**Exhibit 4.1**

 

**THESESECURITIES AND THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVENOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THESECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROMREGISTRATION UNDER THE SECURITIES ACT OF****1933, AS AMENDED (THE “SECURITIESACT”), AND, ACCORDINGLY, MAY NOT BEOFFERED, SOLD OR OTHERWISE TRANSFERREDUNLESS IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AND UNLESS AND UNTILREGISTERED UNDER THE ACT, ORUNLESS AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION IS AVAILABLE AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THECOMPANY AND ITS COUNSEL THATSUCH REGISTRATION IS NOT REQUIRED.**

 

 

**IMAGEWARE SYSTEMS, INC.**

** **

**WARRANT**

 
| Warrant No.  [          ] |   | Dated: March 17, 2006 |
|-----------------------------------------------------------------------------|--------|-----------------------|

 

ImageWare Systems, Inc., Delaware corporation (the “Company”), herebycertifies that, for value received, New Millennium Capital Partners II, LLC, orits registered assigns (the “Holder”), is entitled to purchase from the Companyup to a total of 250(1) shares of common stock (the “Common Stock”), of theCompany (each such share, a “Warrant Share” and all such shares, the “WarrantShares”) at an exercise price equal to $2.30 per share (as adjusted from timeto time as provided in Section 9, the “Exercise Price”), at any time andfrom time to time from and after the date hereof and through and including thedate that is five (5) years from the date of issuance hereof (the “ExpirationDate”), and subject to the following terms and conditions. This Warrant (this “Warrant”)is one of a series of similar Warrants issued pursuant to that certain SecuredPromissory Note Purchase Agreement, dated as of the date hereof, by and amongthe Company and the Purchasers identified therein (the “Purchase Agreement”). Allsuch Warrants are referred to herein, collectively, as the “Warrants.”

 

1.             Definitions. Inaddition to the terms defined elsewhere in this Warrant, capitalized terms thatare not otherwise defined herein have the meanings given to such terms in thePurchase Agreement.

 

2.             Registration ofWarrant. The Company shall register this Warrant, upon records to bemaintained by the Company for that purpose (the “Warrant Register”), in thename of the record Holder hereof from time to time. The Company may deem andtreat the registered Holder of this Warrant as the absolute owner hereof forthe purpose of any exercise hereof or any distribution to the Holder, and forall other purposes, absent actual notice to the contrary.

 

----

(1) 25% of the face amount ofthe Note issued to the Purchasers pursuant to the Purchase Agreement. 

 

----

 

3.             Registration ofTransfers. Subject to the requirements of the Purchase Agreement, theCompany shall register the assignment and transfer of any portion of thisWarrant made in accordance with the Securities Act in the Warrant Register,upon surrender of this Warrant to the Company at its address specified herein,together with the Form of Assignment attached hereto as Exhibit A dulycompleted and signed. Upon any such registration or transfer, a new warrant topurchase Common Stock, in substantially the form of this Warrant (any such newwarrant, a “New Warrant”), evidencing the portion of this Warrant sotransferred shall be issued to the transferee and a New Warrant evidencing theremaining portion of this Warrant not so transferred, if any, shall be issuedto the transferring Holder. The acceptance of the New Warrant by the transfereethereof shall be deemed the acceptance by such transferee of all of the rightsand obligations of a holder of a Warrant.

 

4.             Exercise andDuration of Warrant.

 

(a)           This Warrant shall beexercisable by the registered Holder at any time and from time to time on orafter the date hereof to and including the Expiration Date. At 6:30 P.M., NewYork City time on the Expiration Date, the portion of this Warrant notexercised prior thereto shall be and become void and of no value.

 

(b)           A Holder may exercisethis Warrant by delivering to the Company (i) an exercise notice, in the formattached hereto as Exhibit B (the “Exercise Notice”), appropriately completedand duly signed, and (ii) payment of the Exercise Price for the number ofWarrant Shares as to which this Warrant is being exercised (which may take theform of a “cashless exercise” if so indicated in the Exercise Notice and if a “cashlessexercise” may occur at such time pursuant to Section 10 below), and the datesuch items are delivered to the Company (as determined in accordance with thenotice provisions hereof) is an “Exercise Date.” The Holder shall not berequired to deliver the original Warrant in order to effect an exercisehereunder. Execution and delivery of the Exercise Notice shall have the sameeffect as cancellation of the original Warrant and issuance of a New Warrantevidencing the right to purchase the remaining number of Warrant Shares.

 

5.             Delivery ofWarrant Shares.

 

(a)           Upon exercise of thisWarrant, the Company shall promptly (but in no event later than three TradingDays after the Exercise Date) issue or cause to be issued and cause to bedelivered to or upon the written order of the Holder and in such name or namesas the Holder may designate, a certificate for the Warrant Shares issuable uponsuch exercise, free of restrictive legends unless a registration statementcovering the resale of the Warrant Shares and naming the Holder as a sellingstockholder thereunder is not then effective and the Warrant Shares are notfreely transferable without volume restrictions pursuant to Rule 144 under theSecurities Act. The Holder, or any Person so designated by the Holder toreceive Warrant Shares shall be deemed to have become holder of record of suchWarrant Shares as of the Exercise Date. The Company shall, upon request of theHolder, use its best efforts to deliver Warrant Shares hereunder electronicallythrough the Depository Trust Corporation or another established clearingcorporation performing similar functions.

 

2

----

 

(b)           This Warrant isexercisable, either in its entirety or, from time to time, for a portion of thenumber of Warrant Shares. Upon surrender of this Warrant following one or morepartial exercises, the Company shall issue or cause to be issued, at itsexpense, a New Warrant evidencing the right to purchase the remaining number ofWarrant Shares.

 

(c)           In addition to anyother rights available to a Holder, if the Company fails to deliver to theHolder a certificate representing Warrant Shares by the third Trading Day afterthe date on which delivery of such certificate is required by this Warrant andif after such third Trading Day the Holder purchases (in an open markettransaction or otherwise) shares of Common Stock to deliver in satisfaction ofa sale by the Holder of the Warrant Shares that the Holder anticipatedreceiving from the Company (a “Buy-In”), then the Company shall, within threeTrading Days after the Holder’s request and in the Holder’s discretion, either(i) pay cash to the Holder in an amount equal to the Holder’s total purchaseprice (including brokerage commissions, if any) for the shares of Common Stockso purchased (the “Buy-In Price”), at which point the Company’s obligation todeliver such certificate (and to issue such Common Stock) shall terminate, or(ii) promptly honor its obligation to deliver to the Holder a certificate orcertificates representing such Common Stock and pay cash to the Holder in anamount equal to the excess (if any) of the Buy-In Price over the product of (A)such number of shares of Common Stock, times (B) the Closing Price on the dateof the event giving rise to the Company’s obligation to deliver suchcertificate.

 

(d)           The Company’sobligations to issue and deliver Warrant Shares in accordance with the termshereof are absolute and unconditional, irrespective of any action or inactionby the Holder to enforce the same, any waiver or consent with respect to anyprovision hereof, the recovery of any judgment against any Person or any actionto enforce the same, or any setoff, counterclaim, recoupment, limitation ortermination, or any breach or alleged breach by the Holder or any other Personof any obligation to the Company or any violation or alleged violation of lawby the Holder or any other Person, and irrespective of any other circumstancewhich might otherwise limit such obligation of the Company to the Holder inconnection with the issuance of Warrant Shares. Nothing herein shall limit aHolder’s right to pursue any other remedies available to it hereunder, at lawor in equity including, without limitation, a decree of specific performanceand/or injunctive relief with respect to the Company’s failure to timelydeliver certificates representing shares of Common Stock upon exercise of theWarrant as required pursuant to the terms hereof.

 

6.             Charges, Taxes andExpenses. Issuance and delivery of certificates for shares of Common Stockupon exercise of this Warrant shall be made without charge to the Holder forany issue or transfer tax, withholding tax, transfer agent fee or otherincidental tax or expense in respect of the issuance of such certificates, allof which taxes and expenses shall be paid by the Company; provided, however,that the Company shall not be required to pay any tax which may be payable inrespect of any transfer involved in the registration of any certificates forWarrant Shares or Warrants in a name other than that of the Holder or anAffiliate thereof. The Holder shall be responsible for all other tax liabilitythat may arise as a result of holding or transferring this Warrant or receivingWarrant Shares upon exercise hereof.

 

7.             Replacement ofWarrant. If this Warrant is mutilated, lost, stolen or destroyed, theCompany shall issue or cause to be issued in exchange and substitution for andupon

 

3

----

 

cancellationhereof, or in lieu of and substitution for this Warrant, a New Warrant, butonly upon receipt of evidence reasonably satisfactory to the Company of suchloss, theft or destruction and customary and reasonable indemnity, if requested.Applicants for a New Warrant under such circumstances shall also comply withsuch other reasonable regulations and procedures and pay such other reasonablethird-party costs as the Company may prescribe.

 

8.             Reservation ofWarrant Shares. The Company covenants that it will at all times reserve andkeep available out of the aggregate of its authorized but unissued andotherwise unreserved Common Stock, solely for the purpose of enabling it toissue Warrant Shares upon exercise of this Warrant as provided herein, thenumber of Warrant Shares which are then issuable and deliverable upon theexercise of this entire Warrant free from preemptive rights or any othercontingent purchase rights of persons other than the Holder (after givingeffect to the adjustments and restrictions of Section 9, if any). The Companycovenants that all Warrant Shares so issuable and deliverable shall, uponissuance and the payment of the applicable Exercise Price in accordance withthe terms hereof be duly and validly authorized, issued and fully paid andnonassessable. The Company will take all such action as may be necessary toassure that such shares of Common Stock may be issued as provided hereinwithout violation of any applicable law or regulation, or of any requirements ofany securities exchange or automated quotation system upon which the CommonStock may be listed.

 

9.             CertainAdjustments. The Exercise Price and number of Warrant Shares issuable uponexercise of this Warrant are subject to adjustment from time to time as setforth in this Section 9.

 

(a)           Stock Dividends andSplits. If the Company, at any time while this Warrant is outstanding, (i)pays a stock dividend on its Common Stock or otherwise makes a distribution onany class of capital stock that is payable in shares of Common Stock, (ii)subdivides outstanding shares of Common Stock into a larger number of shares,or (iii) combines outstanding shares of Common Stock into a smaller number ofshares, then in each such case the Exercise Price shall be multiplied by afraction of which the numerator shall be the number of shares of Common Stockoutstanding immediately before such event and of which the denominator shall bethe number of shares of Common Stock outstanding immediately after such event.Any adjustment made pursuant to clause (i) of this paragraph shall becomeeffective immediately after the record date for the determination ofstockholders entitled to receive such dividend or distribution, and anyadjustment pursuant to clauses (ii) or (iii) of this paragraph shall becomeeffective immediately after the effective date of such subdivision orcombination.

 

(b)           Pro RataDistributions. Except as provided below, if the Company, at any time whilethis Warrant is outstanding, distributes to holders of Common Stock (i)evidences of its indebtedness, (ii) any security (other than a distribution ofCommon Stock covered by the preceding paragraph), (iii) rights or warrants tosubscribe for or purchase any security, or (iv) any other asset (in each case, “**Distributed Property**”), then in each such case the ExercisePrice in effect immediately prior to the record date fixed for determination ofstockholders entitled to receive such distribution shall be adjusted (effectiveon such record date) to equal the product of such Exercise Price times afraction of which the denominator shall be the average of the Closing Pricesfor the five Trading Days immediately prior to (but not including) such recorddate and of which the numerator shall be such average less the then fair marketvalue of the Distributed

 

4

----

 

Propertydistributed in respect of one outstanding share of Common Stock, as determinedby the Company’s independent certified public accountants that regularlyexamine the financial statements of the Company (an “**Appraiser**”).In such event, the Holder, after receipt of the determination by the Appraiser,shall have the right to select an additional appraiser (which shall be anationally recognized accounting firm), in which case such fair market valueshall be deemed to equal the average of the values determined by each of theAppraiser and such appraiser. As an alternative to the foregoing adjustment tothe Exercise Price, at the request of the Holder delivered before the 90th dayafter such record date, the Company will deliver to such Holder, within fiveTrading Days after such request (or, if later, on the effective date of suchdistribution), the Distributed Property that such Holder would have beenentitled to receive in respect of the Warrant Shares for which this Warrantcould have been exercised immediately prior to such record date. If suchDistributed Property is not delivered to a Holder pursuant to the precedingsentence, then upon expiration of or any exercise of the Warrant that occursafter such record date, such Holder shall remain entitled to receive, inaddition to the Warrant Shares otherwise issuable upon such exercise (ifapplicable), such Distributed Property. Notwithstanding the foregoing, noadjustment shall be made pursuant to this Section 9(b) as a result of theissuance pursuant to clause (D) of the definition of Excluded Stock.

 

(c)           FundamentalTransactions. If, at any time while this Warrant is outstanding, (i) theCompany effects any merger or consolidation of the Company with or into anotherPerson, (ii) the Company effects any sale of all or substantially all of itsassets in one or a series of related transactions, (iii) any tender offer orexchange offer (whether by the Company or another Person) is completed pursuantto which holders of Common Stock are permitted to tender or exchange theirshares for other securities, cash or property, or (iv) the Company effects anyreclassification of the Common Stock or any compulsory share exchange pursuant towhich the Common Stock is effectively converted into or exchanged for othersecurities, cash or property (other than as a result of a subdivision orcombination of shares of Common Stock covered by Section 9(a) above) (in anysuch case, a “**Fundamental Transaction**”), thenthe Holder shall have the right thereafter to receive, upon exercise of thisWarrant, the same amount and kind of securities, cash or property as it wouldhave been entitled to receive upon the occurrence of such FundamentalTransaction if it had been, immediately prior to such Fundamental Transaction,the holder of the number of Warrant Shares then issuable upon exercise in fullof this Warrant (the “**Alternate Consideration**”).The aggregate Exercise Price for this Warrant will not be affected by any suchFundamental Transaction, but the Company shall apportion such aggregateExercise Price among the Alternate Consideration in a reasonable mannerreflecting the relative value of any different components of the AlternateConsideration. If holders of Common Stock are given any choice as to thesecurities, cash or property to be received in a Fundamental Transaction, thenthe Holder shall be given the same choice as to the Alternate Consideration itreceives upon any exercise of this Warrant following such FundamentalTransaction. In the event of a Fundamental Transaction, the Company or thesuccessor or purchasing Person, as the case may be, shall execute with theHolder a written  agreement providingthat:

 

(i)            thisWarrant shall thereafter entitle the Holder to purchase the AlternateConsideration in accordance with this Section 9(c),

 

5

----

 

(ii)           inthe case of any such successor or purchasing Person, upon such consolidation,merger, statutory exchange, combination, sale or conveyance such successor orpurchasing Person shall be jointly and severally liable with the Company forthe performance of all of the Company’s obligations under this Warrant and thePurchase Agreement, and

 

(iii)          ifregistration or qualification is required under the Exchange Act or applicablestate law for the public resale by the Holder of shares of stock and othersecurities so issuable upon exercise of this Warrant, such registration orqualification shall be completed prior to such reclassification, change,consolidation, merger, statutory exchange, combination or sale.

 

If, in thecase of any Fundamental Transaction, the Alternate Consideration includesshares of stock, other securities, other property or assets of a Person otherthan the Company or any such successor or purchasing Person, as the case maybe, in such Fundamental Transaction, then such written agreement shall also beexecuted by such other Person and shall contain such additional provisions toprotect the interests of the Holder as the Board of Directors of the Companyshall reasonably consider necessary by reason of the foregoing. At the Holder’srequest, any successor to the Company or surviving entity in such FundamentalTransaction shall issue to the Holder a new Warrant consistent with theforegoing provisions and evidencing the Holder’s right to purchase theAlternate Consideration for the aggregate Exercise Price upon exercise thereof.The terms of any agreement pursuant to which a Fundamental Transaction iseffected shall include terms requiring any such successor or surviving entityto comply with the provisions of this paragraph (c) and insuring that theWarrant (or any such replacement security) will be similarly adjusted upon anysubsequent transaction analogous to a Fundamental Transaction. If anyFundamental Transaction constitutes or results in a Change of Control, then atthe request of the Holder delivered before the 90th day after such FundamentalTransaction, the Company (or any such successor or surviving entity) willpurchase the Warrant from the Holder for a purchase price, payable in cashwithin five Trading Days after such request (or, if later, on the effectivedate of the Fundamental Transaction), equal to the Black-Scholes value of the remainingunexercised portion of this Warrant on the date of such request.

 

(d)           Number of WarrantShares. Simultaneously with any adjustment to the Exercise Price pursuantto paragraphs (a) or (b) of this Section, the number of Warrant Shares that maybe purchased upon exercise of this Warrant shall be increased or decreasedproportionately, so that after such adjustment the aggregate Exercise Pricepayable hereunder for the increased or decreased number of Warrant Shares shallbe the same as the aggregate Exercise Price in effect immediately prior to suchadjustment.

 

(e)           Calculations. Allfinal calculations under this Section 9 shall be made to the nearest cent. Thenumber of shares of Common Stock outstanding at any given time shall notinclude shares owned or held by or for the account of the Company, and thedisposition of any such shares shall be considered an issue or sale of CommonStock.

 

(f)            Notice ofAdjustments. Upon the occurrence of each adjustment pursuant to this Section9, the Company at its expense will promptly compute such adjustment inaccordance with the terms of this Warrant and prepare a certificate settingforth such adjustment, including a statement of the adjusted Exercise Price andadjusted number or type of Warrant

 

6

----

 

Shares orother securities issuable upon exercise of this Warrant (as applicable),describing the transactions giving rise to such adjustments and showing indetail the facts upon which such adjustment is based. Upon written request, theCompany will promptly deliver a copy of each such certificate to the Holder andto the Company’s Transfer Agent.

 

(g)           Notice of CorporateEvents. If the Company (i) declares a dividend or any stock of the Companyor any Subsidiary, (ii) authorizes or approves, enters into any agreementcontemplating or solicits stockholder approval for any Fundamental Transactionor (iii) authorizes the voluntary dissolution, liquidation or winding up of theaffairs of the Company, then the Company shall deliver to the Holder a noticedescribing the material terms and conditions of such transaction, at least 20calendar days prior to the applicable record or effective date on which aPerson would need to hold Common Stock in order to participate in or vote withrespect to such transaction, and the Company will take all steps reasonablynecessary in order to insure that the Holder is given the practical opportunityto exercise this Warrant prior to such time so as to participate in or votewith respect to such transaction; provided, however, that the failure todeliver such notice or any defect therein shall not affect the validity of thecorporate action required to be described in such notice.

 

10.           Payment of ExercisePrice. The Holder shall pay the Exercise Price in immediately availablefunds; provided, however, after the twelve month period following the ClosingDate (as defined in the Purchase Agreement), if there is not an effectiveRegistration Statement on file with the SEC for the resale of all of the WarrantShares, then the Holder may satisfy its obligation to pay the Exercise Pricethrough a “cashless exercise” in which event the Company shall issue to theholder the number of Warrant Shares determined as follows:

 

X = Y[(A-B)/A]

 

where:

 

X = the numberof Warrant Shares to be issued to the Holder.

 

Y = the numberof Warrant Shares with respect to which this Warrant is being exercised.

 

A = thearithmetic average of the Closing Prices for the five Trading Days immediatelyprior to (but not including) the Exercise Date.

 

B = theExercise Price.

 

For purposesof Rule 144 promulgated under the Securities Act, it is intended, understoodand acknowledged that subject to the requirements of Rule 144(d)(3)(ii), theWarrant Shares issued in a cashless exercise transaction shall be deemed tohave been acquired by the Holder, and the holding period for the Warrant Sharesshall be deemed to have commenced, on the date this Warrant was originallyissued pursuant to the Purchase Agreement.

 

7

----

 

11.           Limitation onExercise. Notwithstanding anything to the contrary contained herein, themaximum number of shares of Common Stock that the Company may issue pursuant tothe Transaction Documents at an effective purchase price less than the ClosingPrice on the Trading Day immediately preceding the Closing Date equals 19.99%of the outstanding shares of Common Stock immediately preceding the ClosingDate (the “**Issuable Maximum**”), unless theCompany obtains shareholder approval in accordance with the rules andregulations of the applicable Trading Market. If, at the time any Holderrequests an exercise of any of the Warrants, the Actual Minimum (excluding anyshares issued or issuable at an effective purchase price in excess of the ClosingPrice on the Trading Day immediately preceding the Closing Date) exceeds theIssuable Maximum (and if the Company has not previously obtained the requiredshareholder approval), then the Company shall issue to the Holder requestingsuch exercise a number of shares of Common Stock not exceeding such Holder’spro-rata portion of the Issuable Maximum (based on such Holder’s share(vis-à-vis other Holders) of the aggregate purchase price paid under thePurchase Agreement and taking into account any Warrant Shares previously issuedto such Holder). For the purposes hereof, “**Actual Minimum**”shall mean, as of any date, the maximum aggregate number of shares of CommonStock then issued or potentially issuable in the future pursuant to theTransaction Documents, including any Underlying Shares issuable upon exercisein full of all Warrants, without giving effect to (x) any limits on the numberof shares of Common Stock that may be owned by a Holder at any one time, or (y)any additional Underlying Shares that could be issuable as a result of anyfuture possible adjustments made under Section 9(d).

 

12.           Fractional Shares.The Company shall not be required to issue or cause to be issued fractionalWarrant Shares on the exercise of this Warrant. If any fraction of a WarrantShare would, except for the provisions of this Section 12, be issuable uponexercise of this Warrant, the number of Warrant Shares to be issued will berounded up to the nearest whole share or right to purchase the nearest wholeshare, as the case may be.

 

13.           Notices. Any andall notices or other communications or deliveries hereunder (including withoutlimitation any Exercise Notice) shall be in writing and shall be deemed givenand effective on the earliest of (i) the date of transmission, if such noticeor communication is delivered via facsimile at the facsimile number specifiedin this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii)the next Trading Day after the date of transmission, if such notice orcommunication is delivered via facsimile at the facsimile number specified inthis Section on a day that is not a Trading Day or later than 6:30 p.m. (NewYork City time) on any Trading Day, (iii) the Trading Day following the date ofmailing, if sent by a nationally recognized overnight courier service, or (iv)upon actual receipt by the party to whom such notice is required to be given.Delivery by facsimile transmission shall not be deemed delivered unless averifiable proof of transmission is provided. The address for such notices orcommunications shall be as set forth in the Purchase Agreement.

 

14.           Warrant Agent. TheCompany shall serve as warrant agent under this Warrant. Upon 30 days’ noticeto the Holder, the Company may appoint a new warrant agent. Any corporationinto which the Company or any new warrant agent may be merged or anycorporation resulting from any consolidation to which the Company or any newwarrant agent shall be a party or any corporation to which the Company or anynew warrant agent transfers substantially all of its corporate trust orshareholders services business shall be a successor

 

8

----

 

warrant agentunder this Warrant without any further act. Any such successor warrant agentshall promptly cause notice of its succession as warrant agent to be mailed {byfirst class mail, postage prepaid) to the Holder at the Holder’s last addressas shown on the Warrant Register.

 

15.           Miscellaneous.

 

(a)           Subject to therestrictions on transfer set forth on the first page hereof, this Warrant maybe assigned by the Holder. This Warrant may not be assigned by the Companyexcept to a successor in the event of a Fundamental Transaction. This Warrantshall be binding on and inure to the benefit of the parties hereto and theirrespective successors and assigns. Subject to the preceding sentence, nothingin this Warrant shall be construed to give to any Person other than the Companyand the Holder any legal or equitable right, remedy or cause of action underthis Warrant. This Warrant may be amended only in writing signed by the Companyand the Holder and their successors and assigns.

 

(b)           The Company will not,by amendment of its governing documents or through any reorganization, transferof assets, consolidation, merger, dissolution, issue or sale of securities orany other voluntary action, avoid or seek to avoid the observance orperformance of any of the terms of this Warrant, but will at all times in goodfaith assist in the carrying out of all such terms and in the taking of allsuch action as may be necessary or appropriate in order to protect the rightsof the Holder against impairment. Without limiting the generality of theforegoing, the Company (i) will not increase the par value of any WarrantShares above the amount payable therefor on such exercise, (ii) will take allsuch action as may be reasonably necessary or appropriate in order that theCompany may validly and legally issue fully paid and nonassessable WarrantShares on the exercise of this Warrant, respectively, and (iii) will not closeits shareholder books or records in any manner which interferes with the timelyexercise of this Warrant.

 

(c)           GOVERNING LAW VENUE;WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY,ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY AIDCONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OFDELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACHPARTY AGREES THAT ALL LEGAL PROCEEDINGS CONCERNING THE INTERPRETATIONS,ENFORCEMENT AND DEFENSE OF THE TRANSACTIONS CONTEMPLATED BY ANY OF THETRANSACTION DOCUMENTS (WHETHER BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVEAFFILIATES, DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCEDEXCLUSIVELY IN THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,BOROUGH OF MANHATTAN. EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THEEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN EITHERDELAWARE OR THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OFANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTIONCONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THEENFORCEMENT OF ANY OF THIS WARRANT), AND HEREBY IRREVOCABLY WAIVES, AND AGREESNOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOTPERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT,ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVESPERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCHSUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR

 

9

----

 

CERTIFIED MAILOR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESSIN EFFECT FOR NOTICES TO IT UNDER THIS WARRANT AND AGREES THAT SUCH SERVICESHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF.NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVEPROCESS IN ANY MANNER PERMITTED BY LAW. EACH PARTY HERETO HEREBY IRREVOCABLYWAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TOTRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THISWARRANT OR ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATEDHEREBY OR THEREBY. IF EITHER PARTY SHALL COMMENCE AN ACTION OR PROCEEDING TOENFORCE ANY PROVISIONS OF THIS WARRANT OR ANY TRANSACTION DOCUMENT, THEN THEPREVAILING PARTY IN SUCH ACTION OR PROCEEDING SHALL BE REIMBURSED BY THE OTHERPARTY FOR ITS REASONABLE ATTORNEYS FEES AND OTHER REASONABLE COSTS AND EXPENSESINCURRED WITH THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH ACTION ORPROCEEDING.

 

(d)           The headings herein arefor convenience only, do not constitute a part of this Warrant and shall not bedeemed to limit or affect any of the provisions hereof.

 

(e)           In case any one or moreof the provisions of this Warrant shall be invalid or unenforceable in anyrespect, the validity and enforceability of the remaining terms and provisionsof this Warrant shall not in any way be affected or impaired thereby and theparties will attempt in good faith to agree upon a valid and enforceableprovision which shall be a commercially reasonable substitute therefor, andupon so agreeing, shall incorporate such substitute provision in this Warrant.

 

(f)            TheCompany acknowledges that the holders of Warrants are entitled to “piggy-back”registration rights for the Warrant Shares under Section 5.5 of the Note PurchaseAgreement.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

10

----

 

IN WITNESSWHEREOF, the Company has caused this Warrant to be duly executed by authorizedofficer as of the date first indicated above.

 

 
|   | **IMAGEWARE SYSTEMS, INC.** |
|--------|-----------------------------|
|   | A Delaware  Corporation     |
|   |                        |
|   |                        |
|   | By:                         |   |   |
|   |                        | S. James Miller, Chairman and CEO |
|        |                             |  |  |  |

 

----