Exhibit

10.1




 




CONSENT

TO ASSIGNMENT AND AMENDMENT AGREEMENT




 




This Consent to Assignment

and Amendment Agreement (“Agreement”) is made by and among ImageWare

Systems, Inc. (“Company”), and L.F. Global Holdings, LLC (“LF”),

and Laurus Master Fund, Ltd. (“Laurus”)(collectively, “Purchaser”)

as of June 13, 2003 (“Agreement Date”).




 




RECITALS




 




A.                                   By this Agreement the parties intend to

acknowledge the assignment by Perseus 2000, L.L.C., a Delaware limited

liability company (“Perseus”) of the Promissory Notes (defined below) to

Purchaser and Purchaser’s anticipated amendment of the Note Purchase Agreement

(defined below) to enable Purchaser’s acquisition of additional notes from

Company.




 




B.                                     As of June 6, 2003, the Company is indebted

to Perseus or assignee (“Lender”) under the Promissory Notes in the

amount of $3,063,170.05, with daily accrual of interest of $1,111.42

(collectively “Existing Debt”).




 




C.                                     Such Existing

Debt is evidenced by: (i) a Note and Warrant Purchase Agreement entered into

between Company and Lender and dated as of May 22, 2002 (“Note Purchase

Agreement”); (ii) Pledge and Security Agreement entered into between

Company and Lender and dated as of May 22, 2002 (“Company Security Agreement”);

(iii) Registration Rights Agreement entered into between Company and Lender and

dated as of May 22, 2002 (“Rights Agreement”); (iv) the Pledge and

Security Agreement entered into between ImageWare Systems ID Group, Inc., a

Delaware corporation, and Assignor and dated as of May 22, 2002 (“Subsidiary

Security Agreement”); (v) Senior Secured Convertible Promissory Note in the

original principal amount of $2,000,000.00 executed by Company in favor of

Lender and dated as of May 22, 2002 (“Senior Note”); and (vi) Demand

Promissory Note in the original amount of $500,000.00 executed by the Company

in favor of Lender and dated as of September 23, 2002 (“Demand Note” and,

collectively with the Senior Note, referred to herein as “Promissory Notes”).  The Company Security Agreement and

Subsidiary Security Agreement are referred to herein as the “Pledge

Agreements.”




 




D.                                    Collateral for

the Promissory Notes consists of by a perfected first lien against: (i) all of

the assets of Company and its subsidiary ImageWare Systems ID Group, Inc.; (ii)

all of the outstanding shares of capital stock of each of the Company’s United

States subsidiaries; and (iii) sixty-six and two-thirds percent (66.67%) of all

of the outstanding shares of Company’s foreign subsidiaries (collectively “Collateral”).




 




E.                                      The Purchaser will purchase the Existing Debt

represented by the Promissory Notes from Perseus at Closing (defined below),

pursuant to the Purchase and Sale Agreement entered into by and among Perseus

and Purchaser, and the Company concurrently therewith will retire the

Promissory Notes and issue the Laurus Note (defined below) and the LF Note

(defined below), which collectively shall constitute the Recast Promissory

Notes (defined below).




 




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E.                                      For purposes of this Agreement, the Closing

Date shall be the date on which the parties execute their agreement to purchase

the Promissory Note and contribute the Additional Advance (“Closing”).




 




F.                                      At Closing Laurus will be obligated to fund

an amount equal to $1,500,000.00 (“Initial Laurus Investment”).  Such Initial Laurus Investment will be

funded at Closing by wire transfer to Dechert, LLP, as escrow agent for the

benefit of Perseus as partial payment for the purchase of the Promissory Notes,

which Initial Laurus Investment shall be evidenced by the Laurus Note (defined

below).




 




G.                                     At Closing LF will be obligated to fund an

amount equal to $2,650,000.00 (“Initial LF Investment”).  Such Initial LF Investment will be funded at

Closing by wire transfer to: (i) Perseus as partial payment for the purchase of

the Promissory Note; and (ii) the balance to Company which Initial LF

Investment shall be evidenced by the LF Note (defined below).




 




AGREEMENT




 




NOW, THEREFORE, for good and valuable consideration, receipt

of which is hereby acknowledged, the parties hereby agree as follows:




 




1.                                       Assignment of Promissory Notes. 

Company hereby consents to the assignment, transfer and conveyance to

Purchaser of all of Lender’s right, title and interest in and to the Promissory

Notes and related rights and agrees that Purchasers shall each be entitled to

the same benefits and protections as Perseus as purchaser of the Promissory

Notes under the Note Purchase Agreement and each and every document and

agreement entered into or delivered in connection therewith.  Purchaser agrees that Company shall be

entitled to the same benefits and protections under the Promissory Notes and

each and every document and agreement entered into or delivered in connection

therewith to the extent not altered herein.




 




2.                                       Additional Capital Advances.  Concurrent

with the execution of this Agreement, LF shall advance to Company the sum of

approximately $1,088,000 as additional working capital (“Additional

Advance”).  The Additional Advance shall

be included by the Company within the principal balance of the LF Note (defined

below).  The proceeds of the Additional

Advance shall be used by Company to (i) pay costs associated with this

transaction; and (ii) for general ongoing working capital for the Company.




 




3.                                       Amendment of Note Purchase Agreement.  The

Note Purchase Agreement is hereby amended to provide that concurrently with the

execution of this Agreement, Purchaser shall have the right under the Section

1(b) thereof to make the Additional Advance and acquire an Additional Note up

to an aggregate principal amount of approximately $1,088,000.00, on the terms

set forth in Section 1 of the Note Purchase Agreement, subject to the terms of

this Agreement.




 




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4.                                       Promissory

Note Recast.




 




4.1                             In consideration of the Additional Advance

and the amendments to the Promissory Notes provided for herein, the parties

acknowledge that the Company shall:




 




4.1.1                        Upon delivery to escrow of the original

Promissory Notes, cause the Promissory Notes to be reissued such that two

serial notes in the total combined amount of the Initial LF Investment in the

form and content of Exhibit A attached hereto (“LF Note”) and the

Initial Laurus Investment in the form and content of Exhibit B attached hereto

(“Laurus Note”), which reissued promissory notes when issued by the

Company will amend, restate and replace the Promissory Notes and evidence the

additional advance (collectively “Recast Promissory Notes”);




 




4.1.2                        Cause, no later than ninety (90) days

following Closing, all shares which may be issued pursuant to the conversion of

Recast Promissory Notes and the exercise of the Purchaser’s Warrants and the

Warrant issued pursuant to the Note Purchase Agreement to be registered

pursuant to the Rights Agreement and declared effective by the Securities and

Exchange Commission, including the shares underlying the Purchaser’s Warrants

described below;




 




4.1.3                        Without causing an increase in the size of

Company’s Board of Directors, appoint Milton Lohr, Kenneth Widder and James

Chadwick to the Company’s Board of Directors, one of whom shall be appointed as

soon as reasonably practical and the other two no later than the Company’s next

annual meeting, which appointments shall be in lieu of the requirements set

forth in Section 4(f) of the Note Purchase Agreement;




 




4.1.4                        In lieu of the “Additional Warrant” provided

for in Section 1(b)(i), issue in favor of Purchaser six (6) year warrants

to purchase 1,600,000 shares of common stock of Company (“Purchaser’s

Warrants”) exercisable at $2.11 per share in the form and content of

Exhibit C attached hereto;




 




4.1.5                        Pay Laurus a closing fee in cash in an amount

equal to four percent (4.0%) of the Initial Laurus Investment (“Closing Fee”).  Additionally, Company will deliver to LF a

convertible note in the form of the LF Note in the principal amount equal to

four percent (4.0%) of the Initial LF Investment (“LF Closing Fee”);




 




4.1.6                        Reimburse Purchaser for all closing costs of

Purchaser to a maximum of $25,000 upon request and presentation of invoices

from third party service providers for costs incurred by Purchaser.  Company will be responsible for its own

closing costs;




 




4.1.7                        Limit the amount of permitted borrowings by

Company’s German subsidiary to an amount no greater than that outstanding as of

the date of Closing; and




 




4.1.8                        Take such good faith actions as are

reasonably required to secure the consent of Company’s shareholders required to

effectuate this transaction, if any, at




 




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Company’s next annual meeting and to include within its proxy materials

a solicitation of the same at Company’s expense and at such other times as may

be required.




 




5.                                       AMEX Application.  Immediately

following the Closing, the Company will file an application for the listing of

additional shares with the American Stock Exchange as required by the American

Stock Exchange Listing Standards, Policies and Requirements. In the event that

as a condition to approving such application, the American Stock Exchange requires

one or more modifications to the terms and conditions of the Transaction

Documents (as defined in the Recast Promissory Notes), the Company, LF and

Laurus will all work together reasonably and in good faith to effect such

modifications to the Transaction Documents, with a view towards preserving  the overall economic terms and conditions

contained in the Transaction Documents.]




 




6.                                       Representations and Warranties. 

Except as set forth in the schedule of exceptions  delivered to Purchaser concurrent with the

execution of this Agreement, the Company hereby makes and reaffirms all

representations, warranties, and covenants set forth in Section 2 and 4 of the

Note Purchase Agreement and as set forth in the Pledge Agreements as if made on

the date hereof.  Further, under this

Agreement the Company shall deliver to Purchaser an opinion of counsel to the

Company, encompassing in form and substance the matters set forth in Exhibit F

to the Note Purchase Agreement and each other certificate or document required

by Section 1 of the Note Purchase Agreement in connection with the closing of

the acquisition or an Additional Note.  Purchaser, each as to itself,

hereby makes and reaffirms all representations and warranties set forth in

Section 3 of the Note Purchase Agreement as if made by and as to such Purchaser

on the date hereof.




 




7.                                       Additional Remedies.  If

either party violates any of the terms of this Agreement, in addition to any

remedies in law, equity or otherwise, the non-violating party may restrain such

violation in any court of law and may interpose this Agreement as a defense in

any action by the violating party.




 




8.                                       Waivers. No waiver shall be deemed to be made by any party of any of their

respective rights hereunder unless it is in writing and signed by the waiving

party.  Each such waiver shall be a

waiver only with respect to the specific instance involved and shall in no way

impair the rights of the waiving party or the obligations of the other party to

the waiving party in any other respect at any other time.




 




9.                                       Third Party Beneficiaries. 

This Agreement is solely for the benefit of the Company, Laurus, LF and

their respective successors and assigns, and no any other persons or entities

are intended to be third party beneficiaries hereunder or to have any right,

benefit, priority or interest under, or because of the existence of, or to have

any right to enforce, this Agreement.




 




10.                                 Notices.  For the purposes of this

Agreement, written notices shall be sent by U.S. certified mail, return receipt

requested, postage prepaid; or by personal delivery; or by facsimile confirmed

by the recipient; and addressed to the notified party at its address set forth

below its signature line, or such other address specified by the party with

like notice.  Notices shall be deemed

received three (3) business days after deposit in the U.S. mail, if sent

by first class mail;




 




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upon the date set forth in the return receipt, if by certified mail; on the day of

confirmation of delivery by the recipient, if by facsimile; or on the day of

transmittal by personal delivery.




 




11.                                 Costs and Attorneys’ Fees.  In

the event that any party hereto shall institute any litigation or other

proceeding arising out of or relating to this Agreement, the prevailing party

therein shall be entitled to recover its reasonable attorney’s fees and costs

incurred in connection therewith.




 




12.                                 Mediation/Arbitration.  The

parties mutually agree that any claim or controversy arising out of or relating

to this Agreement shall be resolved by first submitting to mediation under the

rules of the American Arbitration Association, and should a resolution not be

reached, by submitting to binding arbitration administered by the American

Arbitration Association in accordance with its Arbitration Rules in San Diego,

California and shall be governed by the laws of the State of California,

including, but not limited to, California  Code  of  Civil

Procedure  Section  1283.05 relating to depositions and

discovery, and judgment on the award rendered by the arbitrator(s) may be

entered in any court in San Diego County having jurisdiction thereof.  The arbitrator shall have the authority to

order such discovery, by way of deposition, interrogatory, document production,

or otherwise, as the arbitrator considers necessary to a full and fair

exploration of the issues in dispute, consistent with the expedited nature of

arbitration.




 




13.                                 Governing Law. 

This Agreement has been delivered and accepted at and shall be deemed to

have been made in the State of New York, and shall be interpreted, and the

rights and liabilities of the parties hereto determined, in accordance with the

internal laws of the State of New York.




 




14.                                 Successors and Assigns. 

This Agreement shall be binding upon and shall inure to the benefit of

the parties’ respective successors and assigns, subject to the provisions

hereof.




 




15.                                 Integrated Agreement. 

This Agreement sets forth the entire understanding of the parties with

respect to the within matters and may not be modified or amended except upon a

writing signed by all parties.




 




16.                                 Authority. Each of the signatories hereto certifies that such party has all

necessary authority to execute this Agreement.




 




17.                                 Counterparts. 

This Agreement may be executed in one or more counterparts, each one of

which when so executed shall be deemed to be an original, and all of which

taken together shall constitute one and the same agreement.




 




IN WITNESS

WHEREOF, the parties

have executed this Agreement as of the date and year first above written.




 




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“LAURUS”




 




Laurus Master Fund, Ltd.,




a Cayman Islands Corporation




 




	

  By:


  	

  /s/ David Grin


  	

   


  	

   


  
	

  Name:


  	

  David Grin


  	

   


  	

   


  
	

  Title:


  	

  Partner


  	

   


  	

   


  
					





 




	

  Address for notices:


  	

  152 West 57th

  Street


  
	

   


  	

  Fourth Floor


  
	

   


  	

  New York, NY 10019


  
	

   


  	

  Facsimile: (212) 541-4434


  
	

   


  	

  Attention: John E. Tucker,

  Esq.


  





 




 




 




“LF”




 




L.F. Global Holdings, LLC,


a California limited liability company




 




	

  By:


  	

  /s/ Marvin

  Friedman


  	

   


  	

   


  
	

  Name:


  	

  Marvin Friedman


  	

   


  	

   


  
	

  Title:


  	

  Managing Member


  	

   


  	

   


  
							





 




	

  Address for notices:


  	

  12230 El Camino Real,

  Suite 220


  
	

   


  	

  San Diego, CA 92130


  
	

   


  	

  Facsimile:


  	

   


  	 

	

   


  	

  Attention: Marvin Friedman


  





 




 




“COMPANY”




 




ImageWare Systems, Inc.,


a California corporation.




 




	

  By:


  	

  /s/ S. James Miller, Jr.


  	

   


  	

   


  
	

  Name:


  	

  S.

  James Miller, Jr.


  	

   


  	

   


  
	

  Title:


  	

  Chairman

  and Chief Executive Officer


  	

   


  	

   


  
					





 




	

  Address for notices:


  	

  10883 Thornmint Road


  
	

   


  	

  San Diego, CA  92127


  
	

   


  	

  Facsimile:


  	

   


  	 

	

   


  	

  Attention: S. James

  Miller, Jr.


  





 




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