**Exhibit 10.3**

 

LIMITEDEXCLUSIVE LICENSE AGREEMENT

 

Effective when all Parties sign (the “Effective Date”), this LimitedExclusive License Agreement (“Agreement”) is made between ImageWare Systems, Inc.,a California corporation (“IMAGEWARE”) and Boston Equities Corporation, aNevada corporation (“LICENSEE”), with respect to the following facts:

 

(A)                              IMAGEWAREhas developed valuable technology for analysis and processing of digitalimages;

 

(B)                                  IMAGEWAREis owner of all rights, title, and interest in and to U.S. Patent No. 5,577,179entitled “Image Editing System”;

 

(C)                                  LICENSEEdesires to license the Licensed Patent for its exclusive use in definedFields-of-Use with right to sublicense in defined Fields-of-Use as specified inSchedule A attached hereto; and

 

(D)                                 IMAGEWAREintends to enter into other Exclusive License Agreements with unrelated thirdparties in alternate Fields-of-Use.

 

NOW THEREFORE, in consideration of the mutual promises made herein, andother good and valuable consideration, the receipt and sufficiency of which ishereby acknowledged, it is mutually agreed:

 

Article I

Definitions

 

1.                                       DefinedTerms.  Terms defined in Article Iand elsewhere, parenthetically, in this Agreement, shall have the same meaningthroughout the Agreement.  Defined termsmay be used in the singular or plural.

 

2.                                       “EffectiveDate” shall mean the date of execution by the last party to sign thisAgreement.

 

3.                                       “Fieldof Use” shall mean the category or categories described in Schedule A.

 

4.                                       “LicensedPatent” shall mean U.S. Patent Number 5,577,179 entitled “Image Editing System”,issued November 19, 1996.

 

5.                                       “LICENSEEConsideration” means all considerations received by LICENSEE from anySub-Licensee in return for the authorization to use, in any form including butnot necessarily limited to assignment, license, sub-license, transfer, conveyor encumber the Licensed Patent or forego, forgive or waive rights to enforcethe Licensed Patent.

 

6.                                       “QuarterlyStatement” shall mean the reporting letter provided to IMAGEWARE by LICENSEE.

 

7.                                       “Sub-Licensee” shall mean an entity that acquires from LICENSEE rights topractice a method that is covered by claims in the Licensed Patent; provided,however,

 

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that Sub-Licensee shall not include any entity controlling, controlledby, or under common control with LICENSEE.

 

Article II

Patent License Grant

 

1.                                       Grant.  IMAGEWARE hereby grants to LICENSEE anexclusive license under the Licensed Patent, specifically including the rightto make, have made, use, sell, or offer to sell a product or to practice, sellor offer to sell services using a method that is covered by one or more claimsof the Licensed Patent, subject to the Field-of-Use limitations definedhereinafter.  This grant shall beperpetual, royalty-free and shall extend to any entity controlling, controlledby, or under common control with LICENSEE; provided, however that it shall notapply to an entity acquired by LICENSEE if the entity was practicing a claimunder the Licensed Patent prior to its acquisition by LICENSEE.

 

1.1.                              Field-of-Use.  The license granted by IMAGEWARE in Article II,section 1 is limited to LICENSEE’s specific Field-of-Use as defined in Schedule A.

 

1.2.                              Life of Grant.  This license shall terminate upon expirationof the Licensed Patent.

 

1.3.                              Territory.  The Licensed Patent is patented in the UnitedStates and accordingly, the license is granted in the United States and itsterritories.  Notwithstanding theforegoing, nothing contained herein shall preclude LICENSEE from selling aproduct practicing a method that is covered by a claim in the Licensed Patentanywhere in the world.

 

2.                                       Sub-LicenseRights.  IMAGEWARE also grants toLICENSEE the right to grant sublicenses to Sub-Licensees, conveying the rightto make, have made, use, sell or offer to sell products or to practice, sell oroffer to sell services using methods covered by the Licensed Patent within thatportion of LICENSEE’s Field-of-Use identified as Sub-Licensable field of use inSchedule A within all or any portion of the Territory specified in Section 1.3.  Any sublicense will be granted only pursuantto the terms of a written Sublicense Agreement, in a form reasonably acceptableto IMAGEWARE.

 

3.                                       Limitation.  The parties expressly agree that LICENSEEshall not have or acquire any right, title or interest in the Licensed Patent,except in accordance with the provisions of this Agreement.

 

4.                                       Reservation.  Except for the license rights expresslygranted in this Agreement, IMAGEWARE hereby reserves all other rights withrespect to the Licensed Patent.   IMAGEWARE hereby expressly reserves the rightto make, have made, use, sell, and offer to sell products or to practice, sell,or offer to sell services covered by one or more claims of the Licensed Patentfor any purpose and further that IMAGEWARE shall have the right to authorizeothers to use the products and services that are provided to customers ofIMAGEWARE for use by their customers.

 

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Article III

Patent License Payments

 

1.                                       Royalties.  As consideration for the license granted toLICENSEE, LICENSEE shall pay IMAGEWARE a paid up fee of FIVE HUNDRED THOUSANDDOLLARS ($500,000).  The fee shall bepaid FIFTY THOUSAND DOLLARS ($50,000) upon execution hereof and FOUR HUNDREDFIFTY THOUSAND DOLLARS ($450,000) on or before December 1, 2005.

 

2.                                       Sub-LicenseeFee.  LICENSEE shall pay to IMAGEWAREthirty-five percent (35%) of all LICENSEE Consideration received.

 

3.                                       Form ofPayment.  All monies due under thisAgreement are payable in United States dollars.

 

4.                                       Decisionof Invalidity of Licensed Patent. If the Licensed Patent is held invalid in afinal decision by a court of competent jurisdiction and last resort and fromwhich no appeal has or can be taken, all obligation to pay royalties based onthe Licensed Patent will cease as of the date of final decision.  LICENSEE will not be relieved of payment ofroyalties that have accrued prior to the date of final decision.

 

Article IV

Accounting and Reporting

 

1.                                       QuarterlyStatement.  LICENSEE shall submit toIMAGEWARE a quarterly statement in sufficient detail to substantiate allLICENSEE Consideration received by LICENSEE for said preceding quarter and thetotal amount of Sub-Licensee Fees due IMAGEWARE.

 

1.1                                 Payment of theSub-Licensee Fees consideration shall be made contemporaneous with thequarterly statement.

 

2.                                       Records.  LICENSEE shall keep accurate books andrecords showing: all LICENSEE consideration for each and every SublicenseAgreement.  Books and records must bepreserved for and during the term of this Agreement.

 

3.                                       Audit.   LICENSEE shall, and shall require anySub-Licensee to, upon written request, provide access to books and records forinspection by representatives or agents of IMAGEWARE at reasonable times.  IMAGEWARE shall bear the fees and expenses ofexamination except as provided in Section 3.1 below.

 

3.1.                              Underpayment. In theevent the audit reveals an underpayment of fees due hereunder, LICENSEE shallimmediately pay such underpayment plus nine percent (9%) interest on theunderpaid amount.  If the amount of theunderpayment exceeds five percent (5%) of the amount due, then the underpayingLICENSEE shall also pay IMAGEWARE all costs and expenses associated with theaudit.

 

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Article V

Representations and Warranties

 

1.                                       LICENSEE.  LICENSEE makes the following representationsand warranties to IMAGEWARE:

 

1.1.                              LICENSEE will notdirectly or indirectly cooperate with any third party in an attempt toinvalidate or challenge, in any way, the Licensed Patent.

 

1.2.                              LICENSEE will notifyIMAGEWARE within ten (10) business days of the sale, transfer or otherdisposition of all or substantially all of the assets of the LICENSEE.

 

2.                                       IMAGEWARE.  IMAGEWARE represents and warrants to LICENSEEthat IMAGEWARE has the right to license the Licensed Patent.

 

2.1.                              Except as otherwiseprovided, IMAGEWARE shall undertake all actions necessary for prosecution andmaintenance of the Licensed Patent, including, but not limited to, payment ofmaintenance as required by the patent office. Such undertaking may be delegatedby IMAGEWARE to a third party; provided, however, any such delegation shall notrelieve IMAGEWARE from its responsibility to LICENSEE to take all actionsnecessary for the prosecution and maintenance of the Licensed Patent under thisparagraph.

 

2.2.                              IMAGEWARE represents onits information and belief that it is the lawful owner of the Licensed Patentand has the right to license the Licensed Patent under this terms of thisAgreement.   The transactions contemplatedby this Agreement do not conflict with any other material contract to whichIMAGEWARE is a party, or by which the Licensed Patent or IMAGEWARE’s assets arebound.  There is no third party consentrequired to be obtained from a governmental authority or any third party inorder to authorize or approve the transactions contemplated herein.

 

2.3.                              IMAGEWARE represents onits information and belief that it the Licensed Patent is valid.  There is no present claim pending orthreatened that purports that the Licensed Patent is invalid, and IMAGEWARE isnot aware of any basis for such a claim.

 

Article VI

Patent Marking and Infringement

 

1.                                       PatentMarking.  LICENSEE shall mark allproducts made, used or sold, or, if marking the product is not practical, theircontainers and documentation included in product packaging shall be marked inaccordance with the applicable patent marking laws.  All materials describing or advertisingproducts or services made, used or sold under the terms of this Agreement,shall be marked in accordance with the applicable patent marking laws.

 

2.                                       PatentInfringement.  If LICENSEE learns of aninfringement of the Licensed Patent in its Field-of-Use, LICENSEE shall providewritten notice of such alleged infringement to IMAGEWARE with reasonableevidence thereof.  Neither party willnotify a third party of infringement of any of the Licensed Patent withoutfirst obtaining consent of the other party, which consent will not beunreasonably withheld.

 

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2.1.                              LICENSEE shall have theright to take legal action against any third party to protect againstinfringement of the Licensed Patent in the Fields of Use.  All costs associated with and relating tosuch an enforcement or to the defense of the Licensed Patent including costs,fees and expenses shall, with respect to actions initiated pursuant to thisAgreement, be the responsibility of LICENSEE. If LICENSEE fails to initiate an enforcement action is not initiatedwithin four (4) months following the date of notice of infringement,IMAGEWARE shall have the right to enforce the License Patent. LICENSEE shallreimburse any and all costs, fees and expenses of IMAGEWARE incurred inconnection with the enforcement or defense of the Licensed Patent during theterm of this Agreement within not more than 30 days of tender of request forsuch payments.

 

2.2.                              If, upon or inpreparation of initiation of legal action for patent infringement, it isdetermined that standing to bring suit necessitates the joinder of a party notbringing the suit, that party shall join in the suit at the expense ofLICENSEE, and shall fully cooperate with, the party bringing the suit.

 

2.3.                              Recoveries resulting fromsuch legal actions shall be used to reimburse all costs, fees and expenses ofthe action and any excess recovery shall be considered LICENSEE Considerationsubject to the Sub-Licensing Fees identified above.

 

2.4.                              Each party shallcooperate with the other(s) in litigation proceedings institutedhereunder.  Litigation will be controlledby the party bringing the suit except that counsel for LICENSEE shall besubject to the reasonable approval of IMAGEWARE.

 

Article VII

Indemnification

 

1.                                       IMAGEWAREagrees to indemnify, defend and hold harmless LICENSEE against any and allclaims, losses, costs, demands, expenses (including attorneys’ fees, andincluding attorneys’ fees to enforce this indemnity), and liabilitieswhatsoever arising from, in connection with, or based on (i) any breach byIMAGEWARE of any representation, warranty or covenant of this Agreement.  IMAGEWARE will specifically pay any damagesand costs awarded against LICENSEE or paid in settlement and reimburse theexpenses LICENSEE incurs in providing assistance to IMAGEWARE or defendingagainst the claim.  IMAGEWARE shall havethe sole right to conduct the defense of any such claim or action and allnegotiations for its settlement, unless the parties agree otherwise inwriting.  LICENSEE shall give IMAGEWAREprompt written notice of any written threat, warning, or notice of any claim oraction that would reasonably appear to trigger the foregoing indemnity and willcooperate with IMAGEWARE in its defense. LICENSEE shall not be responsible for any settlement entered intowithout its consent.  LICENSEE must approvethe terms of any settlement or compromise that may impose any unidentified orno monetary liability on LICENSEE or its customers.

 

2.                                       LICENSEEagrees to indemnify, defend and hold harmless IMAGEWARE, its officers,directors and shareholders against any and all claims, losses, costs, demands,expenses (including attorneys’ fees, and including attorneys’ fees to enforcethis

 

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indemnity) resulting from or arising out of exercise of this license byLICENSEE or any Sub-License. This indemnification includes, but is not limitedto product liability or infringement by LICENSEE or Sub-Licensee of a thirdparty’s patent. LICENSEE shall have the sole right to conduct the defense ofany such claim or action and all negotiations for its settlement, unless theparties to this Agreement agree otherwise in writing.  LICENSEE shall not be responsible for anysettlement entered into without its consent.

 

Article VIII

Termination

 

1.                                       AutomaticTermination.  This Agreement shallterminate automatically without need for notification by IMAGEWARE in thefollowing events:

 

1.1                                 LICENSEE files apetition in bankruptcy or is adjudicated as bankrupt or insolvent, or makes anassignment for the benefit of creditors, or an arrangement pursuant to anybankruptcy law, or if LICENSEE discontinues or dissolves its business, or if areceiver is appointed for LICENSEE or LICENSEE’s business and such receiver isnot discharged within sixty (60) days;

 

1.2                                 LICENSEE fails to payor is delinquent in the payment of the Sub-License Fee as required hereunderfor two consecutive quarters.

 

2.                                       Terminationby IMAGEWARE.  This Agreement may beterminated by IMAGEWARE for “Cause” by providing written notice of terminationand notification of the Cause for such termination to LICENSEE.

 

2.1.                              Cause.  Cause includes any default of any materialprovision of this Agreement, including any Field-of-Use violation by theLICENSEE.

 

2.2.                              Discontinuation ofUse.  Upon termination for Cause,LICENSEE shall immediately discontinue use of any product or method under theLicensed Patent.

 

2.3.                              Cure.  Upon receipt of notice of terminationpursuant to this Agreement, the LICENSEE shall have thirty (30) calendar daysto cure the Cause identified in the termination notice.

 

2.4                                 Return of IMAGEWAREProperty. A terminated LICENSEE shall return all information relating to thisAgreement, including technical, financial and customer information.

 

3.                                       Terminationby LICENSEE.  LICENSEE shall have theright at any time to terminate its participation in this Agreement in whole bygiving notice in writing to IMAGEWARE.

 

4.                                       Survival.  Notwithstanding any termination of thisAgreement, the following sections shall survive and continue to be in fullforce and effect:  Article III, section 2;Article IV, section 1-3;  Article VI,section 2; Article VII; Article IX.   Upon termination of

 

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this Agreement, LICENSEE shall no longer have the right to grantsublicenses to Sub-Licensees.

 

5.                                       Effectof Termination. If IMAGEWARE terminates this License Agreement for Cause under Article VIII,Section 2, then LICENSEE shall discontinue all use of the LicensedPatent.  If this License Agreementterminates under Article VIII, Section 1 or Section 3, then thetermination of the Agreement shall not cause the termination of LICENSEE’srights under Article II, Section 1. Upon termination of this License Agreement for any reason, then LICENSEEshall no longer have the right to enter into Sublicense Agreements withSub-Licensees.  Without further action onits part, LICENSEE shall be deemed to have assigned all of the outstandingSublicense Agreements with Sub-Licensees to IMAGEWARE.  IMAGEWARE shall, by operation of thisprovision, be substituted in to each and every Sublicense Agreement, betweenLICENSEE and any third party, with respect to this Agreement or the subjectmatter of this Agreement, as Licensor (or Sub-Licensor), as the case may be, insuch Sublicense Agreements and such Sublicense Agreements shall continuebetween IMAGEWARE and such Sub-Licensee in accordance with the terms of suchSublicense Agreement.  IMAGEWARE shall beentitled to retain all Sub-License Fees generated after the termination of thisLicense Agreement.

 

Article IX

General Terms and Conditions

 

1.                                       Interpretation.  The captions contained in this Agreement arefor convenience of reference only and are not to be considered in construingthis Agreement. The language of this Agreement shall be construed as to its fairmeaning and not strictly for or against any party.

 

2.                                       EntireAgreement.  This Agreement and Schedule Aset forth the entire understanding of the parties with respect to the subjectmatter hereof, supersede all existing agreements among them concerning suchsubject matter, and may be modified only by a written instrument duly executedby each party.

 

3.                                       Waiver.  Any waiver by either party of any obligationunder this Agreement must be in writing and shall not be deemed to constitute awaiver of any other provision.  Any waiverby either party shall not constitute a continuous waiver unless otherwiseexpressly provided. A failure by either party to assert rights arising from anybreach or default of this Agreement shall not be regarded as a waiver ofrights.  No waiver or toleration impliesany continuing or future waiver of rights.

 

4.                                       Assignmentand Transfer.  Except for the right tosublicense contained herein, LICENSEE shall not assign, transfer, convey orencumber (hereinafter “Transfer”) this Agreement, any rights relating to thisAgreement or any rights in the subject matter of this Agreement without theprior written consent of IMAGEWARE. Notwithstanding the foregoing, LICENSEE shall be permitted to assign itsrights under this Agreement to (i) an affiliate or subsidiary, or (ii) aperson or entity acquiring control of LICENSEE whether by merger, sale ofstock, or the sale of substantially all of the assets of

 

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LICENSEE; provided, in each case, that such transferee agrees to bebound by all terms and conditions of this Agreement.

 

IMAGEWARE may, without consent of LICENSEE,Transfer this Agreement or rights relating to this Agreement or the subjectmatter of this Agreement.

 

5.                                       FurtherActs.  At any time and from time to time,each party agrees, at its expense, to take such actions and to execute anddeliver such documents as may be reasonably necessary to effectuate thepurposes of this Agreement.

 

6.                                       Relationship.  The parties to this Agreement are licensorand licensee and nothing in this Agreement shall be deemed or constructed ascreating a joint venture or partnership between the parties or confer upon oneparty any right or authority to assume or to create any obligation orresponsibility, express or implied, on behalf of or in the name of the other.

 

7.                                       Severability.  The provisions of this Agreement areindependent of and severable from each other, and no provision shall beaffected or rendered invalid or unenforceable by virtue of the fact that forany reason any other or others of them may be invalid or unenforceable in wholeor in part. Further, if a court of competent jurisdiction determines that anyprovision of this Agreement is invalid or unenforceable as written, such courtmay interpret, construe, rewrite or revise such provision, to the fullestextent allowed by law, so as to make it valid and enforceable consistent withthe intent of the parties hereto.

 

8.                                       Counterparts.  This Agreement may be executed incounterparts with the same effect as if all parties to this Agreement hadsigned the same document and all counterparts shall be construed together andconstitute one and the same instrument.

 

9.                                       WrittenNotice.  Any notice or othercommunication required or permitted to be given hereunder shall be in writingand shall be given by Federal Express, Express Mail, or similar overnightdelivery or courier service or delivered (in person or by facsimile or similartelecommunications equipment) against receipt to the party to whom it is to begiven at the address of such party set forth below (or to such other address asthe party shall have furnished in writing in accordance with the provisions ofthis Section ) with a copy to each of the other party hereto. Any noticeor other communication shall be deemed given at the time of receipt thereof.

 

10.                                 Addresses.  Any written notice and all payments requiredby this Agreement shall be provided as follows:

 

10.1.                        If to IMAGEWARE:

 

IMAGEWARE SYSTEMS, INC.

10883 Thornmint Road

San Diego, CA 92127

ATTN: Jeff Hotze, Controller

 

10.2                           If to LICENSEE:

 

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Boston Equities Corporation

1660 Union Street, Suite 200

San Diego, CA 92101

ATTN: Ross Lyndon-James

 

10.3.                        Change in Address.  Each party shall promptly provide writtennotice of any change in address to the other party.

 

11.                                 Choiceof Law.  This Agreement shall beinterpreted and enforced according to the laws of the State of Californiawithout reference to conflict of laws principals.

 

12.                                 DisputeResolution.  In the event of a disputearising under this Agreement, the parties involved in the dispute shall firstmake a good faith attempt to settle the dispute by mediation using a trainedmediator with experience in the area(s) to which the dispute pertains.  The parties may be represented by theirrespective selected counsel, with each party being responsible for its ownattorney fees and costs.  The partiesagree to cooperate in good faith to select a mutually acceptable mediator andlocation for the mediation.  If goodfaith mediation fails to resolve the dispute, or upon expiration of 45 daysfrom the notice of dispute, the dispute may be submitted for bindingarbitration before a panel of three independent arbitrators pursuant to theCommercial Rules of the American Arbitration Association.  The Arbitration panel shall be given theequitable powers of specific performance and injunctive relief.  Any order or award of the panel may besubmitted to a court of competent jurisdiction for enforcement.

 

13.                                 AttorneyFees.   Attorney’s fees shall not berecoverable in any dispute related to this Agreement.

 

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IN WITNESS WHEREOF, the parties execute thisAgreement at the date, time and place indicated.

 

 
| **IMAGEWARE SYSTEMS INC.**      |                    |
|---------------------------------|-------------------------|
|                            |                    |   |
|                            |                    |   |
| By:                             |                    |   |   |
|                            | S. James Miller         |   |
|                            | President and CEO       |   |
|                            |                    |   |
| Date:                           | September 30, 2005 |   |
|                            |                    |   |
| Location: San Diego, California |                    |
|                            |                    |   |
|                            |                    |   |
| **BOSTON EQUITIES CORPORATION** |                    |
|                            |                    |   |
|                            |                    |   |
| By:                             |                    |   |   |
|                            | Ross Lyndon-James       |   |
|                            | President and CEO       |   |
|                            |                    |   |
| Date:                           | September 30, 2005 |   |
|                            |                    |   |
| Location: San Diego, California |                    |
|                                 |                         |  |  |  |

 

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SCHEDULE A

 

EXCLUSIVE FIELDS-OF-USE

 

I.                                         LicensedFields-of-Use:

 

A.                                   ComputerVideo & Web Conferencing, including applications that operate onservers, desktop and laptop computers, tablet PCs, personal digital assistants(PDAs), mobile phones and other portable devices.

 

B.                                     CellularTelephone Applications.

 

No other Fields of Use are permitted.

 

 

II.                                     Sub-LicensableFields of Use:

 

A.                                   ComputerVideo & Web Conferencing, including solutions that operate on servers,desktop and laptop computers, tablet PCs, personal digital assistants (PDAs),mobile phones and other portable devices.

 

 

No other Fields of Use are permitted.

 

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