Exhibit 4.1


 


THESE
SECURITIES AND THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AND UNLESS AND UNTIL
REGISTERED UNDER THE ACT, OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION IS AVAILABLE AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.


 


 


IMAGEWARE SYSTEMS, INC.


 


WARRANT


 


	
  Warrant No.
  [          ]

  	
   

  	
  Dated: March 17, 2006

  



 


ImageWare Systems, Inc., Delaware corporation (the “Company”), hereby
certifies that, for value received, New Millennium Capital Partners II, LLC, or
its registered assigns (the “Holder”), is entitled to purchase from the Company
up to a total of 250(1) shares of common stock (the “Common Stock”), of the
Company (each such share, a “Warrant Share” and all such shares, the “Warrant
Shares”) at an exercise price equal to $2.30 per share (as adjusted from time
to time as provided in Section 9, the “Exercise Price”), at any time and
from time to time from and after the date hereof and through and including the
date that is five (5) years from the date of issuance hereof (the “Expiration
Date”), 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 Secured
Promissory Note Purchase Agreement, dated as of the date hereof, by and among
the Company and the Purchasers identified therein (the “Purchase Agreement”). All
such Warrants are referred to herein, collectively, as the “Warrants.”


 


1.             Definitions. In
addition to the terms defined elsewhere in this Warrant, capitalized terms that
are not otherwise defined herein have the meanings given to such terms in the
Purchase Agreement.


 


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


 






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


 

















 


3.             Registration of
Transfers. Subject to the requirements of the Purchase Agreement, the
Company shall register the assignment and transfer of any portion of this
Warrant 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 duly
completed and signed. Upon any such registration or transfer, a new warrant to
purchase Common Stock, in substantially the form of this Warrant (any such new
warrant, a “New Warrant”), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant evidencing the
remaining portion of this Warrant not so transferred, if any, shall be issued
to the transferring Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance by such transferee of all of the rights
and obligations of a holder of a Warrant.


 


4.             Exercise and
Duration of Warrant.


 


(a)           This Warrant shall be
exercisable by the registered Holder at any time and from time to time on or
after the date hereof to and including the Expiration Date. At 6:30 P.M., New
York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value.


 


(b)           A Holder may exercise
this Warrant by delivering to the Company (i) an exercise notice, in the form
attached hereto as Exhibit B (the “Exercise Notice”), appropriately completed
and duly signed, and (ii) payment of the Exercise Price for the number of
Warrant Shares as to which this Warrant is being exercised (which may take the
form of a “cashless exercise” if so indicated in the Exercise Notice and if a “cashless
exercise” may occur at such time pursuant to Section 10 below), and the date
such items are delivered to the Company (as determined in accordance with the
notice provisions hereof) is an “Exercise Date.” The Holder shall not be
required to deliver the original Warrant in order to effect an exercise
hereunder. Execution and delivery of the Exercise Notice shall have the same
effect as cancellation of the original Warrant and issuance of a New Warrant
evidencing the right to purchase the remaining number of Warrant Shares.


 


5.             Delivery of
Warrant Shares.


 


(a)           Upon exercise of this
Warrant, the Company shall promptly (but in no event later than three Trading
Days after the Exercise Date) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends unless a registration statement
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder is not then effective and the Warrant Shares are not
freely transferable without volume restrictions pursuant to Rule 144 under the
Securities Act. The Holder, or any Person so designated by the Holder to
receive Warrant Shares shall be deemed to have become holder of record of such
Warrant Shares as of the Exercise Date. The Company shall, upon request of the
Holder, use its best efforts to deliver Warrant Shares hereunder electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions.


 


2

















 


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


 


(c)           In addition to any
other rights available to a Holder, if the Company fails to deliver to the
Holder a certificate representing Warrant Shares by the third Trading Day after
the date on which delivery of such certificate is required by this Warrant and
if after such third Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of
a sale by the Holder of the Warrant Shares that the Holder anticipated
receiving from the Company (a “Buy-In”), then the Company shall, within three
Trading 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 purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased (the “Buy-In Price”), at which point the Company’s obligation to
deliver such certificate (and to issue such Common Stock) shall terminate, or
(ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Stock and pay cash to the Holder in an
amount 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 date
of the event giving rise to the Company’s obligation to deliver such
certificate.


 


(d)           The Company’s
obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction
by the Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law
by the Holder or any other Person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of Warrant Shares. Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company’s failure to timely
deliver certificates representing shares of Common Stock upon exercise of the
Warrant as required pursuant to the terms hereof.


 


6.             Charges, Taxes and
Expenses. Issuance and delivery of certificates for shares of Common Stock
upon exercise of this Warrant shall be made without charge to the Holder for
any issue or transfer tax, withholding tax, transfer agent fee or other
incidental tax or expense in respect of the issuance of such certificates, all
of 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 in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder or an
Affiliate thereof. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.


 


7.             Replacement of
Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the
Company shall issue or cause to be issued in exchange and substitution for and
upon


 


3

















 


cancellation
hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction and customary and reasonable indemnity, if requested.
Applicants for a New Warrant under such circumstances shall also comply with
such other reasonable regulations and procedures and pay such other reasonable
third-party costs as the Company may prescribe.


 


8.             Reservation of
Warrant Shares. The Company covenants that it will at all times reserve and
keep available out of the aggregate of its authorized but unissued and
otherwise unreserved Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as provided herein, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (after giving
effect to the adjustments and restrictions of Section 9, if any). The Company
covenants that all Warrant Shares so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with
the terms hereof be duly and validly authorized, issued and fully paid and
nonassessable. The Company will take all such action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of
any securities exchange or automated quotation system upon which the Common
Stock may be listed.


 


9.             Certain
Adjustments. The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to time as set
forth in this Section 9.


 


(a)           Stock Dividends and
Splits. 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 on
any 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 of
shares, then in each such case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.


 


(b)           Pro Rata
Distributions. Except as provided below, if the Company, at any time while
this Warrant is outstanding, distributes to holders of Common Stock (i)
evidences of its indebtedness, (ii) any security (other than a distribution of
Common Stock covered by the preceding paragraph), (iii) rights or warrants to
subscribe for or purchase any security, or (iv) any other asset (in each case, “Distributed Property”), then in each such case the Exercise
Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution shall be adjusted (effective
on such record date) to equal the product of such Exercise Price times a
fraction of which the denominator shall be the average of the Closing Prices
for the five Trading Days immediately prior to (but not including) such record
date and of which the numerator shall be such average less the then fair market
value of the Distributed


 


4

















 


Property
distributed in respect of one outstanding share of Common Stock, as determined
by the Company’s independent certified public accountants that regularly
examine 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 a
nationally recognized accounting firm), in which case such fair market value
shall be deemed to equal the average of the values determined by each of the
Appraiser and such appraiser. As an alternative to the foregoing adjustment to
the Exercise Price, at the request of the Holder delivered before the 90th day
after such record date, the Company will deliver to such Holder, within five
Trading Days after such request (or, if later, on the effective date of such
distribution), the Distributed Property that such Holder would have been
entitled to receive in respect of the Warrant Shares for which this Warrant
could have been exercised immediately prior to such record date. If such
Distributed Property is not delivered to a Holder pursuant to the preceding
sentence, then upon expiration of or any exercise of the Warrant that occurs
after such record date, such Holder shall remain entitled to receive, in
addition to the Warrant Shares otherwise issuable upon such exercise (if
applicable), such Distributed Property. Notwithstanding the foregoing, no
adjustment shall be made pursuant to this Section 9(b) as a result of the
issuance pursuant to clause (D) of the definition of Excluded Stock.


 


(c)           Fundamental
Transactions. If, at any time while this Warrant is outstanding, (i) the
Company effects any merger or consolidation of the Company with or into another
Person, (ii) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant to
which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (other than as a result of a subdivision or
combination of shares of Common Stock covered by Section 9(a) above) (in any
such case, a “Fundamental Transaction”), then
the Holder shall have the right thereafter to receive, upon exercise of this
Warrant, the same amount and kind of securities, cash or property as it would
have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of Warrant Shares then issuable upon exercise in full
of this Warrant (the “Alternate Consideration”).
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction. In the event of a Fundamental Transaction, the Company or the
successor or purchasing Person, as the case may be, shall execute with the
Holder a written  agreement providing
that:


 


(i)            this
Warrant shall thereafter entitle the Holder to purchase the Alternate
Consideration in accordance with this Section 9(c),


 


5

















 


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


 


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


 


If, in the
case of any Fundamental Transaction, the Alternate Consideration includes
shares of stock, other securities, other property or assets of a Person other
than the Company or any such successor or purchasing Person, as the case may
be, in such Fundamental Transaction, then such written agreement shall also be
executed by such other Person and shall contain such additional provisions to
protect the interests of the Holder as the Board of Directors of the Company
shall reasonably consider necessary by reason of the foregoing. At the Holder’s
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new Warrant consistent with the
foregoing provisions and evidencing the Holder’s right to purchase the
Alternate Consideration for the aggregate Exercise Price upon exercise thereof.
The terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving entity
to comply with the provisions of this paragraph (c) and insuring that the
Warrant (or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction. If any
Fundamental Transaction constitutes or results in a Change of Control, then at
the request of the Holder delivered before the 90th day after such Fundamental
Transaction, the Company (or any such successor or surviving entity) will
purchase the Warrant from the Holder for a purchase price, payable in cash
within five Trading Days after such request (or, if later, on the effective
date of the Fundamental Transaction), equal to the Black-Scholes value of the remaining
unexercised portion of this Warrant on the date of such request.


 


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


 


(e)           Calculations. All
final calculations under this Section 9 shall be made to the nearest cent. The
number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.


 


(f)            Notice of
Adjustments. Upon the occurrence of each adjustment pursuant to this Section
9, the Company at its expense will promptly compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant


 


6

















 


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


 


(g)           Notice of Corporate
Events. If the Company (i) declares a dividend or any stock of the Company
or any Subsidiary, (ii) authorizes or approves, enters into any agreement
contemplating or solicits stockholder approval for any Fundamental Transaction
or (iii) authorizes the voluntary dissolution, liquidation or winding up of the
affairs of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least 20
calendar days prior to the applicable record or effective date on which a
Person would need to hold Common Stock in order to participate in or vote with
respect to such transaction, and the Company will take all steps reasonably
necessary in order to insure that the Holder is given the practical opportunity
to exercise this Warrant prior to such time so as to participate in or vote
with respect to such transaction; provided, however, that the failure to
deliver such notice or any defect therein shall not affect the validity of the
corporate action required to be described in such notice.


 


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


 


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


 


where:


 


X = the number
of Warrant Shares to be issued to the Holder.


 


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


 


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


 


B = the
Exercise Price.


 


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


 


7

















 


11.           Limitation on
Exercise. Notwithstanding anything to the contrary contained herein, the
maximum number of shares of Common Stock that the Company may issue pursuant to
the Transaction Documents at an effective purchase price less than the Closing
Price on the Trading Day immediately preceding the Closing Date equals 19.99%
of the outstanding shares of Common Stock immediately preceding the Closing
Date (the “Issuable Maximum”), unless the
Company obtains shareholder approval in accordance with the rules and
regulations of the applicable Trading Market. If, at the time any Holder
requests an exercise of any of the Warrants, the Actual Minimum (excluding any
shares issued or issuable at an effective purchase price in excess of the Closing
Price on the Trading Day immediately preceding the Closing Date) exceeds the
Issuable Maximum (and if the Company has not previously obtained the required
shareholder approval), then the Company shall issue to the Holder requesting
such exercise a number of shares of Common Stock not exceeding such Holder’s
pro-rata portion of the Issuable Maximum (based on such Holder’s share
(vis-à-vis other Holders) of the aggregate purchase price paid under the
Purchase Agreement and taking into account any Warrant Shares previously issued
to such Holder). For the purposes hereof, “Actual Minimum”
shall mean, as of any date, the maximum aggregate number of shares of Common
Stock then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable upon exercise
in full of all Warrants, without giving effect to (x) any limits on the number
of 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 any
future possible adjustments made under Section 9(d).


 


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


 


13.           Notices. Any and
all notices or other communications or deliveries hereunder (including without
limitation any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number specified
in 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 or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (iii) the Trading Day following the date of
mailing, 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 a
verifiable proof of transmission is provided. The address for such notices or
communications shall be as set forth in the Purchase Agreement.


 


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


 


8

















 


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


 


15.           Miscellaneous.


 


(a)           Subject to the
restrictions on transfer set forth on the first page hereof, this Warrant may
be assigned by the Holder. This Warrant may not be assigned by the Company
except to a successor in the event of a Fundamental Transaction. This Warrant
shall be binding on and inure to the benefit of the parties hereto and their
respective successors and assigns. Subject to the preceding sentence, nothing
in this Warrant shall be construed to give to any Person other than the Company
and the Holder any legal or equitable right, remedy or cause of action under
this Warrant. This Warrant may be amended only in writing signed by the Company
and the Holder and their successors and assigns.


 


(b)           The Company will not,
by amendment of its governing documents or through any 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 of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of the Holder against impairment. Without limiting the generality of the
foregoing, the Company (i) will not increase the par value of any Warrant
Shares above the amount payable therefor on such exercise, (ii) will take all
such action as may be reasonably necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, respectively, and (iii) will not close
its shareholder books or records in any manner which interferes with the timely
exercise 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 AID
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH
PARTY AGREES THAT ALL LEGAL PROCEEDINGS CONCERNING THE INTERPRETATIONS,
ENFORCEMENT AND DEFENSE OF THE TRANSACTIONS CONTEMPLATED BY ANY OF THE
TRANSACTION DOCUMENTS (WHETHER BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVE
AFFILIATES, DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED
EXCLUSIVELY IN THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
BOROUGH OF MANHATTAN. EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN EITHER
DELAWARE OR THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION
CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE
ENFORCEMENT OF ANY OF THIS WARRANT), AND HEREBY IRREVOCABLY WAIVES, AND AGREES
NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT,
ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR


 


9

















 


CERTIFIED MAIL
OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS
IN EFFECT FOR NOTICES TO IT UNDER THIS WARRANT AND AGREES THAT SUCH SERVICE
SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF.
NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE
PROCESS IN ANY MANNER PERMITTED BY LAW. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
WARRANT OR ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. IF EITHER PARTY SHALL COMMENCE AN ACTION OR PROCEEDING TO
ENFORCE ANY PROVISIONS OF THIS WARRANT OR ANY TRANSACTION DOCUMENT, THEN THE
PREVAILING PARTY IN SUCH ACTION OR PROCEEDING SHALL BE REIMBURSED BY THE OTHER
PARTY FOR ITS REASONABLE ATTORNEYS FEES AND OTHER REASONABLE COSTS AND EXPENSES
INCURRED WITH THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH ACTION OR
PROCEEDING.


 


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


 


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


 


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


 


 


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SIGNATURE PAGE FOLLOWS]


 


10

















 


IN WITNESS
WHEREOF, the Company has caused this Warrant to be duly executed by authorized
officer as of the date first indicated above.


 


 


	
   

  	
  IMAGEWARE SYSTEMS, INC.

  
	
   

  	
  A Delaware
  Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  S. James Miller, Chairman and CEO