Document:

Exhibit 10.2

 

REGISTRATION RIGHTS AGREEMENT

This Registration Rights
Agreement (this “Agreement”) is made and entered into as of November 14,
2006 among ImageWare Systems, Inc., a Delaware corporation (the “Company”),
and the several purchasers signatory hereto (each such purchaser, a “Purchaser”
and collectively, the “Purchasers”).

This Agreement is made
pursuant to the Securities Purchase Agreement, dated as of the date hereof,
between the Company and each Purchaser (the “Purchase Agreement”).

The Company and each Purchaser hereby agrees as
follows:

1.             Definitions.  Capitalized terms used and not otherwise
defined herein that are defined in the Purchase Agreement shall have the
meanings given such terms in the Purchase Agreement.  As used in this Agreement, the following
terms shall have the following meanings:

“Advice” shall have the meaning set forth in Section 6(d).

“Effectiveness Date” means, with respect to the initial
Registration Statement required to be filed hereunder, the 90th calendar day following the date hereof (the
135th calendar day in the case of a review by the Commission of the initial
Registration Statement) and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 90th calendar day following the date on which the
Company first knows, or reasonably should have known, that such additional
Registration Statement is required hereunder; provided, however,
that in the event the Company is notified by the Commission that one of the
above Registration Statements will not be reviewed or is no longer subject to
further review and comments, the Effectiveness Date as to such Registration
Statement shall be the fifth Trading Day following the date on which the
Company is so notified if such date precedes the dates required above.

“Effectiveness Period” shall have the meaning set forth in
Section 2(a).

“Event” shall have the meaning set forth in Section 2(b).

“Event Date” shall have the meaning set forth in Section 2(b).

“Filing Date” means, with respect to the initial Registration
Statement required hereunder, the 45th calendar day following the date hereof and,
with respect to any additional Registration Statements which may be required
pursuant to Section 3(c), the 30th calendar day following the date on which the
Company first knows, or reasonably should have known that such additional
Registration Statement is required hereunder.

“Holder” or “Holders” means the holder or holders, as the
case may be, from time to time of Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section
5(c).

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“Indemnifying Party” shall have the meaning set forth in Section
5(c).

“Losses” shall have the meaning set forth in Section 5(a).

“Plan of Distribution” shall have the meaning set forth in
Section 2(a).

“Prospectus” means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by a Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such Prospectus.

“Registrable Securities” means all of
(i) the Shares and (ii) any shares of Common Stock issued or issuable upon any
stock split, dividend or other distribution, recapitalization or similar event
contemplated by Rule 416 of the Securities Act with respect to the foregoing; provided,
however, that “RegistrableSecurities” shall not include any
such shares that have been sold pursuant to a Registration Statement or Rule
144 or are eligible for sale pursuant to Rule 144(k).

“Registration Statement” means the registration statements
required to be filed hereunder and any additional registration statements
contemplated by Section 3(c), including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.

“Rule 415” means Rule 415 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

“Selling Shareholder Questionnaire” shall have the meaning set
forth in Section 3(a).

2.             Shelf Registration.

(a)           On or prior to each
Filing Date, the Company shall prepare and file with the Commission a “Shelf”
Registration Statement covering the resale of 100% of the Registrable
Securities on such Filing Date for an offering to be made on a continuous basis
pursuant to Rule 415.  The Registration
Statement shall be on Form SB-2 (except if

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the Company is
not then eligible to register for resale the Registrable Securities on Form
SB-2, in which case such registration shall be on another appropriate form in
accordance herewith) and shall contain (unless otherwise directed by at least
an 85% majority in interest of the Holders) substantially the “Plan of
Distribution” attached hereto as Annex A; provided that such
Plan of Distribution section of the Registration Statement shall be amended to
the extent required to respond to comments received by the Company from the
Commission.  Subject to the terms of this
Agreement, the Company shall use its commercially reasonable efforts to cause a
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
applicable Effectiveness Date, and shall use its commercially reasonable
efforts to keep such Registration Statement continuously effective under the Securities
Act until all Registrable Securities covered by such Registration Statement
have been sold, or may be sold without volume restrictions pursuant to Rule
144(k), as determined by the counsel to the Company pursuant to a written
opinion letter to such effect, addressed and acceptable to the Company’s
transfer agent and the affected Holders (the “Effectiveness Period”).  The Company shall request effectiveness of a
Registration Statement as of 5:00 p.m. New York City time on a Trading
Day.  The Company shall immediately
notify the Holders via electronic mail or facsimile of the effectiveness of a
Registration Statement on the same Trading Day that the Company telephonically
confirms effectiveness with the Commission, which shall be the date requested for
effectiveness of a Registration Statement. 
The Company shall, by 9:30 a.m. New York City time on the Trading Day
after the Effective Date (as defined in the Purchase Agreement), file a final
Prospectus with the Commission as required by Rule 424.  Failure to so notify the Holder within one
Trading Day of such notification of effectiveness or failure to file a final
Prospectus as aforesaid shall be deemed an Event under Section 2(b).

(b)           If: (i) a
Registration Statement is not filed on or prior to its Filing Date (if the
Company files a Registration Statement without affording the Holders the
opportunity to review and comment on the same as required by Section 3(a)
herein, the Company shall be deemed to have not satisfied this clause (i)), or
(ii) the Company fails to file with the Commission a request for acceleration
in accordance with Rule 461 promulgated under the Securities Act, within five
Trading Days of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that a Registration Statement will not
be “reviewed,” or not subject to further review, or (iii) a Registration
Statement filed or required to be filed hereunder is not declared effective by
the Commission by its Effectiveness Date, or (iv) after the Effectiveness Date,
a Registration Statement ceases for any reason to remain continuously effective
as to all Registrable Securities for which it is required to be effective, or
the Holders are otherwise not permitted to utilize the Prospectus therein to resell
such Registrable Securities, for more than 10 consecutive calendar days or more
than an aggregate of 15 calendar days during any 12-month period (which need
not be consecutive calendar days) (any such failure or breach being referred to
as an “Event”,
and for purposes of clause (i) or (iii) the date on which such Event occurs, or
for purposes of clause (ii) the date on which such five Trading Day period is
exceeded, or for purposes of clause (iv) the date on which such 10 or 15
calendar day period, as applicable, is exceeded being referred to as “Event Date”), then, in
addition to any other rights the Holders may have hereunder or under applicable

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law, on each
such Event Date and on each monthly anniversary of each such Event Date (if the
applicable Event shall not have been cured by such date) until the applicable
Event is cured, the Company shall pay to each Holder an amount in cash, as
partial liquidated damages and not as a penalty, equal to 1% of the aggregate
purchase price paid by such Holder pursuant to the Purchase Agreement for any
Registrable Securities then held by such Holder.  The parties agree that (1) in no event shall
the Company be liable for liquidated damages under this Agreement in excess of
1% of the aggregate Subscription Amount of the Holders in any 30-day period and
(2) the maximum aggregate liquidated damages payable to a Holder under this
Agreement shall be twelve percent (12%) of the aggregate Subscription Amount
paid by such Holder pursuant to the Purchase Agreement. If the Company fails to
pay any partial liquidated damages pursuant to this Section in full within
seven days after the date payable, the Company will pay interest thereon at a
rate of 18% per annum (or such lesser maximum amount that is permitted to be
paid by applicable law) to the Holder, accruing daily from the date such
partial liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full. The partial liquidated damages pursuant to the terms
hereof shall apply on a daily pro-rata basis for any portion of a month prior
to the cure of an Event.

3.             Registration Procedures

In connection with the
Company’s registration obligations hereunder, the Company shall:

(a)           Not less than five
Trading Days prior to the filing of each Registration Statement and not less
than one Trading Day prior to the filing of any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), (i) furnish to
each Holder copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders (provided, however, as
to any related Prospectus, amendment or supplement thereto proposed to be
filed, the Company shall only be required to provide the Holders with copies of
such documents prior to the filing thereof to the extent there are changes to
the Selling Stockholder table or Plan of Distribution contained therein from
such sections included in the initial Registration Statement filed hereunder),
and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be
necessary, in the reasonable opinion of respective counsel to each Holder, to
conduct a reasonable investigation within the meaning of the Securities
Act.  The Company shall not file a
Registration Statement or any such Prospectus or any amendments or supplements
thereto to which the Holders of a majority of the Registrable Securities shall
reasonably object in good faith, provided that, the Company is notified of such
objection in writing no later than three Trading Days after the Holders have
been so furnished copies of a Registration Statement or one Trading Day after
the Holders have been so furnished copies of any related Prospectus or
amendments or supplements thereto.  Each
Holder agrees to furnish to the Company a completed questionnaire in the form
attached to this Agreement as Annex B (a “Selling Shareholder Questionnaire”)
not less than three Trading Days prior to the Filing Date or

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by the end of
the third Trading Day following the date on which such Holder receives draft
materials in accordance with this Section.

(b)           (i) Prepare and file
with the Commission such amendments, including post-effective amendments, to a
Registration Statement and the Prospectus used in connection therewith as may
be necessary to keep a Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement (subject to the terms of this Agreement), and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond as
promptly as reasonably possible to any comments received from the Commission
with respect to a Registration Statement or any amendment thereto and provide
as promptly as reasonably possible to the Holders true and complete copies of
all correspondence from and to the Commission relating to a Registration Statement
(provided that the Company may excise any information contained therein which
would constitute material non-public information as to any Holder which has not
executed a confidentiality agreement with the Company); and (iv) comply in
all material respects with the provisions of the Securities Act and the
Exchange Act applicable to the Company with respect to the disposition of all
Registrable Securities covered by a Registration Statement during the
applicable period in accordance (subject to the terms of this Agreement) with
the intended methods of disposition by the Holders thereof set forth in such
Registration Statement as so amended or in such Prospectus as so supplemented.

(c)           [RESERVED]

(d)           Notify the Holders
of Registrable Securities to be sold (which notice shall, pursuant to clauses
(iii) through (vi) hereof, be accompanied by an instruction to suspend the use
of the Prospectus until the requisite changes have been made) as promptly as
reasonably possible (and, in the case of (i)(A) below, not less than one
Trading Day prior to such filing) and (if requested by any such Person) confirm
such notice in writing no later than one Trading Day following the day:  (i)(A) when a Prospectus or any Prospectus supplement
or post-effective amendment to a Registration Statement is proposed to be
filed; (B) when the Commission notifies the Company whether there will be a “review”
of such Registration Statement and whenever the Commission comments in writing
on such Registration Statement; and (C) with respect to a Registration
Statement or any post-effective amendment thereto, when the same has become
effective; (ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to a Registration Statement
or Prospectus or for additional information related thereto; (iii) of the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of a Registration Statement
covering any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; (v) of the occurrence of any

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event or
passage of time that makes the financial statements included in a Registration
Statement ineligible for inclusion therein or any statement made in a
Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; and (vi) the occurrence or existence of any pending
corporate development with respect to the Company that the Company believes may
be material and that, in the determination of the Company, makes it not in the
best interest of the Company to allow continued availability of a Registration
Statement or Prospectus, provided that any and all of such information shall
remain confidential to each Holder until such information otherwise becomes
public, unless disclosure by a Holder is required by law; provided, further,
that notwithstanding each Holder’s agreement to keep such information
confidential, the Holders make no acknowledgement that any such information is
material, non-public information.

(e)           Use its commercially
reasonable efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.

(f)            If requested by a
Holder, furnish to each Holder, without charge, at least one conformed copy of
each such Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Holder, and
all exhibits to the extent requested by such Holder (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.

(g)           Subject to the terms
of this Agreement, the Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto, except after the
giving of any notice pursuant to Section 3(d).

(h)           If NASDR Rule 2710
requires any broker-dealer to make a filing prior to executing a sale by a
Holder, the Company shall (i) make an Issuer Filing with the NASDR, Inc.
Corporate Financing Department pursuant to proposed NASDR Rule
2710(b)(10)(A)(i), (ii) respond within five Trading Days to any comments
received from NASDR in connection therewith, and (iii) pay the filing fee
required in connection therewith.

(i)            Prior to any resale
of Registrable Securities by a Holder, use its commercially reasonable efforts
to register or qualify or cooperate with the selling

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Holders in
connection with the registration or qualification (or exemption from the
Registration or qualification) of such Registrable Securities for the resale by
the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing and if required
by law, to keep each registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and all other acts or
things reasonably necessary to enable the disposition in such jurisdictions of
the Registrable Securities covered by each Registration Statement; provided,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified, subject the Company to any
material tax in any such jurisdiction where it is not then so subject or file a
general consent to service of process in any such jurisdiction.

(j)            If requested by the
Holders, cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may reasonably request.

(k)           Upon the occurrence
of any event contemplated by this Section 3, as promptly as reasonably possible
under the circumstances taking into account the Company’s good faith assessment
of any adverse consequences to the Company and its stockholders of the
premature disclosure of such event, prepare a supplement or amendment,
including a post-effective amendment, to a Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  If the Company notifies
the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above
to suspend the use of any Prospectus until the requisite changes to such
Prospectus have been made, then the Holders shall suspend use of such
Prospectus.  The Company will use its
best efforts to ensure that the use of the Prospectus may be resumed as
promptly as is practicable.  The Company
shall be entitled to exercise its right under this Section 3(k) to suspend the
availability of a Registration Statement and Prospectus, subject to the payment
of partial liquidated damages pursuant to Section 2(b), for a period not to
exceed 60 calendar days (which need not be consecutive days) in any 12 month
period.

(l)            During the
Effectiveness Period, comply with all applicable rules and regulations of the
Commission that are applicable to the Company.

(m)          The Company may
require each selling Holder to furnish to the Company a certified statement as
to the number of shares of Common Stock beneficially owned by such Holder and,
if required by the Commission, the natural persons thereof that have voting and
dispositive control over the Shares. 
During any periods that the Company is unable to meet its obligations
hereunder with respect to the registration of the Registrable

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Securities
solely because any Holder fails to furnish such information within three
Trading Days of the Company’s request or a completed Selling Shareholder
Questionnaire as described in Section 3(a) above, any liquidated damages that
are accruing at such time as to such Holder only shall be tolled and any Event
that may otherwise occur solely because of such delay shall be suspended as to
such Holder only, until such information and/or questionnaire is delivered to
the Company, and the Company shall be permitted to exclude such Holder from the
Registration Statement, provided that as soon as such information and/or
questionnaire is furnished, the Company shall use its best efforts to include
such Holder on the Registration Statement after filing.

4.             Registration
Expenses.  All fees and expenses
incident to the performance of or compliance with this Agreement by the Company
shall be borne by the Company whether or not any Registrable Securities are
sold pursuant to a Registration Statement. 
The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses) (A) with respect to filings required to
be made with any Trading Market on which the Common Stock is then listed for
trading, (B) in compliance with applicable state securities or Blue Sky
laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection
with Blue Sky qualifications or exemptions of the Registrable Securities) and
(C) if not previously paid by the Company in connection with an Issuer Filing,
with respect to any filing that may be required to be made by any broker
through which a Holder intends to make sales of Registrable Securities with
NASD Regulation, Inc. pursuant to the NASD Rule 2710, so long as the broker is
receiving no more than a customary brokerage commission in connection with such
sale, (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities, (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company,
(v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement.  In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.  In no event shall the Company be responsible
for any broker or similar commissions of any Holder or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of the
Holders.

5.             Indemnification.

(a)           Indemnification
by the Company.  The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, members, partners, agents and employees
(and any other Persons with a functionally equivalent role of a Person holding
such titles, notwithstanding a lack of such title or any other title) of each
of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, members, shareholders, partners, agents and employees (and
any other Persons with a functionally equivalent role of a Person holding such
titles,

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notwithstanding
a lack of such title or any other title) of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
reasonable attorneys’ fees) and expenses (collectively, “Losses”), as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review, arising out of or relating to (1) any untrue or alleged
untrue statement of a material fact contained in a Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which they
were made) not misleading, or (2) any violation or alleged violation by
the Company of the Securities Act, Exchange Act or any state securities law, or
any rule or regulation thereunder, in connection with the performance of its
obligations under this Agreement, except, in each case, to the extent, but only
to the extent, that (i) such untrue statements or omissions or alleged untrue
statements or omissions are based upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
or to the extent that such information relates to such Holder or such Holder’s
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in a
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto (it being understood that the Holder has
approved Annex A hereto for this purpose), (ii) in the case of an occurrence of
an event of the type specified in Section 3(d)(iii)-(vi), the use by such
Holder of an outdated or defective Prospectus after the Company has notified
such Holder in writing that the Prospectus is outdated or defective and prior
to the receipt by such Holder of the Advice contemplated in Section 6(d) or
(iii) such Holder engaged in wilfull misconduct.  The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding arising from or in
connection with the transactions contemplated by this Agreement of which the
Company is aware.

(b)           Indemnification
by Holders.  Each Holder shall,
severally and not jointly, indemnify and hold harmless the Company, its
directors, officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from
and against all Losses, as incurred, to the extent arising out of or based
upon:  (x) such Holder’s failure to
comply with the prospectus delivery requirements of the Securities Act or (y)
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, any Prospectus, or any form of prospectus, or in any
amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading (i) to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing
by such Holder to the Company specifically for inclusion in such Registration
Statement or such Prospectus or (ii) to the extent that such information
relates to such Holder’s proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in a

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Registration
Statement (it being understood that the Holder has approved Annex A
hereto for this purpose), such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (iii) in the case of an occurrence of an
event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder
of an outdated or defective Prospectus after the Company has notified such
Holder in writing that the Prospectus is outdated or defective and prior to the
receipt by such Holder of the Advice contemplated in Section 6(d).  In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

(c)           Conduct of
Indemnification Proceedings.  If any
Proceeding shall be brought or asserted against any Person entitled to
indemnity hereunder (an “Indemnified Party”), such Indemnified Party
shall promptly notify the Person from whom indemnity is sought (the “Indemnifying
Party”) in writing, and the Indemnifying Party shall have the right to
assume the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees and expenses
incurred in connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless:  (1) the Indemnifying
Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying
Party shall have failed promptly to assume the defense of such Proceeding and
to employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and counsel to the Indemnified Party shall reasonably believe that a
material conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
the reasonable fees and expenses of no more than one separate counsel shall be
at the expense of the Indemnifying Party). 
The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not
be unreasonably withheld.  No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any Indemnified
Party is a party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability on claims that are the subject matter
of such Proceeding.

Subject to the terms of this Agreement, all reasonable fees and
expenses of the Indemnified Party (including reasonable fees and expenses to
the extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not

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inconsistent with this Section) shall be paid to the Indemnified Party,
as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party, provided that the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is judicially determined
to be not entitled to indemnification hereunder.

(d)           Contribution.  If the indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party or insufficient to hold an
Indemnified Party harmless for any Losses, then each Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission.  The
amount paid or payable by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in this Agreement, any reasonable
attorneys’ or other reasonable fees or expenses incurred by such party in
connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.

The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph.  Notwithstanding the
provisions of this Section 5(d), no Holder shall be required to contribute, in
the aggregate, any amount in excess of the amount by which the proceeds
actually received by such Holder from the sale of the Registrable Securities
subject or giving rise to the Proceeding exceeds the amount of any damages that
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, except in the case of
fraud by such Holder.

The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

6.             Miscellaneous.

(a)           Remedies.  In the event of a breach by the Company or by
a Holder of any of their respective obligations under this Agreement, each
Holder or the Company, as the case may be, in addition to being entitled to
exercise all rights granted by law and under this Agreement, including recovery
of damages, shall be entitled to specific performance of its rights under this
Agreement.  The Company and each Holder
agree that monetary 

 11
 

 

 

damages would
not provide adequate compensation for any losses incurred by reason of a breach
by it of any of the provisions of this Agreement and hereby further agrees
that, in the event of any action for specific performance in respect of such
breach, it shall not assert or shall waive the defense that a remedy at law
would be adequate.

(b)           No Piggyback on
Registrations.  Except as set forth
on Schedule 6(b) attached hereto, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the initial Registration Statement other
than the Registrable Securities.  The
Company shall not file any other registration statements until the initial
Registration Statement required hereunder is declared effective by the
Commission, provided that this Section 6(b) shall not prohibit the Company from
filing amendments to registration statements filed prior to the date of this
Agreement, and provided, further, that the Company shall be
permitted to file one or more registration statements on Form S-8 (relating to
securities offered pursuant to the Company’s employee benefit plans) or Form
S-4 (relating to securities issued in connection with a business combination).

(c)           Compliance.  Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
a Registration Statement.

(d)           Discontinued
Disposition.  By its acquisition of
Registrable Securities, each Holder agrees that, upon receipt of a notice from
the Company of the occurrence of any event of the kind described in Section
3(d), such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until it is advised in writing (the “Advice”)
by the Company that the use of the applicable Prospectus (as it may have been
supplemented or amended) may be resumed. 
The Company will use commercially reasonable efforts to ensure that the
use of the Prospectus may be resumed as promptly as is practicable.  The Company agrees and acknowledges that any
periods during which the Holder is required to discontinue the disposition of
the Registrable Securities hereunder shall be subject to the provisions of
Section 2(b).

(e)           Piggy-Back Registrations.  If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the stock option or other
employee benefit plans, then the Company shall send to each Holder a written
notice of such determination and, if within fifteen days after the date of such
notice, any such Holder shall so request in writing, the Company shall include
in such registration statement all or any part of such Registrable Securities
such Holder requests to be registered; provided, however, that,
the Company shall not be required to register any Registrable Securities
pursuant to

 12
 

 

 

this Section
6(e) that are eligible for resale pursuant to Rule 144(k) promulgated under the
Securities Act or that are the subject of a then effective Registration
Statement.

(f)            Amendments and Waivers.  The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and each
Holder of the then-outstanding Registrable Securities.  Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of all of the
Registrable Securities to which such waiver or consent relates; provided,
however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.

(g)           Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be delivered
as set forth in the Purchase Agreement.

(h)           Successors and Assigns. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties and shall inure to the benefit of each
Holder. The Company may not assign its rights (except by merger) or obligations
hereunder without the prior written consent of all of the Holders of the
then-outstanding Registrable Securities. Each Holder may assign their
respective rights hereunder in the manner and to the Persons as permitted under
the Purchase Agreement.

(i)            No Inconsistent Agreements.  Neither the Company nor any of its
Subsidiaries has entered, as of the date hereof, nor shall the Company or any
of its Subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities, that would directly conflict with the
provisions hereof.  Except as set forth
on Schedule 6(b), neither the Company nor any of its subsidiaries has
previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person that have not been satisfied in
full or waived.

(j)            Execution and
Counterparts.  This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party,
it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered
by facsimile transmission or by e-mail delivery of a “.pdf” format data file,
such signature shall create a valid and binding obligation of the party
executing (or on whose behalf such signature is executed) with the same force
and effect as if such facsimile or “.pdf” signature page were an original
thereof.

 13
 

 

 

(k)           Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be determined
in accordance with the provisions of the Purchase Agreement.

(l)            Cumulative
Remedies.  The remedies provided
herein are cumulative and not exclusive of any other remedies provided by law.

(m)          Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their commercially reasonable efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or restriction.  It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.

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

(o)           Additional
Holders.  Notwithstanding anything to
the contrary contained herein, if the Company shall issue additional
Registrable Securities pursuant to the Purchase Agreement, any purchaser of
such Registrable Securities may become a party to this Agreement by executing
and delivering an additional counterpart signature page to this Agreement and
shall be deemed a “Purchaser,” a “Holder” and a party hereunder.

(p)           Independent
Nature of Holders’ Obligations and Rights. 
The obligations of each Holder hereunder are several and not joint with
the obligations of any other Holder hereunder, and no Holder shall be
responsible in any way for the performance of the obligations of any other
Holder hereunder.  Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to
constitute the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in any way
acting in concert with respect to such obligations or the transactions
contemplated by this Agreement.  Each
Holder shall be entitled to protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not be necessary
for any other Holder to be joined as an additional party in any proceeding for
such purpose.

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 

 14

IN WITNESS WHEREOF, the
parties have executed this Registration Rights Agreement as of the date first
written above.

	
  

  	
  IMAGEWARE SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. James Miller

  
	
   

  	
   

  	
  Name:

  	
  S. James Miller

  
	
   

  	
   

  	
  Title:

  	
  Chairman & CEO

  

 

 

[SIGNATURE PAGE OF
HOLDERS FOLLOWS]

 

 

[SIGNATURE PAGE OF
HOLDERS TO REGISTRATION RIGHTS AGREEMENT]

	
  Name of Holder:

  	
   

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of Holder:

  	
   

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
   

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
   

  	
   

  
							

 

 

[SIGNATURE PAGES
CONTINUE]

 16
 

 

 

ANNEX A

Plan of Distribution

Each Selling Stockholder
(the “Selling Stockholders”) of the common stock and any of their
pledgees, assignees and successors-in-interest may, from time to time, sell any
or all of their shares of common stock on the American Stock Exchange or any
other stock exchange, market or trading facility on which the shares are traded
or in private transactions.  These sales
may be at fixed or negotiated prices.  A
Selling Stockholder may use any one or more of the following methods when
selling shares:

·                  ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

·                  block
trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;

·                  purchases
by a broker-dealer as principal and resale by the broker-dealer for
its account;

·                  an
exchange distribution in accordance with the rules of the applicable exchange;

·                  privately
negotiated transactions;

·                  settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part;

·                  broker-dealers
may agree with the Selling Stockholders to sell a specified number of such shares
at a stipulated price per share;

·                  through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise; 

·                  a
combination of any such methods of sale; or

·                  any
other method permitted pursuant to applicable law.

The Selling Stockholders
may also sell shares under Rule 144 under the Securities Act of 1933, as
amended (the “Securities Act”), if available, rather than under this
prospectus.

Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers
to participate in sales.  Broker-dealers
may receive commissions or discounts from the Selling Stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated, but, except as set forth in a
supplement to this Prospectus, in the case of an agency transaction not in
excess of a customary brokerage commission in compliance with NASDR Rule 2440;
and in the case of a principal transaction a markup or markdown in compliance
with NASDR IM-2440.  

 17
 

 

 

In connection with the
sale of the common stock or interests therein, the Selling Stockholders may
enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the Common Stock in
the course of hedging the positions they assume.  The Selling Stockholders may also sell shares
of the common stock short and deliver these securities to close out their short
positions entered into after the effective date of the registration statement
of which this prospectus is a part, or loan or pledge the common stock to
broker-dealers that in turn may sell these securities.  The Selling Stockholders may also enter into
option or other transactions with broker-dealers or other financial
institutions or the creation of one or more derivative securities which require
the delivery to such broker-dealer or other financial institution of shares
offered by this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction).

The Selling Stockholders
and any broker-dealers or agents that are involved in selling the shares may be
deemed to be “underwriters” within the meaning of the Securities Act in
connection with such sales.  In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.  Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.  In no event shall any broker-dealer receive
fees, commissions and markups which, in the aggregate, would exceed eight
percent (8%).

The Company is required
to pay certain fees and expenses incurred by the Company incident to the
registration of the shares.  The Company
has agreed to indemnify the Selling Stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act.  

Because Selling
Stockholders may be deemed to be “underwriters” within the meaning of the
Securities Act, they will be subject to the prospectus delivery requirements of
the Securities Act including Rule 172 thereunder.  In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus.  There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
Selling Stockholders.

We agreed to keep this
prospectus effective until the earlier of (i) the date on which the shares may
be resold by the Selling Stockholders without registration and without regard
to any volume limitations by reason of Rule 144(k) under the Securities Act or
any other rule of similar effect or (ii) all of the shares have been sold
pursuant to this prospectus or Rule 144 under the Securities Act or any other
rule of similar effect.  The resale
shares will be sold only through registered or licensed brokers or dealers if
required under applicable state securities laws.  In addition, in certain states, the resale shares
may not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

Under applicable rules
and regulations under the Exchange Act, any person engaged in the distribution
of the resale shares may not simultaneously engage in market making activities 

 18
 

 

 

with respect to
the common stock for the applicable restricted period, as defined in
Regulation M, prior to the commencement of the distribution.  In addition, the Selling Stockholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M, which may limit the timing of purchases
and sales of shares of the common stock by the Selling Stockholders or any
other person.  We will make copies of
this prospectus available to the Selling Stockholders and have informed them of
the need to deliver a copy of this prospectus to each purchaser at or prior to
the time of the sale (including by compliance with Rule 172 under the
Securities Act). 

 19
 

 

 

Annex B

IMAGEWARE SYSTEMS, INC.

Selling Securityholder Notice and Questionnaire

The undersigned beneficial owner of common stock (the “Registrable
Securities”) of ImageWare Systems, Inc., a Delaware corporation (the “Company”),
understands that the Company has filed or intends to file with the Securities
and Exchange Commission (the “Commission”) a registration statement (the
“Registration Statement”) for the registration and resale under Rule 415
of the Securities Act of 1933, as amended (the “Securities Act”), of the
Registrable Securities, in accordance with the terms of the Registration Rights
Agreement (the “Registration Rights Agreement”) to which this document
is annexed.  A copy of the Registration
Rights Agreement is available from the Company upon request at the address set
forth below.  All capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the Registration
Rights Agreement.

Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.  Accordingly, holders and beneficial owners of
Registrable Securities are advised to consult their own securities law counsel
regarding the consequences of being named or not being named as a selling
securityholder in the Registration Statement and the related prospectus.

NOTICE

The undersigned beneficial owner (the “Selling Securityholder”)
of Registrable Securities hereby elects to include the Registrable Securities
owned by it in the Registration Statement.

 

 20
 

 

 

The undersigned hereby provides the following
information to the Company and represents and warrants that such information is
accurate:

 

QUESTIONNAIRE

1.                                      Name.

(a)           Full Legal Name of
Selling Securityholder

 

(b)                                 Full Legal Name
of Registered Holder (if not the same as (a) above) through which Registrable
Securities are held:

 

(c)                                  Full Legal Name
of Natural Control Person (which means a natural person who directly or
indirectly alone or with others has power to vote or dispose of the securities
covered by the questionnaire):

 

2.  Address for Notices to Selling
Securityholder:

	
  

  
	
   

  
	
   

  
	
  Telephone:

  
	
  Fax:

  
	
  Contact Person:

  

 

3.  Broker-Dealer
Status:

(a)                                  Are you a
broker-dealer?

Yes   o
           No   o

 

(b)                                 If “yes” to
Section 3(a), did you receive your Registrable Securities as compensation for
investment banking services to the Company?

Yes   o
           No   o

 21
 

 

 

Note:                   If “no”, the Commission’s
staff has indicated that you should be identified as an underwriter in the
Registration Statement.

(c)                                  Are you an
affiliate of a broker-dealer?

Yes   o
           No   o

(d)                                 If you are an
affiliate of a broker-dealer, do you certify that you bought the Registrable
Securities in the ordinary course of business, and at the time of the purchase
of the Registrable Securities to be resold, you had no agreements or
understandings, directly or indirectly, with any person to distribute the
Registrable Securities?

Yes   o
           No   o

Note:                   If “no”, the Commission’s
staff has indicated that you should be identified as an underwriter in the
Registration Statement.

4.  Beneficial Ownership of Other Securities of
the Company Owned by the Selling Securityholder.

Except as set forth below in this Item 4, the
undersigned is not the beneficial or registered owner of any securities of the
Company other than the securities issuable pursuant to the Purchase Agreement.

(a)                                  Type and Amount
of other securities beneficially owned by the Selling Securityholder:

 

5.  Relationships with the Company:

Except as set forth below, neither the undersigned
nor any of its affiliates, officers, directors or principal equity holders
(owners of 5% of more of the equity securities of the undersigned) has held any
position or office or has had any other material relationship with the Company
(or its predecessors or affiliates) during the past three years.

State any exceptions here:

 

 22
 

 

 

The undersigned agrees to promptly notify the Company of any
inaccuracies or changes in the information provided herein that may occur
subsequent to the date hereof at any time while the Registration Statement
remains effective.

By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 5 and the
inclusion of such information in the Registration Statement and the related
prospectus and any amendments or supplements thereto.  The undersigned understands that such
information will be relied upon by the Company in connection with the
preparation or amendment of the Registration Statement and the related
prospectus.

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.

	
  Dated:

  	
   

  	
   

  	
   

  	
  Beneficial Owner:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
							

 

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE
AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 23Exhibit 10.3

 

NEITHER THIS
SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE
UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

IMAGEWARE
SYSTEMS, INC.

 

	
  Warrant
  Shares: [         ]

  	
   

  	
   

  	
   

  	
  Initial Exercise Date: May 14, 2007

  
	
  Warrant No. 06-[     ]

  	
   

  	
   

  	
   

  	
  Issue Date: November 14,
  2006

  

 

THIS COMMON STOCK PURCHASE
WARRANT (the “Warrant”) certifies that, for value received, [             ]
(the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after the six month anniversary of the date hereof (the “Initial
Exercise Date”) and on or prior to the close of business on the 5 year
anniversary of the Initial Exercise Date (the “Termination Date”) but
not thereafter, to subscribe for and purchase from ImageWare Systems, Inc., a
Delaware corporation (the “Company”), up to [             ]
shares (the “Warrant Shares”) of common stock, par value $0.01 per
share, of the Company (the “Common Stock”).  The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price, as defined in
Section 2(b).

Section 1.                                            Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated November 14, 2006, among
the Company and the purchasers signatory thereto.

Section
2.                                            Exercise.

a)                                      Exercise
of Warrant.  Exercise of the purchase
rights represented by this Warrant may be made, in whole or in part, at any
time or times on or after the Initial Exercise Date and on or before the
Termination Date by delivery to the Company of a duly executed facsimile copy
of the Notice of Exercise Form annexed 
hereto (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder at the address of such
Holder appearing on the books of the Company); and, within 3 Trading Days of
the date said Notice of Exercise is delivered to the

 1
 

 

Company, the Company shall have received  payment of the aggregate Exercise Price of
the shares thereby purchased by wire transfer or cashier’s check drawn on a
United States bank.  Notwithstanding
anything herein to the contrary, the Holder shall not be required to physically
surrender this Warrant to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been exercised in full,
in which case, the Holder shall surrender this Warrant to the Company for
cancellation within 3 Trading Days of the date the final Notice of Exercise is
delivered to the Company.  Partial
exercises of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect of lowering
the outstanding number of Warrant Shares purchasable hereunder in an amount
equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain
records showing the number of Warrant Shares purchased and the date of such
purchases.  The Company shall deliver any
objection to any Notice of Exercise Form within 1 Business Day of receipt of
such notice.  The Holder and any
assignee, by acceptance of this Warrant, acknowledge and agree that, by reason
of the provisions of this paragraph, following the purchase of a portion of the
Warrant Shares hereunder, the number of Warrant Shares available for purchase
hereunder at any given time may be less than the amount stated on the face
hereof.

b)                                     Exercise Price.  The exercise price per share of the Common
Stock under this Warrant shall be $1.575, subject to adjustment hereunder (the
“Exercise Price”).

c)                                      Cashless
Exercise.  If at any time after one
year from the date of issuance of this Warrant there is no effective
Registration Statement registering, or no current prospectus available for, the
resale of the Warrant Shares by the Holder, then this Warrant may also be
exercised at such time by means of a “cashless exercise” in which the Holder
shall be entitled to receive a certificate for the number of Warrant Shares
equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 (A) = the VWAP on the Trading Day immediately
preceding the date of such election;

 

(B) =  the Exercise Price of this Warrant, as
adjusted; and 

 

(X) =  the number of Warrant Shares issuable upon
exercise of this Warrant in accordance with the terms of this Warrant by means
of a cash exercise rather than a cashless exercise.

 

Notwithstanding anything
herein to the contrary, on the Termination Date, this Warrant shall be
automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d)                                     Trading
Market Restrictions.  If the Company
has not obtained Shareholder Approval, then the Company may not issue upon
exercise of this Warrant a
number of shares of Common Stock, which, when aggregated with any shares of
Common Stock issued (A) upon conversion of or as payment of dividends on the
Preferred Stock issued pursuant to the
Purchase Agreement, (B) upon
prior exercise of

 2
 

 

this or any other Warrant issued pursuant to the Purchase Agreement and
(C) pursuant to any warrants issued to any registered broker-dealer as a fee in
connection with the Securities pursuant to the Purchase Agreement, would
exceed 2,724,000, subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the
Common Stock that occur after the date of the Purchase Agreement (such number
of shares, the “Issuable Maximum”).  The Holder and the holders of the other Warrants
issued pursuant to the Purchase Agreement shall be entitled to a portion of the
Issuable Maximum equal to the product of (I) and (II) where (I) is equal to the
Issuable Maximum and (II) is the quotient obtained by dividing (x) such
Holder’s original Subscription Amount by (y) the aggregate original
Subscription Amount of all holders pursuant to the Purchase Agreement. In
addition, the Holder may allocate its pro-rata portion of the Issuable Maximum
among Preferred Stock and Warrants held by it in its sole discretion. Such
portion shall be adjusted upward ratably in the event a Purchaser no longer
holds any Preferred Stock or Warrants and the amount of shares issued to such
Purchaser pursuant to its Preferred Stock and Warrants was less than such
Purchaser’s pro-rata share of the Issuable Maximum.  For avoidance of doubt, unless and
until any required Shareholder Approval is obtained and effective, warrants
issued to any registered broker-dealer as a fee in connection with the
Securities issued pursuant to the Purchase Agreement as described in (C) above
shall provide that such warrants shall not be allocated any portion of the
Issuable Maximum and shall be unexercisable unless and until such Shareholder
Approval is obtained and effective.

 

e)                                      Mechanics
of Exercise.

 

i.                  Authorization
of Warrant Shares.  The Company
covenants that all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges created by
the Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).

 

ii.               Delivery
of Certificates Upon Exercise. 
Certificates for shares purchased hereunder shall be transmitted by the
transfer agent of the Company to the Holder by crediting the account of the
Holder’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (“DWAC”) system if the Company is a
participant in such system, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise within 3 Trading Days from
the delivery to the Company of the Notice of Exercise Form, surrender of this
Warrant (if required) and payment of the aggregate Exercise Price as set forth
above (“Warrant Share Delivery Date”). 
This Warrant shall be deemed to have been exercised on the date the
Exercise Price is received by the Company. 
The Warrant Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed to have
become a holder of record of such

 3
 

 

shares for all
purposes, as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price (or by cashless exercise, if permitted) and all
taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vii)
prior to the issuance of such shares, have been paid.

 

iii.            Delivery
of New Warrants Upon Exercise.  If
this Warrant shall have been exercised in part, the Company shall, at the
request of a Holder and upon surrender of this Warrant certificate, at the time
of delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant.

iv.           Rescission
Rights.  If the Company fails to
cause its transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this Section 2(e)(iv)
by the Warrant Share Delivery Date, then the Holder will have the right to
rescind such exercise.

v.              Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Exercise.  In addition to any other rights available to
the Holder, if the Company fails to cause its transfer agent to transmit to the
Holder a certificate or certificates representing the Warrant Shares pursuant
to an exercise on or before the Warrant Share Delivery Date, and if after such
date the Holder is required by its broker to purchase (in an open market
transaction or otherwise) or the Holder’s brokerage firm otherwise purchases,
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
the Warrant Shares which the Holder anticipated receiving upon such exercise (a
“Buy-In”), then the Company shall (1) pay in cash to the Holder the
amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (y)
the amount obtained by multiplying (A) the number of Warrant Shares that the
Company was required to deliver to the Holder in connection with the exercise
at issue times (B) the price at which the sell order giving rise to such
purchase obligation was executed, and (2) at the option of the Holder, either
reinstate the portion of the Warrant and equivalent number of Warrant Shares
for which such exercise was not honored or deliver to the Holder the number of
shares of Common Stock that would have been issued had the Company timely
complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In and, upon request of the

 4
 

 

Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant
as required pursuant to the terms hereof.

vi.           No
Fractional Shares or Scrip.  No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.

vii.        Charges,
Taxes and Expenses.  Issuance of
certificates for Warrant Shares shall be made without charge to the Holder for
any issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be paid by
the Company, and such certificates shall be issued in the name of the Holder or
in such name or names as may be directed by the Holder; provided, however,
that in the event certificates for Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto duly executed by
the Holder; and the Company may require, as a condition thereto, the payment of
a sum sufficient to reimburse it for any transfer tax incidental thereto.

viii.     Closing
of Books.  The Company will not close
its stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

Section
3.                                            Certain Adjustments.

a)                                      Stock
Dividends and Splits. If the Company, at any time while this Warrant is
outstanding: (A) pays a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance
of doubt, shall not include any shares of Common Stock issued by the Company
upon exercise of this Warrant), (B) subdivides outstanding shares of Common
Stock into a larger number of shares, (C) combines (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of
shares, or (D) issues by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then in each case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event and the
number of

 5
 

 

shares issuable
upon exercise of this Warrant shall be proportionately adjusted.  Any adjustment made pursuant to this Section
3(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of
a subdivision, combination or re-classification.

 

b)                                     Subsequent
Equity Sales. If the Company or any Subsidiary thereof, as applicable, at
any time while this Warrant is outstanding, shall sell or grant any option to
purchase or sell or grant any right to reprice its securities, or otherwise
dispose of or issue (or announce any offer, sale, grant or any option to
purchase or other disposition) any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock, at an effective price
per share less than the then Exercise Price (such lower price, the “Base
Share Price” and such issuances collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which are issued in connection
with such issuance, be entitled to receive shares of Common Stock at an
effective price per share which is less than the Exercise Price, such issuance
shall be deemed to have occurred for less than the Exercise Price on such date
of the Dilutive Issuance), then the Exercise Price shall be reduced and only
reduced to equal the Base Share Price. 
Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued.  Notwithstanding
the foregoing, no adjustments shall be made, paid or issued under this Section
3(b) in respect of an Exempt Issuance. 
The Company shall notify the Holder in writing, no later than the
Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 3(b), indicating therein the applicable
issuance price, or applicable reset price, exchange price, conversion price and
other pricing terms (such notice the “Dilutive Issuance Notice”).  For purposes of clarification, whether or not
the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b),
upon the occurrence of any Dilutive Issuance, after the date of such Dilutive
Issuance the Holder is entitled to receive a number of Warrant Shares based
upon the Base Share Price regardless of whether the Holder accurately refers to
the Base Share Price in the Notice of Exercise.

c)                                      Subsequent
Rights Offerings.  If the Company, at
any time while the Warrant is outstanding, shall issue rights, options or
warrants to all holders of Common Stock (and not to Holders) entitling them to
subscribe for or purchase shares of Common Stock at a price per share less than
the VWAP at the record date mentioned below, then the Exercise Price shall be
multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights
or warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights
or warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered (assuming receipt by the Company in full of
all consideration payable upon exercise of such rights, options or warrants)
would purchase at such VWAP.  Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become

 6
 

 

effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants.

 

d)                                     Pro
Rata Distributions.  If the Company,
at any time prior to the Termination Date, shall distribute to all holders of
Common Stock (and not to Holders of the Warrants) evidences of its indebtedness
or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security other than the Common Stock (which shall
be subject to Section 3(b)), then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP
determined as of the record date mentioned above, and of which the numerator
shall be such VWAP on such record date less the then per share fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith.  In either case the adjustments shall be
described in a statement provided to the Holder of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock.  Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.

 

e)                                      Fundamental
Transaction. If, at any time while this Warrant is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “Fundamental Transaction”),
then, upon any subsequent exercise of
this Warrant, the Holder shall have the
right to receive, for each Warrant Share that would have been issuable upon
such exercise immediately prior to the occurrence of such Fundamental
Transaction, at the option of the Holder, (a)
upon exercise of this Warrant, the number of shares of Common Stock of the
successor or acquiring corporation or of the Company, if it is the surviving
corporation, and any additional consideration (the “Alternate
Consideration”) receivable upon or as a
result of such reorganization, reclassification, merger, consolidation or
disposition of assets by a Holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event or (b) if the
Company is acquired in an all cash transaction, cash equal to the value of this
Warrant as determined in accordance with the Black-Scholes option pricing
formula.  For purposes of any such
exercise, the determination of the Exercise Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Company shall apportion the Exercise Price
among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration.  If holders of Common Stock are

 7
 

 

given any choice
as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction.  To the extent
necessary to effectuate the foregoing provisions, any successor to the Company
or surviving entity in such Fundamental Transaction shall issue to the Holder a
new warrant consistent with the foregoing provisions and evidencing the
Holder’s right to exercise such warrant into Alternate Consideration. The terms
of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this Section 3(e) and insuring that this Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

 

f)                                        Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of
a given date shall be the sum of the number of shares of Common Stock
(excluding treasury shares, if any) issued and outstanding.

 

g)                                     Voluntary
Adjustment By Company. The Company may at any time during the term of this
Warrant reduce the then current Exercise Price to any amount and for any period
of time deemed appropriate by the Board of Directors of the Company.

 

h)                                     Notice
to Holder.

 

i.                  Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any
provision of this Section 3, the Company shall promptly mail to the Holder a
notice setting forth the Exercise Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment. If the Company enters
into a Variable Rate Transaction (as defined in the Purchase Agreement),
despite the prohibition thereon in the Purchase Agreement, the Company shall be
deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be converted
or exercised.

ii.               Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend
(or any other distribution in whatever form) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash dividend on or a redemption of
the Common Stock; (C) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common
Stock

 8
 

 

is converted into
other securities, cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; then, in each case, the Company shall cause to be mailed to the
Holder at its last address as it shall appear upon the Warrant Register of the
Company, at least 10 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is to
be taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.  The Holder is entitled to exercise this
Warrant during the 10-day period commencing on the date of such notice to the
effective date of the event triggering such notice; provided that in no event
shall the Holder be entitled to exercise this Warrant after the Termination
Date.

 

Section
4.                                            Transfer of Warrant.

a)                                      Transferability.  Subject to compliance with any applicable
securities laws and the conditions set forth in Section 4(d) hereof and to the
provisions of Section 4.1 of the Purchase Agreement, this Warrant and all
rights hereunder (including, without limitation, any registration rights) are
transferable only to an Affiliate of the Holder, in whole or in part, upon
surrender of this Warrant at the principal office of the Company or its
designated agent, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder or its
agent or attorney and funds sufficient to pay any transfer taxes payable upon
the making of such transfer.  Upon such
surrender and, if required, such payment, the Company shall execute and deliver
a new Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be cancelled.  A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without having a
new Warrant issued.

 

b)                                     New
Warrants. This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as
to any transfer which may be involved in such division or combination, the

 9
 

 

Company shall
execute and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.

 

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

d)                                     Transfer
Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant
shall not be registered pursuant to an effective registration statement under
the Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such transfer, that (i) the
Holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities
Act and under applicable state securities or blue sky laws, and (ii) the Holder
or transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company, and (iii) the transferee be an
“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or
(a)(8) promulgated under the Securities Act or a “qualified institutional
buyer” as defined in Rule 144A(a) promulgated under the Securities Act.

Section
5.                                            Miscellaneous.

a)                                      No
Rights as Shareholder Until Exercise. 
This Warrant does not entitle the Holder to any voting rights or other
rights as a shareholder of the Company prior to the exercise hereof as set
forth in Section 2(e)(ii).  

b)                                     Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which, in the case of the
Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)                                      Saturdays,
Sundays, Holidays, etc.  If the last
or appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a Business Day, then such action may be
taken or such right may be exercised on the next succeeding Business Day.

 10
 

 

d)                                     Authorized
Shares.

 

The Company covenants
that during the period the Warrant is outstanding, it will reserve from its
authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant.  The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant.  The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or of
any requirements of the Trading Market upon which the Common Stock may be
listed.  

Except and to the
extent as waived or consented to by the Holder, the Company shall not by any
action, including, without limitation, amending its certificate of incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant
against impairment.  Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of
any Warrant Shares above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the exercise of
this Warrant, and (c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

Before taking any
action which would result in an adjustment in the number of Warrant Shares for
which this Warrant is exercisable or in the Exercise Price, the Company shall
obtain all such authorizations or exemptions thereof, or consents thereto, as
may be necessary from any public regulatory body or bodies having jurisdiction
thereof.

e)                                      Jurisdiction.
All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

f)                                        Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.

g)                                     Nonwaiver
and Expenses.  No course of dealing
or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right

 11
 

 

or otherwise
prejudice Holder’s rights, powers or remedies, notwithstanding the fact that
all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails
to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys’ fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.

 

h)                                     Notices.  Any notice, request or other document
required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase
Agreement.

i)                                         Limitation
of Liability.  No provision hereof,
in the absence of any affirmative action by Holder to exercise this Warrant to
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of Holder, shall give rise to any liability of Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.

j)                                         Remedies.  Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive and not to
assert the defense in any action for specific performance that a remedy at law
would be adequate.

k)                                      Successors
and Assigns.  Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant and
shall be enforceable by any such Holder or holder of Warrant Shares.

l)                                         Amendment.  This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.

m)                                   Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

n)                                     Headings.
 The headings used in this Warrant are
for the convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.

********************

 12
 

 

 

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

 

 

	
  

  	
  IMAGEWARE SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 13

 

NOTICE OF EXERCISE

 

To:                            IMAGEWARE SYSTEMS,
INC.

 

(1)          The
undersigned hereby elects to purchase                   
Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.

(2)          Payment
shall take the form of (check applicable box):

o
in lawful money of the United States; or

o
[if permitted] the cancellation of such number of Warrant Shares as is necessary,
in accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)          Please issue a certificate
or certificates representing said Warrant Shares in the name of the undersigned
or in such other name as is specified below:

 

 

 

The Warrant Shares shall
be delivered to the following DWAC Account Number or by physical delivery of a
certificate to:

 

 

 

 

 

 

(4)   Accredited Investor.  The undersigned is an “accredited investor”
as defined in Regulation D promulgated under the Securities Act of 1933, as
amended.

 

[SIGNATURE OF HOLDER]

 

	
  Name of Investing Entity:

  	
   

  
	
  Signature of Authorized Signatory of Investing
  Entity:

  	
   

  
	
  Name of Authorized Signatory:

  	
   

  
	
  Title of Authorized Signatory:

  	
   

  
	
  Date:

  	
   

  
						

 

 

 

ASSIGNMENT FORM

 

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

 

 

 

FOR VALUE
RECEIVED, [       ] all of or [               ]
shares of the foregoing Warrant and all rights evidenced thereby are hereby
assigned to

 

	
  

  	
    whose address is

  
	
   

  	
   

  
	
   

  	
  .

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  	
  , 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Holder’s Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature Guaranteed:

  	
   

  	
   

  	
   

  
												

 

NOTE:  The signature to this Assignment Form must
correspond with the name as it appears on the face of the Warrant, without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank or trust company.  Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}]]