Document:

Exhibit 10.511

 

Amended and
Restated on September 14, 2005

 

CHIRON CORPORATION AUDIT COMMITTEE
CHARTER

 

ROLE

 

The Audit Committee (the “Committee”) of the Board of Directors (the “Board”)
of Chiron Corporation (“Chiron”) represents and assists the Board in fulfilling
its responsibility for oversight of the quality and integrity of the
accounting, auditing and reporting practices of Chiron and its subsidiaries,
and such other duties as directed by the Board. 
The Committee’s role includes oversight of Chiron’s internal audit
function and its business ethics standards and compliance.  The Committee’s role also includes a
particular focus on the integrity of financial reporting to shareholders, and
on Chiron’s processes to manage business and financial risk and processes to
assure compliance with significant applicable legal, ethical and regulatory
requirements.  The Committee is directly
responsible for the appointment, compensation, retention and oversight of the
work of Chiron’s independent auditors, including resolving disagreements
between management and the independent auditors regarding financial reporting.

 

Except to the extent otherwise directed by the Board or required by
applicable law or Chiron’s Certificate of Incorporation or Bylaws, this
Committee shall have the full authority of the Board over any matter with
respect to which oversight or direction is required to be exercised solely by
directors who satisfy the independence criteria specified in this charter for
membership on this Committee.  The chairperson
of the Committee, acting in consultation with all committee members who are not
otherwise affected by the issue or interest under consideration, and in
consultation with such other directors, representatives of management, counsel
or other advisors as the chairperson may deem appropriate, may determine from
time to time the scope of the Committee’s authority under this charter.

 

MEMBERSHIP

 

The membership of the Committee shall consist of at least three
directors, each of whom is able to read and understand financial statements,
including a company’s balance sheet, income statement and cash flow statement,
and the Committee shall have at least one member who has past
employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the member’s financial sophistication. No member shall
be an officer or employee of Chiron, each member shall be free of any
relationship that, in the determination of the Board, would interfere with his
or her individual exercise of independent judgment and each member shall
otherwise be “independent” and qualified to serve as a member of the Committee
under applicable law and under the rules of the Nasdaq Stock Market, Inc.
(“Nasdaq”) and the Securities and Exchange Commission (the “SEC”).  No
director may serve as a member of the Committee if such director serves on the
audit committees of more than two other public companies unless the Board
determines that such simultaneous service would not impair the ability of such
director to effectively serve on the Committee, and discloses this
determination in Chiron’s annual

 

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proxy
statement. The Committee shall review, at least annually, and upon the
occurrence of any significant change, the qualification and independence of its
members, and shall report the result of this review to the full Board.  No member of the Audit Committee shall receive,
directly or indirectly, any consulting, advisory or other compensatory fee from Chiron other than in such
member’s capacity as a member of the Board or of any committee of the Board.

 

Subject to the requirements described above with respect to Committee
membership, members of the Committee shall be appointed by the Board in
accordance with the Governance Agreement, dated as of November 20, 1994,
between the Company and Novartis AG, as amended (as it may be further amended
from time to time, the “Governance Agreement”). 
Committee members shall serve at the pleasure of the Board.  The chairperson shall be appointed by the
full Board.

 

The Committee shall meet in person or telephonically at least four
times a year or more frequently when deemed necessary or desirable by the
Committee or its chairperson, at such times and places as the Committee
determines.

 

COMMUNICATIONS/REPORTING

 

The independent auditors shall report directly to the Committee.  The Committee is expected to maintain free
and open communication with the independent auditors, the internal auditors and
Chiron’s management.  This communication
shall include private executive sessions, at least annually, with each of these
parties.  In addition, Chiron’s Director
of Internal Audit and Chiron’s Chief Compliance Officer shall have direct
access to the Committee.  The Committee
shall prepare the report required to be prepared by audit committees for
inclusion in Chiron’s annual proxy statement. 
The Committee shall perform or cause to be performed and approved by the
Committee annually an evaluation of the performance of the Committee of its
role under this charter, including the duties and responsibilities set forth in
Annex A.  The evaluation shall include
consideration of possible amendments to this charter, including the duties and
responsibilities set forth in Annex A. 
The performance evaluation may be conducted in such manner as the
Committee deems appropriate, and the result and recommendations shall be
reported to the Board by the chairperson or any other member of the Committee.  The Committee chairperson shall report in a
timely manner on Committee activities to the full Board.

 

EDUCATION

 

Chiron is responsible for providing the Committee with educational
resources related to its role and duties and responsibilities, including audit
committee requirements and practices, accounting principles and procedures,
current accounting topics pertinent to Chiron and any other material as may be
requested by the Committee.  Chiron, in
conjunction with its independent auditors, shall assist the Committee in
maintaining appropriate financial literacy.

 

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AUTHORITY

 

In discharging its role, duties and responsibilities, the Committee is
empowered to cause and direct the investigation of any matter brought to its
attention, with full power to cause independent counsel or other experts or
advisors to be retained for this purpose. 
The Committee may require any officer or employee of Chiron or Chiron’s
outside lawyers or independent auditors to attend a meeting of the Committee or
to meet with any member of or consultants to the Committee and to provide any
information requested by the Committee or its members or consultants.  The Committee shall have the full authority
of the Board to discharge its duties and responsibilities, including the
authority to select, retain, terminate and approve the compensation and other
terms of engagement of independent counsel, accountants or other experts or
advisors as the Committee deems appropriate in its discretion, without seeking
approval of the Board or management.  The
Committee shall also have the resources that it deems necessary to discharge
its duties and responsibilities.

 

Chiron shall provide for appropriate funding, as
determined by the Committee, in its capacity as a committee of the Board, for
payment of:

 

•                  Compensation
to the independent auditors and any other public accounting firm engaged for
the purpose of preparing or issuing an audit report or performing other audit,
review or attest services for Chiron;

 

•                  Compensation
to any advisors employed by the Committee; and

 

•                  Ordinary
administrative expenses of the Committee that are necessary or appropriate in
carrying out its duties.

 

The Committee may, in its discretion, delegate to one or more of its
members the authority to pre-approve any audit or non-audit services to be
performed by the independent auditors, provided that any such approvals are
presented to the Committee at its next scheduled meeting.

 

KEY DUTIES AND RESPONSIBILTIIES

 

The key duties and responsibilities of the Committee in carrying out
its oversight role are delineated in Annex A. 
Annex A will be reviewed annually, and updated if necessary, to reflect
changes in regulatory requirements, authoritative guidance and evolving oversight
practices.  As the compendium of
Committee duties and responsibilities, Annex A will be considered to be
incorporated in, and a part of, this charter.

 

The Committee may rely on the expertise and knowledge of management,
the internal auditors, the independent auditors and counsel, advisors and
experts in carrying out its oversight responsibilities.  Management of Chiron is responsible for
determining

 

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that Chiron’s financial statements are complete and accurate in
accordance with generally accepted accounting principles and firmly represent
the financial condition of Chiron. 
Management is also responsible for the effectiveness of disclosure
controls and procedures and internal controls and procedures for financial
reporting.  The independent auditors are
responsible for auditing Chiron’s financial statements.  It is not the duty of the Committee to plan
or conduct audits, to determine that the financial statements are complete and
accurate and are in accordance with generally accepted accounting principles,
to conduct investigations, to assure the adequacy or effectiveness of Chiron’s
internal controls or disclosure procedures or to assure compliance with laws
and regulations or Chiron’s internal policies, procedures and controls.

 

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ANNEX A

 

The following are the key duties and responsibilities of the Committee:

 

1.                                       With
respect to the independent auditors,

 

(i)                                     to
have direct responsibility for the appointment, compensation (including the
sole authority to approve all audit engagement fees and terms), retention and
oversight of the work of Chiron’s independent auditors (including resolution of
disagreements between management and the independent auditors regarding
financial reporting) and any other registered public accounting firm engaged
for the purpose of preparing or issuing an audit report or performing other
audit, review or attestation services for Chiron, and Chiron’s independent
auditors and any such other registered public accounting firm shall report
directly to the Committee;

 

(ii)                                  to
approve all audit engagement fees and terms, as well as all non-audit
engagements of the independent auditors;

 

(iii)                               to
pre-approve all audit and non-audit services to be provided by the independent
auditors, and to consider whether such provision of non-audit services to
Chiron is compatible with maintaining the independence of the independent
auditors;

 

(iv)                              to
review annually the fees billed for each of the last two fiscal years for the
following categories of services rendered by the independent auditors:  (a) the audit of Chiron’s annual
financial statements and the reviews of the financial statements included in
Chiron’s Quarterly Reports on Form 10-Q for each such fiscal year; (b) assurance
and related services that are reasonably related to the performance of the
audit or reviews of Chiron’s financial statements for each such fiscal year,
describing each subcategory of services comprising the fees disclosed under
this category; (c) tax compliance, tax consulting and tax planning
services for each such fiscal year; and (d) all other products or services
provided by the independent auditors for each such fiscal year, describing each
subcategory of products or services comprising the fees disclosed under this
category;

 

(v)                                 to
assess the independent auditors’ independence by reviewing all relationships
between the independent auditors and Chiron, including each non-audit service
provided to Chiron and the matters set forth in Independence Standards Board No. 1,
and to discuss with the independent auditors any relationships or services that
may impact the quality of audit services or the objectivity and independence of
Chiron’s independent auditors;

 

A1

 

(vi)                              to
discuss with the independent auditors in connection with any audit of Chiron’s
financial statements required under the securities laws, prior to each filing
of the audit report with the SEC, all critical accounting policies and
practices used, all material alternative treatments of financial information
within generally accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the independent auditors, and any
material written communications between the independent auditors and
management, such as any “management representation” letter, reports on
observations and recommendations on internal control or schedule of
unadjusted differences; and

 

(vii)                           to
discuss with management the timing and the process for implementing rotation of
any “audit partner” (as defined in the rules of the SEC) in accordance
with the rules of the SEC with respect thereto.

 

2.                                       With
respect to financial reporting principles and policies and internal audit
controls and procedures,

 

(i)                                     to
consider any reports or communications (and management’s and/or the internal
audit department’s responses thereto) submitted to the Committee by the
independent auditors required by or referred to in SAS 61 (as codified by
AU Section 380), as it may be modified or supplemented;

 

(ii)                                  to
establish procedures for the receipt, retention and treatment of complaints
received by Chiron regarding accounting, internal accounting controls or
auditing matters, and for the confidential, anonymous submission by Company
employees of concerns regarding questionable accounting or auditing matters;

 

(iii)                               to
establish hiring policies for employees or former employees of the independent
auditors in accordance with applicable law, rules and regulations;

 

(iv)                              to
meet with management, the independent auditors and, if appropriate, the
director of the internal auditing department: (a) to discuss the scope of
the annual audit; (b) to review and discuss Chiron’s annual audited
financial statements and quarterly financial statements, including the specific
disclosures under “Management’s Discussion and Analysis of Financial Condition
and Results of Operations”; (c) to discuss any difficulties the
independent auditors encountered in the course of the audit, including any
restrictions on their activities or access to requested

 

A2

 

information and any
significant disagreements with management; and (d) to discuss, as appropriate (1) any major
issues regarding accounting principles and financial statement presentations,
including any significant changes in Chiron’s selection or application of
accounting principles, and major issues as to the adequacy of Chiron’s internal
controls and any special audit steps adopted in light of material control
deficiencies, (2) analyses prepared by management and/or the independent
auditors setting forth significant financial reporting issues and judgments
made in connection with the preparation of the financial statements, including
analyses of the effects of alternative GAAP methods on the financial
statements, and (3) the effect of regulatory and accounting initiatives,
as well as off-balance sheet structures, on the financial statements of Chiron;

 

(v)                                 to discuss guidelines and policies governing
the process by which senior management of Chiron and the relevant departments
of Chiron assess and manage Chiron’s exposure to risk, and to discuss Chiron’s
major financial risk exposures and the steps management has taken to monitor
and control such exposures; and

 

(vi)                              to oversee the internal audit function, to
review and approve the appointment or change in the director of the internal
auditing department and to meet with the director of the internal auditing
department in executive session.

 

3.                                       With
respect to reporting and recommendations,

 

(i)                                     to discuss and review the type and
presentation of information to be included in earnings press releases;

 

(ii)                                  to discuss the types of financial information
and earnings guidance provided, and the types of presentations made, to
analysts and rating agencies;

 

(iii)                               to
review and assess the adequacy of this Charter at least annually;

 

(iv)                              to
prepare the report for inclusion in Chiron’s annual proxy statement in
accordance with SEC rules, and include a copy of the Committee Charter as an
appendix to the annual proxy statement at least once every three years; and

 

(v)                                 to
review related party transactions for potential conflict of interest
situations, and to approve all such transactions, unless such transactions have
been reviewed and approved by another independent body of the Board. For
purposes hereof, the term “related party transaction” refers to transactions
required to be disclosed pursuant to SEC Regulation S-K, Item 404.

 

A3Exhibit 10.1

IMAGEWARE SYSTEMS, INC.

CHANGE OF CONTROL AND
SEVERANCE BENEFITS AGREEMENT

This Change of Control and Severance Benefits
Agreement (the “Agreement”) is made and entered into effective as of
___________, 2005 (the “Effective Date”), by and between Mr. Charles AuBuchon (the “Executive”)
and ImageWare Systems, Inc., a California corporation (the “Company”).  Certain capitalized terms used in this
Agreement are defined in Section 1 below.

R E C I T A L S

A.            WHEREAS,
Executive is currently employed by the Company and has made and is expected to
continue to make major contributions to the short- and long-term profitability,
growth and financial strength of the Company;

B.            WHEREAS, the Company wishes to provide additional inducement
for the Executive to remain in the ongoing employ of the Company;

C.            WHEREAS, the Board
believes that it is in the best interests of the Company and its shareholders
to provide the Executive with an incentive to continue his employment and to
maximize the value of the Company upon a Change of Control for the benefit of
its shareholders; and

D.            WHEREAS, in order
to provide the Executive with enhanced financial security and sufficient
encouragement to remain with the Company notwithstanding the possibility of a
Change of Control, the Board believes that it is imperative to provide the
Executive with certain severance benefits upon the Executive’s termination of
employment following a Change of Control.

AGREEMENT

In consideration of the mutual covenants herein contained and the continued
employment of Executive by the Company, the parties agree as follows:

1.     Definition
of Terms.  The following terms
referred to in this Agreement shall have the following meanings:

(a)   Base Salary.  “Base
Salary” means Executive’s annual base salary as in effect during the
last regularly scheduled payroll period immediately preceding the effective
date of Executive’s termination due to an Involuntary Termination.

(b)   Cal-COBRA.  “Cal-COBRA” means the California Continuation
Benefits Replacement Act. 

 

 

(c)   Cause. 
“Cause” shall mean any of the following: (i) the commission of an act of
fraud, embezzlement or material dishonesty which is intended to result in
substantial personal enrichment of the Executive; (ii) Executive’s conviction
of, or plea of nolo contendere to
a felony; (iii) Executive’s gross negligence or breach of fiduciary duty that
is materially injurious to the Company; (iv) a material breach of the Executive’s
proprietary information agreement that is materially injurious to the Company;
(v) Executive’s (1) willful and material failure to perform his duties as an
officer or employee of the Company or a material breach of this Agreement and
(2) failure to “cure” any such failure or breach within thirty (30) days after
receipt of written notice from the Company delineating the specific acts that
consituted such breach and the specific actions necessary, if any, to “cure”
such failure or breach; or (vi) a violation of a material Company policy,
including insider trading, that is either materially injurious to the Company
or results in substantial harm to the Company’s reputation.

(d)   Change of Control.  “Change of Control” shall mean the occurrence
of any of the following events:

(i)    the date on which any “person” (as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)) obtains “beneficial ownership”
(as defined in Rule 13d-3 of the Exchange Act) or a pecuniary
interest in fifty percent (50%) or more of the combined voting power of
the Company’s then outstanding securities (“Voting Stock”);

(ii)   the consummation of a merger, consolidation,
reorganization, or similar transaction other than a transaction: (1) in
which substantially all of the holders of the Company’s Voting Stock hold or
receive directly or indirectly fifty percent (50%) or more of the voting stock
of the resulting entity or a parent company thereof, in substantially the same
proportions as their ownership of the Company immediately prior to the
transaction; or (2) in which the holders of the Company’s capital stock
immediately before such transaction will, immediately after such transaction,
hold as a group on a fully diluted basis the ability to elect at least a
majority of the directors of the surviving corporation (or a parent company);

(iii)  there is consummated a sale, lease, exclusive
license, or other disposition of all or substantially all of the consolidated
assets of the Company and its Subsidiaries, other than a sale, lease, license,
or other disposition of all or substantially all of the consolidated assets of
the Company and its Subsidiaries to an entity, fifty percent (50%) or more
of the combined voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale, lease, license, or
other disposition; or

(iv)  individuals who, on the date this Plan is
adopted by the Board, are Directors (the “Incumbent Board”) cease for
any reason to constitute at least a majority of the Directors; provided,
however, that if the appointment or election (or nomination for
election) of any new Director was approved or recommended by a majority vote of
the members of the Incumbent

 

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Board then still in office, such new member shall, for
purposes of this Plan, be considered as a member of the Incumbent Board.

(e)   COBRA. 
“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.

(f)    Code. 
“Code” means the Internal Revenue Code of 1986, as amended.

(g)   Disability. “Disability” means a physical or mental condition of Executive
that, in the good faith judgment of the Company, based upon certification by a
licensed physician reasonably acceptable to Executive, or Executive’s
representative, and the Company, (i) prevents Executive from being able to
perform the services required by his or her position with the Company, (ii)
has continued for a period of at least six (6) months during any period of
twelve (12) consecutive months and (iii) is expected to continue.

(h)   Involuntary Termination.  “Involuntary Termination” shall mean (i) any
termination of the Executive by the Company which is not effected for Cause or
any purported termination of the Executive by the Company which is effected for
Cause but for which the grounds relied upon are not valid; or (ii) the
failure of the Company to obtain the assumption of this Agreement by any successors
contemplated in Section 8 below.

(i)    Termination Date.  “Termination Date” shall mean the effective
date of any notice of termination delivered by one party to the other
hereunder.

2.     Term of
Agreement.  The term of this
Agreement (the “Term”) shall commence on the Effective Date and shall
continue until the third anniversary of the Effective Date;  provided, however, that (i) if the payment of
benefits has been triggered pursuant to this Agreement, the Term shall expire
on the date that all obligations of the parties hereto under this Agreement have
been satisfied; (ii) if a Change of Control has occurred, the Term shall expire
on the first anniversary of the close of a Change of Control (unless benefits
are triggered prior to such first anniversary) or (iii) if Executive’s
employment with the Company is terminated by the Company for Cause or Executive
voluntarily terminates employment and such termination does not qualify as an
Involuntary Termination, then the Term shall expire as of the date of such
termination.     If the Agreement is not
extended in writing by the parties prior to the expiration of the Term, the
Agreement will terminate and be of no further force or effect at the end of the
Term.

3.     At-Will
Employment.  Nothing in this
Agreement alters the at-will nature of Executive’s employment.  Either the Company or the Executive can
terminate the employment relationship at any time, with or without cause and
with or without advance notice.  This
at-will employment relationship can only be modified in a writing signed by
Executive and a duly authorized Company representative.

 

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4.     Severance Benefits.

(a)   Termination of Employment Prior to a
Change of Control.  In the event of
the (x) Executive’s Involuntary Termination at any time prior to the close of a
Change of Control, and; (y) Executive signing a Release of Claims
(substantially in the form attached hereto as Exhibit A and which only may be
revised as required to ensure the release is legally enforceable), then
Executive shall be entitled to the following severance benefits:

(i)    six (6) months of Executive’s Base Salary,
less applicable withholding, payable in a lump sum within thirty (30) days of
the Involuntary Termination;

(ii)   the same level of health (i.e., medical,
vision and dental) coverage and benefits as in effect for the Executive on the
day immediately preceding the day of the Executive’s termination of employment;
provided, however, that (i) the Executive constitutes a qualified beneficiary,
as defined in Section 4980B(g)(1) of the Internal Revenue Code of 1986, as
amended; and (ii) Executive elects continuation coverage pursuant to COBRA,
within the time period prescribed pursuant to COBRA.  The Company shall continue to provide
Executive with health coverage until the earliest of (i) the date Executive is
no longer eligible to receive continuation coverage pursuant to COBRA, (ii) six
(6) months from the termination date or (iii) the date on which Executive
obtains comparable health coverage. 
Executive shall notify the Company promptly after Executive obtains
alternative health coverage and the Company shall determine, in its sole
discretion, if such health coverage is comparable.

(b)   Termination of Employment After the Change
of Control.  In the event of the (x)
Executive’s Involuntary Termination at any time within twelve (12) months after
the close of a Change of Control, and; (y) Executive signing a Release of Claims
(substantially in the form attached hereto as Exhibit A and which only may be
revised as required to ensure the release is legally enforceable), then
Executive shall be entitled to the following severance benefits:

(i)    six (6) months of Executive’s base salary as
in effect as of the date of such termination, less applicable withholding,
payable in a lump sum within thirty (30) days of the Involuntary Termination;

(ii)   all stock options granted by the Company to
the Executive prior to the Change of Control shall become fully vested and
exercisable as of the date of the termination to the extent such stock options
are outstanding and unexercisable at the time of such termination and all stock
subject to a right of repurchase by the Company (or its successor) that was
purchased prior to the Change of Control shall have such right of repurchase
lapse with respect to all of the shares; and

(iii)  the same level of health (i.e., medical,
vision and dental) coverage and benefits as in effect for the Executive on the
day immediately preceding the day of the Executive’s termination of employment;
provided, however, that (i) the Executive constitutes a qualified beneficiary,
as defined in Section 4980B(g)(1) of the Internal Revenue Code of 1986, as
amended; and  (ii) Executive elects
continuation coverage pursuant to COBRA, within the time period prescribed
pursuant to COBRA.  The Company shall
continue to provide Executive with health coverage until the earliest of (i)
the date Executive is no longer eligible to receive continuation

 

4

 

coverage pursuant to COBRA, (ii) six (6) months from
the termination date or (iii) the date on which Executive obtains comparable
health coverage.  Executive shall notify
the Company promptly after Executive obtains alternative health coverage and
the Company shall determine, in its sole discretion, if such health coverage is
comparable.

(c)   Termination Other than as a Result of an
Involuntary Termination.  If the
Executive’s employment with the Company terminates other than as a result of an
Involuntary Termination, then the Executive shall not be entitled to receive
severance or other benefits hereunder, but may be eligible for those benefits
(if any) as may then be established under the Company’s then existing severance
and benefits plans and policies at the time of such termination.

(d)   Accrued Wages and Vacation; Expenses.  Without regard to the reason for, or the
timing of, Executive’s termination of employment:  (i) the Company shall pay the Executive
any unpaid base salary due for periods prior to the Termination Date;
(ii) the Company shall pay the Executive all of the Executive’s accrued
and unused vacation through the Termination Date; and (iii) following
submission of proper expense reports by the Executive, the Company shall
reimburse the Executive for all expenses reasonably and necessarily incurred by
the Executive in connection with the business of the Company prior to the
Termination Date.  These payments shall
be made promptly upon termination and within the period of time mandated by
law.

(e)   Termination
on Account of Death.  In no event shall a termination on account of
Executive’s death entitle Executive or any of his or her heirs or beneficiaries
to any benefits under this Agreement.

(f)    Termination
of Benefits.  Benefits under this Agreement shall terminate
immediately if Executive, at any time, violates any proprietary information or
confidentiality obligation to the Company.

(g)   Termination
of Certain Other Benefits.  All other benefits (such as 401(k) plan
coverage) shall terminate as of the Termination Date.

(h)   Non-Duplication
of Benefits.  Executive is not eligible to receive benefits
under this Agreement more than one time.

(i)    Health Benefits Under COBRA and Cal-COBRA.  No provision of this Agreement shall affect
the continuation coverage rules under COBRA or Cal-COBRA, except that the
Company’s payment of any applicable insurance premiums shall be credited as a
payment by Executive for purposes of Executive’s payment required under COBRA
or Cal-COBRA.  Therefore, the period
during which Executive may elect to continue the Company’s group medical
coverage at Executive’s own expense under COBRA or Cal-COBRA, the length of
time during which COBRA or Cal-COBRA coverage will be made available to
Executive, and all other rights and obligations of Executive under COBRA or
Cal-COBRA (except the obligation to pay insurance premiums that the Company
pays during the period set forth in this Agreement) shall be applied in the
same manner that such rules would apply in the absence of this Agreement.  At the conclusion of the period during

 

5

 

which the Company will pay a portion of the premiums
for Executive’s group medical, dental and vision coverage, Executive shall be
responsible for the entire payment of premiums required under COBRA or Cal-COBRA
for the duration of the COBRA or Cal-COBRA period.  For purposes of this Section, applicable
premiums that will be paid by the Company shall not include any amounts payable
by Executive under an Internal Revenue Code Section 125 health care
reimbursement plan, which amounts, if any, are the sole responsibility of
Executive.

5.     Limitation
on Payments.  In the event that the
severance and other benefits provided for in this Agreement or otherwise
payable to the Executive (i) constitute “parachute payments” within the
meaning of Section 280G of the Code, and (ii) would be subject to the
excise tax imposed by Section 4999 of the Code (the “Excise Tax”),
then Executive’s benefits under this Agreement shall be reduced to the extent necessary
so that no portion of the benefits delivered to Executive would be subject to
the Excise Tax (the “Adjusted Amount”).

The accounting
firm engaged by the Company for general audit purposes as of the day prior to
the effective date of the Change in Control shall perform the foregoing
calculations.  If the accounting firm so
engaged by the Company is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Company shall appoint a
nationally recognized. accounting firm to make the determinations required
hereunder (the “Accountants”). 
The Company shall bear all expenses with respect to the determinations
by the Accountants required to be made hereunder.

For purposes of making the calculations required by this Section, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Section 280G and 4999 of the Code.  The Company and the Executive shall furnish
to the Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this Section.

The Accountants shall provide their calculations, together with
detailed supporting documentation, to the Company and Executive within fifteen
(15) calendar days after the date on which Executive’s right to benefits
pursuant to this Agreement is triggered (if requested at that time by the
Company or Executive) or such other time as requested by the Company or
Executive.  If the Accountants determine
that no Excise Tax is payable with respect to the benefits provided pursuant to
this Agreement, either before or after the application of the Adjusted Amount,
it shall furnish the Company and Executive with an opinion reasonably
acceptable to Executive that no Excise Tax will be imposed with respect to such
benefits and payments.  Any good faith
determinations of the Accountants made hereunder shall be final, binding and
conclusive upon the Company and Executive.

6.     Certain Reductions and Offsets.    The Company, in its sole discretion, shall
have the authority to reduce Executive’s severance benefits, in whole or in
part, by any other severance benefits, pay in lieu of notice, or other similar
benefits payable to Executive by the Company that become payable in connection
with Executive’s termination of employment pursuant to (i) any applicable
legal requirement, including, without limitation, the Worker Adjustment and
Retraining

 

6

 

Notification Act, (ii) a written employment
agreement with the Company, or (iii) any Company policy or practice
providing for Executive to remain on the payroll for a limited period of time
after being given notice of the termination of Executive’s employment.  The benefits provided under this Agreement
are intended to satisfy, in whole or in part, any and all statutory obligations
that may arise out of Executive’s termination of employment, and the Company
shall so construe and enforce the terms of this Agreement.  The Company’s decision to apply such
reductions to the severance benefits of one Executive and the amount of such
reductions shall in no way obligate the Company to apply the same reductions in
the same amounts to the severance benefits of any other Executive, even if
similarly situated.  In the Company’s
sole discretion, such reductions may be applied on a retroactive basis, with
severance benefits previously paid being recharacterized as payments pursuant
to the Company’s statutory obligation.

7.     Mitigation.  Except as otherwise
specifically provided herein, Executive shall not be required to mitigate
damages or the amount of any payment provided under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment provided for
under this Agreement be reduced by any compensation earned by Executive as a
result of employment by another employer or by any retirement benefits received
by Executive after the Termination Date where Executive’s termination.

8.     Successors.

(a)   Company’s Successors.  Any successor to the Company (whether direct
or indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company’s business and/or
assets shall assume the Company’s obligations under this Agreement and agree
expressly to perform the Company’s obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. 
For all purposes under this Agreement, the term “Company” shall include
any successor to the Company’s business and/or assets which executes and
delivers the assumption agreement described in this subsection (a) or
which becomes bound by the terms of this Agreement by operation of law.

(b)   Executive’s Successors.    Without the written consent of the Company,
Executive shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Executive
hereunder shall inure to the benefit of, and be enforceable by, Executive’s
personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.

9.     Notices.

(a)   General.  Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid.  In the case of the Executive, mailed notices
shall be addressed to him at the home address which he most recently
communicated to the Company in writing. 
In the case of the Company, mailed notices shall

 

7

 

be addressed to its corporate headquarters, and all
notices shall be directed to the attention of its Secretary.

(b)   Notice of Termination.  Any termination by the Company for Cause or
by the Executive as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with this Section. 
Such notice shall indicate the specific termination provision in this
Agreement relied upon, shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination under the provision so
indicated, and shall specify the Termination Date (which shall be not more than
30 days after the giving of such notice). 
The failure by the Executive to include in the notice any fact or
circumstance which contributes to a showing of Involuntary Termination shall
not waive any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing his rights hereunder.

10.   Arbitration.

(a)   To ensure the rapid and economical resolution
of disputes which arise in connection with this Agreement, Employee and the
Company agree that any dispute or controversy arising out of, relating to, or
in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof, will be resolved to
the fullest extent permitted by law by final and binding confidential
arbitration held in San Diego, California through Judicial Arbitration and
Mediation Services/Endispute, Inc. (“JAMS”) under its rules and
procedures for arbitration of employment disputes; provided, however, that (i)
the arbitrator shall have the authority to compel adequate discovery for the
resolution of the dispute and to award such relief as would otherwise be
permitted by law; (ii) the arbitrator shall issue a written arbitration
decision including the arbitrator’s essential findings and conclusions and a
statement of the award; and (iii) either party may obtain injunctive relief
from a court if necessary to prevent irreparable damage prior to a final
decision under arbitration or in situations where the arbitrator lacks
authority to issue injunctive relief. 
JAMS will provide a list of five arbitrators from which both parties may
eliminate two to obtain the final arbitrator. 
Both the Executive and the Company shall be entitled to all rights and
remedies that either the Executive or the Company would be entitled to pursue
in a court of law.  By agreeing to this
arbitration procedure, both parties waive the right to a trial by jury or by a
court or to an administrative proceeding. 
Nothing in this agreement should be construed as restricting Executive’s
access or resort to the Equal Employment Opportunity Commission.  The Company shall pay all arbitration fees in
excess of the amount of court fees that Executive would be required to pay if
the dispute were decided in a court of law.

(b)   The arbitrator(s) will apply California law
to the merits of any dispute or claim, without reference to rules of conflicts
of law.  The arbitration proceedings will
be governed by federal arbitration law and by the Rules, without reference to
state arbitration law.  Executive hereby
consents to the personal jurisdiction of the state and federal courts located
in California  for any action or proceeding arising from or
relating to the Agreement or relating to any arbitration in which the parties
are participants.

 

8

 

(c)   The parties may apply to any court of
competent jurisdiction for a temporary restraining order, preliminary
injunction, or other interim or conservatory relief, as necessary, without
breach of the arbitration agreement and without abridgement of the powers of
the arbitrator.

(d)   EXECUTIVE HAS READ AND UNDERSTANDS THE
SECTION, WHICH DISCUSSES ARBITRATION. 
EXECUTIVE UNDERSTANDS THAT BY SIGNING THE AGREEMENT, BOTH PARTIES AGREES
TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THE
AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH
OR TERMINATION THEREOF TO BINDING ARBITRATION (EXCEPT AS PROVIDED IN SECTION 10(c)
ABOVE, AND THAT THE ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE’S
RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO
ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED
TO, DISCRIMINATION CLAIMS.

(e)   Executive understands that nothing in this
Section modifies Executive’s at-will employment status.  Either Executive or the Company can terminate
the employment relationship at any time, with or without Cause.

11.   Code Section 409A.  The parties agree to amend
this Agreement to the extent necessary to avoid imposition of any
additional tax or income recognition prior to actual payment to Executive under
Code Section 409A and any temporary or final Treasury Regulations and IRS
guidance thereunder.

12.   Miscellaneous
Provisions.

(a)   No Duty to Mitigate.  The Executive shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall
any such payment be reduced by any earnings that the Executive may receive from
any other source.

(b)   Waiver.  No provision of this Agreement may be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Executive and by an authorized officer
of the Company (other than the Executive). 
No waiver by either party of any breach of, or of compliance with, any
condition or provision of this Agreement by the other party shall be considered
a waiver of any other condition or provision or of the same condition or
provision at another time.

(c)   Integration.  This Agreement and any outstanding stock
option agreements and restricted stock purchase agreements represent the entire
agreement and understanding between the parties as to the subject matter herein
and supersede all prior or contemporaneous agreements, whether written or oral,
with respect to any conflict between this Agreement and any stock option
agreement or restricted stock purchase agreement this Agreement shall prevail.

 

9

 

(d)   Choice of Law.  The validity, interpretation, construction
and performance of this Agreement shall be governed by the internal substantive
laws, but not the conflicts of law rules, of the State of California.

(e)   Severability.  The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

(f)    Employment Taxes.  All payments made pursuant to this Agreement
shall be subject to withholding of applicable income and employment taxes.

(g)   Counterparts. 
This Agreement may be executed in separate counterparts, any one of
which need not contain signatures of more than one party, but all of which
taken together will constitute one and the same Agreement.

(h)   Headings. 
The headings of the Articles and Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.

(i)    Non-Publication. 
The parties mutually agree not to disclose the terms of this Agreement
except to the extent that disclosure is mandated by applicable law, standard or
required corporate reporting, or disclosure is made to the parties’ respective
advisors and agents (e.g.,
attorneys, accountants) or immediate family members.

(j)    Construction
of Agreement.  In the event of a conflict between the text
of the Agreement and any summary, description. or other information regarding
the Agreement, the text of the Agreement shall control.

 

10

 

IN WITNESS WHEREOF, each of the parties has executed
this Agreement, in the case of the Company by its duly authorized officer, as
of the day and year first above written.

 

	
  COMPANY:

  	
  IMAGEWARE SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
  EMPLOYEE:

  	
   

  
	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Printed Name

  

 

 

11

 

EXHIBIT A

RELEASE
AGREEMENT

 

 

I understand that my
employment with Imageware Systems, Inc. (the “Company”) terminated effective
_____________________, ____ (the “Separation Date”).  The Company has agreed that if I choose to
sign this Release Agreement (“Release”), the Company will pay me certain
severance benefits (minus standard withholdings and deductions) pursuant to the
terms of the Severance and Change of Control Agreement between myself and the
Company, dated ________ (the “Agreement”). 
I understand that I am not entitled to such benefits unless I sign this
Release and it becomes fully effective.  I understand that, regardless of
whether I sign this Release, the Company will pay me all of my accrued salary
and vacation through the Separation Date, to which I am entitled by law.

In consideration for the
severance benefits I am receiving under the Agreement, as described therein, I
hereby generally and completely release the Company, its directors, officers,
employees, shareholders, partners, agents, attorneys, predecessors, successors,
parent and subsidiary entities, insurers, affiliates, and assigns from any and
all claims, liabilities and obligations, both known and unknown, that arise out
of or are in any way related to events, acts, conduct, or omissions occurring
prior to my signing this Agreement.  This
general release includes, but is not limited to: (1) all claims arising out of
or in any way related to my employment with the Company or the termination of
that employment or the services I provided to Imageware, Inc.; (2) all claims
related to my compensation or benefits from the Company, including salary,
bonuses, commissions, vacation pay, expense reimbursements, severance pay,
fringe benefits, unit, unit options, or any other ownership interests in the
Company; (3) all claims for breach of contract, wrongful termination, and
breach of the implied covenant of good faith and fair dealing; (4) all
tort claims, including claims for fraud, defamation, emotional distress, and
discharge in violation of public policy; and (5) all federal, state, and local
statutory claims, including claims for discrimination, harassment, retaliation,
attorneys’ fees, or other claims arising under the federal Civil Rights Act of
1964 (as amended), the federal Americans with Disabilities Act of 1990, the
federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), and
the California Fair Employment and Housing Act (as amended).  Notwithstanding anything contained in this
Release, nothing herein shall release the parties’ rights under this Release
and my right (if any) to indemnification granted by any act or agreement of the
Company, state or federal law or policy of insurance or any claims for
severance benefits under the Agreement.

In releasing claims unknown to me at present, I am
waiving all rights and benefits under Section 1542 of the California Civil
Code, and any law or legal principle of similar effect in any
jurisdiction:  “A general
release does not extend to claims which the creditor does not know or suspect
to exist in his favor at the time of executing the release, which if known by
him must have materially affected his settlement with the debtor.”

 

12

 

I understand this Release will not be effective
until the ADEA Effective Date, defined below. 
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under the ADEA.  I also
acknowledge that the consideration given for the waiver in the above paragraph
is in addition to anything of value to which I was already entitled.  I have been advised by this writing, as
required by the ADEA that:  (a) my waiver
and release do not apply to any claims that may arise after my signing of this
Release; (b) I should consult with an attorney prior to signing this Release;
(c) I have twenty-one (21) days within which to consider this Release (although
I may choose to voluntarily sign this Release earlier); (d) I have seven (7)
days after I sign this Release to revoke it; and (e) this Release will not be
effective until the eighth day after this Release has been signed by me (the “ADEA
Effective Date”).

 

                I accept and agree
to the terms and conditions stated above:

 

 

	
   

  	
   

  	
   

  	
   

  
	
  Date

  	
   

  	
  Charles AuBuchon

  	
   

  

 

 

13

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