Document:

ex10-3

Privileged
and Confidential

 

 

 
Exhibit
10.3

 

EXCHANGE
AGREEMENT

 

This
Exchange Agreement (together with all schedules hereto, this
“Agreement”) is
dated as of September [___], 2020, by and among ImageWare Systems,
Inc., a Delaware corporation (the “Company”), and
each undersigned holder of the Company’s Series C Convertible
Preferred Stock (“Series C
Preferred”) (“Holder”).

 

RECITALS

 

WHEREAS, each
Holder is the “beneficial owner” (within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of the number of shares of the Company’s Series C Preferred
set forth opposite such Holder’s name on Schedule A attached hereto (the
“Current
Shares”);

 

WHEREAS, each
Holder desires to exchange (the “Exchange”) all
of its Current Shares for the number of shares of the
Company’s Series D Convertible Preferred Stock, $0.01 par
value per share (“Series D
Preferred”), set forth under the heading
“Exchange Shares” on Schedule A attached hereto
(such shares of Series D Preferred to be issued as consideration
for the Exchange, the “Exchange
Shares”); and

 

WHEREAS, the shares
of common stock of the Company, par value $0.01 per share, issuable
upon conversion of the Series D Preferred, are referred to herein
as the “Common Stock” (together with the Series D
Preferred, the “Securities”;
and each, a “Security”),
and the shares of Common Stock issued or issuable to the holders of
Series D Preferred as dividends in accordance with the terms and
conditions set forth in the Certificate of Designation (as defined
below) are referred to herein as “Dividend
Shares”.

 

NOW,
THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby agreed and acknowledged, the
parties hereby agree as follows:

 

AGREEMENT

 

1. Securities
Exchange. Subject to the terms and conditions of this
Agreement, the parties agree as follows.

 

(a) each Holder hereby
contributes and assigns to the Company all of such Holder’s
right, title and interest, free and clear of all liens and
encumbrances, in and to all of its Current Shares, and each Holder
hereby delivers all certificates or other documentation (as
applicable) evidencing the Current Shares, to the Company, duly
endorsed in blank or accompanied by other duly executed instruments
of transfer reasonably satisfactory to the Company; 

 

(b) the Company hereby
issues the applicable Exchange Shares to each Holder as
consideration for the Exchange;

 

(c) the closing under
this Agreement (the “Closing”)
shall take place upon the satisfaction of each of the conditions
set forth in Sections
4 and 5
hereof (the “Closing
Date”), and shall occur substantially concurrently
with, and subject to, the closing of the Concurrent Offering (as
defined below); and

 

 

 

 

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(d) within five
business (5) business days after the Closing, the Company shall
issue and deliver to each a Holder a certificate evidencing the
Exchange Shares against delivery of the Current Shares to the
Company.

 

2. Representations,
Warranties and Covenants of the Holders. The Holders,
individually and not jointly, hereby make the following
representations and warranties to the Company, and covenants for
the benefit of the Company:

 

(e) Power and
Authorization. This
Agreement has been duly authorized, validly executed and delivered
by each Holder and is a valid and binding agreement and obligation
of each Holder enforceable against them in accordance with its
terms, subject to limitations on enforcement by general principles
of equity and by bankruptcy or other laws affecting the enforcement
of creditors’ rights generally, and each Holder has full
power and authority to execute and deliver the Agreement and the
other agreements and documents contemplated hereby and to perform
its obligations hereunder and thereunder.

 

(f) Accredited Investor. Each
Holder is an “accredited investor” as defined under
Rule 501 of Regulation D, promulgated under the Securities Act of
1933, as amended (the “Securities
Act”).

 

(g) Investment Purposes. Each
Holder will be acquiring the Exchange Shares for their own account,
for investment purposes, and not with a view to any resale or
distribution in whole or in part, in violation of the Securities
Act or any applicable securities laws; provided, however, that notwithstanding
the foregoing, each Holder does not covenant to hold the Series D
Preferred for any minimum period of time except as set forth in the
Company’s Certificate of Designations, Preferences and Rights
of Series D Convertible Preferred Stock (the “Certificate of
Designation”).

 

(h) Title to Current Shares. Each
Holder owns and holds, beneficially and of record, the entire
right, title, and interest in and to the Current Shares free and
clear of all rights and Encumbrances (as defined below), and each
Stockholder has full power and authority to transfer and dispose of
the Exchange Shares free and clear of any right or Encumbrance.
Other than the transactions contemplated by this Agreement, there
is no outstanding plan, pending proposal, or other right of any
person to acquire all or any of the Exchange Shares.
“Encumbrances”
shall mean any security or other property interest or right, claim,
lien, pledge, option, charge, security interest, contingent or
conditional sale, or other title claim or retention agreement,
interest or other right or claim of third parties, whether
perfected or not perfected, voluntarily incurred or arising by
operation of law, and including any agreement (other than this
Agreement) to grant or submit to any of the foregoing in the
future.

 

(i) Acknowledgement of Concurrent
Offering. The Holder understands and acknowledges that
concurrently with the Exchange, the Company is (a) issuing and
selling the Company’s Series D Preferred to certain other
purchasers pursuant to that certain Stock Purchase Agreement dated
as of the date hereof (the “Purchase
Agreement” and, such sales thereunder, the
“Concurrent
Sale”), and (b) agreeing to exchange the
Company’s issued and outstanding Series A Convertible
Preferred Stock pursuant to the terms of that certain Series A
Exchange Agreement among the Company and the holders identified
therein (the “Series A
Exchange” and, together with the Concurrent Sale, the
“Concurrent
Offering”).

 

 

 

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(j) Shareholder Approval. The
Holder understands and acknowledges that the Concurrent Offering is
conditioned upon, among other things, the receipt by the Company of
the requisite shareholder approval to amend and restate the
Company’s Certificate of Incorporation.

 

3. Representations,
Warranties and Covenants of the Company. The Company
represents and warrants to each Holder, and covenants for the
benefit of each Holder, as follows:

 

(a) Organization and Qualification;
Subsidiaries. The Company and each of its subsidiaries
(collectively, the “Subsidiaries”)
listed on Section
3(a) of the Disclosure Schedule attached to the Purchase
Agreement (the “Disclosure
Schedule”) is a corporation duly organized and validly
existing in good standing under the laws of the jurisdiction in
which it is incorporated or organized and has the requisite
corporate power to own its properties and to carry on its business
as now being conducted. The Company and each of its Subsidiaries is
duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the
business conducted by it makes such qualification necessary and
where the failure so to qualify would have, or would reasonably be
expected to result in, a Material Adverse Effect. For purposes of
this Agreement, “Material Adverse
Effect” means any event, occurrence, fact, condition
or change that, individually or in the aggregate, results, or would
reasonably be likely to result, in a material adverse effect on (i)
the Securities or the Dividend Shares, (ii) the ability of the
Company to perform its obligations under this Agreement or the
other Transaction Documents (as defined in the Purchase Agreement)
or (iii) the condition (financial or otherwise) or the earnings,
prospects, business, properties, surplus or results of operations
of the Company and its Subsidiaries.

 

(b) Authorization; Enforcement.
Other than the Written Consent (as defined in the Purchase
Agreement) (i) the Company has the requisite corporate power and
authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents, to issue the Series
D Preferred in accordance with the terms hereof, to issue the
Common Stock upon conversion of the Series D Preferred in
accordance with the terms thereof and to issue the Dividend Shares
in accordance with the Certificate of Designation and the
Company’s Certificate of Incorporation as in effect on the
date hereof (“Certificate of
Incorporation”); (ii) the execution, delivery and
performance of this Agreement and the other Transaction Documents
by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including, without limitation, the
issuance of the Series D Preferred and the issuance and reservation
for issuance of the Common Stock and the Dividend Shares) have been
duly authorized by the Company’s Board of Directors and no
further consent or authorization of the Company, its Board of
Directors, any committee of the Board of Directors or any of the
stockholders of the Company is required, and (iii) this Agreement
constitutes, and, upon execution and delivery by the Company of the
other Transaction Documents, such Transaction Documents will
constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of creditors’ rights and remedies.
Other than the Written Consent, neither the execution, delivery or
performance by the Company of its obligations under this Agreement
or the other Transaction Documents, nor the consummation by it of
the transactions contemplated hereby or thereby (including, without
limitation, the issuance of the Series D Preferred, or the issuance
or reservation for issuance of the Common Stock and the Dividend
Shares) requires any consent or authorization of the
Company’s stockholders.

 

 

 

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(c) Capitalization. The
capitalization of the Company as of the date hereof, including the
authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for
issuance pursuant to the Company’s stock option plans, all
securities exercisable or exchangeable for, or convertible into,
any shares of capital stock of the Company (“Convertible
Securities”), the number of shares issuable and
reserved for issuance pursuant to Convertible Securities, any
shares of capital stock and the number of shares reserved for
issuance upon conversion of the Series D Preferred, is set forth in
Section 3(c) of the
Disclosure Schedule. All such outstanding shares of capital stock
have been, or upon issuance in accordance with the terms of any
such Convertible Securities will be, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company
(including the Common Stock and the Dividend Shares) are subject to
preemptive rights or any other similar rights of the stockholders
of the Company or any liens or encumbrances. Except as set forth in
Section 3(c) of the
Disclosure Schedule, (i) there are no outstanding options,
warrants, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or
may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries, nor are any such issuances or
arrangements contemplated, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of its or their securities
under the Securities Act (except the Registration Rights Agreement
(as defined in the Purchase Agreement)); (iii) there are no
outstanding securities or instruments of the Company which contain
any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company is
or may become bound to redeem any security of the Company; and (iv)
the Company does not have any shareholder rights plan,
“poison pill” or other anti-takeover plans or similar
arrangements. Section
3(c) of the Disclosure Schedule sets forth all of the
securities or instruments issued by the Company or any of its
Subsidiaries that contain anti-dilution or similar provisions that
will be triggered by, and all of the resulting adjustments that
will be made to such securities and instruments as a result of, the
issuance of the Securities and the Dividend Shares in accordance
with the terms of this Agreement or the Certificate of Designation.
The Company has no knowledge of any voting agreements, buy-sell
agreements, option or right of first purchase agreements or other
agreements of any kind among any of the security holders of the
Company relating to the securities of the Company held by them. The
Company can furnish, upon request, true and correct copies of the
Company’s Certificate of Incorporation, the Company’s
Bylaws as in effect on the date hereof (the “Bylaws”), and
all other instruments and agreements governing any Convertible
Securities. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by
applicable law) to receive dividends and distributions on, all
capital securities of its Subsidiaries as owned by the Company or
any such Subsidiary.

 

 

 

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(d) Issuance of Securities. Subject
to the Written Consent, the Series D Preferred are duly authorized
and, upon issuance in accordance with the terms of this Agreement
and the Certificate of Designation, (i) will be validly issued and
free from all taxes, liens, claims, transfer restrictions, and
encumbrances (other than restrictions on transfer contained in this
Agreement or the Certificate of Designation), (ii) will not be
subject to preemptive rights, rights of first refusal or other
similar rights of stockholders of the Company or any other Person
(as defined below) and (iii) will not impose personal liability on
any holder thereof. The Common Stock and the Dividend Shares are
duly authorized and reserved for issuance, and, upon issuance of
the Dividend Shares or conversion of the Series D Preferred, in
each case in accordance with the terms of the Certificate of
Designation, (x) will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims, transfer
restrictions, and encumbrances (other than restrictions on transfer
contained in this Agreement), (y) will not be subject to preemptive
rights, rights of first refusal or other similar rights of
stockholders of the Company or any other Person and (z) will not
impose personal liability upon any holder thereof. Except for the
filing of any notice prior or subsequent to the Closing Date (as
defined in the Purchase Agreement) that may be required under
applicable state and/or federal securities laws (or comparable laws
of any other jurisdiction), and no authorization, consent,
approval, license, exemption of or filing or registration with any
court or governmental department, commission, board, bureau,
agency, instrumentality or other third party, is or will be
necessary for, or in connection with, the execution and delivery by
the Company of this Agreement, the offer, issue, sale, execution or
delivery of the Securities and the Dividend Shares, or the
performance by the Company of its obligations under this Agreement.
No “bad actor” disqualifying event described in Rule
506(d)(1)(i)-(viii) of the Securities Act (a “Disqualification
Event”) is applicable to the Company or, to the
Company’s knowledge, any Person listed in the first paragraph
of Rule 506(d)(1), except for a Disqualification Event as to which
Rule 506(d)(2)(ii–iv) or (d)(3), is applicable.
“Person” means
an individual, partnership, corporation, unincorporated
organization, joint stock company, limited liability company,
association, trust, joint venture or any other entity, or a
governmental agency or political subdivision thereof.

 

(e) No Conflicts. Except as set
forth in Section
3(e) of the
Disclosure Schedule, and subject to the Written Consent, the
execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Series D
Preferred, and the issuance and reservation for issuance of the
Common Stock and the Dividend Shares) will not (i) result in a
violation of the Certificate of Incorporation or Bylaws, (ii)
conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration
or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party, (iii) result in
a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws, rules
and regulations and rules and regulations of any self-regulatory
organizations to which either the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its
Subsidiaries is bound or affected, or (iv) result in the imposition
of a mortgage, pledge, security interest, encumbrance, charge or
other lien on any asset of the Company or any
Subsidiary.

 

(f) Compliance. Neither the Company
nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, Bylaws or other organizational documents, and
neither the Company nor any of its Subsidiaries is in default (and
no event has occurred that with notice or lapse of time or both
would put the Company or any of its Subsidiaries in default) under,
nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a
party. The businesses of the Company and its Subsidiaries are not
being conducted, and shall not be conducted so long as any
Purchaser (as defined in the Purchase Agreement) (or any of its
respective affiliates) owns any of the Securities or Dividend
Shares, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations the sanctions
for which either singly or in the aggregate have not had and would
not materially affect the Company or any of its Subsidiaries.
Neither the Company, nor any of its Subsidiaries, nor any director,
officer, agent, employee or other Person acting on behalf of the
Company or any Subsidiary has, in the course of his actions for, or
on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity, made any direct or
indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds, violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977, or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic
government official or employee. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, provincial or foreign governmental or
regulatory authorities that are material to the conduct to their
business, and neither the Company nor any of its Subsidiaries has
received any notice of proceeding relating to the revocation or
modification of any such certificate, authorization or permit. The
Company has complied in all material respects with and is not in
default or violation in any material respect of, and is not, to the
Company’s knowledge, under investigation with respect to or
has not been, to the knowledge of the Company, threatened to be
charged with or given notice of any violation of, any applicable
federal, state, local or foreign law, statute, ordinance, license,
rule, regulation, policy or guideline, order, demand, writ,
injunction, decree or judgment of any federal, state, local or
foreign governmental or regulatory authority. Except for statutory
or regulatory restrictions of general application, no federal,
state, local or foreign governmental or regulatory authority has
placed any material restriction on the business or properties of
the Company or any of its Subsidiaries.

 

 

 

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(g) SEC Documents, Financial
Statements. Except as set forth in Section 3(g) of the Disclosure
Schedule, the Company has timely filed (within applicable extension
periods) all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the
Securities Act and/or the Securities Exchange Act of 1934, as
amended (including the rules and regulations promulgated
thereunder, the “Exchange Act”)
(all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein, the
“SEC
Documents”). As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. None of the statements made in any such
SEC Documents is, or has been, required to be amended or updated
under applicable law (except for such statements as have been
amended or updated in subsequent filings made prior to the date
hereof). As of their respective dates, the financial statements of
the Company included in the SEC Documents complied in all material
respects with applicable accounting requirements and the published
rules and regulations of the SEC applicable with respect thereto.
Such financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”),
consistently applied, during the periods involved (except as may be
otherwise indicated in such financial statements or the notes
thereto or, in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to immaterial
year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the Select SEC Documents (as
defined below), the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to the date of such financial
statements and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under
GAAP to be reflected in such financial statements, which
liabilities and obligations referred to in clauses (i) and (ii),
individually or in the aggregate, are not material to the financial
condition or operating results of the Company. For purposes of this
Agreement, “Select SEC
Documents” means the Company’s (A) Annual Report
on Form 10-K for the fiscal year ended December 31, 2019, (B)
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2020, (C) Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2020, and (D) all Current Reports on Form 8-K filed
since August 19, 2020.

 

(h) No Material Adverse Effect in
Business. Except as set forth in Section 3(h) of the Disclosure
Schedule, and other than effects on the business related primarily
to COVID-19, since March 31, 2020 through the date hereof, (i)
there has been no Material Adverse Effect, nor any development or
event which would result, or be reasonably likely to result, in a
Material Adverse Effect, (ii) there has been no dividend or
distribution of any kind declared, paid or made by the Company on
any class of its capital stock, and (iii) there has been no
material adverse change in the capital stock, short-term
indebtedness, long-term indebtedness, net current assets, net
current liabilities or net assets of the Company and its
Subsidiaries.

 

 

 

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(i) Absence of Certain Changes.
Except as set forth on Section 3(i) of the Disclosure Schedule,
since March 31, 2020, (i) there has not been any change in the
capital stock (other than pursuant to the Company’s stock
plans pursuant to the Company’s Approved Share Plan (as
defined below), pursuant to the conversion or exercise of
outstanding securities that are convertible into or exercisable for
Common Stock, or pursuant to publicly disclosed equity or debt
financings) or long-term debt of the Company, or any dividend or
distribution of any kind declared, set aside for payment, paid or
made by the Company on any class of capital stock; (ii) neither the
Company nor any of its Subsidiaries has entered into any
transaction or agreement that is material to the Company or any of
its Subsidiaries taken as a whole or incurred any liability or
obligation, direct or contingent, that is material to the Company
or any of its Subsidiaries and, except as contemplated by this
Agreement, has made any material change or amendment to a material
contract or arrangement by which the Company or any of its
Subsidiaries or any of their respective assets or properties is
bound or subject; (iii) neither the Company nor any of its
Subsidiaries has sustained any material loss or interference with
its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor disturbance or
dispute or any action, order or decree of any court or arbitrator
or governmental or regulatory authority; and (iv) there has been no
material adverse change and no material adverse development in the
business, properties, operations, prospects, condition (financial
or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole. Neither the Company nor any of its
Subsidiaries has taken any steps, and does not currently expect to
take any steps, to seek protection pursuant to any bankruptcy or
receivership law, nor does the Company or any of its Subsidiaries
have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings with respect to the
Company or any of its Subsidiaries. For purposes of this
Section
3(i),
“Approved Share
Plan” shall mean the Company’s Amended and
Restated 1999 Stock Award Plan and 2020 Omnibus Stock Incentive
Plan.

 

(j) Transactions with Affiliates.
Except as disclosed in the Select SEC Documents, none of the
officers, directors, or employees of the Company or any of its
Subsidiaries, or any of their family members, is presently a party
to any transaction with the Company or any of its Subsidiaries
(other than for ordinary course services solely in their capacity
as officers, directors, employees or consultants), including,
without limitation, any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director, employee
or family member or any corporation, partnership, trust or other
entity in which any such officer, director, employee or family
member has an ownership interest of five (5%) percent or more or is
an officer, director, trustee or partner.

 

(k) Absence of Litigation. Except
as disclosed in Section
3(k) of the Disclosure Schedule, there is no action, suit,
proceeding, inquiry or, to the best of the Company’s
knowledge, investigation before or by any court, public board,
government agency, self-regulatory organization or body (including,
without limitation, the SEC) pending or affecting the Company, any
of its Subsidiaries, or any of their respective directors or
officers in their capacities as such. To the knowledge of the
Company or any of its Subsidiaries, there are no actions, suits,
proceedings, inquiries or investigations before or by any court,
public board, government agency, self-regulatory organization or
body (including, without limitation, the SEC) threatened against
the Company, any of its Subsidiaries, or any of their respective
directors or officers in their capacities as such, which, if
determined adversely, could, either individually or in the
aggregate, be material to the Company or any of its Subsidiaries.
There are no facts which, if known by a potential claimant or
governmental authority, could give rise to a claim or proceeding
which, if asserted or conducted with results unfavorable to the
Company or any of its Subsidiaries, could reasonably be expected to
be material to the Company or any of its Subsidiaries.

 

 

 

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(l) Intellectual Property. Each of
the Company and its Subsidiaries owns or is duly licensed (and, in
such event, has the unfettered right to grant sublicenses) to use
all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, inventions, discoveries,
processes, scientific, technical, engineering and marketing data,
object and source codes, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, “Intellectual
Property”) used in or necessary for the conduct of its
business as now being conducted and as presently contemplated to be
conducted in the future (collectively, the “Company Intellectual
Property”). Section 3(l) of the Disclosure Schedule
sets forth a list of all material Company Intellectual Property
owned and/or used by the Company or any of its Subsidiaries in its
business. Except as set forth on the Disclosure Schedule, there are
no rights of third parties to any of the Company Intellectual
Property except through licensing agreements. Except as set forth
on the Disclosure Schedule, there are no outstanding options,
licenses or agreements of any kind relating to the Company
Intellectual Property, nor is the Company or any of its
Subsidiaries bound by or a party to any options, licenses or
agreements of any kind with respect to the Intellectual Property of
any other Person (collectively, the “Third
Party License
Agreements”) other than such licenses or agreements
arising from the purchase of generally available products, as to
which the aggregate consideration paid by or due from the Company
or any of its Subsidiaries does not exceed $25,000 in value, or
“off the shelf” products. All of the Third Party
License Agreements are valid, binding and in full force and effect
in all material respects and to the Company’s knowledge
enforceable by the Company or its applicable Subsidiary in
accordance with their respective terms in all material respects,
subject to general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of
creditors’ rights and remedies. Neither the Company nor any
of its Subsidiaries is in material breach of any such Third Party
License Agreements. To the Company’s knowledge, no other
party to any of the Third Party License Agreements is in material
default thereunder. Neither the Company nor any Subsidiary of the
Company infringes or is in conflict with any right of any other
Person with respect to any third party Intellectual Property.
Neither the Company nor any of its Subsidiaries has received
written notice of any pending conflict with or infringement upon
any third party Intellectual Property. There is no pending or, to
the Company’s knowledge, threatened action, suit, proceeding
or claim by others challenging the Company’s or any of its
Subsidiaries’ ownership of or licensing rights in or to any
Company Intellectual Property. Neither the Company nor any of its
Subsidiaries has entered into any consent agreement,
indemnification agreement, forbearance to sue or settlement
agreement with respect to the validity of the Company’s or
its Subsidiaries’ ownership of or right to use its Company
Intellectual Property and there is no reasonable basis for any such
claim to be successful. The rights of the Company and its
Subsidiaries in the Company Intellectual Property are valid and
enforceable and no registration relating thereto has lapsed,
expired or been abandoned or canceled or is the subject of
cancellation or other adversarial proceedings, and all applications
therefor are pending and in good standing. The Company and its
Subsidiaries have taken all reasonable steps required to perfect
their ownership of and interest in the Company Intellectual
Property and has taken reasonable security measures to protect the
secrecy, confidentiality and value of all of the Company
Intellectual Property. The Company and its Subsidiaries have
complied, in all material respects, with their respective
contractual obligations relating to the protection of the Company
Intellectual Property used pursuant to licenses. No Person is
infringing on or violating the Company Intellectual Property owned
or used by the Company or its Subsidiaries. The Company and its
Subsidiaries have used Company IP Counsel (as defined below) for
all Intellectual Property matters since December 31, 2011 and,
since such date, neither the Company nor any of its Subsidiaries
has consulted any other counsel with respect to any Intellectual
Property matters.

 

 

 

-8-

Privileged
and Confidential

 

 

 

(m) Title. The Company and its
Subsidiaries have good and marketable title in fee simple to all
real property and good and merchantable title to all personal
property owned by them that is material to the business of the
Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as do not materially
affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held
under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions
as are not material and do not materially interfere with the use
made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.

 

(n) Tax Status. Except as set forth
in Section
3(n) of the
Disclosure Schedule, the Company and each of its Subsidiaries has
made or filed all foreign, U.S. federal, state, provincial and
local income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries
has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes
and other governmental assessments and charges due and owing,
except those being contested in good faith and has set aside on its
books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for
any such claim. The Company has not executed a waiver with respect
to any statute of limitations relating to the assessment or
collection of any foreign, federal, state, provincial or local tax.
None of the Company’s tax returns is presently being audited
by any taxing authority.

 

(o) Key Employees. Except as set
forth on Section
3(o) of the
Disclosure Schedule, each of the Company’s and its
Subsidiaries’ directors and officers and any Key Employee (as
defined below) is currently serving the Company or its Subsidiaries
in the capacity disclosed in the Select SEC Documents. No Key
Employee is, or is now expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and
the continued employment of each Key Employee does not subject the
Company or any of its Subsidiaries to any material liability with
respect to any of the foregoing matters. Except as set forth on
Section
3(o) of the
Disclosure Schedule, no Key Employee has, to the knowledge of the
Company and its Subsidiaries, any intention to terminate or limit
his employment with, or services to, the Company or any of its
Subsidiaries, nor is any such Key Employee subject to any
constraints which would cause such employee to be unable to devote
his full time and attention to such employment or services. For
purposes of this Agreement, “Key Employee” means the persons
listed in Section
3(o) of the
Disclosure Schedule and any individual who assumes or performs any
of the duties of a Key Employee.

 

(p) Employee Relations. No
application or petition for certification of a collective
bargaining agent is pending and none of the employees of Company or
any of its Subsidiaries are or have been represented by any union
or other bargaining representative and no union has attempted to
organize any group of the Company's or any of its
Subsidiaries’ employees, and no group of the Company's or any
of its Subsidiaries’ employees has sought to organize
themselves into a union or similar organization for the purpose of
collective bargaining. The Company and its Subsidiaries believe
that their relations with their employees are good. No executive
officer (as defined in Rule 501(f) of the Securities Act) has
notified the Company or any of its Subsidiaries that such officer
intends to leave the Company or any of its Subsidiaries or
otherwise terminate such officer’s employment with the
Company or any of its Subsidiaries. The Company and its
Subsidiaries are in compliance with all federal, state and local
laws and regulations and, to the Company’s knowledge, all
foreign laws and regulations, in each case respecting employment
and employment practices, terms and conditions of employment and
wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, be material to the
Company or any of its Subsidiaries.

 

 

 

-9-

Privileged
and Confidential

 

 

 

(q) Insurance. The Company and each
of its Subsidiaries has in force fire, casualty, product liability
and other insurance policies, with extended coverage, sufficient in
amount to allow it to replace any of its material properties or
assets which might be damaged or destroyed or sufficient to cover
liabilities to which the Company or any of its Subsidiaries may
reasonably become subject, and such types and amounts of other
insurance with respect to its business and properties, on both a
per occurrence and an aggregate basis, as are customarily carried
by Persons engaged in the same or similar business as the Company
and its Subsidiaries. No default or event has occurred that could
give rise to a default under any such policy.

 

(r) Environmental Matters. The
Company and each of its Subsidiaries is in compliance with all
foreign, federal, state and local rules, laws and regulations
relating to the use, treatment, storage and disposal of Hazardous
Substances (as defined below) and protection of health and safety
or the environment which are applicable to its business. There is
no environmental litigation or other environmental proceeding
pending or threatened by any governmental or regulatory authority
or others with respect to the current or any former business of the
Company or any of its Subsidiaries or any partnership or joint
venture currently or at any time affiliated with the Company or any
of its Subsidiaries. No state of facts exists as to environmental
matters or Hazardous Substances that involves the reasonable
likelihood of a material capital expenditure by the Company or any
of its Subsidiaries. No Hazardous Substances have been treated,
stored or disposed of, or otherwise deposited, in or on the
properties owned or leased by the Company or any of its
Subsidiaries or by any partnership or joint venture currently or at
any time affiliated with the Company or any of its Subsidiaries in
violation of any applicable environmental laws. The environmental
compliance programs of the Company and each of its Subsidiaries
comply in all respects with all environmental laws, whether
foreign, federal, state, provincial or local, currently in effect.
For purposes of this Agreement, “Hazardous
Substances” means any substance, waste, contaminant,
pollutant or material that has been determined by any governmental
authority to be capable of posing a risk of injury to health,
safety, property or the environment.

 

(s) Listing. The Company is not in
violation of the listing requirements of the OTCQB Marketplace
(the “OTCQB”)
on which it trades, does not reasonably anticipate that the Common
Stock will be delisted by the OTCQB for the foreseeable future, and
has not received any notice regarding the possible delisting of the
Common Stock from the OTCQB. The issuance and sale of the Series D
Preferred and the transactions contemplated by the Transaction
Documents do not contravene the rules and regulations of the
OTCQB.

 

(t) No General Solicitation or Integrated
Offering. Neither the Company nor any Person acting for the
Company has conducted any “general solicitation” (as
such term is defined in Regulation D) with respect to any of the
Securities and/or Dividend Shares being offered hereby. Neither the
Company nor any of its affiliates, nor any Person acting on its or
their behalf, has directly or indirectly made any offers or sales
of any security or solicited any offers to buy any security under
circumstances that would require registration of the Securities
and/or Dividend Shares being offered hereby under the Securities
Act or cause this offering of Securities and/or Dividend Shares to
be integrated with any prior offering of securities of the Company
for purposes of the Securities Act, which result of such
integration would require registration under the Securities Act, or
any applicable stockholder approval provisions.

 

(u) No Brokers. No brokerage or
finder’s fees or commissions are or will be payable by the
Company or any Subsidiary to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or
other third party with respect to the transactions contemplated by
the Transaction Documents. The Purchasers shall have no obligation
with respect to any fees or with respect to any claims made by or
on behalf of other third parties for fees of a type contemplated in
this Section
3(u) that
may be due in connection with the transactions contemplated by the
Transaction Documents.

 

 

 

-10-

Privileged
and Confidential

 

 

 

(v) Acknowledgment Regarding
Securities. The number of Common Stock issuable upon
conversion of the Series D Preferred may increase in certain
circumstances. The Company’s directors and executive officers
have studied and fully understand the nature of the Securities
being sold hereunder. The Company acknowledges that its obligation
to issue (i) Common Stock upon conversion of the Series D Preferred
and (ii) the Dividend Shares, in each case, in accordance with the
Certificate of Designation, is absolute and unconditional,
regardless of the dilution that such issuance may have on the
ownership interests of other stockholders and the availability of
remedies provided for in this Agreement relating to a failure or
refusal to issue Common Stock and Dividend Shares to the extent
required by the Certificate of Designation. Taking the foregoing
into account, the Company’s Board of Directors has determined
in its good faith business judgment that the issuance of the Series
D Preferred hereunder and the consummation of the other
transactions contemplated hereby are in the best interests of the
Company and its stockholders.

 

(w) Internal Control over Financial
Reporting. The Company maintains a system of internal
control over financial reporting (as such term is defined in Rule
13a-15(f) of the Exchange Act) that complies with the requirements
of the Exchange Act and has been designed by the Company’s
principal executive officer and principal financial officer, or
under their supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
The Company does not have any material weaknesses in its internal
control over financial reporting. Since the date of the latest
audited financial statements included in the Select SEC Documents,
there has been no change in the Company’s internal control
over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company’s
internal control over financial reporting.

 

(x) Disclosure Controls and
Procedures. The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) of the
Exchange Act) that comply with the requirements of the Exchange
Act. Such disclosure controls and procedures have been designed to
ensure that material information relating to the Company is
accumulated and communicated to the Company’s management,
including the Company’s principal executive officer and
principal financial officer, by others within those
entities.

 

(y) Sarbanes-Oxley Compliance. The
Company and the Company’s directors and officers, in their
capacities as such, are in compliance with any provision of the
Sarbanes-Oxley Act of 2002 and the rules and regulations
promulgated in connection therewith (“SOX”),
including Section 402 related to loans and Sections 302 and 906
related to certifications, and neither the Company nor any of its
officers has received notice from any governmental entity
questioning or challenging the accuracy, completeness, content,
form or manner of filing or submission of such certifications. The
Company has no reasonable basis to believe that it will not
continue to be in compliance with SOX as in effect on the Closing
Date (including, without limitation, the requirements of Section
404 thereof).

 

(z) Disclosure. All information
relating to or concerning the Company and/or any of its
Subsidiaries set forth in this Agreement or provided to the
Purchasers pursuant to Section 2(d) hereof or
otherwise by the Company in connection with the transactions
contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein,
in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial
conditions, which has not been publicly disclosed but, under
applicable law, rule or regulation, would be required to be
disclosed by the Company in a registration statement filed on the
date hereof by the Company under the Securities Act with respect to
a primary issuance of the Company’s securities.

 

 

 

-11-

Privileged
and Confidential

 

 

 

(aa) Absence of Indebtedness. On the
Closing Date, as a result of the transactions contemplated by this
Agreement, neither the Company nor any Subsidiary shall have any
indebtedness for borrowed money that would be required to be
disclosed by the Company on a balance sheet prepared in accordance
with GAAP. Section
3(aa) of the
Disclosure Schedule sets for the indebtedness for borrowed money of
the Company and its Subsidiaries as of immediately prior to the
Closing Date.

 

(bb) No
Registration. Assuming the accuracy of the representations
and warranties of the Purchasers contained in Section 2 hereof, it is not
necessary, in connection with the issuance and sale of the Series D
Preferred to the Purchasers, the issuance of the Common Stock upon
conversion of the Series D Preferred or the issuance of the
Dividend Shares pursuant to the terms of the Certificate of
Designation and the Certificate of Incorporation, in each case in
the manner contemplated by this Agreement and the other Transaction
Documents, to register the Series D Preferred, the Common Stock or
the Dividend Shares under the Securities Act, except for any
registration that is required under the terms of the Registration
Rights Agreement.

 

(cc) Acknowledgment
Regarding Purchasers’ Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm’s length purchaser
with respect to the Transaction Documents and the transactions
contemplated thereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and
any advice given by any Purchaser or any of its representatives or
agents in connection with the Transaction Documents and the
transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities. The Company further
represents to each Purchaser that the Company’s decision to
enter into this Agreement and the other Transaction Documents has
been based solely on the independent evaluation of the transactions
contemplated hereby by the Company and its
representatives.

 

(dd) Acknowledgment
Regarding Purchaser’s Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding,
it is understood and acknowledged by the Company that: (i) none of
the Purchasers has been asked by the Company to agree, nor has any
Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the
Securities for any specified term, (ii) past or future open market
or other transactions by any Purchaser, specifically including,
without limitation, short sales or “derivative”
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of
the Company’s publicly-traded securities, and (iii) each
Purchaser shall not be deemed to have any affiliation with or
control over any arm’s length counter-party in any
“derivative” transaction. The Company further
understands and acknowledges that (y) one or more Purchasers may
engage in hedging activities at various times during the period
that the Securities are outstanding, and (z) such hedging
activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction
Documents.

 

 

 

-12-

Privileged
and Confidential

 

 

 

4. Conditions
Precedent to the Obligation of the Holders to Consummate the
Exchange. The obligations of each Holder to consummate the
transactions contemplated by this Agreement are subject to the
accuracy of the representations and warranties set forth in
Article II, which
shall be true and correct in all material respects (except to the
extent any such representation or warranty is qualified by
materiality or reference to Material Adverse Effect, in which case,
such representation or warranty shall be true and correct in all
respects) as of the Closing with the same effect as though such
representations and warranties had been made as of the Closing, and
to the timely performance by the Company, as applicable, of their
respective covenants and obligations hereunder, and to the
satisfaction or waiver prior to or at the Closing, of each of the
following conditions:

 

(a) The Company shall
have executed and delivered this Agreement.

 

(b) The Company shall
deliver (or cause to be delivered) the Exchange Shares, to each
Holder in the principal amounts set forth on Schedule A hereto, and in
accordance with the delivery terms set forth in Article I.

 

(c) The Company shall
have paid the expenses as required by Section 6(b).

 

(d) The Company shall
have satisfied its obligations under Section 7 of the Purchase
Agreement.

 

5. Conditions
Precedent to the Obligation of the Company to Consummate the
Exchange. The obligations of the Company to consummate the
transactions contemplated by this Agreement are subject to the
accuracy of the representations and warranties set forth in
Article III, which
shall be true and correct in all material respects (except to the
extent any such representation or warranty is qualified by
materiality or reference to Material Adverse Effect, in which case,
such representation or warranty shall be true and correct in all
respects) as of the Closing with the same effect as though such
representations and warranties had been made as of the Closing, and
to the timely performance by each Holder, as applicable, of the
their covenants and obligations hereunder, and to the satisfaction
or waiver prior to or at the Closing, of each of the following
conditions:

 

(a) The Holders shall
have executed and delivered this Agreement.

 

(b) The Holders shall
deliver (or cause to be delivered) the Current Shares to the
Company in the principal amounts set forth on Schedule A hereto, and in
accordance with the delivery terms set forth in Article I.

 

(c) The Purchasers (as
defined in the Purchase Agreement) shall have satisfied their
obligations under Section 6 of the Purchase Agreement.

 

6. Certain
Covenants.

 

(a) Further
Assurances. The parties hereto
agree to use commercially reasonable efforts to take, or cause to
be taken, all reasonable actions, to file, or cause to be filed,
all documents and to do, or cause to be done, all things necessary,
proper or advisable to consummate the Exchange on their account,
including preparing and filing as promptly as practicable all
documentation to effect all necessary filings, consents, waivers,
approvals, and authorizations.

 

 

 

-13-

Privileged
and Confidential

 

 

 

(b) Costs
and Expenses. 
Whether or not the transactions contemplated by this Agreement are
consummated, the Company agrees to pay all costs, fees and expenses
incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated
hereby, including, without limitation, (i) all expenses incident to
the issuance and delivery of the Exchange Shares to the Holders
(including all printing and engraving costs), (ii) all necessary
issue, transfer and other stamp taxes in connection with the
issuance of Exchange Shares to the Holders, and (iii) all fees and
expenses of the Company’s counsel, independent public or
certified public accountants and other advisors.. 

 

(c) Covenant
Survival. The obligations of
the Company under this 
Article VI shall survive the
transfer of any Exchange Shares, the enforcement, amendment or
waiver of any provision of this Agreement or the Certificate of
Designation, and the termination of this
Agreement.

 

7. Miscellaneous.

 

(a) Governing Law; Jurisdiction.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made
and to be performed in the State of New York. The Company and each
Holder irrevocably consent to the exclusive jurisdiction of the
United States federal courts and the state courts located in the
County of New York, State of New York, in any suit or proceeding
based on or arising under this Agreement and irrevocably agree that
all claims in respect of such suit or proceeding may be determined
in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the Company
mailed by first class mail shall be deemed in every respect
effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of any Holder to
serve process in any other manner permitted by law. The Company
agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful
manner.

 

(b) Entire Agreement. This
Agreement, together with the Disclosure Schedule, constitutes the
entire understanding and agreement of the parties with respect to
the subject matter hereof and supersedes all prior and/or
contemporaneous oral or written proposals or agreements relating
thereto all of which are merged herein. This Agreement may not be
amended or any provision hereof waived in whole or in part, except
by a written amendment signed by both of the Parties.

 

(c) Counterparts. This Agreement
may be executed by facsimile signature and in counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

 

(d) Construction. For
purposes of this Agreement, the words “hereof,”
“herein,” “hereby” and other words of
similar import refer to this Agreement as a whole unless otherwise
indicated. Whenever the singular is used herein, the same shall
include the plural, and whenever the plural is used herein, the
same shall include the singular, where appropriate. The term
“including” means “including but not limited
to.” The word “or” shall not be exclusive.
Whenever used in this Agreement, the masculine gender shall include
the feminine and neutral genders. All references herein to
Articles, Sections, Subsections, Paragraphs and Exhibits shall be
deemed references to Articles and Sections and Subsections and
Paragraphs of, and Exhibits to, this Agreement unless the context
shall otherwise require. Any reference herein to any statute,
agreement or document, or any section thereof, shall, unless
otherwise expressly provided, be a reference to such statute,
agreement, document or section as amended, modified or supplemented
(including any successor section) and in effect from time to time.
All terms defined in this Agreement shall have the defined meaning
when used in any Exhibit, Schedule, certificate or other documents
attached hereto or made or delivered pursuant hereto unless
otherwise defined therein. The parties acknowledge and agree that,
except as specifically provided herein, they may pursue judicial
remedies at law or in equity in the event of a dispute with respect
to the interpretation or construction of this Agreement. This
Agreement shall be interpreted and enforced in accordance with the
provisions hereof without the aid of any canon, custom or rule of
law requiring or suggesting construction against the party causing
the drafting of the provision in question.

 

 

 

-14-

Privileged
and Confidential

 

 

 

(e) Notices.
All notices or other communications required or permitted under
this Agreement shall be in writing and shall be deemed given or
delivered: (i) when delivered personally; (ii) one business day
following deposit with a recognized overnight courier service,
provided such deposit occurs before the deadline imposed by that
service for overnight delivery or (iii) when transmitted, if sent
by electronic mail, provided confirmation of receipt tis received
by send and the notice is sent by an additional method provided
under this Agreement, in each case to the parties hereto as
follows:

 

If
to a Holder, to the address set forth on such Holder’s
signature page to this Agreement, with a copy (which shall not
constitute notice) to:

 

Stroock
& Stroock & Lavan LLP

180
Maiden Lane

New
York, New York 10038

Attention:
Brett Lawrence

Email:                       

blawrence@stroock.com

 

If
to the Company:

 

ImageWare Systems,
Inc.

13500
Evening Creek Drive N, Suite 550

 

San
Diego, California 92127

E-mail:
jmorris@iwsinc.com

Attention: Chief
Financial Officer

 

With
a copy (which shall not constitute notice) to:

 

Disclosure
Law Group, a Professional Corporation

655
West Broadway, Suite 870

San
Diego, CA 92101

Telephone:
(619) 272-7062

Facsimile:
(619) 330-2101

E-Mail:
drumsey@disclosurelawgroup.com

Attention:
Daniel W. Rumsey, Managing Director

 

Any
party to this Agreement may change such address for notices by
sending to the parties to this Agreement written notice of a new
address for such purpose.

 

(f) Severability.
In the event that any provision of this Agreement shall be declared
invalid or unenforceable by any regulatory body or court having
jurisdiction, such invalidity or unenforceability shall not affect
the validity or enforceability of the remaining portions of this
Agreement.

 

(g) No
Third-Party Beneficiary.
Nothing in this Agreement is intended or shall be construed to give
any person, other than the parties, their successors and permitted
assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained
herein.

 

(h) WAIVER
OF JURY TRIAL. EACH
PARTY 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 BASED UPON THIS AGREEMENT, THE
SECURITIES OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

(i) Survival.
All representations, warranties and covenants contained herein
shall survive the execution and delivery of this Agreement and the
Exchange Shares.

 

[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

 

-15-

 

 

 

IN
WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.

 

	

IMAGEWARE SYSTEMS, INC.

	
 

	
 

	

By:

	
 

	
 

	

Name:

	

Kristin
Taylor

	
 

	

Title:

	

Chief
Executive Officer

 

 

 

 

-16-

 

IN
WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first above
written.

 

 

 

[HOLDER]

 

 

By:
    ______________________    

Name:     ______________________

Title:     ______________________

 

 

Address for Notice:

 

 

_________________________

 

_________________________

 

_________________________

 

 

 

-17-

 

SCHEDULE A

 

 

 

	

Holder

	

Current Shares ($)

	

Exchange Shares ($)

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

 

 

 

-18-ex10-4

 

 

Exhibit 10.4

 

ESCROW AGREEMENT

 

THIS
ESCROW AGREEMENT (together with any amendments or supplements
hereto, this “Agreement”) is made and
entered into as of September 23, 2020, by and among ImageWare
Systems, Inc., a Delaware Corporation,
(the “Company”),
and Citibank, N.A., as escrow agent (the “Escrow Agent”, and
together with the Company, each a “Party” and, collectively,
the “Parties”). Capitalized
terms used herein which are not defined herein shall have the
meanings set forth for such terms in the Purchase Agreement (as
defined below); provided,
however, that the Escrow Agent shall not be deemed to have
any knowledge of or duty to ascertain the meaning of any
capitalized term not otherwise defined in this
Agreement.

 

RECITALS

 

WHEREAS, the
Company and the Purchasers are parties to that certain Securities
Purchase Agreement, dated as of September 28, 2020, by and among
the Company and the Purchasers (as such agreement may be amended,
restated, supplemented or otherwise modified from time to time in
accordance with its terms, the “Purchase Agreement”),
pursuant to which the Purchasers, severally and not jointly, will
purchase from the Company, and the Company will issue and sell to
the Purchasers the Preferred Stock, on the terms and subject to the
conditions of the Purchase Agreement;

 

WHEREAS, pursuant
to Section 1(b)(ii) of the Purchase Agreement, on the Effective
Date, each of the Purchasers agrees to deposit into escrow certain
funds to be held and distributed by the Escrow Agent in accordance
with the terms of the Purchase Agreement and this Agreement;
and

 

WHEREAS, the
Company and the Purchasers are parties to that certain Loan and
Security Agreement (the “Loan and Security
Agreement”), dated as of September 28, 2020, by and
between the Company and the Purchasers, pursuant to which the
Purchasers will provide a short-term, convertible term loan to the
Company, the outstanding principal balance of which will be used to
purchase shares of Preferred Stock at the Closing.

 

NOW
THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth, the Parties agree as
follows:

 

1.

Appointment. The Company hereby
appoints the Escrow Agent as the escrow agent for the purposes set
forth herein. The Escrow Agent hereby accepts such appointment and
agrees to act as escrow agent in accordance with the terms and
conditions set forth herein.

 

2.

Escrow Funds.

 

(a)

Simultaneous with
the execution and delivery of this Agreement, certain Purchasers
are depositing with the Escrow Agent, such Purchaser’s
Initial Purchase Price in immediately available funds into an
escrow account established by the Escrow Agent for such purpose
(the “Escrow
Account”). The amounts deposited by each of the
Purchasers, along with any Additional Deposit (as defined herein)
shall constitute the “Escrow Funds”. The
Company shall notify the Escrow Agent of each Purchaser’s
Initial Purchase Price being deposited as soon as such amounts are
known. The Escrow Agent shall acknowledge receipt of the Initial
Purchase Price and the Additional Deposit (as defined below),
together with all products and proceeds thereof, including all
interest, dividends, gains and other income (collectively, the
“Escrow
Earnings”) earned with respect thereto (collectively,
the “Escrow
Funds”).

 

 

 

 

-1-

 

 

 

(b)

For greater
certainty, all Escrow Earnings shall be retained by the Escrow
Agent and reinvested in the Escrow Funds and shall become part of
the Escrow Funds, and shall be disbursed as part of the Escrow
Funds in accordance with the terms and conditions of this
Agreement.

 

3.

Investment of Escrow
Funds.

 

(a)

Unless otherwise
instructed in writing and executed by an authorized representative
of the Company as set forth on Exhibit A (each a
“Representative”), the
Escrow Agent shall invest the Escrow Funds in a
non-interest-bearing deposit obligation of Citibank N.A., insured
by the Federal Deposit Insurance Corporation (“FDIC”) to the applicable
limits. The Escrow Funds shall at all times remain available for
distribution in accordance with Section 4 below.

 

(b)

The Escrow Agent
shall send an account statement to the Company on a monthly basis
reflecting activity in the Escrow Account for the preceding
month.

 

(c)

The Escrow Agent
shall have no responsibility for any investment losses resulting
from the investment, reinvestment or liquidation of the Escrow
Funds, provided that the Escrow Agent has made such investment,
reinvestment or liquidation of the Escrow Funds in accordance with
the terms, and subject to the conditions of this Agreement. The
Escrow Agent does not have a duty nor will it undertake any duty to
provide investment advice.

 

4.

Disposition and Termination of the
Escrow Funds.

 

(a)

Escrow Funds. The Company shall
act in accordance with, and the Escrow Agent shall hold and release
the Escrow Funds related to a Purchaser as provided in this
Section 4(a) as
follows:

 

(i)

The Company agrees
to direct the Escrow Agent on the date hereof by Release
Instruction, to disburse all of the Escrow Funds to the Company on
the date hereof, pursuant to Section 2.1 of the Loan and Security
Agreement. Upon receipt of a Release Instruction with respect to
the Initial Purchase Price, the Escrow Agent shall promptly, but in
any event within two (2) Business Days after receipt of a Release
Instruction, disburse all or part of the Initial Purchase Price in
accordance with such Release Instruction.

 

(ii)

Following the
Effective Date, upon receipt of one or more additional deposits
from certain Additional Purchasers (any such additional deposit, an
“Additional
Deposit”), the Company agrees to direct the Escrow
Agent, upon submission of a Release Instruction, pursuant to and in
accordance with the Loan and Security Agreement, to disburse the
Escrow Funds to the Company. The Company shall notify the Escrow
Agent of such Additional Deposit as soon as such amounts are known.
Upon receipt of a Release Instruction with respect to any
Additional Deposit, the Escrow Agent shall promptly, but in any
event within two (2) Business Days after receipt of a Release
Instruction, disburse all or part of the Additional Deposit in
accordance with such Release Instruction.

 

(iii)

Upon receipt by the
Escrow Agent of a copy of a Final Determination from the Company,
the Escrow Agent shall on the fifth (5th) Business Day following
receipt of such determination, disburse as directed, part or all,
as the case may be, of the applicable Escrow Funds (but only to the
extent funds are available in the Escrow Funds) in accordance with
such Final Determination. The Escrow Agent will act on such Final
Determination without further inquiry.

 

 

 

 

-2-

 

 

 

(iv)

All payments of any
part of the Escrow Funds shall be made by wire transfer of
immediately available funds or check as set forth in the Release
Instruction or Final Determination, as applicable.

 

Any instructions setting forth, claiming,
containing, objecting to, or in any way related to the
transfer or distribution of any funds
on deposit in the Escrow Account under the terms of this Agreement
must be in writing, executed on behalf the Company by a
Representative as set forth on Exhibit A attached hereto, and
delivered to the Escrow Agent as an attachment to an e-mail
received on a Business Day sent to the e-mail address set forth in
Section 11 below
(with receipt by the Escrow Agent confirmed). In the event any
instruction is delivered to the Escrow Agent, the Escrow Agent is
authorized to seek confirmation of such instruction by telephone
call back to the person or persons designated on Exhibit A annexed hereto
(the “Call Back
Authorized Individuals”), and the Escrow Agent may
rely upon the confirmations of anyone purporting to be a Call Back
Authorized Individual. To assure accuracy of the instructions it
receives, the Escrow Agent may record such call backs. If the
Escrow Agent is unable to verify the instructions, or is not
satisfied with the verification it receives, it will not execute
the instruction until all such issues have been resolved. The
persons and telephone numbers for call backs may be changed only in
writing, executed by a Representative, actually received and
acknowledged by the Escrow Agent.

 

(b)

Certain
Definitions.

 

(i)

“Business Day” means any
day that is not a Saturday, a Sunday, or other day on which banks
are not required or authorized by law to be closed in New York, New
York.

 

(ii)

“Final Determination”
means a final non-appealable order of any court having jurisdiction
pursuant to Section
13 together with (A) a certificate executed by a
Representative to the effect that such order is final and
non-appealable and (B) the written payment instructions executed by
a Representative to effectuate such order.

 

(iii)

“Person” means an
individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a governmental entity or
any department, agency or political subdivision
thereof.

 

(iv)

“Release Instruction”
means the written instruction, in the form attached hereto as
Exhibit B, executed
by a Representative of the Company directing the Escrow Agent to
disburse all or a portion of the Escrow Funds, as
applicable.

 

 

 

 

-3-

 

 

 

5.

Escrow Agent. The Escrow Agent
undertakes to perform only such duties as are expressly set forth
herein, which shall be deemed purely ministerial in nature, and no
duties, including but not limited to
any fiduciary duties, shall be implied. The Escrow Agent
shall neither be responsible for, nor chargeable with, knowledge
of, nor have any requirements to comply with, the terms and
conditions of any other agreement, instrument or document between
the Parties, in connection herewith, if any, including without
limitation the Purchase Agreement, nor shall the Escrow Agent be
required to determine if any Person has complied with any such
agreements, nor shall any additional obligations of the Escrow
Agent be inferred from the terms of such agreements, even though
reference thereto may be made in this Agreement. Notwithstanding the terms of any other agreement
between the Parties, the terms and conditions of this Agreement
will control the actions of Escrow Agent.  The Escrow Agent
may rely upon and shall not be liable for acting or refraining from
acting upon any Release Instruction or Final Determination
furnished to it hereunder and believed by it to be genuine and to
have been signed by a Representative. Concurrent with the execution
of this Agreement, the Company shall deliver to the Escrow Agent
authorized representative’s forms in the form of Exhibit A attached hereto. The
Escrow Agent shall be under no duty to inquire into or investigate
the validity, accuracy or content of any such document, notice,
instruction or request. The Escrow Agent shall have no duty to
solicit any payments which may be due to the Escrow Agent or the
Escrow Funds. In the event that the Escrow Agent shall be uncertain
as to its duties or rights hereunder or shall receive instructions,
claims or demands from the Company which, in the Escrow
Agent’s opinion, conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action
and its sole obligation shall be to keep safely all property held
in escrow until it shall be directed otherwise by the Company. The
Escrow Agent may interplead all of the assets held hereunder into a
court having jurisdiction pursuant to Section 13 or may seek a
declaratory judgment with respect to certain circumstances, and
thereafter be fully relieved from any and all liability or
obligation with respect to such interpleaded assets or any action
or nonaction based on such declaratory judgment. The Escrow Agent
may consult with legal counsel of its selection in the event of any
dispute or question as to the meaning or construction of any of the
provisions hereof or its duties hereunder. The Escrow
Agent will not be liable for any action taken, suffered or omitted
to be taken by it in good faith except to the extent that the
Escrow Agent’s fraud, gross negligence or willful misconduct
was the cause of any direct loss to either Party. To the extent
practicable, the Company agrees to pursue any redress or recourse
in connection with any dispute (other than with respect to a
dispute involving the Escrow Agent) without making the Escrow Agent
a party to the same. Anything in this Agreement to the contrary
notwithstanding, in no event shall the Escrow Agent be liable for
any special, indirect, punitive, incidental or consequential losses
or damages of any kind whatsoever (including but not limited to
lost profits), even if the Escrow Agent has been advised of the
likelihood of such losses or damages and regardless of the form of
action.

 

6.

Resignation and Removal of Escrow
Agent. The Escrow Agent (a) may resign and be discharged
from its duties or obligations hereunder by giving thirty (30)
calendar days advance notice in writing of such resignation to the
Company specifying a date when such resignation shall take effect
or (b) may be removed, with or without cause, by the Company at any
time by providing written notice to the Escrow Agent. Any
corporation or association into which the Escrow Agent may be
merged or converted or with which it may be consolidated, or any
corporation or association to which all or substantially all of the
escrow business of the Escrow Agent’s line of business may be
transferred, shall be the Escrow Agent under this Agreement without
further act. The Escrow Agent’s sole responsibility after
such thirty (30) day notice period expires or after receipt of
written notice of removal shall be to hold and safeguard the Escrow
Funds (without any obligation to reinvest the same) and to deliver
the same (i) to a substitute or successor escrow agent pursuant to
a written designation from the Company, (ii) as set forth in a
Release Instruction or (iii) in accordance with the directions of a
Final Determination, and, at the time of such delivery, the Escrow
Agent’s obligations hereunder shall cease and terminate. In
the event the Escrow Agent resigns, if the Company has failed to
appoint a successor escrow agent prior to the expiration of thirty
(30) calendar days following receipt of the notice of resignation,
the Escrow Agent may petition any court having jurisdiction
pursuant to Section
13 for the appointment of such a successor escrow agent or
for other appropriate relief, and any such resulting appointment
shall be binding upon all of the parties hereto.

 

 

 

 

-4-

 

 

 

7.

Fees and Expenses. All fees and
expenses of the Escrow Agent are described in Schedule 1 attached hereto and
shall be paid by the Company. The fees agreed upon for the services
to be rendered hereunder are intended as full compensation for the
Escrow Agent services as contemplated by this Agreement and shall
be paid upon funding of the Escrow Account.

 

8.

Indemnity. The Company shall
indemnify, defend, and hold harmless the Escrow Agent and its
affiliates and their respective successors, assigns, directors,
officers, agents and employees (the “Indemnitees”) from and
against any and all losses, damages, claims, liabilities,
penalties, judgments, settlements, actions, suits, proceedings,
litigation, investigations, or reasonable and documented out of
pocket costs or expenses (including the reasonable and documented
out of pocket fees and expenses of one outside counsel and experts
and their staffs and reasonable and documented out of pocket
expenses of document location, duplication and shipment)
(collectively “Escrow Agent Losses”)
arising out of or in connection with (a) the Escrow Agent’s
execution and performance of this Agreement, tax reporting or
withholding, the enforcement of any rights or remedies under or in
connection with this Agreement, or as may arise by reason of any
act, omission or error of the Indemnitee, except to the extent that
such Escrow Agent Losses, as adjudicated by a court of competent
jurisdiction, have been caused by the fraud, gross negligence or
willful misconduct of such Indemnitee, or (b) its following any
instructions or other directions from the Company. The Parties acknowledge that the
foregoing indemnities shall survive the resignation or removal of
the Escrow Agent and the termination of this Agreement. 

 

9.

Tax Matters.

 

(a)

The Company shall
be responsible for and the taxpayer on all taxes due on the
interest or income earned, if any, on the Escrow Funds for the
calendar year in which such interest or income is earned. The
Escrow Agent shall report any interest or income earned on the
Escrow Funds to the IRS or other taxing authority on IRS Form 1099.
Prior to the date hereof, the Parties shall provide the Escrow
Agent with certified tax identification numbers by furnishing
appropriate forms W-9 or W-8 as applicable and such other forms and
documents that the Escrow Agent may request.

 

(b)

The Escrow Agent
shall be responsible only for income reporting to the Internal
Revenue Service with respect to income earned on the Escrow Funds.
 The
Escrow Agent shall withhold any taxes required to be withheld by
applicable law, including but not limited to required withholding
in the absence of proper tax documentation, and shall remit such
taxes to the appropriate authorities. 

 

(c)

The Escrow Agent,
its affiliates, and its employees are not in the business of
providing tax or legal advice to any taxpayer outside of Citigroup,
Inc. and its affiliates. This Agreement and any amendments or
attachments hereto are not intended or written to be used, and may
not be used or relied upon, by any such taxpayer or for the purpose
of avoiding tax penalties. Any such taxpayer should seek advice
based on the taxpayer's particular circumstances from an
independent tax advisor.

 

10.

Covenant of Escrow Agent. The
Escrow Agent hereby agrees and covenants with the Company that it
shall perform all of its obligations under this Agreement and shall
not deliver custody or possession of any of the Escrow Funds to
anyone except pursuant to the express terms of this Agreement or as
otherwise required by law.

 

 

 

 

-5-

 

 

 

11.

Notices. All notices, requests,
demands and other communications required under this Agreement
shall be in writing, in English, and shall be deemed to have been
duly given if delivered simultaneously to the Company and the
Escrow Agent (i) personally, (ii) on the day of transmission if
sent by electronic mail (“e-mail”) with a PDF
attachment executed by a Representative or an authorized signatory
of the Escrow Agent, as applicable, to the e-mail address given
below, and written confirmation by electronic mail of receipt is
obtained promptly after completion of the transmission, (iii) by
overnight delivery with a reputable national overnight delivery
service, or (iv) by certified mail, return receipt requested, and
postage prepaid. If any notice is mailed, it shall be deemed given
five Business Days after the date such notice is deposited with the
United States Postal Service. If notice is given to a Party, it
shall be given at the address for such Party set forth below. It
shall be the responsibility of the Parties to notify the other
Party in writing of any name or address changes.

 

if to the Company, then
to:

 

ImageWare Systems,
Inc.

13500
Evening Creek Drive N.

Suite
550

San
Diego, California 92127

E-mail:
jmorris@iwsinc.com

Attention: Chief
Financial Officer

 

 

with a copy simultaneously transmitted
by like means (which transmittal shall not constitute notice
hereunder) to:

 

Disclosure Law
Group, a Professional Corporation

655
West Broadway, Suite 870

San
Diego, CA 92101

Telephone No.:
(619) 272-7062

Facsimile No.:
(619) 330-2101

E-mail:
drumsey@disclosurelawgroup.com

Attention: Daniel
W. Rumsey, Managing Director

 

 

 

or, if to the Escrow Agent, then
to:

 

Citibank,
N.A.

Citi
Private Bank

388
Greenwich Street, 29th Floor

New
York, NY 10013

Attn:
Debbie Demarco

Telephone No.:
(212) 783-7092

Facsimile No.:
(212) 783-7131

E-mail:
debra.demarco@citi.com

 

Notwithstanding
the above, in the case of communications delivered to the Escrow
Agent pursuant to the foregoing clause (i) through (iv) of this
Section 11, such communications
shall be deemed to have been given on the date received by the
Escrow Agent. In the event that the Escrow Agent, in its sole
discretion, shall determine that an emergency exists, the Escrow
Agent may use such other means of communication as the Escrow Agent
deems appropriate.

 

 

 

 

-6-

 

 

 

12.

Termination. This Agreement
shall terminate on the earliest to occur of (a) receipt of notice
in writing from a Representative confirming that the Closing Date
has occurred, and (b) subject to Section 6, (i) delivery to the
Escrow Agent of a written notice of termination executed by the
Company or (ii) the Escrow Agent’s delivery of a notice of
resignation to the Company, after which this Agreement shall be of
no further force and effect except that the provisions of
Section 8 hereof
shall survive termination.

 

13.

Miscellaneous. The provisions
of this Agreement may be waived, altered, amended or supplemented,
in whole or in part, only by a writing signed by the Company and
the Escrow Agent. Neither this Agreement nor any right or interest
hereunder may be assigned in whole or in part by any Party hereto,
except as provided in Section 6, without the prior
consent of the Escrow Agent. This Agreement shall be governed by
and construed under the laws of the State of New York. Each Party
irrevocably waives any objection on the grounds of venue, forum
non-conveniens or any similar grounds and irrevocably consents to
service of process by mail or in any other manner permitted by
applicable law and consents to the jurisdiction of the courts
located in the State of New York. The Parties hereby waive any
right to a trial by jury with respect to any lawsuit or judicial
proceeding arising from or relating to this Agreement. This
Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which together shall
constitute one and the same instrument. All signatures of the
Parties to this Agreement may be transmitted by facsimile or
electronic transmission in portable document format (.pdf), and
such facsimile or .pdf will, for all purposes, be deemed to be the
original signature of such Party whose signature it reproduces, and
will be binding upon such Party. If any provision of this Agreement
is determined to be prohibited or unenforceable by reason of any
applicable law of a jurisdiction, then such provision shall, as to
such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions
thereof, and any such prohibition or unenforceability in such
jurisdiction shall not invalidate or render unenforceable such
provisions in any other jurisdiction. The Parties represent,
warrant and covenant that each document, notice, instruction or
request provided by such Party to the Escrow Agent shall comply
with applicable laws and regulations. Where, however, the
conflicting provisions of any such applicable law may be waived,
they are hereby irrevocably waived by the Parties hereto to the
fullest extent permitted by law, to the end that this Agreement
shall be enforced as written. Except as expressly provided in
Section 8, nothing
in this Agreement, whether express or implied, shall be construed
to give to any person or entity other than the Escrow Agent and the
Company any legal or equitable right, remedy, interest or claim
under or in respect of this Agreement or any funds escrowed
hereunder.

 

14.

Compliance with Court Orders.
In the event that any Escrow Funds shall be attached, garnished or
levied upon by any court order, or the delivery thereof shall be
stayed or enjoined by an order of a court, or any order, judgment
or decree shall be made or entered by any court order affecting the
property deposited under this Agreement, the Escrow Agent is hereby
expressly authorized, in its sole discretion, to obey and comply
with all writs, orders or decrees so entered or issued, which it is
advised by legal counsel of its own choosing is binding upon it,
whether with or without jurisdiction, and in the event that the
Escrow Agent obeys or complies with any such writ, order or decree
it shall not be liable to any of the Parties or to any other
Person, by reason of such compliance notwithstanding such writ,
order or decree be subsequently reversed, modified, annulled, set
aside or vacated.

 

 

 

 

-7-

 

 

 

15.

Further Assurances. Following
the date hereof, each party shall deliver to the other parties such
further information and documents and shall execute and deliver to
the other parties such further instruments and agreements as any
other party shall reasonably request to consummate or confirm the
transactions provided for herein, to accomplish the purpose hereof
or to assure to any other party the benefits hereof.

 

16.

Assignment. No assignment of
the interest of any of the Company shall be binding upon the Escrow
Agent unless and until written notice of such assignment shall be
filed with and consented to by the Escrow Agent (such consent not
to be unreasonably withheld). Any transfer or assignment of the
rights, interests or obligations hereunder in violation of the
terms hereof shall be void and of no force or effect.

 

17.

Force Majeure. The Escrow Agent
shall not incur any liability for not performing any act or
fulfilling any obligation hereunder by reason of any occurrence
beyond its control (including, but not limited to, any provision of
any present or future law or regulation or any act of any
governmental authority, any act of God or war or terrorism, or the
unavailability of the Federal Reserve Bank wire services or any
electronic communication facility), it being understood that the
Escrow Agent shall use commercially reasonable efforts which are
consistent with accepted practices in the banking industry to
resume performance as soon as reasonably practicable under the
circumstances.

 

18.           

Compliance with Federal
Law. To help the U.S. Government fight the funding of
terrorism and money laundering activities and to comply with
federal law requiring financial institutions to obtain, verify and
record information on the source of funds deposited to an account,
the Company agrees to provide the Escrow Agent with the name,
address, taxpayer identification number, and remitting bank for all
Purchasers depositing funds into the Escrow Account pursuant to the
terms and conditions of this Agreement. For a non-individual person
such as a business entity, a charity, a trust or other legal
entity, the Escrow Agent will ask for documentation to verify its
formation and existence as a legal entity. The Escrow Agent may
also ask to see financial statements, licenses, identification and
authorization documents from individuals claiming authority to
represent any entity or other relevant documentation.

 

19.         

 Use of Citibank
Name. No publicly distributed printed or other material in
any language, including prospectuses, notices, reports, and
promotional material which mentions “Citibank” by name
or the rights, powers, or duties of the Escrow Agent under this
Agreement shall be issued by any other parties hereto, or on such
party’s behalf, without the prior written consent of the
Escrow Agent. By
execution of this Agreement, the Escrow Agent consents to (i) the
disclosure and distribution of this Agreement to any
Purchaser.

 

20.           

Conflicts. The Parties
agree and acknowledge that to the extent any terms and provisions
of this Agreement are in any way inconsistent with or in conflict
with any term, condition or provision of the Purchase Agreement, as
between the Company and the Purchasers, the Purchase Agreement
shall govern and control.

 

* * * *
*

 

 

 

-8-

 

IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.

 

IMAGEWARE SYSTEMS,
INC.:

 

 

By: 
/s/ Kristin
Taylor

Name:  Kristin
Taylor

Its: Chief
Executive Officer

 

 

 

 

 

 

ESCROW AGENT:

 

CITIBANK,
N.A.

 

 

By:  
/s/ Debra DeMarco
   

Name:  Debra
DeMarco

Its:  
Senior Vice President Citi Private Bank

 
[EXHIBITS
INTENTIONALLY OMITTED]

Signature Page to Escrow Agreement

NY 7382149

-9-

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