Exhibit

10.5




 




THE SECURITIES EVIDENCED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN

REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),

AND MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED UNLESS THERE IS AN EFFECTIVE

REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS

MADE IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR THE COMPANY

RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY

SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR

HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY

REQUIREMENTS OF SUCH ACT.




 




No.:  2003-2




 




WARRANT




TO PURCHASE COMMON STOCK




OF




IMAGEWARE SYSTEMS, INC.




 




(void after June 13,

2009)




 




1.                                  Issuance of Warrant. 

FOR VALUE RECEIVED, on and after the date of issuance of this Warrant,

and subject to the terms and conditions herein set forth, the Holder (as

defined below) is entitled to purchase from ImageWare Systems, Inc., a

California corporation (the “Company”), at any time before 5:00 p.m. New York

time on June 13, 2009 (the “Termination Date”), at a price per share equal to

the Warrant Price (as defined below and subject to adjustment as described

below), the Warrant Stock (as defined below and subject to adjustment as

described below) upon exercise of this warrant (this “Warrant”) pursuant to

Section 6 hereof.




 




2.               Definitions.  As used in

this Warrant, the following terms have the definitions ascribed to them below:




 




(a)                                  “Business Day” means any day other than a

Saturday, Sunday or other day on which the national or state banks located in

the State of New York or the State of California or the District of Columbia

are authorized to be closed.




 




(b)                                 “Common Stock” means the common stock,

par value $0.01 per share, of the Company.




 




(c)                                  “Holder” means L.F. Global Holdings, LLC,

or its assigns.




 




(d)                                 “Purchase Agreement” means the Note and

Warrant Purchase Agreement dated as of May 22, 2002 by and between the

Company and Perseus 2000,L.L.C., as amended.




 




(e)                                  “Company Notes” means all Notes issued to

L.F. Global Holdings, LLC (“LF”), and Laurus Master Fund, Ltd. (“Laurus”),

pursuant to the Consent to Assignment and




 





























 




Amendment Agreement by and among LF, Laurus and the Company dated June

13, 2003 (the “Consent Agreement”).




 




(f)                                    “Warrant Price” means $2.11 per share,

subject to adjustment as described in Section 3 below.




 




(g)                                 “Warrant Stock” means the shares of

Common Stock (or other securities) purchasable upon exercise of this Warrant or

issuable upon conversion of this Warrant. 

The total number of shares to be issued upon the exercise of this

Warrant shall be 1,021,687, subject to adjustment as described in

Section 3 below.




 




3.                                  Adjustments and Notices. 

The Warrant Price and the number of shares of Warrant Stock shall be subject

to adjustment from time to time in accordance with this Section 3.




 




(a)                                  Subdivision, Stock Dividends or

Combinations.  In case the Company shall at any time

subdivide the outstanding shares of Common Stock or shall issue a stock

dividend with respect to the Common Stock, the Warrant Price in effect

immediately prior to such subdivision or the issuance of such dividend shall be

proportionately decreased, and in case the Company shall at any time combine

the outstanding shares of the Common Stock, the Warrant Price in effect

immediately prior to such combination shall be proportionately increased, in

each case effective at the close of business on the date of such subdivision,

dividend or combination, as the case may be.




 




(b)                                 Reclassification, Exchange, Substitution,

In-Kind Distribution.  Upon any reclassifications, exchange,

substitution or other event that results in a change of the number and/or class

of the securities issuable upon exercise or conversion of this Warrant or upon

the payment of a dividend in securities or property other than shares of Common

Stock, the Holder shall be entitled to receive, upon exercise or conversion of

this Warrant, the number and kind of securities and property that the Holder

would have received if this Warrant had been exercised or converted immediately

before the record date for such reclassification, exchange, substitution, or

other event or immediately prior to the record date for such dividend.  The Company or its successor shall promptly

issue to the Holder a new warrant for such new securities or other

property.  The new warrant shall provide

for adjustments which shall be as nearly equivalent as may be practicable to

the adjustments provided for in this Section 3 including, without limitation,

adjustments to the Warrant Price and to the number of securities or property

issuable upon exercise or conversion of the new warrant.  The provisions of this Section 3(b) shall

similarly apply to successive reclassifications, exchanges, substitutions, or

other events and successive dividends. 

As used in this Section 3(b), the term “property” shall not include

cash.




 




(c)                                  Reorganization, Merger etc. 

In case of any (i) merger or consolidation of the Company into or with

another corporation where the Company is not the surviving corporation, (ii)

sale, transfer or lease (but not including a transfer or lease by pledge or

mortgage to a bona fide lender) of all or substantially all of the assets of

the Company or (iii) sale by the Company’s shareholders of 50% or more of

the Company’s outstanding securities in one or more related transactions, the

Company, or such successor or purchasing corporation, as the case may be,

shall, as a condition to closing any such reorganization, merger or sale, duly

execute and deliver to the Holder hereof a new warrant so that the Holder shall

have




 




2





























 




the right to receive, at a total purchase price not to exceed that

payable upon the exercise or conversion of the unexercised or unconverted

portion of this Warrant, and in lieu of the shares of the Common Stock

theretofore issuable upon exercise or conversion of this Warrant, the kind and

amount of shares of stock, other securities, money and property receivable upon

such reorganization, merger or sale by the Holder of the number of shares of

Common Stock then purchasable under this Warrant.  Such new warrant shall provide for adjustments that shall be as

nearly equivalent as may be practicable to the adjustments provided for in this

Section 3.  The provisions of this

subparagraph (c) shall similarly apply to successive reorganizations, mergers

and sales.




 




(d)                                 Dilutive Issuances.    (i)                   Subject to obtaining shareholder approval, if

required, pursuant to subsection (vii) below, if the Company, at any time or

from time to time after the date hereof, shall issue any Additional Stock (as

defined below) without consideration or for an Effective Price less than the

Warrant Price in effect immediately prior to the issuance of such Additional

Stock, other than a subdivision or combination of shares of Common Stock or as

a dividend or other distribution of Common Stock as provided for elsewhere in

this Warrant, then and in each such case the then existing Warrant Price shall

be reduced as of the close of business on the date of such issue or sale to a

price equal to the lowest such Effective Price.  “Effective Price” of Additional Stock means the quotient

determined by dividing the total number of shares of Additional Stock issued or

sold, or deemed to have been issued or sold by the Company under this Section,

into the aggregate consideration received, or deemed to have been received by

the Company for such issue under this Section, for such Additional Stock.




 




(ii)                                  In

the case of the issuance of Common Stock for cash, the consideration received

therefor shall be deemed to be the amount of cash paid therefor before

deducting any reasonable discounts, commissions or other expenses allowed, paid

or incurred by the company for any underwriting or otherwise in connection with

the issuance and sale thereof.




 




(iii)                               In the case of the

issuance of Common Stock for a consideration in whole or in part other than

cash, the consideration other than cash received therefor shall be deemed to be

the fair value thereof as reasonably determined by the Board of Directors of

the Company in its good faith judgment irrespective of any accounting

treatment.




 




(iv)                              In

the case of the issuance, whether before, on or after the date hereof, of

options to purchase or rights to subscribe for Common Stock, securities by

their terms convertible into or exchangeable for Common Stock or options to

purchase or rights to subscribe for such convertible or exchangeable securities

(which are not excluded from the definition of Additional Stock), the following

provisions shall apply:




 




(A)                              The

aggregate maximum number of shares of Common Stock deliverable upon exercise of

such options to purchase or rights to subscribe for Common Stock shall be

deemed to have been issued at the time such options or rights were issued and

for a consideration equal to the consideration (determined in the manner

provided in clauses (ii) or (iii)), if any, received by the Company upon the

issuance of such options or rights plus the minimum purchase price provided in

such options or rights (without taking into account potential anti-dilution

adjustments) for the Common Stock covered thereby.




 




3





























 




(B)                                The

aggregate maximum number of shares of Common Stock deliverable upon conversion

of or in exchange for any such convertible or exchangeable securities or upon

the exercise of options to purchase or rights to subscribe for such convertible

or exchangeable securities and subsequent conversion or exchange thereof shall

be deemed to have been issued at the time such securities were issued or such

options or rights were issued and for a consideration equal to the

consideration, if any, received by the corporation for any such securities and

related options or rights (excluding any cash received on account of accrued

interest or accrued dividends), plus the additional consideration, if any, to

be received by the Company upon the conversion or exchange of such securities

or the exercise of any related options or rights (the consideration in each case

to be determined in the manner provided in clauses (ii) or (iii)).




 




(C)                                In

the event of any change in the number of shares of Common Stock deliverable or

any increase in the consideration payable to the Company upon exercise of such

options or rights or upon conversion of or in exchange for such convertible or

exchangeable securities, including, but not limited to, a change resulting from

the antidilution provisions thereof, the Warrant Price obtained with respect to

the adjustment that was made upon the issuance of such options, rights or

securities, and any subsequent adjustments based thereon, shall be recomputed

to reflect such change, but no further adjustment shall be made for the actual

issuance of Common Stock or any payment of such consideration upon the exercise

of any such options or rights or the conversion or exchange of such securities.




 




(D)                               Upon

the expiration of any such options or rights, the termination of any such

rights to convert or exchange or the expiration of any options or rights related

to such convertible or exchangeable securities, the Warrant Price obtained with

respect to the adjustment which was made upon the issuance of such options,

rights or securities or options or rights related to such securities, and any

subsequent adjustments based thereon, shall be recomputed to reflect the

issuance of only the number of shares of Common Stock actually issued upon the

exercise of such options or rights, upon the conversion or exchange of such

securities or upon the exercise of the options or rights related to such

securities.  Upon the expiration of any

such options or rights, the termination of any such rights to convert or

exchange or the expiration of any options or rights related to such convertible

or exchangeable securities, only the number of shares of Common Stock actually

issued upon the exercise of such options or rights, upon the conversion or

exchange of such securities or upon the exercise of the options or rights

related to such securities shall continue to be deemed to be issued.




 




(E)                                 The

number of shares of Common Stock deemed issued and the consideration deemed

paid therefor pursuant to clauses (iv)(A) and (iv)(B) of this Section 3(d)

shall be appropriately adjusted to reflect any change, termination or

expiration of the type described in either clause (iv)(C) or (iv)(D) of this

Section 3(d).




 




(v)                                 “Additional

Stock” shall mean any shares of Common Stock issued (or deemed to have been

issued pursuant to clause (iv) of this Section 3(d)) by the Company after the

date hereof other than shares of Common Stock issued or issuable:




 




4





























 




(A)                              to

employees, officers or directors of the Company, pursuant to stock purchase or

stock option plans or other arrangements that are approved by the Company’s

Board of Directors;




 




(B)                                pursuant

to any rights, agreements, options or warrants outstanding as of the date

hereof and disclosed in writing to the Holder; and stock issued pursuant to any

such rights or agreements granted after the date hereof;




 




(C)                                in

connection with any stock split, stock dividend or recapitalization by the

Company;




 




(D)                               upon

conversion of any Company Notes or the Company’s Series B Preferred Stock or

upon exercise or conversion of the Purchaser’s Warrants or  theWarrants issued pursuant to the Purchase

Agreement;




 




(E)                                 shares

of Common Stock (and/or options, warrants or other Common Stock purchase rights

issued pursuant to such options, warrants or other rights) issued for

consideration other than cash pursuant to a merger, consolidation, strategic

alliance, acquisition or similar business combination approved by the Board of

Directors;




 




(F)                                 pursuant

to any equipment leasing, real property leasing or loan arrangement, or debt

financing from a bank or similar financial or lending institution approved by

the Company’s Board of Directors, the principal purpose of which is not to

raise equity capital; or




 




(G)                                by

the Company in connection with joint ventures, manufacturing, marketing or

distribution arrangements or technology transfer or development arrangements; provided

that such strategic transactions and the issuance of shares in connection

therewith have been approved by the Company’s Board of Directors and the

principal purpose thereof is not to raise equity capital.




 




(vi)                              “Common

Stock Equivalent Share” means with respect to any security that is ultimately

convertible into shares of Common Stock or ultimately exercisable for shares of

Common Stock, the total number of shares of Common Stock that may be acquired

upon full exercise of all such rights.




 




(vii)                           Notwithstanding anything to

the contrary in this Warrant, unless and until the Company obtains shareholder

approval, no adjustment will be made under Subsection (d)(i) above if such

adjustment would cause the maximum number of shares of Common Stock issuable

pursuant to the Company Notes, Purchaser’s Warrants (as defined in Consent

Agreement) and

the warrants issued pursuant to the Purchase Agreement (collectively the

“Convertible Securities”), to exceed the maximum number of shares of Common

Stock that the Company is permitted to issue, without such shareholder

approval, pursuant to and in compliance with the American Stock Exchange

Listing Standards, Policies and Requirements, or any successor provisions, so

long as the Common Stock is listed on such Exchange or a successor exchange.




 




5





























 




(e)                                  Certificate of Adjustment. 

In each case of an adjustment or readjustment of the Warrant Price, the

Company, at its own expense, shall cause its Chief Financial Officer to compute

such adjustment or readjustment in accordance with the provisions hereof and

prepare a certificate showing such adjustment or readjustment, and shall mail

such certificate, by first class mail, postage prepaid, to the Holder.  The certificate shall set forth such

adjustment or readjustment, showing in detail the facts upon which such

adjustment or readjustment is based.  No

adjustment of the Warrant Price shall be required to be made unless it would

result in an increase or decrease of at least one cent, but any adjustments not

made because of this sentence shall be carried forward and taken into account

in any subsequent adjustment otherwise required hereunder.




 




(f)                                    Adjustment to Number of Shares of Warrant

Stock.  In the event the Warrant Price is adjusted

under any provision of this Section 3, the number of shares of Warrant Stock

shall be simultaneously adjusted by multiplying the number of shares of Warrant

Stock by a fraction, the numerator of which is the Warrant Price in effect

immediately prior to such adjustment and the denominator of which is the

Warrant Price in effect immediately after such adjustment.




 




(g)                                 No Impairment. 

The Company shall not, by amendment of its Articles of Incorporation or

through a reorganization, transfer of assets, consolidation, merger,

dissolution, issue, or sale of securities or any other voluntary action, avoid

or seek to avoid the observance or performance of any of the terms to be

observed or performed under this Warrant by the Company, but shall at all times

in good faith assist in carrying out all of the provisions of this Section 3

and in taking all such action as may be necessary or appropriate to protect the

Holder’s rights under this Section 3 against impairment.  If the Company takes any action affecting

the Common Stock or any other event occurs as to which the provisions of this

Section 3 are not strictly applicable or if strictly applicable would not

fairly protect the Holder’s rights under this Warrant, then the Board of Directors

of the Company shall make an adjustment in the number and/or class of shares

available under this Warrant, the Warrant Price, or the application of such

provisions, so as to protect the Holder’s rights under this Warrant as

aforesaid.  The adjustment will be such

as will give the Holder upon exercise for the same aggregate Warrant Price the

same number, class and kind of securities the Holder would have owned had the

Warrant been exercised prior to the occurrence of event requiring adjustment and

had the Holder continued to hold such securities until after the occurrence of

such event.




 




(h)                                 Fractional Shares. 

No fractional shares shall be issuable upon exercise or conversion of

the Warrant and the number of shares to be issued shall be rounded down to the

nearest whole share.  If a fractional

share interest arises upon any exercise or conversion of the Warrant, the

Company shall eliminate such fractional share interest by paying the Holder an

amount computed by multiplying the fractional interest by the fair market value

of a full share.




 




4.                                       No Shareholder Rights. 

This Warrant, by itself, as distinguished from any shares purchased

hereunder, shall not entitle its Holder to any of the rights of a shareholder

of the Company.




 




6





























 




5.                                       Reservation of Stock. 

On and after the date hereof, the Company will reserve from its

authorized and unissued Common Stock a sufficient number of shares to provide

for the issuance of Warrant Stock upon the exercise or conversion of this

Warrant.  Issuance of this Warrant shall

constitute full authority to the Company’s officers who are charged with the

duty of executing stock certificates to execute and issue the necessary

certificates for shares of Warrant Stock issuable upon the exercise or

conversion of this Warrant.




 




6.                                  Exercise of Warrant. 

This Warrant may be exercised as a whole or part by the Holder, at any

time after the date hereof prior to the termination of this Warrant, by the

surrender of this Warrant, together with the Notice of Exercise and Investment

Representation Statement in the forms attached hereto as Attachments 1

and 2, respectively, duly completed and executed at the principal office

of the Company, specifying the portion of the Warrant to be exercised and

accompanied by payment in full of the Warrant Price in cash or by check with

respect to the shares of Warrant Stock being purchased.  This Warrant shall be deemed to have been

exercised immediately prior to the close of business on the date of its surrender

for exercise as provided above, and the person entitled to receive the shares

of Warrant Stock issuable upon such exercise shall be treated for all purposes

as the holder of such shares of record as of the close of business on such

date.  As promptly as practicable after

such date, the Company shall issue and deliver to the person or persons

entitled to receive the same a certificate or certificates for the number of

full shares of Warrant Stock issuable upon such exercise.  If this Warrant shall be exercised for less

than the total number of shares of Warrant Stock then issuable upon exercise,

promptly after surrender of this Warrant upon such exercise, the Company will

execute and deliver a new warrant, dated the date hereof, evidencing the right of

the Holder to the balance of this Warrant Stock purchasable hereunder upon the

same terms and conditions set forth herein.




 




7.                                  Conversion.  In lieu of

exercising this Warrant or any portion hereof, at any time the Holder hereof

shall have the right to convert this Warrant or any portion hereof into Warrant

Stock by executing and delivering to the Company at its principal office the

written Notice of Conversion and Investment Representation Statement in the

forms attached hereto as Attachments 2 and 3, specifying the

portion of the Warrant to be converted, and accompanied by this Warrant.  The number of shares of Warrant Stock to be

issued to Holder upon such conversion shall be computed using the following

formula:




 




X=(P)(Y)(A-B)/A




 




where

X =                             the

number of shares of Common Stock to be issued to the Holder for the portion of

the Warrant being converted.




 




P =                               the

portion of the Warrant being converted expressed as a decimal fraction.




 




Y =                              the

total number of shares of Common Stock issuable upon exercise of the Warrant in

full.




 




A =                            the

fair market value of one share of Warrant Stock which  means (i) the fair market value of the Warrant Stock as of the

last Business Day immediately prior to the date the notice of




 




7





























 




conversion is

received by the Company, as reported in the principal market for such

securities or, if no such market exists, as determined in good faith by the

Company’s Board of Directors, or (ii) if this Warrant is being converted in

conjunction with a public offering of stock the price to the public per share

pursuant to the offering.




 




B =                              the

Warrant Price on the date of conversion.




 




Any portion of this Warrant that is converted shall be immediately

canceled.  This Warrant or any portion

hereof shall be deemed to have been converted immediately prior to the close of

business on the date of its surrender for conversion as provided above, and the

person entitled to receive the shares of Warrant Stock issuable upon such

conversion shall be treated for all purposes as the holder of such shares of

record as of the close of business on such date.  As promptly as practicable after such date, the Company shall

issue and deliver to the person or persons entitled to receive the same a

certificate or certificates for the number of full shares of Warrant Stock

issuable upon such conversion.  If the

Warrant shall be converted for less than the total number of shares of Warrant

Stock then issuable upon conversion, promptly after surrender of the Warrant

upon such conversion, the Company will execute and deliver a new warrant, dated

the date hereof, evidencing the right of the Holder to the balance of the

Warrant Stock purchasable hereunder upon the same terms and conditions set

forth herein.  If this Warrant is converted,

as a whole or in part, after the occurrence of an event as to which Section

3(c) is applicable, the Holder shall receive the consideration contemplated by

Section 3(c) in lieu of Common Stock of the Company.




 




8.                                  Transfer of Warrant. 

This Warrant may be transferred or assigned by the Holder hereof in

whole or in part, provided that the transferor provides, at the Company’s

request, an opinion of counsel satisfactory to the Company that such transfer

does not require registration under the Securities Act and the securities laws

applicable with respect to any other applicable jurisdiction.




 




9.                                  Termination. 

This Warrant shall terminate on 5:00 p.m. New York time on the

Termination Date.




 




10.                         Miscellaneous. 

This Warrant shall be governed by the laws of the State of New York, as

such laws are applied to contracts to be entered into and performed entirely in

New York by New York residents. In the event of any dispute among the Holder

and the Company arising out of the terms of this Warrant, the parties hereby

consent to the exclusive jurisdiction of the federal and state courts located

in the State of New York for resolution of such dispute, and agree not to

contest such exclusive jurisdiction or seek to transfer any action relating to

such dispute to any other jurisdiction. 

The headings in this Warrant are for purposes of convenience and

reference only, and shall not be deemed to constitute a part hereof.  Neither this Warrant nor any term hereof may

be changed or waived orally, but only by an instrument in writing signed by the

Company and the Holder of this Warrant. 

All notices and other communications from the Company to the Holder of

this Warrant shall be delivered personally or by facsimile transmission or

mailed by first class mail, postage prepaid, to the address or facsimile number

furnished to the




 




8





























 




Company in writing

by the last Holder of this Warrant who shall have furnished an address or

facsimile number to the Company in writing, and if mailed shall be deemed given

three days after deposit in the United States mail.




 




ISSUED:              June

13, 2003




 




 




	

   


  	

  IMAGEWARE

  SYSTEMS, INC.


  
	

   


  	

   


  
	

   


  	

  By:


  	

  /s/ S. James Miller,

  Jr.


  
	

   


  	

   


  	

   


  
	

   


  	

  Name:


  	

  S. James Miller, Jr.


  
	

   


  	

   


  	

   


  
	

   


  	

  Title:


  	

  Chairman, CEO and President


  
				





 




9





























 




Attachment 1




 




NOTICE OF EXERCISE




 




TO:                                                                  




 




1.                                       The

undersigned hereby elects to purchase

                               

shares of the Warrant Stock of ImageWare Systems, Inc. pursuant to the terms of

the attached Warrant, and tenders herewith payment of the purchase price in

full, together with all applicable transfer taxes, if any.




 




2.                                       Please

issue a certificate or certificates representing said shares of Warrant Stock

in the name of the undersigned or in such other name as is specified below:




 




 




	

   


  	

   


  	

   


  
	

   


  	

  (Name)


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

  (Address)


  	

   


  





 




 




	

   


  	

   


  	

   


  
	

  (Date)


  	

   


  	

  (Name of Warrant Holder)


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

  By:


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

  Title:


  	

   


  
					





 





























 




Attachment 2




 




INVESTMENT

REPRESENTATION STATEMENT




 




Shares of the

Common Stock




(as defined in the

attached Warrant) of




ImageWare Systems,

Inc.




 




In connection with the purchase of the above-listed

securities, the undersigned hereby represents to ImageWare Systems, Inc. (the

“Company”) as follows:




 




(a)                                  The

securities to be received upon the exercise of the Warrant (the “Securities”)

will be acquired for investment for its own account, not as a nominee or agent,

and not with a view to the sale or distribution of any part thereof, and the

undersigned has no present intention of selling, granting participation in or

otherwise distributing the same, but subject, nevertheless, to any requirement

of law that the disposition of its property shall at all times be within its

control.  By executing this statement,

the undersigned further represents that it does not have any contract,

undertaking, agreement or arrangement with any person to sell, transfer, or

grant participations to such person or to any third person, with respect to any

Securities issuable upon exercise of the Warrant.




 




(b)                                 The

undersigned understands that the Securities issuable upon exercise of the

Warrant at the time of issuance may not be registered under the Securities Act

of 1933, as amended (the “Securities Act”), and applicable state securities

laws, on the ground that the issuance of such securities is exempt pursuant to

Section 4(2) of the Securities Act and state law exemptions relating to offers

and sales not by means of a public offering, and that the Company’s reliance on

such exemptions is predicated on the undersigned’s representations set forth

herein.




 




(c)                                  The

undersigned agrees that in no event will it make a disposition of any

Securities acquired upon the exercise of the Warrant unless and until (i) it

shall have notified the Company of the proposed disposition and shall have

furnished the Company with a statement of the circumstances surrounding the

proposed disposition, and (ii) it shall have furnished the Company with an

opinion of counsel satisfactory to the Company and Company’s counsel to the

effect that (A) appropriate action necessary for compliance with the Securities

Act and any applicable state securities laws has been taken or an exemption

from the registration requirements of the Securities Act and such laws is

available, and (B) the proposed transfer will not violate any of said laws.




 




(d)                                 The

undersigned acknowledges that an investment in the Company is highly

speculative and represents that it is able to fend for itself in the

transactions contemplated by this statement, has such knowledge and experience

in financial and business matters as to be capable of evaluating the merits and

risks of its investments, and has the ability to bear the economic risks

(including the risk of a total loss) of its investment.  The undersigned represents that it has had

the opportunity to ask questions of the Company concerning the Company’s

business and assets and to obtain any additional information which it

considered necessary to verify the accuracy of or to amplify the Company’s

disclosures, and has had all questions which have been




 





























 




asked by it satisfactorily answered by the Company.  The undersigned represents that it is an

“accredited investor” within the meaning of Regulation D of the Securities Act.




 




(e)                                  The

undersigned acknowledges that the Securities issuable upon exercise or

conversion of the Warrant must be held indefinitely unless subsequently

registered under the Securities Act or an exemption from such registration is

available.  The undersigned is aware of

the provisions of Rule 144 promulgated under the Securities Act which permit

limited resale of shares purchased in a private placement subject to the

satisfaction of certain conditions, including, among other things, the

existence of a public market for the shares, the availability of certain

current public information about the Company, the resale occurring not less

than one year after a party has purchased and paid for the security to be sold

from the Company or any affiliate of the Company, the sale being through a

“broker’s transaction” or in transactions directly with a “market maker” (as

provided by Rule 144(f)) and the number of shares being sold during any three

month period not exceeding specified limitations.




 




 




	

   


  	

  Dated:


  	

   


  	

   


  	

   


  
	

   


  	

   


  
	

   


  	

   


  
	

   


  	

   


  
	

   


  	

  (Typed or Printed Name)


  
	

   


  	

   


  
	

   


  	

  By:


  	

   


  
	

   


  	

   


  	

  (Signature)


  
	

   


  	

   


  
	

   


  	

   


  
	

   


  	

  (Title)


  





 




2





























 




Attachment 3




 




NOTICE OF CONVERSION




 




TO:                                                                   




 




1.                                       The

undersigned hereby elects to acquire

                            

shares of the Warrant Stock of ImageWare Systems, Inc. pursuant to the terms of

the attached Warrant, by conversion of

                

percent (            %)

of the Warrant.




 




2.                                       Please

issue a certificate or certificates representing said shares of Warrant Stock

in the name of the undersigned or in such other name as is specified below:




 




 




	

   


  	

   


  	

   


  
	

   


  	

  (Name)


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

  (Address)


  	

   


  





 




 




	

   


  	

   


  	

   


  	

   


  
	

  (Date)


  	

   


  	

  (Name of Warrant Holder)


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

  By:


  	

   


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

  Title:


  	

   


  	

   


  
	

   


  	

   


  	

  (Title and

  signature of authorized person)