sdefault.  If the lease consideration isapplied by Landlord, Tenant shall on demand pay the sum necessary to replenishthe lease consideration to its original amount. To the extent not applied byLandlord to cure defaults by Tenant, the lease consideration shall be appliedto costs at the end of the lease term, including but not limited to, repairs inexcess of “normal wear and tear” and reconciliation of operating expenses. Anyportion of the lease consideration not used to cover the end of term expensesshall be refundable. If Tenant is in default under this Lease more than two (2)times within any twelve-month period, irrespective of whether or not suchdefault is cured, then without limiting Landlord’s other rights and remediesprovided for in this Lease or at law or equity, the lease consideration shallautomatically be increased by an amount equal to three (3) times the originallease consideration.

**4.1****       Use.**

Tenant shall use thePremises as business for a general office use and for no other purpose withoutLandlord’s written consent.  Inconnection with its use, Tenant shall at its expense promptly comply and causethe Premises to comply with all applicable laws, ordinances, rules andregulations of any public authority and shall not annoy, obstruct, or interferewith

 

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the rights of other tenants of the Building.  Tenant shall create no nuisance nor allow anyobjectionable fumes, noise, or vibrations to be emitted from the Premises.  Tenant shall not conduct any activities thatwill increase Landlord’s insurance rates for any portion of the Building orthat will in any manner degrade or damage the reputation of the Building.

**4.2****       Equipment.**

Tenant shall install in the Premises only such officeequipment as is customary for general office use and shall not overload thefloors or electrical circuits of the Premises or Building or alter the plumbingor wiring of the Premises or Building. Landlord must approve in advance the location of and manner ofinstalling any wiring or electrical, heat generating or communication equipmentor exceptionally heavy articles.  Alltelecommunications equipment, conduit, cables and wiring, additional dedicatedcircuits and any additional air conditioning required because of heatgenerating equipment or special lighting installed by Tenant shall be installedand operated at Tenant’s expense. Landlord shall have no obligation to permit the installation ofequipment by any telecommunications provider whose equipment is not thenservicing the Building.

**4.3****       Signs.**

No signs, awnings, antennas, or other apparatus shallbe painted on or attached to the Building or anything placed on any glass orwoodwork of the Premises or positioned so as to be visible from outside thePremises without Landlord’s written approval as to design, size, location, andcolor.  All signs installed by Tenantshall comply with Landlord’s standards for signs and all applicable codes andall signs and sign hardware shall be removed upon termination of this leasewith the sign location restored to its former state unless Landlord elects toretain all or any portion thereof.

**5.1****       Utilities and Services.**

Landlord will furnish water and electricity to theBuilding at all times and will furnish heat and air conditioning (if theBuilding is air conditioned) during the normal Building hours as established byOwner.  Janitorial service will beprovided in accordance with the regular schedule of the Building, whichschedule and service may change from time to time.  Tenant shall comply with all government lawsor regulations regarding the use or reduction of use of utilities on thePremises.  Interruption of services orutilities shall not be deemed an eviction or disturbance of Tenant’s use andpossession of the Premises, render Landlord liable to Tenant for damages, orrelieve Tenant from performance of Tenant’s obligations under this lease.  Landlord shall take all reasonable steps tocorrect any interruptions in service. Electrical service furnished will be 110 volts unless different servicealready exists in the Premises.  Tenantshall provide its own surge protection for power furnished to the Premises.

**5.2****       Extra Usage.**

If Tenant uses excessive amounts of utilities orservices of any kind because of operation outside of normal Building hours,high demands from office machinery and equipment, nonstandard lighting, or anyother cause.  Landlord may impose areasonable charge for supplying such extra utilities or services, which chargeshall be payable monthly by Tenant in conjunction with rent payments.  In case of dispute over any extra charge underthis paragraph, Landlord shall designate a qualified independent engineer whosedecision shall be conclusive on both parties. Landlord and Tenant shall each pay one-half of the cost of suchdetermination.

**5.3****       Security.**

Landlord may but shall have no obligation to providesecurity service or to adopt security measures regarding the Premises, andTenant shall cooperate with all reasonable security measures adopted byLandlord.  Tenant may install a securitysystem within the leased Premises with Landlord’s written consent, which willnot be unreasonably withheld.  Landlordwill be provided with an access code to any security system and shall not haveany liability for accidentally setting off Tenant’s security system.  Landlord may modify the type or amount ofsecurity measures or services provided to the Building or the Premises at anytime.

**6.1****       Maintenance and Repair.**

Landlord shall have no liability for failure toperform required maintenance and repair unless written notice of suchmaintenance or repair is given by Tenant and Landlord fails to commence effortsto remedy the problem in a reasonable time and manner.  Landlord shall have the right to erectscaffolding and other apparatus necessary for the purpose of making repairs,and Landlord shall have no liability for interference with Tenant’s use becauseof repairs and installations.  Tenantshall have no claim against Landlord for any interruption or reduction ofservices or interference with Tenant’s occupancy, and no such interruption orreduction shall be construed as a constructive or other eviction ofTenant.  Repair of damage caused bynegligent or intentional acts or breach of this lease by Tenant, its employeesor invitees shall be at Tenant’s expense.

**6.2****       Alterations.**

Tenant shall not make anyalterations, additions, or improvements to the Premises, change the color ofthe interior, or install any wall or floor covering without Landlord’s priorwritten consent which may be withheld in Landlord’s sole discretion.  Any such improvements, alterations, wiring,cables or conduit installed by Tenant shall at once become part of the Premisesand belong to Landlord except for removable machinery and unattached movabletrade fixtures.  Landlord may at itsoption require that Tenant remove any improvements, alterations, wiring, cablesor conduit installed by or for Tenant and restore the Premises to the originalcondition upon termination of this lease. Landlord shall have the right to approve the contractor used by Tenantfor any work in the Premises, and to post notices of nonresponsibility inconnection with work being performed by Tenant in the Premises.  Work by Tenant shall comply with all lawsthen applicable to the Premises.

**7.1****       Indemnity.**

Tenant shall not allow any liens to attach to theBuilding or Tenant’s interest in the Premises as a result of itsactivities.  Tenant shall indemnify anddefend Landlord and its managing agents from any claim, liability, damage, orloss occurring on the Premises, arising out of any activity by Tenant, itsagents, or invitees or resulting from Tenant’s failure to comply

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with any term of this lease.  Neither Landlord nor its managing agent shallhave any liability to Tenant because of loss or damage to Tenant’s property orfor death or bodily injury caused by the acts or omissions of other Tenants ofthe Building, or by third parties (including criminal acts).

**7.2****       Insurance.**

Tenant shall carry liability insurance with limits ofnot less than two Million Dollars ($2,000,000) combined single limit bodilyinjury and property damage which insurance shall have an endorsement namingLandlord and Landlord’s managing agent, if any, as an additional insured, coverthe liability insured under paragraph 7.1 of this lease and be in form and withcompanies reasonably acceptable to Owner. Prior to occupancy, Tenant shall furnish a certificate evidencing suchinsurance, which shall state that the coverage shall not be cancelled ormaterially changed without 10 days advance notice to Landlord and Landlord’smanaging agent, if any.  A renewalcertificate shall be furnished at least 10 days prior to expiration of anypolicy.

**8.1****       Fire or Casualty.**

“Major Damage” means damage by fire or other casualtyto the Building or the Premises which causes the Premises or any substantialportion of the Building to be unusable, or which will cost more than 25 percentof the pre-damage value of the Building to repair, or which is not covered byinsurance.  In case of Major Damage,Landlord may elect to terminate this lease by notice in writing to the Tenantwithin 30 days after such date.  If thislease is not terminated following Major Damage, or if damage occurs which isnot Major Damage, Landlord shall promptly restore the Premises to the conditionexisting just prior to the damage. Tenant shall promptly restore all damage to tenant improvements oralterations installed by Tenant or pay the cost of such restoration to Landlordif Landlord elects to do the restoration of such improvements.  Rent shall be reduced from the date of damageuntil the date restoration work being performed by Landlord is substantiallycomplete, with the reduction to be in proportion to the area of the Premisesnot useable by Tenant.

**8.2****       Waiver of Subrogation.**

Tenant shall be responsible for insuring its personalproperty and trade fixtures located on the Premises and any alterations ortenant improvements it has made to the Premises.  Neither Landlord, its managing agent norTenant shall be liable to the other for any loss or damage caused by waterdamage, sprinkler leakage, or any of the risks that are or could be covered bya special all risk property insurance policy, or for any business interruption,and there shall be no subrogated claim by one party’s insurance carrier againstthe other party arising out of any such loss. This waiver is binding only if it does not invalidate the insurancecoverage of either party hereto.

**9.1****       Eminent Domain.**

If a condemning authority takes title by eminentdomain or by agreement in lieu thereof to the entire Building or a portionsufficient to render the Premises unsuitable for Tenant’s use, then eitherparty may elect to terminate this lease effective on the date that possessionis taken by the condemning authority. Rent shall be reduced for the remainder of the term in an amountproportionate to the reduction in area of the Premises caused by thetaking.  All condemnation proceeds shallbelong to Landlord, and Tenant shall have no claim against Landlord or thecondemnation award because of the taking.

**10.1****   Assignment and Subletting.**

This lease shall bind and inure to the benefit of theparties, their respective heirs, successors, and assigns, provided that Tenantshall not assign its interest under this lease or sublet all or any portion ofthe Premises without first obtaining Landlord’s consent in writing.  This provision shall apply to all transfersby operation of law including but not limited to mergers and changes in controlof Tenant.  No assignment shall relieveTenant of its obligation to pay rent or perform other obligations required bythis lease, and no consent to one assignment or subletting shall be a consentto any further assignment or subletting. Landlord shall not unreasonably withhold its consent to any assignmentor subletting provided the effective rental paid by the subtenant or assigneeis not less than the current scheduled rental rate of the Building forcomparable space and the proposed Tenant is compatible with Landlord’s normalstandards for the Building.  If Tenantproposes a subletting or assignment to which Landlord is required to consentunder this paragraph, Landlord shall have the option of terminating this leaseand dealing directly with the proposed subtenant or assignee, or any thirdparty.  If an assignment or subletting ispermitted, any cash profit, or the net value of any other considerationreceived by Tenant as a result of such transaction shall be paid to Landlordpromptly following its receipt by Tenant. Tenant shall pay any costs incurred by Landlord in connection with arequest for assignment or subletting, including reasonable attorneys’ fees.

**11.1****   Default.**

Any of the following shall constitute a default byTenant under this lease:

(a)          Tenant’s failure to payrent or any other charge under this lease within 10 days after it is due, orfailure to comply with any other term or condition within 20 days followingwritten notice from Landlord specifying the noncompliance.  If such noncompliance cannot be cured withinthe 20-day period, this provision shall be satisfied if Tenant commencescorrection within such period and thereafter proceeds in good, faith and withreasonable diligence to effect compliance as soon as possible.  Time is of the essence of this lease.

(b)         Tenant’s insolvency,business failure or assignment for the benefit of its creditors.  Tenant’s commencement of proceedings underany provision of any bankruptcy or insolvency law or failure to obtaindismissal of any petition filed against it under such laws within the timerequired to answer; or the appointment of a receiver for all or any portion ofTenant’s properties or financial records.

(c)          Assignment or sublettingby Tenant in violation of paragraph 10.1.

(d)         Vacation or abandonmentof the Premises without the written consent of Landlord or failure to occupythe Premises within 20 days after notice from Landlord tendering possession.

**11.2****   Remedies for Default.**

In case of default as described in paragraph 11.1Landlord shall have the right to the following remedies, which are intended tobe cumulative and in addition to any other remedies provided under applicablelaw:

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(a)          Landlord may at itsoption terminate the lease by notice to Tenant. With or without termination, Landlord may retake possession of thePremises and may use or relet the Premises without accepting a surrender orwaiving the right to damages.  Followingsuch retaking of possession, efforts by Landlord to relet the Premises shall besufficient if Landlord follows its usual procedures for finding tenants for thespace at rates not less than the current rates for other comparable space inthe Building.  If Landlord has othervacant space in the Building, prospective tenants may be placed in such otherspace without prejudice to Landlord’s claim to damages or loss of rentals fromTenant.

(b)         Landlord may recover alldamages caused by Tenant’s default which shall include an amount equal torentals lost because of the default, lease commissions paid for this lease, andthe unamortized cost of any tenant improvements installed by Landlord to meetTenant’s special requirements.  Landlordmay sue periodically to recover damages as they occur throughout the leaseterm, and no action for accrued damages shall bar a later action for damagessubsequently accruing.  Landlord mayelect in any one action to recover accrued damages plus damages attributable tothe remaining term of the lease.  Suchdamages shall be measured by the difference between the rent under this leaseand the reasonable rental value of the Premises for the remainder of the term,discounted to the time of judgement at the prevailing interest rate onjudgements.

(c)          Landlord may make anypayment or perform any obligation, which Tenant has failed to perform, in whichcase Landlord shall be entitled to recover from Tenant upon demand all amountsso expended, plus interest from the date of the expenditure at the rate ofone-and-one-half percent per month.  Anysuch payment or performance by Landlord shall not waive Tenant’s default.

**12.1****   Surrender.**

On expiration or early termination of this leaseTenant shall deliver all keys to Landlord and surrender the Premises vacuumed,swept, and free of debris and in the same condition as at the commencement ofthe term subject only to reasonable wear from ordinary use.  Tenant shall remove all of its furnishingsand trade fixtures that remain its property and repair all damage resultingfrom such removal.  Failure to removeshall be an abandonment of the property, and Landlord may dispose of it in anymanner without liability.  If Tenantfails to vacate the Premises when required, including failure to remove all itspersonal property, Landlord may elect either: (i) to treat Tenant as a tenant frommonth to month, subject to the provisions of this lease except that rent shallbe one-and-one-half times the total rent being charged when the lease termexpired, and any option or other rights regarding extension of the term orexpansion of the Premises shall no longer apply; or (ii) to eject Tenant fromthe Premises and recover damages caused by wrongful holdover.

**13.1****   Regulations.**

Landlord shall have the right but shall not beobligated to make, revise and enforce regulations or policies consistent withthis lease for the purpose of promoting safety, health (including moving, useof common areas and prohibition of smoking), order, economy, cleanliness, andgood service to all tenants of the Building. All such regulations and policies shall be complied with as if part ofthis lease.

**14.1****   Access.**

During times other than normal Building hours Tenant’sofficers and employees or those having business with Tenant may be required toidentify themselves or show passes in order to gain access to theBuilding.  Landlord shall have noliability for permitting or refusing to permit access by anyone.  Landlord may regulate access to any Buildingelevators outside of normal Building hours. Landlord shall have the right to enter upon the Premises at any time bypasskey or otherwise to determine Tenant’s compliance with this lease, toperform necessary services, maintenance and repairs or alterations to theBuilding or the Premises, or to show the Premises to any prospective tenant orpurchasers.  Except in case of emergencysuch entry shall be at such times and in such manner as to minimizeinterference with the reasonable business use of the Premises by Tenant.

**14.2****   Furniture and Bulky Articles.**

Tenant shall move furniture and bulky articles in andout of the Building or make independent use of the elevators only at timesapproved by Landlord following at least 24 hours written notice to Landlord ofthe intended move.  Landlord will notunreasonably withhold its consent under this paragraph.

**15.1****   Notices.**

Notices between the parties relating to this lease shallbe in writing, effective when delivered, or if mailed, effective on the secondday following mailing, postage prepaid, to the address for the party stated inthis lease or to such other address as either party may specify by notice tothe other.  Notice to Tenant may alwaysbe delivered to the Premises. Rent shall be payable to Landlord at the sameaddress and in the same manner, but shall be considered paid only whenreceived.

**16.1****   Subordination and Attornment.**

This lease shall be subject to and subordinate to anymortgages, deeds of trust, or land sale contracts (here after collectivelyreferred to as encumbrances) now existing against the Building.  At Landlord’s option this lease shall besubject and subordinate to any future encumbrance hereafter placed against theBuilding (including the underlying land) or any modifications of existingencumbrances, and Tenant shall execute such documents as may reasonably berequested by Landlord or the holder of the encumbrance to evidence thissubordination.  If any encumbrance isforeclosed, then if the purchaser at foreclosure sale gives to Tenant a writtenagreement to recognize Tenant’s lease, Tenant shall attorn to such purchaserand this Lease shall continue.

**16.2****   Transfer of Building.**

If the Building is sold or otherwise transferred byLandlord or any successor, Tenant shall attorn to the purchaser or transfereeand recognize it as the lessor under this lease, and, provided the purchaser ortransferee assumes all obligations hereunder, the transferor shall have nofurther liability hereunder.

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**16.3****   Estoppels.**

Either party will within 10 days after notice from theother execute, acknowledge and deliver to the other party a certificatecertifying whether or not this lease has been modified and is in full force andeffect; whether there are any modifications or alleged breaches by the otherparty; the dates to which rent has been paid in advance, and the amount of anysecurity deposit or prepaid rent; and any other facts that may reasonably berequested.  Failure to deliver thecertificate within the specified time shall be conclusive upon the party ofwhom the certificate was requested that the lease is in full force and effectand has not been modified except as may be represented by the party requestingthe certificate.  If requested by theholder of any encumbrance, or any ground lessor, Tenant will agree to give suchholder or lessor notice of and an opportunity to cure any default by Landlordunder this lease.

**17.1Attorneys’ Fees.**

In any litigation arising out of this lease, theprevailing party shall be entitled to recover attorneys’ fees at trial and onany appeal.  If Landlord incurs attorneys’fees because of a default by Tenant, Tenant shall pay all such fees whether ornot litigation is filed.

**18.1****   Quiet Enjoyment.**

Landlord warrants that so long as Tenant complies withall terms of this lease it shall be entitled to peaceable and undisturbedpossession of the Premises free from any eviction or disturbance byLandlord.  Neither Landlord nor itsmanaging agent shall have any liability to Tenant for loss or damages arisingout of the acts, including criminal acts, of other tenants of the Building orthird parties, nor any liability for any reason which exceeds the value of itsinterest in the Building.

**19.1****   Additional Rent-Tax Adjustment.**

Whenever for any July 1 —June 30 tax year the real property taxes levied against the Building and itsunderlying land exceed those levied for the 2005-2006 tax year, then themonthly rental for the next succeeding calendar year shall be increased byone-twelfth of such tax increase times Tenant’s Proportionate Share.  “Real property taxes” as used herein meansall taxes and assessments of any public authority against the Building and theland on which it is located, the cost of contesting any tax and any form of feeor charge imposed on Landlord as a direct consequence of owning or leasing thePremises, including but not limited to rent taxes, gross receipt taxes, leasingtaxes, or any fee or charge wholly or partially in lieu of or in substitutionfor ad valorem real property taxes or assessments, whether now existing orhereafter enacted.  If any portion of theBuilding is occupied by a tax-exempt tenant so that the Building has a partialtax exemption under ORS 307.112 or a similar statute, then real property taxesshall mean taxes computed as if such partial exemption did not exist.  If a separate assessment or identifiable taxincrease arises because of improvements to the Premises, then Tenant shall pay100 percent of such increase.

**19.3****   Operating Expense Adjustment.**

Tenant shall pay as additional rent Tenant’sProportionate Share of the amount by which operating expenses for the Buildingincrease over those experienced by Landlord during the calendar year 2006 (baseyear).  Effective January 1 of  each year Landlord shall estimate the amountby which operating expenses are expected to increase, if any, over thoseincurred in the base year.  Monthlyrental for that year shall be increased by one-twelfth of Tenant’s share of theestimated increase.  Following the end ofeach calendar year, Landlord shall compute the actual increase in operatingexpenses and bill Tenant for any deficiency or credit Tenant with any excesscollected.  As used herein “operatingexpenses” shall mean all costs of operating and maintaining the Building asdetermined by standard real estate accounting practice, including, but notlimited to:  all water and sewer charges;the cost of natural gas and electricity provided to the Building; janitorialand cleaning supplies and services; administration costs and management fees;superintendent fees; security services, if any; insurance premiums; licenses,permits for the operation and maintenance of the Building and all of itscomponent elements and mechanical systems; the annual amortized capitalimprovement cost (amortized over such a period as Landlord may select but notshorter than the period allowed under the Internal Revenue Code and at acurrent market interest rate) for any capital improvements to the Buildingrequired by any governmental authority or those which have a reasonableprobability of improving the operating efficiency of the Building.****In the event the Building is not at least ninety-fivepercent (95%) occupied, the Landlord will gross up all Operating Expenses forthe base year and the comparison year to the level they would have been at hadthe Building been ninety-five percent (95%) occupied.

**19.4****   Disputes.**

If Tenant disputes any computation of additional rentor rent adjustment under paragraphs 19.1 through 19.3 of this lease, it shallgive notice to Landlord not later than one year after the notice from Landlorddescribing the computation in question, but in any event not later than 30 daysafter expiration or earlier termination of this lease.  If Tenant fails to give such a notice, thecomputation by Landlord shall be binding and conclusive between the parties forthe period in question.  If Tenant givesa timely notice, the dispute shall be resolved by an independent certifiedpublic accountant selected by Landlord whose decision shall be conclusivebetween the parties.  Each party shallpay one-half of the fee for making such determination except that if theadjustment in favor of Tenant does not exceed ten percent of the escalationamounts for the year in question, Tenant shall pay (i) the entire cost of anysuch third-party determination; and (ii) Landlord’s out-of-pocket

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costs and reasonable expenses for personnel time inresponding to the audit.  Nothing hereinshall reduce Tenant’s obligations to make all payments as required by thislease.

**20.1****   Complete Agreement; No ImpliedCovenants.**

This lease and the attached Exhibits and Schedules ifany, constitute the entire agreement of the parties and supersede all priorwritten and oral agreements and representations and there are no impliedcovenants or other agreements between the parties except as expressly set forthin this Lease.  Neither Landlord norTenant is relying on any representations other than those expressly set forthherein.

**20.2****   Space Leased AS IS.**

Unless otherwise stated in this Lease, the Premisesare leased AS IS in the condition now existing with no alterations or otherwork to be performed by Landlord.

**20.3****   Captions.**

The titles to the paragraphs of this lease aredescriptive only and are not intended to change or influence the meaning of anyparagraph or to be part of this lease.

**20.4****   Nonwaiver.**

Failure by Landlord to promptly enforce anyregulation, remedy or right of any kind under this Lease shall not constitute awaiver of the same and such right or remedy may be asserted at any time afterLandlord becomes entitled to the benefit thereof notwithstanding delay in enforcement.

**20.5****   Exhibits.**

The following Exhibits are attached hereto andincorporated as a part of this lease:
| Exhibit A            |   | The Premises                                        |
|----------------------|--------|-----------------------------------------------------|
| Exhibit B            |   | Description of Land                                 |
| Exhibit C            |   | Space Plan                                          |
| Exhibit D            |   | Building Standards                                  |
| Exhibit E            |   | Janitorial Specifications and HVAC Holiday Schedule |
| Exhibit F            |   | Rules and Regulations for Office Lease              |
| Addendum A           |   | Additional Provisions                               |
| Billing  Information |   |                                                |

 

IN WITNESS WHEREOF, the duly authorizedrepresentatives of the parties have executed this lease as of the day and yearfirst written above.

LANDLORD: **Union Bank of California as Trustee for Quest Group Trust VII**
| By:    |   |                     |   |
|--------|--------|--------------------------|--------|
|   |   | Jason Kaufman            |
| Title: |   | Assistant Vice President |

** **
| **Address for notices:**    | ** ** | **Address for rent:**  |
|-----------------------------|------------|------------------------|
| Quest Property  Management  |       | Quest Group Trust VII  |
| One SW Columbia,  Suite 435 |       | P.O. Box 5037-221      |
| Portland, Oregon  97258     |       | Portland, Oregon 97208 |

 

 
| **TENANT: as Trustee for Quest Group Trust VII** |
|--------------------------------------------------|
| ** **                                       |
| By:                                              |   |   |
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| Title:                                           |   |   |
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| **Address  for notices:**                        |
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# **EXHIBIT A**

**The Premises**

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**EXHIBIT B**

**Descriptionof the Land**

PARCEL I:

A tract of land locatedin the Northwest one-quarter of Section 4, Township 2 South, Range 2 East ofthe Willamette Meridian, in the County of Clackamas and State of Oregon, andbeing more particularly described as follows:

Commencing at an ironpipe at the intersection of the Northwest line of the William T. MatlockDonation Land Claim No. 37 and the Northwesterly line of that parcel of landdescribed in Deed Records 71-18673, Clackamas County Deed Records, being theNorthwesterly line of State Highway I-205, said iron pipe lying South68o 09’ 42” West 698.90 feet distance from theNortherly corner of the William T. Matlock Donation Land Claim No. 37; thenceSouth 68o 09’ 42” West 613.59 feet to the true point ofbeginning; thence South 68o 09’ 42” West 106.34 feet; thence North 53o 27’ 55” West 136.44 feet; thence North 79o 44’ 56” West 274.14 feet; thence North 60o 49’ 33” West 157.21 feet; thence North 16o 04’ 47” East 148.56 feet; thence South 85o 07’ 07” West 127.83 feet; thence 01o 11’ 32” West 125.27 feet to the Southwestcorner of that tract of land described in Warranty Deed to Clackamas WaterDistrict, Warranty Deed recorded July 2, 1982, Fee No. 82-18306; thence alongthe Southerly line of said Water District Tract North 89o 48’44” East 100.02 feet to the Southeast corner of said Water District Tract;thence along the Easterly line of said Water District Tract North 01o 14’ 54” West 97.79 feet; thence North 89o 52’ 24” East 246.94 feet; thence South 01o 01’ 11” East 160.00 feet; thence North 88o 58’ 49” East 246.94 feet; thence South 01o 01’ 11” East 200.00 feet; thence North 88o 58’ 49” East 65.00 feet; thence South 01o 01’ 11” East 65.00 feet; thence North 88o 58’ 49” East 150.00 feet; thence South 01o 01’ 11” East 104.15 feet to the true point ofbeginning.

EXCEPTING THEREFROM thatcertain tract conveyed to Sisters of Providence in Oregon doing business asProvidence Medical Center, by Deed recorded as Fee No. 93-01240, ClackamasCounty Deed Records.

ALSO EXCEPTING THEREFROMthat portion lying Westerly of the Easterly line of Oak Bluff Avenue asdescribed in Deed recorded as Recorder’s Fee No. 96-074103.

AND FURTHER EXCEPTINGTHEREFROM any portion of the above property described in Bargain and Sale Deedrecorded September 18, 1998, as Recorder’s Fee No. 98-087434.

PARCEL II:

A track of land locatedin the Northwest one-quarter of Section 4, Township 2 South, Range 2 East ofthe Willamette Meridian, in the County of Clackamas and State of Oregon, andbeing more particularly described as follows:

Commencing at an ironpipe at the intersection of the Northwest line of the William T. MatlockDonation land Claim No. 37 and the Northwesterly line of that parcel of landdescribed in Deed Records 71-18673, Clackamas County Deed Records, being theNorthwesterly line of State Highway I-205, said iron pipe lying South 68o 09’ 42” West 698.90 feet distance from theNortherly corner of the William T. Matlock Donation Land Claim No. 37; thenceSouth 68o 09’ 42” West 613.59 feet and North 01o 01’ 11” West 104.15 feet to the true point ofbeginning; thence South 88o 58’ 49” West 150.00 feet; thence North 01o 01’ 11” West 65.00 feet; thence South 88o 58’ 49” West 65.00 feet; thence North 01o 01’ 11” West 200.00 feet;  thence South 88o 58’49” West 135.00 feet; thence North 01o 01’ 11” West 160.00 feet; thence North 89o 52’ 24” East 265.03 feet; thence South 01o 01’ 11” East 355.87 feet; thence North 88o 58’ 49” East 85.00 feet; thence South 01o 01’ 11” East 65.00 feet to the true point ofbeginning.

EXCEPTING THEREFROM thatcertain tract conveyed to Sisters of Providence in Oregon doing business asProvidence Medical Center, by Deed recorded as Fee No. 93-01240, ClackamasCounty Deed Records.

AND FURTHER EXCEPTINGTHEREFROM any portion of the above property described in Bargain and Sale Deedrecorded September 18, 1998 as Recorder’s Fee No. 98-087434.

PACRCEL III:

An access easementincluding the terms and provisions created by instrument recorder September 15,1998, as Recorder’s Fee No. 98-085958, over the following described land:

A parcel of land lying inthe Northwest one-quarter of Section 4, Township 2 South, Range 2 East, of theWillamette Meridian, in the County of Clackamas and State of Oregon and being aportion of and lying within that property deeded to Sisters of Providence inOregon and DBA Providence via Document No. 93-01240, recorded January 8, 1993,said parcel being that portion of said Providence property included in a stripof land variable in width, lying on the Southerly side of the relocated centerline of Sunybrook Road, which center line is described in Parcel I of thatinstrument recorded September 15, 1998, as Recorder’s Fee No. 98-085958.

The widths in meters of the strip of land above referred to are asfollows:
| Station to Station               |   | Width on Southerly Side of Center Line                             |
|----------------------------------|--------|--------------------------------------------------------------------|
|                             |   |                                                               |
| 11+229.765  11+230.098 |   | 19.825m (65.04’) in a straight line to 41.00m  (134.51’) |
|                             |   |                                                               |
| 11+230.098  11+250.00  |   | 41.00m (134.51’) parallel to center line                      |
|                             |   |                                                               |
| 11+250.00  11+250.00   |   | 41.00 (134.51’) in a straight line to 19.821M  (65.03’)  |

 

EXCEPT THEREFROMthat portion of said property lying within the existing right-of-way of SunnybrookRoad.

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**EXHIBIT C**

**The SpacePlan**

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**EXHIBIT D**

**BuildingStandards**

**1.****                          SUITEENTRY DOOR:**  Solid core hardwood,cherry veneer entry doors from core area.

**2. ****                    CEILING:**  Building standard 2’ x 4’, U.S.G. #3575acoustical tile in a white 15/16 exposed flange grid ceiling system. Ceilingheight first floor 9’-10” minimum; second through fourth floors 9’-00.

**3.****                          WINDOWCOVERING:**  Building standard verticalblinds on all exterior windows.

**4.****                          INTERIORWALLS:** 2-1/2” metal stud with one layer 5/8” gypsum board each side tapedand finished smooth.

**5.****                          WALLPAINT:**  Acrylic satin latex enamel,building standard color.  Manufacturer isRodda Laysen eggshell or Miller 6200 series or equal.

**6.****                          INTERIOROFFICE DOORS:**  Building standard,cherry solid core door with latch set. Hardware finish is bright chrome.

**7.****                          LIGHTING:**   One fixture every 80 square feet, not toexceed Oregon Energy Code.

**8. ****                    FLOORCOVERING:**  Building standardcarpeting will be 32 ounce, anti-static direct, glue down carpet, solid color,plush-cut pile by Designweave.

**9.****                          HEATING,VENTILATING AND AIR CONDITIONING:** Ductwork, supply, return grilles and thermostats; separate zones forconference rooms, corner offices and private offices. Perimeter zones to be fanpowered VAV with electric reheat. Interior zones to be cooling only VAV. No cross zoning between tenants or between interior and perimeterzones.  All lunch rooms and break roomsto have exhaust fans.

**10.****                   ELECTRICALOUTLETS:**   Building standard wallduplex outlets at the rate of two (2) for each 150 square feet of leased areaon a shared circuit, not to exceed eight.

**11.****                   TELEPHONEOUTLETS:**   Building standardtelephone outlets consist of a four square box with a 3⁄4” conduit stubbed aboveceiling at two per 250 square feet of leased area.

**12.****                   PLUMBING: **None included in building standard itemswithin Tenant’s leased area but available at Tenant’s expense.  Restrooms, showers and water fountainsprovided in common areas by Landlord.

**13.****                   SUITEIDENTIFICATION:**  Landlord willdetermine suite number identification per building standard graphic system.

**14.****                   SPACE PLANNING:**  All necessary space planning to design thebuilding standards.

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**EXHIBIT E**

**JanitorialSpecifications and HVAC Holiday Schedule**

**TENANT OFFICE AREA**

**FIVE TIMES PER WEEK: Sundaythrough Thursday evenings.**

1.             Gatherwaste paper and place for disposal.

2.               Emptyand wash ashtrays.

3.               Sweepand/or dust mop floor surfaces.

4.               Vacuumclean all carpeted traffic areas.  Spotclean as necessary.

5.               Dustchairs, tables and other office furniture, but not desk.

6.               Dustlights and other flat surfaces within reach.

7.               Dustcounters, file cabinets and telephones.

8.               Properlyarrange furniture in offices.

9.               Removefingerprints from doors and partition glass.

10.         Checkdoors and windows upon completion of work.

11.         Polishbrass push plates.

12.         Sweepstairways.

13.         Leave only designatednight lights on.

**ONE TIME PER WEEK**

1.               Dusthigh partition ledges and moldings.

2.               Cleandoor kick plates and trashcans.

3.               Dustpanel walls and wood doors.

4.               Edge all carpetedareas on a rotating basis.

**ONE TIME PER MONTH**

Clean, wax and polishcomposition floors.

**ONCE EVERY SIX MONTHS**

Clean exterior ofperimeter windows.

**ONE TIME PER YEAR**

Clean interior ofperimeter windows and relites in tenant spaces

**RESTROOMS**

**FIVE TIMES PER WEEK**

1.               Cleanrestrooms, wash basins, dispensers and chrome platings.

2.               Cleanmirrors and frames.

3.               Wetmop floors.

4.               Sanitizetoilets, toilet seats and urinals.

5.               Dustledges and partitions.

6.               Refill alldispensers.

**ONE TIME PER MONTH**

Wash walls anddoors.

**ONE TIME PER YEAR**

Machine scrub andseal restroom floors.

**LOBBIES, STAIRWAYS, AND ELEVATORS**

**FIVE TIMES PER WEEK**

1.               Wetmop or vacuum main entrance lobby floors.

2.               Spotwash walls and doors.

3.               Vacuum elevator.

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4.               Dampwipe or dust elevator walls, and polish call button plates.

5.               Cleanelevator doors and thresholds.

6.               Checkexit doors and lights in stairways and corridors.

7.               Clean and polishmain entrance doors.

**ONE TIME PER WEEK**

Clean elevatorwalls and ceiling.

**ONE TIME PER MONTH**

1.               Dust high ledgesand partitions.

2.               Wet mop all stairs.

3.               Clean and polishcomposition floors.

**ONE TIMEPER YEAR**

Professionallyclean common area carpet.

**HVAC HOLIDAY SCHEDULE**

The HVAC will notbe in operation on the following holidays:

New Years Day

Memorial Day

Independence Day / July 4

Labor Day

Veterans Day

Thanksgiving Day

Christmas Day

A schedule setting forth the days of observance of theforegoing holidays will be furnished by the Lessor upon request.

Please Initial Landlord                Tenant                

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**EXHIBIT F**

**Rules andRegulations For Office Lease**

**GENERALRULES**

**1.  **Tenantshall not suffer or permit the obstruction of any Common Areas, including butnot limited to driveways, walkways and stairways.

**2.**   Landlord reserves the right to refuse accessto any persons Landlord in good faith judges to be a threat to the safety,reputation, or property of the Project and its occupants.

**3.**   Tenant shall not make or permit any noise orodors that annoy or interfere with other lessees or persons having businesswithin the Project.

**4.**   Tenant shall not keep animals or birdswithin the premises, and shall not bring bicycles, motorcycles, skateboards, orother vehicles into areas not designated as authorized for same.

**5.**   Tenant shall not make, suffer or permitlitter except in appropriate receptacles for that purpose.

**6.**   Tenant shall not alter any lock or installnew or additional locks or bolts without prior authorization from Landlord.

**7.**   Tenant shall be responsible for theinappropriate use of any toilet rooms plumbing, or other utilities.  No foreign substances of any kind are to beinserted therein.

**8.**   Tenant shall not deface the walls,partitions, or other surfaces of the premises or Project.

**9.**   Tenant shall not suffer or permit anythingin or around the premises or Building(s) that causes excessive vibration orfloor loading in any part of the Project.

**10.** Tenant shall not employ anyservice or contractor for services or work to be performed within the premises,except as approved by the Landlord.

**11.** Landlord reserves the rightto close and lock the Project on Saturdays, Sundays, and legal holidays, and onother days between the hours of 6 P.M. and 8 A.M. of the following day.  If Tenant uses the Premises during suchperiods, Tenant shall be responsible for securely locking any doors it may haveopened for entry.

**12.** Tenant shall return all keysat the termination of its tenancy and shall be responsible for the cost ofreplacing any keys that are lost.

**13.** No Tenant, employee orinvitee shall go upon the roof of the Building(s).

**14.** Tenant shall not suffer orpermit smoking or carrying of lighted cigars or cigarettes in areas reasonablydesignated by Landlord or by applicable governmental agencies as non-smokingareas.

**15.** Tenant shall not use anymethod of heating or air conditioning other than as provided by Landlord.

**16.** Tenant shall not install,maintain, or operate any vending machines on the premises without Landlord ‘swritten consent.

**17.** The Premises shall not beused for lodging.

**18.** Tenant shall comply with allsafety, fire protection and evacuation regulations established by Landlord orany governmental agency.

**19.** Landlord reserves the rightto waive any one of these rules or regulations, and/or as to any particularTenant, and any such waiver shall not constitute a waiver of any other rule orregulation or any subsequent application thereof to such Tenant.

**20.** Tenant assumes all risksfrom theft or vandalism and agrees to keep its Premises locked as may berequired.

**21.** Landlord reserves the rightto make such other reasonable rules and regulations as it may from time to timedeem necessary for the appropriate operation and safety of the Project and itsoccupants. Tenant agrees to abide by these and such rules and regulations.

**PARKING RULES**

**1.    **Parking areas shall be used only for parkingby vehicles which have a “Quest Property Management Parking Permit”, ifapplicable.

**2.    **Vehicles permitted shall be no longer thanfull size passenger automobiles or pick up trucks and shall herein be called “PermittedSize Vehicles.”

**3.    **Tenant shall not permit or allow any vehiclesthat belong to or are controlled by Tenant or Tenant ‘s employees, suppliers,shippers, customers, or invitees to be loaded, unloaded, or parked in areasother than those designated by Landlord for such activities.

**4.    **Landlord reserves the right to relocate all ora part of parking spaces from floor to floor within one floor, and/or toreasonably adjacent offsite locations(s), and to reasonably allocate thembetween compact and standard size spaces, as long as the same complies withapplicable laws, ordinances, and regulations.

**5.**     Users of the parking area will obey allposted signs and park only in the areas designated for vehicle parking.

**6.**     Unless other wise instructed, every personusing the parking area is required to park and lock his own vehicle. Landlordwill not be responsible for any damage to vehicles, injury to persons, or lossof property, all of which the party using the parking area assumes risks.

**7.**     The maintenance, washing, waxing orcleaning of vehicles in the parking area(s) or Common Area is prohibited.

**8.**     Tenant shall be responsible for seeing thatall of its employees, agents, and invitees comply with the applicable parkingrules, regulations, laws and agreements.

**9.**     Landlord reserves the right to modify theserules and/or adopt such other reasonable and non-discriminatory rules andregulations, laws and agreements.

**10.**  Such parking use as is herein provided isintended merely as a license only and no bailment is intended or shall becreated hereby.

Please Initial Landlord                Tenant                

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**ADDENDUM A**

**Addendumto Office Lease, dated March      , 2006,**

**in whichUnion Bank of California as Trustee for Quest Group Trust VII is referred to asLandlord and ImageWare Systems, Incorporated is referred to as Tenant.**

**ADDITIONALPROVISIONS TO THE LEASE:**

**1.**  **Commencement Date.**Tenant warrants and agrees that Tenant, at Tenant ‘s expense, has made allnecessary inquiries and has or will take all action as required in order tooccupy and use the premises in the manner contemplated by Tenant.  Such action shall include but not be limitedto, the obtaining of a business license and the installation of any applicableutilities deemed necessary for Tenant ‘s use. By executing the Lease, Tenant agrees to be responsible for all theterms and conditions of the Lease, including their payment of rent, from theLease commencement date or from the date possession is tendered to Tenant, oroccupancy is assumed, whichever is earlier, regardless of whether or not Tenanthas commenced or completed any action required by Tenant herein. Landlord shallnot be responsible to Tenant in any manner whatsoever for any delay to Tenantin obtaining such approvals or installations as may be required herein; wheresuch approval or installation is beyond the reasonable control of Landlord.

**2.  Tenant Improvements:**

Landlord willprovide a turnkey building out of the space plan identified in Exhibit Cutilizing building standard improvements set forth in Exhibit D.

**3.  Loitering.** Tenant(s) and their guests and/or licensees shallnot loiter, or congregate in or about the premises in any area not specificallydesigned and intended for such purposes. By way of example and not by way of limitation, areas in which loiteringor congregating shall not be allowed are parking areas, driveways, stairways,walkways, passageways, hallways, storage areas, entrances to the buildings ofothers, areas of construction and maintenance, and office areas.

**4. TenantDelays**.  All dates bywhich Landlord is to complete the Tenant Improvements and/or deliver possessionof the Premises to Tenant shall be extended by the number of days of delayoccasioned by Tenant Delays.  “TenantDelays” are defined as delays caused by acts or omissions of Tenant or itsagents, including, but not limited to, delays caused by not providing thePreliminary Plan or additional information needed by the architect to completethe Plans in a timely manner, requests for changes to the Plans, by requestsfor incorporation of materials for which lead times exceed the time allowed forincorporation under Landlord’s then current schedule, and/or by delaying morethan two (2) Business Days in approving any sample, substitution, or other itemfor which Landlord requests approval.  Landlord shall be deemed to complete each of its obligations on the datethe same would have been completed absent Tenant Delays.  Tenant shall reimburse Landlord within thirty(30) days of request for all cost increases and other expenses caused by TenantDelays.  Tenant acknowledges that theinstallation or completion of above Building Standard work, including longlead-time items, may delay substantial completion of the TenantImprovements.  In the event Landlord agreesto any requested changes to the Plans, then (I) any additional costs resultingfrom the change shall be paid by Tenant to Landlord upon Landlord’s approval ofthe change, and (ii) any delays in substantial completion of the TenantImprovements as a result of the change shall be deemed Tenant Delays.

**5.Administration Fee.** Should Landlord be in the position of incurring any costs including lossof rents on behalf of Tenant, or should Tenant not fulfill any obligations ofwhich he is liable and of which Landlord incurs cost thereof, Tenant shall beliable not only for costs incurred, but in addition shall be liable for atwenty percent (20%) surcharge above and beyond said actual costs.  Any costs incurred due to lock changes byTenant shall be Tenant ‘s responsibility.

**6.  Rules & Regulations.**Tenant hereby agrees to abide by and conform to the rules and regulationsattached hereto as Exhibit F.

**7.  Parking.**TheTenant shall be allowed a parking ratio of a maximum of 4 spaces per 1,000rentable square feet leased on a non-reserved basis in common with the othertenants of the Building in the Building parking lot.  Tenant shall not park cars in the Buildingparking lot in excess of the parking ratio at any time during the Term of theLease.  The Landlord anticipatesenforcing tenant’s parking rights with the use of parking tags, and reservesthe right to tow violators without notice. Landlord reserves the right tocharge Tenant a fee for replacement of parking tags.

**8.  Signage. **The Landlord will provide Building standard signage for the Tenant atthe Tenant’s main entry door and on the Lobby directory sign.

Receipt of a copyis hereby acknowledged.  The undersignedacknowledges that this lease agreement, and the attached addendum(s) constitutethe entire agreement between Landlord and Tenant.  Any and all representations by Landlord orits agents that are not written in the lease document are not a part of thelease agreement.

**ACKNOWLEDGEDAND ACCEPTED BY:**
| **LANDLORD: Union Bank of California**   | ** **                              | **TENANT: ImageWare Systems, Incorporated** |
|------------------------------------------|-----------------------------------------|---------------------------------------------|
| **as Trustee for Quest Group Trust VII** |                                    |                                        |
| ** **                               |                                    |                                        |
| BY:                                      |                                    |                                        | BY: |   |   |
|                                     | Jason Kaufman, Assistant Vice President |                                        | Wayne Wetherell, Sr. VP & CFO |
|                                     |                                    |                                        |
| Date:                                    |                                    |                                        | Date: | September 7,  2006 |   |
|                                          |                                         |                                             |  |  |  |  |  |

 

## Please Initial Landlord                Tenant                

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## ***BILLING INFORMATIONSHEET***

***Please fill out the followinginformation:***

Company: ImageWareSystems, Inc.

Local Contact Person: DavidHarding

Phone:  (858) 405-8035 Fax: (503) 698-4408

Premises Address: 

Billing Address: 10883Thornmint Rd., San Diego, CA 92127

Contact: Paul Mosman

Phone:  (858)673-8600 x126 Fax:   (858) 673-1770

Notice Address: 10883Thornmint Rd., San Diego, CA 92127

Contact: Paul Mosman

Phone:(858) 673-8600 x126             Fax:  (858)673-1770

***AfterHours Emergency Contact:***

Name:   David Harding

Phone:   (503)392-4629  or (949) 279-2374

Please Initial Landlord                Tenant                

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